>>Authored by Larry Reed, Director, Microcredit Summit Campaign
We launched our new State of the Campaign Report, Mapping Pathways out of Poverty in India, the epicenter of the current financial inclusion transformation. For two days at the Access/Assist Inclusive Finance India Summit, I heard about all of the technological and regulatory innovations that will be driving access to finance in the country over the next decade. Over the past 12 months, the government, regulators, and financial institutions of India have made huge strides, providing first time bank accounts to over 300 million people.
Some of the other numbers reported at the Inclusive Finance India Summit were just as staggering:
- The country has more than 568,000 banking outlets now (including banking agents), compared with only 2,000 just 10 years ago.
- In its first 68 years of existence, the Reserve Bank of India approved 12 new banks. In the next two years, 23 new banks will be established (i.e., 11 Small Finance Banks, 10 Payments Banks, and 2 Commercial Banks).
This combination of regulatory openness and technological wizardry has given new vitality to a sector once mired in crisis. But, the next few years will also be a time of creative destruction in India, as new business models and partnerships emerge, leaving winners and losers in their wake.
The key question for us at the Microcredit Summit Campaign, and I think as well for the success of the Modi government’s financial inclusions initiatives, is whether people living in extreme poverty will end up among the winners. Those initiating financial inclusion campaigns in India and globally stress their role as a stepping stone to a much larger goal, the elimination of extreme poverty.
However, the counting methods chosen by both the government of India and the World Bank, i.e., access to a formal bank account, may have little influence on the well-being of the account holder. Graham Wright of MicroSave reported that their research found that only 43 percent of the new accounts in India were active (i.e., had any activity in the past 90 days). Meanwhile, in four states of southern India, people have deposited over US$5 billion in informal and unregulated chit accounts, presumably because they found them more useful than formal bank accounts.
The 2015 Report outlines Six Pathways that India and other countries can develop to make sure that financial inclusion does lead to improvement in the lives of those living in extreme poverty. We also highlight a process that connects financial inclusion to the elimination of extreme in the executive summary.
I started working in microfinance over 30 years ago. At that time I don’t think I could have imagined an event like this one, where government officials, Central Bank leaders, corporate leaders from mobile phone companies and commercial banks, digital innovators and microfinance pioneers all gathered together to talk about how they could bring financial services to an entire country of over a billion people. I hope that this group of innovators and builders can quickly pivot to the real challenge in front of them, making sure those financial services reach and benefit people who have suffered the most from exclusion.
- 2015 Report: “Digital Finance“
- Manoj Sharma, et al, 2015, “PMJDY Assessment Round 2: Well Begun is Job Half Done,” MicroSave
- 18th Microcredit Summit Welcome Letter