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

TRENDING

Noam Chomsky, top scholars ask NRIs to take stand on human rights violations in India

Counterview Desk
Renowned world scholars, including Noam Chomsky, James Petras, Angela Davis, Fredric Jameson, Bruno Latour, Ilan Pappe, Judith Butler, among others, have issued a statement castigating the Narendra Modi government for allegedly creating an environment of fear through arrests, intimidation and violence.

Actionable programme for 2019 polls amidst lynch mobs, caste violence, hate mongering

Counterview Desk
Reclaiming the Republic, a civil rights network, has released a document prepared under the chairmanship of Justice AP Shah (retired) -- and backed, among others, by Supreme Court advocate Prashant Bhushan, bureaucrat-turned-human rights activist Harsh Mander, economist Prabhat Patnaik, Right to transparency activist Anjali Bhardwaj and social scientist Yogendra Yadav  (click HERE for full list) -- with the "aim" of putting forth policy and legislative reforms needed to “protect” and “strengthen” the Constitutional safeguards for India’s democratic polity.

India under Modi "promoted" crony business, protected financial fraudsters, fueled bigotry

By Sandeep* and Rahul Pandey**
Narendra Modi's ascension to power was accompanied with jubilation and expectation. His supporters were expecting an end to era of corruption and initiation of good governance which was described as Achche Din. His party's adherence to idea of nationalism was believed to make India a vibrant country and guide India to be a world leader. He gave the slogan of 'Sabka Saath, Sabka Vikas' conveying that his government was for all.
Corruption The government system is infested with corruption. A minimum of 10% is siphoned off from government schemes and projects, some of which goes back to political party in power and remaining is pocketed by various administrative, executive and political functionaries. This corruption continues and has increased. Now an additional Rashtriya Swayamsewak Sangh (RSS) person working as Official on Special Duty or some equivalent position in every government department also has a share in this booty.
The Narendra M…

Inviting Rajapaksa to India "insult" to 1,40,000 Tamils killed by Sri Lankan army

Counterview Desk
In the context of Sri Lankan opposition leader Mahinda Rajapaksa being invited in India, about 75 human rights activists*, claiming to be concerned about rights violations during the civil war in Sri Lanka, especially in 2009, have joined together to express their dissent through a statement.

Modi wants Pak govt be held responsible for JeM terror strike: World doesn't agree

By Sandeep Pandey*
I went to participate in a candle light homage paying event at Dr BR Ambedkar's statue organised by about 200 Dalit students on Hazratganj main crossing in Lucknow on February 16, 2019 evening, two days after the dastardly terrorist act in Pulwana, Jammu and Kashmir (J&K), in which 44 Central Reserve Police Force (CRPF) personnel was killed.

Post-advisory, Govt of India appears reluctant to ban e-cigarettes, "harmful" to kids

By Rajiv Shah
Is the Government of India dilly-dallying over the issue of banning e-cigarettes, which have been declared by anti-tobacco activists across the world as providing “an entryway to nicotine addiction”, especially among the kids? It would seem so, if the latest developments are any guide.

A Godse legacy? BJP rulers have "refrained" from calling Gandhi Father of the Nation

By Dr Hari Desai*
What an agony! On one hand, the entire India is celebrating the 150th birth anniversary of Mahatma Gandhi under the leadership of Prime Minister Narendra Modi, but on the other side, so-called Hindu Mahasabha members have been found mock-enacting the killing of the Mahatma and celebrating the murder by distributing sweets!

No aadhaar, no ration? Hard blow by Gujarat govt on poor and marginalized

By Pankti Jog*
Only those who have aadhaar registration and linked it with ration card will get ration from a Public Distribution System (PDS) shop. This decision of the Gujarat government has hit very badly thousands of poor and marginalized communities of Gujarat, especially during the drought year.

Not just Indian women engineers, men too face sexual harassment at workplace: US study

By Rajiv Shah
A recent research, carried out jointly by two US-based non-profit organizations, Society of Women Engineers (SWE) and Center for WorkLife Law (WLL), based at the University of California, Hastings College of the Law, has found that 45% of women engineers as against 28% of men engineers complained that it was perceived as “inappropriate when women argued at work, even when it was work-related.”

Anti-liquor march: Women padyatris "resolve" to occupy Karnataka state assembly

By Abhay, Swarna Bhat*
At a huge public convention held at Siddaganga Mutt on the Republic Day, January 26, 2019, in the presence of Sanehalli Sri Panditaradhya Swamiji, padyatris of the Madya Nishedha Andolana decided to intensify the ongoing liquor ban movement. A resolution passed at the convention, in which thousands of rural women joined in, the marching women declared that on reaching Bengaluru will “occupy Vidhan Soudha” on Mahatma Gandhi’s martyrdom day, January 30.