Financial Inclusion

Recently, RBI deputy governor gave a brilliant speech on financial inclusion with facts, figures and way to go (http://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=538).

The government, planning commission and Reserve Bank of India has been playing role of arm chair consultant on financial inclusion. There is an urgent need for one of these institutions to take the lead in setting-up Information technology framework which may support a low-cost business model to make financial inclusion viable.

Reserve Bank of India may keep pushing banks to implement financial inclusion. Basically, financial inclusion is not about business model, it is about technology innovation to support low-cost banking with given infrastructure (network, electricity, connectivity). Therefore, it would be ideal if Reserve Bank of India can ask a imminent technical person (or a company) to work with IRDBT and create technology infrastructure which can work seamlessly with UID and Mobile Number. I am sure Reserve Bank of India has excellent people to dedicate for this initiative and it may choose a person from Industry (RBI may check availability of Nandan Nilekani before searching further)

The requirement is to develop a technology-cum-process framework to create a value proposition and ask banks to follow it. If a bank innovates further, so far so good, however I feel strongly that regulator and government has no choice but to invest money and resources to create a viable technical infrastructure if they are really serious about financial inclusion.

Once this infrastructure is created and signed-off by all stakeholders, I guess banks will follow this business model. Reserve bank of India should remember that financial inclusion is agenda of Union Government because it is committed to include everybody on growth path (why it didn't wake-up earlier which is another question for another day. Even if India was growing at 5%, a poor man needed prompt credit) .

Banks have a simple mandate: Accept deposits and provide loans and banks will follow it wherever it makes business sense. I do not think I, as a shareholder will like my bank to invest INR 3000-4000 crores per year on financial inclusion and wait for returns.

Financial inclusion also means that Reserve Bank of India will need to increase its presence and reach beyond state capitals to ensure financial inclusion is happening under the regulatory umbrella of banking act and RBI act.