From confusion to financial inclusion
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IIM Calcutta’s Centre for Innovation is focused on social entrepreneurship, and every year, with the support of the Tata group, it organizes ‘Thinking Social’ roundtables in key cities of India. Last month, I had the good fortune of attending a very stimulating roundtable discussion on financial inclusion, in Mumbai.
The panellists included people from the mainstream banking business, microfinance sector, NGOs and academics, and the invitees were from a broad spectrum of social and not-for-profit enterprises, and a few kibitzers like yours truly.
The first area of debate was on what is understood by the term ‘financial inclusion’. Interestingly, the term has different meanings to different people. For the recipient, financial inclusion means an ability to get an easy loan or easy money transfer. For the government, financial inclusion would mean secure financial remittance with no leakage. For banks, it is a source of low-cost funds, possibly.
The second area that saw some interesting statistics is the number of bank accounts that have been opened under the Pradhan Mantri Jan Dhan Yojana. The astounding number that was mentioned was 250 million; these have been linked to Aadhaar cards. We have the tendency of mapping any number with the population of India, i.e., 1.2 billion. But if you look at the other statistic, that there are around 260 million households in India, the 250 million bank accounts sound as if every household in every part of the country has access to a formal bank account. This is not what was said at the roundtable, and as per World Bank statistics, the number of people accessing bank accounts in India increased from 35% in 2013 to 53% in 2014; still a long way to go.
The third area of discussion was on the role of the moneylender in the whole scheme of things. I expected the micro-credit organizations and the NGOs to speak negatively about the role of the usurious moneylender. It was interesting to hear them say that the traditional moneylender has a very important role in the financial inclusion game. They play a role of offering high-risk customers credit. And often the money is borrowed for an emergency; many of the village-level moneylenders are open 24x7, 365 days a year, something no bank can match.
C.K. Prahalad, in his treatise on The Fortune at the Bottom of the Pyramid, had made a strong case for affordable capital to the unbanked poor, citing the exorbitant rates of interest the local moneylender charges the humble vegetable vendor. I was ready to hear that now-familiar rhetoric, but was pleasantly surprised to hear something very different.
The fourth area of debate was around the cost of servicing a bank account. The banking expert told us that it costs a bank Rs.48 to handle a bank premise-based transaction, Rs.18 to handle an ATM transaction and the number for a mobile transaction was just under Rs.1. Is mobile the holy grail as some African nations have discovered, to bring the unbanked into the ambit of formal banking? The single-party monopoly created in Africa came under some criticism and it was felt that the slower, multi-party play that the Indian government is planning on mobile banking was a better solution.
One aspect that I thought needed discussion was not even touched upon. The growth in mobile penetration was due to many different factors. The call rates dropped. Incoming calls became free. Handset costs came down. But most importantly, there was a continuous marketing engagement with the consumer on what a mobile can do for them. In a country where people were used to running to a neighbour to make a phone call, within a decade and a half, we learnt the utility of having the world in our pocket.
Deep-rooted consumer apathy to banking has to change. Fear of walking into a bank has to change. The benefits of savings (and not just putting all savings in gold) need to be explained. And importantly, banks have to create processes to manage the influx of semi-financially literate consumers.
If the poor and the middle class learnt how to use mobile phones, it was thanks to a lot of effort from the mobile operators. Has the time come for the government to ask all banks to devote a sizeable amount of their marketing budgets to what may be termed as “financial benefits of banking” advertising? There are bound to be many dimensions to this, from the human side of banking which will be emotional, to the hard facts of direct money transfer. In a sense, the government is trying to change behaviour by making the poor consumer go to a bank to collect his ‘direct’ money. But if this is not accompanied by a change in attitude towards the Big (Bank) Brother and vice-versa, we will be opening up a whole new set of problems.
The Pradhan Mantri Jan Dhan Yojana is a great idea. Direct benefits transfer is a great idea. Having crores of new bank accounts is a great initiative. But these great ideas need the touch of marketing communication to make the change in behaviour stick. Only then will financial confusion lead to meaningful financial inclusion.
Former executive director of FCB Ulka Advertising, Ambi M.G. Parameswaran is the founder of Brand-Building.com and president of the Advertising Agencies Association of India. He will take stock of consumers, brands and advertising trends every month. The views expressed are personal.