The new government in India has come in with a strong mandate, and fresh ideas for improving governance. The lead stories in this month’s newsletter focus on two priority areas for the financial inclusion mission:
A) Catalyzing an electronic payments culture: The challenge of reviving a stressed economy, one where fiscal discipline will be key to future growth, can be well served through an efficient and effective G2P payment system. For the new government, this will involve a time bound programme for digitising government payment flows and fixing the existing issues in the stalled Direct Benefits Transfer programme. The latest study from CGAP on electronic G2P payments in low-income countries has vital lessons for India here.
B) Enabling a more inclusive financial inclusion landscape: In order to reach out to the unbanked and under-banked population across the hinterland, all existing networks for banks and non-banks need to be tapped. In a recent speech, the RBI Governor has stressed on the need for differentiated banking licenses; this will include payments banks that will allow the financial inclusion mission to draw on the strengths of all types of players.
In a study on electronic G2P payments in four lower-income countries - Haiti, Kenya, the Philippines, and Uganda - Jamie Zimmerman, Kristy Bohling and Sarah Rotman Parker have brought out important learnings for all countries who would like to expand their G2P payment systems for inclusion. These include putting in place adequate infrastructure (the backbone of e-payments) before the roll out of the new payment modes, a high-quality management information system to manage the data needed to make e-payments (including cleaning enrolment data, maintaining KYC and other regulatory standards, reconciling payment records among implementing partners etc.), attending to the logistics of making payments through an agent network in remote locations, ensuring that the recipients understood the payment processes so that trust is built up etc. Though by themselves, electronic G2P payments do not fulfil the goal of financial inclusion, they are an integral part in drawing the unbanked into a digital payments network. It is important to get this stage right to open up access for the excluded to other basic financial services like savings, credit etc.
In a speech to the Competition Commission in May, Dr. Raghuram Rajan, Governor, RBI, spoke of the need to allow entry of more players into the banking sector. He noted, “We have had only limited success in achieving inclusion when it is seen as a mandate. Banks sometimes open branches in remote areas but the officers that staff them do not really reach out to the local population; banks open no-frills accounts but many lie dormant… The reality is that if the mandate is unprofitable, banks will find ways to avoid them. Not all forms of inclusion can be made profitable, but we should give banks the freedom to try new approaches, perhaps drawing in other institutions that can traverse the last mile to the underserved where necessary. The RBI will come out with new relaxations on business correspondents shortly. Also, some of the entities that become payments banks may be very well suited to support or substitute commercial banks in reaching remote areas.”
Section I: Policy – the latest from India’s policymakers
The Indicus Centre for Financial Inclusion was launched in 2011 to distil and disseminate information on accelerating the poor’s access to high-quality financial services. The Centre is supported by the Bill & Melinda Gates Foundation. http://www.indicus.net/icfi