FINANCIAL INCLUSION A PERSPECTIVE
Developing economies all over the globe are looking for new modes and means to contain poverty and include every citizen in the economic growth so that no one is deprived of his / her right to live decently. However, the task has been daunting and with limited resources at their disposal, the mission has been an uphill task for these nations. The Indian Government has a long history of working to expand financial reach to the poor and downtrodden, particularly in rural India to engulf them in building a strong India and be a part and partner in a new Economic World Order. The effort has been there for everybody to see. India has emerged a strong economy today.
Nationalization of the major private sector banks in 1969 was the first step in this direction. Setting up of separate Banks viz. Regional Rural Banks which would cater to a limited service area to have a focused approach was another mile stone. Yet the growing population put stress on this initiative. In order to sustain this service, the Govt put special emphasis on expansion of commercial bank branches in rural areas. Credit needs of poor especially in rural sector was categorized as priority sector and commercial Banks were mandated to lend atleast 40% of their credit to this sector. Setting of Co-operative Banks was to encourage co-operative venture and expand the reach of easy credit to more and more population. Though all these initiatives did give encouraging results, yet a vast population was still left behind. The recent innovative scheme of micro financing by setting up of Self Help Groups was a giant leap to reach these deprived millions. Encouraged by this, we are now looking at covering entire population in inclusive growth by bringing them under the umbrella of banking. The new concept is Financial Inclusion. Recent developments in Information technology has transformed banking from the traditional brick-and-mortar model to sleek, easy and Anytime, Anyhow, Anywhere banking supported by a number of innovative systems such as Automated Teller Machines (ATM), cashless banking through plastic money, Internet Banking, mobile banking, online money transfers, etc. But technology is expensive and, therefore, is till now restricted to urban population who can afford its cost. Whatever has so far reached to rural population is meager, to say the least.
In the new millennium, India has witnessed tremendous growth in communication technology. Not withstanding the global meltdown in the last couple of years, this sector has grown tremendously with the result that now communication has made inroad in urban and semi urban areas and is set to cover more and more new areas. With such expansion, it has also become affordable. With this growth, a new channel of reaching the masses has opened up.
Financial inclusion initiatives, driven by a combination of technology and communication, has proved tremendous success in the pilot implementation. Instead of a person reaching the Bank branch, now Bank shall reach the doorstep of customer in this Govt. initiated branchless banking. Certain categories of organizations / people like non-government organizations, micro-finance bodies, co-operative societies, grocery shops, Public Telephone Booth operators and individuals are appointed as business correspondent/facilitator of a commercial Bank and are authorized to collect small deposits, disburse and recover certain loans, and also sell other financial products, like insurance, pension and mutual funds, and to handle small remittances and payments through smart card based bio-metric enabled transactions either online or through offline. This is a cost effective scheme with low investment and, therefore, it is planned to cover entire population in the years to come. Extending banking channel to entire population is good step. However, there is a need to sit and review in retrospect whether we are really catering to the needs of the deprived class, whether the services and products that we offer to urban population also suits them, whether the present rules and regulations, including statutory ones adequately address their needs also. Not everybody can start his own business and earn a sustainable income. Just extending a credit facility of even a small amount for such people may not be fruitful. Still we should extend credit to such persons for inclusive growth. We need to innovate different products or a package of products that meet saving, credit and insurance needs of the people. In fact, savings products must meet the specific requirements of the poor. Where is the question of savings when the poor hardly earns enough to sustain a day’s meal? They live by a day. Therefore, we must tap small savings in return for some incentives, other than some percentage of interest, with suitable back-end technology support. Remember, traditionally, savings has always been associated with surplus income, which the poor is not generating! We need to have a fresh thinking on savings in the context of poor when we have to include all of them in our fold. For meeting credit needs, a savings-linked financing model can be adopted for these segments. The approach must be kept simple and should guarantee the beneficiaries a credit limit, subject to adherence to simple terms and conditions. Also, suitable micro-insurance products need to be developed for the financially excluded. Poor population, especially the rural population has high percentage of illiteracy. This makes them depend upon a few literates who can guide them. Reaching vast millions cannot be sustained either by banks or by Govt agencies alone. The underlying fact is that such efforts should be driven by the Govt with the active participation of Banks and support from the Industry. The industry should come out with new technological products such as very low cost hand held machines and affordable smart cards and invest more in setting up communications in the un-wired villages. The Banks should play a very active roll in brining rural population under their fold by sending their correspondents to unbanked areas. The Govt, on their part should extend incentives and relax norms to the Banks and industry in this Endeavour.
There have been regulatory relaxations and initiatives such as using mobile phones for making payments and third party business correspondents and relaxing the Know Your Customer norms. The concept of branchless banking will be instrumental in speeding up financial inclusion. With increased coverage we shall definitely innovate and improve so that we achieve the desired goals in the time frame set for the same.