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Tech drives financial inclusion, brings smiles for the underbanked


Some seven years ago, when the government introduced ‘Jan Dhan’ bank accounts, it was seen as an instrument for financial inclusion. There was little to suggest that other policies implemented earlier could revolutionise the face of financial services in India. Services that took birth in different decades have brought about a social change like never before.

Mobile phone services began in the 1990s as a premium service. The 2000s saw the idea of identity for the masses, Aadhaar, take birth. When the Jan Dhan accounts, a banking service for the masses, was introduced, it did not take long to take off. The impact of what is now called the JAM trinity – Jan Dhan accounts, Aadhaar & mobile – has unleashed millions of opportunities for a billion people and more.

ET Spotlight

The adoption and evolution of digital technologies have enabled the democratisation of financial services for the masses. Rural employment generating programmes like MNREGA and Pradhan Mantri Jan Dhan Yojana have solved the supply-side challenges, opening millions of bank accounts. Adding consistent policy and regulatory changes to drive inclusion made the market ripe for reaching out to the unbanked and underbanked.
After the first Jan Dhan bank accounts became a reality in August 2014, numbers speak the loudest of the silent change it has brought about. It has 43 crore account holders and deposits of nearly Rs 150,000 crores (~$20 billion). The ubiquitous mobile phone in everyone’s hand, with access to Aadhaar, is the fulcrum around which its reach revolves. Its rapidly expanding spread promises a still more significant impact.

In the last decade, two of the critical drivers for Digital India have hit a staggering billion in number. In comparison, Jan Dhan accounts are halfway there, but the multiplier effect is now talked of as a success worldwide. The government now wants to dovetail insurance products to ride the groundswell of the opportunity. These accounts could drive micro-credit and micro-investments and raise the bar for financial inclusion.

The successes of financial inclusion

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Financial inclusion is a building block for both poverty reduction and opportunities for economic growth, with access to digital financial services critical for joining the new digital economy. While banking services is the first step, it allows access to savings, credit, insurance and other services.

World Bank’s Universal Financial Access (UFA), called UFA2020 is seeking to promote access to electronic instruments to store money, send and receive payments. With wider access, that should serve people well to manage their finances. Some 1.7 billion people, nearly 31 percent of adults worldwide, still do not have a transaction account, according to the World Bank.

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UFA2020 focused on the 25 countries, including India, where nearly 73 percent of the financial excluded people live. Policy changes and regulatory action in these countries have helped spread access to financial services. India’s success is among the examples.

Go deep, go wide

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The unfolding of scale for mobility, Aadhaar and no frills banking or Jan Dhan, during different timelines were consolidated by the regulator RBI shape policy changes. Its business correspondent (BC) model in 2006 took the idea of banking to the informal sector, warming up to small businesses and individuals. The BC model allowed banking service at remote locations which did not have a bank branch or an ATM facility. Programs like MGNREGA, where money transfers were later institutionalised through the banking channels only, brought about a major shift in the world of financial inclusion.

When the pandemic hit the bottom of the pyramid hardest, to provide greater operational flexibility to banks and other institution for reaching out to priority sector, a revised scheme, renamed co-lending model (CLM), was introduced in November 2020. The focus of the revised scheme was to improve the flow of credit to the unserved and underserved sectors of the economy at affordable rates.

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Among the steps that RBI five-year approach enumerated for financial inclusion were differentiated banking licences – small finance banks and payments banks. The India Post Payments Bank launched in 2018 is now leveraging the 1.5 lakh post offices to push the policy. The Indian Bank Association has also been trying to identify good BCs based on their track record, with an emphasis on formal training to drive capacity building.

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The bank-led model for financial inclusion also gives opportunities for micro pension and insurance products to be made available. The National Pension Scheme (NPS) is being expanded for wider reach while technology is being leveraged to improve access.



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