Even though the report on comprehensive financial services for small businesses and low income households, popularly known as the report on inclusive growth, is a wide ranging, ambitious and forward looking, the execution challenges are large.
The report takes a holistic view and seeks a dramatic change in the architecture for delivery of financial services / products to the bottom of the pyramid (BOP) segments. Among various issues addressed by the report, the moot question is whether there is a need for an alternative banking framework for financial inclusion, considering that the country already has the infrastructure to resolve this issue.
“The wide range of new institutions recommended make for a good theoretical construct. But from the standpoint of getting some quick traction on the ground, a more practical approach would have been to leverage the existing institutional framework,” said Alok Prasad, CEO, Micro Finance Institutions Network (MFIN), an association of Non-Bank Finance Company Micro Finance Institutions (NBFC-MFIs). To illustrate, Mr. Prasad said, in the rural areas the regional rural banks (RRBs) can do much more with improved governance and stronger leadership. In the urban markets, both urban cooperative banks (UCBs) and business correspondents (BCs) have the potential of deepening their presence.
“The SEWA bank model is a good example of what can be achieved by a focused approach,” he added.
However, Monish Shah, Senior Director, Deloitte in India said that considering the current state of financial inclusion in the country, an alternate banking framework which addresses the unique issues faced by the under-banked and un-banked population, would be a welcome change and would supplement existing infrastructure.
“We have several players who have been piloting in creating a successful rural business, financial inclusion model, as well as alternate channel capabilities to increase access. However, considering the unmet needs and even the un-assessed needs, any framework that adds to the current infrastructure would be value additive.”
But Mr. Shah said that while the committee has several radical ideas on an alternate banking framework, “the viability and adaptability of these ideas will need to be evaluated and will be critical in shaping the next wave of growth in the financial inclusion agenda of India.”
Further the targets set are indeed brave, particularly in the context of the innate conservatism of the RBI. The report suggests that each Indian above the age of eighteen will have a bank account by January 2016. Nonetheless, such target setting should be seen positively as it puts greater pressure on the Government and other stakeholders to translate the recommendations into action.
Nachiket Mor, the Chairman of the Committee believes that the Aadhaar process is adequate to enable every Indian to get a bank account by January 1, 2016.
From the standpoint of NBFCs, the report is extremely positive, laying down a road map for those institutions which can move ahead and become National consumer banks. For the NBFC- MFIs just a few of the policy changes recommended such as allowing them to become BCs of banks has the potential to dramatically improve the delivery of financial services to the poor.
“It is noteworthy that NBFC-MFIs have a branch network of 10,000 branches, largely rural, along with trained staff which is well connected with BOP segment clients,’’ said Mr. Prasad.