Financial Inclusion - IT as enabler
Sanjeev Kumar Gupta *
The Indian banking sector today is grappling with the issue of financial inclusion.
Operating cost of providing financial inclusion and charges levied on the users are important
dimensions of the process of financial inclusion. Technology can play an important role in
reducing operating cost of providing banking services, particularly in the rural and unbanked
areas. There are technologies that could drive the growth in financial inclusion. Against
this backdrop, this paper outlines major steps which have been taken so far by the Reserve
Bank and Government of India to enable financial inclusion for weaker sections of Indian
society. The efforts made by the Reserve Bank in this direction so far, role of Information
and Communications Technology (ICT) with focus on Mobile Banking and finally the Unique
Identification (UID) number are discussed in detail in this paper.
JEL Classification : O32, O33
Keywords : Financial inclusion, Electronic Payments, Branchless banking, MICRO
ATM
Introduction
The Information Technology (IT) saga in Indian Banking sector
commenced from the mid eighties when the Reserve Bank of India
(RBI) took upon itself the task of promoting computerisation in banking
to improve customer services, book keeping, Management Information
System (MIS) to enhance productivity. RBI has played the guiding
role which helped banks in achieving various objectives such as the
introduction of MICR based cheque processing, Implementation of the
electronic payment system such as RTGS (Real Time Gross Settlement),
Electronic Clearing Service (ECS), Electronic Funds Transfer (NEFT),
Cheque Truncation System (CTS), Mobile Banking System etc. The
Payment and Settlement Systems Act, 2007 (effective from August
12, 2008) designates the RBI as the authority for regulation and
supervision of payment systems in India. With increase in reach, size and significance of payment systems, the RBI is committed to assuring
safe and efficient functioning of payment systems by identifying various
risks, addressing risk-reduction by putting in place risk-mitigation
measures and mandating appropriate risk. The RBI has also encouraged
the setting up of National Payments Corporation of India (NPCI) to
act as an umbrella organisation for operating Retail Payment Systems
(RPS) in India.
Under the aegis of RBI, the Institute for Development and
Research in Banking Technology (IDRBT), was set up in Hyderabad as
a research and technology centre for the banking sector for excellence
and advancement in technology. This resulted in the commissioning of
the INdian FInancial Network (INFINET) as a Closed User Group based
network for the exclusive use of the Banking Sector with state-of-the-art
safety and security; Certification Authority (CA) functions for ensuring
that electronic banking transactions get the requisite legal protection
under the Information Technology Act, 2000; Implementation of the
National Financial Switch (NFS) to ensure inter-connectivity of shared
ATMs and to provide for fund settlement across various banks (now
managed by NPCI). IDRBT also provides a platform for transmission
of electronic messages across banks using common standards, for
facilitating ‘Straight Through Processing ‘ (STP) in the form of
Structured Financial Messaging System (SFMS), which is similar to
the Society for Worldwide Interbank Financial Telecommunication
(S.W.I.F.T) messaging pattern.
Recognising the need for upgrading the country’s financial
infrastructure in respect of Clearing and Settlement of debt instruments
and forex transactions, The Reserve Bank of India initiated the move
to set up the Clearing Corporation of India Ltd. (CCIL). The country’s
largest bank, State Bank of India, took the lead in setting up of the
CCIL. The other core promoters of CCIL are LIC, IDBI, ICICI Bank,
HDFC Bank, and Bank of Baroda. CCIL is the country’s first clearing
house for Government Securities, Repos, Forex and other related market
segments.
Section II
Financial Inclusion - Concept and Definition
There is no clear definition of financial inclusion. A few definitions
in the literature are mentioned as under:
Financial inclusion means delivery of financial services at
affordable costs to sections of disadvantaged and low income segments
of the society. Defining financial inclusion is considered crucial for
identifying the factors that lead to low level of access to the financial
system. As measuring inclusion is perceived to be difficult, financial
inclusion is generally defined in terms of exclusion from the financial
system. However, financial inclusion is not just about physical access
caused by the changing topography of financial services. Therefore, the
debate has now broadened to include all types of people who make little
or no use of financial services and the processes of financial exclusion
(Ford and Rowlingson, 1996; Kampson and whyley, 1998).
