Skip to main content

Inconsistent network coverage, lack of trust stand in the way of financial inclusion in India

By Moin Qazi*
The country’s largest bank, the State Bank of India (SBI), has closed as many as 41.16 lakh savings accounts between April-January in the current fiscal year for not maintaining the minimum balance, reveals an RTI query. Between April and November 2017, the bank had netted a windfall of Rs 1,771.67 crore, more than its second-quarter profit, from customers for non-maintenance of minimum balance, according to the finance ministry data.
The three largest private banks — HDFC Bank, ICICI Bank and Axis Bank — earned more than all 21 of their state-owned peers put together from penalties levied for non-maintenance of minimum balance in savings accounts between FY15 and FY17. According to data put out by the ministry of finance the three private banks together collected Rs 1,031.85 crore in FY15, Rs 945.07 crore in FY16, Rs 1,008.79 crore in FY17 and Rs 783.98 crore in the nine months ended December 2017 as penalties for shortfall in account balances. For public-sector banks (PSBs), the figures were Rs 687.57 crore, Rs 801.07 crore, Rs 203.78 crore and Rs 2,533.72 crore, respectively. SBI alone collected Rs 1,982 crore between April 2017 and December 2017.
The official emphasis on financial inclusion keeps re-emerging in policy documents but bankers show little earnestness in pursuing it on account of a plethora of constraints. As part of government fiats, banks are forced to meet humongous targets for opening accounts for bringing the unbanked population into the financial arrangement. But when many of them inevitably become an economic deadweight as they remain dormant (accounts without any transactions), the banks cannot afford to lose money servicing them. They have to perforce levy penalties and ultimately shut these accounts; sending them out of the financial system to where they had come from, the unbanked.
Access to financial services, financial inclusion implies an absence of obstacles to the use of these services, whether the barriers are price or nonprice barriers to financing. It is important to distinguish between access to, the possibility to use, and actual use of financial services. Exclusion can be voluntary, where a person or business has access to services but no need to use them; or involuntary, where price barriers or discrimination, for example, bar access. Failure to make this distinction can complicate efforts to define and measure access. 
Financial market imperfections, such as information asymmetries and transaction costs, are likely to be especially binding on the talented poor and micro- and small enterprises that lack collateral, credit histories, and connections. Without inclusive financial systems, these individuals and enterprises with promising opportunities are limited to their savings and earnings. This access dimension of financial development has often been overlooked, mainly because of severe data gaps on who has access to which financial services and a lack of systematic information on the barriers to broader access.
Many cannot afford regular banks, and many have dropped out of the banking system after getting burnt by the increasing hunger of banks for fees and penalties, much of which focuses on people who least can afford it. Private banks are choosing to extract more money from those at the lower 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 are ‘rich people’s clubs’ are among the most persistent obstacles.
Financial inclusion isn’t just about numbers; it’s about people. When more people have access to affordable and high-quality financial services, they have more opportunities to thrive. This is especially true for women, who are often underserved by traditional financial institutions
The context of poor people becomes a major factor in financial inclusion. To harness the full potential of financial services, people with low income require products that cater to their contextual needs. This requires attention to issues such as quality of access, affordability of products as well as supply-side sustainability and extent of outreach of services.
The issue is a 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.
I remember in the early eighties, all bankers were part of a financial inclusion revolution that was far more vigorous than the one we see today. A wave of commercialisation put the brakes on this enthusiastic journey, and the great mission was abandoned. The high-profit goals spurred bankers to design rabbit holes in which the poor would get trapped and lose their accounts.
The introduction of penalties for failing to maintain minimum balances and or for failing to use an account led to the mass-scale demise of the bank accounts of millions of poor account holders. Without informing the poor customers of policy changes, the bankers sheared and denuded the accounts of their bank balances by applying penalties, finally knocking them off the bank ledgers.The clock had moved full circle. The financial revolution had come to a nought. In the end, customers were back to where they began their financial journey. Such poorly thought out policies and programmes demoralise all the actors in the ecosystem-the customers, bankers, economic observers, media, academics and the NGOs working for the financial empowerment of ordinary citizens. Moreover it dissipates the enthusiasm of those who propel the entire effort. Finally, it reinforces the prevailing myth, that the banks are anti-poor.
Financial inclusion should not end with just opening accounts. The customer must make this account his financial diary and conduct transactions which can grow into a credit history. Or else all these accounts would remain deadweight. What needs to be done is to make more and more of these accounts transactional, and actively so. Once the subsidy comes in, that’s an indication of the first set of transactions. But after that, what is essential, is getting the customers used to the habit of saving, getting them to use formal channels for the remittance of money and then, through the way the money comes into the account, building some kind of credit analytics and making small loans and microinsurance available to them.
To make this possible, people have to be given the 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, and the attitudes and behaviours necessary to make sound business decisions.
Innovations in technology are enabling previously unbanked people to gain access to financial services at an unprecedented speed and scale. Microfinance institutions, banks, mobile operators and third-party providers are all leveraging the technologies behind mobile phones to offer essential financial services at a lower cost than traditional banking allows. There are even new types of institutions emerging such as, agent networks, payment aggregators and others who are helping build out a more far-reaching and efficient digital finance ecosystem.
Although digital technology is opening new channels for delivering financial services, challenges persist. Sparse populations, inconsistent network coverage, a 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.
The challenge of financial inclusion is to understand what is best about all the different ways of reaching underserved customers. It is about understanding what works and building on it. We have 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 will begin fall. The rapid spread of mobile phones is the game changer that can make the economic benefits from digital finance viable. Fortunately, mobile phone penetration is growing far more quickly than access to financial services.
Let us not forget the lessons of the past. The milestones which we have recorded in our financial inclusion journey should spur us forward with renewed vigour. Let us not reduce them to mere flag posts and consign a progressive economic revolution to the backwoods of history. We should look forward to enjoying the fruits of this revolution.
----
*Contributor of articles to leading publications around the globe, author of several books, has been associated with the development sector for almost four decades. Contact: moinqazi123@gmail.com

