Simplifying the process for financial inclusion has become the need of the hour to achieve larger objectives, believes Dr Dinesh Tyagi
Financial Inclusion has three basic components, namely, banking, insurance and pension. As part of the Common Service Centres (CSC) schemes, we have created a format for CSC that meets the requirements of all the three components. First is the Banking Correspondent model where we use kiosk technology. Today 12,000 Common Service Centres are using Business Correspondents (BC) to work for all the public sector banks. While in banking industry around 600 crore frauds have been reported, surprisingly not even a single fraud has been reported in these 12,000 centres.
Thus, kiosk technology has proved that even in rural or remote locations banks can work out a solution which is fraud-proof. Before we started the CSC scheme and CSC engagement, there were already about more than 1 lakh BCs. However, a recent study by the Reserve Bank of India showed that 50 percent of them were not actively into the operation.
On further analysis it was found out that BC of mobile nature was also not a workable solution. After this the banking division discussed these two issues with CMDs of all the banks in the country. Thus, the new scheme formulated states that BCs for banks have to be static. With this model in place, CSC is operated by a village level entrepreneur who belongs to same community. His credibility is higher, he is supported by a government scheme and he operates under some kind of supervision monitoring mechanism built in by the state government. Thus, he is more believable for undertaking a banking operation.
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The problem does not end here. The technology is always changing and many of the banks are still trying to get in sync with the new technology to stabilise the process. To our surprise, banks use BCs as mediums for target service approach. Thus, the bank’s vision of a BC is not a business model. However, there are two banks that are exceptions in this case; the first bank that realised BC as a business model was SBI. The second bank which is aggressively pursuing the similar model is Bank of Baroda. Both these banks are not bothered by any service approach.
In a particular state, SBI has appointed all the CSCs as BCs. The distance between the branch and a BC is 200 km. The technology makes it all possible as operations are not hindered by geographical boundaries. Another problem is issuing a passbook when the person can get his/her statements online and take printouts whenever required. Thus, issuing passbook is unnecessary and excluding them will make the process easy.
Second comes insurance. Today, three percent of India’s population has insurance coverage and rural India’s condition is pathetic. The problem is that people have policies but they are not regular with payment of the annual premium. Only one out of four policies issued is renewed in this country and the person who has been sold the policy feels at a loss because he has no facility in his vicinity to go to and make the payment.
The third is the pension. The person retires and gets his pension but a person belonging to rural area is on his own. For this, National Pension Scheme is a perfect model for creating an unorganised pension tool. CSC operators are now provided money in advance with commission and are told that if a CSC operator undertakes thousand pensions in his area, he gets Rs. 75,000 every year from 18 to 60 years and thus business is assured. It is a good scheme with social benefit as well as commercial model for CSC.
So we have all the components of financial inclusion, banking, insurance and pension. The Private Fund Reporting Depository (PFRD) also needs lot of simplification process. Any simplification process linked with UID would require only print card of PFRD. Thus, filling up forms, sending scanned documents are not required. There is nothing more fool proof than a UID as even signed documents can be fraud but not UID. Bringing in UID would enable simplification of process which in turn would assist in reaching majority of people. Thus, if we concentrate on simplifying the process then a framework like that of CSCs can help achieve larger objectives.