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Promoting Inclusive Markets and Financial Systems

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Leveraging Digital Financial Services at Microfinance Institutions – I

This blog post is the first part of a 2-part blog series, and serves as a continuation of the postSteady and Sustainable Behaviour Change – Lessons from Sonata by Grameen Foundation


Grameen Foundation India, with funding from Citi Foundation, and in partnership with Oxigen Services India Pvt. Ltd and Sonata Finance Pvt. Ltd., is using a human-centered design approach to deliver mobile financial services and education to Sonata’s female microfinance clients in Uttar Pradesh.

India is home to the largest number of poor people in the world, which includes 26% of the global extreme poor. The aim of “ending poverty in all its forms, everywhere” by 2030 as articulated by the United Nations Sustainable Development Goals (SDG) #1, depends largely on India’s ability to make significant gains in poverty reduction. Fortunately, India has made remarkable strides in addressing poverty alleviation.

Despite these gains, poverty remains a grave challenge. Many who have escaped poverty remain on the margins of economic insecurity and lack access to quality education, infrastructure, and healthcare. Financial Inclusion plays a crucial role in alleviating poverty. It enables improved economic and social development of the country along with empowerment of the underprivileged, poor and women in society. While the financial inclusion movement has gained momentum in urban areas, the penetration of financial services in the rural areas of India is still very low and inhibiting factors vary from both supply and demand side.

Financial Inclusion in India

While the Government of India is making inroads for financial inclusion in rural India, millions of people are still unable to take advantage of financial services. On the demand side, lack of awareness, low income levels, limited financial and mobile literacy and access to other family bank accounts continue to limit the demand for financial services. On the supply side, factors affecting uptake of services include language barriers, lack of local branches, products that are not structured to meet the needs of low income populations and complex processes.

Furthermore, financial inclusion still remains a distant dream for over 650 million people in India despite the efforts made by the Government and other stakeholders such as donors, NGOs and multilateral and bilateral agencies. Nearly half of the households in India do not even have savings bank accounts, and the lack of affordable and available financial services has a direct impact on the lives of the poor and their ability to move out of poverty.

As recognized by the Government and many other experts, the success of various government initiatives to bring financial inclusion hinges on whether there is adequate infrastructure to provide last mile services to the poor that can enable them to access various financial services. For example, despite many drives to open bank accounts for the poor, the poor are unable to access financial services as there is no last mile connectivity, infrastructure and field force to help the poor access these financial services using these bank accounts. As a result, most of the bank accounts opened by banks and other agencies soon become dormant and defunct.

Digital Finance in India

The uptake of the mobile phone brings both challenges and opportunities to financial inclusion. While the mobile phone and associated services like mobile money has the potential to become an important channel in the delivery of financial products (microfinance, remittance, G2P, insurance, social security payments) and other financial services (information) to poor households across India, the lack of mobile and financial literacy is expected to increase the financial capability gap.Grameen Foundation’s research and experience, strengthened by wider research, has shown that poor households do not have the financial capability to use mobile money services offered by mobile network operators (MNOs) and banks (through BCs).

Grameen Foundation India: Overcoming Challenges to Promote Digital Financial Services

With a mission to enable the poorest of the poor, and to create a world without poverty, Grameen Foundation aims to assist the world’s most vulnerable populations to reach their full potential through provision of tools and information that lead to empowerment. Digital financial services play a crucial role in this arena, especially for women in rural areas who require assistance to change their circumstance.

In order to meet family income generation needs, many low-income female clients borrow microloans under the Joint Liability Group (JLG) model. Under the JLG microfinance model, women borrowers meet on a regular basis (weekly, fortnightly or monthly) with the MFI loan officer to repay their installments. However, MFIs often face several challenges and risks such as robbery, counterfeit and loss.

Cashless transaction solutions (including money transfers and access to bank accounts) in rural areas poses a feasible solution to these issues. However, this requires sustainable infrastructure. More specifically in the form of agent networks to provide the last mile connectivity to the clients. The payment providers have struggled to overcome this challenge as they need to meet a certain volume of financial transactions to be sustainable. And they cannot achieve those volumes without an agent network—even if all other conditions are conducive for growth.

In order to tackle the problems mentioned above, Grameen Foundation India, under their ‘India Innovation Grant Program’, formed a partnership with Sonata Finance Pvt Ltd and a Services India Pvt Ltd to pilot a project on digital financial inclusion. The aim of the pilot is to inculcate women from rural areas to use mobile phones as a channel for their loan repayments. As clients become comfortable with mobile phone usage for financial transactions, the goal is that over time, use will be expanded to include an extensive suite of products including airtime top-up, remittances, financial education and savings among others.


Chandni G. Ohri is the Chief Executive Officer of Grameen Foundation India (GFI) where she spearheads the strategic vision, operations, planning and implementation of GFI. Prior to this Chandni worked Grameen Foundation USA where she led the set-up of GFI as a wholly owned subsidiary of Grameen Foundation USA. She is on the board of two leading MFIs in the state of Uttar Pradesh, India – Sonata Microfinance Pvt. Limited and Cashpor.

Gopika Gulati works on marketing and communications at Grameen Foundation India (GFI) where she brings her Public Relations experience across sectors spanning technology, aviation, education, consumer, development, hospitality, corporate and uses communications as a force for positive change.

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