“The process of ensuring access to financial services and timely
and adequate credit where needed by vulnerable groups such as weaker
sections and low income groups at an affordable cost”-The Committee
on Financial Inclusion (Chairman: Dr. C. Rangarajan, 2008)
In most developing countries, a large population particularly of low
income, has very little access to financial services. As a consequence,
many of them have to necessarily depend either on their own or informal
sources of finance and generally at an unreasonably high cost. A report
of the National Sample Survey Organisation (NSSO) mentions that 76
per cent of the rural households in the country depend on loans from
moneylenders as their source of finance.
Financial inclusion, as far as banks are concerned, seems to be
geographically limited to some parts of the country. In order to analyse
the spread of banking services, two ratios i.e. (i) State wise Banks
Credit - deposit ratio (Chart I) and (ii) amount of bank credit with the
State GDP (Chart II) are calculated.
In some states, the credit-deposit ratios are very low, implying
inter alia, that their funds are not being used by the state. Perhaps the root cause may be the financial exclusion. This also indicates that banks
are reluctant in giving credit to these states due to variety of reasons.
The credit - deposit ratios of some states are Tamil Nadu (114 percent),
Maharashtra (81 percent), Utter Pradesh (44 percent) and lowest is in
Arunachal Pradesh. Thus it is clear that some parts of the country are
under-banked especially the north-east. On the other hand, the southern
states are known to have a strong bank branch network and hence their
CD ratio is high.
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If we take the gross domestic product of the states and compare
with the amount of bank credit, the ratio should be more or less the
same. That would mean that banks are lending their funds in proportion
to the size of the state economy. But there are wide variations in the
credit/state GDP ratio. North-East states are at the bottom with credit/
state GDP is less than 18 percent. For Bihar too, this percentage is as low as 16 percent. At the other end, Maharashtra, credit/state GDP
ratio at 116 percent and ratio is similar for the states of Tamil- Nadu
and Karnataka. From the analysis, it is clear that states such as Uttar
Pradesh, Bihar, Chhattisgarh and the North-East states are receiving far
less bank credit than warranted by the size of the state economy.
Main factors affecting access to financial services: The financial
inclusion can be seen to have two categories of barriers, viz., demand
and supply side barriers. The factors that drive these barriers are listed
as under:
Demand Side Barriers: The barriers arising out of the demand
side factors may be characterized by the following features:
Complexity: The excluded sections of the society find financial
services complex in nature. They see no reason to go to the banks
for conducting small transactions, which in their opinion, are time
consuming and perplexing
Place of living: Generally commercial banks operate only in
commercially profitable areas and it would not be viable for banks
to open branches in the remote villages. People who live in under
developed areas find it very difficult to reach the nearest bank due to
transportation cost and wages lost in travelling to the bank
Limited literacy: Financial illiteracy and lack of basic education
are prohibiting factors leading to non-access of financial services.
Convenience and affinity towards informal sector: The excluded
section of the society finds informal sector (such as the money lender
or the pawn-broker) more user-friendly and accessible and as such, they
develop an affinity which always drives them to approach this sector
for their credit needs.
Supply Side Barriers: The supply side of barriers though not
many, may be characterised by the following features:
Legal identity: Inability to provide a legal identity such as voter
id, residence proof, birth certificates, etc. often exclude women and
migrants from accessing financial services.
Outreach Issue: Very often, even if a person is bankable, the
distances are too long for services & supporting the accounts at
reasonable costs.
