August 2012

Banking on Inclusion

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“It is important for financial institutions to leverage technology so that effective delivery mechanisms can be developed” Vikas Aggarwal, Director – Management Consulting, KPMG

With almost half the country unbanked and only 9 percent of the population having credit accounts with the banks, the need for focused efforts towards financial inclusion is being increasingly felt in the government circles. Though many governments across the globe face this challenge, in view of the huge and widely prevalent economic disparities, financial inclusion becomes a key imperative to usher in inclusive growth. While the Government and the RBI are playing a proactive role in furthering the cause with some of the initiatives already underway, the real challenge is to find a viable or low cost delivery model and penetrate deep into the rural segment. It is important for financial institutions to leverage technology as much as possible to  on struct effective delivery mechanisms. Though majority of efforts are concentrated to address the supply side in designing the services suitable to the citizens needs, there is a definite need to concentrate on the demand side by imparting financial awareness/literacy which would help in preventing discrimination of low and marginalized income groups. While the supply side can be addressed through financial institutions, the demand side needs involvement of stakeholders from the larger ecosystem. In India, financial inclusion at present is largely confined to providing bare minimum services such as no frills account. However, internationally it has been viewed in a much broader perspective with access to wide range of financial services, financial security and coverage of an individual sometimes regarded as indicators of financial inclusion. Conventional banking models of brick, mortar and men cannot reach out to more than six lakh villages owing to the humongous cost. Adoption of end to end Information, Communication and Technology (ICT) solution alone  can make any such a model feasible and viable. Had it not been for the development of cost effective ICT, financial inclusion would have remained a distant dream for us. In the fast moving environment, spending time to visit the bank branches for effecting banking transactions has considerably come down. Alternatively, channels such as  ATM, Internet, mobile banking services are picking up steadily apart from the existing bank branches services. Further, unmanned e-banking lounges are going to occupy a predominant place in future banking scenario. Apart from the obvious challenges like illiteracy, lack of bank branches in rural areas etc., lack of statutory documents required by banks and with many banks still evaluating low margins and high volumes proposition, the road for this mammoth task is not without roadblocks. The consequences may vary depending on the nature and extent of financial exclusion. It may range from higher incidence of crime, exploitation of the low income groups by the money lenders to significant delay in remittances. With the proportion of adults having a bank account being significantly low and with India recording one of the highest number for households excluded from banking, an enabling public policy mandating participation from key institutions coupled with awareness  campaign amongst citizens and a collaborative approach (for visible mass scale implementation) are the key imperatives. Effective monitoring of financial activity, transaction volumes and trends in new accounts is equally important to gauge the quality and actual impact of the envisaged inclusion.

Identifying Finanacial Inclusion According to RBI,
Financial Inclusion is the process of ensuring access to appropriate financial products and services needed by all sections of the society in general and vulnerable groups such as weaker sections and low income groups in particular, at an affordable cost in a fair and transparent manner by regulated mainstream institutional players. It is in this context that I would like to point that MFIs/NBFCs/NGOs on their own would not be able to bring about financial inclusionas the range of financialproducts and services whichwe consider as the bareminimum to qualify as availabilityof banking servicescannot be offered byMFIs/NBFCs/NGOs. But,yes, they have an immenseand extremely important role to play in furthering financial inclusion in the sense that they bring people and communities into the fold of the formal financial system.



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