Skip to main content

Financial inclusion? Merely opening physical accounts in banks as flag posts of financial identity won’t help

By Moin Qazi*
For decades, balancing one’s checkbook has been the cornerstone of personal finance for conscientious adults in the developed world. I remember when I first opened an account of my own in my college days, I received a little booklet, the ubiquitous passbook, in which every deposit and withdrawal was acknowledged by the bank staff. I learned that keeping track of the bank balance was the personal hygiene of finance, like brushing your financial teeth. The implicit message, not just for me, but I think for society at large, was that the bank account was the locus of money management. All one’s main financial transactions would pass through the account, and the account would serve as a mirror of or financial health, showing not only income and expenses but also measuring solvency.
This philosophy has been the cornerstone of personal finance for adults in the developed world. And it is now the key focus of governments in developing countries. Financial institutions are now engaged in a vigorous battle to enlist the poor as their clients, not just for their business but to open a window for the poor which allows the global development winds to touch their lives.
Financial services are like clean water and electricity — they are essential to leading a better life. The frenetic global effort for bringing those outside the financial planet into it are part of a philosophy popularly called ‘financial inclusion’ .What exactly is financial inclusion .it is providing people access to high-quality financial tools —tools that they can afford, that are safe and properly regulated, that they can access conveniently from institutions that treat them with respect . With access to financial services, people can help families improve their lives in critical ways -- start businesses, send kids to school, provide better nutrition or simply put a roof that doesn't leak.
They provide an opportunity to people to move out of poverty and are also necessary to help them stay resilient through life’s worst moments without being pushed deeper into debt. They enable them to save and to responsibly borrow—allowing them to build their assets, to improve their livelihoods and to invest in education and entrepreneurial ventures. The term most buzzed in this respect is “the unbanked”— usually defined as people who don’t have a traditional savings account. These are the people who have to be brought into the orbit of formal finance.
Improved access to finance increases savings, reduces poverty, promotes employment and improves overall well-being. The poor need to set aside money in times of plenty and draw it out in lean times. Without a safe place to save money, it’s difficult to cope with the unexpected or to plan for the future. Financial services allow you to insure for health care, save for children’s education, and borrow for wedding or funeral costs. Improved savings and loan services and inclusive insurance plans are necessary for people to take control of their lives when life feels most out-of-control. These are the key elements of financial health.
Greater financial inclusiveness is a gateway for more balanced development and growth and a more cohesive society. With billions of people already using mobile phones, the means to introduce them to formal banking and financial services already exist. Technology has enabled contact with villages half a day away, unreachable by road. This has transformed both business and social and family life.
There are basically three financial needs of the poor:
  • Life cycle needs. Life cycle events that impose financial burdens include: births, deaths, marriages, education, home-making, widowhood, old age, and the need to leave something behind for one’s heirs.
  • Emergencies. Impersonal emergencies are caused by floods, cyclones, and fires etc., while personal emergencies include illnesses, accidents, bereavement, desertion and divorce.
  • Financial and life-style opportunities. The need for augmentation of family income can require large sums of money for starting or running businesses, acquiring productive assets (including land and housing), or buying life enhancing consumer durables (fans, radios etc.).

