The changing paradigm of financial inclusion in India was brought out succinctly last month by RBI Governor, Dr. Raghuram Rajan. In a speech at the National Seminar on Equity, Access, and Inclusion - Transforming Rural India through Financial Inclusion,, he noted the three impediments to universal inclusion – Information, Incentives and Transaction Costs. The policy approach therefore would need three components: narrow targeting of mandates to the truly underserved and explicit payment for fulfilling the mandate so that they are delivered by the most efficient, creating the right institutions such that transaction costs are lowered and focusing on payments and savings, rather than credit, as the first step to inclusion. He also listed five challenges ahead: 1) Managing Know Your Customer requirements 2) Encouraging competition to prevent exploitation 3) Ensuring some flexibility and forgiveness in financial arrangements 4) The need for skilling and support 5) Encouraging financial literacy and ensuring consumer protection.
On 1st August, the RBI also released “Guidelines for ‘on tap’ Licensing of Universal Banks in the Private Sector”, thereby opening the doors of banking to the private sector. The next step for the RBI is to adapt its monitoring and tracking framework to the digital world that all banks are operating in now (RBI needs a new monitoring culture, Sumita Kale, Mint).
In a blog post, An Indian Start for Digital Credit, Anand Raman, CGAP, describes the digital credit product brought out by Suvidhaa and Axis Bank. Innovative products like these will spread inclusion faster amongst the unbanked.