What DPI-Enabled Digital Lending Can Learn from Microfinance and Traditional Banking

Key Points

• In India, digital lending is promoted as a route to credit for women without collateral, yet women make up a small share of digital borrowers.
• Compared with public banking and microfinance, DPI-enabled lending removes the physical and social infrastructure that built trust with marginalised borrowers, along with shared phone use and thin digital footprints that limit access.
• The authors suggest collective lending, assisted onboarding, financial literacy and local-language grievance systems to ground digital credit in social relations.

In the past decade, the world has witnessed the emergence of the developmental imaginary of digital financial inclusion, with digital lending at its core. In India, this imaginary centres around the promise of Digital Public Infrastructures (DPI), state-promoted large scale software platforms that can extend identification, payments, and data processing services to the masses. A recurring figure is a fictional vegetable vendor named Rajni whose life is imagined as being transformed by DPI. 

The driving idea here is that in the absence of any material collateral, Rajni can nonetheless borrow if lenders can use her digital footprint as a basis to compute her financial credibility. Yet in reality, digital lending’s reach among women is limited, and instead its main market is concentrated among men. Industry data reveals that women consistently make up less than 20% of digital lending borrowers. For our Interledger project, we tried to understand this contradiction. Why, despite the developmental claims and ambitions of DPI, does the reality of digital lending in India remain limited in reaching women?

We took a historical approach to this question. Though digital payments and DPI carry the glossy promise of the new, they are the latest in a series of financial inclusion interventions aimed at fighting poverty. We compared the DPI‐enabled digital lending model with public banking and microfinance projects. Public banking, which initiated financial inclusion projects in the 1970s, depended on the provision of credit to historically disadvantaged groups via state institutions. Microfinance, which arose in the 1980s, operated through group lending to women and over time, became more integrated to global financial markets and social investments.

DPI‐enabled digital lending departs from these models through its digital-first approach. It promises to replace the physical infrastructure of public banking as well as social infrastructures of microfinance. The cost savings should, in theory, result in an expansion of credit to new groups. Yet the spatial, material and social foundations of these earlier systems have been central in building trust with underbanked groups and reaching historically marginalised women. Though bypassing these structures allows DPI to reduce costs for financial institutions and startups, it simultaneously makes credit less socially grounded and less accessible for many.

Digital lending requires not only smartphone ownership but also control over personal devices and individualised use, which runs contrary to many women’s digital economic lives. Extensive scholarship documents how women often share smartphone devices, login information, passwords and digital data with other family members, complicating the idea of individualised, data-driven credit. Similarly, adoption of digital lending by rural and agrarian communities remains limited. Factors such as patchy connectivity and very limited digital footprints make it difficult for fintech lenders to underwrite credit for rural clients. These demographic patterns, accompanied by credit usage patterns, reveal the socio-economic inequalities that mediate financial citizenship in today’s India, where physical and social infrastructures remain instrumental for credit relations.

Much of DPI’s appeal comes from its promise to remove human intermediaries and reduce costs. Yet the removal of frictions does not automatically result in the expansion of credit. If DPI were to genuinely succeed in helping credit reach and serve marginalised customers, it would need to establish trust through social relations. Taking inspiration from earlier models of microcredit, this could, for example, take the form of collective lending, financial literacy programmes, human-assisted onboarding programmes and strong grievance redressal systems in local languages. A DPI that included such facets would be not just rails for financial interoperability and efficiency, but a foundation that embeds digital credit delivery into social relations.

This post draws on the paper Digital Public Infrastructure’s Promise of Financial Inclusion and the Reality of Digital Lending: A Comparative Approach (opens in a new tab) by Mila T. Samdub and Tanushree Kaushal, written as part of the Interledger Foundation’s 2025 Call for Papers (opens in a new tab) program. The full paper is available here. (opens in a new tab)