In episode 5 of Fintech-X podcast, Madhuri Arora is in conversation with Mr Anurag Jain, Co-Founder & COO, KredX, discussing how the re-elected government can further shape the existing policies and what is the scope of Digital India 2.O.

Madhuri- Welcome back to another episode of FinTech X, and today we have a very special guest with us – Mr Anurag Jain, co-founder and executive director at KredX – India’s leading cash flow solution provider to large corporates and SMEs in India. An IIT Kanpur alumnus, Anurag is a techie turned entrepreneur with 18 plus years of experience in the financial services sector. He has vast experience in driving business growth in companies like HSBC, Oracle, and Tavant technologies before co-founding KredX in 2015. He has deep knowledge in the financial aspect as well as the business aspect along with the technical aspect. Apart from that, you’re also part of a DLAI as a core member of the DLAI. So today, we will be discussing on the topic of SMEs and the government previously had an issue had come up with policies for SMEs and how they’ve affected SMEs what is the scope, along with Digital India in the picture? So, let’s start Anurag.

Anurag- Thanks, Madhuri. So I think as far as Narendra Modi his last term is concerned, it has been quite disruptive as far as the MSME reforms are concerned and you know, the initiatives around Digital India are concerned because a lot of new initiatives came out during the last term and a lot of these have actually been executed on ground so it has you know, they’ve not remained on paper and they’ve actually been executed on ground and which kind of is created sort of some disruption in the SME space. So, if you look at the primary schemes that came up during the last term, I think, you know, I think I should definitely mention about the MUDRA scheme(Pradhan Mantri Mudra Yojna) which is essentially a scheme wherein an entrepreneur or an SME can get a loan up to 10 lakhs without any kind of collateral without any kind of you know, property lien or any kind of other security deposit and they can use it for different purposes. So, the way it works is so it is basically classified into three categories I mean, so one is the Shishu category, okay, we’re in you can use this particular scheme to get loans up to 50,000. Beyond that from 50,000 to five lakhs, you have a Kishore category, which is where we look at you know, if you have any kind of medical needs or any urgent you know, needs for your business, you can aim for it, then you have Tarun scheme done kind of category where and you can get up loans up to 10 Lakhs. The scheme has gone down to the last mile because if you look at the latest numbers, the MUDRA scheme has disbursed loans close to 8,90,000 crores since the time it started and it is a very, very big number. I think that that has been one of the most disruptive schemes that have come out on the MSME side. Apart from that, there were a couple of others, which, you know, turned out to be very useful for the SMEs, especially for the GST compliant MSMEs. So MSMEs registered themselves under the GST, and are complying with the GST laws and regulations, they were able to actually get a rebate of 2% on the loans. So you know, that that has turned out to be a good incentive for people to actually look at, you know, being compliant with GST and sort of adhering to the laws so that a, it actually is increasing your indirect tax base, because more and more people are coming into GST because of the incentives that they’re getting, because of the kind of benefits that the government is providing to GST compliant businesses.
On the other hand, this money that is being collected through the indirect taxes is being routed back to sort of bring out more schemes to be able to take the financial inclusion to the last mile. So those were the two-three things. And apart from that, one other thing that the government has done around the sourcing of material and sourcing of industrial supplies is to come up with the government e-marketplace. What that means is all the sourcing of all the material for all the public sector banks, and you know, the central government entities will be done through a common online portal. So, the way it helps is that you are able to get or source these materials in bulk, and you’re able to get the best rate. So instead of asking for the RFP for each and every purchase order that you are rolling out in the market, you are basically aggregating the old demand and putting it in front of the manufacturers or you know, the industries so that you are able to get the best rate. So that ends up saving a lot of money for most of these public sector entities. And also, it basically brings about a lot of transparency in the whole process. So, you don’t see, you know, any more corruption in the tendering process? Everything is online, right? And whoever is giving the best rate is able to, you know, get those standards. Yeah. Those one more initiative, wherein the public sector units were sort of mandated to source 25% of the materials from MSME units, okay, so initially, I think it was around 20%. But they brought it to 35%. So that there is, you know, more of taking from the SMEs, and they are able to prosper and sort of take their business to the next level. Also, for exporters, they were some additional benefits that were given by the government. And I think in terms of the subvention, it was anywhere between 3 to 5% of benefit in terms of the loans that the exporters we’re taking from these government and entities. So overall, if you see there has been a lot of push from the government side in terms of helping the MSMEs, getting them to be able to avail financing through different public sector banks and central government entities, and so that they are able to prosper and GDP growth, you know, remains intact and grows at a decent pace, you know, as what has been predicted by the government.

