Explain the issues and challenges for ICT financial inclusion services.
Answers
Issues and Challenges
On addressing the issues related to financial inclusion, it is extremely important to take a holistic approach addressing both supply and demand-side factors. The large size of the unbanked population spread across vast geographies, limited access to credit, low skill, low productivity and vulnerability to the risk of small and marginal farmers, rural landless and urban poor and lack of financial and technological literacy are some of the demand side issues.
Among the supply side challenges, the most cited one is the reluctance of financial institutions to serve small value and unprofitable customers with irregular income. That is to say, banks perceive inclusion as an obligation rather than a business opportunity. High loan default rates during the past add to the severity of this constraint. Besides, outlays of different schemes meant for the rural and urban poor did not translate into outcomes due to the poor delivery mechanism.
The urban poor does not fully utilize the financial services as the transaction costs are unaffordable to them. Another factor preventing them from accessing formal financial institutions are the requirement of various document proof. The poor generally lack documents such as income certificate, birth certificate, address proof etc. Nevertheless, the opening of an account alone does not assure integration with formal economy. It requires one to involve in income generating economic activities with monetary transactions. The existence of dormant accounts is the major criticism against the Pradhan Mantra Jan Dhan Yojna (2014). It is noteworthy that the percentage of dormant accounts with zero balance is highest in the case of Regional Rural Banks.
Another barrier to successful implementation of financial inclusion plan is the highly restrictive nature of banking correspondent (BC) model. The model failed due to various reasons, like the improper and inadequate use of technology, the absence of reach and coverage, lack of proper infrastructure etc. The core issue is the absence of any incentive for BC’s mainly financial stability. The BCs are also not completely aware of the significance of reputational risk of the bank and act irresponsibly on many occasions. Thus there is a great need of organizing regular training programs for BCs. Technological training is also important for better delivery of services.
Although SHG-Bank linkage model was proclaimed successful in rural areas, its reach across the nation is highly uneven. Additionally, it was observed that the SHGs were unable to procure loans from banks even after a year of formation and group activities. Figure 2 is an excerpt.