These days Financial Inclusion has become part of everyday jargon, with every bank and financial isntitution involved in some form or other. The initial activities always start with a lot of fanfare and enrollment of a large number of no-frills zero balance accounts. Once the enrollments are done, the no-frills customers are given a smart card for accessing their accounts through handheld devices carried by Business Correspondents and Business Facilitators.
From here on the FI initiatives tend to remain on paper or naam ke vaaste. Each bank may have given smart cards with proprietary standards which are not compatible with their own other delivery channels. The BCs and BFs do not make money as they are paid a small commission as a percentage of the transaction amount. The accounts seldom see deposit transactions as the users are not assured of withdrawal at the exact time of their need, as they have to depend on the arrival of the BC/BFs to their village for any transaction.
In short these no-frills accounts remain zero balance accounts forever. Between 2007 and 2009, 33 million no-frills accounts were opened, of which currently only 11% are operational. The remaining 89% remain ‘included’ only on paper. All the money spent on opening thse accounts have gone down the drain. The ideal situation would be when the govt provides just the initial support to bring these customers into the banking fold and then it sustains by itself.
For true financial inclusion, the beneficiaries have to get access to mainstream banking. They should not be restricted to a separate channel to access banking. The BC/BF model has been very successful in enrollment but needs some help in taking these no-frills accounts to the next level.
Choosing the right technological options play a crucial role in this endeavour. Let the accounts be opened directly on the main Core Banking, and instead of costlier smart cards let them be issued magnetic strip ATM Cards. With mobile 2G connectivity now reaching far corners of the country, the BC/BFs could now use GPRS based handheld devices to perform live transactions. To complement BC/BF operations, a cluster of 10 villages could deploy rural ATMs to enable 24×7 access to withdrawal of cash (which is the most important transaction for this segment). Past experience with similar pilots have shown that when assured of any time withdrawal at a nearby location, the beneficiaries feel more confident about retaining money in their accounts. Over a period of time, this results in these accounts slowly accumulating sufficient funds, turning them profitable.
With the bulk of withdrawal transactions happening over ATMs, the business correspondents are freed up to do what they are best at- opening more and more accounts in nearby villages. At the current levels of exclusion, there is sufficient scope for this activity for a few more years. Deposits too could continue to be done through the BCs.
Choosing rural ATMs also mean that the features are more suited to the rugged and extreme conditions, as well as from the business side, break even is achieved at a much lower 40 transactions per day.
The moment the beneficiaries realize that for the first time they are enabled to be in control of their earnings and savings, they overcome the learning curve by rot- even semi-literate users have learned by heart the sequence of pressing buttons to get cash. With rural ATMs not only there is a facility for voice guidance in local language but also a provision for receipt printing in local languages. The rural ATMs deployed at all locations having at least 2000 accounts (or potential accounts) could go a long way in banks engaging in financial inclusion as a profitable activity, which is a win-win situatiin for both the banks and the beneficiaries of financial inclusion.
PS: an earlier article by Vijay Babu on the BC model and use of ATMs can be read here.