Home / Industry / Cost-effective distribution key to financial inclusion

New Delhi: Jan Dhan Yojana, Prime Minister Narendra Modi’s ambitious financial inclusion mission, could be a success if the government ensures that bank accounts opened under it are actively used by their holders, and if banks find cost-effective distribution platforms to reach the customer, said panellists at an interactive session on inclusive finance at the India Economic Summit at the World Economic Forum on Thursday.

The scheme, launched in August, aims to provide a bank account to every Indian household. More than 70 million accounts have been opened under it, and around 75-80% of them belong to first-time holders.

Chetna Vijay Sinha, founder, Mann Deshi Foundation, an organization closely involved with providing doorstep banking to people, said the government should ensure there is wealth creation in these accounts.

“One important feature is the overdraft facility announced by the government. Banks will have to give customers confidence that if they repay the overdraft amount, they will get a fresh loan from the bank," she said.

Accounts opened under Jan Dhan Yojana are entitled to a personal accident insurance cover of 1 lakh, a life insurance cover of 30,000 and an overdraft facility of 5,000.

Another key factor will be if the government directly transfers funds from various government welfare schemes into the bank account of beneficiaries, she said.

The key to effective financial inclusion is to have a cost effective distribution platform— like post offices and telecom companies—but stringent Know Your Customer (KYC) requirements may pose a hurdle in financial inclusion drives across the world, said Stuart Milne, chief executive officer, HSBC India.

India has more than 150,000 post offices, more than 90% of which are situated in rural areas.

“Globally the stringent KYC norms will ensure that banks do financial exclusion rather than financial inclusion," Milne said. He pointed out that the regulations framed in developed countries are not suitable for developing countries. Such stringent conditions are forcing banks such as HSBC to exit from such portfolios, he said.

He suggested that all KYC information received by banks should be syndicated so that this information can be used by all banks without incurring costs for completing KYC afresh every time.

Milne said banks will have to work with telecom companies to lower the costs of distribution and ensure that financial inclusion becomes viable.

Ajith Nivard Cabraal, governor of the Central Bank of Sri Lanka, said the ideal solution will be to balance requirements of regulation and coverage while relaxing surveillance for small transactions.

“Developing countries do not need the same level of KYC as developed countries. In developing countries, KYC needs to be relaxed for certain sections of the population. How can a person with trade of 20,000 be involved in money laundering?" he said.

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