Access to a transaction account is a first step towards broader financial inclusion. As accountholders, people are more likely to use other financial services, such as credit and insurance, to start and expand businesses, invest in education or health, manage risk, and weather financial shocks, which can improve the overall quality of their lives.
Merely opening physical accounts as flag posts of financial identity won’t help unless they are actively used by people for managing their money. To make this possible people have to be imparted an ability to understand and execute matters of personal finance, including basic numeracy and literacy, budgeting, investing, and risk diversification.
This skill is known as financial literacy. It is a combination of financial awareness, knowledge, skills, attitude and behaviours necessary to make sound financial decisions and ultimately enhance their financial well-being.
Traditional ways of doing business make it difficult and costly for commercial banks to manage the small balance accounts that low-income families need. So banks often fail to recognize that low-income people could actually be viable customers—with some creative adaptations to business as usual.
Innovations in technology and financial services are enabling previously “unbanked” people to gain access to credit and financial services at an unprecedented scale and velocity. Although digital technology is opening new channels for delivering financial services, challenges persist. Sparse populations, inconsistent network coverage, lack of trust, or insufficient capital for building new business models, can stand in the way of success, particularly in connecting remote or underserved communities.
To blunt the potential risks of security, it’s important to properly equip customers, particularly the newly banked, with the financial literacy. They need to save, borrow and move money prudently and to keep themselves away from schemes that can get them into trouble. Point of service biometrics are fast catching up and introducing critical levels of security to transactions and also providing access to the many consumers who can’t read.
The challenge of financial inclusion is to understand what is best about all the different ways to reach underserved customers. It’s about understanding what works and building on it. The rapid spread of mobile phones is the game changer that can make the economic benefits from digital finance possible. Fortunately, mobile phone penetration is growing far more quickly than access to financial services.
Many can’t afford regular banks. Many have dropped out of the banking system after getting burned by increasing hunger of banks for fees and penalties, much of which focuses on people who least can afford it. Private Banks chooses to extract more money from those at the low end of their customer base, and many walk away rather than face a barrage of fees. Excessive documentation requirements and the perception that financial institutions as “rich people’s clubs” are among the most persistent obstacles. Many banks charge fees for a wide range of things, from low balances, to frequent deposits or withdrawals. You might even get dinged if you want a paper statement, or want to use an ATM from another bank. The new stipulation of fees for even simple needs and keeping minimum balances in accounts is another deterrent for the low income users in getting into the formal banking fold.
To use financial services to their full potential, the low income people need products well suited to their needs and appropriate training and education for adapting to these financial services. Bringing this about requires attention to human and institutional issues, such as quality of access, affordability of products, familiarity and comfort in use, sustainability for the provider of these services, proper training and outreach to the most excluded populations.
The issue is lot more nuanced than what we see today. Nuances change from culture to culture and consumer segment to consumer segment. Consumers will come into the formal financial sector and embrace the new opportunities believing that if they change their behaviour and exert the effort to get into the new world then certain specific pains will disappear. We must strive to develop tools for lower income people take charge of their financial health. We have thus to address real pains, not just offer benefits. If the industry’s priorities are tweaked even slightly in favour of the poor, barriers to inclusion would fall.
---
*Contact: moinqazi123@gmail.com

Comments

ALSO READ

India failing to dictate diplomatic preferences of Nepal, Bhutan, is unfairly blaming Beijing: Chinese daily

By Our Representative
In a sharply-worded editorial, a top Chinese media outfit, described by BBC as state-run, has said, commenting on India's foreign relations with its neighbours, that "speculation and suspicion" is "certainly not diplomacy". Published in "China Daily", the largest circulating English Monday-to-Saturday newspaper with branches across the world, the editorial notes (September 20) that "several recent events" in Nepal and Bhutan, are "gnawing worrywarts in New Delhi".
The editorial -- which comes close on the heels of a sharp critique of India's foreign policy in a state-supported Russian media outfit, Sputnik International, calling India's anti-Pak diplomacy as having "gone awry" following Prime Minister Narendra Modi's "half-baked" push for anti-terror drill down "others' throat" -- says, the " worrywarts" include "Nepalese troops taking part in a joint…

Ahmedabad, GIFT, Adani city get 1.68 lakh acre ft Narmada water; Gujarat's rural areas just 4.27 AF: Letter to CM

Counterview Desk
Well-known farmer rights leader Sagar Rabari, in an open letter to Gujarat chief minister Vijay Rupani, has demanded a transparent account of Narmada water, saying, while he has received a "routine reply" from him to his earlier, the data emerging from his RTI application show huge quantity of water being directed to Ahmedabad, the 10 km stretch of Sabarmati for the Ahmedabad riverfront, and nearby elite urban areas, including the Adanis' Shantigram township and GIFT City.

Accused of being RSS plant, Modi man, Hyderabad Urdu varsity chancellor asks President to probe "irregularities"

Counterview Desk
Refused entry in the Maulana Azad National Urdu University (MANUU), the central university's newly appointed chancellor Firoz Bakht Ahmed, who claims to be grand nephew of Maulana Abul Kalam Azad, has, in a letter to the President of India, said that MANUU vice-chancellor (V-C) Dr Aslam Parvaiz has accused him of being an RSS plant and a Modi man, whose sole aim is to "interfere in the working of the university".