Madhuri- Considering the fact so much is already been done, where do you think, you know, few years out or let’s just keep it to this term – what more can we expect in this term? Or how much more policies will be there? Or will the existing be worked upon? What is your assumption as an entrepreneur yourself?

Anurag- Given the fact that you know, the Modi government is back for another term, I think it’s good, from a continuity perspective, a lot of these schemes that was sort of initiated by this government would continue, and, you know, they would be able to take it to the next level, because I think a lot of these things take a lot of time to mature, you know, the gestation period is high, I mean, if you look at things like sort of, you know, pushing the MUDRA loans or, you know, making government the marketplace more vibrant, getting more public sector entities to participate in it, and all those things take a lot of time. And, you know, if you are able to see another term, I think, you know, there is a more execution that you will see in the coming tenure, and especially given the fact that most of these MSMEs are contributing close to 40%, as far as the GDP growth is concerned, I think that’s the right direction as well. Because unless and until these SMEs prosper, you know, we will not be able to see the kind of growth that we have projected for the next couple of years.

Madhuri- People everywhere are talking about Digital India 2.O. What is your take on it and how would you explain it? What is the concept behind it?

Anurag- Digital India is a flagship program of the Government of India, the vision to empower the society, you know, and make it a more, you know, knowledge economy, right. So that the basic, you know, availability of data to each and every individual, even, you know, to the remotest corners of the country becomes accessible wherein they are able to utilise, they’re able to see what is best for them and be able to get, you know, read from the inputs that are available online. So, I think that is the program that the government has come up with, and it is very important to equip the SMEs with all these, you know, Digital India initiatives and come up with the infrastructure, so that they’re able to, you know, make the best use of it. So, I’ll give you an example. So, the Bharat Net Program for example, so, Bharat Net Program is an initiative by the government to basically connect the six Lakh Gram Panchayat across India. Now, what that means is once you have all these you know, Gram Panchayat connected with each other and through internet the farmers are able to access the details about a let’s say, you know, what are the weather updates, what are the what are the kinds of seeds that they should sow, you know, before the sowing season starts, what is the kind of what are the kind of issues that the, you know, the farmers in other parts of India have come across, and how are they been able to overcome that. So, those are the few of the examples that could actually help the farmers to be able to save themselves from any kind of you know, failure crop or any kind of weather-related you know, catastrophes or any others you know, failure-prone activities, and they would be better equipped with the knowledge that is already available in the market. So, I think the government has made a lot of effort to push that, whilst the last information that we have was that only around 1.2 lakh villages of So, far we connected, but I think with the government continuing for the second term, I think they would be boosting this up in the next term, so, that they are able to reach their target of six lakh villages by 2022. So, that was that is one of the things, other initiatives around Digital India involve, again, on the financial inclusion side, coming up or setting up a public infrastructure, right. So, in any kind of an economy in a bigger economy, if you see, if you have to drive financial inclusion, you have to come up with a public infrastructure, public digital infrastructure that enables people to use more, you know, digital, you know, media to be able to use, let’s say, digital payments, or accessing, you know, funding the needs through digital landing. So, those kinds of aspects require a lot of support from the government as well. What that means is, you know, so, in the last term, if you see government came up with an India stack, you know, architecture, which had a set of API’s, which helped, basically, in terms of, you know, the E-authentication paperless authentication of individuals, for utilizing or using of services, whether it is Telecom, whether it has to do with opening an account, whether it has to do with getting a loan from the bank. So those kinds of things have come up in the last term, and the government is also pushing on, you know, coming up with the public infrastructure at the Pan India level, so that more and more people are getting aligned to the mainstream economy. And why it is important is because, for every problem that an individual or an entity or a group of people come up with, somebody somewhere has found the solution for it. So, if you’re connected, you know, you will be able to figure that out. So, I mean, as the saying goes, you don’t need to fall to see that it hurts. So, if you are able to figure out what are the problems, what are what have been the issues around, you know, you know, any kind of a particular problem, you’ll be able to see the solution around it. So, a lot of efforts that are going around Digital India, and I think that will be one of the key pillars to drive financial inclusion.

