If you are the scion of India’s most powerful political family with a fair chance of becoming the prime minister one day, what do you choose as the most important agenda to anchor your career on? Rahul Gandhi must have pondered this question several times in his fledgling Parliamentary career and as the years rolled by, the answer has become clearer. The kurta-clad handsome young man is not in the league of usual rabble rousers. He is playing for a unique positioning — that of a leader who brought millions of poor people living at the edges of society into the economic mainstream. He wants to take the benefit of banking and financial literacy to the remotest corners of the country. His agenda, then, is ‘financial inclusion’.
“The speed and continuity of our economic growth depend on inclusion. A small, resource-rich section of India cannot grow indefinitely while a vast disempowered nation looks on,” Gandhi said in a speech in Lok Sabha in 2008. “If opportunity is limited to a few, our growth will be a fraction of our capability as a nation.”
He followed up his statement with action. He roped in experts including central banking veterans to counsel him on the complexities of financial inclusion. He took his constituency, Amethi in Uttar Pradesh, as the test bed for some of his experiments. He took billionaire Bill Gates and British politician David Miliband there to showcase the work done by the Rajiv Gandhi Trust in bringing financial power to women. A close friend of Gandhi’s says he is steadfast and sincere in his commitment to this cause. “There is no doubt in my mind that his passion for social upliftment outweighs his passion for mundane political objectives.”
Rahul Gandhi may have read the people’s pulse just right. There is enough evidence to suggest that the concept of financial inclusion will be a major theme in India’s economic and political discourse in the coming years. The economy is at a point where the rural segment has to become vibrant to maintain the growth pace. The largely saturated urban markets can’t guarantee the same growth. But the village economy cannot kick off unless financial services such as credit, savings and money transfers reach there.
Today, large swathes of India are ‘financially excluded’. At least 73 percent of farmer households are in need of formal financial services. Out of 600,000 villages in the country, only 30,000 have a bank branch. Only 40 percent of the country’s 1.2 billion people have bank accounts. Nine out of 10 people don’t have insurance. Debit cards cover only 13 percent of the population and credit cards, a mere 2 percent. “We are totally under-banked as a nation,” says Nachiket Mor, former president of ICICI Foundation for Inclusive Growth.
But the buzz has begun. Today, everybody is talking about financial inclusion. The regulators, like the Reserve Bank of India, are giving it a fresh impetus and making it easy for bankers to take financial services to sections previously considered unviable. Technology is making it easy for the poor people to get bank accounts and transfer money without getting overwhelmed at the prospect of visiting a branch. Microfinance institutions (MFIs), which have played a large part in creating this buzz, are taking services deeper — to the poorest parts of Bihar and even some Naxalite-infested regions, for instance. Banks, both public and private, are appointing agents to offer financial services through kiosks and grocery stores.
“There is a new financial system coming together,” says Kaushik Basu, chief economic advisor in the finance ministry. “We want to have financial inclusion in a relatively market oriented way and there is a lot of imaginative work going on which could have a dramatic impact.”
For the first time in India’s history, entrepreneurs and investors have joined hands with the government and the banking network to power financial inclusion. It is important that they keep in mind the lessons of the past — such as the pointlessness of ‘loan melas’ — and the lessons of the present — such as the missteps of microfinance companies — to bring about lasting change.
Another experiment is the e-kiosk. IT company Drishtee has tied up with State Bank of India to provide kiosk banking across rural Assam. ATM maker NCR Corp. has launched a cash dispensing machine called EasyPoint 70 Tijori, designed for small grocery stores to act as banking touch points for the low income group.
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(This story appears in the 19 November, 2010 issue of Forbes India. To visit our Archives, click here.)
I really appreciate your post and you explain each and every point very well. Thanks for sharing this information. And I'll love to read your next post too.on Apr 25, 2011
FINANCIAL INCLUSION CANNOT SUCCEED WITHOUT ADEQUATE FINANCIAL LITERACY. Both need to go hand-in-hand. The Government's efforts are focussed on Financial Inclusion - Giving loans to the poor whether they understand the interest rates or not and opening bank accounts whether they use it or not. This approach will not work in the long run. As part of our Financial Literacy Workshops with the marginalized Women and Rural populations, our research and findings have proved that the poor do not understand financial products and services, and how can they? Nobody explained it to them in the first place. The RBI, PSU Banks and the banking & financial services industry just wants Quantitative Data about the Number of Accounts opened, Amount of Microfinance Loans given and the Number of Poor people included. QUALITY is not relevant here!! Taking time to inform and demonstrate is not happening. The Government's focus has to shift to a Dual Strategy - Financial Inclusion with Financial Literacy for inclusive growth t happen. Hope RAHUL reads this ;) Avik Kedia Founder SANCHAYAN www.SanchayanSociety.orgon Dec 16, 2010
Dear sir, It makes me happy to see a concerted effort to bring about financial inclusion in our country. While the effort is on to take banking to people in remote villages, I see a need for a parallel effort. That is, taking other financial services to people who have bank access already. I have seen many people in Karnataka having bank accounts, though willing, refrain from participating in other investment vehicles such as mutual funds, FDs, ETFs etc. Reason being their lack of English knowledge. The application forms, account statements and other related documents of these are in English only. A simple step of having these documents in other Indian languages will go a long way in financially involving majority of Indians in future growth.on Nov 27, 2010
"Debit cards cover only 13 percent of the population and credit cards, a mere 2 percent", your report says. I am a government employee. I own an account with SBI. My repeated requests for a credit card were turned down by the SBI cards, citing silly reasons. I recently found out (from the SBI website itself) that SBI Cards is a loss making company. No wonder, as they give credit cards only to their cronies. Another point is, SBI Cards issue credit cards only to persons living and working in select cities. Now SBI is a government owned bank. Even their ads claim that they are the"Banker to Every Indian. I wonder why the government and RBI allows them to get away with such atrocious policies.on Nov 10, 2010