Financial system grows with economy: Rahul Modi

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Rahul Modi, Managing Director, Adarsh Credit Cooperative Society Ltd

With the chorus for financial inclusion reaching the crescendo, Rahul Modi says the financial system can grow only as fast as the rest of the economy

With micro-finance and inclusive banking, are we seeing a silent revolution happening in India?

Micro-finance is generally understood as the provision of financial services to low-income households. Majorly, it involves supply of credit, savings, insurance, remittance and pension products or services in token sizes that are much smaller than those prevailing in the mainstream commercial markets.

MFIs in India have borrowed largely, in terms of methodology, processes and systems, from various overseas banks or financial institutions. Most of the leading Indian MFIs started out as NGOs during 1985-1999, and then adopted the model of group-based lending to women in rural areas.

On the other hand, banks have no doubt expanded considerably in the last few decades and more people have been brought into the banking fold. But it has also shown that despite the considerable progress made by the banking sector in the last few decades, there is still a long way to go before one can say that the financial system has become truly inclusive. While the needs of the economy have grown, the response of the banking system has not always been uniform or appropriate across the country. Very often we have seen it being concentrated in a few top cities or metros.

Overall, the micro-finance and inclusive banking has grown rapidly, resulting in a bit of silent revolution, but it is yet to satisfactorily market the revolution.

Please give us an overview of the operations of Adarsh Credit Co-operative Society and initiatives in the area of financial inclusion?
The organisation started its operations in the year 1999 as a co-operative society primarily catering to the local masses in Rajasthan, majorly occupied in agricultural activities. The organisation has mutual status, which means that we are owned by and run for the benefit of our members. ACCS or Adarsh Credit is India’s leading credit co-operative society in terms of branch network, advisor strength, deposit procurement. The organisation in February 2008 was granted the status of Multistate Co-operative Society by Ministry of Agriculture, Government of India. As on August 31, 2014, the society has 799 branches across India (except Dadra and Nagar Haveli and Lakshadweep) with a deposit and loan base of Rs. 4,421.58 crores and Rs. 4,465.46 crores, respectively, and is currently serving more than one million clients across India. The organisation through its agency model and also with 70 percent of its branches in rural areas has always strived to bring the unbanked people into the ambit of banking arena and thus inculcating the saving habit among them. To ensure that the goal of inclusiveness is being done on a scalable basis, the organisation is carrying out many of its collections and fund transfer between its members through its mobile money application, enabling everyone to experience the financial services through mobiles and we have been the pioneers.

“Under the previous UPA government, about 6 crore so-called no-frills accounts were opened last year under its financial inclusion initiative but RBI data has shown that more than half remained dormant, adding up to costs for banks to continue to maintain them.”

In your opinion, what are the broad challenges to Financial Inclusion?
While financial inclusion appears as a noble goal in itself, recent history shows that efforts to drive financial inclusion can be counterproductive unless handled well.

The dangers of reckless credit expansion in the name of financial inclusion should serve as a precautionary tale for policymakers today. Financial inclusion can be a worthy goal only if it helps reduce poverty levels sustainably. Given the fact that the roots of poverty often lie outside the realm of finance, making easier access to credit without addressing real economic constraints is unlikely to either boost growth or help fight poverty. Efforts to drive greater financial inclusion can, in fact, end up harming rather than benefiting those in whose name such efforts are launched: the poor and the vulnerable.

Hence, there are no easy shortcuts to financial inclusion. Ambitions for financial inclusion need to be tempered because the financial system can grow only as fast as the rest of the economy. Given India’s income levels, it is not doing either much worse or much better than its peers as far as key parameters of financial inclusion are concerned.

The Government of India has started “Jan Dhan Yojana”. What is your opinion about this initiative?
The Government of India’s initiative of Jan Dhan Yojana is basically a drive to speed up the financial inclusion scheme which has been progressing at a snail’s pace in the country. Insurance cover and over draft benefits certainly seem to be acting as a catalyst. However, there are a few terms and conditions which apply. For instance, to avail an overdraft, the person’s account should be active for at least six months.

Under the previous UPA government, about 6 crore so-called no-frills accounts were opened last year under its financial inclusion initiative but RBI data has shown that more than half remained dormant, adding up to costs for banks to continue to maintain them. So, to put in a nutshell, the initiative is an exemplary measure to bank the unbanked, however having said that, the necessary strings need to be pulled as and when require to ensure that the initiative is being carried in a true manner and in the best of spirits.

How do you think IT can be used for improving efficiency and transparency in functioning?
Technology is enabler for any business. Today, every organisation is leveraging technology to increase more from less by automation of most repeated day to day jobs. The biggest contribution of IT and ICT technology is that it increases the productivity, efficiency and transparency, and brings down the cost of overall operations to deal with competition.

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For an organisation like yours, what are the biggest challenges when it comes to IT?
As our organisation is primarily focusing on Financial Inclusion, our focus is rural economy. Biggest challenge that we face is lack of literacy whenever we need to introduce new technology innovation. Recently, we have launched our Agent Banking services where our technology team has provided the platform for our advisors where they can completely get rid of their paper work and reduce their operational burden to increase productivity. It is difficult to change overnight and change is always difficult in an organisation like ours due to our focus on rural area. We are running lot of campaign to explain them the real benefit of this system and also running some introductory reward scheme to adopt this platform for everyone’s benefit. In nutshell, we need to put extra effort for increasing awareness and adoption of new technology. Adarsh Credit is making very sincere efforts to increase the financial literacy in rural environment and providing accessibility of financial system at the doorstep with right use of technology.

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