Madhuri- RBI in its comprehensive payment vision document published rules and regulations with respect to FinTech. The RBI has also encouraged FinTech companies to help create a dollar 1 trillion digital economies by 2025. So, what are your views on this?

Anurag- Basically, if you look at the payments, vision document, this basically gives out the Outlook or the kind of plan that the RBA has for the payment space in India, right. So, first of all wise payments of space important, I mean, when you talk about cashless more or less cash economy, you know, what that means is you need to have more and more transactions to the digital mode you should be using less cash you should be doing you know, lesser clearing as you know, and as far as paper clearing is concerned, so, to be able to reduce the usage of paper, signatures, you know, you know, physical kind of payments than or check payments for example. So, to be able to reduce that you need to move towards a more you know, digital economy. Now, payment system is one of the biggest enablers for that and which is where since 2002, RBI has been coming up with this vision for every three years starting 2002 So, what that means is that, you know, they plan for the next three years basis, what they have seen in the previous three years. And what that brings us to is that going forward, and they have been a lot of things that have changed in the last couple of years, in the last three years. In fact, if you look at the growth in the electronic payments, you know, the increase has been substantial, if you look at in terms of the volume, you know, the IMPS and the RTGS transactions have you know, sort of grown dramatically and exponentially and even the clearing mechanism that today we see the banks have mostly gone paperless, right. So, you know, to the Clearing Corporation of India, in a lot of these things have moved to a more digital kind of, you know, world right. So, what payments, strong vision basically recognises is the need for continued emphasis on innovation, cybersecurity, financial inclusion, customer protection, and competition. So, basically, the core theme is to empowering exceptional e-payment experience, not only for the individuals but also for the stakeholders who are involved in the payment systems operators, the entire ecosystem, per se, when you walk into a retail store, you know, today, you should be getting multiple options that are cost-effective, safe, and people should be aware of it. And these are the things that are available, and they should be ready to make the payment through those options. So, what the document does is it basically outlines the vision for the next three years, okay, what it is trying to do, and what is the plan for the next three years as far as the payment space is concerned. One of the things if you see, on the expectation side, or the planning side is to decrease the share of paper-based clearing, okay, as a percentage of retail. If they are able to drive the, and they’ll be able to reduce the usage of checks or other people based in the states. Second is the accelerated growth in the electronic payments, whether it is through any of the payment system operators, whether it is through UPI, whether it is through any kind of knowledge to the bar, the QR code to any of these mechanisms, they’re able to increase the retail payments on that will be a good thing. And each of these metrics has some numbers associated with them. Let’s say if we talk about, you know, the victories in the paper-based clearing, so the expectation is that the volume of the chain-based payments would be less than 2% of the retail electronic transactions by 2024. For growth in the electronic payments, they’re basically looking at registering an average annualised growth of hundred per cent. And for NEFT they are expecting a 40% growth. So what they’ve done is they’ve, you know, set themselves a target for the next couple of years, and they will ensure that to the community intervention, through creating a conducive environment, they are able to achieve all these objectives, then the, one of the other things that they’re looking at is to increase the use of digital mood for purchase of goods. What they don’t want to do is to increase the debit card transactions, what they want to do is to increase the digital modes of payments, and whether that is through the UPI, or any other, you know, possible methods. So, also, you know, increasing the deployment of card acceptance and for one of the things that you need to do to enhance that is to create a POS infrastructure, point of sales infrastructure for the remotest parts of the country. So that, so today, if you look at if you if you’re carrying the card, in tier one and tier two cities, you’ll still find people who are accepting it. But the moment you go to tier-three cities, and in the remote parts of the country, people are still sceptical. People don’t have the infrastructure to sort of, you know, you use that card or accept that card.

Madhuri- There is a drastic difference between metropolitan cities, because here, Being professionals ourselves, we don’t even use cash. We don’t have cash in our wallet. And we mostly rely on all payment via UPIs, and card payment and all those things. But when it comes to rural, I think that there’s still a long way. I mean, if I would go and tell them, though, that I will Google Pay, they might not even know what it is. So, I think establishing that is one of the major challenges where they have to get that trust. And that trust isn’t just for digital is something that it’s not just in terms of payment, it is has to be built for a lot of things.