Section III
Technological Developments in Banks
Developments in the field of Information Technology (IT) strongly
support the growth and inclusiveness of the banking sector, thereby
facilitating inclusive economic growth. IT not only enhances the
competitive efficiency of the banking sector by strengthening back-end
administrative processes, it also improves the front-end operations and
helps in bringing down the transaction costs for the customers. It has the
potential of furthering financial inclusion by making small ticket retail
transactions cheaper, easier and faster for the banking sector as well
as for the small customers. The Reserve Bank has, thus, been actively
involved in harnessing technology for the development of the Indian
banking sector over the years.
A major technological development in banking sector is the adoption
of the Core Banking Solutions (CBS). CBS is networking of branches,
which enables customers to operate their accounts and avail of banking
services from any branch of the Bank on CBS network, regardless of
where the customer maintains his/her account. The customer is no
more the customer of a Branch as he becomes the Bank’s customer.
Thus, CBS is a step towards enhancing, customer convenience through,
Any-where, Anytime Banking. It is important to leverage on to this
technological advancement to look at areas beyond CBS that can help
in not just delivering quality and efficient services to customers but also
generating and managing information effectively.
Another major technological development, which has
revolutionised the delivery channel in the banking sector, has been the
growth of Automated Teller Machines (ATMs). The banking space has
seen considerable growth through the ATMs, (approximately 87000
ATMs at present) but the same has been restricted principally to the
urban/metro areas. As per the existing rules/regulations, only banks are
being permitted to set up ATMs in urban/metro areas. Tier III to VI
unbanked/under banked areas have not witnessed much ATM presence.
In the above context, RBI has reviewed the extant policy on ATMs and
it has been decided to permit non-banks to set up, own and operate
ATMs to accelerate the growth and penetration of ATMs in the country.
Such ATMs will be in the nature of White Label ATMs (WLA) and
would provide ATM services to customers of all banks. Non-bank
entities proposing to set up WLAs have to make an application to RBI
for seeking authorisation under the Payment and Settlement Systems
Act 2007.
Development of National Payment Systems: The payment system
could be broadly divided in two segments:
Paper-based Payments: Use of paper-based instruments (like
cheques, drafts etc.) account for nearly 60 percent of the volume of
total non-cash transactions in the country. In value terms, the share is
presently around 11 percent. Reserve Bank had introduced Magnetic
Ink Character Recognition (MICR) technology for speeding up and
bringing in efficiency in processing of cheques. Recent developments
in paper-based instruments include launch of Speed Clearing (for
local clearance of outstation cheques drawn on core-banking enabled
branches of banks) and introduction of cheque truncation system (to
restrict physical movement of cheques and enable use of images for
payment processing).
Electronic Payments: The overall thrust is to reduce the use of
paper for transactions and move towards electronic mode. Following
are various electronic payment services available in the country:
Electronic Clearing Service (ECS)/National ECS (NECS):
ECS is an electronic mode of payment / receipt for transactions that
are repetitive and periodic in nature. ECS is used by institutions for
making bulk payment of amounts towards distribution of dividend,
interest, salary, pension, etc., or for bulk collection of amounts towards
telephone / electricity / water dues, cess / tax collections, loan installment
repayments, periodic investments in mutual funds, insurance premium
etc. Essentially, ECS facilitates bulk transfer of monies from one bank
account to many bank accounts or vice versa.
National Electronic Funds Transfer (NEFT): NEFT is a payment
system facilitating one-to-one funds transfer. Under this, individuals,
firms and corporate can electronically transfer funds from any bank
branch to any individual, firm or corporate having an account with any
other bank branch in the country participating in the Scheme. Thus, this
is an interbank fund transfer system.
Real Time Gross Settlement (RTGS) System:
This Real Time Gross Settlement is a continuous (real-time)
settlement of funds transfer individually on an order by order basis
(without netting). ‘Real Time’ means the processing of instructions
at the time they are received rather than at some later time. ‘Gross
Settlement’ means the settlement of funds transfer instruction occurs
individually (on an instruction by instruction basis). Considering that
the funds settlement takes place in the books of the Reserve Bank of
India, the payments are final and irrevocable.
