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How to break into a massive, untapped market, according to Viral Acharya

India’s underbanked market could offer small loans that can be repaid in tune with the borrower’s cash flow.

Updated: Sep 23, 2019, 08.34 PM IST
By Suvashree Ghosh

The solution to India’s underbanked market could be to offer small loans to the needy that can be repaid in tune with the borrower’s cash flow rather than enforcing monthly installments, Viral Acharya, a former deputy governor at the Reserve Bank of India, wrote in the Financial Times.

Highlighting the dichotomy of a massive economy -- Asia’s third-largest -- but one where living standards are still among the lowest in the world, Acharya suggested banks learn from shampoo makers who offer the product in low-cost sachets that can be bought by millions of poor people who can’t afford the entire bottle.

“As a central banker for India, I wondered if we could ‘sachetise’ finance to lift people out of poverty,” Acharya wrote. He cited the example of a farmer, who earns only after the harvest but who’s forced to repay loans throughout the year.

Acharya said that central bank-led efforts to build a public credit registry and account aggregator will help with much-needed customer data to help banks create such products. An account aggregator is a proposed new financial institution that manages how other financial institutions access your data, based on your consent.

“Making cash flow-based credit available to every Indian is our small solution to India’s big problem of financial exclusion,” Acharya said.

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