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Fincial Inclusion: Turning from millions to billions

Sentinel Digital DeskBy : Sentinel Digital Desk

  |  12 April 2016 12:00 AM GMT

By Dr B K Mukhopadhyay

The heat is on: Fincial Inclusion, simply speaking, is the process of delivery of fincial services at affordable costs to vast sections of disadvantaged and low income groups. It is very heartening to locate that through energy, effort, and resources many organizations and individuals across the globe are dedicating to fincial inclusion - the commitments continue to grow and multiple, which, in turn, reinforces the belief that fincial inclusion is at an inflection point.

If we glance back we could notice that policy makers have grapped with the issue of reducing the scope of informal sector since colonial times. Nicholson report (1895) was the first to highlight the need to establish “Land Banks” as an altertive to domince of money lenders, resulting in the passing of cooperative credit societies Act, 1904 to provide, amongst other things, a legal basis for cooperative credit societies .

For the last few years fincial inclusion has domited public discourse The exclusion of a large part of population from formal banking services leads them to the unregulated, informal sector - close to 90 percent of small businesses have no links with formal fincial institutions and around 60 percent of the rural and urban population does not even have a functiol bank account!

Recommending sweeping changes in the banking structure, an RBI panel suggested setting up of specialized banks to cater to low income households to ensure that all citizens have bank accounts by 2016. It also suggested that facility for withdrawal, payment and deposit should be set up within a 15-minutes walking distance anywhere in the country.

Incidentally, it may be mentioned that World leaders now, while fully appreciating the gaps, say they want to pursue fincial inclusion. The G-20 launched a Fincial Inclusion Expert Group. The heat is on, led by policy makers, in the developing world from India to Brazil to Mexico. The U S A was also seeking to make greater contribution to global leadership in this are. In the U S the federal government introduced the Community Reinvestment Act, 1997, partly in response to concerns about bank branch closure in low-income neighbourhoods, under which regulation federal.

As a global hot topic it is emerging, the causes of fincial exclusion are being located while at the same time efforts are on to design strategies to ensure fincial inclusion of the poor and disadvantaged, which in turn, has smoothened the road to reach at the MDG [Millennium Development Goal of eradication of poverty by 2020].

To be specific: fincial inclusion is a state in which all people who can use them have access to a full suite of quality fincial services, provide at affordable prices, in a convenient manner and with dignity for the clients. Fincial services that are delivered by a range of formal providers [all institutions that provide formal fincial services recognized by the Government – commercial banks, savings banks, rural banks, state banks, non-bank fincial institutions and other fincial institutions like microfince NGOs, credit unions] have to reach everyone [inclusive of the poor, disabled, rural and other excluded populations], who, in turn, can use them. Here fully included is a term describing individuals who have access to the full suite of basic services, which, in turn, refers to savings, credit, insurance and payment service. Here, turally, fincial literacy comes into play – the very ability to understand how to use fincial products and services as well as how to mage persol, household or micro-enterprise finces over time. And thus improvements in literary levels can be achieved through fincial education. This fincial education is important in the context of fincial inclusion since as previously excluded populations gain access to formal fincial services they nee to be able to use these services in a productive and responsible manner that will not cause them any harm.

On the other hand excluded group refers to individuals who have access to none of the products in the full suite of basic services [savings, credit, insurance and payment services] from a formal fincial service provider. Broadly defined, fincial exclusion signifies the lack of access by certain segments of the society to appropriate, low-cost, fair and safe fincial products and services from mainstream providers. Fincial exclusion is thus a key policy concern, because the options for operating a household budget, or a micro/small enterprise, without mainstream fincial services can often be expensive. This process becomes self-reinforcing and can often be an important factor in social exclusion, especially for communities with limited access to fincial products, especially in rural areas.

Though fincial inclusion basically means providing fincial services to the vast sections of the population not yet covered by the formal fincial system in, yet in the broader sense it means providing access to a bank account backed by deposits insurance, access to affordable credit and the payments system. It is a fact that this aspect of promoting broader access to fincial services, despite the emphasis placed on this score, received less attention till recently. The reality mirror reflects that the access dimension in particular had been overlooked over the decades.

