Financial Inclusion 2012 Insights and Expectations

No doubt, it will be a challenging task, but as you know the Corporation Bank is one of the pioneer bank in this branchless banking and so far we have implemented this model at 1200 villages and the model is working very well. We are implementing this model through BC. BC we have selected local persons and they are round the clock, they are available at the village and so far we have around Rs.40 crores of deposits and Rs.30 advances.

Over the years, what has become essential to any sound public policy is the availability and delivery of banking and payment services to the entire population without discrimination. Often times however, there are a number of factors that stand in the way of such deliverables ranging from the establishment of a legal identity to levels of literacy, low income, access to facilities due to habitation in geographically remote areas, or sometimes simply a lack of awareness about one’s choices. These deliverables face obstacles from banks as well whose concerns range from providing ‘bankable solutions’ to reducing operation costs to providing the services themselves.

Archana Bhargava, GM of Punjab National Bank was able to elucidate us on the kind of projects that were being taken up by the Bank. Her views on Financial Inclusion entail a need to understand what happens at the grassroots levels, the nitty-gritties, the challenges, “it is something which needs a lot of passion, it needs a lot of commitment,” says Bhargava. Once profits have been calculated, there is the actual achieving of targets. In other words, how do you deal with delivering the promised services, what kind of practices/systems are to be followed are issues that come to the fore? There exist questions of practicality and pragmatism facing a system that is still young in terms of its understanding of the economy and finance. “It took Punjab National Bank 115 years to build up 5000 branches, and now you want me to do 5000 outlets in just two years time and that too with a populace who does not understand anything about finance?” expresses Bhargava.

With academics labeling the current society we live in a ‘Risk Society’, trust has become that much more scarce a resource with any sort of human giving and taking involving the availability of securities and collaterals. Increasing trust would only then depend on a certain familiarity that is imbibed with time or knowledge. Knowledge of an economic system as a deliverable would be imperative to strengthening of an economy and increasing the number of financially excluded.

What comes to light is the psyche that is characteristic of a situation, which in turn becomes a roadblock in the implementation of projects. Reserve Bank of India (RBI) standards stipulate simplified KYC norms for people whose identity may be an issue to prove. “We do not ask for PAN cards, there is no driving license either, so the Sarpanch has to certify that the person is of good sound character and that he or she is a resident of the village,” agree several bankers in unison. But what becomes an issue is the Sarpanch himself who often isn’t interested in giving a certification. Therefore, even meeting basic KYC norms can become a difficult task. The next stage proves even more difficult when all the data procured has to be compiled and saved in large servers, which ultimately need large amounts of capital and more importantly initiative to drive the system. And it is but a certainty that this initiative is driven more by women than men, who are limited in terms of their social mobility which in turn limits their financial capacity.

Some of the issues brought to light by Bhargava find their substantiation in Corporation Bank’s Executive Director, Narendra Singh’s experiences as well. Scaling up operations, monitoring BCs who would ultimately be handling the cash were questions that are still trying to be answered. Whereas operational problems with BCs remain an issue, questions remain about clients themselves. Issues such as the use of quality seeds and fertilizers and the incessant dilemma regarding the use of spurious insecticides by farmers were problems that the Bank of India had faced in its pilot projects, says its General Manager N C Khulbe. After all the banker can only provide the infrastructure and finances, quality seeding, weeding and farming is completely dependent on the impetus of the farmers themselves. However there is a recognition that efforts can never be one sided, in the aptly worded query by Khulbe…”is there any convergence of these items which can ultimately result in a real increase in production…and that he is not only given credit but whether he is going to have any increase in agriculture productivity?” While questions previously have focused on the broad spectrum of operations ranging from issues regarding banks to those regarding productivity, L N V Rao, General Manager, Union Bank of India’s question focuses on an essential element of the system, “How many families or how many people are we able to connect with the bank on the one hand and what banking solutions are we able to extend to people?” Other than this, there is also the issue of safety and security. People carrying large amounts of cash in states such as UP, Bihar and Jharkhand face such breaches of security as Rao pointed out.

Trust at the Fulcrum of the System

Trust has become characteristic of any human collective. With academics labeling the current society we live in a ‘Risk Society’, trust has become that much more scarce a resource with any sort of human giving and taking involving the availability of securities and collaterals. Trust is after all a luxury that only some can afford to have without fearing its after effects. Increasing trust would only then depend on a certain familiarity that is imbibed with time or knowledge. Knowledge of an economic system as a deliverable would be imperative to strengthening of an economy and increasing the number of financially excluded.

