Years ago, a young lady who began her career as an IAS officer in Haryana, discovered that one of the villages had a splendid custom. The families in that faceless hamlet would not marry off their daughters to boys from villages that had no drinking water facility. Amid brutal traditions and cruel practices that defied the law, it was a persuasion of another kind that forced some of the neighbouring villages to dig tube wells.
A few years later, the villagers became a little more demanding; the new condition was that all prospective grooms must have a toilet in their house. It worked in its own limited way. But who knows, one day a little known village could even insist that the suitable boy must have a bank account. For Duvvuri Subbarao, who narrated the story, it was a way to wrap up a meeting with senior bankers on a high note.
But what happens after that? Many bankers talk of financial inclusion to be on the good books of the finance minister. Some smart ones are trying to figure out how to make it a good business. But all, even the regulator, know how crucial it is for the powers that be. A system that can implement even a slice of what is being aimed at will make the next polls easier for the ruling party. It’s a matter of time that banks will have to take the plunge; and sooner they sense it, the better.
For a lender, financial inclusion could simply mean rolling up the sleeves and doing the business you have never done. Bankers must make a mental note that if financial inclusion has to happen, it’s they who have to deliver. Not micro finance institutions or business correspondents (BCs). Most forget that banks have lent `30,000 crore — not a bad number — to self-help groups (SHGs).
Think of the ’80s. Car finance was done by lease and hire purchase firms, and home loans were given by a handful of institutions that made prospective borrowers wait for hours. Bankers never touched them. Not our expertise, they would say. Things changed dramatically as new banks and new CEOs looked for new borrowers. It was a change brought about by a new generation and a demanding market. The financial inclusion story may have a similar plot. But there could be other drivers to the change.
Banks can no longer complain that, unlike MFIs, they can’t charge an interest rate that’s high enough to recover expenses of giving loans to individuals in far-flung villages. RBI has quietly scrapped the rate cap on small loans and somewhat hesitantly relaxed the rules on doorstep banking through correspondents who can be NGOs, dealers of soap and cigarette companies, neighbourhood grocers and outposts of a telecom firm. However, finance companies, which are possibly better clued on to job than others, have been barred from being BCs. Whoever may be the BC, most banks are unlikely to delegate the customer relationship to an intermediary. It’s the interest rate deregulation that will be the stronger incentive, rather than the easier rules for hiring agents.
A little help can come from Nandan Nilekani’s team which plans to give unique identification numbers to six million people over the next four years. In the form, each applicant has to spell out whether he or she needs a bank account. Nilekani, who was present at Mr Subbarao’s meeting, said banks could act as registrars for UID and they would be reimbursed `50 for every enrolment. Nilekani’s team members took the bankers through the enrolment process, and explained how micro ATMs planted at the locations of the business correspondents could be used for simple transactions. The message was simple: “Looking for customers in Tembali village in Maharashtra? Well, here’s the list.”
Bankers who feel that things are beginning to fall in place will have to plan their next move. They have realised by now that financial inclusion is a lot more than hurriedly opened ‘no-frill accounts’ — thousands of which are today lying dormant. It has to be different for different customers. A tea garden worker in Assam who regularly blows up his money, wants a savings product to park his weekly wage; a villager in Jharkhand wants `15,000 to buy a buffalo while an unskilled, jobless man in Chennai may be looking for `10,000 to get himself trained to drive a Leyland truck. What they ‘want’ is more important than what they ‘need’. Only that can give financial inclusion a life of its own. And, for the city boy working in a distant branch in Nandurbar district, it could be less of a punishment posting.
A few years later, the villagers became a little more demanding; the new condition was that all prospective grooms must have a toilet in their house. It worked in its own limited way. But who knows, one day a little known village could even insist that the suitable boy must have a bank account. For Duvvuri Subbarao, who narrated the story, it was a way to wrap up a meeting with senior bankers on a high note.
But what happens after that? Many bankers talk of financial inclusion to be on the good books of the finance minister. Some smart ones are trying to figure out how to make it a good business. But all, even the regulator, know how crucial it is for the powers that be. A system that can implement even a slice of what is being aimed at will make the next polls easier for the ruling party. It’s a matter of time that banks will have to take the plunge; and sooner they sense it, the better.
For a lender, financial inclusion could simply mean rolling up the sleeves and doing the business you have never done. Bankers must make a mental note that if financial inclusion has to happen, it’s they who have to deliver. Not micro finance institutions or business correspondents (BCs). Most forget that banks have lent `30,000 crore — not a bad number — to self-help groups (SHGs).
Think of the ’80s. Car finance was done by lease and hire purchase firms, and home loans were given by a handful of institutions that made prospective borrowers wait for hours. Bankers never touched them. Not our expertise, they would say. Things changed dramatically as new banks and new CEOs looked for new borrowers. It was a change brought about by a new generation and a demanding market. The financial inclusion story may have a similar plot. But there could be other drivers to the change.
Banks can no longer complain that, unlike MFIs, they can’t charge an interest rate that’s high enough to recover expenses of giving loans to individuals in far-flung villages. RBI has quietly scrapped the rate cap on small loans and somewhat hesitantly relaxed the rules on doorstep banking through correspondents who can be NGOs, dealers of soap and cigarette companies, neighbourhood grocers and outposts of a telecom firm. However, finance companies, which are possibly better clued on to job than others, have been barred from being BCs. Whoever may be the BC, most banks are unlikely to delegate the customer relationship to an intermediary. It’s the interest rate deregulation that will be the stronger incentive, rather than the easier rules for hiring agents.
A little help can come from Nandan Nilekani’s team which plans to give unique identification numbers to six million people over the next four years. In the form, each applicant has to spell out whether he or she needs a bank account. Nilekani, who was present at Mr Subbarao’s meeting, said banks could act as registrars for UID and they would be reimbursed `50 for every enrolment. Nilekani’s team members took the bankers through the enrolment process, and explained how micro ATMs planted at the locations of the business correspondents could be used for simple transactions. The message was simple: “Looking for customers in Tembali village in Maharashtra? Well, here’s the list.”
Bankers who feel that things are beginning to fall in place will have to plan their next move. They have realised by now that financial inclusion is a lot more than hurriedly opened ‘no-frill accounts’ — thousands of which are today lying dormant. It has to be different for different customers. A tea garden worker in Assam who regularly blows up his money, wants a savings product to park his weekly wage; a villager in Jharkhand wants `15,000 to buy a buffalo while an unskilled, jobless man in Chennai may be looking for `10,000 to get himself trained to drive a Leyland truck. What they ‘want’ is more important than what they ‘need’. Only that can give financial inclusion a life of its own. And, for the city boy working in a distant branch in Nandurbar district, it could be less of a punishment posting.
