Indian Institute of Banking and Finance 2

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Indian Institute of Banking and Financethat exists between current bank models and the needsof the ordinary, rural Indian. Our Aadhaar team, on ruralvisits, found that many Indians viewed banking as an alien,difficult experience. Even when they had accounts, theyrarely used them. The bank was usually far away, requiringtravel in a bus and the foregoing of a day's income ifthe person was a daily wage earner. There was little theperson could do if they needed money immediately, in caseof a financial emergency.And once there, the bank required the often illiteratecustomer to fill a bewildering number of forms, and alsorequired documentation that the person did not have.Clearly a banking model which has been tailored forthe educated and urban population is now trying tocater to the needs of our vast rural country. In thissetting, it quickly reveals its weaknesses. The average bankdeposit in rural India is one-tenth that of urban India.When catering to the poor individual, the bank facesa customer who prefers to make numerous, very smalltransactions, which vastly increases costs for the bank,with little additional benefit in deposit value. The resultis that banks don't treat poor, rural market as a priority –every additional customer becomes a source of additionalexpense rather than profit.Reworking our approachesD. Subbarao, the RBI governor, has pointed out the needfor us to build additional bridges between the ordinary villagerand the banks as they now exist. There have some interesting12
The Goal of Financial Inclusion -- Have We Reached The Tipping Point?experiments in this direction to make banking services moreaccessible to the poor, through business correspondentslocated within the village, and by enabling people to makeremote transactions.The objective of these steps is to shift our banking approachfrom a low-volume, high-cost model, to a high volume,low cost model, where large numbers of small transactionsbecome profitable to banks, mirroring the pattern of growth intelecom. However, this goal remains strait jacketed by basicweaknesses. Fulfilling Know Your Customer norms remain ahard-to-surmount challenge for banks. Many of the poor lackthe basic documentation they need to open a bank account,including a proof of identity and proof of address.The lack of easily verifiable identity also limits the onlineand mobile banking services that can be delivered to thepoor. Banks have tried to address this through remoteauthentication devices employed by village-based agentsand BCs, who use smart cards to remotely verify theircustomers before allowing transactions. These verificationsystems however have remained proprietary to particularbanks, limiting large-scale expansion. If such an approachexisted in telecom, it would have been akin to allowing phonecalls only say, between BSNL subscribers!The pieces of financial inclusion are now in placeMuch of what is necessary to enable financial inclusionin India is already in place, with technological advancescoming powerfully together with policy efforts. The RBI forexample, recently expanded the definition of the business13
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Indian Institute of Banking and Finance 2

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