Financial inclusion – Non cash frameworks need to penetrate the remotest regions to deliver the next wave of growth.

The next wave of growth, in banking and financial services, is expected to come from under-banked and unbanked population, mostly residing in rural areas. However, there are unique challenges in brining this segment under the umbrella of financial services and a non cash framework, will need to evolve and reach out to the people, in the remotest area. I will attempt to outline the issues in brief and suggest a model too, to bank rural population, profitably.

• The rural livings pose a great many challenges to bring them under the banking and financial services universe and some of them are outlined below.


• Infrastructure continues to be woefully inadequate in rural landscape and even today, it’s estimated that around 20% of the villages don’t have electricity and around 70% don’t have post office. Even the wireless tele-density is approximately at 35% relative to 100% coverage in urban landscape.


• The literacy rates remain abysmally low despite all attempts at just 69% compared to 85% in urban areas and the national average of 74%.


• The government is banking on initiative like Aadhar Card to provide a credible identity to rural folks, without which, banks or financial entities are unable to extend credit services to them, through, microfinance companies and self help groups are making some great inroads, with some help from NGOs and Self Help Groups.


• The middle-men continue to rule the roost and wield a great influence on rural population, when it comes to providing credit to rural borrowers, because of the reach, flexibility terms and in-built risk sharing arrangements, even though, they charge much more and in some cases, even 50% of the principal, is taken as interest, in just a couple of months. They also score over banks and financial entities, as they don’t ask for documentation and rely on influence, pawing of living, in-animated and future assets (cattle, land and crops) and at times even muscle.


• There are regulatory constraints inadvertently or indirectly contributing to lack of formal banking channels in these areas. e.g., ATMs usage in these areas may need in-person support or the approval to be taken through authorities may deter banks and financial entities to establish presence there in time (read at a lower cost).


• The villages are primarily dependent on agriculture and cattle farming. Agriculture being dependent on monsoon and cattle farming needing access to healthy breed-stock and veterinary services, cause, income to be irregular, thereby, resulting in non performing loans which are extended to village folks.


• Due to low and irregular income, the average ticket size of deposit or credit transaction, tends to be lower and that becomes a challenge to provide an ecosystem, which can process these transactions at a low cost
  
  These unique challenges, require us to deviate from the traditional banking models and come out with alternate delivery models, which can address these challenges, in a cost effective manner, to improve the business prospects for banks and financial entities, thereby, helping rural folks to get access to cheap credit, to be able to create value, which can then be funneled back in to the banking and financial entities, who in turn, can then build on the value pyramid.
  
  The model, I propose, is a combination of Hybrid Smart Cards, Mobile Phones and Biometric enabled Information and Transaction Devices/gadgets/hardware like ATMs, Kiosk and Mobile PoS.


• Hybrid smart cards can solve the problem of identity, information storage and secure access, through biometric enabled devices/gadgets/hardware, to carry out a debit/credit transactions and upload to central repository , wirelessly in real time or through wire-line in an offline manner, which can then lead to a credit bureau taking shape, to access customer identity, his transaction history, his cash flow, leading to improving credit worthiness of rural customer and helping, in designing customized financial products and services for them.


• Mobile Phones, riding on universal coverage and technologies like USSD, IMPS or Voice Recognition, can help in creating an ecosystem, where low tickets payments, transfers or purchases can take place either thru a smart card inbuilt in phones or the smart card details loaded onto the mobile phones or even into cloud. Even, the direct cash subsidy can be sent on to m-wallets or mobile nos tagged to a card (stored value cards), which in turn, updates it on a hybrid smart card through a secure read/write terminal.


• The Biometric enabled hardware like ATMs can provide a secure access to cash either thru a combination of smart card and a thumb print scanner or through a voice recognition system enabled on ATMs to dispense cash or accept cash. The wirelessly enabled Kiosk can provide information access, data upload, low ticket transaction platform (e.g. mobile recharge, bill payment or even allow mail to be sent to another mobile number though voice message), acceptance of cash/cheque and/or dispensation of food stamps.

Since, the ecosystem is wireless, secure and encrypted, transactions are electronic and data is stored in binary, an audit trail will exist forever, leading to transparency and improved accountability

All this is possible, as wireless penetration increases, technological advances provide identification and authentication technologies, bring down cost of hardware and gadgets, help illiterate people to virtually read, write and even interact with those who don’t speak local lingua and the cost of providing banking and financial services reduces riding on increased adoption.

Finally, productivity and penetration are the value drivers for businesses: The former, brings down the cost of providing financial products and services and improves revenue per customer and the latter, helps in building the scale of economies, so essential to have a sustainable advantage in the long run. The non cash frameworks, riding on the combination of Smart cards, Mobile Phones and Biometric enabled hardware, will deliver just that. What is needed, is the will to go, where no one has gone before...profitably.

The author can be contacted over email, rajnishkhare@gmail.com, for feedback and comments