Financial Inclusion: Have We Been Approaching The Problem All Wrong?
Any conversation around financial inclusion inevitably turns into one around banks and access to banking. Do we have enough banks? Do we have enough kinds of banks? Do these banks have enough branches and business correspondents? And do all Indians have bank accounts?
That’s the thought process that drove the Jan Dhan Yojana, which intended to ensure bank accounts for all Indians. It’s the same thinking that pushed the Reserve Bank of India (RBI) to create a new category of lenders called Small Finance Banks. A similar consideration forms the backbone of the new branch banking guidelines, which aim to spread the network without the cost associated with traditional brick and mortar branches.
But what if access was not the problem in pushing more savings towards financial assets? And, on the liability side, what if the stronghold that money lenders have over Indian finance was more about insurance rather than banking?
Those are some of the issues put up for debate by the RBI-appointed Committee On Household Finance, headed by Tarun Ramadorai, Professor of Financial Economics at the Imperial College. According to the report, the average Indian household holds 95 percent of its assets in physical assets. Real estate, gold being prime among them. Only 5 percent is held in the form of financial products. The phenomenon has been well-documented but remains ‘stubbornly persistent’, said the report.
Photo courtesy of Episcopal Relief.