In a country like India, with a large and diverse population and with significant segments in rural and unorganised sectors, the expansion of banking, i.e., financial deepening, has become a prerequisite. As of now, only 40% of India?s population has access to banking facilities, which underlines how a much higher level of penetration by the formal financial system is needed. Even in areas that are well-covered by banks, there are sections of society excluded from the banking system. Financial inclusion is both a challenge and a huge business opportunity for the banking system. Such inclusion will lead to increasing availability of finance, which will stimulate economic growth and help alleviate poverty.
Banks offer, at all branches, the facility of a no-frills account to any person desirous of opening such an account. These accounts have nil/low minimum balances and limited facilities. Many of these accounts are lying dormant as the poor do not have money to deposit. In such cases, banking has reached the people. But, on the other hand, does it amount to economic growth, does it alleviate poverty and does it improve the quality of customers? lives? Banks should ensure that every system put in place accelerates economic growth and promotes progress for the poor. To make them transact with the bank, suitable products should be offered. Besides providing basic bank accounts like savings accounts, kisan credit cards or general credit cards, banks can also offer other innovative products such as health insurance and life insurance, allow access to payment systems and offer an affordable savings bank cum overdraft facility?which will ultimately lead to a situation where the poor can claim entrepreneurial credit on their own credibility. This section of society should not miss opportunities for lack of credit.
The best way to reach the rural mass is by way of the business correspondent model, rather than the brick and mortar model of branches. Banks have the freedom to select business correspondents from different sections of the society depending on their suitability, accessibility to the villages and credibility. Once a bank selects the right business correspondents and appropriate technology, financial inclusion is bound to succeed. Of course, banks have to make tremendous efforts to educate the rural masses on the need for availing banking services?both deposits and advances products?by taking up literacy programmes through video/audio channels, mobile vans and informal agencies.
The cost of providing financial inclusion services to the poor, including small loans by the financial service providers, remains a challenge. There is an argument that a larger number of transactions bring down the costs. Servicing the poor with small value services, however, doesn?t appear viable. To address this issue, we need to promote technological and institutional innovation to reduce costs and overcome other barriers, including addressing infrastructure weaknesses. Banks should be prepared to take up financial inclusion more as a corporate social responsibility than as a profit-making business model, although there is an opportunity to increase the banking business once financial inclusion succeeds.
RBI has advised banks to formulate a board-approved financial inclusion plan for the next three years. This plan has to be converted into a mission for which every bank is scaling up financial inclusion efforts. Banks should also integrate financial inclusion plans with their normal business plans so as to grab the huge business opportunity available in the untapped rural sectors. The concern expressed by experts reveals that the eradication of urban poverty should also be factored in the concept of financial inclusion. The banking system has to design various products and services to suit the requirements of urban populations so as to address urban financial inclusion.
Technology has been adopted by the banking system in a big way. But the technology that we need for financial inclusion should be different, because we are actually extending banking facilities to the illiterate. We need to meet the expectations of those who are looking, with keen interest, at the Indian experiment of making IT-based financial inclusion a success.
The success of financial inclusion depends on the commitment by all the players viz banks, the Centre, state governments, RBI and the NGOs/BCs. The basic philosophy of financial inclusion is to take care of those who are lacking development due to various factors like the non-availability of timely and sufficient credit, lack of marketing facilities for their products and structural weaknesses. The government and banks should sit together and draw a roadmap for developing the necessary infrastructure as a prerequisite for disbursal of credit and only then the objective of financial inclusion will be realised. Banks, for their part, should go beyond their routine debit and credit transactions and develop a model whereby they identify the needs, both economic as well as occupational, of each and every household of the village they have adopted. By conducting proper surveys and understanding ground realities, banks can make financial inclusion a success in India.
The author is MD & CEO, Tamilnad Mercantile Bank