RBI Governor:  Financial inclusion- Past, Present and Future

Inaugural address by Shri Shaktikanta Das, Governor, Reserve Bank of India delivered at the Economic Times Financial Inclusion Summit on Thursday, July 15, 2021 on the topic” Financial inclusion – past, present and future” is being analyzed in this article. Well positioned as one of the finest monetary theory practitioners and former bureaucrat, Shri Shaktikanta Das needs no introduction. I am proud to produce below his speech for reference.

https://rbidocs.rbi.org.in/rdocs/Speeches/PDFs/ET1507202193BF86FEF1C1450BA9ED3F0D42870874.PDF

Before we analyze the speech, let me know what is the meaning of financial inclusion, the most widely used economic word in parlance today.

World bank website explains it as under:

“Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way.”

Now time to embrace his speech. (The article extensively covers his august speech and will quote wherever required from there, proudly)

Starting his quote from Gandhian philosophy of “: “Sarvodaya through Antyodaya – Welfare of all through the upliftment of the weakest”, he defined the focus as one based on inclusiveness and equity which transcend poverty alleviation. Naturally, it is a potent weapon to offer the equality of opportunity for all sections of society including the poor, women, farmers, small enterprises, and others. Not a dole or disbursal of benefits which temporarily removes the symptom but to ensure that the benefits of economic growth percolate down to the poor and excluded sections of the society.

To assess the progress made across the dimensions of Access, Usage and Quality, he observed that India has come a long way in facilitating access to banking services to the last mile and in increasing the usage of financial products. To take forward his argument, he mentioned the National Strategy for Financial Inclusion 2019-2024 (NSFI)1 and National Strategy for Financial Education 2020-20252 (NSFE) which provide a road map for a coordinated approach towards financial inclusion, financial literacy and consumer protection.

We are aware that the National Strategy for Financial Inclusion document lays down several milestones and action plans to be implemented in order to make financial services available, accessible, and affordable to all citizens in a safe and transparent manner to support inclusive growth through a multistakeholder approach.

Directly the speech drags one to the honorable past full of achievements.

Past

Developments so far

• 1950s started Financial Inclusion journey of the country with focus on channeling of credit towards the neglected and weaker sections of the society. This was achieved by initiating various steps like expansion of branch network, introduction of Priority Sector Lending (PSL), launch of Lead Bank Scheme, promotion of Self- Help Groups (SHGs), Joint Liability Groups (JLGs), implementation of Business Correspondents (BC) model, among others. Apart from establishing brick and mortar branches all over, the reach of financial inclusion is exponential in recent years.
• The evolution and adoption of technology resulted in massive improvement in deepening of digital financial services.
• The Jan Dhan, Aadhaar and Mobile (JAM) eco system have ushered in a major shift in the universe of financial inclusion. Further, several initiatives have been taken for the creation of enabling digital infrastructure at the ground level so as to optimize use of digital payments in a big way.
• A plethora of players emerging in the field, ranging from traditional banks, niche financial entities such as payments banks, small finance banks, micro finance institutions (MFIs) and promising fintech companies have made the availability of technology at the commoner’s level.
• As a natural evolution, banks have to develop financial inclusion plans consisting of actual achievements as against earlier projections. A reference was made to RBI Annual report released in May 2021.
• Did the requirements of last- minute delivery at the safest atmosphere and affordable cost of technology to meet the clients level ever attempted and if so, what were the results attracted the attention of RBI governor’s speech.
• Let me narrate some of the actual achievements in this regard: yes, of course, from his speech only. Digital ID (Aadhaar), and world class mobile phones with latest payment systems went ahead to meet the challenges of access and usage to a large extent.
• Further, Opening of Pradhan Mantri Jan-Dhan Yojana (PMJDY) accounts has enabled millions of Indians to have access to financial services, with a basic bouquet of financial products.
• Focus was also shifted towards financial literacy, customer protection and grievance redressal for furthering sustainable financial inclusion. Setting up of National Centre for Financial Education (NCFE) by the Regulators and implementation of the Centre for Financial Literacy (CFL) project of RBI were quoted to augment his speech.
• To prove that payment systems have become life line of our economy, he informed the gathering that the number of Prepaid Payment Instruments (PPI)4 increased at a compounded annual growth rate (CAGR) of 53 per cent from 41 crore in May 2017 to 226 crores in May 2021.
• He further explained the relevance of faster payment systems like: Immediate Payment Service (IMPS) and Unified Payment Interface (UPI), which provide immediate credit to beneficiaries, processing of payment systems processed more than 15 crore transactions amounting to nearly ₹4.5 lakh crore per day. His informing of UPI handling 280 crore transactions in June 2021 was mind boggling.
• The information that emerged during his address that during the pandemic, cash transactions at BC outlets through micro-ATMs have witnessed significant surge with more than 94 crore transactions accounting for ₹2.25 lakh crore5 during 2020-2021 explained the new inertia obtained by the nation to face the unknown with confidence.

The governor drew the attention of the listeners how did we meet the pandemic running wreck with India and the world?

Response to the Pandemic

In India, the second wave of the pandemic has taken a grievous toll both in terms of lives and livelihood. Many of us including the undersigned faced the unknown with trepidation and fear for death which was common among many of my decade’s old friends. Sad but true.

