Bank Regulation - teknospire

Financial literacy – The fourth pillar of Financial Inclusion

teknospire / 27/06/2019

The post first appeared on linkedin. To get more such insights, please connect with me here. While I was privileged to go to school, get educated, watch tv, buy books, during my adolescent days. I never realized some people do not have access to primary education until I saw this ad on Doordarshan – राष्ट्रीय साक्षरता मिशन [National Literacy Mission. My first question to my parents was – why is education so important yet inaccessible ? Guess you reap what you sow, and in 2016 when I was working on my dream project, I was again stuck with the same query only change being education replacing financial education. My mission of enabling change, empowering lives by including them into a formal financial system was based on the knowledge of money, the power to learn, analyze, and grow. Unless people know about the power of money – its growth pattern, method, or savings schemes, why would anyone be willing to attach himself/herself to a system? That’s why I regard Financial literacy as the fourth pillar of financial inclusion, with the other three being – technology, women inclusion, and regulation. Financial Education –What it means and Stats? Financial education helps individuals in understanding numeracy, risk diversification, inflation, and interest compounding. It assists individuals in making informed decisions regarding – balancing a budget, fund the children’s education, buy a home, avail a personal loan, understand the risk associated with debts and ensure an income at retirement. When people are financially literate, they would be keen to explore the products and services offered by banks and use them for their benefits. It accelerates the pace of financial inclusion, where everyone can access the necessary banking facilities rather than relying on the orthodox systems of money market such as borrowing money from Zamindaars or village money lenders As per stats available from Nov 2018, the highest financial literacy in any country is 71%, while in developing and underdeveloped nations its below 25%, what the figure indicates that a lack of knowledge about finance and financial products, many people are unable to access banking and financial services, and are therefore kept out of financial markets making financial illiteracy a critical barrier to financial inclusion. How to Improve Financial Literacy? While improving knowledge in modern days could be done via online apps or courses, our focus should be creating awareness of financial literacy. So how it could be attained, here are few pointers – As an individual – Ask a question? Next time you meet your local vegetable seller or housekeeping staff ask a question – Do you know you can grow your money in Bank with minimal charges? Based on their answer, educate them, make them aware of what financial literacy is and why it is of utmost importance to you and your family. As a firm – Involve in CSR or tie up with an NGO Corporate Social Responsibility or CSR is an ethical way for firms to work for the inclusive growth of the society. Stressing to create equal opportunities’ for the consumers, stakeholders, suppliers would help the firm in gaining brand recognition and building trust. As an example, CRISIL foundation launched a proof of concept for a financial inclusion program in Assam and Rajasthan to empower individuals in making informed financial choices. Another example is a Financial Literacy program ran by Disha Trust and ICICI bank Foundation to increase awareness about organized banking and insurance channels. Pair it up with Digital Literacy On the one hand, awareness of banking products and services are critical, but even the channels via which it would be consumed is crucial, as we aim to provide banking services at minimal cost and that could only be done via digital means. Hence digital skills and financial knowledge are the essential tools for the empowerment of the common people. As a Bank – Upgrade and Launch Banks in developing and underdeveloped nations could collaborate with fintech firms to upgrade to a digital platform and also launch their literacy program. This program could help in empowering consumers with the available financial Inclusion products/services, enable them to make informed decisions and right choices based on their financial needs. Listening from horse’s mouth would also help them in trusting the authenticity and make them aware of their rights and responsibilities as consumers of financial products and enable people to make optimum utilization of the available technology forming a strong financial inclusion eco-system. A couple of examples who successfully did execute these initiatives were RBL Bank, HDFC Bank, and RBI. 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 Banking as a service [BaaS] and Financial Inclusion.

Regulation need to strike a balance to enable Financial Inclusion

The post first appeared on linkedin. To get more such insights, please connect with me here. 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.