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This is the third part of my Financial Inclusion series, in case you have missed the two here is the link for part one and two.
Regulation in Financial Inclusion has two aspects one is about “laying the right rule” the other is “supervision” that it does not leads to downfall. While many policymakers in underdeveloped and developing nations provide a sturdy base with legalities and processes, some developed and developing nations need supervision that they are not misused.
What the history and experts tell…
As dictated by policymakers and research reports, Financial Inclusion is a way to lessen poverty and enhance the collective prosperity of society. With access to banking services, communities experience an inclusive growth with improved source of income and promotion of economic growth. However, the measures need to be BALANCED, or otherwise, geographies may face a crisis as happened in the US [sub-prime crisis] in 2007 and India[microfinance crisis] in 2010. Both of these situations had one thing common, the overextension of loans to non-credit-worthy borrowers and relaxation in underwriting standards leading to instability.
So, even though financial institutions were able to report high profitability for years through rapid growth in loans, it led to significant indebtedness among non-credit-worthy borrowers contributing to financial instability and social discontent. Hence, while policymakers are keen to empower inclusion, the regulation needs to be in place to avoid uncertainty.
On the other hand, in 2015, Bill and Melinda Gates in their annual letter cited regulation as one of the major barriers to implement Digital Banking, one of the “key” in enabling inclusion. The letter quoted –
“There is a lot of work ahead to get regulators in developing countries to update their financial regulations. If the regulations limit digital banking, as is still the case in most countries, innovators can’t enter.”
How Can Regulation enable Financial Inclusion?
Short answer – striking balance.
Long answer, the solution could be divided into three categories –
One and all
Do you recollect the rule that attracted penalty if you withdraw from another bank ATM, more than five times? Finally, the regulation came and hashed it. As irrespective of the bank, a customer is using the same service. Then why a penalty? Putting it another way whether you do an online fund transfer or go to a bank and issue a draft, both services need to be under the same umbrella.But these loopholes are the pain points for the customer.
We need regulation that puts in all services to the customer under one roof helping and enabling inclusion.
Regular Review Of Policies
Everything comes with an expiry date, then why a policy laid in the ’50s would still be applicable?Do you remember a rule where banks used to charge prepayment penalty fees on loans, many might have even paid it. However, RBI in April 2012 reviewed its decision of providing a relief to borrowers from foreclosure charges, helping them to switch to a newer bank with better rates or in case of sufficient liquidity prepay and attain peace of mind.
So clearly a quick review of policies can make things better and help consumers in trusting regulators.
Support Innovation and Technology
We need policymakers and regulators to lay down rules that push “Digitization.” Just as an online shop offers ‘x%’ discount for new user signup, we need a push for people to switch to digital banks. Maybe offering banks a subsidy if its digital users are xx% of their customer base.Even Banks and NBFC’s need to have support from the government in buying digital software that could engage users in availing digital services. Launch of quick and easy KYC norms are other factors that need regulators attention and could empower inclusion. Regtech firms are undoubtedly innovating to assist in making the operations smooth, they could also collaborate with fintech firms in expanding the banking services and enabling last mile banking.
At the end, its all about striking the perfect balance amongst the protocols and convenience. And, Teknospire could assist you with that.
If you a Bank or NBFC looking to use technology and innovation in expanding the business and enable social inclusion, we are here for you.
Teknospire a fintech firm offers Bank-in-a-box solution with omnichannel, agent/digital branches capability. The 360-degree banking solution reduces the CAPEX for a bank to set up a physical branch, but yet opens doors to expand their business. Our Digital Banking, Mobile Banking, and Agent Banking solution could help regional banks and cooperative banks to push Financial Inclusion further. For details, please contact us here
Watch out this space to get more insights on Last Mile Banking or Financial Inclusion.