Financial Inclusion (FI) in India A Report Card and way-forward

1. Financial Inclusion (FI) in IndiaA Report Card and way-forward Ashok Jhunjhunwala, Jaya Umadikarashok@tenet.res.in, IIT Madras Financial Inclusion in India - CPR-South, Bangalore

2. Banking services and personal finance available today • Transfers (between accounts, third party)/ online payments/ debit card purchase / Easy access to cash (ATM) • Savings (savings account, FD, RD) / Investments (through shares, mutual funds)/ Insurance services • Asset based loans (home loans, auto loans,..)/ Overdraft / Credit cards (credit without asset back-up) …but all these available to only middle and upper classes in India Financial Inclusion in India - CPR-South, Bangalore

3. What about the lower middle and lower income groups? • NOT ABLE TO – transfer money/ carry out transactions / pay their bills through banks • NOT ABLE TO – have savings accounts/ investments/ insurance • NO ACCESS TO – asset based loans/ overdraft / credit card loans • Only 55 per cent of the population in India have deposit accounts • Less than 2 per cent had credit cards; Less than 20% have life insurance cover • 6 lakh villages but rural branches of SCBs including RRBs number 33,495 Large section of population financially excluded! Financial Inclusion in India - CPR-South, Bangalore

4. Regulators have been responsive: push for FI…. • Banks to open more rural branches – still far from customers; expensive • Banks to operate through Business Correspondents –savings, facility to carry out transactions, transfer money • Have provided credit through Micro-Finance Institutions – facility to obtain loans • Have encouraged use of mobile technology to enable transactions –mobile banking Financial Inclusion in India - CPR-South, Bangalore

5. Let us look at the report card….. • Business Correspondent • Many no-frill accounts opened • Struggling without regular transactions • Micro-Finance Institutions • Very good initial response – credit at doorsteps and no longer a dependency on money lenders • ……till private equity stepped in! • Mobile Banking • Inter-operability entirely worked out • Slow take-off: Applications require downloading • USSD – does not require downloading – but has been reserved by Telcos From anyone to anyone, irrespective of they bank with, who is the mobile operator, what mobile they use and which technology they use Financial Inclusion in India - CPR-South, Bangalore

6. Can Technology help remove Mobile Payments bottlenecks…. A Common Third-party Payment Platform proposed • Common and Secure framework for basic financial services • Standardized formats for SMS and GPRS • Independent of which bank customers bank with • Third Party Platforms, who will push mobile banking for their customers, at the last mile Financial Inclusion in India - CPR-South, Bangalore

7. Question to Bank / BC: Why should I invest with you if you do not give loan when I need it? • However for loans offered • Cost of collection is too high: • Small ticket size • Regular follow-up required • Need mechanism for understanding credit-worthiness of loans • How has this been handled in urban areas – CREDIT BUREAUS Can there be rural credit bureaus? • SBI, IFMR and RTBI introduces Hi-Mark • Malegam Committee has emphasized the importance of Rural Credit Bureaus Financial Inclusion in India - CPR-South, Bangalore

8. MFIs – Road to Recovery Financial Inclusion in India - CPR-South, Bangalore

9. Value of ‘Feet on Street’ Essential for all financial services to reach rural customers FoS can also carry out education ….. but FoS is expensive Single-service (transaction and investments or loans or insurance) FoS unviable … makes services fragile and compromises on quality … need portfolio of services to spread costs • Regulators do not allow multi-service agents / companies for fear of misuse – • Hapless customers could be exploited • Possibility of mingling of funds collected from different services Financial Inclusion in India - CPR-South, Bangalore

10. Can technology help Move forward? Combination of rural credit bureaus as well as multi-service field-agents would enable true financial inclusion • Maturing mobile phone technologies – • GPRS and EVDO in 95% of villages • All transactions by field agents involve real-time money transfer to bank / insurance companies • Real-time data-reporting and monitoring for each multi-service field agent and their activities • Back-end analytics to track any misuse in real time • In addition, • Third party mobile applications on customers phone to provide secure transactions • Automatic Voice-based services to service customers who are illiterate or semi-literate • SMs and voice-SMS can also be used for financial education Financial Inclusion in India - CPR-South, Bangalore

11. To Sum Up • Years of practice + Technology advancement • Right time to make a leap in Financial Inclusion • Would require regulators, banks, technology providers and Financial Institutions to work hard and work together • There is a clear opportunity and gains could be big Financial Inclusion in India - CPR-South, Bangalore