Pre-paid Payment Systems: Pre-paid instruments are payment
instruments that facilitate purchase of goods and services against the
value stored on these instruments. The pre-paid payment instruments
can be issued in the form of smart cards, magnetic stripe cards, internet
accounts, internet wallets, mobile accounts, mobile wallets, paper
vouchers, etc.
Point of Sale (POS) Terminals / Online Transactions: There are
over five lakh POS terminals in the country, which enable customers
to make payments for purchases of goods and services by means of
credit/debit cards. To facilitate customer convenience the Bank has also
permitted cash withdrawal using debit cards issued by the banks at POS
terminals.
The efforts of RBI aimed at promoting electronic payment systems
vis-à-vis paper based payments are evident, with both the value and
volumes of these systems registering impressive growth rates as shown
in the following charts III and IV.
Section IV
RBI’s Efforts for Financial Inclusion
The brief outline of the efforts pursued by the RBI for financial
inclusion are:
No frills accounts: The Annual Policy Statement of April 2005,
while recognising the concerns in regard to the banking practices that
tend to exclude rather than attract vast sections of population, urged
banks to review their existing practices to align them with the objective of financial inclusion. In many banks, the requirement of minimum
balance and charges levied, although accompanied by a number of
free facilities, deter a sizeable section of population from opening /
maintaining bank accounts. In this context, with a view to achieving
the objective of greater financial inclusion, all banks were advised to
make available a basic banking ‘no-frills’ account either with ‘nil’ or
very low minimum balances as well as charges that would make such
accounts accessible to vast sections of population.
Easier credit facility: RBI asked banks to introduce a General
Credit Card (GCC) facility up to ` 25,000, for their constituents in rural
and semi-urban areas, with a view to providing credit card like facilities
in rural areas with limited point-of-sale (POS) and limited automated
teller machine (ATM) facilities, based on the assessment of income and
cash.
Simpler Know Your Customer (KYC) norms: In a country, where
most of the low income and poor people do not have any identity proof
or proof of address, it is very difficult to have KYC norms that insist on
production of such documents. In order to ensure that people belonging
to low income group in urban and rural areas do not encounter difficulties
in opening bank account, the KYC procedure for opening accounts was
simplified for those accounts with balances not exceeding ` 50,000 and
credit thereto not exceeding ` 100,000 in a year.
Bank branch and Automated Teller Machines (ATM) expansion
liberalization: In the October 2009 Policy Review, RBI took a further
big step by freeing branch opening in towns and villages with population
below 50,000. Domestic scheduled commercial banks (other than
RRBs) are now free to open branches in towns and villages with less
than 50,000 population and are enjoined to ensure that at least one-third
of such branch expansion happens in the underbanked areas. This will
be one of the criteria in the Reserve Bank’s consideration of proposals
by banks to open branches in major city (tier 1) centres. In order to
ensure fair pricing and enhanced access of the ATMs which have already
gained prominence as a delivery channel for banking transactions in
India, RBI under its “Free ATM access policy” since April 01, 2009 ensures that no charges are payable for using other banks’ ATM for
cash withdrawal and balance enquiry. However, banks can restrict the
number of such free transactions to a maximum of five per month.
Business correspondent (BC)/ Business Facilitators (BF) model -
Branchless banking:
With the objective of ensuring greater financial inclusion and
increasing outreach of the banking sector, the Reserve Bank, in January
2006 permitted banks to use intermediaries as Business Facilitators
(BF) / Business Correspondents (BC) for providing financial and
banking services leveraging upon the Information and Communication
Technology (ICT). The BCs were allowed to conduct banking business
as agents of the banks at places other than the bank premises. The
categories of entities that could act as BCs were also specified.
