6 FEB, 2012, 03.30AM IST
MS Sriram
Independent researcher and consultant
The government and the Reserve Bank of India (RBI) is half done on financial inclusion. More branches are being opened. Four elements of inclusion have also been articulated: a basic bank account with an overdraft facility; entrepreneurial credit on the lines of a Kisan credit card; an accumulating savings product; and a remittance facility.
This is a step ahead from just opening no-frills accounts. The ecosystem for inclusion is ideal.
The Unique Identification Authority of India (UIDAI) is trying to link its Aadhaar number with a bank account; the banking system is computerised through core banking solution and interlinked; branch licencing is eased; payment of government benefits to individuals is mandated through bank/post-office accounts; banks can appoint business correspondents (BCs) to solve the last-mile problem; the commercials of loans to clients (other than agricultural loans) have been de-controlled; the National Rural Livelihoods Mission is rolling out its programme with the basic architecture of self-help groups (SHGs).
Never in the history of banking have so many things happened simultaneously. Each initiative is driven by a primary agenda of business/development, with inclusion as an additional agenda operating on marginal costs. For instance, core banking solution of banks are done for purposes of efficiency, but will benefit inclusion. In spite of all this there is no euphoria on the inclusion front. The horse has been taken to the water, but there are constraints.
➢ The policy is credit oriented. The credit market is distorted with multiple players. SHGs with subsidies; agricultural loans with write offs; microfinance loans with unclear legislation. That space is a mess.
➢ There is reliance on one big idea. The current big idea is BCs. BCs add four layers of costs: cost of agency, added risk cost due to one/two more layers of cash transit, cost of the BCs' technology and the cost of carrier of information. The clients do not add revenues commensurate with costs. While this should be pursued, the banks have not thought of other ideas except for kiosk banking.
➢ Banks are expanding, thanks to villages with a population of 2,000; they have been mandated to open branches in all habitations with 5,000 population. The outlets have increased; the staff has not correspondingly increased. Dumping anything on BCs without considerations of risk is a welcome idea for them.
➢ There is no interoperability between the BC and bank's own core banking system. The agenda of inclusion subject to one person's capability to deliver at the last mile. It just does not provide a choice.
So what should we chase in the coming year?
➢ Make banking a pleasure. For a year, just talk of savings instead of loans; talk of safety of money instead of interest rates; talk of building up household level equity and a strong foundation. This is Swabhimaan.
➢ Provide for inter-operability between BC and multiple banks, multiple channels. Give the poor the choice of all services that a regular customer gets.
➢ Explore alternatives to reach out to customers. Take lessons from microfinance: the poor do not desperately need walk-in transactions at the counter, they are happy with predictable choupal transactions.Divide the transactions into ones that can be planned and emergency. Reach out through an extension mechanism to meet planned transactions at the choupal. Use BC/agent/extension counter.
Provide technology options: the poor will use ATMs and do mobile transactions if they are offered.
➢ Recruit young professionals from local colleges. If microfinance institutions could make these people work at odd hours, they would work for a bank. Decentralise, and delegate; allow people to take risks; back up the field with RTI and CVC issues; banking will get unleashed. _ Provide for local solutions. Delegate product development and specific product pricing to zonal offices.
➢ Involve cooperatives, microfinance institutions and NGOs. They are the ones who provide the local flavour. Basically, there is nothing the government could do on the supply side. It had done what it could. It is time to fix the demand side.