But timely financial support to vulnerable sections through direct benefit transfers (DBT) played a major part in facing the pandemic in April-May 2021.

“One of the important components of the JAM trinity, Aadhaar, the world’s largest initiative to provide biometric identity has facilitated financial inclusion through innovative digital platforms”, was the encouraging statement from the governor.

The NACHAadhaar Payments Bridge (APB) System and PMJDY together helped to transfer cash benefits under Pradhan Mantri Garib Kalyan Yojana and the fact that ₹5.53 lakh crore was transferred digitally across 319 government schemes spread over 54 ministries during 2020-21 was an unbelievable information.

The governor narrated the following steps taken by RBI to meet the dire situation with financial infusion measures:

• Lowering of policy rate, launching of on-tap liquidity schemes and channelizing of liquidity through All India Financial Institutions and facilitating financial institutions to resolve stressed loans to individuals, small business and MSMEs. Cash Reserve Ratio (CRR) exemption on credit disbursements to new MSME borrowers
• PSL classification for bank loans to NBFCs for on-lending and PSL classification for loans from small finance banks (SFBs) to micro finance institutions (MFIs) for on-lending were additional measures taken to promote credit flow to affected sectors.
• Further measures initiated by RBI included (a) including start-ups; (b) enhanced the limits for lending to renewable energy sector; (c) increased the targets for small and marginal farmers and weaker sections; and (d) incentivized banks to augment credit flows to districts with relatively lower credit penetration.
• The pandemic has accelerated the push towards digitalization with greater adoption of digital payments. Operationalization of Payment Infrastructure Development Fund (PIDF) – an initiative of RBI together with banks and card networks to provide the necessary impetus for development of payment acceptance infrastructure in tier-3 to tier-6 centers and north eastern states.
• The audience was informed that the Reserve Bank’s pilot project in association with banks of making at least one district in each State/UT 100 per cent digitally enabled, which was rolled out in 2019, covering 42 districts, would facilitate greater access and usage of digital payments by the common man.
• It was pleasing to know that as on March 2021, banks had achieved a digital coverage7 of 95.9 per cent of individuals while the achievement for businesses stood at 89.8 per cent.

What about future?

Post Pandemic World: The Way Forward

His last part of the speech centered around the efforts to be triggered to face post pandemic situations.

The governor firmly emphasized the role of financial inclusion in future also to serve the down trodden and the worst affected segment of the society. Let me enlist some of the facts mentioned by him in seriatim.

1. Considering the complementary role played by microfinance in bridging the gaps at the last mile, a consultative document for harmonizing the regulatory frameworks for various regulated lenders in the microfinance space was issued.

2. The primary objective would be to address the concerns relating to over-indebtedness of microfinance borrowers; enable market mechanism to rationalize the interest rates; and empower the borrowers to make an informed decision by enhancing transparency of loan pricing.

3. The scaling up of Centre for Financial Literacy (CFL) project across the country at the block level by March 2024.

4. Recognizing the importance of inculcating financial literacy concepts at a young age, one of the strategic goals of the National Strategy for Financial Education 2020-2025 (NSFE) would be integrating financial literacy content in the curriculum for school children. So far 15 state educational boards have included modules on financial education in their school curriculum. Teaching financial education at gross root level would ensure transformation of villages as financially educated ones and ready to face the future. This would invariably equip them to make financial choices willingly fully aware of their consequences.

5. We do understand that to measure the extent of financial inclusion in the country, it had been decided to construct and periodically publish a “Financial Inclusion Index” (FI Index) which would contain parameters across the three dimensions of financial inclusion viz., Access, Usage and Quality. Work on FI Index would be out shortly, we were told.

How did RBI Governor conclude?

• Financial inclusion promotes inclusive growth by way of making financial services including credit and other safety nets available to the bottom of the pyramid.
• Greater financial literacy and education would invariably enable banks, NBFCs, MFIs, etc. to enhance their customer base and products and diversify their balance sheet.
• Need for accelerated universal reach of bank accounts along with access to financial products relating to credit, investment, insurance and pension hardly need more emphasis.

He firmly concluded that the responsibility of all stakeholders will be to ensure that the financial ecosystem (including the digital medium) is inclusive and capable of effectively addressing risks like mis-selling, cyber security, data privacy and trust in financial systems by literacy and financial education from primary school level.

My observations

One of the most enlightened RBI Governors ranking among the best in the world, both with administrative experience at the highest bureaucratic levels and also now with RBI, the speech of the present Governor opened up the eyes of the enlightened management of the financial stakeholders at all levels of the society to actually usher in financial inclusion as a formidable force for ensuring the emergence of India among the most diversified and enriched developed world that would serve the forgotten and down trodden population. Surprisingly, this is the most appropriate message since the present economy derives its revival mostly on the strength of our rural population after the pandemic who seem to have understood the financial products much better than the urban ones and most of the big companies have woken up to serve the unlimited potential of the economy by evolving new business plan for rural economy.

Yes, initiation of the best digital products by RBI under the watchful eyes of our present central/state governments have opened the unknown dimensions of our economy.

Like millions, I shall observe with inquisitiveness and unlimited energy like a newly born baby for our economic growth through financial inclusion.

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