North East India, Financial Inclusion: A Dimension
The eight States located in India’s north-east cover an area of 2,62,179 sq km constituting 7.9 percent of the country’s total geographical area, but have only 46 million people, which constitute 3.7 percent of country’s population. According to Planning Commission’s statistics, Assam has 116.4 lakh people living below the poverty line, Manipur 12.5 lakhs, Meghalaya 4.9 lakhs, Mizoram 2.3 lakhs, Tripura 6.3 lakhs, Nagaland 4.1 lakhs and Arunachal Pradesh 3.5 lakhs; significantly, Tripura and Arunachal Pradesh, have shown a dip in the poverty scale.
North East India characterise with sparsely populated internationally sensitive, geography with a considerably poor population, having the enormous potential for development. Prime Minister -Narendra Modi’s effort to make North East India more inclusive is definitely a welcome move. However, North East shouldn’t be weighed with the same parameters, like other parts of India. The identity of the population of North East is complex and multi-layered including tribal kinship, financial status, and political affiliation and sometimes cumulated with the status of education. In order to promote livelihood and bring people out of poverty, the key stimulus is availability of financial institutions and accessibility.
Precipitation of Financial Inclusion through partnership: An example The Government is diligently working to include unreached geographies and population under the ambit of financial inclusion, however failing owing to inadequate convergence between different arrays. Let us understand the phenomena through data. The two reference sources used are CRISIL Inclusix, 2013 and 2015 along with the Reserve Bank of India’s Basic Statistical Returns. First CRISIL Inclusix 2013, which has considered the banking data of 2009 to 2011 where all India score was 40.1 points and North Eastern Region, 28.5 in 100 point scale. However, while analysing the data of RBI, in the same span, the CAGR of number of offices (commercial bank) has seen anincrease; 5.79 percent nationally and 4.30 percent in North East India.
It is showing despite of increase in the number of offices (commercial banks), the penetration is significantly low. However, the same CRISIL Inclusix 2015 is showing positive shift in financial inclusion of India which was 50.1 points, owing to the presence and penetration of Microfinance Institutions. The CRISIL Inclusix (2015) score for North East, in 2013, stood at 39.7 compared to 2011, which was 28.5.
The augmentation of North East has been attributed to the presence of large MFIs in Tripura and Assam. Tripura reached to top 10 for the first time with a CRISIL Inclusix score of 63.8 and Manipur, however, continued to be the lowest-ranked State with a score of 21.6. It is clearly indicating that banking industry needs to be bridging ally with the microfinance industry.
Microfinance Sector of North: The front-runner
Let’s bring the insights of the microfinance industry. The next set of data has been sourced from Sa-Dhan, the sole data aggregating agency, which includes both Non-Banking Finance Companies (NBFCs) and Non-NBFC MFIs (Microfinance Institutions). The data is sourced upto 2014-15, as after that, the microfinance industry has been seeing a substantial shift, so there may be chance of mixing up of data. Microfinance Industry of North East is visibly a front-runner in the country with CAGR of 93.70 percent in Gross Loan Portfolio and 34.91 percent client outreach, can be best ally for banking sector. According to Sa-Dhan Bharat Microfinance Report 2017, there are at least 21 good MFIs extending financial products in the different states of North Eastern India. There is a significant growth in clientele over the years, from 14 lakhs in 2012-13 to around 22 lakhs in 2014-15, before consolidation of the microfinance market.
Small Industries Development Bank of India (SIDBI), North Eastern Development Finance Corporation Ltd (NEDFI), RGVN Microfinance Limited, NABARD and other agencies have always supported the endeavours of the microfinance sector by developing the capacities of the MFIs, providing resources and others. However, the appetite of the sector has been always substantially superseding the availability of the resources, especially term loans for the MFIs.
Inclusive Finance in North East India: The Way Forward
For proper financially inclusive growth of the North East Region, there is a need of developing public-private initiative, which is more than a grant-making and grantee relationship. The Ministry of Development of North Eastern Region needs to beef up the alignment of its associate organisations, NEC, North Eastern Regional Agricultural Marketing Corporation Limited.
(NERAMAC), and North Eastern Handicrafts and Handloom Development Corporation (NEHHDC) with the alternative channels. Non-Governmental Organisations and MFIs have the lastmile reach to cater the people. A separate independent platform can be created for planning and implementation.
RBI, through its notification, viz. DNBR. CC.PD.No.078/03.10.038/2015-16 has removed the regulation regarding maximum permissible variance in the interest rates for NBFC MFIs, in cases of channelising the government agencies’ loan for specified socio-economic class.
The North Eastern Development Finance Corporation Ltd. (NEDFI) is already working with microfinance industry. Government schemes can be channelled through MFIs.
Provisioning of term loan to the MFIs will be the better model as the MFIs can develop their own products as per need of the clients. The BC model has its own challenge as it does not build up self-dependant institutions, it builds up banking sector dependant institutions.
BCs do not generally consider the need of the people, rather the policies and products of banks hover over the system. The new concept of loan co origination model can also be looked at.
In order to facilitate the financial inclusion in North East, the Reserve Bank of India can think of subsets under the stipulated segments of PSL, specified for North Eastern Region. It will enhance the availability of finance for microfinance sector to cater the unreached people and enterprise development.
(Views expressed in this article are a personal opinion of Dr Saibal Paul, Associate Director, Leading Policy, Membership and Strategic Initiatives, Sa-Dhan.)
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