Duvvuri Subbarao: On India, technology and the importance of authority

Duvvuri Subbarao, Former Governor of the Reserve Bank of India, shares his reasons for attending the FI2020 Global Forum, and the outcomes of a Working Group on the Role of Technology in Financial Inclusion, which he moderated on Day 2 of the forum.

Duvvuri Subbarao: Addressing India's financial Inclusion Challenges

Duvvuri Subbarao: Addressing India’s financial Inclusion Challenges

Financial Inclusion: Learning and Contributing

I came here to learn about financial inclusion and to offer my experience of financial inclusion to the conference attendees. The Reserve Bank of India attaches high priority to financial inclusion.  You may ask why a central bank that is in the business of setting monetary policy and printing and distributing currency and regulating payment systems should be interested in pursuing financial inclusion? This is for two reasons:

First, the Reserve Bank of India, unlike central banks in advanced economies, has historically had a development role. We believe that financial inclusion is a necessary condition for inclusive growth; the benefits of growth have to flow to poor people, they must have access to the formal financial sector because it gives them an opportunity to improve their incomes, and improve the quality of their lives.

The second reason that the Reserve Bank is important in financial inclusion is because lack of access to the formal financial sector can be destabilizing financially to the entire financial sector. There are many fundamental causes for the global financial crisis, but one of the root causes is the lack of awareness of financial matters by ordinary people – where many took on mortgage loans and then defaulted. So financial literacy and financial inclusion is very important – at personal, institutional and economic levels – to ensure the stability of the overall financial system.

What has stood out for you at this forum?

I was very positively surprised that so many people around the world – different nationalities, stakeholder groups, and segments of the financial sector – are united by a common ambition of pursuing financial inclusion. No matter what their motivation, the larger objective is really unexceptionable and, I think, a necessary condition for poverty reduction. So I’m amazed at how many people here that I didn’t know existed, people who are committed to this very lofty objective.

Please tell us about your technology working group

Our group discussed how governments can creatively leverage their resources to promote technology enabled financial inclusion. What you need to appreciate is that one of the big facilitators and breakthroughs for financial inclusion has been technological innovations. People can do banking – even though miles away from a brick and mortar branch – from a mobile phone or through a handheld machine; and that’s caught on, but that’s just the beginning. A lot of financial sector players are using the technology, but aggregating all this effort are the governments at the top. So the topic under discussion was how do governments creatively use their resources to promote a technology enabled financial inclusion.

What key issues came to surface during the Working Group?

There were several ideas, but we crystallized them into two insights:

First, because different countries follow different models, undertake different experiments and have their own record of successes and failures, there is a huge opportunity for these countries to learn from each other. But at the moment there is no single platform where all this experience is concretized and put across. So, one idea that came up was whether an institution like CGAP or the World Bank could be that central aggregating agency and run a platform for experience sharing on technology enabled financial inclusion. Of course this has got to be fleshed out in great detail, but that’s the first idea.

Second, how do you spread awareness and acceptance among ordinary people about technology enabled financial inclusion? After all, people can be intimidated. If somebody came to me – at my level of income, education and experience – with a handheld machine and said ‘look, you can deposit money with me’, I would be worried. Imagine people who are entering a banking system for the first time in their lives, giving their life savings, as meager as they are, to some stranger who has some machine, which doesn’t look like a bank at all! It’s important to educate people and create trust so that people know that this is regular banking and is a viable market.

What are the next steps your group proposed?

We’ve had this conference on financial inclusion by 2020 and lots of ideas have come up. But we will all disperse tomorrow and then we all do our regular work. There should be one commitment that everybody makes, one concrete measurable commitment, enforceable commitment – for example, something simple like, “every government in the world will ensure that at least 80% of their households conduct at least one transaction with the formal financial system per month”. Numbers could be different, but the idea is that you set a concrete measurable objective.

This commitment has to come from a conference like this, but I think that commitment has to be driven by a body with greater authority. This conference has no authority, but G20, for example, has taken on financial inclusion as one of its agenda items. If the G20 were to determine tomorrow that by 11/2015 all of us pledge that we work towards this goal of 80% of households doing at least one transaction with the formal financial system at least once every month, that would be a great big idea.

I think this conference can advocate for this big commitment idea. This conference has brought together a lot of stakeholders, but we need to promote this idea – canvas and lobby the G20, governments, central banks, ministries of finance, the World Bank, IMF and the ADB.

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