We have stepped into the eighth year since the NSSO survey revealed the number of excluded households in terms of formal access to credit. India has come a long way since. No-frill accounts, credit availability, credit cards for rural India, SHG formation, life, general and health insurance for people at the bottom of the pyramid and several schemes later, financial inclusion should have been almost complete. But in reality, we have not even reached the half-way mark. Team Inclusion examines
Direct benefit transfer (DBT) is the talk of the government, a manifesto for the 2014 elections. Government is hinting at it being a game changer. What remains to be seen is whether it is a game changer for the public or for the government itself. It is an open secret that financial inclusion has not been achieved as envisaged. Then how can DBT be successful when rural population or those in remote areas do not fit the basic eligibility criteria of having a bank account. Progressing a little deeper, if we look at the so-called ‘financially included sectors’, another obstacle crops up: the absence of essential products like micro-insurance, micro-pension, remittances, and so on. The primary aim of financial inclusion should undoubtedly be timely access to credit. Adequacy as an included adjunct goes without saying.
It is nine in the morning, rush hour traffic, everybody wants to reach office on time. Parul halts at the traffic signal. Yes, seventy-eight seconds for the light to turn green. She suddenly remembers she has to remit cash into her mother’s account, some fifteen hundred kilometres away. With her tablet on the next seat, she just logs in, enters the details, and the amount. ‘Transaction completed successfully’ appears on the screen. Parul feels happy; a smile spreads across her face. The traffic light turns green. Parul drives off. ‘Stay connected’ reminds you of the liner that appears across a popular social networking site. Yes, staying connected financially is not a luxury but a necessity today.
Economic growth should be productive and poverty reducing in the sense that it should create avenues for continuous growth in the form of job opportunities. Looking at financial inclusion from a broader perspective, it can be understood and appreciated only if it alleviates poverty and bridges the gap between the rich and poor.
There is a need to have a financial inclusion agenda for 5-10 years to make it profitable or it is bound to fail. According to A S Narayanan, Chief Distribution Officer, Bajaj Allianz Life Insurance, “There is no long-term agenda in place and unless inclusion efforts are sustainable, it will not take off. We have covered more than 10 million people at premiums of about Rs 45 a month or Rs 500 a year, a business which no insurance company thought was worth touching or are doing it only because there is an obligation to IRDA to show some social numbers. For the time being there is not much money to be made on this but it is sustaining itself very well.”
Financial inclusion has become equivalent to opening no-frill bank accounts. But the ground reality is that despite more than 200 million or so no-frill bank accounts at present, operational accounts stretch for only half as much. The business correspondent (BC) model which has been inherent to financial inclusion has suffered because it is non-remunerative.
According to Srinivas Bonam, Head IBG, Induslnd Bank, “NBFCs can step into BC’s shoes given their financial intermediation capabilities. However, RBI does not allow this. Banks open branches in remote places and make their presence felt in almost each and every village. But sustainability is the major issue.” Banks need to offer products like deposits, lending, microfinance, micro-insurance, imparting financial literacy, and maintain credibility adhering to RBI and SEBI regulations.
People have not developed much faith in intermediaries. Another setback is absence of easy accessibility and connectivity in the form of roads or transport. Even if private players are brought in to act as intermediaries, people in villages are most reluctant to part with their meager savings to open an account. They would rather accumulate it as idle savings. Some have greater faith in cooperatives. One way to create inroads is to utilise technology to rope in these cooperatives to act as intermediaries.
M G George Muthoot, Chairman, Muthoot Group, asserts, “Gold loans from banks existed on paper ever since banks were born. Yet, only recently gold loans have become a rage, courtesy NBFCs likes Muthdoot Finance and Mannapuram.” Gold is shifting its base from private lockers to such temporary custodians to generate liquid cash. And the custodians say that these funds find their way only into progressive and priority sector avenues like education, agriculture, setting up of businesses and industries. It is argued that gold loans boost the economy by creating wealth-generating opportunities and avenues and bring a wider population within the ambit of financial inclusion.
Banks are not as adventurous as NBFCs in marketing gold loans. The problem is more attitudinal. Banks don various caps in the form of several products and hence focus is divided. Recent RBI regulations have allowed banks to market gold loans in the agriculture sector. However, intricate and elaborate paperwork is a major deterrent. NBFCs sanction gold loans within five minutes, right to the second. Banks take much longer, which goes against them.
In an almost similar context, many private banks and post offices sell gold coins. An appreciable venture, no doubt. But again the glaring drawback is that they do not buy back the same gold coin when you are in need of liquid cash. That is in conformity with governmental regulations and RBI guidelines.
Many experts believe that NBFCs will play a much bigger role in times to come in realising total financial inclusion. “NBFCs will be working alongside with banks in the next 10-years to facilitate financial inclusion and we will be complementing each other’s efforts,” asserts Ashish Kumar Roy, Chief General Manager-Rural Business, State Bank of India.
