Meaningful financial inclusion

The Reserve Bank of India has a mandate to provide financial inclusion to all villages with a population above 2000. But many of the regional rural banks in many states are finding it difficult to achieve the goals set by the Central Bank. While on paper, the goals have been set by most banks, there are strong barriers to effectively execute it on the ground. Many of the regional rural banks are in the process of migration of their core banking systems and as yet are not ready for accommodating and handling the newer channels of banking like business correspondent model which is at the heart of the inclusion process. Another concern is the low financial literacy in the rural regions which is hampering the process of inclusion. Thus inclusion for most of the RRBs is a two stage process – of educating and then including. Technological challenges are sometimes too much to handle for the many of the smaller banks – connectivity issue is a prime cause of the inclusion process breaking down in many regions. Also, there is a huge investment of time and effort needed to build the manpower capabilities through training. Also, these agents have to find this opportunity financially viable, otherwise it will lead to attrition in the field agents putting additional pressure on the banks. The plan for utilising the India Post network will go a long way in mitigating some of the concerns regarding field agents. Other reasons for not meeting the inclusion goals for the banks are the delays in the issue and activation of smart cards. Another dimension of the issue includes the service offerings in the inclusion process. Many banks are still not clear about what exactly should be the products to be offered – while some choose the easy way of providing a savings product or even a current account to claim inclusion, others are concerned whether actually the offerings should include entrepreneurship credit, insurance and pensions. This has prompted the central bank to ask the banking industry about ‘meaningful financial inclusion’ – what it means and what it should constitute of, in terms of service and offerings.