(Lecture given by Shri S.P.Mishra in National Seminar on Rural Empowerment through Broadband organized by Institution of Electronics and Telecommunication Engineers in Lucknow )
At the outset I would like to thank the organizers for inviting me in the seminar for presenting a paper. I have selected the topic from the Banking domain “Financial Inclusion” the success of which is predominantly dependent on ICT. I am of the view that financial inclusion is directly proportional to digital inclusion.
Financial inclusion is the delivery of financial services at affordable costs to sections of disadvantage and low income group of the society.
WHY FINANCIAL INCLUSION?
Unrestrained access to public goods and services is the sine qua non of an open and efficient society. As Banking Services are in the nature of public goods and essential need of life; the availability of banking and payment services to the entire population without discrimination is the prime objective of this public policy.
- This will help in bringing last person of the society in the main stream of the nation.
- Maintaining a 9% (approx.) GDP growth rate on a consistent basis requires the assimilation of a large section of the unbanked and under banked population into the formal financial system.
- Tap into hitherto inaccessible savings, enable asset creation and enhance productive efficiency through credit provision.
- Financial Inclusion is a pre requisite for "inclusive growth" - a key governmental agenda.
WHY FINANCIAL EXCLUSION HAPPENED?
Inadequacy of branch network more especially in rural areas deprived a large chunk of population from banking coverage. As of now branch network of all the Banks in India as on 31.03.2012 is as under (Source RBI)
All Commercial Banks
Of which ASCBs *
Non Scheduled Banks
Branch Network: (As on 31.03.2012)
It may be observed that for 70% population in rural areas, share of branches is 37% only. Only about 5% of 6 lakh villages in the country have bank branch and there are 296 under banked districts in the country.
WHO ARE EXCLUDED?
- Marginal Farmers
- Landless Farmers / Laborers
- Oral Lessees
- Self Employed
- Urban slum developers
- Social excluded groups
- Senior citizens
- And almost all poor villagers
CONSEQUENCES OF FINANCIAL EXCLUSION
Consequences may vary depending on the nature and extent of services denied. It may lead to increased travel requirements, higher incidence of crime, general decline in investment, difficulties in gaining access to credit or getting credit from informal sources at exorbitant rates, and increased unemployment, etc. The small business may suffer due to loss of access to middle class and higher-income consumers, higher cash handling costs, delays in remittances of money. I personally feel that financial exclusion can also lead to social exclusion.
FINANCIAL INCLUSION STEPS TAKEN AFTER INDEPENDENCE
- Co-operative Movement
- Setting up of State Bank of India
- Nationalization of banks
- Lead Bank Scheme
- Service Area Approach
- Self Help Groups
BUT STILL WE FAILED ! WHY ?
- Absence of Technology
- Absence of reach and coverage
- Delivery Mechanism
- Not having a Business model
WHAT NEED TO BE DONE?
More and more branches are required to be opened in Rural areas. But this is uneconomical and non-viable preposition owing to high cost of operation of the bank vis a vis low revenue generation. This necessitated to prepare such models by which banking facilities can be provided at unbanked areas at affordable cost with minimal investment.
Since almost all the PSU banks who are the main stake holders of financial inclusion project are on CBS, which ever model is adopted the connectivity and technology remains the challenge.
There are basically 3 models to address the financial inclusion.
- Branch Model
As per RBI directives, banks are required to open normal brick and mortar branches in the villages with population more than 5000 in unbanked district and 10000 in other districts. In rural areas in deep interiors still lease lines are not available and therefore VSAT is the only option for the banks to open branches till any cost effective robust alternate system is developed. The operational cost of such branches is high as compared to revenue in the beginning and therefore branch expansion is a problem.
2. USB Model
Where normal branch is not viable, Bank can open Ultra Small Branches (USB). These branches are normal branches as for as infrastructure is concerned but owing to certain restrictions on type and volume of transactions and also some deviations in relaxed working days these are treated as cost effective from man power angle.
3. Business Correspondent Model
RBI has permitted appointment of Business Facilitator (BF) and Business correspondent. While BF travels in the area and mobilise business i.e. application for opening of accounts, Kissan Credit Cards, Deposits etc., the BC provides the basic banking services to the local people. These BC may be an individual or an entity like NGO, Corporate, Firm, NBFC etc. Naturally there are two different types of system and technology.
- Corporate BC :
These BCs have tie ups with the banks for service and settlement. They appoint sub BC or create customer service point (CSP) on their behalf. They are responsible for sub BCs or CSPs and claim compensation/ remuneration from the bank and share with sub BCs and CSPs. This model is normally based on use of mobile phone and hence is very cost effective. But still there are villages where connectivity of mobiles is also not available.
