Can India ensure financial inclusion for its unbanked million

Financial Inclusion: Initiatives by the present government

Under the present government, a number of measures were launched to boost financial inclusion. There is the flagship Pradhan Mantri Jan Dhan Yojna (PMJDY), which is the largest drive so far in India to open bank accounts for the unbanked. This is backed by the Sampoorn Vittiya Samaveshan, which aims at extending the coverage of basic financial services even further through Sub-Service Areas and Business Correspondent Agents. RuPay debit cards will also be issued to enable customers to operate their accounts. Apart from this, the government has also been making regulatory changes that broaden the kind of firms that can offer financial services, and developing mobile money solutions for the underprivileged.

In the second phase, there are also plans to offer pension schemes in the unorganised sector and offer microfinance products through government-owned insurance companies.

The challenges of PMJDY-

Under the government's ambitious financial inclusion scheme, the Pradhan Mantri Jan Dhan Yojana (PMJDY), 21.93 accounts have been opened so far with deposits of more than Rs 38,047.65 crore. But the road ahead is not going to be easy. Here are a few challenges that the PMJDY faces.

KYC Documents: The biggest hindrance that lies in the road of this financial instrument is insistence on KYC regulations. KYC or Know Your Customer documents (which serve as the identity proofs) have remained a trouble, even in the urban areas, leave alone the rural sector. Great significance can thus be given to electronic - KYC (e-KYC). In this process, Aadhar card can play a significant role. Linking Aadhar for KYC will bring along a range of advantages, such as, biometric authentication, branchless banking through Business Correspondents (BCs) - Independent & Mobile or local store owners, traders, etc.

Need to bring business correspondent model (BC) to smaller entities: The local stores, such as kirana shops, corporate or others need to be brought under this scheme. BCs should have a complete backing of banks in such a scenario. And, it is required that banks should have a connection with common service centres (CSCs).

Role of NBFCs in financial inclusion

Another significant move taken by the RBI is increasing the income limits for the eligibility of the micro-loan borrower and the total borrower indebtedness. By doing this, the central bank has indicated that it is strongly in favour of NBFCs and Micro-finance Institutions playing a role in the financial inclusion of India. It's also a recognition of the fact that in a large country like India, NBFCs and MFIs play an integral role in the financial services ecosystem. They have, to a large extent, helped to fill the gap in offering credit to customers in underserved and unbanked areas of the country.

These companies have been able to reach out to the financially- excluded low income group- something that the larger banks have failed to do. Another advantage is that by virtue of their business focus, the NBFCs are better positioned to assess the risk appetite of these customers, build relationships with them and help them reach the bank to open an account.

A case in point is Hero FinCorp. Over 70% of their rural customers had never banked before getting two-wheeler financed through them. The Hero FinCorp sales executive who gets the bike financed for the rural customer also takes him to the bank for opening a new account in order to apply for a loan. In the process, the customer not only buys a bike but also becomes a part of the organized financial eco-system. It's this reach of the NBFCs, like Hero FinCorp, that makes them a perfect fit for playing the part of great enablers in the Financial Inclusion agenda.

The use of technology and connectivity can also play a vital role here. For example, the Hero FinCorp's Android based application for sourcing customers in rural/ remote locations, allows them to serve the customers in the remotest corners of India as well.

Other enablers on the road to financial inclusion

• Mobile Internet - A large section of the rural population now uses the Internet through the mobile. The low cost of smartphones and cheaper data cost has turned the mobile from a simple mode of communication and entertainment to a device through which payments are made. Add to that the fact that 50% of the mobile users in India are in the age group of 18-35, and are keen to experiment with gadgets and explore digital financial services.

• The magic of JAM - The combination of the Jan Dhan and Aadhar and the mobile has brought in a winner. People are increasingly using bank accounts through their mobiles and using their Aadhar IDs to access better financial service.

• Rise of Fin-tech startups - Fin-tech startups are leveraging technology to deliver financial services at affordable costs. They are effectively the last mile connectivity for the millions who have never banked before or who have been financially excluded. For these people, financial inclusion does not move through a bank but through their mobile wallet or their apps. In the new economy, it's the Fintech players who are expected to play a huge role in bringing about financial inclusion at the grassroots level.

The road ahead - What does India need to achieve financial inclusion?

With the combination of finance, technology and better regulatory policies, the road ahead definitely looks better than it did before. It also needs to be remembered that financial inclusion would be possible only with better physical infrastructure, which will also boost gainful employment. Nevertheless, here are a few things that can make the dream of total financial inclusion a reality for India.

• Strong political leadership - Strong political intent and the progressive financial and regulatory policies from the central bank can lead to acceleration in implementation of the financial inclusion agenda.

• All stakeholders on a common platform - All stakeholders, including telecom regulators, telecom companies, financial supervisors and the banks, have to be brought on a common platform so that their working frameworks can be matched and obstacles removed.

• And finally, a good framework which the people can trust - Quoting the current RBI Governor Raghuram Rajan, "In order to draw in the poor, the products should address their needs - a safe place to save, a reliable way to send and receive money, a quick way to borrow in times of need or to escape the clutches of the money lender, easy to understand life and health insurance and an avenue to engage in savings for the old age."

All in all, it wouldn't be wrong to say that streamlining the unbanked masses into the banking ecosystem of the country will require dogged persuasion by country's central bank, bureaucratic support and more importantly, the political will. Addressing public trust issues is also vital for achieving financial inclusion and by following the aforesaid points, financial inclusion can bring the entire population on a common platform.