Financial Inclusion: The Last Mile

Gunji, in Uttarkhand – a northern state of India, nestled among the Himalayan Mountains – is a place of spectacular beauty and an equally treacherous terrain. Reaching this idyllic spot located at least 45 km away from a motorable road takes 4 days of challenging trek along the ferocious Kali River en route to Kailasa, some 25-30 km from the Nepal border. Despite the gargantuan challenges in commuting to Gunji, the State Bank of India has a branch even there.

India’s Network for Financial Inclusion: Crisis and Opportunity

Such heroic efforts are a part of the concerted push by India towards financial inclusion. The poorest of the poor villagers in our country have long lived outside the formal financial system, often choosing to store the few hundred rupees of their savings in steel boxes, buried under the mud floor of their house.

More than 40% of the households in India do not have a bank account.

Not having a bank account deprives them of all the benefits of our modern financial framework and a multitude of welfare schemes that have been floated by our government for their benefit. Besides, villages often fall prey to money lenders who charge exorbitant interest rates since they have nowhere else to go. Bringing these millions of people into the fold of our financial system is of vital importance. It is a tremendous opportunity for our nation and will be instrumental as we drive our development to the next level.

But opening a branch in each and every village is not a viable option. The branch in Gunji, admirable as it may be, is an extremely difficult undertaking and not a model that can be replicated across the vast landscape of this country where settlements are often few and far between and isolated from each other. Even on purely financial terms, the lack of basic economies of scale necessary to make a branch commercially viable means that banks would have to incur heavy losses to maintain their presence in every corner of the nation. Besides, a major problem that is often overlooked is that villagers –who are used to a very simple life and show an aversion to anything outside their comfort zone – approach banking with a sense of trepidation and distrust. Even if they do have a branch in their neighbourhood, getting them to walk through the swanky glass doors and hand over their savings to a stranger is a tall order. What can we do about it?

Banking Correspondents: The Mercenaries of Financial Inclusion

Banking correspondents might be the answer that India is looking for. They are already operational in many parts of the country and have received a tremendous response everywhere they went. Banking correspondents are selected from among the most respected and trustworthy folks in the village. Being a part of the community that they serve makes them very approachable and people who may have otherwise never set foot in a bank have no qualms in visiting their local Banking Correspondent. All someone needs to get a savings account started is a photograph, a standard identity card and a phone number. People in rural areas of India have taken to this system like fish to water; many of them have opened accounts in the name of every member of the family.

The initial investment required on the part of Banking Correspondents is very minimal – a laptop, a printer and a reliable wireless set-up, for which the bank reimburses you on a monthly basis. Operating on a hub-and-spoke model, these correspondents visit their nearest branch to get a light front-end application installed on their computers and receive some basic training on the simplest of services. Armed with this knowledge, a biometric sensor and a few thousand rupees, the Banking Correspondents return to their villages as the frontline mercenaries ushering in a new era of financial inclusion. The incentives are strong too – correspondents work on a commission basis and do everything they can to ensure that every last person in their area owns a bank account.

Building Trust through Technology for Financial Inclusion

What works for Banking Correspondents back in the village is a strong sense of transparency and intuitive usability of the systems. Once a customer validates his identity through the biometric sensor, it takes only a few simple clicks to open a bank account or provide basic services like deposit and withdrawal. Customers receive instant notification on their mobile devices and return to their homes, completely at peace about their financial transactions. It may not sound like much, but this is a huge leap forward from storing cash in a hole in the ground. The data from all transactions through the day is uploaded on to the bank’s servers through a batch run process. Complex requirements such as issuance of loans are referred to the bank. The Banking Correspondents make weekly visits to their hub branch to collect passbooks and debit cards of newly opened accounts and settle their transactions wherever necessary. The system moves with clockwork precision and finesse.

Simple innovations like these are vital to the progress of our nation. This daunting challenge of covering the last mile in our drive for financial inclusion has been made possible by the entrepreneurial spirit of our community and a transparent, fluid data management process.

Managing information in a safe, transparent environment will be central to our progress over the next few decades. Banking Correspondents may have played a big role in tackling the financial inclusion conundrum, but the possibilities of what we can do with good data management practices are immense.

Applying similar ingenuity to education, sanitation, healthcare and urban planning can pay massive dividends. It’s an exciting road ahead.