Even if something is being done for their benefit there is an element of mistrust, cautions Bhargava. Trust seems to be a central issue regarding the functioning and ultimately the success of the system. Trust in terms of benefits undertaken and risks involved. Trust in terms of the functionality of the system altogether. At times the complexities of a financial system may go beyond the understanding of a villager, which is not to say that their intellect is limited in any way, it is rather just an indicator of the kind of myths that may have come to propagate themselves around an ever growing, ever complicated financial system. When staring into it, it may represent a monolith of despair. A simple question posed by Rao elucidates the issue at hand, the simple human psychology: what do I get if I open an account? Trust, or rather the lack of it manifests at all levels. It is not only the farmers questioning the system, but the system querying the bankers as well. Good sound character would after all mean the absence of any culpable element in the system, as Bhargava words it, “nobody would want anti-social elements in the system.”

The primary solution to the BC problem has been to designate people who are locals, sons of the soil, people who are working on the lands themselves. What this does is to provide a system where the intermediate becomes a nodal point in the system, an elegant meeting of the trust of a Bank and a Client through a single individual.

The BC model faces its own problems in this case. A BC needs to be committed to delivering services, but how do you ensure commitment without trust? In some views on the BC model, the BC seems to be the weakest link in the chain. There are fears asunder that the BC may run away with the PoS machine given to be installed in a particular area. If such a thing comes to PoS, how is one to find the BC. There is a lack of trust in BCs for their potential inability to handle pass machines in the appropriate manner, ‘ I have to replace the machine, how many machines can I Provide’? After all, the cost of these machines provided by PNB cost upwards of 30,000 rupees apiece and bankers are willing to go so far as replacing the first one with a duplicate, but triplicate machines make the functioning of the system unviable solely in terms of cost. The BC model of course has its upsides, but the negatives include recruiting trustworthy people who won’t run away with the money, who will be there for people eight hours a day ensuring flawless service.

A marriage of Trust, Technology and Human Agency

The primary solution to the BC problem as posed above has been to designate people who are locals, sons of the soil, people who are working on the lands themselves. What this does is to provide a system where the intermediate becomes a nodal point in the system, an elegant meeting of the trust of a Bank and a Client through a single individual. Having a BC who is familiar with both the system and yet familiar with the existing social relations in the village provides for an interface of the financial system with the end users of such a system. This ultimately also means incentivizing BCs appropriately enough for them to do a lot more things other than banking. Trust which comes through such a system ensures commitment from all parties and ultimately leads to financial deepening. Some banks are looking at increasing need, in order for financial inclusion to succeed, to leverage the existing infrastructure, resources and technology. We have been there for a while and have won over people’s trust. Truly speaking this could be a win-win situation, echoes Rajde.

Technology of course has been a major factor in bringing transaction costs down. Due to the cheap prevalence of mobile phones all over the country and the increased connectivity, a lot of hitherto processes that needed to be established through material and labor intensive means can now be made that much more efficient. Solutions proposed by Dewang Neralla, Director, ATOM Technologies focus on marrying technology with human agency into a system that will ultimately benefit from such an amalgam, so we are appointing people as BCs but arming them with mobile phones and other services. it is not only providing them services like, let us say, for banking, cash deposit withdrawal, remittances and other services, but apart from that various other business to consumer services like mobile top-ups to bookings, adds Neralla. Tied with technology is also the issue of e-Governance and how it can be combined and plugged together to make the whole model much wider than just financial inclusion or just establishing financial service points.

Ultimately it all trickles down to financial literacy and credit counseling as posited by Khulbe. Awareness remains a big issue among villagers, awareness about a system, awareness about products, facilities, amenities and ultimately an awareness as to the choices one has, whether these choices mean making use of an overdraft facility, or just even simply opening a no-frills account. Looking into such a future the Bank Of India and the Union Bank have started setting up and proliferating Credit Counseling Centers and Village knowledge centers respectively, that take up the role of educating people about what they are to do. Literacy, by banks, is even going as far as educating farmers about tillage and how not to over-reap the soil and turn them into dust bowls. The system of financial inclusion as has been taken up by banks is still in its infantile stages. It has a long way to go and a hard path to tread, it needs to accumulate more knowledge and pass through many more experiences. Pilots are being conducted and knowledge/information of the grassroots is central to its function. Trust has always been an issue in any economy, in any society, in any form of governance, and one can only hope that in the end it is the belief one has in the system, but even more importantly the trust one has for one’s fellow human beings that prevails.