Synchronisation for empowerment

According to the National Payments Corporation of India (NPCI), the United Payments Interface (UPI) processed a record-high of 941 crore transactions, with an all-time high amount of Rs 14.89 lakh crore last month, which is said to be 58 per cent year-on-year increase in the number of transactions and 43 per cent year on year rise in the transacted amount. Contrary to the apprehensions at the time of demonetisation in 2016, the UPI has emerged as the most reliable, safe and secure mode of financial transaction in a market economy, facilitating ease of living and growth of business — a revolutionary change from cash economy. The Digital Payment Index and Financial Inclusion Index maintained by the RBI claim a growth of CAGR 5 per cent-plus in financial inclusion since 2018 due to UPIs. However, the role of the digital payment system in financial inclusion needs a careful examination, since the majority of people — the marginalised sections — are miles away from even financial literacy, let alone financial inclusion. A study by 1 Bridge a Village Commerce Network reveals that only 3-7 per cent consumers use UPI in rural India. According to a study by Nandini, Howard Miller et al, published in Centre for Global Development (2021), even the UPI has covered only a third of the adult population while two thirds are still excluded from India’s digital finance ecosystem. As per a World Bank report (2017), around 190 million adults in India still do not have bank accounts.

QR codes with street vendors or small businesses in the unorganised sector are common today, but they do not necessarily guarantee financial inclusion any more than Bank accounts opened for small and marginal farmers or BPL households in the agriculture and allied sector. Financial literacy is essential for the marginalised sections of the country, who constitute the majority, both in urban and rural areas, for it enables them to make judicious decisions with regard to earnings, savings and investing their frugal disposable incomes. However, financial literacy will be of no avail without financial inclusion which, again, is not merely the provision of financial services but also real access to resources to engage in income-generating activities and build performing assets. The philosophy behind financial inclusion is economic empowerment of the socially and economically excluded classes through inclusive growth by reducing poverty and ensuring stability of the financial system. Hence, the policy principles of the government must be aimed at “banking the unbanked, securing the unsecured, funding the unfunded and serving un-served and under-served areas”. It’s one of the Sustainable Development Goals (SDG) of the UN for 2023.

Financial inclusion is challenging in the unorganised sector due to low asset values, default in repayment of loans, poor infrastructure and insufficient training and capacity development. Similarly, though the digital payment systems began penetrating the sector, access to proper financial products and banking services is still a major challenge. Small and marginal farmers, petty businesses, street hawkers, food and refreshment services, family-run occupations etc., still depend on local money lenders, actually ‘loan sharks’, for loans ranging from Rs 1,000 to one lakh, with interest rates between 15 per cent to 30 per cent. The borrowers can never get out of the vicious cycle of debt, so much so that some take their own lives in distress, farmers’ suicide is one such example. Money lenders still control around 70 per cent credit in the informal sector, and most of the liquidity is black.

Much is left to be desired in the formal microfinance sector i.e., Self Help Group-Bank Linkage Programmes (SHG-BLP) led by banks, and the private Micro Finance Institutions (MFIs). Though reports by NABARD claim that by March 2021, the savings of nearly 70 lakh SHGs (7.5 crore families), out of 112.23 lakh SHGs, touched an all-time high of Rs 37,477.61 crore, the fact that more than 50 per cent SHGs are still not credit-linked points out that real financial inclusion still eludes half of the target groups. Outreach of MFIs in India is less than 10 per cent, in comparison to more than 60 per cent in our neighbouring country Bangladesh. Though the commercial banks cover a lion's share of operations (44 per cent), inadequate financial literacy is an impediment. Secondly, banks seldom reach out to poor borrowers.

Lack of regular source of income and socioeconomic exclusion are prominent reasons for tardy progress in financial inclusion. Besides, 80 per cent of the labour force being employed in the unorganised sector, characterised by maximum cash transactions, makes the task even more difficult. Though the Pradhan Mantri Jan Dhan Yojana (PMJDY) was reported to have created 44.23 crore accounts with Rs 1,50,939 crore by the end of 2021, still a greater portion of accounts are inoperative for years. Under Pradhan Mantri Mudra Yojana, Rs 16,22,203 crore worth collateral-free loans were sanctioned in 30.7 crore accounts in 2021, ranging from Rs 50,000 to Rs 10 lakh. Likewise, under Stand-Up India scheme, Rs 26,688 crore has been sanctioned in 1,18,462 accounts of Scheduled castes and scheduled Tribes beneficiaries. Emergency Credit Line Guarantee Scheme (ECLGS) was launched in 2020 as a part of Atma Nirbhar campaign to support the MSMEs affected by the pandemic. These are certainly commendable interventions, but studies need to be conducted in order to ascertain the quantifiable benefits and tangible results, since the data on the performance is sparse.

Fintech companies, in partnership with the banking sector, create attractive products, but they mainly cater to high-income and financially literate sections in urban areas. Consequently, innovation and outreach in favour of low-income sections and marginalised classes is conspicuous by absence, resulting in lack of trust in the prevailing financial market and the financial products. It is observed in a study that poor people withdraw their earnings deposited in their bank accounts by their employers, and use the cash in informal financial services for survival needs. We need to address the “perceived benefit challenge” by filling the gap between the intent behind the financial ecosystem and the reality perceived by the poor and marginalised groups. Earning the trust of the financially excluded sections is important in programmes of financial empowerment.

A synergy needs to be forged among financial literacy, financial inclusion and digitally empowered society, for each of them, if seen in silos, cannot deliver the desired results. An integral financial strategy is essential to ensure economic empowerment of the vast majority of the BPL population in rural areas and the marginalised sections in the unorganised sector. Digital India Mission 2015 is a roaring success today. But addressing the digital divide, enhancing spending on the education sector, streamlining financial services, and encouraging low-income group oriented financial products are of utmost importance.

The writer is a former Addl. Chief Secretary of Chhattisgarh. Views expressed are personal