Mobile based models are of two types ~ Card based and Card less
- Card based :
Under this model a mobile specially designed for the purpose is used which has a camera and GPRS facility. Other equipment is a portable small printer for printing receipts and a biometric device connected with mobile phone through Bluetooth. The application for the account opening form is filled and thumb impression of the customer is affixed on it. The CSP capture photo of the form and send it to server of the BC through GPRS. Finally after checking, data is sent to link branch for validation where hard copy is sent by the CSP. After validation the data is sent for issuing Cards. The customer approaches CSP as per his convenience for transactions. The data on card is read by the mobile and then customer through biometric device authenticates the transaction. A printed receipt is generated and given to the customer.
- Card less
- The model is cost effective as it avoids cost of Point of Sale device (PoS) and smart card
- Avoid cost of PC-kiosk infrastructure and finger print capturing device.
- Real-time transactions with instant update and supported by USSD based Messages initiated by customer/ CSP using mobile,
- Three level security i.e. customer’s mobile number, one time usable PIN book and PIN created by the customer himself, provide sufficient security in the channel.
- The customer may transact at any CSP without any location limitation. a) Customer Interaction - these CSPs interact and facilitate the customers for their respective banking transactions.
- Individual BC:
In this model individuals tie up with the banks, which require some mechanism at Bank level for connectivity and settlement besides ensuring safety and security of transactions. SBI has developed a very robust system for individual BCs which provide URL based access to the server created for the purpose BC requires ID, PW and biometric authentication. Customers too require biometric authentication for all type of transactions. The BC has intra-day limit of cash transactions in addition to cap on individual cash transactions.
What are the Key Success Factors in "Financial Inclusion"?
- Low per transaction cost through use of Branchless banking model
- Enabling the right ICT (Information & Communication Technology) solution to provide the last mile connectivity
- Leverage economies of scale
- Offer all the 4 Pillars of Financial Inclusion : Savings, Credit, Remittance and Micro Insurance, Micro SIP and Micro Pensions
Moving towards universal financial inclusion has been both a national commitment as well as a public policy priority for our country. To achieve the ultimate objective of reaching banking services to all the 600,000 villages, financial inclusion has to become a viable business proposition for the Banks. For this to happen, the delivery model needs to be devised carefully so as to move from a cost-centric model to a revenue-generation model. This will help in providing customers with quality banking services at their doorstep and at the same time generating business opportunities for the banks. This is sustainable only if delivery of banking services, at the minimum, includes the following four products:
• A savings-cum-overdraft account
• A remittance product for electronic benefits transfer (EBT) and other remittances
• A pure savings product, ideally a recurring deposit scheme
• Entrepreneurial credit in the form of a Kissan credit card (KCC) or a general credit card (GCC)
Digital Inclusion and Financial Inclusion should go side by side
Broadband is electricity for the 21st century. If the bandwidth is given to grassroots innovators, they are ready to implement millions of ideas. While rural India has fairly good coverage of mobile telephony mainly for voice communication, internet/broadband services are yet to make an impact. If 3G /4G may be the game changer if these are made cost effective in as much as large population in rural and semi urban areas has appetite for accessing internet and some of them are making access through public kiosks / shared system. The rural India, however, still waits for intensive internet penetration on affordable cost. With this back drop Information and communication technologies (ICTs) is yet to play role of facilitators of socio-economic development in rural India which lacks basic infrastructure in health education and financial services.
The speedy growth of mobile telephony has brought improved connectivity and this, in turn, has contributed significantly to the socio-economic mainstreaming of rural India. However, intensive penetration of internet through speedy broadband is necessity for digital and financial inclusion at affordable cost, which only will ensure overall development. Contrary to misconception of most people rural india has huge untapped potential. Financial inclusion and Digital inclusion are the same in the way as both involves two elements, one access and other awareness. The latter is very important. It is a global issue, and the relative emphasis on the two elements varies from country to country. For developed countries with widespread infrastructure, the access to financial products/services is not a matter of concern. It is more of a financial literacy issue. In developing countries like India, infrastructure is a big hindrance.The demographic profile of the country indicates that more than 50 per cent rural Indians are less than 25 years old with growing literacy rate, the demand for broadband and technology based products will keep on accelerating.
I am sure increased telecom connectivity will translate into overall rural development including financial inclusion but digital inclusion is the key for rural empowerment.
Shive Prakash Mishra