Micro Savings & Financial Inclusion
Friday, July 27, 2007
A large majority of the poor in India are outside the formal banking system. The policy of financial inclusion sets out to remedy this by making available a basic banking ?no frills? account either with nil or very minimum balances as well as charges that would make such accounts accessible to vast sections of the population.
However, the mere opening of a bank account in the name of every household or adult person may not be enough, unless these accounts and financial services offered to them are used by the account holders. At present, commercial banks do not find it viable to provide services to the poor especially in the rural areas because of huge transaction costs, low volumes of savings in the accounts, lack of information on the account holder, etc.
For the poor too, interacting with the banks with their paper work, economic costs of going to the bank and the need for flexibility in their accounts, make them turn to other informal channels or other institutions. Thus, there are constraints on both the supply and the demand side.
The banking sector can discover the ?fortune at the base of the pyramid? by using this scheme/policy to provide real financial inclusion for the poor and also benefit in the process. Till now, banks were looking at these accounts from a purely credit perspective. Instead, they should look at this from the point of view of meeting the huge unmet need of the poor for savings.
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