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Andrew Bonwick
Vice President of Product Development at Relm Insurance
Madhav Sheth
CEO of Ai+ Smartphone
Varun Kashyap & Sridevi Reddy
Co-Founders, Zithara.ai
Transforming Indian Offline Retail and Customer Engagement Using AI
The government and the RBI have made efforts to facilitate provision of financial services to the hitherto unbanked / underbanked areas.
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The RBI used the term financial inclusion for the first time in its annual policy statement of 2005-06, Since then the banks have taken several measures for promoting financial inclusion such as advising banks to open ‘no frill’ accounts, introduction of business correspondence (BC)/Banking Facilitators (BF) model, promotion of financial literacy, and adoption of information and communication technology (ICT) solution for greater outreach.
Despite these efforts the current National sample survey data reveals that 51.4% of nearly 89.3 Million farmers households do not have access to any credit either from institutional or non institutional sources. Only 27% of farm household are indebted by formal sources.
Recently RBI has issued guidelines for mobile banking. As we move to the future, I wanted to know the root cause for the failure of earlier efforts and as part of my search I interacted with few stakeholders. Here are some of my InCights from the same.
Small Transaction Size: I found out that the average balance which is maintained in these accounts is just around Rs. 20-30. Now any one who understands how does a bank earn profit would say that this an unprofitable business. With this kind of float in the no frill bank accounts, banks have started considering it as a Corporate Social Responsibility. Most of them operate in rural areas just because RBI has given a mandate. The cost per No frill account is approximately Rs. 160. Banks as well as the BCs have incurred huge losses by adopting this model. The viability of the business is an issue.
Cash Management: Almost all BC transactions are cash based. Handling large volumes of cash leads to increased transactional and operational costs. Technology is other issue. This model works on online or an offline model. According to the RBI guidelines, transactions done by the BCs should reflect in the banks CBS by the end of the day. This is practically not possible. There are areas where there is no or limited connectivity like North eastern regions.
