Universal Financial Access

At the outset, I would like to confess that I am delving into territory in which I am no expert. But, it is an area that holds the promise of transforming the rural landscape, increasing productivity and improving the quality of life of many, many Indians. The goal is that of financial inclusion. The more I have been exposed to discussions and debates on the subject, the more excited I become about the sheer possibilities. Of course, there is also a technology angle to it on which I have to deliberate upon in the course of my work

I dream often of ‘one India’, and financial inclusion is one distinct road to realising that dream. Financial inclusion has no real political colour. So where does the conflict and where does the variation in views arise?  It is obvious that the conventional banking system cannot deliver the kind of financial inclusion that is sought for a simple reason. Given the economic level of rural people and given the density of the population in the rural areas, the conventional brick and mortar structure cannot viably cover all the people. The banking sector and the Reserve Bank of India have also recognised this and come up with innovations like banking correspondents (BCs) and banking facilitators (BFs) and so on, but it is clear again that these steps alone are not going to solve the problem. We need to have an intelligent combination of all of these things and technology. Of course, technology is going to be a huge driver. Since we have seen different ways in which even mobile technology has been used to deliver certain kinds of services, that much is obvious.

When we talk about financial inclusion, a large number of stakeholders are involved.  Each of them has a different perspective; not only on what is possible and how to go about it, but even on the goals themselves. So, it is not only a debate on the means, it is also a debate on the ends because when you scratch the surface and then try to breakdown the goal of financial inclusion into very specific end-objectives, then it turns out that there are different nuances. Many stakeholders have different views on these aspects itself, especially because people in the government, the regulators, the business entities, the NGOs and individual citizens, all have different perceptions. Therefore, the question is how do we build some kind of a common understanding on what the ends and the means should be in such a situation. Given this complexity, at some point of time one has to come to some kind of a consensus on how much of consensus there should be and how do we move forward within some reasonable timeframe.

The village should be looked at as a single entity, from an end-user perspective.We should not think of separate BCs for a bank,separate BCs for insurance products, or for other sets of products. There should be a coordinated effort on financial inclusion

Today, we face two major problems – one, financial inclusion at the last mile, especially in the rural areas and second, the skewed growth of mobile telephony. Mobile telephony is supposed to be India’s big growth story, the one sector where we are world beaters, even ahead of China.  But scratch the surface and the story is not so bright.  If you look at the rural areas, again the penetration is much much lower and there are issues of profitability when you go down to that level.  So, how do we make it worthwhile, is there a way to ensure that it is viable for these companies to really provide high quality mobile services in the rural areas. One approach has been to set up the Universal Service Obligation Fund, under which the government funds these companies to go into the rural areas and financial support is provided to ensure that the business case is viable.

However, undoubtedly, mobile phones are reaching the customers much more rapidly than we have envisaged and you will see even the poorest having a mobile phone in the next 2-3 years. If that be the case, and if you have backend servers at the banks, then one doesn’t need any technology other than the mobile phone. The question is can poorer people who are not necessarily literate use mobile phones. The answer is yes. Already, demonstration systems are available. One answers questions on phone, talks to the bank’s computer and identifies oneself uniquely. Voice authentication, fortunately, is becoming superior to even the fingerprint. If you have a mobile phone, the CLI of a mobile phone also becomes one authentication point. After that you need basically a PIN. But instead of PIN, voice authentication is far superior and acts as a unique identifier. Once you are able to uniquely identify and are able to talk in your local language with your local dialect to a bank and carry out the transaction, the pace of inclusion will be so much faster.

Another recurring theme in this is the context of identity, i.e., financial inclusion for whom, who the person is and how to identify that person? There is an initiative which is currently underway in the government for issuing a unique identity to every individual and I do believe that that is very much around the corner. While everyone will be identified, will have a unique number and there will be a national database with the names and identity numbers and photographs available, which can be accessed by authorised people, including financial sector institutions. And possibly over the next 3-4 years after that, we may have biometric data also.

But there are still some open questions on the kind of identification document: will there be any identification document given to a person or will it be on paper or will it be a card or will it be a smart card, etc. These are still open questions primarily because there is a cost attached to it. A simple calculation shows that even if it is Rs 100 a card, we are talking about Rs 100 billion just for issuing the card to all people.  That is the scale of our population.  This is quite a large sum of money just for giving a card. So, the question is why should anybody be given a card which costs Rs 100 unless he can do something with it. As far as the identity is concerned, there are various issues relating to know your customer initiatives.

If there is a way of linking technology with the unique identity database, speeding up this service may help because that is a universal identity. This will get around the current problem of financial sector building their own identity, income tax department building their own identity, transport department building their own identity, BPL programmes building their own identity, etc., which is actually compounding and not resolving the problem.

