> Posted by Andrew Fixler, Freelance Journalist
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Indian financial inclusion advocates enjoyed a brief victory lap and an international spotlight in January, and they are poised to move into 2015 with a renewed push. On January 20, Indian Finance Minister Arun Jaitley was presented with a Guinness World Record for the fastest financial inclusion roll-out in history, the Pradhan Mantri Jan Dhan Yojana (PMJDY). In one week, between 23 and 29 August 2014, 18,096,130 bank accounts were opened through this national inclusion strategy. Since that date the number has grown to over 123 million across the country. During his January 25 joint address with Prime Minister Modi, President Obama commended Indian leadership’s commitment to prioritize financial inclusion for all Indian citizens, and pledged American support.
In a January 27 press release, USAID affirmed Obama’s pledge, and announced its intention to partner with over 20 Indian, U.S., and international organizations with the support of the World Economic Forum (WEF) to work alongside the Indian government “to expand the ability of Indian consumers and businesses to participate in the formal economy.”
Fast moving consumer goods companies (FMCGs), banks, payment networks, mobile network operators (MNOs), ecommerce platforms, and leading civil society organizations comprise the first cohort of partners, which includes Accion, Axis Bank, Bharti Airtel, Citi, Coca-Cola, FICCI, FIS, HSBC, ICICI Bank, IFC, ITC Limited, Janalakshmi, Marico, MasterCard, Procter & Gamble, SAP, SEWA, SnapDeal, Telenor, Visa, Vodafone, and Yes Bank. As USAID explains in its press release, these organizations represent the categories of actors whose combined effort can build an inclusive digital economic infrastructure.
Partner organizations have already been essential to PMJDY’s success. In the state of Arunachal Pradesh, for example, the government-owned Apex Bank enlisted the NGOs National Youth Project, Yuva Arunachal, and Manghi Welfare Society to support the banking of 11,654 households during the roll-out.
Top Indian policymakers, with leadership from Prime Minister Modi, have done a substantial amount to create an inclusive financial system. The PMJDY, initiated by Modi, has been successful in both raising the profile of the issue of financial inclusion and expanding account ownership. Other initiatives, such as the Aadhaar biometric ID card program and the promotion of agent banking by the Reserve Bank of India, have significantly reduced the hassle of opening accounts in rural areas. India is well on its way to the goal of an account for every household.
The big question, however, is whether these accounts will be actively used. In an interview I recently conducted with USAID representatives on the partnership initiative, the officials noted that India’s electronic payments ecosystem lags behind the rest of the country’s financial infrastructure. Stemming from this lag, “The one piece of the puzzle that hasn’t been fully addressed is that there are now more people with accounts – and increasingly they will have money in those accounts as the government digitizes social transfers – but relatively few opportunities to affordably and easily use those accounts to transact electronically. Rather than cashing-out their accounts every time they get a transfer, how do we keep money in the electronic system and realize the benefits and efficiencies that come along with that?”
According to a USAID official, the partnership will begin by examining how to effectively build a widely used electronic payments system. “At this stage, the idea is to coalesce around a common understanding of the problem, and to determine potential approaches…our objective up until this point has been coalescing key actors, and now we’ll be moving forward with those actors to co-create an action plan for tackling this challenge.”
At this point, the World Economic Forum plays a critical role in bringing together essential stakeholders and facilitating an actionable dialogue. The WEF is a “natural ally” of the program, as USAID representatives note. Inclusive finance features as a topic at its annual forums in Davos, and it has an initiative to promote private sector support for digital financial services development.
All of the organizations involved in the initiative, although disparate, have an interest in digitizing the Indian economy. For FMCGs, digitization means operational efficiency and savings. Coca-Cola, one of India’s largest FMCGs, has already joined the Better than Cash Alliance. For banks and payment companies, it means more accounts, and greater usage. A digital economy yields big opportunities for MNOs via mobile money usage by consumers and businesses. eCommerce companies, which frequently operate on a “cash on delivery” model in India, will see enormous operational benefits from introducing electronic payments. Civil society organizations advocate for benefits to consumers that come from convenient, quality banking and commerce services. They will play the important role of helping to ensure that the consumers’ interests are heard throughout the process of developing new financial infrastructure.
The challenge of building this digital financial ecosystem infrastructure calls for a coordinated effort. Representatives of USAID note the need for corporate actors and policymakers to work toward a shared vision, stating that “all partners are eager to move quickly to action, and will play roles in line with their capabilities and spheres of influence.” Some of India’s largest corporations, Coca-Cola included, have attempted unsuccessfully to promote electronic payment networks in the past, underscoring the necessity for a diversity of stakeholders to work in concert.
The Financial Inclusion Insights (FII) blog looks beyond the successful numbers of PMJDY to some of the demographic challenges the partnership will face. Even with the spread of account access, active use has lagged as many continue to see cash as the best transaction medium. Though mobile financial service access has enjoyed incremental growth, trust still has to be built between mobile network operators and consumers. FFI writes, “MNOs will have to go beyond relying on their significant distribution networks and actually invest in awareness, digital literacy and trust-building to attract more customers, especially in rural areas where there are greater deficits in the information environment.” The issue of mistrust also extends to the business correspondent and agent banking models, two branchless banking alternatives essential to PMJDY’s success. Access to and use of bank accounts is highly uneven across India’s states. For some individuals, account access remains out of reach due to a lack of proper identification or digital devices, or other socioeconomic barriers.
Underdeveloped digital finance ecosystems affect many countries. USAID’s involvement in this program is indicative of its interest to build out these ecosystems globally. India has a confluence of stakeholders in high government office and corporate leadership who see the value of building out a digital financial network, as well as a prominent position on the global economic stage. This makes the country uniquely positioned to take a leading role in tackling this important issue with the help of the right stakeholders.
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