17 lakh Jharkhand elderly, widows, differently abled do not receive pension: Public hearing told, aadhaar is a hurdle

By Our Representative
Hundreds of elderly, widows, single women and differently-abled persons from different districts of Jharkhand gathered near the Raj Bhavan in Ranchi for a public hearing organized by the Jharkhand Right to Food Campaign and Pension Parishad demanding the right to universal social security pensions ahead of World Elderly Day on October 1.

Ethnocide in Caribbean island filmed following award winning docufilm on Jamaica's anti-colonial Indian roots

International awards winner for Best Feature Documentary Linda Aïnouche for “Dreadlocks Story” (2014), which shows how Indians are entangled in the Jamaican society, and how Hinduism was a source of inspiration for the Rastafari movement, is all set to release her new documentary, “Marooned in the Caribbean”, which aims at documenting the awful desolating living conditions that Raizal people, the native inhabitants of San Andres Archipelago, endure.
Sons of slaves, these islanders have fallen prey to what the Colombian government calls Colombianization. “It’s a process”, according to her, “which kills the Raizal culture; it’s the killing of the Raizal soul. Colombianization subjugates Afro-descendants of San Andres to an ethnocide.”

Explorer, director and producer, Linda Aïnouche writes exclusively for Counterview: ***
Nobody escapes from blood and thunder in Colombia, and definitely not in the archipelago of San Andres, situated closer to Managua and Kingston than Bogota. The Raizal p…

India to deport Rohingya refugees, as the world moves towards prosecuting Myanmar for genocide

By Tapan Bose*
Seven Rohingya Muslims refugees who were held at a detention centre in Assam since 2012 will be handed over to Myanmar. The Supreme Court of India has refused to stop their deportation. The new Chief Justice of India Ranjan Gagoi said, "We are not inclined to interfere on the decision taken".

An elite Kutir set up by Modi far from the "madding" crowd: This Gandhi museum is formal, unapproachable

By Rajiv Shah
Have you ever heard of a Gandhi museum, sough to be projected as the “largest” on the Mahatma, yet totally inaccessible, in sharp contrast to Ahmedabad’s humble, approachable and unassuming Gandhi Ashram on the banks of Sabarmati, set up by the Mahatma during the heydays of the freedom movement? It exists about 30 kilometres away, its idea was conceived by none other than a person who has today become even more inaccessible than he ever was: Narendra Modi, India's Prime Minister.

History less known: Kasturba's role as an independent woman and a freedom fighter in her own right

By Nandini Oza*
Even the most deserving of women do not find a place that equals their worth in history. Kasturba is one such woman whose contribution to India’s struggle for freedom has been exemplary, and yet, it has not received the recognition it deserves. Kastur Makhanji Kapadia was born in the year 1869, the same year and in the same town of Porbandar in Gujarat as Gandhiji. In fact she was older than Gandhiji by a few months.

Gujarat BJP MLAs, youth leader "incited" attack on North Indians: Cong releases video

Counterview Desk
Senior Gujarat Congress leader Shaktisinh Gohil, currently in charge of Bihar and national spokesperson, All-India Congress Committee, has sent a legal notice to chief minister Vijay Rupani threatening criminal case and civil defamation suit for accusing him with "baseless statement" that he was responsible for attacks on north Indians in Gujarat.

Poor response to tenders for Gujarat's bid for the world's tallest statue, no international firm shows interest

By Our Representative
The Gujarat government’s claim that its decision to build the world’s highest statue in the world, in the memory of Sardar Vallabhbhai Patel, would attract “tremendous” response top international construction companies, has gone phut. The state government floated international tenders in August to build the statue, which is slated to be 182-metres high. Despite the “international” character of the tenders and big claims, well-informed Sachivalaya sources close to Gujarat chief minister Narendra Modi say, “not one international firm has come up to offer to carry out the construction activity.”