Cheque book for Chhattisgarh

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: driver about their experience of opening a bank account in a big city—to know that India cannot have equitable growth without universal financial inclusion.

What does financial inclusion mean? To me it means step by step enhancement of the ability of the poor to participate in the financial system. The first step of financial inclusion is financial literacy and the second is the opening of a “no-frills” bank account. The poor also need other financial services—payments (such as NREGA or old-age pensions); remittances (from family members who have migrated to cities); savings services with neighbourhood collection/withdrawal facility; and insurance—for life, health, crops, livestock, etcetera. After all this comes consumption credit and finally a loan for working capital or asset purchase.

To make this happen, what India needs is a nationwide electronic financial inclusion system (Nefis) to enable small transactions to happen in an affordable and secure manner. All government payments like the NREGA and old age pensions, as well remittances from family members who have migrated to cities, can be made using Nefis into “no-frills” bank accounts of poor households. All no-frills account holders can be extended group life and group health insurance. Once the cashflow history and savings balance builds up in these accounts, banks can initially give overdrafts and then extend term loans. Future loans can be based on repayment history, which could be made available through Nefis to any lender.

The front-end of Nefis would be the “business correspondent” (BC), a new channel for providing financial services, comparable to the STD PCO for telecom services. RBI had announced its approval of this idea in January 2006 but soon after that RBI started backtracking. First it limited the BC outlets to post offices, retired school masters and NGOs. The idea never took off, with less than 600 BCs in action compared to a million STD PCOs.