Financial Inclusion: Need of the Hour

Gobal recession is a thing of the past now - financial institutions across the world have entered into pre-recession era of growth and stimulation. While the financial behemoths in US and Europe are taking baby steps towards expansion currently, they have shown signs of much broader plans which would trigger growth for all the stakeholders. It is safe to say that today banks are cautious but not suspicious of the promise future holds.

Europe was the past, present belongs to US, and India and China holds the future. When everybody is closely watching the game, especially in case of India and China, it becomes univocally important that we operate in a kind of environment which promises growth which is inclusive and not exclusive and financial inclusion is proving to be an extremely important institutional and functional vehicle for economic transformation.



Banks have their own reasons to be vigilant before they put their step in rural or semi-urban market. Setting up capital intensive infrastructure, high NPAs in rural areas, lack of resources, weak delivery models and lack of product suitability are holding them back. High operation costs coupled by expensive technology further make the model complex and unprofitable. Lack of market understanding or the flawed delivery and implementation models could be reasons for limited success in this sector. Clearly it is imperative to come out with leaner operation models, better management of assets and liabilities, customized product offerings and cheaper technology.



We can leverage upon India's 415 million mobile users out of which 46% don't have bank accounts. South Africa has set an excellent example where banks have developed many innovative and customized products using mobile and postal network and distribution to spread financial inclusion. Bio-metric can substitute ATMs to avoid the hassles in rural areas.

51% out of 100 Indians had bank accounts in 1993 and 17 years down the line, the number has marginally increased to 55%. Only 5.2% of India's 650,000 villages have bank branches. As on June 30, 2009, the seven new private sector banks had 275 branches in rural areas, or just 6.4 % of the 4,264 branches they have. It's an irony that people who need the financial services most are deprived of it. It becomes imperative to critically analyze the data and more importantly the ghosts behind it.



For past few years, banks have aggressively opened "no-frill accounts", that require very low or zero minimum balance but a recent study said only 11% of 25.1 million such basic banking accounts, opened between April 2007 and May 2009, are operational. Opening up bank account for under-privileged neither meets the purpose nor justify the intent to bank the un-banked. Banks should further facilitate the transactions and three most important transactions on such account are deposits, loans and remittances. Opening up new RRBs, tying up with existing RRBs or further consolidation by merging RRBs with banks can make the model viable.



A panel of the Indian central bank has recommended that owners of provision stores and medical shops, public call office (PCO) operators, petrol pump owners, insurance agents as well as retired teachers should be allowed to act as business correspondents or BCs for banks in rural and semi-urban areas to extend the reach of banking services but the policy is yet to be approved. Ideas like this can totally change the landscape of rural banking.



With the help of all stakeholders, it is possible to achieve the daunting task to make rural and semi-urban banking profitable. Stakeholders need to come forward, design, innovate, devise strategies, and make recommendations to change the rule of the games to achieve an objective of changing the paradigms of banking in India.



Sources - http://indiamicrofinance.com, http://www.livemint.co, Skoch Development Foundation