Key questions to be addressed are rural poor?s perception on the extent of creation of banking facility and its impact on their livelihood.
Financial inclusion is a process of ensuring access to appropriate financial products and services needed by all sections of the society in general and vulnerable groups in particular, at an affordable cost, in a fair and transparent manner, by regulated, mainstream institutional players. The objective of financial inclusion is to transform the lives of poor people by providing them access to banking finance and enabling them to generate stable income.
The government and RBI have been making concerted efforts to extend financial inclusion across the country. The measures initiated by the government include nationalisation of banks starting from the State Bank of India in 1955, and other banks in 1969 and 1980; having a network of rural cooperatives and regional rural banks; and liberal loan melas of the 1970s and 1980s. RBI has been making efforts through policies like the priority sector lending since the early 1970s. In recent years, efforts were made from November 2005 when the scheme of ?no-frills? account was announced but the formal thrust came from 2008 after the adoption of report of the Committee on Financial Inclusion (GOI, 2008). RBI?s cautious policy on financial inclusion has been to ensure a balance between equity and efficiency as well as ensuring financial health of banks and preserving their lending capacities. RBI has adopted a bank-led approach and has been neutral to the use of technology by the individual banks. It is reported that as a consequence of these measures, in January 2013, banking facility had reached more than two lakh villages with nearly 80% through the business correspondent model, and nearly 10 crore savings bank deposit accounts including erstwhile no-frill accounts had been opened in the last three years, according to RBI. The achievements seem commendable though RBI is aware that financial inclusion still remains a substantially unfinished agenda.
The public sector banks, traditionally involved in social banking, are playing an important role in extending banking to the rural sector. Some of the banks benefit from institutional memory as they had pigmy, honey deposit or jeevan nidhi schemes and now some of those accounts are migrating to the no-frill or basic saving accounts.
The major constraint is low number of transactions and low volume of turnover. A key reason for low level of transactions in such accounts amongst others is that rural people think that these accounts are specifically meant for one-sided transfer from the government and that in the case of certain transfers, government rule requires that if balances are maintained in these accounts, then after 90 days, such balances will be remitted back to the government as unused funds.
The service providers are imparting training to business correspondents (BCs)/agents (BCAs) ranging from a few weeks to a few months and monthly remuneration ranges from R1,000 to R5,000. Some BCs/BCAs are specifically recruited for the purpose while others are generally shopkeepers and housewives who do this as an additional job. As the attrition rate of those BCs/BCAs especially recruited for the purpose, because of low salary and low transactions, is high, man management assumes added significance. In the case of other BCs/BCAs, there is a perception of added respect and recognition with the job. The incidence of fraud has rarely been reported because of familiarity with local culture and people.
There are technology problems as well particularly with hand-held devices due to constraint of terrain and connectivity. BCs sometimes resort to climbing trees to get connectivity. There are cases where due to connectivity problem, there have been data transfer failures.
A number of instructions from different sources, sometimes from the government while normally through RBI, tend to confuse the bankers. Also, frequent changes in implementation strategy hampers focused work in the specific area and the existing infrastructure gets overstretched. For example, initially, the plan to reach the villages with population of more than 2,000 was progressing well. Then, suddenly, banks were given targets to extend services to villages with less than 2,000 population. The implementation of electronic benefit scheme further stressed the existing infrastructure. In some cases, there was a shift in the area of operations between different banks which implied that the investment made in that area was lost.
The private sector banks are also contributing to the effort but there are instances where they are charged different rates by the service providers adding to their cost of operations.
The amount of credit expansion under financial inclusion is low as some bankers fear about the level of NPAs and perform under looming shadow of loan melas/waivers culture, especially during election times. In any case, money lenders are securely ensconced as credit disbursal is generally not taking place through the BCs/BCAs. Also, there is no evidence that the banking route has begun to be used for remittance purposes.
An important contribution of this policy has been that a banking culture is beginning to develop in rural areas and some bankers perceive it as a litmus test to eventually establish a physical branch. This augurs well for financial inclusion. However, key questions that remain to be addressed are: to what extent rural poor perceive that access to banking facility has been created? How would they like to make use of it and what are the key constraints? Has it made any impact on their livelihood?
Charan Singh is RBI chair professor, IIM Bangalore. Gopal Naik is professor of economics and social sciences, IIM Bangalore. Views are personal