Finding the fillip to Financial Inclusion
In today's Finn Friday we take a sneak peak into the heavy lifting initiative of government to make the financial services reach to the bottom of the pyramid.
One of the simplest classifications for the land of India has been – Urban and Rural. And many of us have crafted our own characterization of rural correlating it with agriculture livelihood. This has been in line with the census definition of a rural area considering the 3 criteria - population less than 5000, density of population less than 400 per sq. km and more than 25% of male population employed in agriculture. However, RBI has been having a separate analogue for treating its branches as rural:
A town with less than 10,000 population is a rural location for RBI and that brings a whopping 76 Cr. of Indian populace under RBI rural umbrella.
So, a natural follow up question would be, why 2 separate definitions for a same term? That’s because as per RBI, these <10,000 population towns are the ones which are majorly underbanked i.e. the average population per branch office (APPBO) in these towns is more than the national average. Also, the folks at these locations extensively lag universal access to financial services like banking, insurance, investments etc. or in short aren’t under the purview of financial inclusion (FI). And when something gets linked to finance, RBI always takes its own stance.
Now, the whole economy rests on the supply and demand phenomena wherein savings by the individuals in anticipation of extra returns is borrowed by businesses to expand in lieu of interest. Hence, financial inclusion becomes imperative to carry out the activities of saving, spending and hedging which in turn are key enablers of prosperity.
And that is why Government of India has been pursuing our banks to provide customized financial services to the rural strata like the famous Jan Dhan Yojana providing zero balance bank account for every unbanked household. There also has been a guideline for all nationalized banks to mandatorily maintain a ratio of 75:25 for their urban is to rural branch count.
While there has been a substantial increase in the number people of owning a bank account due to these measures with percentage of bank account holders now more than doubling to 80% from the levels of 2011, but financial viability of these rural branches and Jan Dhan Accounts has always been a challenge for our banks.
Imagine the scenario of having a complete bank branch setup in a remote village with most accounts being zero balance. Also, due to daily wage earners, the transactions being too many with their value being too less. Why would the banks be interested in such a non-lucrative proposition?
So here emerges a new hero – a Business Correspondent or commonly referred to as a BC. He has been a part of this system earlier also, but it’s now to fulfill the FI mandate, the banks realize his true potential. A BC is an off-role bank representative from the same community where a bank wants to reach and provides all banking services whilst taking commission for every transaction made through him. He doesn’t need a typical bank branch setup and can operate through any temporary location like a small 6x6 kiosk or even a local kirana store. All thanks to the strong digital ecosystem because of which a bank literally has to incur zero fixed cost for expanding its reach.
Indeed, it’s a win-win combination for all three parties involved – banks, BCs and of course the customers. It’s like the first level unlocked in the game of achieving FI through creation of financial touch points. However, the next level gets tougher with specialized credit needs not only for individuals, but also for small businesses along with improved service quality at these touch points. And this is where RBI’s biggest supporter has stepped in! SBI recently created a separate vertical with exclusive focus on Financial inclusion and Micro Markets. This would aim to serve the small businesses, agriculture and allied segments for their smooth functioning. With a hope that this initiative turns out to be the much-needed fillip to the government’s financial inclusion mission especially during these turbulent times….
Hope to see you in the next Finn Friday!
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By: Anmol Gupta | Isha Garg