Backdrop
Financial inclusion or inclusive financing is the delivery
of financial services at affordable costs to sections of disadvantaged and
low-income segments of society. Access to financial services plays a critical
part in development by facilitating economic growth and reducing income inequality.
Inclusive financial systems allow poor to smoothen their consumption and insure
themselves against economic vulnerabilities —from illness and accidents to
theft and unemployment on one hand and fighting the risk of Longevity and old
age poverty by pensions and risk of death by Insurance on the other. It enables
poor to save and to borrow—allowing them to build their assets, invest in
education and entrepreneurial ventures, and thus improve their livelihoods
beyond old age. Inclusive finance is especially likely to benefit disadvantaged
groups such as women, youth, and rural communities. For all these reasons
financial inclusion has gained prominence in recent years as a means to improve
the lives of the poor. Thus Financial inclusion today is about financial
markets that serve more people with more products at lower cost.
Problem
An estimated 2.5
billion working-age adults globally have no access to the types of formal
financial services delivered by regulated financial institutions. It is argued
that as banking services are in the nature of public good; the availability of
banking and payment services to the entire population without discrimination should
be the prime objective of financial inclusion public policy.
However, merely proving banking access and access to
financial products and services would not have worked in the large Indian state
of Madhya Pradesh (literally ‘Central Region’), geographically, the most
central state, spread across 316,000 sq kms with a population of 73 million living
mostly (75%) in rural belts of 55,000 villages. Providing banking access to denizens
of 55,000 villages with low population density itself was a major challenge,
apart from improving the access to welfare benefits that the Government has
been able to crack by means of Samruddhi (Prosperity) model. One of the lowest per-capita income of US$
583, MP withstand the challenges of lower income, lower liquidity and hence
lower savings and investment.
Prosperity at BoP
The Government of MP, having realized its inherent socio
economic and geographical weaknesses has successfully initiated attempting to address
the fundamental issue of causes of rural poverty. In an omnibus of its
financial inclusion model called Samruddhi (Prosperity), it addresses the
issues of targeting the deserving poor; efficient and effective cash and
benefit transfers to the identified poor under the welfare schemes; creation of
a plumbing arrangement that can be used as a common conduit to electronically
transfer funds to the beneficiaries individual banking accounts and offering services
towards opening individual based banking accounts to the poor at their own
doorsteps rather than travelling large distance to the bank branches. Samruddhi – the MPFI model is an effort of almost half a decade of research and
development that has positively digressed from other conventional FI models
envisaged for India by the Central Government and Central Bank (RBI). Interestingly
the model resembles the international best practices like the G – 20 Principles
for Innovative Financial Inclusion and is steadily heading towards attaining them.
The biggest challenge in MP was to practice Inclusive Banking as an integral
part of effective public service delivery mechanism. Banking the unbanked becomes
a precondition to reach out to the needy population before offering them direct
multiple benefits of the Government. The financial inclusion along with direct
benefit transfer in MP has now become a parameter of good governance and
service delivery system.
The Three Pillar
Model
In order to provide door step delivery of integrated
financial services to the rural poor, MP has carved out a distinct identity by
evolving a pro-poor model of financial inclusion and 'Direct Benefit Transfer'. To allow access to the banking products to
the beneficiaries, it was necessary that the conduit for transmission of the
Government Benefits was free of laxities. Financial Inclusion in MP has been
rolled out through the platform of State Level Banking Committee (SLBC) and
Department of Panchayat & Rural Development (P&RD) with beneficiaries
at the center stage within an ecosystem of the following three pillars:
1.
Samagra: A Common Database multi
utility database of complete population of MP (individual as well as household)
towards attaining an Integrated Social Security Mission (SSSM)
2.
Common
Conduit in the form of an Electronic Fund Management System (e-FMS) for
ensuring timely and correct payments to the beneficiaries as Government to
Person (G2P).
3.
