Bring the Bank to the Unbanked: Financial Inclusion in India
“If the misery of the poor be caused not by the laws of nature, but by our institutions, great is our sin.”
– Charles Darwin
In India today, 2% of the population has a credit card, 8% have a debit card, 35% have access to some kind (any kind) of account at a financial institution. However, 88% of the population has a mobile phone. According to U.K. newspaper The Telegraph, more people have access to mobile phones than to toilets.
India, like most of the world, requires positive proof of identity be made to the financial institution in order to open an account. As many people live considerable distances from the nearest bank branch, it is quite difficult for many citizens to provide proof of their identity at a branch or institution.
The inability to verify someone’s identity impedes the most basic tasks – opening a bank account, filing a tax return, claiming government assistance. People in wealthy countries take these things for granted.
On the plus side, India has a national database of fingerprints (Aadhaar) that includes almost the entire population. If individuals could remotely submit their fingerprint with other required information, they could fulfill India’s regulatory requirements. Historically, people have needed a stack of documents — bills, ID cards, tax forms — to prove their identity. Aadhaar can replace all those with a fingerprint.
And even though reach in rural India and to the poor still remains a challenge, banking in India is fairly mature in terms of supply, product range and reach. The government has developed initiatives to address this through the State Bank of India expanding its branch network and through the National Bank for Agriculture and Rural Development (NABARD).
A touch-based external hardware scanner costs around 5,000 INR (77 USD or 66 EUR). This is quite an expense, given the average annual income in India (101,500 INR;1,351 EUR; 1,570 USD). In some areas, shopkeepers have become a type of “agent” for the financial institution and have implemented a hardware scanner in their store, where it is used by the local people for a fee.
But what if the person seeking financial services could acquire a print with enough quality to match the national database using only their mobile phone? Answer: More people would be able to open accounts within government regulations allowing them to participate in the global financial system.
Financial inclusion broadens the resource base of the financial system by developing a culture of savings among large segment of rural Indian population and plays its own role in the process of economic development. Further, by bringing low income groups within the formal banking sector; financial inclusion protects their wealth and resources in troublesome circumstances. Financial inclusion also mitigates the exploitation of vulnerable sections by unscrupulous money lenders by facilitating easy access to formal credit.
“Poverty is the worst form of violence.”
– Mahatma Gandhi