IIMB's PGP2 students, led by Dr. Charan Singh, RBI Chair Professor of Economics, make valuable suggestions to                                                                     accomplish the gigantic task of financial inclusion

At the Expert Panel Discussion hosted by IIM Bangalore on the Union Budget a month ago, Dr. Charan Singh, RBI Chair Professor of Economics at IIMB who chaired the deliberations on July 10, quoted the Finance Minister on the fact that Prime Minister Narendra Modi would make a special mention of Financial Inclusion in his Independence Day address to the nation. Financial Inclusion assumes added significance as it clearly figures highly enough on the new government's agenda to be addressed in the Prime Minister's maiden Independence Day speech. It could well be a major policy document of the new government which lays down the framework to be followed for next few years.

Dr Charan Singh and his team of PGP2 students -- Akshay Goenka, Akanksha Mittal, Cirigani Rahul Pramod Goud, Karthik Ram, Ravi Chandrakar, Ritesh Garg, Ujjaval Kumar, and Vaibhav Rathi - who have been working extensively on Financial Inclusion make suggestions that inspire confidence that even though financial inclusion is a gigantic task, it can be successfully accomplished.

Dr. Charan Singh, can you give us a general overview of the areas on financial inclusion that you and your team of PGP2 students have been researching?

Thank you for this opportunity. During the course of our research, we made several observations. First, we see a marked preference for a physical branch of a bank. People, especially people in rural areas, prefer a physical bank branch rather than an individual or a temporary kiosk. A physical branch establishes a sense of security and accountability, also signaling the scale at which a bank operates. The importance of physical presence of banks also finds resonance with the government representatives.

Our suggestion therefore is to explore the existing network of more than 1,55,000 post offices and more than 5,00,000 fair price shops, an outlet of public distribution system with some semblance of government approval, in rural areas. To tap synergy between different government offices, banking extension counters can be provided at post offices and fair price shops. On their part, the banks could pay a 'rent' to India Post and to fair price shops, for use of their facilities/premises.

Isn't there a redundant dichotomy in the financial inclusion system with both post offices and banks? Because, at present, post offices and commercial banks offer opportunity for saving bank accounts. This leads to confusion as well a lack of demand for banking facilities, doesn't it?

Our suggestion is that once banking extension counters are provided at post offices, and then fresh opening of accounts in existing postal banking schemes can be discontinued, with a forward-looking approach for banks to spearhead the financial inclusion process, through deposit mobilization.

Is there a need for regional and occupational differentiation of financial instruments?

In view of the high diversity of the income range and preferences, a central government sponsored scheme may not meet the requirements. Illustratively, some people with irregular income may be unable to meet the increasing recurring deposit (RD) amount requirements. Limited and sporadic income does not allow the informal sector workers to maintain high savings that can be deposited in the RD accounts. Therefore, we see a need to have granular schemes, preferably different schemes for rural areas and urban areas. Further, distinct schemes can be made on the basis of nature of employment of people. For example, daily wage laborers can be allowed to make tiny deposits on daily basis.

Professor, do you think everybody needs a bank account? Isn't there an inherent reluctance in using banking facilities, especially in the rural areas and amongst the under-privileged segment of the society?

To combat this reluctance, as you describe it, we could:

a) Install audio-video enabled ATMs to announce simple instructions in the local language to assist the customer in the unbanked areas.

b) In case such ATMs are installed in the premises of post offices or fair price shops, then trained guards could facilitate withdrawals, deposits and also account opening forms.

c) The issue of security can be addressed by installing inbuilt CCTV cameras in the ATM machine as well as the post office/fair price shop.

d) To attract potential customers to visit the post office/fair price shop with banking facilities, critical information could be provided by local language handouts or displayed on big screens installed on the premises. This could constitute expected weather, crop and commodity prices, news of new farming techniques, business ideas and other rural innovation initiatives.
 

