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A mission mode approach key to financial inclusion

— Photo: Shashi Ashiwal

ALL INCLUSIVE: From left: Umesh Chandra Sarangi, Chairman, NABARD; C. Rangarajan, Chairman, Economic Advisory Council to the Prime Minister; Y. S. P. Thorat, Member Secretary to the Committee on Financial Inclusion; and Usha Thorat, Deputy Governor, Reserve Bank of India. The committee released the summary of recommendations to the media in early February.

A high level committee headed by C. Rangarajan has looked at financial inclusion in its entirety. Its recent report offers a conceptual framework for a subject that is becoming increasingly relevant to the macro economy. It also makes some important recommendations for making inclusive practices part of mainstream finance.

The committee has approached its task by defining financial inclusion as widely as possible. Inclusion generally denotes delivery of financial services at an affordable cost to the disadvantaged and vulnerable sections of the society. Not just access to a bank account and hence to deposit facilities, access to timely and adequate credit should also come under financial inclusion.

Going further, the committee would like a range of products and services as may be appropriate, including micro finance and insurance products (both life and non-life), to be made available. Consumer education should go hand in hand with the availability of services.

Financial inclusion in the broadest sense, therefore, is to make available a comprehensive range of financial services to those who need them. It is customary to concentrate on supply side factors for propagating financial inclusion.

Opening of branches of commercial banks in rural areas is one of them. But along with making available those services, it is necessary to stimulate the demand for them. In many parts of the country, among different sections of the population, demand for financial services is weak or limited. Efforts must be taken to improve their physical and human endowments, enhance productivity, mitigate risks and so on.

To underlie the urgency, the committee has recommended that financial inclusion must be taken up on a mission mode. A National Mission on Financial Inclusion comprising representatives of stakeholders should be constituted to achieve the objective in a given time frame.

Also a National Rural Financial Inclusion Plan should be launched with a clear target to provide access to comprehensive financial services to at least 50 per cent of the financially excluded households (approximately 55.77 million) by 2012 through commercial and regional rural banks. The remaining households are to be covered by 2015.Extending financial services on such a massive scale will naturally cost money. During the initial years at least the promotional efforts will require outside funding.

Two dedicated funds, with contributions from the Central Government, NABARD and the Reserve Bank of India, in the forefront of technology adaptation will bear a part of the costs of development.

The thrust of the committee’s recommendations is on improving the delivery systems both conventional and innovative.

Among the important measures recommended here, the role of the business facilitator/correspondent has been re-emphasised.

These function as agents of the banking system and contribute to the delivery of financial services at places where bank branches are unviable.

Technology is obviously necessary to reach out to customers. In the committee’s view, the business correspondent/facilitator model supported by suitable technology should form the core strategy for spreading financial inclusion. Ultimately, banks should endeavour to have "a BC touch point” in each of the six lakh villages in the country.

This is an ambitious target by any yardstick. At a practical level, it will be extremely daunting. Although gaining popularity slowly, the business correspondent model will take a while to gain acceptance.

Even more basic, for rural banking to flourish, appropriate methodologies have to be found. Apart from challenges in technology, there are big issues concerning human resources. Staff will have to be trained and motivated through a system of suitable incentives. Regional rural banks (RRBs) have a critical role to play. Micro finance, self-help groups (SHGs) and their linkages with banks are other important channels for spreading inclusion.

The committee would like NABARD to extend micro finance services to the urban poor also. Its charter may have to be suitably amended.

Comprehensive as the Rangarajan Committee’s recommendations are, they are, in essence, a collation of existing initiatives by the RBI and others to spread the banking habit. The committee has provided the much needed conceptual framework, a prerequisite for formulating policies.

The role of technology in spreading inclusive practices is well recognised. Realising that the present high cost structure of commercial banking in the rural areas inhibits their growth, the committee wants the business correspondent model to be popularised. It is going to be a challenge for commercial banks to integrate the working of people, who are not their employees, with their own strategies and practices.

For example, it will be a tough job to identify and train such a large number of non-bank professionals.Not that training and attitudinal reorientation is less important for the regular bank employees. Commercial banking in India has largely been urban centric.

Finally, spreading banking practices everywhere and across the country calls for a high degree of flexibility on the part of those in charge.

For instance, even in urban areas anecdotal evidence suggests that it is not easy for many to open an SB account with a balance of, say, Rs. 500 or less.

In the guise of adhering to Know-Your-Customer rules some of these potential account-holders are turned way.

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