The government has drawn up a new plan focusing on fixing payment issues and not just opening bank accounts. But any improvement in the outcome would depend on how far the last-mile delivery concerns are addressed
KR Kamath
Under the proposed financial inclusion plan, the government is slated to switch gears from ?push? to ?pull?, that is from bank-driven to customer-driven
The nationalisation of banks in 1961 was the first step towards financial inclusion. Since then, initiatives such as introduction of priority sector lending norms, branch licensing norms with focus on rural/semi-urban branches, etc, have been undertaken to bring the financially excluded into the ambit of formal financial system. Steps by RBI include directives to banks to offer no-frills account, easier KYC norms, general credit cards to the poor, promoting the use of IT and intermediaries, and asking state-level bankers? committees to start a campaign to promote financial inclusion.
In 2006, RBI permitted banks to utilise the services of intermediaries in providing banking services through business facilitators (BFs) and business correspondents (BCs). In 2011, the government undertook the Swabhimaan campaign to cover 73,000 villages with a population above 2,000, with banking facilities. Banks have covered 74,398 unbanked villages and now a roadmap has been prepared for covering villages with less than 2,000 population. The introduction of DBT and leveraging the Aadhaar platform has helped facilitating banks to provide financial services to the excluded.
Despite this, covering the entire financially excluded population is a challenge. This is evident from the fact that of the 24.67 crore households in the country, 10.19 crore do not have access to banking services. In rural areas 44% households and in urban area 33% still do not have a bank account.
The government is planning a new programme called the Comprehensive Financial Inclusion Plan (CFIP). It envisages coverage of all excluded households by a six-pillar approach in two phases. The contours of CFIP are likely to be announced by the PM on August 15. CFIP?s first phase will emphasise on universal access to all the beneficiaries to banking services through sub-service areas (SSAs). Each SSA will consist of 1,000-1,500 families in a cluster of villages and each SSA will be serviced by a BC agent (BCA) who will facilitate account opening and ensure smooth transactions. There would be a shift from focus on geographical area to coverage of households?a shift from supply-side to demand-side. It is proposed that after satisfactory operations in these accounts, reasonable need-based credit facilities may be made available by fixation of overdraft limits. These accounts will be issued a RuPay card which will enable the customers to operate their accounts even without the help of BCAs. The awareness to be created among the financially excluded about the basic banking facilities through the proposed government campaign will switch the gear of financial inclusion from ?push? to ?pull??from bank-driven to customer-driven.
The second phase of financial inclusion talks about a ?pension scheme? to be made available to the identified beneficiaries in the unorganised sector and providing micro-insurance products to them through nationalised insurance companies.
So what can be done to make CFIP successful? The government has allowed a number of agencies to operate as BCs like corporate BCs, Kirana shopkeepers and daak sevaks, in addition to individuals/organisations operating as BCs. RBI is planning to allow the proposed small and payment banks to function as BCs. BCAs to be deployed will be ?sons of the soil? who can win the trust of the rural people. But the success of the BC model will depend on proper remuneration, timely payment, adequate number of transactions and support from the banks. To achieve this, banks have tied up with common service centres (CSCs) as BC. The government is also planning to transfer all social benefits through bank accounts.
Introducing e-KYC will address the challenge of residence proof hampering rural people to open bank accounts. Aadhaar will also play a major role in this. Wherever Aadhaar numbers are not available, enrolling will be taken up along with account opening.
Considering widespread usage of mobile phones, branch-less banking is being promoted by popularising mobile banking. For this, coordination between banks and mobile service providers is being evolved.
The government is working on implementation of the revised financial inclusion programme with the involvement of all state governments. With proper implementation, the benefits of development of the economy are bound to reach to the lower strata of the pyramid and thus make financial inclusion meaningful.
The author is CMD, Punjab National Bank
Sumita Kale
The new plan still follows the mandate-model of inclusion, and mandates can only take us as far as chalking up numbers on the board
There is a buzz that the Modi government will unveil a new financial inclusion plan on the Independence Day. While the exact details of the plan are yet to be revealed, reports suggest that the scheme, Sampoorn Vittiya Samaveshan, is targeted to cover 7.5 crore unbanked households within a year. The UPA financial inclusion push, Swabhimaan, started in 2011 and targeted unbanked villages in a phased manner; at first glance, the new plan appears similar to its predecessor, but there are points of departure.
This time the focus is on households, not villages, at least one account per household. While debit/ATM cards will be issued in the first phase, insurance services will be added in the second phase. Overdrafts can reportedly be given to the tune of R5,000 per account subject to certain conditions, there will be greater coordination with the state and district authorities, convergence with the UIDAI in enrolment, use of eKYC, use of alternate networks as cash-points including mobile cash wallets, common service centres, etc. The plan ticks every box?savings, credit, payments, insurance; yet, if sufficient attention is not paid to details in the actual implementation, this ambitious plan can boomerang on the government.
Remember that the bank-led model has repeatedly given mandates to the banks and then urged them to create viable business models. Yet it must be recognised that commercial viability will take its time, and in many cases, e.g. remote, poor areas, it may not even materialise. Such a comprehensive scheme, especially the overdraft, will place a considerable burden on the already strained balance sheets of banks. Field surveys?CGAP/CAB, MicroSave, InterMedia?all show more than half of the basic savings bank accounts opened for inclusion lie dormant, a large number of banking correspondent agents are ?missing?, existing only in bank records but untraceable on the ground. Adding more accounts and agents will barely dent the reality of exclusion, unless the last-mile issues are fixed. The key to viability lies in increasing transactions, and there is no clarity on whether this metric will be tracked. Where are the current pain points at the last mile? To begin with, low commercial viability of the BC agents, leading to high dormancy. Apparently the government understands this point and proposes a monthly remuneration at R5,000, but it is not clear if banks will get any support to pay this out.
Government transfers form the fastest way to raise transactions and bring the unbanked into the network. However, the UPA?s Aadhaar-enabled direct benefit transfer (DBT) programme had many lapses, mainly because the previous regime was in a rush to show it was doing something. Apart from the most basic issue of legal sanction for mandating Aadhaar, the programme was rolled out in districts before full enrolment, the recommended 3.14% processing fee was reduced to 2% and rarely paid to banks on time, creating payment backlogs down the line etc. Finally, the programme that had been set out with much fanfare, fizzled out.
If the present government wants to avoid the same fate, it has to address the last-mile challenges?sort out the Aadhaar imbroglio, target increasing transactions per agent, provide budgetary support to process timely DBT payments with appropriate share to the agents and clearly communicate to all stakeholders, including the customer, about the exact payment processes and the usage of accounts, etc.
But all this still follows the mandate-model of inclusion and mandates can only take us so far as chalking up numbers on the board. The irony is that while the poor are being forced to tap into informal sources, banks are being forced to create a touch-point and are failing to go beyond that. If these touch-points are to become a real pathway to inclusion, the needs of both providers and customers must be matched. The programme must proceed with a clear roadmap: get DBT right, use existing payment platforms and rope in all bank and non-bank networks, allow the transaction history to be used to frame appropriate products etc. As we wait for more details on the programme, the question is: will the new programme get the same attention to detail as the Modi election campaign got or will it go the way of the earlier regime?
The author is with the Indicus Centre for Financial Inclusion and can be contacted at sumita@indicus.net