Stocktaking on the fintech revolution

Financial economic policy in India holds back the possibilities

- SNAKES LADDERS

Fintechs can be important in India, given the weaknesses of the incumbent financial system. Finance is the business of serving the real economy to do better in grappling with risk and time. Doing finance right requires risk taking and innovation on products and processes to fit the lives of the people across the geographical and class diversity in India. This runs afoul of financial economic policy, where the government and its agencies run a central planning system with detailed control of products and processes. Limitations in the rule of law make financial firms cautious about innovating. Government-controlled monopoly systems, which are national champions, deepen state control. The future of Indian finance lies in reorienting financial economic policy.

Finance is the business of helping people surmount the problems of risk and time. Each of the 100 homogeneous regions of India, of about 14 million people, has its own rhyme and rhythm. There is much class diversity. The present financial system has not come to grips with this diversity. A process of innovation and risk taking is required to experiment with many new business models and process designs that can better serve the people.

The puzzles change when you go from Bombay to Thane to Pune. Nobody knows the correct answers: What is required is a process of discovery -- where clever firms experiment, innovate, take risks, and go bust. This process will find solutions on how to serve various subsets of India better. Financial economic policy is, however, organised as a central planning system. Products, processes, and government-controlled monopolies are imposed from the top. The firms are further hamstrung by the uniquely Indianstyle KYC and Prevention of Money Laundering Act.