The Business Facilitators (BFs) may be used for facilitation
services which may include identification of borrowers, collection
and preliminary processing of loan applications, creating awareness
about bank products and education and advice on managing money and
debt counseling, processing and submission of application to banks,
promotion of Self Help Groups/ Joint Liability Groups, post sanction
monitoring, follow up for recovery, etc. No approval of RBI is required
for using business facilitators for the services mentioned above.
Individual BCs / Institutional BCs, apart from the above services
can disburse small value credit, recover principal/ collect interest,
collect small value deposits, sell micro insurance/mutual fund products/
pension products/other third party products, receive and deliver small
value remittance / other payment instruments. While banks may pay
reasonable commission/ fee to the BFs / BCs, bank’s agreement with
the BFs / BCs should specifically prohibit them from charging any fee
to the customers directly for services rendered by them on behalf of
the bank. In order to establish itself, the BC Model had to overcome
three hurdles that are common to any new payments system which are
discussed below.
Trust/Brand: Banks should ensure that the customers are
comfortable and have confidence and reliability in the new system which may increase strong customer sense of affinity with and trust in
the operator. Banks need to constitute Grievance Redressal Machinery
within the bank for redressing complaints about services rendered by
BFs /BCs and give wide publicity about it through electronic and print
media. Banks should also provide the environment to BC like his own
employee and redress their problems so as to motivate them to work
sincerely.
Outreach and education: The value to the customer of a payment
system depends on the number of people connected to and actively using
it. So the presence of the BC is required in the area so that either he can
visit the person or person can approach him in case of any transaction.
In order to retain BC reasonable remuneration and incentive pay is
required. RBI may ensure interoperability of BCs so that people may
have the choice to choose them for the business transcations.
Viable business model/pricing: The viability of the BC model has
remained the most critical issue which has led to the model not taking
off as envisaged. A majority of no-frill accounts opened by BCs have
remained non-operational. As such, opening of the accounts to provide
deposit services to begin with and subsequently widen the coverage
of activities, with a view to making these accounts profitable, have
not made the desired progress. In order to ensure that accounts are
operational there is a need for legislation from the Government making
it mandatory to transfer all the social benefits through these accounts.
Once this is done the banking habit will start developing.
Monitoring of BCs - role of ICT - In order to achieve the above,
banks should closely monitor the BCs during their course of their
periodical visits to the branches. Banks may devise an Off-Site Real
Time Monitoring system, a mobile-based IT initiative which uses a
combination of GPS (Global Positioning System) and GPRS (General
Packet Radio Services) technologies through cell phones for monitoring
the same. Banks have to invest one-time cost for software package
development, procurement of cell phones and charges for GPRS
connectivity. The GPRS technology allows cell phones to capture real
time images of BC at work with the date and time of the picture as well as the stamp of latitude and longitude alongside the image, superimposed
on a Google map layer.
The facility to register a complaint through SMS against BC which
should go to the concerned officials under that jurisdiction, time line
for redressal, should also be fixed. This will build confidence in the
business model and make it a success.
Section V
Mobile Banking: Why a Requirement of a New Banking Channel?
Nowadays, more than 60 percent of the population is in possession
of a mobile phone. This includes a large section of the rural population.
People have started understanding the value, convenience and ease of
owning a mobile phone. Mobile banking has come in handy because of
little or no infrastructure cost to the bank and no additional investment
from customers. So this may be a useful channel where most of the
population is unbanked. Mobile Phone, a Personal Device, which
increases security though Second Factor Authentication, may also be
added. On comparing mobile banking with branch banking and internet
banking mobile, mobile banking could be most accessible with lowest
cost of services
What exactly is a mobile based payment? With mobile devices
becoming integral to people’s lives, banks are seeking to leverage
the ubiquity of mobile phones to create a cost-effective distribution
channel, rapidly innovate, extend reach across segments and improve
convenience and security of use. However, due to consumer concerns
regarding security, the adoption of this channel for value-based
transactions has been limited. One of the issues with mobile payments
in the market today is the lack of clear and shared information across
the industry.
