Potential of BFSI for financial inclusion
- For economic growth globally there is one segment, which is growing at frenetic pace everywhere – BFSI segment, and the emerging markets are driving the growth story, led by the fashionable reference point of a league of comparable nations or G10 comprising the BRICS.
- Brazil is the star amongst the nations, simply because of the democratic traditions, while China today is undisputed king amongst nations despite being number 2 to US for the next 10 odd years.
- Hence the theory propounded at the G20 meetings took upon the global challenge of spearheading Financial Inclusion-led financial deepening as infrastructure, energy, industry and agriculture, all are relatively longer gestation driving up demands and augmented supply to match the growth potential. So along with energy & climate change & emission, financial inclusion issues get equal weightage.
- But significantly enough, unlike in energy and climate-control issues here the developed and developing nations are bickering and at loggerheads, but on Financial Inclusion there is almost unanimity, although there is degree of difference in commitment level even amongst BRICS.
- Everywhere Financial Inclusion is top agenda of reform by the governments irrespective of private sector participation level. Brazil, India, South Africa, Indonesia, Mexico, Turkey, Argentina and every major G20 nations are actively pursuing Financial Inclusion mission overzealously.
Main Conference
Financial Inclusion and Payment Systems Conference will be a landmark event, scheduled to take place on 24-25 October, 2013. With a broader approach and explicitly defined sessions and the top participants, the Global FIPS Conference will be a unique opportunity to engage with a broad range of players in financial inclusion and payment systems space. The Conference will witness a collaborative environment among the top stakeholders, where the relevant issues will be addressed, and the road map to achieve 100 % Financial Inclusion will be put.
FIPS 2013 will take into account the very essence of inclusive growth, thereby highlighting on the achievements, shortcomings and challenges on our way to overcome.
Understanding FIPS- A Global Perspective
Achieving full financial inclusion at the intersection of social benefit and economic sustainability is at the heart of Financial Inclusion & Payment Systems, Event.
Affordable financial services have become an increasing priority and possibility worldwide. As we enter the second decade of the century, the required condition for meeting this objective seems approachable. Financial inclusion aims at benefiting the world’s poor, the vast majority of whom do not use formal financial services of the sort provided by banks, insurers, or microfinance institutions (MFIs). Over the past 30 years, MFIs have demonstrated not only that the working poor want and need formal financial services but also that they can afford them. Consequently, MFIs and other commercial organizations have been expanding these services at an accelerating pace, and recent developments suggest that full financial inclusion is within reach.
Contemplating on these very points made us realize that today exists a dire need for a platform, where national and international financial inclusion and payment systems stakeholders can meet and discuss on the factors that can result in a 100% achievement of financial inclusion worldwide.
FIPS 2013 is a discussion platform whose focus will be laid at understanding the Best Practices Worldwide and implementing them to achieve our goal of 100% Financial inclusion throughout the world. The Forum will create a dynamic opportunity for networking at a global dais.
Road-map towards Inclusive Growth
As per Census 2011, 58.7% households are availing banking services in the country. There are 102,343 branches of Scheduled Commercial Banks (SCBs) in the country, out of which 37,953 (37%) bank branches are in the rural areas and 27,219 (26%) in semi-urban areas, constituting 63 per cent of the total numbers of branches in semi-urban and rural areas of the country. However, a significant proportion of the households, especially in rural areas, are still outside the formal fold of the banking system. To extend the reach of banking to those outside the formal banking system, Government and Reserve Bank of India (RBI) are taking various initiatives from time to time.
The initiatives of the Government and those taken at the international grounds in line with achieving the goal of 100% Financial Inclusion will be discussed in detail. Key opportunities and obstacles to financial inclusion will be addressed in the Event.
The Road-map pointers will include-
• Vision of Financial Inclusion world-wide
• Actionables that can be implemented in line with the goal of 100% Financial Inclusion
• A Research Agenda, that needs to be acted upon in the near future
From Millions to Billions, the strength of Financial Included population world-wide is rapidly increasing.
Financial Inclusion
The need for financial inclusion is global, and is a need for both the global North and the global South. While successes have occurred, and should be celebrated, we often learn more from failures than from success.
- Around the same time that mobile penetration crossed lmost 4 billion and mobile based value added services in remittances in Philippines, Kenya began to discuss honestly and candidly why banking services have not been growing and why 60% of mobile-carrying people do not have bank accounts.
