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Accelerating Financial Inclusion in India: Perspectives & Challenges

India FinTech Forum along with 50K Ventures organised Fintech Policy Roundtable to discuss Regulatory Changes Required to Accelerate Financial Inclusion in India. It was attended by CXOs of fintech ecosystem. The discussion was moderated by Mr. Shankar Vaddadi, Strategy and Policy Committee Member of India FinTech Forum and Founder of i-Lend.

Date: 27th July 2019

Venue: 50K Ventures Corporate Office, Hyderabad

The highlights of the Roundtable are:

What is Financial Inclusion?

The Reserve Bank of India defines Financial Inclusion as the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low-income groups at an affordable cost (The Committee on Financial Inclusion, Chairman: Dr. C. Rangarajan).

Financial Inclusion, broadly defined, refers to universal access to a wide range of financial services at a reasonable cost. These include not only banking products but also other financial services such as insurance and equity products (The Committee on Financial Sector Reforms, Chairman: Dr.Raghuram G. Rajan).

The progress so far – Salient points

  • As opposed to 62% of the adults globally having a bank account, India’s percentage stood at 53% (Gobal Findex).
  • The PM JDY official estimate is that 34.43 Crore bank accounts were opened under this scheme, which could very well take the above percentage to 80% in India. These accounts while having a focus on credit access are still challenged by the lack of full spectrum financial services.
  • Even with these initiatives only 200 M could access credit as per CRISIL INCLUSIX.
  • In absolute terms there are still a large number of unbanked people in India.
  • From 2008 when the C Rangarajan Committee was constituted till now, significant progress has been made both from policy and execution with respect to accelerating financial inclusion in India.
  • Credit penetration stood at 53% as opposed to 76% for deposit penetration.
  • RBI has used a bank led approach to financial inclusion primarily.

RBI Policy Initiatives to accelerate Financial Inclusion

  • Authorizing banks to open BSBD accounts (Basic Saving Bank deposit) with zero balance as well as facility of ATM card and withdrawal of cash at bank branches
  • Relaxed and simplified KYC norms
  • Simplified branch authorization policy
  • Compulsory requirement of opening branches in unbanked villages
  • Opening of intermediate brick & mortar structure
  • Public and Private sector banks to submit a board approved Financial Inclusion plan from April 2010
  • Setting up FLCs (Financial Literary Centres)

Infrastructure Challenges

  • Branch Penetration is still low compared to other countries like China
  • ATM availability is still a big challenge in spite of RBI relaxing the norms
  • POS machines penetration is very low even with the Digital India push
  • Last mile connectivity a huge challenge in spite of the penetration of mobile & broadband networks
  • Maintenance and upkeep of Tech & Physical infrastructure for enabling FI
  • Last mile delivery

Other Challenges

  • Affordability of banking
  • Financial and Tech Literacy
  • Unavailability of suitable financial products
  • Lack of credit history
  • Lack of structured financial data
  • Seasonality of vocations & agriculture
  • Informal money lending structures
  • Access to bank credit or the lack of it
  • Banks perception of FI as an obligation rather than an opportunity
  • The ambiguity regarding the role of banking correspondents
  • The underserved segment is not just the rural population who do not yet have a digital footprint, there is a vast amount of urban and semi-urban population who do not yet have access to formal affordable credit.

Opportunity & Innovation

  • Significant opportunity exists to innovate within the existing mechanism to accelerate FI with sustained profitability.
  • Just as we have thin file users on bureau there will be thin file users for alternative data. But unlike bureau the rate at which India’s digital footprint is growing we will see far fewer people with no digital footprint.
  • Tailor-made financial products across the spectrum like micro insurance, lowering the threshold in investment opportunities like mutual funds etc.
  • Last mile delivery mechanisms which take finance and financing products to the door step
  • Innovative credit modelling
  • Increasing financial literacy steadily
  • Incentivising the private sector to innovate on various aspects of FI

Please feel free to comment below on your thoughts on Regulatory Changes Required to Accelerate Financial Inclusion in India.

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