Financial inclusion has become an emerging focus for policymakers around
the world, and it is nowhere more relevant than in India. Analysts
estimate that up to half the Indian households do not have a bank
account. In fact, the Census 2011 found that more than 40 per cent of
the population lives two km or more from the nearest bank branch or
agent.
For India to facilitate more balanced economic development, universal access to basic financial services is essential.
There are no easy solutions. Strict regulation of banking and other
financial services is vital to address money laundering, terrorist
financing and fraud.
INDIA’S UNBANKED
India’s formal financial services sector is yet to meet the growing
needs of a large part of the population. When it comes to domestic
remittances, 57 per cent of migrant workers in India use hawala couriers
and other informal channels to remit money, according to a recent
study.
Analysts estimate that almost 40 per cent of the participants in India’s
informal economy — which accounts for half the country’s gross domestic
product — resort to chit funds, barter and moneylenders for financing.
It is logical that an informal sector thrives in the absence of
convenient, reliable, speedy and regulated financial services. The risk
of unabated informal and or illegal financial traction and its risk on
national/consumer security and impact on a country’s monetary policy
require no debate.
The need for increased access to formal financial services is an
important and urgent policy objective not only for India but also for
its main trading partners, including its key remittance sending
countries.
The World Bank published a pivotal report in June 2010, Inclusive
Finance, which provides a standard definition of financial inclusion.
The bank said that affordability, availability and convenience, and
quality are key features. It also subdivided financial inclusion into
four product types: payments, savings, insurance and credit.
When Western Union commenced offering international money transfers in
1993, the company remitted money from 41 countries into India. Today,
Western Union remits money from more than 190 countries and territories
into India. This is a significant progression in facilitating financial
inclusion.
Last month, Western Union announced the opening of its 100,000th agent
location in India. Western Union’s agents and sub-agents include banks,
post offices, grocery and convenience stores and many other types of
businesses.
If India were to deliver payment, saving, insurance and credit products
to half the population, it seems logical that — subject to careful
screening of providers, efficient regulatory oversight and appropriate
limits — the way forward is to take advantage of existing broad-based
networks and new consumer technology to selectively open financial
services to non-banks, while promoting cooperation among all sectors.
TECHNOLOGY POTENTIAL
Western Union’s experience gives clear evidence that non-bank financial
institutions can foster increased demand for local banking and financial
services. For example, Western Union’s insights reveal that in India,
the banking access rate for receivers of cash remittances is more than
double (51 per cent) that of sending overseas workers themselves (22 per
cent).
Many recipients open bank accounts to receive these transfers and, by
doing so, give themselves the opportunity to access the full range of
banking services. Linking payments received to savings accounts is
clearly a way to promote financial inclusion.
Could mobile phone wallets be linked to inward remittances? Could
pre-paid cards provide a new financial mechanism for the unbanked? Could
village corner stores expand to serve as the agent, not only of Western
Union, but of a bank, providing basic, yet fundamental financial
services? How does India facilitate greater usage of formal channels for
domestic remittances?
Advances in technology have opened up new ways to deliver reliable,
transparent, easily monitored and regulated financial services. Large
commercial networks already exist that link every corner of India,
including that of Western Union. The country is at the forefront of the
IT revolution.
There is already a common will of government and businesses to achieve
the objective of financial services for all. What is required next is a
collaborative approach.
India’s regulators are already moving leaps and bounds in this
direction. In a clear sign of its increasing influence on the global
financial stage, India recently become the newest member of CGAP
(Consultative Group to Assist the Poorest), the independent policy and
research centre housed at the World Bank dedicated to improving
financial access for the world’s poor. India is the first from emerging
markets to join CGAP.
India’s membership is a commendable signal that the Government is
committed to providing financial access to the more than 2.5 billion
working-age adults under-served by mainstream financial services.
