Financial inclusion – The challenges ahead

The RBI's thrust on financial inclusion while issuing the guidelines for new banking licences is welcome.

Many public sector banks (which started off as private banks 70-80 years ago) would not exist today but for the strong idealism and intuitive reaching out for financial inclusion on the part of their founders.

NOBLE HISTORY

The founder of Syndicate Bank, Dr T.M.A. Pai, for instance, was instrumental in taking banks to villages with his innovative schemes.

Dr N.K. Thingalaya, who served the bank as Chairman and Managing Director, says that the bank introduced pigmy deposit scheme in 1928 for collecting very small amounts of four annas (25 paise) from the doorsteps of the customers. This has been considered as one of the first steps in financial inclusion.

These days every bank claims to have completed ‘n' numbers of villages under the financial inclusion programme – although mere identification of villages and nominating business correspondents is not tantamount to complete inclusion of the village in the banking network.

It is a well known fact, oft repeated by Indian bankers, that around six lakh villages in the country still do not have banking facility. Nearly four years after the launching of financial inclusion programme in the country, we are still identifying and targeting villages to be included under this programme.

NBFCs are Aspirants

Having service points – either in the form of brick and mortar branches or in the form of business correspondents – is vital for the establishment of the banking network in rural areas. Many NBFCs serving in the areas of auto financing and gold loan are aspiring for the new banking licences.

Some of them have presence in semi-urban and some in rural areas but it will be a difficult task to extend their network in rural areas ‘organically'.

HR Challenges

The lack of trained manpower to work in un-banked areas could be a major challenge for new entrants. But the banking system itself can provide the solution – just tap the retiring public sector bank employees, in the next three years.

At the end of March 31 2010, public sector banks had 31 per cent of their branches in rural areas. If the new banks can hire these retiring employees, as any corporate does while hiring talent for its new business, it can solve that problem.

Tech Costs not a deterrent

These days PSBs and private banks depend on business correspondents and technology for taking banking operations to rural areas. The cost factor need not be a deterrent for taking financial inclusion forward, going by the example of Corporation Bank.

Mr B. Sambamurthy, conceptualised branchless banking in Corporation Bank during his tenure as CMD there, using technology in rural areas through handheld devices and banking correspondents.

CULTURAL FACTORS AND OTHER CHALLENGES

Some factors that need to be considered are business models suited to the requirements of the regions concerned. What works in the north may not work in south, or in the different parts in the same State.

If banks only look at the profitability of their products in rural areas, it may not help serve their purpose of financial inclusion in the immediate future.

If a BC can take steps to make the customer use two or three products of the bank and build his own micro enterprise, then financial inclusion will never be a charity or obligation for them.

A blend of technology, available human resource, and a reasonably large financial infrastructure in rural areas should come in handy for the new aspirants to take forward the cause of financial inclusion.

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