Access in
the form of Ultra Small Bank Branches (USBs) / Customer Service Points (CSP)
for Opening bank accounts, performing transactions and ensuring last-mile
connectivity including financial dispensation at the door steps and offering
different regulated products and services.
Three of them together form the MP Financial Inclusion (MPFI) model – Samruddhi that provides for an
integrated solution to inclusive growth at the front and back end. At the
backend, it captures the data base of every citizen and households and defines
entitlements based on their characteristics as defined under the eligibility,
features and benefits of the social sector schemes that get converged into
three mainstreams namely, Health, Social Security and Education. At the
frontend, the model offers huge potential for banking and financial inclusion
where products and services could be offered at the doorsteps of the rural
population by means of ultra small branches / customer service points (USB /
CSP) using banking technology. The Three
Pillars that are integrated with each other provide an end-to-end solution for
the rural poor. These three pillars, left alone can be treated as modular,
however the services that they offer are bundled into Government to Person
(G2P). The risk of each of them if adopted on a standalone basis, may simply
defeat purpose of integration. MP has cultivated a broad-based government
commitment to financial inclusion to help alleviate poverty and the same has
been defined and reflected in its overall objective of financial inclusion.
From the supply side i.e.
manufacturer of product and services, the model strives to make the USB / CSP a
sustainable business model for banks in attaining the overall objectives of
Financial Inclusion. In MP, the process of FI is an ongoing long term process
and is not limited to merely opening bank accounts and providing for a direct
transfer of social / financial benefit and devolution of benefits. It also
strives to provide financial literacy and awareness to all other financial
services as core products. Besides core banking structure, non-core banking
financial institutions like the post offices and cooperative banks are also
used as a conduit to transfer the benefits and financial services. The central
focus of Samruddhi is not only
providing an access to bank and their convenience to reach out the masses, but
also to offer services to the clients at the door steps / in their own vicinity
and mostly using their own people.
Merely providing G2P payments and
creation of a Prosperity model and offering products and services cannot
eradicate poverty in the rural belt. MP has amply and aptly realized that there
is a strong need for financial literacy and capacity building at the bottom of
pyramid. People made aware of the G2P payments that they deserve from the
Government, need of banking accounts for an efficient and effective zero cost
delivery of G2P and P2P, importance of savings, credit and remittances as part
of banking activities and the whole gamut of life cycle needs in the ecosystem.
The need and importance of financial literacy and capacity building is also
brought out in my article at this blog at:
http://kavimbhatnagar.blogspot.com/2014/01/rbi-can-bring-horse-to-water-but-only.html
Conclusions
The
Samruddhi model opens an opportunity for every citizen of MP to have their own
banking and financial identity. It facilitates an increase of money supply in
the ecosystem and hence serves a great opportunity for the state to achieve financial
deepening that usually refers to the improvement or increase in the pool of
financial services that are tailored to all the levels in the society. This would
typically precipitate an increase in the ratio of money supply to GSDP / Other
price index which ultimately postulates that the more liquid money is available
in the economy, the more opportunities exist in that economy for continued and
sustainable growth. The G2P services under the Samruddhi model creates
liquidity in the ecosystem while offering SCRIPT (Savings, Credit, Remittances,
Insurance, Pension and Term Deposits) as financial products could serve the
poor in different manner including covering the risks of death (Insurance),
longevity (Pensions), unemployment (deposits and savings) etc. As mentioned
earlier, financial inclusion is incomplete and meaningless without the ‘teachable
moments’ of financial literacy and capacity building at the BoP. The real success
of Samruddhi model in MP shall be known only in due course of time as the model
is still in its initial stage and yet to reach maturity. However, the model is
based on solid rock foundation and follows the global best practices that could
be replicated and scaled across the country with greater political will of the governments. Best Wishes to GoMP to take the Model Forward
commendable .........
ReplyDeleteGreat work Kavim. Way to go!! Shyam Jaisinghani
ReplyDelete