Financial inclusion, which is, increasing the number of citizens who have access to bank accounts, credit and other financial services, is an old campaign in India. It began quite robustly back in 1969, with bank nationalisation and branch expansion into rural India, to finance farmers at subsidised rates of interest. This helped farmers to adopt high-yielding variety seeds and fertilisers needed for the Green Revolution.
In the 1980s, there was a similar drive to extend bank credit to small industries by nationalised banks, and by 1990, SIDBI (Small Industries Development Bank of India) was created, “To facilitate and strengthen credit flow to Micro Small Medium Enterprises (MSME) and address both financial and developmental gaps in the MSME eco-system”. Later in the 1990s, the National Bank for Agriculture and Rural Development (NABARD) supervised the linking of women in self-help groups (SHG)//thrift/credit/productive societies to banks, as part of public policy to get rid of predatory usury, and augmenting incomes for poverty alleviation. At about the same time, for-profit private micro finance companies also entered the scene providing consumption loans to what marketing gurus call the ‘bottom of the pyramid’.
More recently, the financial inclusion crusade took a hysterical turn with a policy called ‘Jan Dhan Yojana’, of creating bank accounts based entirely on unique digital identification called Aadhar cards. Nationalised banks pitched in once again, 125 million new accounts were created within six months. We are not sure how many were first time account holders. But reports did suggest that a majority of these accounts had zero balances when they began and a year later. Popular demand to create this account had grown from the government promise of direct credit transfer of subsidies and Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGA) wages to these account holders.
However, high dormancy rates notwithstanding, there is no doubt that the proportion of citizens with bank accounts has risen dramatically over the last ten years. In fact, according to the World Bank, between 2011 and 2014 alone, the proportion increased from 35% to 53% (125 million people were added after that). Increasing numbers have also have accessed bank credit for housing, cars, consumer durables and other consumption needs, while bank credit for productive activities has lagged.
By September 2016, financial inclusion had a digital stamp. With the expansion of bank accounts, cell phone and internet users in India, the launch of the Unique Payment Interface (UPI) was considered timely. UPI is an online payments solution which will facilitate a cashless settlement of transactions by the transfer of funds instantly between person and person (or peer to peer) using a smart phone. The system was launched by the last Reserve Bank of India(RBI) Governor Raghuram Rajan.
Only 39% of all account holders use cards and ATMs (Automatic Teller Machine). The inability of small account holders to obtain cards had limited their access to cash less transactions. The most essential use of this facility will be by migrant workers for remittance followed by general bill payments. In UPI, a user just needs to download the UPI app, offered by 17 banks so far, from the Google Play Store on an android phone, register details, and create a virtual address. This can be your mobile number or any unique mail address. After that, you can send or receive funds up to ` 1 lakh to or from another person or establishment. This is done instantly, with the bank authenticating it.
Financial inclusion in its current digital avatar will also make big data bigger, such transactions generate digital footprints which can be mapped for various purposes like credit history, rating, taxation, predicting consumption behaviour and strategic marketing aimed at the bottom of the pyramid. To what use this technology will be put and who will benefit most from it will depend as always, on the political economy of the times.
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Anuradha Kalhan
Anuradha Kalhan is an independent researcher. She was earlier a Fellow at NMML, Teen Murti.[/column]