Financial inclusion has become a household word in a developing country like India where good governance holds the key to economic growth and prosperity.By financial inclusion,we mean providing affordable and accessible financial services to every citizen of the country.
Financial inclusion can be thought of in two ways-one is having legitimate bank accounts and the other is formal access to credit system and other financial services.A major chunk of the population do not have their bank accounts.The situation is particularly worse in rural areas,where even the wealthy and propertied people are reluctant to open their bank accounts.The primary reason is due to the cumbersome procedures involved in opening accounts.It is against this backdrop that the RBI has recently relaxed Know your Customer (KYC) norms by allowing self-certified documents and simple norms as eligibility criteria.Recently,the government has launched Jan-Dhan-Yojana to improve financial inclusion.Also,the government announced its intention to revive the Aadhar-enabled payment system to disburse subsidies and enable cash transfer.
However,merely opening bank accounts doesn't adequately serve the desired purpose of financial inclusion.That said,people ought to be motivated enough to utilise the money for their specific purposes.The dormant bank accounts cause loss to the banking system and hence the tax-payers' money.It is due to this reason that the Business correspondent(BC) model adopted by the banks have become partially unviable.Banks are forced to undergo losses if people fail to transact money through their accounts.
Second,there is a limited reach of credit system particularly in villages.The villages,in general and people,in particular cannot be empowered unless the is a smooth credit flow through banking channels.Many self-help-groups(SHGs) in villages are unable to realise their potential due to credit inaccessibility.Moreover,the poor farmers often knock at the doors of money-lenders,who charge them with usurious interest rates.Consequently,they fall into the vicious debt-cycle and perpetual poverty.
Therefore,there is a need of holistic approach to improve financial inclusion,Strengthening infrastructure and capacity building holds the key to financial inclusion.Banks should be opened up not only in urban areas but also in rural hamlets,where there is a felt need for more banks and related branches.However,relying excessively on bank-centric approach is not desirable.Rather,a proper strategy based on inovation,creativity and consumer protection is utmost necessary.The banks should create innovative solutions for attracting customers once they create their accouts.The people ought to be convinced that they can derive big value even from small amounts.One way of doing this is to show the target audience that bank account is actually a life-style enabler,a convenient and safe means to send money to family or make a variety of purchases.
Once banks succeed in hooking consumers with this value-proposition,they must sustain their interest by introducing a simple user application,ubiquitous access over mobile and other touch points,and adopting a banking mechanism which is not only secure but also reassuring to the customer.Technology is therefore an important aspect to improve financial inclusion.Moreover.to reduce cost,banks can adopt certain mechanisms by which frequent low volume transactions reduce the overall per unit operating cost.An optimal mix of these strategies would undoubtedly offer innovative means of expansion in unbanked areas.
Financial inclusion can be thought of in two ways-one is having legitimate bank accounts and the other is formal access to credit system and other financial services.A major chunk of the population do not have their bank accounts.The situation is particularly worse in rural areas,where even the wealthy and propertied people are reluctant to open their bank accounts.The primary reason is due to the cumbersome procedures involved in opening accounts.It is against this backdrop that the RBI has recently relaxed Know your Customer (KYC) norms by allowing self-certified documents and simple norms as eligibility criteria.Recently,the government has launched Jan-Dhan-Yojana to improve financial inclusion.Also,the government announced its intention to revive the Aadhar-enabled payment system to disburse subsidies and enable cash transfer.
However,merely opening bank accounts doesn't adequately serve the desired purpose of financial inclusion.That said,people ought to be motivated enough to utilise the money for their specific purposes.The dormant bank accounts cause loss to the banking system and hence the tax-payers' money.It is due to this reason that the Business correspondent(BC) model adopted by the banks have become partially unviable.Banks are forced to undergo losses if people fail to transact money through their accounts.Second,there is a limited reach of credit system particularly in villages.The villages,in general and people,in particular cannot be empowered unless the is a smooth credit flow through banking channels.Many self-help-groups(SHGs) in villages are unable to realise their potential due to credit inaccessibility.Moreover,the poor farmers often knock at the doors of money-lenders,who charge them with usurious interest rates.Consequently,they fall into the vicious debt-cycle and perpetual poverty.
Therefore,there is a need of holistic approach to improve financial inclusion,Strengthening infrastructure and capacity building holds the key to financial inclusion.Banks should be opened up not only in urban areas but also in rural hamlets,where there is a felt need for more banks and related branches.However,relying excessively on bank-centric approach is not desirable.Rather,a proper strategy based on inovation,creativity and consumer protection is utmost necessary.The banks should create innovative solutions for attracting customers once they create their accouts.The people ought to be convinced that they can derive big value even from small amounts.One way of doing this is to show the target audience that bank account is actually a life-style enabler,a convenient and safe means to send money to family or make a variety of purchases.
Once banks succeed in hooking consumers with this value-proposition,they must sustain their interest by introducing a simple user application,ubiquitous access over mobile and other touch points,and adopting a banking mechanism which is not only secure but also reassuring to the customer.Technology is therefore an important aspect to improve financial inclusion.Moreover.to reduce cost,banks can adopt certain mechanisms by which frequent low volume transactions reduce the overall per unit operating cost.An optimal mix of these strategies would undoubtedly offer innovative means of expansion in unbanked areas.
In order to promote financial inclusion,following measures are taken by the RBI and the government:
ReplyDeletea)Opening up of small and payment banks,White label ATMs and brown label ATMs.
b)Banking correspondent model.
c)Basic Savings Bank and Deposit account(BSBDA) where the bank accounts could be opened even with relaxed KYC norms.However,the maximum withdrawal in a month should not exceed Rs.10000 and deposits anytime should not exceed 50000.
d)People with agricultural land are provided with KCC.
e)Publicity of banks even in remote and inaccessible areas.
The Central Government has recently launched Jan Dhan Yojana with an aim to open 10 crore bank accounts by Jan 26,2015.However,we tend to focus only on the supply-side factors while overlooking the demand.That said,financial schemes should be designed or modified based on evidence from evaluation.Often,the bank accounts remain unused due to lack of proper banking facilities,lack of trust in financial institutions,illiteracy or reliance on informal financial sources.
Small banks provide a whole suite of banking operations like accepting deposits and providing credits,but in a limited area of operation.On the other hand,payment banks provide basic payments and remittance services,but they cannot issue credit cards or accept deposits of over Rs.1 lakh.They however,can issue debit cards,ATM cards and also deal with mutual funds and insurance products.
ReplyDelete