Comments

TRENDING

A tale of horror and fraud: Profits in trillions of dollars for vaccine manufacturers?

By Aruna Rodrigues*  John Leake is a best-selling and “experienced non-fiction, true crime author”. Having just read what must be described as an extraordinary ‘telling’ of the Covid-19 saga, his book “The Courage to Face Covid-19: Preventing Hospitalization and Death While Battling the Bio-Pharmaceutical Complex”, co-authored with Peter A McCullough, MD, MPH, is the narration of true crime on a scale that could top the list in the history of ‘man’s inhumanity to man’. The book chronicles the unique role of national governments across the world and their health agencies, led by the USA and WHO, which followed an agenda that led to completely avoidable fatalities numbering several million. The question is why? The usual culprits are money and power. But to ascribe cause to these two is woefully insufficient. The sheer magnitude of the ‘dark agenda’ – coordinated and played out by governments, health agencies, the medical establishment (hospitals, doctors and chemists) and the massive a

You promised 50 lakh houses, give us one: Ahmedabad migrant women's plea to Modi

Women display letters containing rakhi for PM    By Hirabhai Solanki, Bhartiben Dantani, Ramesh Shrivastav*  Poor labouring families, including seasonal or long-term migrants of nearly 15 squatter settlements -- working as construction and casual workers and petty vendors, providing cheap but critically important labour for Ahmedabad city, living under plastic sheetings -- have reminded the Gujarat and Central Governments about the promise made by Prime Minister Narendra Modi of building 50 lakh dwellings, wherein every pavement dweller and homeless would be given a decent home by the end of 2022. Holding a meeting in Ahmedabad under the aegis of the Majur Adhikaar Manch, they also referred to the appeal of the Prime Minister to poor and labouring women, seeking his support as brother by sending rakhis to protect their humble basti dwellings and provide them with decent housing, which is secure for them and their families. So far, about 300 women have posted rakhis to the Prime Ministe

A countdown to disaster: Breach in fly-ash bunds of Nagpur's thermal power plants

Fly-ash dyke, Koradi thermal power plant  By Dhwani Shah, Deepmala Patel*  Last month the residents of several villages of Nagpur district woke up to the nightmare of being inundated with fly-ash. Located in the north of Nagpur city are Koradi and Khaparkheda thermal power stations which have their ash dykes in the vicinity. On July 10, 2022 at 3 am, the ash dyke of the Khaparkheda thermal power station broke, leading to ash contaminating the Kanhan river. Though the authorities claimed to have acted quickly and the fly ash dumping in the river was stopped, the claim stood to be misleading and false. Even today, the Kanhan river continues to be polluted with fly-ash, and the water supply to the city is affected. Not only did ash dyke of the Khaparkheda power station break, on July 16, 2022, the ash bund of the Koradi thermal power plant also broke. Fly-ash and water stored in the dyke gushed downstream to six villages -- drowning houses, water bodies and farmlands. With such large-

Golwalkar's views on tricolour, martyrs, minorities, caste as per RSS archives

By Shamsul Islam*  First time in the history of independent India, the in-charge minister of the Cultural Ministry in the current Modi government, Prahlad Singh Patel, has glorified MS Golwalkar, second supremo of the RSS and the most prominent ideologue of the RSS till date, on his birth anniversary, February 19. In a tweet he wrote : “Remembering a great thinker, scholar, and remarkable leader #MSGolwalkar on his birth anniversary. His thoughts will remain a source of inspiration & continue to guide generations.”