- The 2008-2009 Global Financial Crisis brought out the divide very sharply even in developed countries as well as it is in the emerging and poor countries.
- It is estimated that in US there are almost 20 million unbanked Americans today
As US governmental agencies like the FDIC and many other agencies are providing better and more refined data regarding financial inclusion in the US, there is strong and vibrant competition to better serve this enormous unmet need and to seek to do so in a profitable manner, thereby creating a wide range of new products, such as prepaid cards of many types.
There has been sharp rise in prepaid and many forms of payment system integration.
In the emerging markets it has become a top policy led drive to make financial inclusion work in tandem with general, long-standing goals targeting development.
Brazil showed the way through its Bolsa Familia programme, as did Mexico through its Opportunidades, and other programmes in many Latin American countries. Kenya and Philippines have showcased their remittance services like M –Pesa, and Gcash, Smart money programmes. Closer to home in Bangladesh and Pakistan, such efforts are also underway, and although in nascent stages, these are showing signs of impressive gains, every month.
India’s drive towards financial inclusion is maturing, having gone through a roller coaster drive and achieved some 100 million no – frill accounts, a very large number of which are dormant and non-functional. So our Finance Ministry and Central Bank are beginning to consider the issues more analytically and acutely, so as to where necessary policy and practices while Indians seek to simultaneously measure up to the challenges of a trillion dollar economy.
What does financial inclusion entail then? Questions are raging as to whether current policy initiatives will actually succeed and pave the way for a better financial inclusion regime.
Will our level and distribution of financial inclusion actually and durably improve? Will there be more bank branches, more ATMS more POS machines, prepaid cards, working with a instrument like Aadhar enabled platform as contemplated in India for the benefits of the unbanked? Despite glitches and start –up hiccups could UID & Aadhar enabled platform be the game changer the world has been looking forward to?
And finally, how does financial inclusion fit with the need for all those firms providing financial services to those who are financially excluded to do so in a profitable manner, yet also a manner that avoids abuse of marginalized groups that are currently financially excluded?
This conference will seek to candidly and forthrightly discuss the real issues that concern financial inclusion without shying away from any uncomfortable truths. Globally, this is a time at which Indians are at the cross roads of all emerging markets and India is in a leadership position for potential success or failure in financial inclusion.
The ongoing efforts to streamline India’s G2P payments, the UID mission, the Aadhar enabled Rupay platform are each examples individually of gigantic efforts which could, if they actually succeed, become a huge game changer. This will enable live and vibrant discussion and the exchange of a variety of thoughtful and knowledgeable views.
For the first time a regulators, businesses, academia, reporters, activists will all informally interact and rub shoulders to find out and advise us all what lies ahead and what we have to do to achieve the thriving economy that India and the sub-continent is striving to achieve.
Ultimately, unless we achieve far higher levels of financial inclusion, all of humanity will find it difficult to grow – not just economically, but also politically, socially, culturally, and in the achievement of the fundamental human rights embodied by the UN Declaration of Universal Human Rights.
Genesis
The payment system is an operational network – governed by laws, rules and standards – that links bank accounts and provides the functionality for monetary exchange using bank deposits. The payment system is the infrastructure (comprised of institutions, instruments, rules, procedures, standards, and technical means) established in effect the transfer of monetary value between parties discharging mutual obligations. Its technical efficiency determines the efficiency with which transaction money is used in the economy, and risk associated with its use. To ensure benefits of a structured modern payment and settlement systems, including innovative products, to reach out beyond the currently served target groups thereby facilitating greater financial inclusion. This is to be achieved by nurturing a payment system that adequately serves the national and international needs of the nation.
Prognosis
Financial inclusion or inclusive financing is the delivery of financial services, at affordable costs, to sections of where and efficient society.[citation needed] It is argued that as banking services are in the nature of public good; is Financial services are the economic services provided by the finance industry, which encompasses a card funds. As of 2004, the financial services industry represented 20% of the market capitalization of the S&P 500 in the United States.[1] The U.S. finance industry comprised only 10% of total non-farm business profits proportion of GDP rose from 2.5% to 7.5%, and the finance industry’s proportion of all corporate income rose from 10% to 20%.
