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| Edited By: Kiran Shetty |Source: DNA |Updated: Mar 18, 2018, 05:44 AM IST
Financial inclusion has become an emerging focus for policymakers around the world, and it is nowhere more relevant than in India. Analysts estimate that up to half of Indian households do not have a bank account.[1] In fact, the India Census 2011 found that more than 40% of the population lives two kilometres or more from the nearest bank branch or agent.[2]
For India to facilitate more balanced economic development, universal access to basic financial services is essential.
The solution is not an easy one. Strict regulation of banking and other financial services is vital to address money laundering, terrorist financing and fraud.
India’s formal financial services sector is yet to meet the growing needs of a large part of the population. When it comes to domestic remittances, 57% of migrant workers in India use hawala couriers and other informal channels to remit money, according to a recent study.[3]Another perspective is India’s informal lending economy. Analysts estimate that almost 40% of the participants in India’s informal economy resort to chit funds, barter and moneylenders for financing.[4]
It’s logical that an informal sector thrives in the absence of convenient, reliable, speedy and regulated financial services.
The World Bank published a key report in June 2010, Inclusive Finance, which provides a standard definition of financial inclusion. The bank said affordability, availability and convenience, and quality are key features. It also subdivided financial inclusion into four product types: payments, savings, insurance and credit.[5]
Western Union’s experience in India may serve to influence and lead the way forward. The positive global growth in Indian remittances is reflected in Western Union’s movement of money to India today. When Western Union commenced offering international money transfers in 1993, the company remitted money from 41 countries into India. Today, it remits money from more than 190 countries and territories into India. This is a significant progression in facilitating financial inclusion.
Last month, Western Union announced the opening of its 100,000th agent location in India.
The popularity of its service stems from accessibility down to the village level and from the transparency and sense of security it provides to consumers. Western Union is not a bank, but its compliance expertise allows it to meet the applicable regulations that govern the company and its agents in more than 200 countries and territories.
Western Union experience is a good case study of companies from a wide range of trades working together to deliver a needed and regulated service.
If India were to deliver payment, saving, insurance and credit products to half the population, it seems logical that – subject to careful screening of providers, efficient regulatory oversight and appropriate limits – the way forward is to take advantage of existing broad-based networks and new consumer technology to selectively open financial services to non-banks, while promoting cooperation among all sectors.
Western Union’s experience gives clear evidence that non-bank financial institutions can foster increased demand for local banking and financial services. For example, its insights reveal that in India, the banking access rate for receivers of cash remittances is more than double (51%) that of sending overseas workers themselves (22%). Many recipients open bank accounts to receive these transfers and, by doing so, give themselves the opportunity to access the full range of banking services.[6] Linking payments received to savings accounts are clearly a way to promote financial inclusion.
Advances in technology have opened up new ways to deliver reliable, transparent, easily monitored and regulated financial services. The country is at the forefront of the IT revolution.
There is already a common will of government and businesses to achieve the objective of financial services for all. What is required next is a collaborative will and a progressive approach.
India’s regulators are already moving forward in this direction. In a clear sign of its increasing influence on the global financial stage, India recently became the newest member of CGAP, the independent policy and research centre housed at the World Bank dedicated to improving financial access for the world’s poor.
The writer is managing director and RVP,
Western Union India.
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