Inclusive Banking – A Perspective
Inclusive Banking – A Perspective
Picking up from the earlier article, here is an attempt to understand the reasons for the sparse coverage of Banking Services in the Nation, its impact and the reasons why this cannot happen with the lackluster efforts that have been made in the last six decades and before.
It is important that all Citizens must have access to Financial Services. It almost is a Right. But as with other Fundamental Rights, the inability and unwillingness of the ones responsible for enabling the exercise of the Rights has resulted in the sparse Coverage.
But before we go into the reasons for the lack of coverage, we need to understand why people need a Bank Account, When do they need it and how having an account could accelerate their progress.
People need a Bank Account for keeping their money safely with the added reward of interest earning and savings for future proofing. Besides, these basic facilities, the account helps them to receive money from the government, to receive the inward remittances on account of trade or other monetary exchanges in an auditable and verifiable track. The track record that one builds through the consistent routing of transactions through the accounts leads to verifiable credit worthiness of the person and enables him to avail financial services to achieve higher entrepreneurial and social goals. It is the build up for an intangible asset accumulation in the form of Financial Reputation.
However, the primary requirement for having an account is to have money which needs to get used to create a cash flow for productive activities including routine expenditure for living. This pre-supposes a Livelihood as a basis for generating this money which needs to be put into an account. For a person not having a livelihood, having an account can only be put to a limited use of receiving payment s ( read dole) from the government. These government payments ( be it the benefits or the wages under various government schemes like MNREGA) do not contribute to build a proper and credible financial track record for the person. This puts the person into the vicious cycle of debts from unroganised lending mafia from which one can never extricate oneself due to the onerous terms and conditions of such debts.
So, One needs a Livelihood and a Bank Account. The Nation needs to launch National Livelihood Mission within which Banking and Other Financial Services would form an enabling platform.
The first attempts at universalizing Banking Services started with the concept of Social Banking in 1969. This concept got more teeth with the Nationalization of Banks in India. Once nationalized the banks were asked to open branches in unbanked areas. A proliferation of branches happened in 70s and 80s leading to a fair coverage of unbanked areas through the branches of Public sector Banks and Regional Rural Banks. The Branches had the unique advantage of netting the deposits of the people in their command areas and also completing the Priority Sector targets that were given to them under the Flagship Twenty Point Programme of the Centre.
In the initial stages, these branches struggled to get business but over a period of 5-7 years each of these branches had substantial business and started struggling for adequate and skilled manpower to manage the business in a non-computerized environment. Subsequent inroads made by technology made it possible for the Banks to think of further penetrating the unbanked areas through Business Correspondents.
Huge number of accounts were opened under the Business Correspondent Model. In a recent conference in New Delhi, however, there were two major observations made by Banks and the Department of Financial Services. One, almost 50-60 percent of accounts opened through this channel remained dormant resulting in poor maintenance of average balances, especially because these were zero-balance no-frill accounts. Second, the Agents through whom the accounts got opened saw no business value going forward, once majority of the accounts of the villagers had been opened. This was because, people had no source of money to put into these accounts and transact regularly which could translate into some revenues for the local agent providing the services. Credit facilities were not easily forthcoming for these account holders as the Sponsor Bank branches were not too keen to extend Credit in an area where they would not be able to monitor the accounts. Therefore, the attrition rate for Customer Service Providers ( the last mile agent) was as high as 70%.
For the Banks at the corporate levels, the Reserve Bank, the Nabard and the Ministry, all this went unnoticed as long as progress was reported on Paper.
In my interaction with one Senior Banker who was heading the Financial Inclusion Initiative of a Major Public Sector Bank I had proposed a proper audit of the reported figures of agencies and the accounts and transactions reported through them. I got a response ‘ You want me to lose my Job? ‘ Everyone in the system knows the futility of the numbers reported but no one wants to say as much.
The practical reason for this failure lies somewhere else. The fact that the people who had opened these accounts had no real need of it in the absence of a livelihood and the literacy required to optimally utilize the accounts did not bring enough demand for the banks to ensure continuity of business at these hastily created centers that never was a serious business endeavor for the Banks.
SoJanDhan Programme of the NDA can actually transform the Nation if itis made subservient to a more Aspirational National Livelihood Mission.