Financial inclusion has to move beyond channelising benefits and centre around the everyday concerns of people. One of the biggest financial inclusion reforms is currently under way in India. Thanks to the JAM Trinity of Jan Dhan Yojana, Aadhar, and Mobile phone ownership, India is gearing to roll out direct transfer of benefits for various programmes.

However, financial inclusion is meaningful when the poor are able to use formal financial services such as bank accounts, loans and insurance to increase incomes and improve their lives. Cash benefits transfer from the government can only be a short-term end. For the larger objective to become a reality, quality financial services must be provided to the underprivilality, and low-income customers must see clear benefits of using these services.

Behavioural barrier Recent reports highlight two types of quality related issues around implementation of the Jan Dhan programme. The National Stock Exchange-Institute of Financial Management and Research (NSE-IFMR) working paper Barriers to Basic Banking: Results from an Audit Study in South India points out that despite a clear brief to provide basic bank accounts to customers, banks tend to discourage it. The study team, acting as customers , was turned away when they tried to negotiate for a basic bank account.

The other issue pertains to the “unrealistic” expectations of the new account-holders. A new bank account holder was heard planning to buy a new auto rickshaw with the money he expects to receive in his bank account!

These could be only anecdotes. But the “quality” of our financial inclusion is suspect, reflected in high ‘dormancy’, or unused accounts.

Back of the envelope calculations estimate that a public sector bank would need anywhere between Rs 12,000- 50,000 as average monthly balance to keep an account viable. This is impossible for a basic bank account of the poor. Not surprisingly, this affects the mindset of the bank staff towards their poor customers. The sense of “resignation” among bankers is palpable. A senior public sector banker was candid while discussing this in private, “Let’s not even think of making these accounts viable; we are prepared to meet the loss.” Unfortunately, a vicious cycle is getting reinforced in the process. “Unwanted” customers get poor products and services, leading to dissatisfaction and low usage on their part. Without the desired level of service, this customer chooses to “exclude” oneself from the system. This strengthens the perception that banking for the poor is a loss-making proposition, undermining all current and future efforts at financial inclusion.

Clearly, opening more basic accounts does not necessarily translate into appropriate services. The front-end staff needs to engage proactively with customers. Similarly, opening accounts does not ensure that customers will use these to transact. So, both banks and the customers face two sets of constraints: those related to their capacity and behaviour.

Most of the work so far focuses on the supply side capacity. This is the easier part; when the government or the Reserve Bank of India wants the financial institutions to do something, it is done. But diktats can’t ensure that a front-end staff will service a poor client in the desired manner and treat her with dignity, or that the latter will go to a bank with confidence. That requires a behavioural change.

Product segmentation

On the supply side, devising appropriate products is critical. To take an example, an insurer targeting low-income customers didn’t insist on an age proof or stringent documentation; neither did it let the policy lapse up to a certain period if premiums were unpaid, therefore taking into account income fluctuations in the case of such a target group. Its policy found many takers. Many women workers in Kerala’s cashew factories subscribed to this as a saving instrument because insurance agents serviced the policy at their workplace. Customised products can attract interest and usage among underprivileged, just like their other customers.

But what is non-negotiable is the behavioural dimension. Banks which are otherwise savvy in dealing with affluent customers should prepare to deal with the low-income people. There are sub-segments even within this, such as farmers, women, micro-entrepreneurs, each with its own financial needs and ways of managing money.

A nuanced understanding of the market is critical for the bank to serve this segment. A leading private bank ran into problems in its SHG-lending portfolio, as it suffered for not having understood the market. The staff aggressively disbursed loans to meet targets; the NGOs promoted these Self Help Groups who are not used to managing financial transactions, including timely repayments. This led to high delinquency, highlighting behavioural constraints on both the sides.

Decentralised approach Capacity has to be built even on the ‘demand-side’. If the customer is not confident of approaching a bank or does not know what to expect from it, the deadlock will continue. For this reason, importance of raising financial awareness and literacy cannot be overemphasised. Equally important is the issue of customer protection.

Hardly any complaints are registered on a microfinance helpline set up to redress grievances. It was later found that the microfinance institution’s staff avoided sharing the helpline number with customers because the same could be used for complaints against them. Having worked with Smart Campaign, a global alliance to promote customer protection in microfinance, IFC has learnt that it is a long-term and nuanced process, and requires a serious change in the work culture of financial institutions. Clearly this cannot be done from New Delhi. A think-national-act-local approach for implementation and monitoring is an option.

For instance, all the stakeholders such as the government, banks, NBFCs, MFIs and NGOs could come together on a financial inclusion platform under the District Level Bankers Committees to design and implement comprehensive district level financial inclusion plans. Such a plan should leverage on each stakeholder’s strengths -- NBFCs for loans, banks for different savings products, NGOs for financial literacy. The debate for making financial inclusion effective is constantly evolving. What it needs now is greater local ownership, a little more empathy and a nudge on both ends.

The writer is Senior Operations Officer, World Bank Group. The views are personal