Challenges in Financial Inclusion

During the past 5 years or more, Financial Inclusion, as a pivot for inclusive growth, has become one of the top policy advocacies worldwide. In India too it has been so. However, despite the euphoria, an obvious lack of implementation at the ground level has now become a talking point. The ICICI bank had undertaken the first biometric BC initiative, under the aegis of Nachiket Mor back in 2006, who is now, ironically, back as the head of RBI’s Advisory Committee on Financial Inclusion. The reasons that led to the failure of the then ICICI initiative, have now been resolved, and the initiative is now all set to be a success story.
In 2006-07, there was neither a clearly defined articulation of Financial Inclusion, nor any Payment and Settlement Acts in place. CGAP has pointed this out as one of the main reasons for the failure of BC model to take off. In 2008, the Committee on Financial inclusion led the policy roadmap. A broader holistic overview was given and the nation got a very clear exhaustive roadmap on all areas of financial inclusion as detailed out in the report later became a reference point as the Rangarajan Committee report on Financial Inclusion.
Financial Inclusion is not about opening of bank accounts, as mere opening of accounts does not guarantee financial inclusion or anything exciting to the unbanked. This is borne out by the fact that about 100 million no frill accounts have been opened and hardly 12-13 percent have been put to use. The idea of opening a brick and mortar branch in villages with population below 2000 has also been considered. The banks have also been mandated to giving Rs 500 hundred overdraft to the newly opened accounts, but no clear picture or data

 is available as to how many crores disbursed or the list of beneficiaries. The chief cause of this failure has been attributed to poor Payment infrastructure and agency banking infrastructure? How can we make the unbanked poor people feel comfortable with the modern banking system? In view of the past experience of a struggling BC functioning and the lacunae in the payment infrastructure, a series of systemic changes have been brought in, bit by bit, by RBI. Many people view the work being done in this area as being too slow. But we have to be cautious when we are dealing with poor people’s money; after all, we don’t want to lose that vital trust factor. I am sure in the coming days the issues of branches to ATMS to POS and payment instruments will all surge, as we put our infrastructure & the process in place as without it our ever increasing economy will never be able to mature into a world class economy.

 A very important game changer could DBT, which if properly structured, will pave way for the financial super highway which our trillion dollars plus economy is heading towards, where all people from every section of the society can benefit. In this regard often the references to the Brazilian success story of Bolsa Familia and its impact comes to the fore. No doubt that has been a game changer for Brazil. Regardless of the size of the scheme and number of beneficiaries it has targeted, which is about a few million only compared to our millions of people who are being targeted in our country, it had suffered initially the same fate and only in the 5th /6th year onward people could comprehend the benefits and so the Brazil as a nation became stronger. India too is going through the phase of the learning curve, and we should all take efforts not repeat the same mistakes over & over again. There are many -many micro management issues in each of these drives and these need to be addressed as well, otherwise it may remain dysfunctional, disjointed or even get stymied. BC operations, inter-operability issues, with a gainful engagement, are a must if we are to succeed, as it is impossible to have bank branches in every village. All the vendors, aggregators and banks must remain healthy and profitable to discharge these duties. However, banks must also see the inherent business cases for a very profitable venture at the bottom of the pyramid and not as charity or philanthropy. The new banks that are going to come may fill in the gaps provided they learn how to remain sustainable while also providing banking related services to large numbers of people in our rural and semiurban areas.

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