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Video: A Robust Architecture for Financial Inclusion in India – Ms. Arundhati Bhattacharya

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In the previous post we had covered the keynote address delivered by Mr. Nandan Nilekani at the IFMR Holdings Event, 2015. In this post we share the keynote address that was delivered at the event by Ms. Arundhati Bhattacharya, Chairperson, State Bank of India, on the topic of “A Robust Architecture for Financial Inclusion in India”.

Tracing the roots of growth to a period when India liberalised its economy in the early 90’s, she talked about how financial inclusion is both enormously challenging and at the same time presents itself as a huge opportunity. She described a robust architecture of financial inclusion as one that directly implies a robust banking system, which in addition to having banks at the centre of the wheel also will have differentiated banks, Business Correspondents among others. In addition she stressed that this architecture of financial inclusion comprises of inter-disciplinary trends that shape the economy and also one in which technology and literacy will play a critical role.

In her talk she also mentioned how the e-commerce boom that the country is witnessing would play a crucial role when it comes to SME inclusion. The prime reason being that such platforms give financial institutions better understanding of the SME business that they are financing.

Watch her keynote address in the Video below:

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3 Responses

  1. Well, one thing has been common across Indian economic policy since independence – clamour for financial inclusion. How little things change really. All we do is forget history and just keep creating noise each time the wave picks up. But each time this wave starts, we make the cardinal mistake of saying – This Time is Different.

    Till the 1990s, much of the focus was on govt backed financial inclusion and now the focus is on private sector backed inclusion. But we keep forgetting that there is a trade-off between profitability and inclusion. Given private sector focus on profits, you can only push the inclusion agenda so far. The evidence shows that state was highly successful in financial inclusion from 1969-90 but it had a serious problem with profitability and balance sheets. And post 1991, balance sheets have improved but inclusion agenda has waivered. With continuous quarterly reporting hitting the banks, one has to cut corners.

    WIthin all this, we keep forgetting the basic question – Do poor need all this continuous state cajoling of financial inclusion or do they want to be just left alone? Much of financial inclusion assumes that most poor have some business idea and all they need is finance. Or they have tons of deposits and all they need is some banks to save those deposits. The reality is obviously neither of the two. Even the assumption that people so badly need financial services has to be questioned.

    SBI clearly has been at the forefront of all such initiatives and has also felt the brunt of such government /policy pressures. One would imagine a more thorough historical critique of financial inclusion policies across the decades. They should actually question all this noise on financial inclusion and provide answers through historical analysis.

    This actually has been the trouble with most financial inclusion initiatives – lack of understanding from history. All the policymakers are always assuming that all past was either badly designed or badly implemented and believes their suggestions can overcome both these issues. The hubris takes over only to realise the follies from such thinking.

    Though this time around may be technology does help penetrate the barriers. But then the original problem of lack of business opportunities etc remain.One cannot put the cart before the horse…

    1. Thanks Amol ! Agreed that the quest for financial inclusion is decades-old in India starting with bank nationalisation we would do well to learn from attempts of the past. However, we have very little to show for all of these efforts. The formula of relying on diktats to a handful of banks is clearly not working. What makes ‘this time different’ is the wide variety of actors in financial inclusion, of which traditional banks are laggards. The new actors, be it entrepreneurial NBFCs or telcos are approaching this as a new market and a new opportunity rather than as a regulator-imposed burden on profits. Clearly, the financial sector can grow only proportionate to the real sector but with financial depth (credit to GDP ratio) hovering near zero for several districts in India – I would argue that we are hardly at a point to worry about an excessive focus on credit. On the contrary, that may be a significant impediment to growth for several districts of India. thanks again for your comments.

      1. Thanks Bindu for the comments. I was not expecting a reply from you!

        Not sure how this time is different. After every ten years or so since India’s independence, we suddenly wake up to financial inclusion. One criticial feature of this wake up call is forget the lessons of previous decades! This time too we have committees searching for financial inclusion (without asking the mango man whether he needs it), this time too the committees suggest new banking organisations for financial inclusion, then committees sit on granting licences and so is it different from previous govt diktats to meet financial inclusion targets…

        The difference perhaps is only that earlier that there were govt banks and this time there is private sector (and tech players)…this itself has to be questioned given trade offs between profitability and providing services in rural areas..

        My purpose of the first comment was to question these recent ideas of inclusion as game changers, disruption point and so on…These are jargons just straight out of a fancy strategy book.. They hide more than they tell..

        Our effort on financial inclusion goes back much before with start of cooperative banks. Even the early pioneers of commercial banks like Canara, Syndicate Bank etc had financial inclusion in their minds. And these organisations emerged on their own and not via some diktat. There is a reason why they have stood the test of times. Even RBI’s charter right at the start was to deal with financial inclusion and a special section was added in the RBI act right at its inception in 1934.

        Even before all this, there were indigenous bankers who in their own ways tried to provide financial services to people when none existed. Most accounts of these indig bankers treat them inappropriately. I highly recommend reading thesis of LC Jain on these indig bankers (written in 1930s). He actually discusses the same set of issues which we talk about in terms of Business correspondents.

        Keeping tech aside, which was not available then most of these ideas of inclusion have been well known and understood. And to people who were not professional bankers (quite a few founders of commercial banks were actually lawyers). It is this legacy which has been lost to us and that is the reason we keep getting excited about game changers and so on..:-)

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