Financial inclusion mitigates the exploitation of vulnerable sections by the bad lemons – the indigenous money lenders - by facilitating an easy access to formal credit, more often through “peer monitoring models” (Self Help Groups) instead of an impossible proposition of “tangible collaterals”. The basic notion that thwarted the access of poor to banking system has been the perception that the “poor are not bankable clients”. Over the years, researchers have empirically analysed and arrived at evidences that what the poor people count is “access to credit” than “cost of credit”. 

 

The poor has been engaged with high interest rates with the usurious money lenders and even succumb to Ponzi finance (borrowing fresh at higher rates of interest to repay the earlier debt). Financial inclusion, thus, helps in breaking the shackles of financial deprivation by providing a linkage between people and financial mainstream of the economy. Further, by bringing low income groups within the perimeter of formal banking sector, it protects their financial wealth and other resources in exigent circumstances. The Committee on Financial Inclusion, chaired by Raghuram Rajan, defines,

 

Payments banks and small finance banks are going to be a “game changer” in the long run. In households, particularly in women-intensive households, formal savings options can be significant to smoothen their consumption over the month and reap benefits of a plethora of saving schemes and instruments. Pradhan Mantri Jan Dhan Yojana is indeed one such recent policy which aims to provide banking facilities to all people. However, the moot point to be noted is that financial inclusion does not just include “opening of new banking accounts”. 

 

Insurance penetration is yet another parameter to judge financial inclusion which has rightly gained emphasis in India. Policies like Suraksha Bima Yojana and Swasthya Bima Yojana are providing the much-needed cushioning against health and disability contingencies. Complementing such schemes are the pension schemes launched recently like the Atal Pension Yojana. People, especially women in the bottom quintiles, stand to gain from these policies. However, international comparison underscores the fact that India has not performed satisfactorily well as compared to other emerging economies. It has been ranked even below Kenya, Uganda and Turkey as per the Brookings Financial & Digital Inclusion Project (FDIP) Report, 2017. One-third of population still depends on “friends and relatives” for their borrowing needs. It reflects under-penetration of formal banking facilities in most parts of the country. 

 

Making women financially independent by endowing them with necessary education related to banking services will improve their lives. Anganwadi workers can be given basic banking training which will give them the opportunity to act as  Banking Correspondents (BCs). India has an estimated 1.053 million Anganwadi centres.¹  Adding one more dimension of pecuniary needs will prove to have significant impact. 

 

Innovative ways to assess risk quotient of a potential woman borrower should be used. One such way as being experimented in Africa is psychometric testing to analyse ability, intelligence and character traits to assess creditworthiness, as suggested by the CGAP report. This is particularly important when women are disproportionately disadvantaged by traditional credit scoring models that rely on “credit history” and “tangible collateral”.

 

There have been significant “recognition lags” in addressing the needs of rural people. More diversified, qualitative and quantitative loans through banks are required to prevent the micro enterprise owners (potentially women) from falling in informal interest rates web due to information asymmetry in credit markets. 

 

Existing gender differentials in the ownership of assets in a country like India, where sons usually have a part in parents’ wealth but daughters are excluded, is a matter of concern. While men usually own assets like land, women possess jewelry and other valuables in India. Analysing these differences in “Gender and Say” in intra-household ownership patterns, and making credit products compatible with all plausible ownership patterns is yet another policy step, though this is not the first best principle of financial inclusion. The financial and fiscal policies ensuring Property Entitlements to women, like tax differential treatments, with low property taxes if women registers the property in her name, are some of the crucial public policies to ensure financial inclusion for women through property entitlements. 

 

With India nearing its demographic dividend window, majority of the population in principle are ready to join the workforce. With judicious policies encouraging more and more women to join the workforce, there is also a need to educate them about financial independence and related services like - Direct Benefit Transfer Schemes (DBT), Provident Funds and Insurance Cover. This is very important as dearth of technical know-how and myths regarding banking services are a serious impediment in opening of bank accounts in India. 

 

India has been working towards bringing large masses of people under the coverage of mobile banking. The ease of doing transactions through mobile applications and enabling SMS banking for non-smart phone mobile users can go a long way.. This is especially important because mobile ownership has shown less gender gap and hence, provides an opportunity to those women who find it an onerous task to go to banks or ATMs, especially in areas where travelling can cost one day’s worth of wage or time and personal safety.

 

Further, policy making is possible when gender disaggregated data is made available which can highlight the reasons why women lack in accessing formal financial services. Advanced models which include qualitative variables like gender, behavioural aspects and cognitive variables need to be incorporated to fully understand the reasons behind low financial inclusion. This would prompt the policy makers to tackle it in the most effective manner and roll out plans targeting specific variables rather than a unified macro policy.  

 

Priority Sector Lending has lately played a major role in enhancing the financial coverage due to its intrinsic characteristics of catering to the most financially vulnerable part of the economy. The southern states have increased their focus on priority sector lending which have aided women to catch on small business opportunities and insulating them from the vicious circle of debt trap. However, financial inclusion is still a germinating concept and it needs to be fully understood by incorporating qualitative variables and cognitive models into the macro policy analysis.