Learning to swim is more difficult for an adult than for a child. I am one of those who did not learn to swim as a child. There are several reasons why I am not so keen on it now despite knowing that it is one of the best forms of exercise.
First,there is the issue of accessibility,then the problem of finding a good instructor,and third (and most important) is overcoming the fear of drowning. Due to this fear,many adults never learn to swim,preferring other forms of exercises instead.
This dilemma aptly describes the struggle that we face at present to widen financial inclusion,especially in rural areas. Most households know that access and usage of financial services via formal financial institutions help improve income and consumption levels. Then why are we not able to convince enough poor households to come into and stick with the formal financial markets?
The first reason is accessibility. Going back to the swimming analogy,the first issue I tried to figure out was the access to the facility what will be the travel time?
Life is so hectic that learning a new activity is ruled out if the commute is going to take me more than 15 minutes,even if it will make me healthier.
Similarly,for financial inclusion to succeed,accessibility to formal financial institutions is the first hurdle.
We need to bring banks and other institutions closer to the customer,either via micro branches or banking correspondents,and increase the use of technology. Access to financial institutions is certainly rising. According to the Reserve Bank of India,all unbanked villages with a population of over 2,000 persons,numbering around 74,000,were connected with banking facilities between March 2010 and June 2012. During the same period,more than 70 million basic banking accounts were opened to take the total number of such accounts to 147 million.
Even when accessibility improves,the quality of the swimming instructor is a concern. Teaching adults tends to take longer and requires different techniques than those used with children. Can I trust the instructor to spend enough time with me as I struggle to learn swimming?
Similarly,do people whom we are trying to move into formal financial institutions have confidence in a banking correspondent,an insurance agent,or even technology? Will they help improve the level of financial literacy?
Raising financial awareness and literacy will be the key to improving financial inclusion. Hence,we need to ensure that the teachers are good enough to wean people away from their lifelong habits. Else,people will easily slip back into their old ways.
Although the RBI,commercial banks,and micro finance institutions are taking numerous steps to improve financial literacy,this is still work in progress and there is still a long way to go. The corporate sector,especially companies in the financial sector,too can play a part on this front. For example,in 2012,in the first year of its national financial awareness initiative,Pragati (Progress through Financial Awareness),Crisil conducted 25 sessions in rural Assam in partnership with Rashtriya Gramin Vikas Nidhi,a non-profit organisation. The programme is now set to expand to two more states,Tripura and Sikkim,in 2013.
By now,I have figured out a swimming facility closer to my home and I am satisfied with the instructor. But,there is still the biggest hurdle to cross the fear of drowning. What if the float slips,comes apart or breaks suddenly? Will the instructor really help me?
In rural India,financial products such as insurance policies have been wrongly sold before people have swum with faulty floats and drowned because the claims were not honoured while premiums were collected.
Although products have improved and become simpler now,it still takes a long time to overcome the fear once it takes hold. As we move towards greater financial inclusion,products and services need to be simple and easy to understand so that they can garner the confidence of people who will enter this market for the first time.
The lesson – if financial inclusion is to succeed,and not merely end up as a vehicle for remittances or cash transfers,the focus will have to be on meeting the needs of the customers in terms of simpler products and services. Improvement in accessibility alone will not take us very far.
The author is Principal Economist,Crisil