Stress points in India’s FI mission
When it comes to the current status of financial inclusion in India, there is much more than meets the eye in Chapter Four of RBI’s recently released Annual Report 2023-24. While the report shows good progress in basic indicators, there is one challenge that is lurking under the surface and that lies in the stress points in the bank-business correspondent (BC) network, straining the efficiency of last mile connectivity.
The data in Table IV.4: “Financial Inclusion Plan: A Progress Report” shows that the access to banking services in villages rests mainly on the business correspondent network, with BC outlets accounting for 96.6% of India’s 16.48 lakh banking outlets in villages in December 2023. However, all is not well with the business correspondent ecosystem, as this in-depth piece from Raghu Mohan points out. The sustainability of the BC network, given the investments needed and the pricing/revenue-sharing structure, has been a pain point between banks and BCs for years. The government and RBI need to step up here and ensure that both banks and BCs are adequately compensated for providing last mile connectivity. Much can be done - financial support can be given through the Budget or through Financial Inclusion Promotion and Development Fund, transaction charges need to be revised in line with current expenses etc. Without such explicit support, the system will stagnate, and usage of financial services will not move up as desired.
While the report notes a sharp rise in the Financial Inclusion Index from 43.4 in 2017 to 60.1 in 2023, largely due to the significant achievement in providing access to basic banking services, data on the sub-indices has not been released. Chart IV.1 reveals that FI-Usage, which rightly accounts for the highest weight in the index, is lagging way behind FI-Quality and FI-Access. It will be interesting to see the growth in FI-Usage whenever the March 2024 number for the FI-Index is released. There is also a hope that the RBI gives more visibility into the sub-indices and the underlying parameters.
Meanwhile, the RBI has set deepening financial inclusion as one of the 14 aspirational goals for its centenary year in 2035. Deputy Governor, Shri Swaminathan hit all the right notes as he spoke on the role that State Level Bankers’ Committees (SLBC) should play, “focusing on effective coordination with government and NGOs, adopting a scientific approach to credit planning, and emphasising digital financial literacy.” For this, granular data will be critical to help the government and financial service industry to finetune policies and products towards financial resilience of underserved and vulnerable segments. The RBI can take the lead here with insights into gender and regional disparities in financial inclusion with data from the Financial Inclusion Dashboard Antardrishti that was launched in-house last year.
The RBI has been looking to tighten monitoring the financial inclusion ecosystem beyond SCBs and BCs. The RBI Governor drew attention to customer protection as a top regulatory priority, noting that a few MFIs and NBFCs are charging high interest rates, that “appear to be usurious” on small ticket loans, and some are not following guidelines on transparency in charges etc. Read more on this issue in a report by Jinit Parmar. In a bid to raise standards for the industry, applications have been invited for recognition as SRO for NBFCs under the aegis of the Omnibus Framework for regulated entities, as well as from fintech under the recently finalised framework for SRO in the fintech sector. RBI’s approach to regulation has been neatly set out by the Governor in a speech last week where he emphasised being on constant vigil while encouraging more consultation and interaction with the industry, and the new SROs will play a critical role in a more resilient and crisis-resistant financial system.
Our highlighted pieces for this month focus on the impact of the ongoing heat stress on household finances: a) Greenpeace India and National Hawkers Federation report on their survey of street vendors, including insights such as 80.08% street vendors observe a decline in customer numbers during heatwaves, 50.86% face the burden of increased financial expenditure or strain due to additional household expense and so on; b) Akshat Rathi writes for Bloomberg on SEWA’s successful insurance programme, under which USD 340,000 was paid out in total to more than 46,000 women across 22 districts in India during the heat waves in May; c) Neha Bhakar, Vineet Anand and Allina Tiwari write on their work from MicroSave in understanding the impact of extreme temperatures on Delhi’s informal communities; d) Nilanjan Sircar from Artha Global, writes on the health impacts of extreme heat, with results from the survey by the Centre for Rapid Insight (CRI) across India.
Do read more news and views in our curated list below. Please also follow our Indicus Centre for Financial Inclusion page on Linkedin to continue the conversation.
Bindu Ananth, Dvara Holdings, pens down insights from their work on the challenge of providing meaningful financial protection to people who are currently not served by health insurance markets (public or private).
Haripriya Sureban, NDTV Profit, reports on budget expectations from fintech that include regulatory clarity, exemptions and incentives to reduce capital costs, a focus on improving micro, small, and medium enterprises accessibility to credit, a uniform know-your-customer framework, and other tax benefits and goods and services tax subsidies.
Arjun Goswami and Aayushi Bindal, Cyril Amarchand Mangaldas, analyse the interplay of sectoral regulations with the Digital Personal Data Protection Act, 2023, focusing particularly on the Reserve Bank of India regulations.
Data Security Council of India (DSCI) and Dvara Research have a white paper out, discussing a set of solutions towards tackling and curbing the illegitimate activity of scamsters and other fraudulent actors over UPI.
Amol Agrawal writes on the rise and risk of private credit.
Pratik Bhakta, Economic Times reports on the RBI direction that all credit card payments be processed through BBPS after June 30, but not all banks are ready.
Anand Kumar Bajaj, PayNearby, talks to Alka Jain on the challenges of financial service providers face in rural India.
Peru becomes the first South American nation to adopt UPI-like payments system.
Catherine Highet, Leena Datwani, Vishnu Reddy and Jamie Anderson, CGAP, give insights from the work with Samunnati as part of ABERA, Accelerating Business to Empower Rural women in Agriculture, to boost business innovation while driving gender and climate goals.
Tom Kompas, Tuong Nhu Che and R. Quentin Grafton have a paper in Nature on the global impacts of heat and water stress on food production and severe food insecurity including projections for India.
Pankaj Sharma, Religare Finvest, does a round up of the role that fintech innovation has in boosting MSME growth.
Alexander G. Sotiriou, David Crush and Lucia Spaggiari, CGAP, analyse which MFIs work best for women.