An insider suggests how to go about financial inclusion for maximum impact
Financial Inclusion Growth and Governance
Deepali Pant Joshi
Gyan Publishing House
FINANCIAL INCLUSION Growth and Governance is probably one of the most comprehensive books on inclusive banking authored by an expert who has not just been with the RBI for several years, but also overseen rural banking operations from different perches. Deepali Pant Joshi has written an excellent book, using sharp judgment to explain not just what has happened, but also what should be done to bring about inclusive growth.
As the title suggests, she believes that while talk of growth and inclusion is fine, the important aspect that has lagged is ‘governance’. There has been considerable enthusiasm shown by banks in meeting quantitative targets, but it appears to have been accomplished more from the point of ‘meeting the target’ rather than bringing about qualitative changes in the lives of groups concerned. This is important even today, as the author subtly points out that the Jan Dhan Scheme has been very aggressive in terms of opening the targeted number of accounts, but the challenge is to make these accounts operative and ensure that people get into the banking habit. This would finally translate into getting loans from formal delivery channels. Presently, these accounts have been linked with the direct benefit transfers programme of the government.
Financial inclusion has always been defined as providing every household access to a savings bank account, an overdraft, remittance facilities and credit products like a kisan credit card. This has been achieved in bits and pieces, as there has never been a conscious effort to deliver the entire product range. It is not surprising that the result has been quite chaotic and, hence, mixed. In fact, financial inclusion also goes a step ahead and talks of access to insurance products at the next stage, to be followed by mutual funds. But this seems to be still some distance away.
There is a reason for the absence of enthusiasm. Banks today do not see this as a profitable venture and, hence, have put in limited effort in dealing with this issue. Today, the success of banks is judged more in terms of profit indicators and returns to shareholders. But we need to have a paradigm shift and also evaluate the returns to various other stakeholders, which is the community at large.
This is where governance comes in, as banks have not worked out appropriate models for this. Meeting social targets has become part of what can be termed as ‘regulatory compliance’ and the intention to make a difference is missing. Here, the author feels that there has to be a change in the mindset of bankers. Governance must not be viewed as a regulator compulsion and we must move over to more of self-regulation. For this, there has to be a bottoms-up regulatory approach with internal checks and controls.
In particular, she emphasises the business correspondent models, which will go a long way in pulling the poor into the financial system. Unfortunately, there are no uniform practices here and her suggestion is that they should all come together and identify the best practices. With a new variety of banks being established, like payments banks and small banks, we can expect to see some traction here.
Interestingly, the author pitches for small banks to work for financial inclusion and suggests greater use of technology to deliver services. It will not be feasible otherwise. But to make it complete, we need to look at inclusion in the boarder sense and also look to include insurance, as well as general health services.
Another important issue she takes up is financial literacy. It is one thing to provide access to banking, but it is also important to educate the masses on these products. For this, she quite cogently links it with the national programme on skill development of the government. Here, she suggests a multi-agency approach to spread literacy and establish financial literacy centres. Banks, especially RRBs, should conduct regular camps, as they are ideally placed to do so given their proximity to the rural population. We also talk a lot on demographic dividend, but to draw it, we must have an educated set of youth that has to be provided financial assistance, which comes under the ambit of financial inclusion.
The author also argues that financial inclusion is not just restricted to rural areas and should be expanded to cover urban areas too in areas of SME finance and micro-finance. Banks must also be educated on the risks involved and should tread carefully. Again, she emphasises on governance for successful implementation. The challenge really is how we put all these pieces together to make a difference.
Madan Sabnavis is chief economist, CARE Ratings