The rise of India’s small finance banks (SFBs) and the move towards greater financial inclusion really began in 2016, a particularly momentous year in the south Asian nation’s recent history.
That was the year when prime minister Narendra Modi decided to withdraw all high-denomination banknotes from circulation overnight. The demonetization triggered panic and confusion over what to do with the cash that people held.
In the same year, the National Payments Corporation of India unveiled United Payments Interface (UPI), an instant payments app that allows transactions ranging from money transfers to bill payments and QR code payments, whether between individuals or between individuals and businesses.
UPI transformed the way that Indians made payments and was quickly embraced by a large proportion of the population eager to go cashless, especially when faced with the threat of obsolete bank notes.
When India’s first SFB, called Capital Small Finance Bank, began operations in 2016, it marked the beginning of something new for the country’s financially excluded.
SFBs are a niche group of Indian banks. The Reserve Bank of India awarded licences to 10 such institutions in late 2014, and another two in 2021. The goal of these firms is to boost financial inclusion among India’s 1.4