The other point is that conventional banking has not worked, so we need technology, we need BCs and we need BFs.  But is it only a question of finding out how to make the BC or BF system work better or is it time to ask a more fundamental question: is this the only way to go, are there other ways and better ways to go.  BCs and BFs are only a means. Let us go back once again and revisit the question of ends. What do we mean by financial services?  To some, it means giving credit to an individual; to some, it means just opening a account; to some, it means enabling one to have a savings account; and, to others, it can mean just enabling one to make a financial transaction: somebody to pay or receive money from; any or all of these are part of financial inclusion.

The village should be looked at as a single entity, from an end-user perspective. We should not think of separate BCs for a bank, separate BCs for insurance products, or for other sets of products. There should be a coordinated effort on financial inclusion for a village or a set of people. Are we being shackled too much in the past; are we not being open enough to look at everything that is possible without having any preconceived ideas and are there ways in which we can take more advantage of technological advances for the benefit of everybody? Incidentally, it is not only a combination of mobile and financial services into one device or one service. Even identity can actually be packaged into that because a mobile phone itself, with or without some extensions like biometric, can become the mechanism for identification.  So, then you no longer talk about the cost of issuing an identity card, it becomes a part of enabling him to do a whole lot of other things. It is incidental so it is not just a cost line.  It is a part of operating expenses. So, once again you have a possibility of combining not just mobile and financial services but mobile, financial services and identity related services. So, there are many such possibilities and I would love to hear from many of you on what are the possibilities of going a little out of the box and going a little beyond the confines of whatever we have been used to and looking at what is possible. This is the time to do so.

While many will list the things the government should not do, it is also clear that the government has to do something because there are many areas like regulation and legislation on  which it is the government, which will need to move forward. The problem is also compounded by the fact that we have separate regulators.  We are aiming at convergence of sectors which are not only different but which also have different regulators. So, each is also in a sense sovereign within its domain.  You have TRAI for telecom, you have RBI for the financial sector, and to bring these two together you definitely need a legislative framework.

If I look at financial inclusion and e-governance, many of the issues of scale and technology are similar. Even the debate about means and ends is no different. Governance reform is a very complex process, one that has been attempted for a long time. But today there is an increasing realisation that the induction of technology in the government affords a huge opportunity to rethink its entire structure as well as to bring in a certain level of facilitation for citizens as well as the government itself, something which was simply not possible in the past and was quite unthinkable, irrespective of individual efficiencies and capabilities. As one who deals closely with e-Governance projects, I do have a great belief in the power of IT and of e-Governance.

Today, India is both of a size and at a level of development where we can actually evolve our own unique mix of technology, regulation and business case.

But sobered as I am by the past few years of experience, it is a little bit like Ali Baba and the treasures inside the cave. There is no doubt that the treasures are there, but you have to know the magic words to reach those treasures. Here, it is not just a question of just chanting a mantra, but it is actually a much longer and harder route, and the difference is really in the capacity. Right from our early days and well before the advent of e-Governance as a term and long before the government conceived the National e-Governance Plan, we have seen that computerisation doesn’t really solve anything. As one philosopher put it, computerisation only leads to the induction of new technology. And, IT plus old organisation leads only to an expensive old organisation, not really any efficiency much less reform.

So, from computerisation, we moved on to e-Governance, where the understanding was that unless you transformed the process and unless you did it in a manner that one could derive the best advantage of technology, the benefits were not going to be there. This in itself was a complicated process as it involved changing not only governance processes but also those of the individuals behind such processes. To achieve this, the approach that was adopted was to get everybody to agree on the outcome rather than focussing on the need to change processes.  Also, outcomes can be much more easily defined because what a citizen expects is better understood by even government employees–they are citizens first and then government employees–and also because such outcomes are less liable to change. Management styles, peoples’ opinions and individuals all change, and therefore these things can keep shifting, But what the citizen basically wants does not change, at least in the short to medium-term. They change over very long periods of time.  So, linking a set of service outcomes was a major innovation in trying to make technology induction more transformation related rather than mere blind application of technology.

In the end, I do believe that India is both of a size and at a level of development where we can actually evolve our own unique mix of technology, regulation and business case. This may be one of a kind and can actually be a harbinger of the way that such solutions are provided in the future in most of the developing world, if not even in the developed world as well.  So, perhaps, we need to be innovative in our discussions. Be willing to go where no one has gone before and pick up bits and pieces of what has been done elsewhere and put them all together.  So, while the bits and pieces may not be entirely unique the quilt that we knit would certainly be totally unique. That is what I do believe.