Mobile based payment: Mobile based payment is defined as a
payment (transfer of funds) where the mobile phone is involved in the
initiation and confirmation of the payment. The location of the payer is
not important: he may or may not be ‘mobile’ or ‘on the move’ or at a
Point of Sale. The mobile payment would make use of cash redundant.
One could pay a vegetable vendor/ kirana shop payment, who displays
a mobile Number and MMID at shop, instantaneously. In India, it has
been decided to adopt the bank-led model.
National Payments Corporation of India (NPCI), a company under
Companies Act, incorporated in December 2008 is facilitating the
Interbank Mobile Payment Service (IMPS). IMPS is a money transfer
system in which one can send money to other bank accounts instantly,
the sender should use mobile banking to send money, the receiver
mobile number should be registered with his bank and the money is
credited to receivers account instantly .
For registration the Remitter must register for mobile banking and
get Mobile Money Identifier (MMID) & Mobile Banking Pin (MPIN)
for initiation of a transaction. MMID is a 7 digit number, to be issued
by the bank to the customer upon registration and the Beneficiary must
Register his / her mobile number with the bank account and get MMID.
A remitter can initiate an IMPS transaction by sending a SMS to his
bank typing the Beneficiary Mobile Number, Beneficiary MMID and
Amount. The receiver will get a SMS confirmation for the credit of his
account.
Section VI
Unique Identification Number (UID): Why a New ID?
A challenge for residents in India, particularly the underprivileged,
is the lack of documentation that they have to make available to establish
their identity. Many of India’s poorest residents do not have basic
identity documentation such as a birth certificate, or a proof of address
such as an electricity bill. These residents are consequently unable to
access services and resources – such as opening a bank account – since
they are unable to fulfil the KYC (Know Your Customer) requirements
these agencies have. The challenges increase when people migrate,
since most identification documentation in India is provided by local
administration and invalid when the person crosses state lines.
UID, i.e., Aadhaar is a 12-digit unique number issued by the Unique
Identification Authority of India (UIDAI) to all Indian residents after collecting and verifying their demographic (e.g., location) and biometric
(e.g., fingerprint, iris) data. The information in the database will be
used only for authentication purpose. If anyone seeks to authenticate
the identity of another person using the Aadhaar database, he/she will
only receive a response in the affirmative or the negative. The Aadhaar
database will not transmit information or share data with anyone.
Aadhaar will become the single source of identity verification.
Residents would be spared the hassle of repeatedly providing
supporting identity documents each time they wish to access services
such as obtaining a bank account, passport, driving license and so on.
By providing a clear proof of identity, Aadhaar will also facilitate entry
for poor and underprivileged residents into the formal banking system
and the opportunity to avail services provided by the government and
the private sector.
AADHAAR enabled bank accounts will be opened for every resident,
with his consent. It is envisaged that disbursement of social security
benefits like pension, scholarships, MGNREGS wages, etc. would be
through Aadhaar enabled bank account. UIDAI is actively working
with states/central ministries to designate Aadhaar enabled accounts for
disbursal of all social security benefits. The individual would be able
to access his/her AADHAAR enabled bank account through a low cost
interoperable micro-ATM network which will have large geographical
reach .
MICRO ATM and role of UID
With the government keen on expanding financial inclusion, the
Indian Banks’ Association (IBA) is working out a strategy to facilitate
branchless banking in villages. Remote villages with a population of just
2,000 could get micro Automatic Teller Machines (ATM) for banking
transactions, which would effectively meet a promise to this effect in
Budget 2010-11. Finance Minister Pranab Mukherjee had said in his
Budget speech that all villages with a population in excess of 2,000
would get banking facilities by March 2012.
Micro ATM meant to be a device that is used by a million Business
Correspondents to deliver basic banking services. The platform will enable Business Correspondents (who could be a local kirana shop
owner and will act as ‘micro ATM’) to conduct instant transactions.
