Do you remember your first piggy bank in which your parents dropped their spare change? Ok, now do you remember your first bank account? I remember mine. I was approximately 15 years old and I practised my newfound signature with a flourish for almost two days on foolscap sheets, because I was dizzy with excitement about being able to sign, and it would have to be consistent. In a way, I had financial inclusion at 15. But to think of it, it might have been at my piggy bank stage, because I had an account somewhere even if it was plastic, even before I got the real plastic, the credit cards. About two months back, the Reserve Bank of India (RBI) allowed non-banking finance companies, which normally do not accept deposits, to become business correspondents for banks, or become Small Banks, and some of them to be Payment Banks. Now, ahead of the freedom’s day speech at the Red Fort, every one is in a tizzy over the new prime minister Mr. Modi, announcing financial inclusion plans for everyone with some 15-20 Crore accounts, two for each household. As widely known, India still lags heavily behind as far as financial inclusion is concerned. So the impending speech seems to be like a summer blockbuster, which everyone can’t wait for. As I was writing this piece, Raghuram Rajan, the Governor of RBI, already gave us a bit of the spoilers, at the Lalit Doshi Memorial Lecture, couple of days back. It’s hard to read, but it’s worth the effort.Mr. Rajan is targeting the 5 P’s -- Product, Place, Price, Protection, and Profit. For all those who don't have enough patience to read through an article that long, "Product" for all new financial products including savings, credit, and insurance, etc. "Price" is of course the transaction cost, "Protection", in a layman’s terms, for education about the required cost of finance. “Profit”, of course, doesn’t need any definition.Of all things, "Place" is the one that piques my curiosity the most. Similar to the sanitation plan, it is the most ambitious one, somewhat intense, dramatic, and ultimately, headline-grabbing. There are a few stories of mobile ATMs and those of mom-and-pop stores in India, which will able to give the basic financial access to people. I personally am not aware of the current penetration of such services, since the reports from the census from 2011 shows that it leaves a lot to be desired.As always the case, infrastructure is always a big issue. Would the banks have to be built everywhere? What about the cost of the brick and mortar setup, the maintenance of the branch, and paying the staff its benefits. Post Offices are of course set up to be branches, but then again, would anyone have quick access to the branch, or would they have to walk the “last mile” to get their moolah, or worse, deposit it. Initial push can help open many accounts, but the usage can’t be guaranteed, isn’t it? Or would it entirely be mobile banking?For all the things that banking has to offer, in general, this plan has ensured a Rs. 5000 credit limit. I suspect a respectable amount of difficulty at the branches or the outlets about the due diligence, because debt repayment and tracking is a lot harder to handle than ensuring one has access to it. Our field partners, on the other hand, do a thorough check of the credit history, and borrower background to ensure this.One very heartening story is from Kenya, strange as it may sound, reports the financial access touch point for of 58.7% within 3 km (~1.86 miles) for each person. However, many of those touch points are located in economically active regions, as the aforementioned report suggests. In Kenya, most of it is done through mobile financial services, since safety is a huge issue. Latin America is catching up. It seems like in India, even if the major mobile companies, or supermarkets come and catch up on the financial access, or inclusion, there will always be an access issue to the placement, as far as economics is concerned. "Location, location, location," you know.Which brings a novice like me to wonder, if financial inclusion will automatically mean economic inclusion. Would it automatically imply people would have money to put into their bank accounts? Would they be able to grow their business? Would they withdraw, use, do things with it? Or all these bank accounts will turn out to be like the piggy banks I owned? Or will they grow into be like the measly first salary cheque I banked, and I was excited about, and in fact used to build my dream.So yes, I am constantly suspicious of grand plans. If it worked bottom-up, like crowdfunding does, instead of the top-down mode of government does everything, there would possibly be lesser cynicism in me. I would likely prefer to have an organic, grassroot-to-topshoot growth.In any case, while we wait for this plan to pan out, and we endure its impact, this Independence Day, enable some people to get their economic freedom and create a real impact in a movement we call ‘Build A Skilled India’. We are looking to fund 300 deserving students coming from low income families and provide them with vocational training courses. The amount we raise, is going to be tripled by National Skill Development Corporation. Read more stories of vocational training and what we're trying to do.
Freedom and financial inclusion