BREAKING THE BARRIERS TO FINANCIAL INCLUSION

Financial Express, Published: May 08, 2015

The correlation between inclusive growth & poverty reduction is well known. Financial inclusion is the first step towards attaining this goal

Singapore, under the leadership of the late Lee Kuan Yew, adopted an inclusive approach in 1965 and today about 92% of Singaporeans own homes, the highest percentage in the world. In terms of asset ownership, Singapore is the most equitable country globally with the bottom 20% of the population having an average net worth exceeding $70,000.

India, under the leadership of Prime Minister Narendra Modi, has embarked on the same path of inclusivity with the national mission for financial inclusion, aimed at the biggest inclusion movement that the world has undertaken.


India, with a mobile phone subscription figure of over 904 million, is in a sweet spot to use technology as a tool in changing the landscape of financial inclusion, enabling distribution of financial services at an affordable rate to different sections of society, especially the low-income group or the unbanked borrower.

According to World Bank data, only 35% of Indians have an account with a formal financial institution, as compared to Singapore where 98% of the population has access to formal banking channels. According to ratings agency Crisil, the all-India Inclusix score is relatively low at 40.1 (financial inclusion index) with just one in two Indians having a savings account and only one in seven Indians having access to banking credit.

The current banking reach of the country (as on March 31, 2014) comprises of a bank branch network of 1,15,082 and an ATM network of 1,60,055. Of these, 43,962 branches (38.2%) and 23,334 ATMs (14.58%) are in rural areas. Moreover, there are more than 1.4 lakh business correspondents (BCs) of public sector banks and regional rural banks in rural areas aiming to provide basic banking services.

The correlation between inclusive growth and reduction in poverty and corresponding social equality is widely recognised; and financial inclusion is the first step towards attaining this goal. It is and can be seen as a tool for advancing equitable growth for all the economic participants in the society.

As a parallel to Modi’s ambitious financial inclusion plan, RBI has been paving the way for major expansion towards mainstreaming the subject. Towards this, RBI received 41 applications for payments banks and 72 application for small banks to enable new players having expertise in distribution and technology to offer services such as deposit account, payments, ATM and debit card.

Products need to be designed keeping in mind aspects of low financial literacy, cyclical income, minimal collateral, lack of credit history, absence of formal and verifiable identity, illiteracy, among others. It is also essential to recognise that earlier efforts of financial inclusion focused primarily on the supply-side aspect (i.e. increasing reach and distribution channel); however, for inclusion to be holistic, it is relevant to take care of the demand-side aspect also (i.e. credit absorption capacity, financial literacy, among others).

Tech as an enabler—JAM

Singapore ranks high in the creation of ICT platform and effective implementation in diffusing ICT into the SME and banking ecosystem in order to build an inclusive information society, empowered by ICT. The JAM trinity—Jan-Dhan Yojana, Aadhaar and Mobile—coined under the leadership of Modi, is a game-changing reform that plans to fight the problem on a digital battlefield, ushering in a new chapter in India’s governance story.

With over 125.5 million Jan-Dhan bank accounts and 720 million Aadhaar numbers, there is a compelling belief that JAM is the way ahead in delivering financial inclusion. It holds the key to one of the biggest reforms ever attempted in India—direct benefits transfer (DBT). In fact, it can and should be seen as a new-age solution using technology as the common man’s friend and an economic enabler for financial inclusion.

Aspects associated with the Pradhan Mantri Jan-Dhan Yojana such as accidental insurance cover of R1 lakh, life insurance cover of R30,000 and availability of overdraft facility up to R5,000 to one account per household, apart from the RuPay debit card, have extended benefits of financial inclusion to the marginalised section, bringing them into mainstream finance.

Globally, ICT is facilitating financial inclusion in a major way. Global Telecom, the Philippines-based telecom player, launched a product called Text-A-Payment, which uses SMS technology to make loan repayments of micro-loan borrowers, enable remote deposit taking, cash withdrawal, remittances and bill payment. The success of products such as Kenya’s M-PESA further underscores the role of technology in product innovation.

Singapore leads the world in terms of inclusive growth. Prime Minister Modi has embarked on a path which Lee Kuan Yew would have truly been proud of, that of a stable India powering the growth of the Asian people.

-By Rana Kapoor MD and CEO of Yes Bank

Source – https://www.financialexpress.com/opinion/breaking-the-barriers-to-financial-inclusion/70390/

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