Viability and sustainability are the two pillars of financial inclusion. And the government needs to realise the importance of these two pillars. Unless governmental support proves to be the backbone of these pillars, financial inclusion will fade away like a mirage. Karan Bajwa, General Manager, Microsoft Corporation (India) says NBFCs can play a prominent role in this context. NBFCs specialising in specific sectors like insurance, microfinance and priority lending should be allowed to open savings accounts albeit under RBI regulations. He adds that policy makers will have to wake up to the challenge of providing a low-cost procurement model.
Coming back to the absence of effective numbers in financial inclusion, it is to be taken with a pinch of salt that financial inclusion numbers in our country exclude challenged people. People with multiple disabilities, more so mentally challenged people do not somehow fit within the purview of an account holder as their disabilities and limitations cut them out of this ambit. When we talk of financial inclusion, it cannot be only in terms of money, lending, spending, repaying, and so on. It needs to include sensitive issues like servicing challenged customers.
“Ideally, banks need to act as third party interventions. It should be a monthly income plan with medical and insurance coverage in a total banking environment. Parents or caretakers of such challenged people could open accounts or fixed deposits and accumulate money therein. This should be properly utilised by banks to take care of a challenged person’s requirements until his death. Ideally, it should be projected as a disability-oriented plan as disabilities differ across differently challenged people. All citizens have the democratic right to live respectably,” says Stuti Kacker, Secretary, Ministry of Social Justice and Empowerment.
She adds, “It is also possible to arrange for a pension system for these challenged people. Leading private and public sector banks offer different plans, some with medical insurance, some with contribution to fund management agencies, and others. Similarly, disable-friendly ATM’s for visually challenged people, are very few in numbers. Hence, if we have to include every category of the ‘public’ within financial inclusion, banks and government need to be sensitised about this so that physically challenged are not alienated.”
Providing a secure post-retirement pension to disabled and marginal workers is need of the hour and government has taken some serious steps in providing financial security to millions of workers in the unorganised sector. “Government of India introduced the National Pension System (NPS) in 2008, in which 10 per cent of the salary is deducted and matching contribution is made by the government, which is managed by a professional fund manager like SBI Pension Funds. This system has given a safety net to 88 per cent of the total workforce in the country, which works in unorganised sector,” says, Kajal Kanti Chakraborty, Chief Operating Officer, SBI Pension Funds. According to V Balasubramaniam, Chief Business Officer, Bombay Stock Exchange, “Financial inclusion, in order to be a thorough success, has to penetrate deeper into markets irrespective of their viability. Penetration would open up opportunities and avenues to create jobs and thereby increase viability of the idea. The best way is to increase credit availability to medium and small scale enterprises (MSMEs).” A simple suggestion to spark almost instant repercussions is to utilise mobile technology to the maximum, rather. Mobile companies have penetrated into the deepest corners of the country. “We already have a network to ride on,” adds Balasubramaniam.
Throwing light on the importance of technology in financial inclusion, Prakash Krishnamoorthy, Country Manager-HPN, HP India, says, “technology upgrading is extremely important to connect villages across the country. Mobile companies have set the precedent by connecting the entire country across its length and breadth, in the strictest sense of the term. Now, if mobile companies can do it, why not rope in similar technology experts to build or utilise existing infrastructure to establish financial inclusion as devised and envisaged?”
Tushar Pandey, President, Strategic Initiatives, YES Bank, believes that innovative concepts like cooperative tourism can be a game changer in the field of financial inclusion. “We are creating cooperative tourism in remote areas and credit is made available to strengthen infrastructure. We have to identify gaps in funding in infrastructure and link it to the micro-models of cooperative tourism.” On the other hand, cooperative banks operating in rural areas should be provided robust IT platforms, so that they can connect with the outer world and YES Bank is spearheading in establishing IT services for cooperative banks in rural areas.
Further to accounts being opened through mobile phone or wireless services, it is also possible to manage basic banking services through Unstructured Supplementary Services Data (USSD). Simple transactions and messages relating to such transactions are supported by USSD. It is an extremely cost-effective and time saving model. But here again regulatory obstacles raise their head. Government and telecom regulatory authorities should sit across the table and discuss viable solutions keeping maximum outreach to the public as a sole discretionary factor. A few banks do offer something similar, but not on the scale envisaged to adopt financial inclusion as is essential for the economy to grow, develop and flourish.
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Inclusion is the first magazine dedicated to exploring issues at the intersection of development agendas and digital, financial and social inclusion. The magazine makes complex policy analyses accessible for a diverse audience of policymakers, administrators, civil society and academicians. Grassroots-focused, outcome-oriented analysis is the cornerstone of the work done at Inclusion.