Spotlight
New Delhi, 19 July 2019
Financial Inclusion
NEED TO REFRESH POLICY
By Moin Qazi
Finance is the
cementing force that holds all the pieces of our life together. It enables
money to be in the right place, at the right time, and for the right situation.
To borrow and save is to move money from the future to the present or from the
present to the future. To insure is to move money to a “good” situation from one
that is “bad”. Ideal financial societies are those that provide safe and
convenient ways of managing these simple monetary affairs. The process by which
people have access to formal financial tools for managing their financial
affairs is known as financial inclusion.
India’s financial
inclusion revolution received a steroidal boost when deposits in bank accounts
opened under Pradhan Mantri Jan Dhan Yojana (PMJDY crossed the 1-lakh crore
mark. According to government data, the total balance in PMJDY accounts stood
at INR 1, 00,495.95 crore as on June-end 2019.
The total number of
beneficiaries is 36.06 crore. This puts the average account balance of a Jan
Dhan account at Rs 2,787. The number of zero balance accounts under PMJDY
declined from 16 per cent of the total accounts in March 2018 to 14.37 per cent
in March 2019. Recall, the PMJDY was launched on August 28, 2014, with an aim
to provide universal access to banking facilities and accounts opened under it are
Basic Savings Bank Deposit and carry an overdraft facility.
Enthused by the
success of the scheme, the government enhanced the accident insurance cover to
Rs 2 lakh from Rs 1 lakh for new accounts opened after 28 August, 2018. The
overdraft limit has also been doubled to Rs 10,000. The government also shifted
the focus on accounts from ‘every household’ to ‘every unbanked adult’. Over 50
per cent of the Jan Dhan account holders are women.
There are several
reasons for financial exclusion and these will have to be addressed to make
India financially inclusive country. Financial exclusion could be due to
several reasons. One of these is the design of the products or services or the
way they are sold. There may be barriers such as requirements of minimum
balances, credit scores or other thresholds that cannot be met by a large
number of people.
Financial
institutions are leveraging technology to revolutionise product development,
distribution, risk management, and a deepening understanding of lower-income
customers to develop sustainable business models that meet the unique needs of
the poor. Technological advances are improving data transmission, collection,
and analysis, enabling organisations to develop low-cost distribution models
and scalable risk-management practices.
By delving deep into
data available from mobile usage and other sources and using algorithms, we can
get insightful findings and variables that can help building surrogate
financial histories of individuals, who do not have formal financial
documentation.
Tech companies may be
disrupting financial services, but they lack the solid relationships built up
by traditional banks over generations. Traditional banks will continue to be
the most trusted financial allies of people despite the fact that stringent
regulation is effectively hamstringing them in remote areas which are being
mostly served by banks weak digital and communications infrastructure and
non-standardised processes has impeded shift towards digital banking.
The need of the hour
is for the Modi-II Government to reinvigorate, through a two-pronged strategy,
the policy focus on financial inclusion, by one, meaningful access to bank
accounts, and two, adopting a life-cycle approach to inclusion, where the
account forms the gateway to access an entire gamut of products and services,
including long term savings, investments, and insurance.
The biggest barrier
to account usage is the lack of proximity to transaction points, and policy has
tried to increase this through two routes, namely through payments banks and
business correspondent (BC) networks. But viability remains a serious concern
given multiple parallel networks of BCs in a geography has resulted in
fragmentation of income streams and profitability.
Allowing for white-label BCs will ensure optimal
utilisation, with multiple banks sharing the same BC. For this, the white-label
BCs must meet certain prudential criteria and real-time technology capabilities
for obtaining direct access to settlements systems.
Financial exclusion
denies people the stability of a savings account, established credit and
insurance. Since low income women live entire lives outside the formal banking
system, they struggle with poor credit history and are most likely to fail in
getting a loan.
Primarily, financial
products are distributed through two systems -- branch and non-branch delivery.
However, due to the limited reach and poor viability of the branch system in
rural areas, a large number of initiatives have been taken to reach the last
mile through the non-branch route. Some of the initiatives have been mobile
ATMs, smart cards and mobile banking, use of intermediaries including SHGs,
MFIs, post offices, and the business correspondent/facilitators model.
A revolutionary
concept born out of it is the business correspondent model -- in which one
financial institution or an agent carries out transactions on behalf of
another, often because it has no local presence. It is a technology-driven
model. This alternate service channels have tremendously expanded the outreach.
These agents are better positioned to serve the remoter pockets as they operate
in a limited geographical area, enjoy greater acceptability amongst the rural
poor, have a greater understanding of the issues specific to the rural poor,
and have flexibility in operations providing a level of comfort to their
clientele.
It is one of the most
effective initiatives that is now being replicated by many players to register
rural footprints. The intermediaries chosen to spread banking services are
called business facilitators and business correspondents. Facilitators identify
borrowers, process loan applications, and create awareness about savings and
banking products. Correspondents handle money directly, collecting deposits,
disbursing loans, accepting loan repayments, and also selling mutual funds,
pension and insurance products. Under the BF model, banks utilise the network
of intermediaries such as not-for-profit organisations, microfinance institutions,
post offices, non-banking finance companies, and retired bank employees to
promote and sell financial services to rural households.
We cannot have one
sector solution. There is need for convergence among all the players in the
ecosystem. Every player offers unique strengths. By harnessing these
mutually-beneficial strengths -- from financial players, telecommunications
providers, NGOs and government institutions -- financial inclusion can be
fast-tracked.
We also need an overhaul of the customer protection regime.
The new regime must be one that can hold all entities to a common standard of
institutional conduct in how they deal with the individual customer, including
how they sell products. A misalignment of incentives between the provider and
the customer leaves the customer worse-off, and therefore, we need to enforce a
dynamic that keeps the customer’s interests above everything else. North Block
must pay heed.---INFA
(Copyright, India News & Feature Alliance)
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