Banking the unbanked
Anil Bhasin, Senior Vice President, Sales, Cisco India & SAARC
The Indian economy is back to its pre-crisis growth trajectory. According to latest estimates the country's GDP grew 8.6 per cent in 2010-11 in real terms. Yet 50% of India's 1.15 billion people do not have bank accounts; 95% no general insurance; and 98% no participation in the capital market; this despite 64,000 bank branches and 80,000 ATMs in the country.
Although IT has enabled a more efficient, accurate and timely management of banking transactions, and services like Net banking, Mobile banking, 'Anytime and Anywhere' banking are available to citizens today, farmers, small vendors, laborers in unorganized sectors, unemployed citizens, women, children, elderly and the physically challenged are still among the financially excluded.
In addition to a shortage in the number of service delivery models, the challenges to financial inclusion from a banking perspective are high costs and paucity of business which deter most of them from extending services to rural areas. Co-operatives and rural banks have no agenda for financial inclusion because they have reach but lack robust infrastructure to provide services at an affordable cost.
To overcome the problem, banks must redesign business strategies and work with the government, RBI, Micro Finance Institutions (MFIs) and NGOs, to bring more people under the banking net. IT must become a key business enabler for streamlining, standardizing, and expanding the banking services portfolio. ICT must be utilized to provide solutions that capture customer data, ensure unique identification, and facilitate financial transactions remotely.
Financial Inclusion options
In order to promote financial inclusion, the government of India has identified about 73,000 habitations for providing banking facilities by March 2012 using appropriate technologies and launched a multi-media campaign, "Swabhimaan", to inform, educate and motivate people to open bank accounts.
Part of the financial inclusion exercise undertaken earlier was the setting up the State Bank of India, regional rural banks, nationalization of banks, the Lead Bank scheme, the Service Area Approach scheme, and opening of no-frills accounts. Creating a dedicated fund for providing equity to smaller MFIs to help them grow and achieve efficiency, is a new addition.
The RBI is also promoting the concept of branchless banking, whereby banking services are provided outside the conventional bank branches by either using ICT services or third party organizations. Banks can employ intermediaries viz, business correspondents (BC) and business facilitators (BF) who could approach the masses and carry out transactions on behalf of the bank as agents. Post Offices, NGOs, MFIs, technology companies, retired government employees, ex-servicemen and retired teachers can serve as BF/BCs.
According to experts, branchless banking will be instrumental in achieving 100 percent financial inclusion in India by 2015. In the initial stage this model may not be commercially viable due to high transaction costs. By developing and implementing scalable technology solutions and conducting more trials, costs can be brought down over a period of time. Another option to achieve financial inclusion is to use mobile technology. Being ubiquitous in India, mobile banking when implemented in the right way, will ensure that urban poor and rural populations benefit from services such as receiving credit, payments and transfers, account opening and loan approvals.
New concepts like 'Bank-on-Wheels' will further increase the reach to rural areas, because they simulate the functionality of an entire bank branch in a bus. At Rs.25 lakh to Rs. 30 lakh, this bus, equipped with technologies that allow voice, video and data transmission, can do all that a branch does and serve 10-12 villages. Currently the prototype, proof-of-concept, and the business case are ready for Indian banks to run pilot projects.
In the long run, new, innovative, collaborative models for banking help to reduce transaction costs, contain poverty and include citizens in the financial system. When 'marketed to connect' with the larger population, they enable overall economic development.