James Militzer

A Bank Account for All Adults … By 2016: India’s Nachiket Mor committee report has made headlines – will it make an impact?

The Nachiket Mor committee report on financial inclusion in India continues to generate commentary a month after it was released. It’s been called everything from “wonderful to the point of bewilderment” to a “shaky vision for financial inclusion.

Mandated by the Reserve Bank of India, the Mor committee’s recommendations have clearly captured the imagination of opinion makers in the financial press. Some even see them as “the starting point for a new financial architecture in line with India’s emerging, new economy.” But if they’re acted upon, will they achieve a similar impact on the ground?

Following an established trend, the report sets a boldly ambitious goal: to provide bank accounts for all adults in India by 2016. In a country where 40 percent of the population doesn’t have access to financial services, this timeframe may seem unrealistic. But the Mor report frames a clear and detailed vision for how to achieve its goal, laying out a set of design principles that would guide the development of institutional frameworks and regulations for achieving full financial inclusion.

The major recommendations of the committee revolve around:

  • Universal bank accounts for all adults: Each Indian resident, above the age of eighteen, would have an individual, full-service, safe, and secure electronic bank account.
  • Universal access to payment points: The committee envisions that every resident in India would be within a fifteen-minute walking distance of a payment access point.
  • Sufficient access to affordable formal credit: Each low-income household and small-business would have access to a formally regulated lender that is capable of assessing and meeting their credit needs. Such a lender must also be able to offer them a full-range of suitable credit products at an affordable price.
  • Universal access to investment and risk management options: Each low-income household and small-business would have access to providers that have the ability to offer them suitable investment and risk management products, made available to them at reasonable charges.
  • Right to suitability: Each low-income household and small-business would have a legally protected right to be offered only suitable financial services. They will have the right to seek legal redress if they feel that due process to establish suitability was not followed or that there was gross negligence.

The plan to implement these recommendations takes into account India’s unique challenges and opportunities.

For example, it takes advantage of the massive enrollment drive that is already in the process of providing every Indian with a national ID card by December of 2015. This would save banks the expense of finding and verifying the identity of new account holders to comply with the government’s Know Your Customer guidelines. It envisions establishing “payments banks” which would provide limited payments services and deposit products (but no loans) to small businesses and low-income households. And it recommends making India’s postal service (which applied for a full-fledged banking licence last year) into one of these payment banks, hoping to take advantage of its vast expanse of offices. The report also calls for the government to grant new banking licenses to other non-bank entities – like business correspondents and pre-paid instrument issuers – to widen banking access and target the unbanked more effectively.

The Mor committee’s recommendations, if implemented, would set the stage for a fascinating experiment in how public policy and financial institutions (both traditional and non-traditional) can interact to drive financial inclusion. If successful, it could provide a model for other developing countries.

In the below video, Dr. Nachiket Mor outlines the committee’s vision for financial inclusion in India, and provides a brief overview of the important recommendations it has made. For more information, read this fascinating back-and-forth between Mor and the Twitterverse – hosted by IFMR Trust – and check out the IFMR Trust blog’s continuing coverage.

financial inclusion, governance