Questions and Answers
Question 1. What is Financial Inclusion?
World Bank Research shows that an estimated 2.5
Billion Working Age Adults Globally – more than half of the total Adult
population – have no access to the types of formal financial institutions that
wealthier people rely on. Instead they depend on informal mechanisms for Saving
and protecting themselves against Risk. They buy livestock as a form of
Savings, they pawn Jewelly and they turn to the Moneylender for Credit. These
Mechanisms are risky and often expensive. An increasing body of evidence shows
that appropriate Financial Services can help improve Household Welfare and spur
Small Enterprise Activity.
Financial Inclusion or Inclusive Financing is the
Delivery of Financial Services at affordable Costs to Sections of Disadvantaged
and Low Income Segments of Society. In contrast to Financial Exclusion where
those Services are not available or affordable. In Sub-Sahara Africa, only
about 24% of Adults have a Bank Account even though Africa’s Formal Financial
Sector has grown in recent years. In Nigeria, despite the growth of our Banks,
how many rural poor and urban poor have Bank Account? It is argued that Banking
Services are in the Nature of Public Good; the availability of Banking and
Payment Services to the Entire Population – Rich, Middle Class, Poor in both
Urban and Rural areas; without discrimination, is the Prime Objective of
Financial Inclusion Public Policy.
Question 2. What is the Global Financial Inclusion Agenda?
The Microcredit Revolution showed that poor families
in the informal economy are valuable clients and that it is possible to serve
them in large numbers sustainably. Today, the US$70 Billion Microcredit
Industry that grew from these Innovations with the estimated 200 Million
Clients, remain a great success of Sustainable Non Government and Private
Sector growth Catalyzed by highly Targeted Public Subsidies. But over the past
few decades, we have also learned that Poor Households need access to the Full
range of Financial Services to generate income, build assets, smooth
consumption and manage risks – Financial Services that a more limited
Microcredit Model cannot provide.
The Global Financial Inclusion Agenda recognizes these
broader needs. It also recognizes the importance of Financial Literacy,
Building Consumer Financial Capabilities and for Consumer Protection Regimes
that take the conditions and constraints of Poor Families in the Informal
Economy into Account.
The Microcredit Revolution found an ingenious way to
provide Credit to the poor without Collateral: using the Joint Liability Loan
that replaced Physical Collateral with Social Collateral to allow the poor to
Pledge for one another. But the Business Model Challenge for other Financial
Services is different. For Small Denomination Savings and Remittances, the Key
Challenge is the Need for Ultra Low Transaction Costs; For Insurance, the Key
Challenge is the Need to Pool and Manage Risk at Actuarially Relevant Scale.
We need continued Product and Business Model
Innovation so that we can reach more People with a Broader Range of Products at
Lowers Costs. Such Innovation is already happening in some Countries, for
example, Leveraging Mobile Phone Based Business Models. But ultimately, no
single type of Provider will be able to overcome the very different Product
Specific Business Model Challenges. What is needed is a variety of Financial
Service Providers that create an Ecosystem that serves the Poor Profitably.
These are the issues the Global Financial Inclusion Agenda seek to tackle and
in ways that achieve the following Goals:-
1 1. Access
at reasonable Cost for all Households to a Full Range of Financial Services
including Savings or Deposit Services; Payment Services and Transfer Services;
Credit and Insurance Services.
2 2. Sound
and Safe Institutions Governed by Clear Regulation and Industry Performance
Standards.
3 3. Financial
and Institutional Sustainability to ensure Continuity and Certainty if
Investment.
4 4. Competition
to ensure Choice and Affordability for Clients
Question 3. Can you give example of Financial Inclusion in India?
Reserve Bank of India has planned Aadhaar Linked Bank
Accounts for all Adults of India by January 2016 to meet its commitment on
Financial Inclusion. It will greatly Transform India by preventing the Poor
People falling into Debt Traps of unlawful Money Lenders; improving Cashless
Transactions, Eliminating Poverty and Corruption.
