R. Srinivasan

R. Srinivasan, also known as Ravi Srinivasan, is cursed with a magpie brain, which compels him to peck at anything shiny which catches his eye. Some of the bits turn out to be useful!

R Srinivasan

Missing the small picture

R Srinivasan New Delhi | Updated on April 27, 2013


The collapse of the Sarada Chit Fund has exposed the plight of those who are at the bottom of the pyramid of India's financial system -- the unbanked and the unfunded. They may represent management guru CK Prahlad’s ‘fortune at the bottom of the pyramid’ – but the fact remains that nobody is chasing very hard to grab that particular pot of gold. They are the pieces who have fallen through the yawning gaps in our financial system – ready prey for bottom feeding sharks like Sarada and others of its ilk.

Consider some numbers: Less than 40 per cent of India’s adult population has a bank account. This number itself is misleading, since there is rampant multiple counting. A quick peep into my wallet tells me that I have six active accounts, as well as a handful of dormant accounts without a debit card -- and I have been a salaried employee all my life! Ditto for credit cards – around 2 per cent of the population has access to plastic credit. Only 6 per cent of the population has a debit card, which at least opens the gateway to automated payments and online transactions. Of the 600,000-odd identified habitation clusters in India, only 66,000 or so have a commercial bank branch.

Not that merely having an account guarantees you anything. As a savings account holder, it is virtually impossible for you to get even a collateral-based loan for almost any purpose. As for clean credit – unsecured credit, of the type offered as a ‘cash advance’ on a credit card, say, or an overdraft – forget it. The concentration of credit is staggering. The top 10 per cent of the borrowers account for almost 90 per cent of all bank lending. The top ten per cent of this top 10 per cent has cornered more than half of all bank lending, leaving next to nothing for the millions who are, at least on paper, already enjoying the benefits of financial inclusion!

This is the gap that the so called chit funds, ponzi schemes, ‘blade companies’ and what have you exploit. They reach the unbanked and tempt their meagre savings away with promises of unrealistically high returns. They also reach out to the significantly underfunded. For the poor, the unconnected and the unbanked, such firms, whose only criterion for client selection is a willingness to pay their usurious rate of interest on advances, is often the sole means to access capital. There is no point launching investigations after the fact, or even taxing sinners to pay off the suckers, as Mamata plans to do. If the government is serious about preventing the recurrence of Sarada-like scams, it needs to walk the talk on financial inclusion. Which has to start with a radical change of mindset among lenders and regulators -- that everybody is, indeed, a customer.

Published on April 27, 2013

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