Holistic inclusion

It would be wrong to dismiss the deliberations of the Deepak Mohanty committee on ‘The Medium Term Path on Financial Inclusion’ as just the latest in a series of high-profile committee reports on the issue. What the Mohanty committee has done is to examine why previous initiatives on financial inclusion, such as priority sector lending by banks, interest rate subvention for agriculture, the banking correspondent model and the Jan Dhan Yojana have not managed to fulfil their objectives — also, what can be done at the ground level to address this. The report suggests that to attain the lofty goal of universal financial inclusion, the RBI will have to stitch together a holistic strategy that involves not only its own constituents such as banks and NBFCs, but also ropes in telecom operators, Central and State agencies, land registrars and small and payment banks, to deliver last-mile inclusion.

On the primary problem of inclusion, the report finds that the attempts to improve banking access through rural branches, ATMs, banking correspondents (BCs) and no-frills accounts have delivered a six-fold expansion in bank accounts in the last five years. But some pockets remain excluded, such as towns in East and North-East India, women in general and the minorities. To address this, it offers specific solutions such as piggybacking on mobile networks in remote areas, opening government-funded bank accounts for school-going girls and enabling interest-free banking windows for those with ethical banking needs. On agricultural credit, the committee tempers welfare objectives with a strong dose of pragmatism. It points out that the present bank largesse in the form of subsidised loans and loan waivers mainly reaches the affluent landed farmer and creates a moral hazard. It suggests dismantling these modes of credit delivery and asks the Centre to offer small and marginal farmers income support through direct transfers. It argues for the seeding of all bank accounts with Aadhaar numbers, the digitisation of land records and issue of tenancy certificates to landless tillers so that cash benefits and crop insurance policies can be delivered directly into the latter’s hands. To remove the primary entry barrier to inclusion — the lack of transactional history — the report suggests mapping the digital footprint of all financial customers, whether it is the small farmer swiping his Kisan Credit Card or the owner of a micro-enterprise taking a personal loan. This can create a verifiable national database for lenders to make a 360 degree assessment of a new borrower’s credit-worthiness.

Overall, the report has over 70 different recommendations cutting a wide swathe across subjects ranging from crop loans to cashless payments. While most of them appear worthy of implementation, the difficulty will lie in the fact that their success is dependent on transparent information-sharing and coordination among many agencies. Nevertheless, this comprehensive approach to financial inclusion needs to be taken seriously. A multi-disciplinary agency at the Central level should be set up to put these ideas into action.

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