India must correct the imbalance arising from financial exclusion
With the aim of achieving economic growth, various initiatives were undertaken, both by the public and the private sector, to bring large swathes of the financially excluded and ignored into the banking and financing fold. However, if recent reports are to be believed, not all efforts may be bearing fruit. It is important for India that financial growth accelerates. A report on the Trend and Progress of Banking in India 2017-18 indicated that despite having an 80% banked population among all Indian adults, almost half of these did not conduct any transactions in the preceding 12 months. Seen as a bellwether for inclusion, this points to a glaring underachievement in financial inclusion efficacy. The global context of inactive accounts amounts to just 25% of the total.
The responsibility for accelerating inclusive growth lies equally on each stakeholder: the government, private and public banks and financial institutions, and the social sector.
The lack of financial literacy is a major reason which has prevented financial inclusion from becoming a success in India. In the urban as well as rural poor segments, education is woefully lacking among most people. Financial literacy (FL), of course, is way behind in this cohort. When it comes to simple things like claims and transparency, knowledge of all this is largely missing.
Today, when the world is moving to 5G and quantum computing, the financial sector is also being presented with a great opportunity for outreach and service using the very same tech tools that the communication and entertainment industry have leveraged to grow. In India, particularly in the rural and semi-urban areas where FL is a priority, technology can only succeed if users have access to its various benefits. The challenge here is that while the policies and tools for FL are under implementation in varying degrees, the one avenue which can ensure its speedy dissemination — technology leverage — is still way behind.
Another factor holding back financial inclusion is credit aversion. By nature, Indians are somewhat averse to credit. It is a behavioural challenge and something which needs proactive efforts to overcome. A lack of enough credit offtake does not bode well for entrepreneurship and small business growth. What we need is a way to provide bankable security and at the same time good, faultless credit when needed. The solution needs to be based on a few simple determinants of inclusion: accessibility, low-cost, replicability, clarity, and security.
Viable business entities, banks and financial institutions have an obligation to their stakeholders. Cost is a limiting factor here too. Hence, when operations and activities record unviable returns, banks become wary. Small wonder then that the reluctance of financial institutions to serve small value and / or unprofitable customers often stands in the way of achieving financial inclusion. Institutions will not engage in low profit activities unless there is a positive side to the whole equation. In the case of the marginalised, other issues such as loan default due to vagaries of the weather, economy, market, society, etc are also real challenges.
What is the way forward? The answer lies in citizen awareness and institutional empowerment. It is important to educate populations on the benefits, possibilities and opportunities afforded by inclusion. At the same time, the private sector as well the larger non-banking institutional edifice have to be buttressed and empowered to play a more effective and more active role in aiding the financial inclusion effort. Giving authorisation to microfinance as well as non-banking financial organisations to perform limited mainstream financial services in remote areas can help improve reach of such programmes.
The caveat here is the demand-supply mismatch and the systemic barriers which threaten to slow or stop inclusion. While the government is going ahead with what it can do, the private sector has a significant role to play in achieving an all-round, inclusion-predicated, transformation of India.
Marko Carevic is chief marketing and customer experience officer, Home Credit India
The views expressed are personal