What do you think of the issue of low motivation among Business Correspondents (BCs)? There is a high rate of attrition of BCs and their motivation levels are generally low. In the rural areas, there is reluctance to take up the job of a BC, isn't there? So what must be done to curb high rate of attrition amongst BCs and inspire them?

We have several suggestions:

a) Allow BCs to offer additional financial products like insurance, as well as services of more than one bank. This would help increase their monthly remuneration from existing Rs.3,500 to Rs.4,000.

b) Rebrand BC as contractual employee of a bank against the existing image of a travelling salesman.

c) Consider and prefer women, and encourage housewives for the position of BCs. The status of a bank employee would help them to counter regressive objections of women being salespeople. Given the higher propensity of women to save, especially as evidenced through Self Help Groups, such a move is likely to further extend the banking net as some women expressed greater comfort with the idea of banking with other women.

d) The banks could also consider the possibility of extending differently abled persons the opportunity to become BCs.

e) Banks could also invest in BCs through skill development by conducting regular, structured training sessions.

Sixth, there are issues regarding communication methods used by banks. There is lack of awareness, especially amongst the rural people, about various schemes of Financial Inclusion. Our suggestions are:

a) To increase awareness and interest in products offered under various schemes of Financial inclusion, increase in advertisement in local language, on radio and television, and in print media, with local icons like Rahul Dravid in Karnataka or Milkha Singh in Punjab as brand ambassadors of the campaign, could help in building public confidence. Roping in local artistes, particularly street play groups, and presentation during cultural festivals, is also likely to build the interest of the local population in banking.

b) The importance of financial literacy in schools and revival of student small saving programs, where bankers regularly visit schools and collect small deposits, cannot be understated either.

c) There could be regular interactive training workshops organized in the post offices or fair price shops or gram panchayat offices on financial products suited to the local population.

What is the role of technology in financial inclusion?

Frequent machine breakdowns and connectivity issues hamper the seamless experience and at times results in huge delays resulting into bad customer experience. The business model is proving to be expensive as high BC attrition in short time is resulting in high training cost and creating disruption in banking services; big ticket customers are deterred from using kiosks and ultra-small branches as there are daily transaction limits; unavailability of insurance and full-fledged remittance products; and administrative formalities for account opening, credit appraisal, KYC, loan disbursal etc. typically take 7-10 days in these villages as these formalities are being ratified at the main branch.

The advancement in technology and its appropriate application can be usefully deployed:

a) To ensure differential limits for BCs based on location and customer profiles. So, demographic and historical transaction data can be used to evaluate the risk to define different limits of transaction with each BC instead of keeping it uniform across all BCs across the country.

b) To ensure that hand-held device can work in an offline mode to address the problem of connectivity failure. Once the connectivity is restored the transactional data can be pushed into the bank's main server. Further, we need to better leverage the satellite connectivity technology in these remote areas to avoid connectivity bottlenecks.

Awareness of mobile banking is significantly low and there is reluctance, especially amongst rural people, probably because of low technological and financial literacy. In addition, there were practically no efforts from either the bank staff or BCs in promoting mobile banking services, probably because of a conflict of interest, as increased adoption of the same could reduce commission of the BC. What are your suggestions to correct this?

a) Targeted advertisement campaigns should be devised for mass media and locally effective media. Government agencies should actively participate in these campaigns, communicating mobile banking to be user friendly and safe.

b) Common consumer knowledge in rural areas about dialing to a toll-free number should be leveraged to provide introduction to financial literacy as well as instructing people on steps to use mobile banking.

c) Banks should educate their staff and BCs about latest developments in mobile banking, and mandate them to promote these facilities during financial literacy campaigns in rural areas.

d) Banks should revise their commission schemes, incentivizing BC's in increasing mobile banking registrations in their respective territories.

e) Commission an audit system for banks, telecom operators and handset manufacturers to certify security levels of mobile banking services, across various channels. Banks and telecom operators may favorably advertise these ratings to improve their customer base.