The Hindu Business Line : Towards financial inclusion

LAST week Mr V. Leeladhar, Deputy Governor of the Reserve Bank of India, delivered the Fedbank Hormis Memorial Foundation commemorative lecture in Kochi on a subject that is receiving keen attention around the world, especially of bankers - financial inclusion or taking banking services to the common man. Identifying the basic tenets of financial inclusion, the Financial Inclusion Task Force in the UK has cited three priority areas requiring serious attention: access to banking, access to affordable credit, and access to free face-to-face money advice.

As Mr Leeladhar explained, financial inclusion is the delivery of banking services at an affordable cost to the vast sections of disadvantaged and low-income groups. The Government of India's rationale for creating Regional Rural Banks (RRBs) in the years following the nationalization of the country's banks was to ensure that banking services reached poor people.

Some States such as Kerala have fared better in ensuring widespread and relatively more equitable access to banking services. Yet, even in Kerala, there are pockets of financial exclusion.

India's banking statistics may suggest that with a growth in bank and branch numbers, some of these objectives must have been achieved, even if partially. But the reality is quite the opposite. The branches of commercial banks and the RRBs grew from 8,321 in 1969 to 68,282 as at the end of March 2005. The average population per branch office has decreased from 64,000 to 16,000 during the same period.

The quantum of deposit accounts (current and savings) held as a ratio to the adult population is the common benchmark used to assess the degree of reach of financial services. In India, the ratio as on March 31, 2004 was only 59 per cent. Within the country, there is a wide variation across States. For instance, Kerala reports a ratio as high as 89 per cent, while Bihar has a low coverage of 33 per cent.

But these figures do not automatically imply the absence of financial exclusion, even in States like Kerala where a long tradition of social movements and public action has prevented large-scale social exclusion.

There are hundreds of thousands of families in India, including Kerala, without access to financial services. One potential solution to the problem, as the RBI Deputy Governor pointed out, lies in the context of India becoming one of the largest micro-finance markets in the world, especially in the growth of women's savings and credit self-help groups.

Kerala, in particular, has done well with SHGs, many of which have been transformed into `kudumbasree' units. If these are tapped, financial inclusion can be guaranteed in Kerala, provided, as Leeladhar reminded us, "the banks should be prepared to think out of the box!"

The writer can be contacted at kgkumar@gmail.com

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