The micro platform will enable function through low cost devices
(micro ATMs) that will be connected to banks across the country. This
would enable a person to instantly deposit or withdraw funds regardless
of the bank associated with a particular BC. This device will be based
on a mobile phone connection and would be made available at every
BC. Customers would just have to get their identity authenticated and
withdraw or put money into their bank accounts. This money will come
from the cash drawer of the BC. Essentially, BCs will act as bank for the
customers and all they need to do is verify the authenticity of customer
using customers’ UID. The basic transaction types, to be supported
by micro ATM, are Deposit, Withdrawal, Fund transfer and Balance
enquiry
Section VII
Could Post Office Network be used for Financial Inclusion?
India Post is largest in the world Post network which covers over
1.55 lakh branches which is larger than all commercial banks in India
put together. As on 31st March 2010, the number of rural post offices
in the country was 1, 39,182 (89.81 per cent) and number of urban post
offices 15,797 (10.19 per cent). The existing set up where 89.81 per
cent branches are in rural area most suited to the mission of financial
inclusion. On an average 7,176 people served by the post offices; 5,682
in rural and 20,346 in the urban areas. Average area served by one post
office is 21 km.
While appointing individuals as BCs, banks have to ensure that these
individuals are permanent residents of the area in which they propose to
operate as BCs and also institute additional safeguards as appropriate
to minimise agency risk. However, in case the post office lead model is
chosen, the above issue would be resolved automatically.
Indian post needs no introduction and it provides the cheapest
reliable services to the citizen of the country. The network of Indian
post by and large covers entire nation especially the rural areas. Post offices are already connected with lease line/broadband etc with the
power backup and it is easy to enhance further capacity rather than
creating a new setup. Post offices are providing remittance facility and
citizen can track the status of the transaction through the branch. It
has established Grievance redressal mechanism. The improvement in
the performance level of the identified post offices has been carried by
external audit, enchasing trust in the organisation.
The engagement of BCs by banks for delivery of banking services
exposes banks to multiple types of risks: (i) credit risk (ii) operational
risk (iii) legal risk (iv) liquidity risk and (v) reputational risk. To mitigate
such risk banks need to take appropriate action. In case of post office,
risk management will be robust.
Almost all BC transactions are cash based; the flow of cash with
BCs has been highlighted as the biggest issue. Besides the logistics
of handling large volumes of cash, it leads to increased costs and
added operational risks. Since post offices are already managing the
Post Office Savings Bank accounts, the risk of cash handling would be
mitigated. Banks may have agency arrangement with the post offices
which may benefit the both. Though the viability of the BC model is
still questionable, the chances of success of the post office model are
positive.
Given the vast network of the post office across country, Indian
post offers the facility to collect consumer’s bills on behalf of service
providers from telephone /electricity /mobile phone etc., through
retail post. Also it provides various retail services to the citizens of
the country. The Post Office Saving Bank (POSB) is the oldest and
largest banking institution in the country. It operates 240 million saving
accounts. POSB is a agency function performed by the Department of
Post on behalf of ministry of finance, Government of India. Presently
eight saving schemes are operated across country. These are saving
account, Recurring Deposit, Time Deposit, Monthly Income Scheme,
Public Provident Fund, Kisan vikas Patras, National Saving Certificates
and Senior citizen saving scheme.
In order to leverage the vast network, Provident Fund Development
Regulatory Authority (PFRDA) of India has entered into a MoU with the Department of post for retailing of the new pension scheme at various
post offices. As regards the BCs, the scope of activities that could be
undertaken include (i) disbursal of small value credit, (ii) recovery of
principal / collection of interest (iii) collection of small value deposits
(iv) sale of micro insurance/ mutual fund products/ pension products/
other third party products and (v) receipt and delivery of small value
remittances/ other payment instruments. All these services are already
taken care of by the postal department, so it would be a viable model
in case post department can also be given partnership in the financial
inclusion initiatives.
