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India – Poster Nation for Financial Inclusion

Understanding ‘financial inclusion’ and doing something about it are two entirely different things. Nations and communities all over the world are constantly attempting to provide equal access to financial services to all sections of society. While the efforts are yielding positive results with the help of technology, we have not yet arrived at where we

Understanding ‘financial inclusion’ and doing something about it are two entirely different things. Nations and communities all over the world are constantly attempting to provide equal access to financial services to all sections of society. While the efforts are yielding positive results with the help of technology, we have not yet arrived at where we should be. Many countries still have a long way to go with half of the world remaining unbanked. For example, 73 per cent of the world’s unbanked population belongs to 25 countries, including India, Brazil and China.

The ‘Last Mile’ Challenge

A critical factor to a country’s socio-economic development, financial inclusion provides access to basic products like bank account, credit/loan, insurance and savings. If we take India as an example, 19 per cent of the population is still unbanked with the main bottle-neck being lack of last mile connectivity in rural areas. Imagine, if the nearest bank for a person living in a rural area is as far as 20 kms away, he will rather use cash, perceiving a bank account as more of a constraint than a requirement or convenience.

In recent years, the Government of India has implemented effective policies and measures for encouraging people to come forward and open bank accounts. For e.g. Pradhan Mantri Jan-Dhan Yojana, an initiative by the Government of India, is the world’s biggest financial inclusion programme that got a winning entry into the Guinness World Records for converting 18 million unbanked people into account holders in the very first week of the programme. Emergence of technology is giving further push to the drive to bring the unbanked population into the financial mainstream.

Digital Propulsion

Cutting-edge technologies play a major role in bridging this gap through digitisation. For e.g. the National Payments Council of India (NPCI), by introducing the Unified Payments Interface (UPI), has leveraged the growing presence of mobile phones as purchasing devices and today we all enjoy the services of a bank through our smartphone. With the smartphone user base expected to expand to about 500 million by 2020, up from about 150 million in 2016, the digital banking footprint is projected to grow faster than ever before.

The NPCI has also introduced several innovative products, such as RuPay cards, which will facilitate immediate money transfers, providing more convenience to customers. Globally, credit card payments overtook cash payments for the first time in history, and although digital payments accelerated in India as well, it is estimated that 80 per cent of economic transactions in India still happens through cash, as opposed to around 21 per cent in developed economies. India has the lowest account penetration at 53 per cent. The use of accounts for payments is no different with only 15 per cent of adults reportedly using an account to make or receive payments.

Benefits of Digitising Payments

Increased transparency: Digital payment of Social Security Pension (SSP) using smart cards instead of cash payout at village level results in a 1.8 per cent decline in bribe-seeking incidents.

Lower costs: A study by McKinsey & Co. estimates that automating delivery of government payments saves approximately $22.4 billion per year by way of reduced overheads, transaction costs and fraud.

Foster innovative business models: Drawing women into digital financial services helps achieve electronic salary payments to a large female workforce in sectors like garment industry in India and Bangladesh and flower packing industry in Kenya, and other agricultural enterprises. Digital payments bring workers into formal sector, help them save effectively, offer security benefits on pay date, boost mobile services and reduce employer costs

Financial Services – a Linchpin

Though India has come a long way in eradicating financial illiteracy and exclusion, it is still nowhere near the avowed goal. With almost a fifth of the nation’s population still unbanked, the situation must be considered seriously, and a collective action taken. While governments are catalysts in this process, corporates, especially those in the financial sector, can contribute to the cause and play a vital role.

In November 2014, Kerala became one of the first states in India where every household had access to at least one bank account. Even without full saturation, Kerala remains a leader in financial inclusion in India. Public sector banks account for 48 per cent of the financial access points in Kerala, signifying the strategic importance of these banks in financial inclusion. Malappuram stands out among other districts in Kerala. Given its high population and low number of access points, financial institutions could target this district for expansion of services and to reach the underserved clients.

Awareness about Financial Planning

There are several NGOs and institutions that are working with the government to create awareness about financial literacy and its benefits. As responsible corporate entities one can get in touch with an NGO to hold workshops for employees. In Asia (South and East-Pacific) only nine per cent of banked adults come forward to save their money, but opt for semi-formal means (services provided by institutions that are supervised but not regulated by financial services authority, such as cooperatives). These financial literacy drives will go a long way in channelising these individuals towards banks to help them save money and invest it productively.

Streamlined Salary Disbursals

According to a World Bank Global Findex, if there is a change in wages disbursal, government transfers, payments for services etc., the number of people with bank accounts will move to 900 million. In Asia alone, 49 per cent of the unbanked people receive their wages and transfers in cash. Small to medium enterprises often make payments in cash given the minimal value. These entities can have a streamlined salary disbursal system wherein all employees’ salaries are credited in bank accounts. Leveraging benefits of technology in finance, accounts etc. is a solution, so that every dimension of the business is aligned to the cause. This will result in empowering the employees with the power of formal financial system and opening up a world of opportunities to enrich their lifestyle.

Together to Get Stronger

Bringing people to the formal financial system can substantially improve the standards of individual households and thereby enhance a nation’s well-being. Governments should take up the cause of financial inclusion. They should prioritise it in their agenda and consider it while defining policies. Every individual and corporate must also support the government’s initiatives in this regard. These efforts will help strengthen the overall financial system and contribute to the nation’s development. Complete and sustainable financial inclusion could be achieved by introducing more and more people to the formal financial system, thereby enriching the global financial ecosystem. This will help complete the puzzle once and for all.

(The author is CEO, UAE Exchange Group)


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