Development
The Alliance for Financial Inclusion (AFI) is global network of financial policymakers from developing and emerging countries working together to increase access to appropriate financial services for the poor. The organization was formed in 2008 as a Bill & Melinda Gates funded project. Between 2008 and 2013 AFI grew to include 100 policy making institutions from the developing and emerging world.[1] AFI hosts its landmark, annual Global Policy Forum (GPF) as the keystone event for its membership. During the 2011 GPF, the network adopted the Maya Declaration, a set of common principles and goals for financial inclusion policy development. AFI uses a “poly lateral development” model to contrast and compare successful financial inclusion policies, focusing on a peer-to-peer system rather than a top-down or North-to-South learning model. The network has more than 100 member institutions from more than 85 countries across the globe.
Each year it is co-hosted by a different member institution in a different region of the world. As of April 2013, AFI has 100 member institutions representing more than 80 nations across the globe, making the GPF the most important and comprehensive forum for regulatory institutions with an interest in the promotion of financial inclusion policy. The forum is focused on the development and improvement of national financial inclusion strategies and policies, and is used as a platform for senior financial regulators to exchange ideas and engage in peer-to-peer learning activities.
Way Forward
For improving access to financial services, it is well established that the poor can be services profitably, servicing costs can be reduced, and large numbers covered rapidly, through a digital payments ecosystem that is characterized by open entry and inclusiveness. Global experience indicates that the path of digital financial inclusion has four stages of market development as the poor move towards:
Having access to basic account, Payment connectivity to individuals, governments and utility providers Payment connectivity to service providers to access savings, insurance and loan products The ideal where the majority of transactions are in digital mode.
Despite regulatory focus on achieving the goal of universal financial inclusion over several years, India stays in the first stage of market development. The move to the second
stage has to be accelerated through enabling remote payments such as remittances and government payments; however , for an effective rollout of such payments, it is important to recognize that accepting funds from public and placing 100% of those funds in pooled accounts at supervised banks does not create prudential or liquidity risks. By isolating the risks posed by payments, the strengths of non- banks with well established distribution networks into the hinterland and into excluded segments.
It is time for all stakeholders to step outside their comfort zones to test new commercial and regulatory models. The need of the hour is to openly debate the next steps needed to place India in the second stage of the path to financial inclusion by further opening up the payments space to non-banks
The rapid growth of the telecom sector in India, in last decade, has created an appropriate platform for the financial sector to ride on to solve the last mile connectivity issues in an economically viable manner. Today, we have approximately 600 million active mobile subscribers in India and counting. As per a BCG report, a bank transaction on a mobile is 99% less costly than the same done through a bank branch. There have been successful business models implemented in Africa, South-East Asia, Japan etc., where the road to financial inclusion using mobiles as a platform has yielded fine dividends. Leveraging the rapid growth of mobile telecommunications and the lack of access to formal banking channels in Africa; a number of service providers have successfully tapped the demand rising out of a large unbanked population. M-Pesa, promoted by Safaricom in Kenya, has been able to grow aggressively by acquiring 6 mn users (about 20% of Kenya’s population) in less than 5 years of operation. This also means that approximately 10% of Kenya’s GDP is flowing through m-Pesa now. India too is at its prime for a similar kind of disruption where mobile platforms can be used to work as proper delivery systems and information sharing mechanisms for promoting financial inclusion to the less privileged population.
Government bodies, banks and private players together need to build an eco-system that is largely driven by retail transactions, rather than only account-opening or remittance, so that India attains true ‘digital’ financial inclusion.
Where We stand
https://world-finance-conference.com/papers_wfc/138.pdf
As far as rural areas are concerned, out of 13.83 crore rural households in India, only 4.16 crore rural households have access to basic banking services. In respect of urban areas, only 49.52 per cent of urban households have access to banking services and 34 per cent of the India’s urban population with annual income less than `50,000 have access to banking services. The latest National Sample Survey Organisation survey reports that there are over 80 million poor people living in the cities and towns of India and they lack access to the most basic banking services such as savings accounts, credit, remittances and payment services, financial advisory services, etc. Low-income groups do not have access to the formal banking systems, as they usually do not have the documents needed to open a bank account. As a result, they depend on the informal sector for their savings and loan requirements. Thus, financial inclusion is considered to be critical for achieving inclusive growth, which itself is required for ensuring overall sustainable growth. Recognising the importance of inclusive growth in India, efforts are being taken to make the financial system more inclusive. The present paper is an attempt to examine the present status of Financial Inclusion in India and issues involved in extending banking services to weaker sections of the society.