Anurag- And the other thing that they want to enhances the payment through a mobile medium, mobile payments, increasing the transactions for mobile payments, reducing the fraud to sales ratio. And today, one of the biggest things if you see that runs in any consumers mind is if I use electronic medium mode or digital mode medium, will my account get compromised? Will my money be sort of siphoned off? So, you know, reducing the fraud to sales ratio, we help them get that trust in the system, right? Because one of the biggest impediments, if you see from a consumer perspective, has been the distrust, yes, no, they don’t want to move to the digital medium, me even when all the options are available on the market. So, if that is still there with the consumers, they will not move to it in spite of all the public infrastructure that you build, in spite of all the, you know, the payment service operators who are providing all kinds of services in the market. So that distrust has to go in which we, I think happened over a period of time as an when, you know, you see a lot, many people accepting a lot, you know, there’s, there’s more awareness around it, and people are able to use it more conveniently. And, you know, it’s like a hassle-free mode of doing it. So, the last point, I think, you know, they’re covered in this is to create the creator healthy competition, right. So when you talk about the payments ecosystem, if you see, I think one of the beneficiaries have been the consumers, yes, with so many players getting into this space, and all offering cutting edge technologies, kind of, you know, rock bottom costs for anything and everything, I think consumers are benefiting out of it. And that has been one of the objectives of the vision document is ready, if they are able to create a healthy environment, you know, keeping in mind that there aren’t any monopolies keeping in mind, they are not, the consumers are not being, you know, taking granted for. If they’re able to create that, I think that will help the consumer that will give them the best deal in the market. So overall, if you see, I think that’s a very good thing that the RBI is doing, right? That they’re setting themselves a target for every three years and learning from the mistakes. And doing it for every three years also ensures that you are never lagging behind the 10-year plan since there might be some disruptive technologies that might come in between.

Madhuri- You just spoke about how trust is something that has to be built among the rural areas? One very generic question. Today technology has become that advanced, that we are using cards, which are RFID enabled, wireless transaction card from which even I am scared. I am scared of losing my card. What if I lose my card? Probably, although they set a limit to the amount of money that can be withdrawn or be spent on it. But still, it’s something that’s a big deal. On one level, we are going to a place where we don’t even need the PIN today to swipe a card or to access the card balance? On the other hand, these people are not even familiar with cards, or what is the concept of OTP and all that thing. This is a huge gap. This is huge gap and how do you think this is going to get covered? Because being a consumer myself, I get scared at times of losing my card. And for these people that Rs 2000 minimum value is also something that’s a big amount? So how is how do you

Anurag- I think one of the ways to look at it is essentially to sort of have more and more competitors coming in, and an example of the demonetisation, soon after the demonetisation happened, people were forced to look at the digital options. People were forced to look at a couple of players who are basically, you know, helping them to make digital, whether it was consumers, whether it was businesses, everybody was forced to align to it. I’m not saying that you need to have such disruptive awareness to you know, educate people about it. But I think over a period of time, you know, the adoption will happen, as and when people as and when, you know, it becomes increasingly difficult for people to sort of deal with cash, you know, people will is slowly and gradually move to digital kind of options. So, it’s I think, not a question about whether that will happen. It’s a question about when that will happen. So given the pace at which the, you know, the citizens are adopting the digital means of payments or, you know, of availing credit, or any other, you know, financial services, I think it just, it’s just a matter of time, and give the fact that there is a lot of push on the digital empowerment from the government perspective, that will happen in the next couple of years. And I think all these things will go hand in hand. So today, if you see, the SMEs are being equipped with all sorts of, you know, tools, technologies, and, you know, the schemes that the government are coming up with, and on the other hand, you see, there’s a lot of push on the Digital India side. So, all these things will converge at some point in time to you know, make India a more financially inclusive nation.

Madhuri- What do you think what the bank should do while coming up with a card, should they segregate according to city tiers or how should they indicate it? So, if somebody who is well aware of technology, should get these enhanced cards. For others, we put a pin operator card where this is manually run by them.

Anurag- I think financial services, organisations or even banks, they are cognizant of the kind of audience they’re serving, and I’m sure they will not sort of offer RFID enabled the card to the remote village have any idea about it? You know, I think so. So, the financial services companies are recognising and they are taking care of it, this is the kind of audience they’re looking at. So, you know, the basis is the any and each of these companies they tune in as per the frauds that are happening or as per the ecosystem in which they’re operating right. So, over a period of time, they will learn from it accordingly, you know, they will serve the right products to the right kind of audience in the market.

