April 2008

Extending banking to the marginalised

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Financial inclusion is all about making financial sevices more affordable, accessible and cost-effective  so that the unbanked and financially underserved communities of rural and urban areas can avail of basic banking services like opening a Savings Bank Account, taking a loan or buying an insurance. The entire argument on financial inclusion is whether the financially excluded community can be accomodated in the mainstream banking sector or not. Till the last decade, the commercial banks (mainly in the developing world) manifested their unwillingness to incorporate the marginalised in the mainstream banking community. This was chiefly because the functional costs were high and the profit of magin was low. In the developed world, because of diversified financial markets and intense competition in the banking sector, banks included even the lowest paid people thereby reversing exclusion.

The scale and quantum of microfinance operations in both developed and developed countries have definitely grown over time and rural ATMs have been operationalised in many countries across the globe. ICT applications in the financial sector have really fostered the extension of financial services and aided the integration of banking products and services.  The use of plastic card technologies in the form of debit cards, smart cards, biometric cards etc. and the subsequent implementation of mobile payment services have expedited transaction processes and have reduced accessibility costs. Despite the use and application of advanced communication and interactive devices and mechanisms, a substantial number of people are still out of banking reach.

Till the 90's of the 20th century, financial services in countries with both regulated and unregulated markets catered to the economically privileged sections and financial institutions were geo-politically restricted to the urban and semi-urban areas. People living on the fringes could not take recourse to retail financial services such as cheque encashing, money orders, remittances, stored value cards, loans, savings accounts etc. and insurance facilities. It is only very recently that commercial banks under certain regulation pressures and social concerns have started to take banking services to the unbanked comunities. Many commercial and public banks have started providing 'Zero balance' savings account and advanced insurance facilities (with low premium) and Microfinance institutions have started providing low-interest loans to the unbanked. The government bodies, private financial institutions and development professionals have entered into endeavours and ventures in terms of banking extension. Many Self Help Groups (SHGs), civil society organisations and informal financial organisations have come up and are either involving themselves directly or as intermediateries to monitor and control the disbursement of bank funds or locally generated funds.

In this issue, we have underscored the need to extend financial services to the marginalised groups and have attempted to deliberate on issues, concerns and initiatives pertaining to microfinance and the effectiveness of ICTs in institutional financing.

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