Come January 1, 2013, the Government is expected to action the direct cash transfer schemes in 51 districts across 15 States, with the objective of fulfilling the basic financial needs of Indians who are Below Poverty Line (BPL).

This is an important step towards poverty alleviation, ensuring that citizens are given the resources to serve needs of their choice. However, an essential prerequisite for effective rollout is the assumption that all of the BPL population has bank accounts, which is, unfortunately, not true.

THE UNBANKED

According to World Bank estimates, only 35 per cent Indians have formal bank accounts. Naysayers may argue that this is not too bad, compared with a global average of 50 per cent, and 41 per cent in developing economies. But good governance is not about drawing poor comparisons.

Our focus is and should be on ensuring that we are delivering the goods where it is necessary.

This leads us to the question of financial inclusion. With over half the Indian population still excluded from the nation’s formal financial system, the need for several strategic steps is imperative.

Numerous steps have been taken in the six years since the government initiated the process of financial inclusion in a big way. The Reserve Bank of India (RBI) has recently mandated Regional Rural Banks (RRBs) to ensure that one-fourth of their proposed expansion is in unbanked parts of India.

Today, India boasts of close to 37,000 bank branches in rural areas. Mobile banking has also been introduced in some parts, with huge investments from both telecom operators and the banking fraternity. This certainly has the potential to change the banking footprint in India, but with broadband penetration at 1.6 per cent, it will be a while before we see substantial impact. So, despite being among the top priorities for the government, true financial inclusion is still a distant dream in India. But the good thing is, it will not be for want of vision or intent.

TECHNOLOGY SOLUTIONS

This is a clear call for stakeholders to rethink strategy. Stakeholders need to focus on easing the path to financial inclusion — creating more viable solutions for banks to enter rural markets and achieve greater profitability. I believe we need to focus on two broad areas:

First, India needs a cohesive and complete infrastructure to drive financial inclusion. How can we help banks view this as an opportunity — rather than an investment to write off? How do we help them overcome the obvious challenges: Remote management, shortage of qualified manpower willing to invest their/their families’ time in non-metros, security management, among other factors?

Can the technology industry provide solutions? Is there a way banks can effectively manage remote branches, without having to manage the infrastructure and a large staff? For banks, this would mean rapid return on investment (ROI), in itself an incentive to expansion. And the answer to the question is a resounding yes!

Networking solutions firm Cisco recently announced a “connected ATM solution” that aims to help banks in India deploy automated teller machine facilities in remote locations across the country.

Researchers at Xerox, for example, have invented a banking solution that reduces the cost of establishing branches — even in rural areas — and automates much-needed personal banking services, like opening a bank account or applying for a loan, making it simple for consumers in India and other developing countries to manage their money.

We believe it is a solution so simple and effective that it can be used in some of the most remote corners of the world. Pilot projects for solutions such as these are already underway in India — but more can certainly be done.

MINDSET ISSUE

The other obstacle in achieving financial inclusion is convincing the rural masses of the merits of banking services. The average rural citizen is still not convinced that storing money in an institution is safer and more profitable than doing so in the rice tin or under the pillow. This is the larger challenge — for this is a question of mindset — handed down over generations. Here is where I believe greater work needs to be done. Demand will create supply, and spur innovation.

It would be incorrect to say that rural banking has not picked up in India. Several initiatives are underway — and success is imminent — but my call is for urgency. Indians deserve better. Only then will India catapult itself from being a developing economy into a global superpower. A billion people deserve not just roti kapda aur makaan , but a bank account too.

(The author is MD, Xerox India.)

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