<div>As a term ‘financial inclusion’ may have surfaced in business parlance only in the mid 2000s but the brickwork to what it represents was laid much earlier. Even as the government has adopted a benevolent attitude towards the MSME sector, the road to financial inclusion is fraught with challenges.</div><div> </div><div>Bearing this in mind, Dun & Bradstreet, a leading international provider of business information, in association with the State Bank Of India and Western Union Money Transfer organised a ‘Financial Inclusion Conclave’ on 12 March.. </div><div> </div><div>“ Financial inclusion has been accorded high importance to aid the inclusive growth process for any economy. In this regard, D&B India has undertaken various capacity building initiatives for Micro, Small & Medium enterprises and has conducted over 250 programs across different clusters. Through seminars such as the Financial Inclusion Conclave, D&B will continue to be committed to this sector and the development of MSMEs,” stated Byron C. Vielehr - President of D&B International and Global Operations, Dun & Bradstreet on this occasion. </div><div> </div><div>The conference witnessed participation from the Reserve Bank of India, policy makers, officials from private and public sector banks, policy regulators as well as microfinance institutions (MFIs). The conclave aimed to address the ways in which stakeholders co-exist to make the economy financially inclusive and effectively reach the bottom of the pyramid</div><div> </div><div>It was held in common consensus that financial literacy — in rural and urban India alike —is crucial for financial inclusion with many officials from across the banking sector proposing the introduction of financial concepts in school curricula. Towards the end of last year Canara Bank tied up with the Kendriya Vidyalaya Sangathan to provide financial literacy classes in higher classes. Many of the bank officers have been teaching such courses in vernacular languages to students of class 8, 9 and 10 in smaller cities across India. </div><div> </div><div>Since the idea of financial inclusion needs to go beyond an individual or family having a savings account in a bank, there is a greater need for developing financial products such as micro pension, micro insurance and low cost mutual funds, says R.K. Bansal, Executive Director of IDBI Bank. IBDI has 30,000 branches in rural areas. </div><div> </div><div>The role of Business correspondents (BCS) with respect to rural banking is key. Yet, even as they (or their field agents) form a key link between banks and the rural population, not many of them are equipped to handle the machine or technology — mobile payments, cash transfer and mobile wallet schemes —they use to carry out financial transactions. Therefore, investing in training BCs constitutes an important aspect of encouraging more people to utilise banking services, in particular. Moreover, the remunerations model for BSc operating in rural areas should not be target based to encourage more participation in remote areas. </div><div> </div><div>With respect to rural penetration, from the point of view of the banker, the commercial viability of setting up 25 per cent of their branches in areas with a population of less than 10,000 people — as per RBI guidelines —is doubtful. The development of low cost banking models to penetrate into tier 2, 4 and 5 cities in India comes with its fair share of infrastructural problems believes Kaushal Sampat, President & CEO – India, Dun & Bradstreet. </div><div> </div><div>Deepak Singhal, Regional Director, Reserve Bank of India upholds that financial inclusion needs to be based on the core principles of affordability, availability, reliability and awareness. “Financial Inclusion is based upon both supply and demand. By opening an account you can create supply but there has to be demand as well and that can only happen by increasing awareness,” he says. Even as a brick and mortar presence is important for banks in rural areas, Singhal is of the opinion that the focus should be on creating demand for banking services in the existing rural bank branches present in 36,000 Indian villages. One of the major guidelines for new (private) players vying for a banking licence is their plan for financial inclusion, Singhal reinforces. </div><div> </div><div>According to a study cited by T. K. A. Nair, Advisor to the Prime Minister of India, Government of India (during the conclave) there has been a steep 25 per cent decline in the number of self help groups (SHGs) working in India. Along with deceleration in private sector lending there has been a fall from 13.5 to 12.9 per cent in micro credit and a sharp decline in education loans from 18.7 to 12.2 percent in this 2 year period. “Financial Inclusion should not remain a buzz word it should form one of the core activities of the banks and other financial institution,” he says while emphasising on the need to re-examine the framework of financial inclusion. </div><div> </div><div><strong>Micro Realities</strong></div><div>As the managing director of a more than 20 year old NBFC working in the microfinance sector, Suresh Krishna, has worked his way into the interiors of Karnataka, Tamil Nadu and Maharashtra. Bengaluru based Grameen Financial Services (Grameen Koota) currently has a loan portfolio of Rs 500 crore and offers a n array of micro credit and micro insurance products.</div><div> </div><div>However, Krishna is of the opinion that regulations need to equip MFIs with banking capabilities as well. “Anybody can become a BC, except NBFCs. As MFIs we are already delivering credit. It is easy for us to add the savings account to our portfolio, as well and we can succeed as a commercially sustainable model. But today we are banned from doing so,” he laments.</div><div> </div><div>At present 70 per cent of the areas where MFIs have been able to make headway are located in the 5 states of Andhra Pradesh, Karnataka, Tamil Nadu, West Bengal and Maharashtra.Krishna also feels that there is no right incentive for people to work in remote areas. “The 10 per cent margin cap under which we are operating, as per the RBI (for MFIs with a portfolio of more than 100 crore) will drive MFIs to work only in dense, concentrated territories. This leads to exclusion and people will work only in urban areas,” he says.</div><div> </div><div>The regulatory framework also encourages MFIs to work with specified income groups: households with an annual income of less than Rs 60,000 in rural areas and those with an annual income of less than Rs 1.2 lakh in urban areas. “One of the main problems is how do we identify annual income? There may be declaration forms but also, what happens to families with an annual income of Rs 62 or 65,000. This again drives exclusion. Moreover, these figures may vary on a year to year basis depending on a number of factors: agricultural yield, the employee’s heath etc.,” Krishna argues. </div>
