Why 2015 Will Be a Game-Changer for Financial Inclusion in India
Wednesday, January 28, 2015
When it comes to digital finance, India punches below its weight.
The 2014 Intermedia Financial Inclusion Insight (FII) Survey of 45,000 Indian adults found that 0.3% of adults use mobile money, compared to 76% in Kenya, 48% in Tanzania, 43% in Uganda, and 22% in Bangladesh.
This stems from a range of factors, but lack of innovation-friendly regulation has been barrier #1.
Most importantly, the Reserve Bank of India (RBI) historically allowed non-banks to participate in payment services in two restricted ways. They could build and manage an agent network on behalf of a bank; or they could issue a “semi-closed” wallet which allow customers to cash-in, buy airtime and other services, but not cash-out—not a particularly useful product for a poor customer.
This regulatory framework ensured that India’s banks controlled not only the market for savings and credit, but also payments. The problem is that banks have struggled globally to shift away from their reliance on branch-based approaches and legacy technologies to establish digital payment connections in poor and rural communities. With this restriction in place, it’s unsurprising that only 0.3% of Indian adults use mobile money.
This all changed in 2014.
In November, the RBI issued Payments Bank guidelines which allow companies with significant distribution expertise (including mobile operators, retail chains and existing agent managers) to offer deposit accounts and payments as a stand-alone business. Payments Banks won’t be able to directly offer credit, but they can:
- Build branch, ATM, and agent networks;
- Issue debit cards;
- Offer deposit accounts;
- Process domestic and international remittances;,
- Process utility payments; and
- Serve as an agent to distribute credit, insurance, and mutual funds on behalf of other financial service providers.