Who pays for inclusion?
The recently released Economic Survey 2023-24 gives an excellent roundup of the progress that India has made in achieving financial inclusion targets, including the role played by a robust Digital Public Infrastructure and MFIs. The report flags the need to step up on insurance and pension coverage and sets out the next challenge as ensuring Digital Financial Inclusion, which is defined as cost-effective digital means for currently financially excluded and underserved citizens to access a range of suitable formal financial services. However, the report does not take up the issue of viability for provision of a strong network at the last mile, which had been well laid out in the RBI Discussion Paper in 2022. Interestingly, the long standing debate on charges for UPI came up again in the news recently. According to the Budget 2024-25, Rs. 2485 crores were paid out for FY24, with Rs. 1441 crores budgeted for this year, as incentive for RuPay Debit Cards and low-value BHIM-UPI transactions – but these estimates are significantly lower than the ask made by Payments Council for Rs. 8000 crore support. Similarly, the Economic Survey does not talk about the current challenge in raising usage of basic banking services, especially in rural India, where ensuring viability in the bank-BC network is critical. The sooner this issue of “Who pays for inclusion” is settled between the government, RBI and industry, the easier it will be to achieve the vision of universal digital financial inclusion in India.
Earlier this month, the RBI released the Financial Inclusion Index, which once again gave no visibility into its subindices: “The value of the Index for March 2024 stands at 64.2 vis-à-vis 60.1 in March 2023, with growth witnessed across all sub-indices. Improvement in FI-Index is mainly contributed by Usage dimension, reflecting deepening of financial inclusion.” It is baffling that a Central Bank should be so sparing with data and communication on such a critical economic and social indicator. Ironically, in his speech at the 18th Statistics Day Conference organised by the Department of Statistics and Information Management, the RBI Governor spoke of exciting cutting-edge innovations in the Centralised Information Management System (CIMS) launched last year. We hope that his statement “Our aspirational goal is to position information as a public good” extends to providing more detailed granular data on financial inclusion metrics, especially on usage. This will help guide industry and policy makers target their products and policies more effectively.
One concern that has been raised by the RBI Governor, and also documented in the Economic Survey, is the shift in household savings pattern from bank deposits towards capital markets. While on one hand, deposit growth lagging credit growth has implications for structural liquidity for banks, on the other, the absence of suitable savings products for low-income segments is a serious challenge for inclusion. Fortunately, as Pratik Bhakta reports, there are signs of fintech getting traction in garnering deposits, but this needs the attention of large banks and of course consumers to scale up. Another option that banks could use is to leverage the existing BC channel to tap into the villages and smaller towns, here again the commercials will dictate results. Do read Mohammed Riaz’s Linkedin post and comments there for some insightful views from practitioners.
It's not just about raising usage of savings, insurance and pension. Indradeep Ghosh has a perceptive piece on where we are lagging in credit provisioning to the rural poor. Even as formal credit grows at a fast clip, the poor continue to rely on informal sources because of the fundamental mismatch in credit decisioning – while the poor borrow to cover cash flow deficits, banks continue to assess creditworthiness on income. For small businesses also, in her Budget speech, the Finance Minister noted the need for public sector banks to incorporate the digital footprint of MSMEs in their credit assessment models, rather than sticking to the traditional asset and turnover criteria. All customers whose income is cash-flow based and irregular will benefit when large banks make this fundamental shift in credit decisioning.
We have two highlighted pieces for this month - a) an article by Akhilesh Tilotia explaining why India should build a Climate Stack to help address the impact of weather shocks on human and business activities; b) The final ‘Report of India’s G20 Task Force on Digital Public Infrastructure’ by India’s G20 Task Force on Digital Public Infrastructure for Economic Transformation, Financial Inclusion and Development released by the Department of Economic Affairs, Government of 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.
Raghu Mohan, Business Standard, does a deep dive into why small loans under Rs 50K are on RBI’s radar.
Niranjan Banodkar, Axis Bank, explains how MSMEs can transition to sustainable green business models.
RBI reviewed the framework for Domestic Money Transfer.
Abhijit Lele, Business Standard, reports on RBI’s revision of the regulatory framework for domestic money transfer services by regulated entities by making Know Your Customer (KYC) record requirements stringent.
Shri M. Rajeshwar Rao, Deputy Governor, Reserve Bank of India spoke on “Climate Change – The Emerging Challenge”.
Gurpreet Chhatwal, CRISIL Ratings, writes on the provisions in the Budget 2024-25 for digital initiatives, financial inclusion and MSMEs.
MSMEs have urged the Reserve Bank of India (RBI) to develop a regulatory framework for peer lending and crowdfunding to overcome credit gaps.
Pratik Bhakta, Economic Times, reports on how increased regulatory scrutiny has pushed peer-to-peer lending startups in India to redesign their products and rework their business strategies.
Alliranjan Muthusamy, Mint, examines whether NPCI’s new UPI credit line can be an alternative for entry level credit cards.
Kamya Pandey, Medianama, reports on the views expressed by industry during the Assocham Fintech Festival.
Insights from a survey by Kearney India and Amazon Pay India titled “How Urban India Pays”, over 6,000 consumers and 1,000 merchants, revealed a seismic shift in payment preferences.
Kalpana Ajayan Women's World Banking and Harsha Bhowmik, Ministry of Finance write for The Economic Times on the role digital public infrastructure plays in empowering women financially.
G Naga Sridhar, Hindu Business Line, looks at the Mudra scheme proposal under Budget 2024.
Suma Chakrabarti and Neha Kumar, ODI, write on Reserve Bank of India and climate change.
Ivo Jenik, CGAP, writes on vision-driven financial regulation.
NPCI rolled out UPI(One World) wallet service for international travelers to India.
Reserve Bank of India released the Digital Payments Index for March 2024 at 445.50 as against 418.77 for September 2023.
RBI has selected five applications for the Test Phase of Regulatory Sandbox – Fifth Cohort (Theme Neutral).
All India Bank Officers' Confederation (AIBOC) underscored the need for expanding financial inclusion and meeting the credit needs of small borrowers.