RSS, Sangh Parivar consider tricolour as "state flag" and not "national flag"

By Teesta Setalvad* Today, when the nation has been independent for 67 years, the Sangh Parivar is set to launch ‘Tiranga yatras’ and Satyagrahas to defend the honour of the flag and the nation. Yet when the Indian people were involved in the decades-long struggle for freedom against British imperialism, the RSS was conspicuous by its absence in the struggle. When thousands of people faced lathis, bullets and jail sentences for hoisting the tiranga and participated all over the country in satyagraha during the Civil Disobedience and Quit India movements against the British Raj, the Sangh publicly took the stand that it would not take part in the movement and seldom missed the opportunity of assuring the British rulers that they would keep to the right side of colonial law and avoid any clash with the authorities. Of course the reason given for this was that the Sangh was secretly strengthening itself and would take on British imperialism only when it was strong enough to do so! A simil

'Grossly inadequate': NREGA allocation 0.29% of GDP, World Bank recommended 1.6%

By Rajiv Shah  A civil society tracker, seeking to periodically analyse the implementation of the Mahatma Gandhi Rural Employment Guarantee Act (NREGA), has said that NREGA budgetary allocation is only 0.29% of GDP and 1.85% of the total government expenditure of the financial year 2022-23, which is grossly inadequate. Thus, “As per estimates of researchers of the World Bank, for NREGA to run robustly, its allocation must at least be 1.6% of the GDP.” Prepared by the People’s Action for Employment Guarantee (PAEG), a group of activists, academics and members of people’s organizations, who came together to advocate for NREGA in 2004 in order to catalyse discussion and strengthen the top Government of India rural jobs guarantee scheme, the tracker states, the NREGA budget as percentage of the total government expenditure has also decreased -- it stands at 1.85% for FY 2022-23, just about half the level in FY 2020-21 (3.65%). The tracker, titled “Meagre Funds and Unlawfully Low Wages: How

Buddhist shrines were 'massively destroyed' by Brahmanical rulers: Historian DN Jha

Nalanda mahavihara By Our Representative Prominent historian DN Jha, an expert in India's ancient and medieval past, in his new book , "Against the Grain: Notes on Identity, Intolerance and History", in a sharp critique of "Hindutva ideologues", who look at the ancient period of Indian history as "a golden age marked by social harmony, devoid of any religious violence", has said, "Demolition and desecration of rival religious establishments, and the appropriation of their idols, was not uncommon in India before the advent of Islam".

Since 2015 Govt of India didn't allocate single rupee to Gujarat for RTI training, awareness

By Pankti Jog*  The Department of Personnel and Training, Government of India (GoI) has allocated Rs 8.7 crore to Maharashtra for conducting Right to Information (RTI) training and awareness between 2015 to 2022. Of this, Rs 5.9 crore has gone to the Maharashtra State Training Institute, YASHADA, and Rs 3.01 crore have gone to the State Information Commission, Maharashtra. Gujarat, on the other hand, has not received even a single rupee over the last seven years for RTI programmes. Even Gujarat’s State Information Commission too has not not received any funds since 2005. RTI is one of the effective tools to bring transparency and accountability in the administration, thus improve governance. If citizens are aware, they would participate in a more meaningful manner in governance. They would effectively monitor planning and expenses of public programmes. Indeed, it is necessary that RTI is taken to every citizen, for which the government needs to conduct awareness drives and training

Anti-untouchability brass coin yatra to Delhi getting 'overwhelming' response: Macwan

By Our Representative  Gujarat’s top Dalit rights leader Martin Macwan, who is currently leading a week-long procession to Delhi carrying a 1,111 kg brass coin with the pointed question embossed on it, “Will the 1947 dream of untouchability free India be a reality in 2047?”, has reiterated that the removal of untouchability in India is Dalits’ primary concern, and not opposition to the new Parliament building. The march began in Ahmedabad on August 1 at 8:00 am amidst refusal of the Gujarat police a day earlier refusing to give the permission for the procession, which involves a small truck carrying the huge brass coin, another one with an Ambedkar statue, two trucks full of about 25 lakh one rupee coins donated by Dalits across India, and six buses with 300 Dalit activists. The brass coin has the image of BR Ambedkar on one side, and of Lord Buddha, on the other. Starting at the Dalit Shakti Kendra (DSK), founded by Macwan to provide technical-cum-empowerment training to the underpriv

Quit India stir: What archives say on Hindutva leaders 'colluding' with British rulers

By Shamsul Islam*  On the eve of 80th anniversary of the glorious Quit India Movement 1942 [QIM], we must evaluate the anti-national role of the Hindutva flag-bearers (who shamelessly claim to be the original nationalists) in India's anti-colonial freedom struggle. QIM also known as ‘August Kranti' (August Revolution) was a nation-wide Civil Disobedience Movement for which a call was given on August 7, 1942 by the Bombay session of the All-India Congress Committee. It was to begin on August 9 as per Gandhi's call to ‘Do or Die’ in his Quit India speech delivered in Mumbai at the Gowalia Tank Maidan (renamed as August Kranti Maidan) on August 8. Since then August 9 is celebrated as August Kranti Divas. The British swiftly responded with mass detentions on August 8th itself. The contemporary official documents confirm that over 100,000 arrests were made which included the total top leadership of Congress including Gandhi, mass fines were levied and demonstrators were subjecte