A Basic Aahdaar enabled Bank Account is a Basic
Savings Account where a Debit Card is issued and the Aadhaar Number is used as
the Account Number. It can be Instantly Opened. Transactions Operate with
Fingerprint Authentication only, as indicated by the Aadhaar Logo on the Card.
PIN is not issues because the Account is aimed at Financial Inclusion of
Unbanked Illiterate People in both Urban and Rural Areas. Aadhaar Card Operate
at Micro ATM and other ATMs’ equipped with Fingerprint Scanner. Presently
Passbook is not issued to these Accounts due to Infrastructure Problem.
Transactions like Deposit, Withdrawal, Transfer, Balance Check can be done.
Aadhaar Account is used for Direct Payment of Social Security Benefits such as
Pensions; Scholarships; Healthcare; Subsidy for Kerosene, Gas, Fertilizers etc
Generally a Micro ATM consists of a Laptop Computer or
Smart Phone equipped with 2G Internet, Fingerprint Scanner, Receipt Printer,
Speaker and Power Back Up (Solar / Battery). It is Human Operated by a
Commission Agent called a Banking Correspondent (BC) so that Illiterate
Customers ne not face problems of ATN Machine Operations.
BCs’ are generally Chemist Shops, Provision Shops or
Mobile Vans. It is similar to the Commission Agent Model of Prepaid Mobile
Phone Recharge.
Some Banks issue Photo Bankcards that are a Boon to
Rural People and Migrant Workers because they work not only as Bankcards but
also as Identity Cards. Once Bankcards become common in Rural Areas, India will
become a Nation of Cashless Transactions like USA with Higher Transparency and
Accountability because Cash is largely used for Bribery and Corruption.
The Reserve Bank of India has initiated several
measures to achieve greater Financial Inclusion such as No Frills Accounts and
General Credit Cards (GCCs’) issued to the Poor and Disadvantaged with a view
to help them access easy Credit. Some of these Steps are:-
1.
Opening
No Frills Accounts. Basic Banking No Frills Accounts is with Nil or Very Low
Minimum Balance as well as Charges that make such Accounts accessible to Vast
Sections of the Population. Banks have been advised to provide Small Overdrafts
in such Accounts.
2.
Relaxation
on Know Your Customer Norms. KYC requirements for opening Bank Accounts were
relaxed for Small Accounts, thereby simplifying procedures by stating that
Introduction by an Account Holder who has been subjected to the full KYC Drill
would suffice for opening such Accounts.
3.
Engaging
Business Correspondent / Banking Correspondent, BC. The BC Model allows Banks
to provide Doorstep Delivery of Services, especially Cash In Cash Out
Transactions, thus addressing the Last Mile Problem.
4.
Use
of Technology. Banks have been advised to make effective use of Technology to
Support the BC Model.
5.
Use
Edges and Value the Marginal – The interface between things is where the most
interesting events take place. These are often the most valuable, diverse and
productive elements in the system.
6.
Creatively
use and respond to Change – We can have a positive impact on inevitable change
by carefully observing and then intervening at the Right time.
Question 4. How Can You be Part of Financial Inclusion?
For those who have Good Viable Businesses and need
Money for expansion, simply come forward to discuss your needs. If enough
people come forward with Bankable Proposals, we would Aggregate these Proposals
and open Discussion with relevant Financial Institutions. For the Poor and
those just starting out in Business – the Organized Communities Model within
NEHAP Initiative is the Way Forward.
As National and International Stakeholders in each
Community in each of 774 Local Governments in each of 36 States and FCT in
Nigeria JOINTLY seek practical solutions to Unemployment, Underemployment,
Unemployability, Hunger, Poverty, Security / Terrorism etc problems on the
ground, the Design and Delivery of Financial Inclusion Systems in our Rural and
Urban Communities can help accelerate success on sustainable basis.
If you require
some clarification or additional information, please send email to:-
Lanre Rotimi
International Society for Poverty Elimination, ISPE /
Economic Alliance Group
