Wednesday, February 16, 2011

Financial Inclusion Begins @Home


Out of personal curiousity and professional interest, I am constantly in conversation with the banking and financial system  trying to understand how they can (and will) play a greater role in spreading financial inclusion in India. While its fairly clear that financial inclusion does not end with opening a bank account, its a very important start because close to 70% of India's population does not even have bank accounts.

The Ministry of Finance, along with the Indian Banks Association has just  launched the  Swabhimaan initiative, aimed at taking banking to some 73,000 villages having a population of 2,000 by March 2012. Electronic banking (at least technologically) is now  accessible by most people in and parts of India. Combine this with the mobility of identity through the Unique Identitification Authority of India (UIDAIs) Aadhaar project and  someone who has been out of the system for all his or her life will now become part of it. And there are other benefits, like subsidy targeting which I won't  get into here.

If close to 70%  the population does not have access to banking facilities, it must stand to reason that a good part of this 70% are in urban India as well. The good news is that we are connected to the problem (and the solution) right in our homes. Its actually quite simple to establish. Many of us living in cities and towns in India employ domestic help in the form of maids and cooks, driver for the car and so on. Ask them whether they or any of their family members have bank accounts. The answer, in 3 out of 4 or mostly 4 out of 4 cases is a plain No.

Proof Of  Identity

The reason they don't have bank accounts is not because they don't want to. Its because they don't have the right papers to prove to the bank they, well, exist.  The interesting (and sad) part of this is this is the case whether they hail from a village in a distant state or a village 40 km from a city like Mumbai or Delhi. Banks as part of their Know Your Customer (KYC) will demand proof of identity and proof of residence. Forget the working migrant class, even those of us who rent homes find it next to impossible to produce the right proof of residence.

The  UIDAI's Aadhaar will partly change this. The Government (via the Ministry of Finance and the Reserve Bank) has directed banks to accept the Aadhaar as sufficient KYC for opening `small accounts' or no-frill accounts. So the enablers are falling into place including the fact that most states have begun rolling out Aadhaar (1.6 million + as of this morning). But the biggest enabler is you and me. Instead of handing out cash to our domestic help, we should be telling them and helping them to open bank accounts. One way of doing this is to obviously ask them to get the UID first. Second is to actually help them go and open bank accounts.

The third is  to pay electronically (as far as possible). Its a headache reducer for both parties and a cashless way of existence has other benefits as well. This is the beginning. The next thing would be to bring in other small aspects of financial inclusion such as micro insurance schemes and/or pension schemes. Life Insurance Corporation (LICs) Jeevan Madhur and Jeevan Mangal are examples of such schemes. There are similar initiatives in micro pensions as well. I suspect that getting a micro insurance or pension scheme may face some of the identity challenges a la  opening bank accounts did. But this is getting rapidly ironed out.

FI@Home, A Force Multiplier

The multiplier effect of starting financial inclusion at and from home can be considerable. Most urban workers remit money to villages and small towns. A bank account on this end will incentivise the opening of one on the other end as well. So, if the two or three people who work in your home open accounts, its another three or four in their families plus a few more. Its not about the numbers though, its about the contribution that you and I can make through simple steps.

So, as March 1 comes closer, remember to start talking to your domestic help. Tell them about the benefits of opening bank accounts and how you might be willing to pay a small part towards insurance and pension schemes as well. Encourage them to adopt banking and savings as  a way of life. And that from now on you will deposit directly into their bank accounts. I bet you they will thank you for this. And don't forget, spread  the good word to all your friends and acquaintances too  !

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