Financial inclusion is key to inclusive growth

Finance minister of India,Pranab Mukherjee urged private sector banks to build in financial inclusion plans in their respective business strategies.


Financial inclusion is integral to the inclusive growth process and sustainable development of the country. However, the financial inclusion models that banks come up with should be replicable and viable across the country. Stating this in his special address at the Financial Inclusion Summit, organised by Confederation of Indian Industry (CII) in New Delhi today, Mr Pranab Mukherjee, Minister of Finance, Government of India, said that although the banking network has rapidly expanded over the years, the key challenge would be to extend the banking coverage to include the large population living in 6 lakh villages in the country.

Expressing his immense confidence in the Indian banking system to deliver on the plan for financial inclusion, Mr Mukherjee said the system, which demonstrated its resilience in the face of the recent global financial crisis, should adopt strong and urgent measures to reach the unbanked segment of society and unlock their savings and investment potentials.

Pranab Mukherjee at the Financial Inclusion Summit organised by CII. Picture-credit:cii.in

Turning to the private sector banks, he urged the players to build in the financial inclusion plans in their respective business strategies. He added that while 80% of the public sector banks (PSBs) have already adopted the core banking solutions (CBS), steps are being taken to persuade the remaining 20% PSBs to adopt CBS.

The Finance Minister said that interventions and initiatives like the UID project will go a long way to ease the bank’s concerns pertaining to know your customer (KYC) criteria when dealing with a larger segment of potential and existing customers.

Mr Mukherjee laid particular emphasis on the adoption of new and appropriate technologies for promoting financial inclusion. He took the example of the Mahatma Gandhi National Rural Employment Guarantee Act Scheme to highlight how wage payments can be channeled through the banking system. This will lend new meaning to financial inclusion, he said, and added that banks need to come up with a definite financial inclusion plan.

To tap the fortune at the bottom of the pyramid, he recommended robust electronic transfers between bank branches located in the rural hinterland. This will facilitate the rural customers to transfer their income and conduct financial transactions seamlessly.

Talking about an enabling environment, Mr Mukherjee urged the private sector to support the designing of physical products including devices, software and financial services, training and capacity building so as to create a large manpower pool including business correspondents, and develop a business plan to tap the local talent that exists in the rural areas, on the lines of the e-choupal model.

Earlier, Dr Janmejaya Sinha, Chairman, CII Taskforce on Financial Inclusion & Chairman (Asia Pacific), The Boston Consulting Group, said in his address that 135 million of the 204 million households in the country face financial inclusion. Now, with 570 million people in the country being in the 0-25 age group, a very large segment would be entering the workforce in the coming years. Their financial inclusion at this stage would be of critical importance in the context of inclusive growth process and sustainable development.

Mr Sinha said that financial illiteracy is a key stumbling block in furthering financial inclusion. This has led to the financial illiterate segment making negative savings in many cases. He added that banks need to view the situation as not an obligation to be met but an opportunity that is to be weaved into their business strategies. He felt that a pro-active approach will see the banking network expanding in an all-inclusive manner like the telecom sector did.

Mr Sinha set a five-point agenda for financial inclusion, which called for:
(i) increasing overall consciousness of the need for financial inclusion;
(ii) increase in wireless and broadband connectivity in the rural areas to support rural banking;
(iii) spread of financial literacy programmes;
(iv) greater experimentation for financial inclusion through business correspondents, self-help groups, etc.
(v) greater collaboration between the key stakeholders in the banking system.

Ms Chanda Kochhar, Chairperson, CII National Committee on Banking and Managing Director & CEO, ICICI Bank, in her address said with a low ratio of 1 bank branch for 16,000 people, financial inclusion is far-fetched today. But, the idea of financial inclusion should be broad-based, such that people are able to not only access credit, but also fetch various financial services and products through the banking access point.

She said that at the micro-level, the financial services providers should aim for a holistic approach that meets the different financial needs of the target customers, address not just rural but also large urban excluded segments, reduce cost of transactions with proper technology adoption, and support the development of support infrastructure.

Ms Kochhar said that at the macro-level, there should be an eco-system that binds the different facets of banking and financial systems to deliver financial inclusion. She urged the banking and technology players to collaborate more firmly to strengthen financial inclusion, while adding that building financial habits among a large section of society will be just as important an objective to be focused upon.

Mr Hari S Bhartia, President, CII, in his opening remarks, said that CII’s theme of ‘Business for Livelihood’ is aligned to the objective of financial inclusion for sustainable high growth and development.

He said that financial inclusion will lead to the surplus rural income being converted into a pool of liquid funds for the economy. In this, the private sector has a key role cut out, by way of designing appropriate products and services, adoption of new and innovative technologies, and reduction of cost of banking and financial transactions.

Mr Chandrajit Banerjee, Director General, CII, in his closing remarks said that CII is bringing financial and technology players work closely to realise the goal of financial inclusion.