Debit cards, loans, bank account, access to these financial products indicate signs of prosperity. But 2 billion people globally do not have a bank account and 245 million small, micro and medium-sized enterprises are not eligible for formal credit which is needed for their growth and success. Innovation, technology, entrepreneurs, investors are investing time and resources to get the one-third of the world's population included in the formal digital economy but alas Financial Inclusion continues to be a sticky topic. Reports suggest inclusion gaining momentum with ease of technology [smart phones +internet]but gains are uneven across geographies.
In a time when Good Happens
Financial Inclusion[FI] is valuable metrics that define the development of a society. With FI properly positioned in government policies and reforms, citizens of a country can use their earnings in productive sectors of the economy. Pooled resources can then contribute to nations growth. This underlying benefit has pushed FI to occupy center stage in the financial sector leading to the revolution of empowering it. Let's take a look at some of the measures taken to enable financial inclusion –
Innovators Taking The Charge
Technology led innovations like Mobile Banking, Mobile Wallet across the continent is enabling quick payments and easy access to non-financial services. M-Pesa of Kenya has spread so quickly and has become one of the most successful mobile-based financial services. In 2007 on an average number of registration to M-Pesa in Kenya exceeded 5000 per day, by 2009 around 7.9million M-Pesa accounts are registered. Customers in Kenya started using M-Pesa for their day to day activities, as there was no hard currency involved; there was less risk of theft. India’s Paytm is pushing urban and rural India to adopt digital payment channels.
With Mobile technology and Open Banking customer are now able to use one software that could help them in all banking services without compromising security and at no extra cost.
Foundations Empowering Financial Inclusion
Organizations like Bill and Melinda Gates Foundation[BMGF], Michael & Susan Dell Foundation, BRAC and Grameen Foundation are investing heavily on providing technology and working at the grass root level. These NGO’s are playing a crucial role in connecting the last-mile to the mainstream.
All of these foundations are working on the ground for digital financial inclusion with the support of its technology partners and policymakers. The organization along with their partners offers an integrated solution that can convert a mobile phone into a bank and can provide digital products, access to financial agent networks, agricultural and health finance allowing individuals to safely borrow, save, make payments and buy insurance.
Countries Involvement in Financial Inclusion
Talking about the initiatives launched by countries, quite recently India in 2014 launched Pradhan Mantri Jan Dhan Yojna [PMJDY] to offer access to banking services and facilities like overdraft and RuPay debit card loaded with insurance to the last mile. As per 2017 stats, over 270 million in the bank were opened, and ₹665 billion (circa US$10 billion) were deposited.
Kenya, the leading example of mobile banking, is leading its efforts of financial inclusion initiative in Africa. Ease of adoption of mobile banking opened doors for Kenya to participate in the Global Partnership for Financial Inclusion (GPFI) as a non-G20 member. Steady progress also invited brands like Mastercard to open a financial inclusion lab in Nairobi with $11 million aid from the Bill & Melinda Gates Foundation.
In Mexico, the National Bank and Securities Commission came up with new measures and policies to enable FI. One of the critical initiatives executed by the commission was to convert the government payroll system to digital payment resulting in yearly savings of $1.4 billion.
The Missing Parameter
With all this and so much more being done, we are yet at the beginning of making any significant impact. Why the initiatives fail and efforts not sailing to the last mile, some observations
Actions are not Demand Driven
If we look at the initiatives in India since Independence a lot has been done from cooperative movement, followed by priority sector lending, lead bank scheme, service area approach, creation of National Bank for Agriculture and Rural development, introduction of regional rural banks/ local area banks, microfinance, Kisan credit cards, business correspondence and finally Pradhan Mantri Jan-Dhan Yojana PMJDY.
All of these efforts where dominated by the fact that government wanted to include them in the financial chain, however never the customer demanded hence initiatives are supply driven rather than demand making it just “a nice concept on paper.”
Impact of Regulation
The regulation defines the business rules of a country. In case of branchless banking, regulation can play a key role in enhancing customer satisfaction, ensuring proper service given to end users, to create an environment which should be a win-win situation for both business entities and customer. Below are some basic observations on regulation in branchless banking implemented around the world:
- Regulators should be open to experiment, learn and implement.
- They should work on enhancing public-private partnership
- Relaxed KYC requirements for smooth customer sign-up.
- Focus on customer security and protection
Financial Literacy is not at Par
Unless you know what “Mobile Wallet is and its benefits” you may not be eager to use it. Isn’t it? The same findings were found by a study done by the World Bank Group in Morocco and Mozambique that the lack of awareness among the study group prevented them from utilizing the right products and services that suited their particular needs.
By providing them with proper learning on what, when why of financial literacy we could help them in making an informed decision. It will also lead to knowing how to utilize better the various channels that are available for their banking needs, i.e., more effective and lower cost measures can be utilized to improve the uptake of new bank accounts which will ultimately result in increased savings.
The Gender Gap
Based on research conducted by the World Bank, even though women form a larger share of the self-employed category in developing countries, they have a lower chance of securing credit from banks. IFC research has shown that this is primarily due to a lack of collateral or poor credit history which leads to more women being denied credit by the financial institutions. Even if these women were able to secure formal credit from the banks, they often have to pay higher interest rates than the men. To expand financial inclusion among the rural poor and women, stakeholders must come up with ways which will remove the impediments that these two demographics face in trying to gain access to financial services.
The gap between Planning and Execution
While no-frills accounts have been opened and announced by regulators across the continents, there is no banking infrastructure at the last mile for easy access to financial services. Imagine people spending a full day for a singular bank transaction or a bill payment at a remote location.
Bottom 2 billion is a lot comfortable to be served by the local financial institutions present in those areas and operated by the locals. These financial institutions need to be empowered with digital transformation and upgrade their technology, without them having to worry about resources towards evolution. Thanks to Wallets and other financial services tools, who have built the basic foundation on this literacy.
The financial institutions at last mile need a little bit of hand-holding while generating entrepreneurship opportunities for the educated to work with new age technologies for these institutions.
There are likely tens of thousands of such institutions globally who need an upgrade. Some would require the "Banking as a service" offering, while some of these institutions could be a lot more forward-looking and would like to build their workflows etc. Teknsopire offers both by providing free access to "Open Source" Bank in a box platform as well as offering it as a service.
There has to be a paradigm shift of the technology upgrade and empowering the operating institutes at the last mile for financial inclusion to make progress!
Vishal Gupta is a founder and CEO of Teknospire a startup helping banks and NBFC's in digitizing banking and Hylo a hyperlocal initiative to build a self-sustainable neighbourhood. Vishal's positive attitude to inspire change makes him a doer to the core, who delves into the details when the need is and gives the reins to others when the situation permits.