Union Budget 2022-23: Banks must also proactively promote wealth creation and wealth protection products and services for the marginalised and poor and help create a safety net
The pandemic has brought into sharp focus the conditions of the unorganized migrant labour in the country. With India’s unorganised sector comprising around 80 percent of the labour force, money transactions and access to money highlighted the urgent need to deepen financial inclusion, and create a more robust financial ecosystem that would be able to withstand future upheavals such as this one, better.
The upcoming Budget could consider the following measures to deepen financial inclusion:
Focus beyond opening bank acounts
Our current Financial Inclusion Index stands at 53.9, with 11.7 percent of adults who still do not have a bank account. While PM Jan Dhan Yojana (PMJDY) and the Reserve Bank of India’s outreach programs to bring banking to the underserved have brought a large mass of people under the banking system, data reveals that over 85 percent of bank accounts remain inactive or have non-active users.
Banks and the government need to now shift the focus from just opening bank accounts and move to more meaningful financial transactions: Creating FDs, accessing credit accounts, to financial products such as access to capital for augmenting healthcare, education, business, and other areas of livelihood.
Stimulate economy with aggressive credit policies
Higher consumption of goods usually realises economic gains in the near-term and infrastructure expenditure also boosts economic growth in the medium-long-term. Economic stimulation can come from increased consumption of goods and banks too need to shed their conservative outlook on capital lending.
Banks need to shed their conservative approach and adopt aggressive outreach programs to make credit more accessible. Shopping for loans should become as easy as opening a bank account and the RBI needs to work closely with banks to make lending easy. According to SBI, banks need to increase their loan book size from $1.6 trillion to $2.6 trillion for the economy to grow to $5trillion.
Seamless integration of upstream and downstream
Moving from a primarily cash-driven economy to a cashless and digital economy needs many moving parts to be working seamlessly. While there’s a faster and easier adoption of financial transactions through different devices such as online, digital wallets, UPI and even credit cards, the large swathes of unbanked and underbanked in rural India still need to overcome barriers: digital literacy, internet connectivity, and a more holistic ecosystem with merchants, vendors or even contractors and end-user being digitally connected.
For instance, fintech solutions providers can promote digitisation but the upstream and downstream of financial transactions is still cash-led. If the consumer is willing to pay a chicken farmer digitally through a payment wallet, the chicken farmer still needs to pay his suppliers in cash, and so the chain of digitisation breaks.
Sufficient incentives, targeted outreach programs for rapid mass adoption of digital channels and streamlining of the current available digital channels for financial transactions needs to be boosted to deepen financial inclusion.
Wealth protection and safety net
The last two years have created a canvas of uncertainty among the large masses of the unorganised labour force, largely living in rural India. The pandemic has led millions to dip into their meagre savings for treatment of the virus and has pushed many into further poverty.
Banks must also proactively promote wealth creation and wealth protection products and services for the marginalised and poor and help create a safety net. The current insurance penetration at 3.42 percent and mutual funds at 1.2 percent, India is far below the global average of 6.2 percent in insurance and 7 percent in mutual funds. Regulatory frameworks and awareness programmes have to work in tandem to move the focus from real estate or gold as the primary investment targets, and aim at health, auto, education, farm insurance to begin with.
It goes without saying that the government, regulators such as the RBI, SEBI and IRDA must work closely with enterprise to make financial inclusion a key focus area not just in the current financial year, but have clear milestones for the next three years. The faster that people have access to financial services, the better the reduction in poverty, livelihoods creation and help our economy achieve its full potential and go above and beyond 3, 5 or even $10 trillion.
The author is Co-Founder & CEO, FIA-finance company