Recent evidences suggest that fince is not only pro-growth, but also pro-poor and economies with better developed fincial systems experienced faster reductions in income inequality and poverty. For ensuring fast and consistent economic and social development a well functioning fincial system is an essential pre-requisite and so also the depth, capability and efficiency of the fincial system. Appropriate fincial sector policies calls for encouraging on the one hand competition and provide the right incentives to the individuals and on the other extending necessary support to foster growth, poverty reduction and better distributive justice making full use of the capacities. Improving fincial access in a way that most benefits the poor calls for adoption of strategy for inclusion that travels well beyond credit for poor households and as such it is vital to broaden the focus of attention to improving access for all who remain excluded.

Fincial exclusion is rightly equated with the ibility, difficulty or reluctance to have access to mainstream fincial services and the same has the inherent tendency to lead to social exclusion and hence the fincial services brings in its fold money and debt services, fincial capability, banking, affordable credit and insurance. In an increasingly cashless future economy the consequences of not holding a bank account are ever more exclusiory. Fincial inclusion has the power to significantly contribute to a route out of poverty.

It is heartening to note that globally now the very fact is recognized that without inclusive fincial systems poor individuals and small enterprises are left to rely on their own resources / borrowing from others [usury] to invest in education, health or take advantage of promising growth opportunities. People outside the mainstream fincial services - who have access to none of the products in the full suite of basic services like savings, credit, insurance, and payment services - suffer fincial disadvantages, which include, among others, usury, lack of insurance, higher interest credit, higher cost utilities and no account into which wages, income, payments can be routed.

Side by side, it may be noted that fincial inclusion is a concern even in the developed countries and legislative or regulatory measures to achieve the same are a common feature. Typically, countries with low levels of income inequality tend to have lower levels of fincial exclusion, while countries with high levels of inequality record higher levels of fincial exclusion.

Bank regulatory agencies have to rate banks on their ability to serve low-income communities.

It is being rightly observed that by 2020 full inclusion is a big possibility keeping in view the ongoing efforts. Reaching the hitherto unreached spatially is, no doubt, a stupendous work but of course not an impossible one. The challenge is not only to bring them into the formal fold but to ensure a smooth payment system to excluded rural locations, combating the infrastructural bottlenecks. Clear and meaningful objectives, when set before in all these related areas, can inspire all to take a comprehensive path towards full fincial inclusion. Of course bringing this forth calls for adequate attention to human and institutiol issues – quality of access, affordability of products, sustaibility of the providers and of course outreach to the most excluded populations.

“Banking the unbanked’ to “branchless banking” have, thus, ceased to be used as catch phrases, rather effective steps are on steadily showing and indicating that the process in entirety can really contribute to overall development –an upward drift of the entire society.

The question now is not regarding the fact that the poor save, borrow and make payments throughout their lives, but relates to how to use these services to their full potential so as to protect their families while at the same time raising the standard of living, which, in turn, hinges heavily on how the most-suited products based on regiol peculiarities are delivered suitably.

It is better not forgotten that fincial inclusion aims at benefiting the world’s poor, the vast majority of whom do not use formal fincial services of the sort provided by banks, insurers, or microfince instititutions (MFIs) as a result of which they are uble to avail themselves of the fundamental tools of economic self-determition, including savings, credit, insurance, payments, money transfer, and fincial education.

McKinsey & Company is very right in pointing out that developing innovative and sustaible products is essential to the further expansion of fincial inclusion. Accordingly, organizations should begin with three principles: one, keep products relatively simple, emphasizing ease of understanding and use. Two, design products that balance cost and profit- ability with customers’ capacity to pay. Three, emphasize product bundling—not only to maximize cost-effectiveness but also to shift the focus from pushing a single product to identifying and serving customers’ comprehensive needs.

Is it not a fact that the bankers now look Fincial Inclusion as an opportunity rather than being treating it as a drag on profitability?

(The Writer, a noted Magement Economist, an Intertiol Commentator on Business and Economic Affairs and Director, Netaji Subhas Institute of Business Magement, Jharkhand, India, can be reached at

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