Various links
- The Alliance for Financial Inclusion
- Transact, National Forum for Financial Inclusion
- Financial Inclusion Taskforce, UK
- Research Unit for Financial Inclusion
- UNCDF report on Financial Inclusion
- Resources, articles and documents from Financial Inclusion Champions site, UK
- FDIC Advisory Committee on Economic Inclusion (United States)
- Financial Inclusion – An Overview (India)
- World Bank Global Financial Inclusion Database
- World Bank Global Financial Inclusion Data Portal
Actions
Building on the progress made since the Toronto Summit, the G20 has developed an Action Plan for improving Financial Inclusion, which provides a set of six concrete and pragmatic action areas to advance financial inclusion for individuals, households and MSMEs and promotes the application of the G20 Principles. It has also identified the winning proposals of the SME Finance Challenge and developed a financing framework to support the implementation of the winning proposals and to scale-up successful SME financing models.
Working with the Alliance for Financial Inclusion (AFI), the Consultative Group to Assist the Poor (CGAP), and the International Finance Corporation (IFC), the G20 will launch a Global Partnership for Financial Inclusion (GPFI) to provide a systematic coordination and implementation structure for the Financial Inclusion Action Plan. The GPFI, which builds on the strength and the process of the current G20 Financial Inclusion Experts Group (FIEG), will provide an inclusive platform for all G20 countries, and non-G20 countries – in particular developing countries- and relevant stakeholders for peer learning, knowledge-sharing, policy advocacy and coordination on financial inclusion. These efforts on financial inclusion will only be successful if they are supported by reliable data and common indicators, and the GPFI will work to improve the quality and quantity of data needed to effectively design national policies and targets and monitor progress.
The G20 also supports the strengthening of member and non-member countries’ capacities on financial inclusion policy development and implementation. Consistent with the G20 Development Framework for Strong and Balanced Growth, it recognizes the importance of enhancing the role of developing countries, including the low income countries (LICs), in the efforts to achieve balanced and sustainable economic growth and eradicate poverty. In this context, the G20 requests AFI, to facilitate the participation of the non-G20 developing countries into the activities of GPFI and global discussions on financial inclusion.
Outlook
Payment and securities settlement systems are critical to the effective functioning of financial systems worldwide. They provide the channels through which funds are transferred among banks and other institutions to discharge payment obligations arising in the financial markets and across the entire economy.
This system, in contrast, if not efficient, secure and reliable can adversely affect the financial system, and can contribute to systemic crises. If the risks inherent in its design and operation are not adequately contained, a financial shock—initially in the form of a liquidity shortfall, which may be followed by default and even bank insolvency—can be passed from one participant to another. Since a bank’s liquidity problems will typically first become visible in the payment systems in which it participates, those systems are by definition vulnerable to a wide range of shocks.
An efficient payment system, promotes orderly economic development and growth. In particular, a wide and cost-effective range of payment instruments is essential for supporting customers’ needs in a market economy. Some transactions simply do not take place in absence of certain payment instruments.
A fair retail payment system has also important social implications. For example, interoperable networks for processing payments at low cost are essential to guarantee appropriate coverage of payment instruments in a country.
Close attention has been paid since the mid-1980s, initially by central banks and then by other regulators, to the design and operation of payments and securities settlement systems. This was in response to both technological developments, which reduced the cost and increased the speed of the automated processing of payment instructions.
The Committee on Payment and Settlement Systems (CPSS) of the Bank for International Settlement (BIS) has published several reports and is the standard setter in the area. Its focus has ranged from large value to retail systems, from foreign exchange transactions to securities settlement systems.
Why it is important
The technical efficiency of payment system is important for a development of economy. Real time gross settlement systems (RTGS) are funds transfer systems where transfer of money or securities takes place from one bank to another on a “real time” and on “gross” basis. Settlement in “real time” means that payment transaction does not require any waiting period. The transactions are settled as soon as they are processed. “Gross settlement” means the transaction is settled on one to one basis without bunching or netting with any other transaction. Once processed, payments are final and irrevocable.
Developed vis vis Developing Economy
A weak payment system may severely drag on the stability and developmental capacity of a national economy; its failures can result in inefficient use of financial resources, inequitable risk-sharing among agents, actual losses for participants, and loss of confidence in the financial system and in the very use of money .The technical efficiency of payment system is important for a development of economy.
Pillars of Payment Systems
With the advent of computers and electronic communications a large number of alternative electronic payment systems have emerged. These include debit cards, credit cards, transfers, direct, direct debits, internet banking, ATMs ,Micro-ATMs, PoS ,and e-commerce payment systems