Madhuri- And to educate the people a lot of advertisements are also run by the government

Anurag- It is where the point of having a healthy competition comes in, if you have more players in the market, the people who will come to know about it is you know, creating awareness around you know, Coke or Pepsi and how did that happen, I mean, you know, when w you had more players in the market, they started advertising and everybody came to know about it. So, as an when more and more players come in, you know, they will be able to create that awareness in the market and given the kind of different modes that we have to reach out to the consumers now as against some 25-30 years back when you just had Doordarshan or radio to reach out to them. Today, we have multiple channels to reach out to the audience or to the consumers. And each of them is distributing or you know, creating some kind or the other kind of awareness in the country, and I think it will happen over a period of time.

Madhuri- So, this is from a transactional point of view, what do you think what is the scope of digital lending for this as an, Of course, the scope is huge, but again, how should that be carried forward?

Anurag- I think I should quote Dr. C Rangarajan here. So, as per him in the financial inclusion means the process of ensuring access to financial services and timely and adequate credit which are needed by vulnerable groups such as you know, weaker sections and lower-income groups at an affordable cost. So, that is what is the financial inclusion as per him, so, a farmer who’s living in the remotest village in India is he able to access financial services at a low cost, and through a digital model. And this will happen along with lower cost via the digital mediums, So, that is the vision for you know, a financial inclusion world, you know, in Financial inclusion in India to say, so, I think there is every effort that is happening, you know, to be able to facilitate that, even talking about digital means, you know, as we discussed it and there are a lot of initiatives happening from the government perspective, whether it is in terms of linking the gram panchayat or whether it is in terms of creating a public digital infrastructure or in terms of sort of electrifying the villages, and as simple as that. So, these efforts are basically making all these villages digitally complaint yeah, on the other hand, if you see on the side of the financial services, you know, you talk about any regulator today, whether it is RBI, whether the SEBI, they are putting in that efforts to make these financial services available to the remotest parts of the country. So, on top of that, I think the third layer, if you see has been created by the start-ups, a lot of new start-ups are coming up different models to disrupt the entire MSMEs financing. Today, they talk about lending to, you know, such a different or varied kind of audience, which the financial services institutions have never even thought of, you talk about blue-collar workers, you know, financing them, you know, payday loans, you talking about, you know, salary advances. So, a lot, these things were unheard of before. And with the sort of, you know, funding coming in, into all these FinTech companies, I think, you know, these FinTech companies are venturing out with different business models to really make a difference as far as the financial inclusion is concerned, they are ready to take up that risk, they are ready to try out different models, because one thing that has been there with MSMEs is that the risk perception has been you know, very bad. And for you know, the banks or in front of NBFCs. Now, most of it has not been because they have gone bad or they have you know, you know, they have been more than the risk in the segment. A lot of it has to do with the fact that there are they are new to credit. So, you don’t know whether they will perform good or bad, right? So, given the fact that the FinTech companies are venturing into this space, you know, over a period of time, the database that will come out of all these initiatives will help them form a new segment. I mean, when you talk about searching for the next hundred million, right? Those are the customers, you will see, which would be an asset for the FinTech companies, as well as all the new companies who are venturing into this space, which even the banks would want to dive into. Right. Although they are sort of sceptical of getting into this space, this space at this point in time, but once you have that established database, tried and tested with a set of leads, I think they would also be interested in you know, aligning them with the mainstream economy. So, it’s, again, I would say it’s just a matter of time. And as and when all these new models mature and the industry because comes more advanced in terms of you know, adoption of FinTech services, over a period of time, a new set of consumers will emerge. And that will basically drive the growth of FinTech.

Madhuri- If you had to summarise financial inclusion in your own words, what would it be?

Anurag- Financial inclusion, for me, as you know, if you are able to help a person in the remotest village to be able to get a loan for his daily requirement, his crops or in case of a medical emergency, or for his children’s education, in a few clicks, I would say, that is the real financial inclusion. That is where, you know, we should aim to be in the next couple of years.

Madhuri- I think once that happens will the country be prosperous in the true sense, because just by having few percentages of people who are running doing well is not enough since there is a huge set of people who don’t even have the basic things like you said medical facilities, educational facilities, among others. Once I think that is achieved, then I think India will become like a complete nation.

Thank you so much, Anurag. It was great talking to you.