‘New banking models needed for financial inclusion’

A large part of the Indian population does not have access to savings, credit and remittances. Many steps have been taken in this direction but we still need to go a long way.

Janmejaya Sinha, chairman-Asia Pacific, The Boston Consulting Group, tells DNA in an interview what more needs to be done to increase the rate of financial inclusion. Excerpts:

In the past, the government along with the Reserve Bank of India has taken many steps towards financial inclusion. What other steps do you think we require?
India started pioneering financial inclusion long ago. Gandhiji talked about co-operatives, we created regional rural banks, social service area approach, priority sector and the Kisan Credit Card. For a long time we have been emphasising on inclusion. But the fact is at that stage it was not possible. It is only now that India has a $1,000 per capita and a large economy which will grow fast for many years.

So you really have the bare bones of a strong platform. Together with this you now have technology. The other issue is rural has become more important as a part of sales for companies. For the first time there is a real chance to actually address the problem of financial exclusion. But the journey is long.

Firstly, we have illiteracy. Both you and I struggle with financial products, so just imagine how big will be the challenge if somebody is illiterate. Then there is not enough income, and the banking models that have been created are for the rich. Those models are based on float, you keep a high deposit and I would not charge you. Overall the timing is good, but the way to use this timing requires new models to be used.

Which will be these new models?
I would think these new models will be based on four parameters—reduction in the cost of manpower, usage of technology to get a distribution reach, collaboration across industry boundaries and use of the Aadhar platform (India’s new unique identification system). Then you can have a model that will be able to reach and serve these people in a sustainable way which will be non-loss making.

In your financial inclusion report you had stressed that there should be a per-transaction cost for the “Aam Aadmi”. Can you tell us more about it?
Today if you want a savings account and if I tell you every time you withdraw money you will be charged, then it sounds bad. You will say it is my money and you are charging me for withdrawal. But let me give you an alternative. When we had done this survey in 2006, we were saying that if you want to have safekeeping then you must pay for it unless you keep a sufficient balance that the bank can make money from it. So many of them said they wanted to keep very small amounts. If you keep very small amount, the bank does not get much float. In that case the bank is giving you safe keeping. If you are willing to pay for a locker, this is another form of locker. This is not a bad thing because this is providing a service at a cost but this is a service that is needed.

In the report you have also talked about financial inclusion index. Can you elaborate?
This is an index which will decide whether financial inclusion is improving or not. There are four needs that must be served — savings, credit, remittance and insurance. Right now no one is measuring that. This index may be used by the government to measure progress.