Could adequate governance enhance access to financial services? While the short answer is yes, the long-form answer is the review of standards, processes, and act of governance, that could bring in a more profound level of financial inclusion. We all know how growth and financial inclusion are directly proportional to each other, specifically in emerging economies both at macro and micro levels. Laying of concrete legal structures, managing social performance, responsible exits and managing risk crisis are few of the areas where good governance could help in enabling inclusion at all levels.
Governance or decision makers are responsible for monitoring the policies, framework, processes and the entire structure of financial inclusion programmes. And to achieve that the policymakers need to plan carefully in detail that supports the long-term vision of inclusion.
Just to envision a role of governance imagine yourself architecting a house for your family that consists of your elderly parents, teenage children, and spouse. All might have different needs – like your parents might not like high rise buildings and an adolescent boy wants his room to be spacious enough to play cricket and girl want her room to be painted in pink. How do you take care of each of the stuff? Now broaden your imagination and think this small house as big as the country like India, would it be possible for you to know the needs of each person? How vast is the effort, to build a structure, to implement policies, communicating with subsidiaries or correspondents, deploying solutions, collecting feedback and then reworking on failures.
That’s the hardest part of governance, and to create a robust governance structure – one need to carefully pick the ingredients to integrate it with the framework and employ solutions that support the vision. Only well-functioning and proficiently governed financial institutions can deliver financial services to meet the rising needs of the economy.
As mentioned by Deputy governor of RBI Dr. K.C. Chakrabarty, – through various measures initiated by the regulator/Government in the post-independent period resulted in impressive gains in rural outreach and volume of credit, the structure suffered from inherently weak governance. The achievements were ‘quantitatively impressive, but qualitatively weak.’ Due to the target-driven approach to social banking, the initiatives were not part of the business strategy of banks. The effort on the part of the banks was always aimed at somehow meeting the lending targets, mostly at subsidized rates of interest, or with the subsidy from the Government under various government directed schemes.
Financial Inclusion a process that ensures banking services to all individuals in a fair and transparent manner by regulated players. With good governance in place, new methods and means could be executed, regulation and authorized players would be dealing with people’s money. It would also lead to empowering individuals with financial literacy and knowledge, tailored services and products could be offered, and most importantly technology could be used to approach the remote areas.
When a firm appointed/approved by governance serves different financial offerings and products, it helps in enabling financial inclusion. In most of the cases, Banks are those trusted entities that are recognized at the global level and have the power to facilitate inclusion. Banks can cross-subsidize across various product/services and offer the FI products most efficiently and cost-effectively.
Just for example as per RBI – Banks have been advised to make available Basic Savings Bank Deposit Accounts (BSBDAs) for all individuals with zero minimum balance and facility of ATM card/ Debit card or self-certification of documents helping in relaxed KYC norms. All these are possible because of governance pushing and allowing the regulated players to approach individuals and access banking. In fact, there is also a push for Banks to increase their brick and mortar presence and also adapt to modes such as Kiosks, off-site Rural ATMs, mobile vans, etc.
Inclusion and Banking are not just about opening a bank account, but “knowing the benefits banking offers.” For all of this governance takes up extra steps to educate people about finance and banking. Initiatives and programs are running by recognized institutions and RBI; just, for example, RBI has a booklet FAME (Financial Awareness Messages) that is available in 13 different languages for banks and other stakeholders to use. Another firm Ujjivan along with Parinaam Foundation has conducted classroom training teaching its participants about its participants on cash flow, income and expenditure budgeting, savings and savings options and debt management.
Another initiative has been taken up by NSE [ National Stock Exchange]and SEBI[Securities and Exchange Board of India] to impart financial knowledge to children with its programme. The resource covers sessions on Money matters, Budgeting, Investments, and Stock market.
While planning to enable financial inclusion in a country like India, policies and execution need to handled at ground level. So how does the governance takes care of these?
At Zero level we have Business correspondents, Agent bankers or Nonprofit organization, volunteers and most importantly banks that make the execution possible. With representation at panchayat, tehsil, village, district level, next level is the state level. The infrastructure at state level also known as the State Level Bankers Committee (SLBC) helps in resolving issues at zero level and even passing the policies, obligation, and laws from Apex/State to lower levels.
Lastly, we have The Financial Stability and Development Council (FSDC) that has subgroup headed by RBI governor and RBI deputy governor that exclusively focus on financial inclusion and financial literacy. The group has a representation from other regulator groups to make policies and decision in favor of each segment of the society.
Apart from this, there is another group headed by RBI Deputy Governor Financial Inclusion Advisory Committee (FIAC) that’s in place to gauge the performance of banks and to continuously review the various models adopted under Financial Inclusion
Better governance not only ensures people to access banking but also makes sure to access the right channel bypassing the intermediaries and unauthorized firms charging with high-interest rates leading to long-term debts. By availing the services from a regulated source, the user could get the personalized and varied range of services like –
- A savings cum overdraft account
- A pure savings account, ideally a recurring or variable recurring deposit
- A remittance product to facilitate EBT and other remittances, and
- Entrepreneurial credit products like a GCC or a KCC
Thanks to technology and its ability to offer services via a technical framework, banking has never been so secure. While opening a new bank branch is a costly affair for the governance and customer cannot take up the load, it was decided to hook up with technology and provide banking solutions via brick and mortar structure or Business correspondents. At one hand governance offers a free hand to banks and other financial institutions to leverage technology, it makes sure that cost of it never shoots up and people in the geographically dispersed area could avail it.
Teknospire products that offer Last Mile Banking solutions are helping Good governance in enabling Financial Inclusion. Our skilled team is using the latest technology and coming up with user-friendly and simple solutions that could be used by Agents in online and offline mode. Banks and other financial institution could collaborate with us to strengthen good governance by using simple and intuitive mobile banking payment solution and offer to its rural customers. For details, you can contact us here.