Whither financial inclusion?

Our Finance Minister has proposed an exclusive bank to cater to the credit requirements of women. He argues that it will address gender related aspects of empowerment and financial inclusion. However, is it not ironic that whereas he states a desire for inclusion, he continues to look for solutions that are exclusive in nature?

Self Help Groups

I have 37 years of experience as a banker. Throughout my career I have had direct contact with customers, both men and women naturally. A major development that brought more women into the banks was the formation of Self Help Groups (SHG). As a branch manager of a bank which has been in the forefront in encouraging SHGs opening accounts with the bank and extending credit to them according to their eligibility, I have always felt that given an opportunity women are second to none in financial management. They would organise meetings, collect weekly savings, open and operate bank accounts, avail loan from banks, distribute it among themselves and repay the loans with almost 100% certainty. This is something that I have experienced personally in Kerala and Tamilnadu and I have heard such stories from many other states. Of course they need support in book keeping and accounting. But even men with poor educational background also need support equally, if not more.

To carry out all the transactions mentioned above and to seek support when they needed, it hardly mattered to them whether the bank manager or the staff were men or women. All they need is a person with some consideration for them. Bank staff should have this consideration towards any customer they want to do business with. Their financial discipline was evident not only in case of loans granted based on their group savings. When government sponsored subsidized loan schemes like housing loans were distributed with the involvement of the SHGs, monitoring and recovery was much easier. Thus extending eligible loans to SHGs and their members individually has proved to be a sensible business for banks.

However, banks slowly started drifting away from SHGs or at least started discouraging more business with them. There are reasons for this. Branch managers, be in rural or semi urban centres are burdened with a target of 25 to 30% increase in business every year. When the base figure itself is high achieving the targets is impossible with SHG business alone. For SHG business do not result in increased business figures proportionate to the increased volume of transactions this business required. For example SHGs would deposit their weekly savings and in turn would withdraw the amount for extending internal loans as per requirements. So net balance with banks will be minimal. SHG members by their sheer numbers started forming majority of the customer base in rural banks. This increased the waiting time for other 'elite' customers who started complaining. Since net banking and even ATMs are yet to make a dent in rural areas, banks seeking to improve their overall business in order to meet the set targets had to pay heed to these elite customers. SHGs became the casuality.

Branch managers, be in rural or semi urban centres are burdened with a target of 25 to 30% increase in business every year. When the base figure itself is high achieving the targets is impossible with SHG business alone. For SHG business do not result in increased business figures proportionate to the increased volume of transactions this business required

Micro finance institutions (MFI) started filling this vacuum to a great extent. They were able to meet the credit requirements of SHGs to a large extent. But unfortunately they were not able to take off to the desired extent for various reasons. Ensuring increase in rural exposure and credit to rural women by public sector banks would better serve the cause of financial inclusion. Strengthening MFIs side by side would be a perfect recipe. And the recent proposal to set up post office banks is also welcome. Some may argue that women only banks would not only cater to rural women, but would also be welcomed by urban middle class. But this class is tech-savvy and dependent more on ATMs and net banking. And to meet their credit needs new gen banks are vying with each other to offer service at their door steps. So it is mostly unlikely that this class would be impressed by the idea either. Besides, what will be the expected penetration of a newly established women only bank compared to say State Bank of India with its branch network of more than 13000 and dedicated and qualified staff strength? How long would it take for the proposed women only bank to match SBI's reach? Without that kind of network, is it possible to make a dent? Even then, what is the guarantee that it will not be hijacked by the elite class?

Not that I am against the idea of women only institutions per se. For instance, in the case of women only police stations would ensure more crimes against women are brought to book and women only court might ensure many of the culprits perpetrating these crimes are punished. But when it comes to financial sector, inclusion and not exclusion is the need of the day.