Financial Inclusion in India: The market is ready. And banks.
The Indian government has reconfirmed its commitment to financial inclusion, saying that banks and post offices would be re-equipped to expand outreach, supplementing the efforts of business correspondents and technology providers and KYC norms and technology solutions have been scaled-down.
And progressive banks are rising to meet the challenge. They have decided to use the services of community service organisations and NGOs that were already active in far flung areas, to promote their offerings. Technologically, the smart card is emerging as a viable option to store data offline and double as an identification document. Biometric authentication too finds acceptance as it circumvents the illiteracy problem by enabling customers to identify themselves through a fingerprint rather than a signature or Personal Identification Number (PIN).
The end aim of financial inclusion is to heed to the specific needs of the audience, such as easy accessibility, simplicity, flexibility in terms of use and identity management. And with a market as profitable as this one, it is only natural that other banks, who till now were observers to the game, too jump into the fray.
Comments
There is considerable chatter on Financial Inclusion and fair deal of fog on what is viable or plausible.Everyone is making "policy" related statements. How the policy will or can translate into an operationally viable project no one seems to have any idea or inclination to talk about. These are early days and Financial Inclusion is a noble and vitally important social and economic objective for a country like India, but it can be better achieved if people who have ground level expereince are given a forum to list out what is plausible.
Firstly from a bank's perspective there is Electronic Benefit Transfer like NREGS and other government schemes where the lure is the float balance from the disbursing agancy's current account. The beneficiary Saving Bank account comes by default and in tens of thousands. There is a school of thought among bankers that it is not cost effective to open or maintain these accounts in the Core Banking System because of cost of maintainence. Hence, enters a smart entrepreneur as a technology service provider with front end transaction and account maintainence software and server, a section 25 company to boot which acts as a Business Correpondent, with mobile interphase etc. The day end credit balance reflects at GL level. Easier said then done. The entrepreneur did number crunching on the unbanked population, number of backward districts, the quantum of government grants, factored in RBI's pressure on banks to roll out Financial Inclusion as of yesterday and presented his biometric or mobile based solution as the best solution for present and future. Only, he did not take into account the ground realities, namely, maintaining a field force on the ground, unproven technology when large volume of transactions are involved, abscence of signal coverage in interiors and that of electricity. Hence offline transactions were proposed and accepted by harried bankers. The consequent reconciliation issues are stll keeping many bankers awake till late at night.
Entrepreneur technology service provider also did not make a thorough revenue model with a cost benefit analysis. After erolling a few hundred thousand customers for a bank in a given district, on proprietary software, key management and ICT card, if the TSP who is essentially bridging the negative gap between operational expense and income through his equity capital raised through venture capital funds folds up, the bank has no recourse but to keep him afloat or buy him out or find another enetity to migrate the accounts.
Now something on the Biometric cards. In most bank's Core Banking Software platform a finger print can be stored as a piucture. However, comparing and matching finger prints is in the realm of forensic software. This is where, Technology service providers are coming with their intermediate servers, proprietary softwares and middle layer switches which would interphase with Bank's CBS. The rush for this space is such, and the pressure on banks from RBI for Financial Inclusion is so intense, that all floatsam and jetsam are finding entry somewhere.
The Telecom companies are the newest entrants to this mileu. More on them later. But they dont tire telling whoever cares to listen about Financial Inclusion models in Kenya, Brazil or Philipines where Mobile operators actually own banks. They point out on some premise that there are millions of mobile phone customers who dont have access to banking facility. By banking the indication is to bank credit. It would be interesting to observe the times when SMS and PIN based loan agreements are termed valid and enforceable. And presently RBI does not accept TRAI's KYC norms as suitable for banks.
In all countries where banking is a developed industry, all technological innovations have always percolated from the most affluent customer segment to levels below. Only in India, we are trying to buck the trend by forcing a mobile based financial inclusion platform. Now, RBI has come up with a draft of mobile banking guidelines which can be found in RBI's website and which is neiter here nor there. It is true that growth of mobile telephony in India has been phenominal. Also, the growth in hinterland rural areas has been good. But it would be prudent to remember that more than 75% of mobile connections are that of pre-paid variety. Ideally a mobile banking facility should be operator agnostic. No bank would like to peddle the services of a particualt operator as a must for its customers. The mobile operators themselves are not clear what their revenue model is going to be. Everyone wants to bill the bank. Operators typically want a piece of the float income pie, not knowing how what this really is or if it is there at all in this instance. A summary survey of the "No Frills" accounts on offer by various banks would clear this myth of float.
Banking in India is among the most stringently regulated industries at an operational level. Financial Inclusion projects have to encounter at every step KYC norms, Anti Money Laundering rules and anti terror funding norms. RBI auditors go by DBOD circulars and their own interpretations of these norms.
Financially excluded do not necessarily reside in rural India. Hundreds of millions live in urban Inda as well.
It would be a while till this gap in intent of policy and operational and regulatory viability closes.
Posted by: Raja Mukherjee | February 10, 2010 10:38 AM