OPINION: Financial Inclusion in India – Easier Said Than Done
Friday, May 1, 2015
The unfolding of the financial inclusion tale in India provides significant lessons about the need for regulators and market players to come together. For decades, regulators have been pushing banks to serve the rural hinterland through regulatory prescriptions such as branch licensing, priority-sector lending, and no-frills accounts. Such efforts met with little success as banks saw little business case in reaching the last mile.
Two recent initiatives aim to completely transform this scenario. First, the Pradhan Mantri Jan Dhan Yojana (PMJDY), which saw the opening of 12.54 crore bank accounts and issued 11.08 crore RuPay debit cards by January 2015.
Second, technological innovations, which have enormous potential to cut costs, making business sense to cater to the rural populace. These innovations have been led by non-traditional players such as mobile network operators, pre-paid payment instrument (PPIs) providers, card payment networks, white-label ATM networks, etc.
As a result, the market is flooded with multiple service providers offering several avenues of storing, accessing and transferring money. Money can not only be stored in bank accounts, but also in PPIs, such as mobile accounts, internet wallets, cards etc.
There is no need to walk up to a branch for accessing account or withdrawing/transferring money. The same is also possible through cellphones, business correspondents, points of customer interface, and ATMs. Add to this, soon-to-be operational payment banks, central bill payments infrastructure and such other services, while expected to make life easier for consumers and promote financial inclusion, but will increase sophistication in the market.
Strong back-end infrastructure and inter-linkages between various avenues of storage, access and transfer of funds provided by different service providers (interoperability) will be a pre-requisite to ensure success of these initiatives.