Friday, June 7, 2013

FINANCIAL INCLUSION.-SERIES 1

INCLUSIVE GROWTH is the word which is often heard and understood less by majority. I will not get into complex explanations of the above word meaning. In simple words Inclusive Growth by its very definition implies an equitable allocation of resources with benefits accruing to every section of society. It should be focused on the indented short and long terms benefits and economic linkages at large and not just equitable mathematically on some regional and population criteria. But the one of the major component of achieving this growth we need a FINANCIAL INCLUSION.
Now again many of my readers are now confused that what is this new concept of FINANCIAL INCLUSION. Again in simple words it nothing but all financial bodies coming together and spreading finance access to each and every corner of India. It does not mean opening bank account or making huge growth in disbursement of loans. It’s the process of reaching financial weapons to all Indian across the country.

In order to achieve financial inclusion, there needs to be a collective and timely action by all players in the financial sector. The players include the Reserve Bank of India (RBI), National Bank for Agricultural and Rural Development (NABARD), banks, regional rural banks, cooperatives and micro-finance institutions. When we talk about economic growth we should keep in mind that it cannot achieved on the basis of some large or medium types of companies. We need to change our focus from urban growth to rural India.

Providing access of financial instruments should be one of the key ingredients of the financial inclusive. We need to use the potentiality of India’s huge untapped population. If we look into china which have the highest population have been able to convert its weakness in to advantage.

In most of the cases people with low income do not qualify for a loan the loss of daily wages for a low income individual. Most of the excluded consumers are not aware of the bank’s products, which are beneficial for them. Getting money for their financial requirements from a local money lender is easier than getting a loan from the bank. Indian financial system needs to change the process to unleash the rising and controlled demand rising from this segment. Most of the banks need collateral for their loans. It is very difficult for a low income individual to find collateral for a bank loan. But now banks are slowly identifying but still many of them are left out from the race. Till now banks have tried to do:

• The RBI has simplified the KYC (Know your customer) norms for opening a ‘No frill’ account. This will help the low income individual to open a ‘No Frill’ account without identity proof and address proof.
• Banks are now permitted to utilize the service of NGOs, SHGs and other civil society organizations as intermediaries in providing financial and banking services through the use of business facilitator and business correspondent models.
• Banks are now using new technologies like mobile phones to reach low income consumers.
• Banks needs to design their products for the low income group so as to influence the untapped demand.
• Banks also needs to develop Information Technology infrastructure to develop and handle the mass of villages and low income group.

Above all the bank and other financial bodies needs to educate the low income group or in those places where financial access is new concept. This will also bring a radical change for the huge low educated group of people residing among us.Now all these were related to financial products bringing financial inclusiveness.

But we still have left many parts untouched where financial inclusiveness can be brought and Indian economy can be strengthened further.

• Indian infrastructure needs to focus on renovation of Indian villages just like china did in its own villages. In china we find that compared with the wave of city renovations five years ago, renovations now are taking place mainly in second-tier or third-tier cities which are political and economically less important. Villages are being renovated and huge amount is being spent by the infrastructure companies. Similarly if Indian infrastructure companies go for a similar process then we will get a huge untapped potentiality of infrastructure development. FDI investments in these untapped areas will be a very attractive. I think my readers can judge that if renovation of infrastructure in Indian villages is being made then the type of growth and ROI that will be generated from here will last for at least for the next 2 decades, may be beyond that. Electricity is one of the rising hot sector which will be of great help once it comes into play. Power industry will get the next decade of growth from this segment.

• Apart from bank, insurance companies will find the next huge untapped growth. Since the demand for insurance particularly for this segment is highly required. The problem of low wage income followed with insurance can be designed in such a way that a labor who is earning Rs.3000 per month can afford to have a insurance of Rs.100 per month. The most important part to bring forward the untapped growth of insurance in this segment is designing of products. If the insurance products are designed in such a way, which will become easy to accept for this segment of people.

• We all know that when finance becomes easy access demand start picking up for mass of people. FMCG product will find the next untapped growth in this segment. We already find that Indian FMCG companies are focused towards this segment. But what we need to find is that expansion in these areas followed with product designing. Cost competitiveness should be another aspect to be maintained in order to make the product presence in every home or village.

• Private equity and venture capitalist needs to identify all these areas to exploit the untapped growth of entrepreneurship of Small and Medium Enterprise. Talent and the desire to do something is life is higher in this segment. If some one exploits them with proper education and technical knowledge we will find a large number of future industrialist and business ventures taking control of the future of Indian economic growth. The private equity and venture capitalist invest in schools and colleges and the Indian corporate law is being designed in such a way that such investments rules are also designed for schools and colleges then we will find the first nation to develop such an policy and simultaneously we will get a radical new age of education for this segment.

• Hospitality sector also find and the growth in this sector but again we need to design products and costs. High cost often makes the growth in this sector stagnant or not to the expected ROI.

• Indian Information technology sector also finds a huge pool of ROI. When demand and access of finance will be made and in the process too will require IT involvements. Information Technology policies should be designed with the growth of the industry as India looks to move up the value chain from business processing to knowledge processing in this segment. Introduction of computers in Indian villages have already being introduced but the growth is yet to be achieved. The main draw back is focus from the private end and more on the public end. We should bring both in to the party to feel the music.

Financial Inclusion does not mean financial support. It means a all the sectors of Indian economy coming together to bring the radical change and growth in the untapped areas. Slowly India will witness stagnant growth since we are all focusing on urban growth and development. We should not forget that as per the Indian Census of 2001, state that 74% of Indians live in 6,38,365 different villages. India has about 500,000 villages that are scattered throughout the country, where the population varies accordingly. Some villages have a population less than 500, while 3,976 villages have a population of more than 10,000 people.
We are having one of the strongest economies in world provided if we identify and unleash the pool of demand lying idle in these. No winds of recession can blow off the burning fire of Indian villages’ untapped economic growth.
In order to attract private equity and venture capitalist in this segment Indian bank and other financial bodies needs to develop the easy access of finance. We are suffering with the problem of declining exports. We even don’t know when the demand in west will pick up but we need to change our focus from that to our own untapped potentiality.
Just imagine that if 50% of the Indian villages’ population opens bank accounts then what type of growth Indian banks will find. Rest I will leave on my readers to think and imagine the growth form other sectors can achieve.
In my next article I will bring forth the cost and designing process of each sector which will help Indian economy to achieve FINANCIAL INCLUSIVENESS.

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