Section VIII
Conclusion
The entire emphasis of the Government, RBI and banks is to
open more accounts. However, mere opening the account will not
help furthering the cause of financial inclusion. The people working
in unorganised sector who often deal through middleman and fall into
traps/ clutches of private money lenders need to be targeted to include
them under financial inclusion. There is a need that the payment for
social schemes should be done through account payment so that issue
of money pilferage will be plugged. Financial inclusion requires
consistent efforts which will come at a cost, as banks are profit making
organisations, The Government should make a budgetary provision for
the cost and reimburse banks accordingly. Banks should also provide
doorstep banking services to them as an incentive so that other people
also join the inclusion programme of banks.
In the existing system, the cash is drawn from the BCs drawer and
simultaneously the account of the BC in the bank is credited. Once BC
model gathers popularity, there may be an issue in management of cash
with BC at hand and needs to be addressed for the success of the BC
model. The cash availability, consumer protection and quality of service
delivery could be assured with the promotion and encouragement of
Institutional BCs.
For the real success of the BC model, the salary/ charges to the BC
should be rationalized. There is also a need to incentivise BC for good work. The banks should show interest to recruit business correspondents
(BCs) and this may create employment opportunities for rural youth,
including women. There is a need for constant monitoring of the
services of the BCs which should be ensured through social audit that
BCs should not take any commission/charges from the persons.
One of the reasons for slow progress in financial inclusion is
absence of reach and coverage by banks. This gap now can be bridged
through the user of information and communication technology. Mobile
banking / Micro ATM offers one of the most promising options for
providing financial services to the unbanked population. Mobile banking
has taken off from an urban prospective where an existing client of
the bank is getting additional avenues to access his bank account and
doing banking transactions. Till now the potential of achieving financial
inclusion through mobile banking appears to be missing completely for
rural customers.
The main reason for slow inclusion by banks is the absence of
delivery model and products designed to satisfy the low income families.
The provision of uncomplicated, small, affordable products will help to
bring the low income families into the formal financial sector. Banks
have limitations to reach directly to the low income consumers. The use
of technology and using economies of scale will, however bring down
the cost of transaction to the banks and it will be a win - win position
for both banks and customers.
Financial inclusion and the extension of financial services to every
citizen of the country is a priority for the Government. The goal of
financial inclusion cannot be achieved without the help of technology.
The enrolment to UID and UID enabled bank account will be a game
changer in the entire process of financial inclusion plan.
References:
Ford, J. and K. Rowlingson. 1966. “Low-income Households and credit:
Exclusion, Preference and inclusion”. Environment and Planning, 28:
1345-60.
India post, Annual report, 2010-11. (http://www.indiapost.gov.in/Old/Report/Annual_Report_2010-2011.pdf)
Kempson, E. and C. whyley. 1998. “Access to Current Account”.
London : British Bankers’ Association.
Reserve Bank of India,Report on currency and Finance, 2006-08.
Reserve Bank of India, Financial Sector Technology vision, 2005.
Reserve Bank of India,Operative guidelines for Banks on Mobile
banking transaction in India, 2008.
Reserve Bank of India, Annual report, 2010,
Reserve Bank of India, Report of the Working Group to Review the
Business Correspondent Model, 2009.
Reserve Bank of India, Deployment of White Label ATMs (WLAs).
( http://www.rbi.org.in/scripts/bs_viewcontent.aspx?Id=2494 )
Subbarao, D. “Financial inclusion - challenges and opportunities.”
Speech published in RBI bulletin January 2010.
UIDAI, From Exclusion to inclusion with micro payments 2010. (http://uidai.gov.in/UID_PDF/Front_Page_Articles/Strategy/ Exclusion_to_Inclusion_with_Micropayments.pdf)
UIDAI, Handbook for Aadhaar enrolment. (http://uidai.gov.in/images/FrontPageUpdates/trainning_mod6.pdf)
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