Ways to Transform into Cash-lite for Financial Inclusion

Posted on August 16, 2013 by Sumita Kale

One of the most potent enablers of financial inclusion is going cash-lite or in other words embracing electronic mode of transactions instead of being cash-dependent (Dan Radcliffe and Rodger Voorhies, December 2012)But despite all the benefits that electronic transactions provide, they have not been able to take off in the expected magnitudeIn India electronic transactions and, for that matter even bank accounts, have shown slow and fragmented progress in their acceptability among masses (Ignacio Mas, June 14, 2013)Two factors responsible for this staggering progress in India are-

1)      Cash deeply embedded in the financial behavior of masses.

2)      Any change needs handholding for wider acceptance.

There has been a lot of study on these issuesFor the first factor, stakeholders of cash-lite system should act as Choice Architects in order to imbibe electronic accounts into the financial activities of masses, (Nudge, Richard HThaler & Cass RSunstein)- i.epresent electronic transactions in such a way that it appears as an "easy to use and lucrative option than using cash, without requiring BOP populace to modify their financial behaviourAs discussed by Ignacio Mas, individuals especially financially excluded poor generally have a habit of fragmenting their savings by maintaining different saving vehicles for different purposesHowever, in case of electronic transactions via bank accounts this possibility of fragmentation of money is absent; there are currently no options whereby individuals can retain their financial habits and manage their money in a fragmented fashionIn addition to this, electronic accounts can only serve one of the two functions of cash at a time, i.e., either it can be liquid through current account option or it can be saved in a disciplined manner through commitment savings accountOne novel solution to this problem has been discussed by Ignacio Mas (The Need for Intuition Rather than Simplicity Around Account Features) - making electronic accounts not only simple but intuitive as wellFor instance- creating and naming accounts after days in a week; Sunday, Monday..Friday, these accounts will offer liquidity on their name dayThus the user will have an option of unlocking the money every week and would be able to fragment his savings as well.

At present electronic transactions are not popular among the BOP sections of population in India, such transactions though path-breaking innovations but are slow moving in terms of their adaptability and usability among massesTherefore as per the second factor, the stakeholders of cash lite system- government, banks, MNOs should initiate mass handholding exercises and training programs– send out representatives to rural areas to spread the awareness about the uses of electronic transactions and access to accounts and ways in which they score over  hard currencyMass handholding exercises are needed for universal acceptability of electronic transactions and accounts as they are relatively new to the BOP populace and some what appears to them as puzzle of rules (Ignacio Mas,July 2013)The need here is to present electronic transactions and accounts as very lucrative, safe and easy to use options for saving, investment and transfer of fundsThis process can be divided into the following steps:

1)      Regions can be divided into groups of households who need handholding for conducting electronic transactions via electronic accounts.

2)      Once a group is trained on know- how of electronic accounts and transactions, the members of the group can go and train further in the region- training of the trainer methodSuch a method of handholding would not only be cost effective but would make handholding exercises scalable.

3)      Once a particular region is covered by this exercise, one can easily expect the herd behavior to kick off and attract households in other (neighbouring) regions to use electronic accounts.

If such steps are taken to make electronic accounts more intuitive and simple to use and mass handholding exercises (training programs) are conducted, then cumulative impact would not only shore up and enhance the demand and usability of accounts and transactions among masses but bring the financially excluded poor under the ambit of formal financial sector.


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