The Central Governments ambitious plan for financial
inclusion under the Sampooorn Vittiya Samaveshan (SVS) targets the inclusion of
100 million unbanked households. Is this achievable with the present banking
network and mindset? Or is there a short cut?
Consider this. In the 67 years of independence despite the
best efforts of the Reserve Bank through regulation, persuasion and coercion,
banks have managed to penetrate barely 40% of all households. Even where they
have supposedly opened bank accounts a very significant number of the so called
“no frills accounts”, have remained dormant, with customers finding no sense in
operating these accounts due to lack of access, benefits and products. It is time to realize and accept that banks have
neither the will nor the ability or indeed the technology to achieve the
financial inclusion mission. Policy makers need to understand and acknowledge
that the current banking infrastructure may not be the most optimum way to
reach the unbanked. The brick and mortar model that banks employ is slow and
expensive.
Cell phone companies have managed to accomplish a 60%
penetration of the total population in one third the time that the banks took,
through a mindset that values customers, technology that is cheap to deploy and
a product that customers want. It is important to note here that the
documentation that is required to get a cell phone account is not a lot
different from the set that is prescribed by the RBI for the opening of no
frills accounts. They already have developed capacity to handle micro payments,
money transfers, and have the data to create sensible credit products that can
be delivered cheaply. Most importantly, customers are very used to going to the
nearest recharge outlet to load up their phones with airtime.
The communication architecture, the network and technology
that these companies have put in place can easily be adapted to achieve the
Governments financial inclusion targets. What it only requires is a change in
the mindset of policy makers that banks are not the exclusive or effective
option for delivery of financial products. Why not consider using the more
efficient and effective infrastructure that is already in place.
In practical terms many prepaid customers already consider their
airtime as storage of value. A few more sophisticated customers already use it
as a payment mechanism. The track records of cell phone usage and bill payment
cycles can form an excellent proxy for structuring credit products. Banks
starting afresh with new customers will legitimately have concerns about
extending credit to newly acquired customers.
Policy makers should seriously consider allowing cell phone
companies to either act as full fledged banks. in the alternative allow them to
operate as front end with customers, with banks providing the back end
processing and balance sheet support.
The Government and the RBI may have the greatest opportunity
here to accomplish a policy goal by simply marrying the credit, capital and balance
sheet strengths of banks with the marketing, distribution and technology capabilities
of cell phone companies.
