Financial Inclusion: Reaching the Unreached

Despite the best of intentions and sincerest of effortscoupled with innovative use of technologythe fact is that financial inclusion is not happening the way it should be happening. The reason for my saying that is not because we have less than 20 mn customers on the business correspondent model and that is a small percentage of unbanked people in this country. That is more of a factor of time. If anything, some of the BCs like FINO and Eko have done a fairly good job of it.

I am also not commenting on the statistics of how many bank accounts opened through these initiatives are operational. Half the bank accounts opened in the traditional way too remain non-operational.

In fact, that is the point.

To be called included, people must really be part of the financial system and must be using it. Because forget not, we in India are still using the phrase financial inclusion and not financial access. But what we are trying to achieve is financial access. This probably comes from the 2008 Rangarajan Committee report on Financial Inclusion, which defined it as the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost.

That is a great starting point, considering the gaps that existed. But since then, we have seen some good moves such as creation of the Unique Identification Authority of India, creation of the Business Correspondent model and even creation of the Financial Inclusion Fund and Financial Inclusion Technology Fund.

In a way, it was like building the basic foundations. Now, it is time to make it work. The advantages of most people using the financial system are many and I need not get into that here.

In most discussions and debates, the tone is that financial access, coupled with financial literacy, will lead to inclusion. Researchers globally now have proved beyond doubt that it need not be the case. People must have a real need for using the financial system. In India too, we have seen NREGA changing the demand for financial services drastically. But beyond government disbursements, there is very little need that we have been able to create.

For example, small amounts of money transfers, automatic/mobile based payments of government taxes as well as other bills, may go a long way in creating the need. That requires not just creating unique identities and appointing business correspondents, but enabling a whole set of payments to work electronically from the mobile phone or the agents of BCs. That has its own challenges and opportunities.

In other words, financial inclusion is not just the responsibility of banking and financial services ecosystem. It has to be taken by the government as a national economic objective. It is a development tool, it is great news for economic growth, it is a good way for broadening of the tax net, and overall, it is the first step towards social inclusion.

I think the great initiatives on financial inclusion would not be complete without including the agenda of creating needs for financial systems by the people who are not included.

Our cover story this time is a status of financial inclusion: more focused on who is trying to do what. While the large banks are following the BC model, cooperative banks have suddenly woken up to the opportunity of financial inclusion. And they are beginning with going for core banking system. Probably, it is only in India that we are seeing so many banks going for core banking on cloud. There are many such interesting pieces of information that you can find in the story.