The numbers are remarkable and leave a deep impression. There are 950 million mobile phone users, out of which 250 million alone use smart phones, and yet, 300 million Indians remain “unbanked.” This dichotomy, also presents itself as the bedrock on which financial inclusion rests. These teeming millions can be brought under the ambit and empowered to receive government benefits electronically, which will also save cost for the latter. Typically, these transactions will be of low value but high volume – what is proverbially called the “Bottom of the Pyramid.” The Banking industry in India is robust and has achieved a certain level of process maturity, which is comparable to the very best anywhere in the world. The challenge is to put a structure in place where the minimum transaction value may be as low as 10 rupees for instance, comparable to a similar top-up amount in case of prepaid connections in the telecommunication industry.
Not being financially inclusive presents a challenge of sorts. Access to credit is severely curtailed and puts the poor under the merciless clutches of moneylenders. The Jan Dhan Yojna, is a major step towards providing no-frills bank accounts, overdraft protection, enable electronic and mobile payments, micro-insurance and other allied services to the unbanked. In the past 18 months, after its announcement, 190 million accounts have been opened which has been able to cover 250 million families. Though 43% of these accounts are dormant, comparatively it has been showing healthy signs, up from the earlier estimates which had put the figure at 80%. To put things in perspective, India has 6 lakh villages, 1 lakh commercial bank branches and 1.5 lakh post offices offering savings services, and yet, in rural areas only about 3% of the population is within easy reach of a payment point. The last mile connectivity (access) is a challenge that has still to be addressed. How do we get these financial benefits to move from cash-based channels – that are prone to leakage – to direct deposits in recipient’s bank accounts? In 2010 it was estimated, that only 50% of intended beneficiaries received the benefits under employee guarantee programs.
A key vehicle is the idea of universal electronic bank. RBI recommended in 2014, that no Indian above 18 years of age should be more than a 15-minute walk away from an electronic payment access point. The recommendation also includes access to investment products and credit availability. The Indian government disburses payments which amount to 100 billion USD. These cover wages for work under various guarantee schemes, scholarships, pensions, subsidies or any other. Universal electronic bank accounts make it ubiquitous and helps migration to a digital platform. The Aadhar card can be used to open such no-frills accounts and avail these facilities online. The Pradhan Mantri’s Jan Dhan Yojna Scheme is a mammoth-sized project and on completion, will stake its legitimate claim as the largest financial inclusion programme in the world. Lifelong validity, pay per transaction, zero balance account, are some common enough features.
Banking correspondents are licensed agents who offer banking services to remote areas which do not have bank branches. They are able to provide basic services like opening of accounts, taking deposits, and dispensing cash. Correspondents’ networks typically use inexpensive and two-step authentication process that costs less than 1% of the processing fee, than what banks normally charge. Mobile Money is yet another popular tool that finds adoption in many countries. Rural India too boasts of a fanfare of more than 350 million subscribers. An idea which had humble beginnings in being used as a basic payments platform, can be now leveraged for insurance and loan products as well, characterized by the appended tag of “mobile” for each of the services.
Providing credit facility to sections of society which do not have access to homes or verifiable income, is always a big challenge. Big Data and Advanced Analytics use non-traditional data to change the techniques of underwriting. Phone bills for instance, reveal a lot about the financial position of the individual, and may be used (with permission from the subscriber) to assess credit limits that may be extended.
Innovative thinking by service providers and adequate government support is required. As circumstances stand, it’s a priority for both. The right regulatory framework will also provide an impetus for telecom companies to grow their infrastructure. The Fintech industry is growing at 30% and presently there are 200-odd companies which offer these solutions. The system must encourage online mode of payments, which will induce users to make the shift from making cash remittances upfront, to transacting through digital mode. Presently, only around 2% of mobile users use the latter option. Convenience and Cost are the two factors that will influence this shift. The three distinct classes of citizens that stand to benefit significantly are: Small and mid-sized farmers, Micro businesses and the salaried people.
The intent is strong, and the opportunities couldn’t have been more pronounced. Beyond this, there’s yet another positive offshoot that may be worth considering. Digital audit trails, would reduce instances of tax evasion. That for the time being may prove to be a long shot.