Barnabe D’Souza sdb
Why Financial Inclusion?
In a world driven by a cash economy and international flow of capital, the majority of the poor still remain excluded from financial services. Financial services have failed to adequately reach poorer populations for a number of reasons, including: inadequate infrastructure; perceptions that lending to the poor is too risky to be commercially viable; inhibiting regulatory and legal environments; and limited understanding and awareness of financial services by the poor. Financial services, including savings and deposit services, credit, payments and transfer services, and insurance, are increasingly being seen as important to poverty reduction and achievement of the Millennium Development Goals. Nobel Laureate Muhammad Yunus opined that all the poor really need is a little capital to start climbing the economic ladder. Yunus' approach is echoed by other social entrepreneurs. Give somebody a handout, they say, and he will feel and act like a helpless beggar. Give him a loan, and you treat him (or, in most cases her) as a responsible business partner.
Financial services can offer the poor mechanisms to stabilise livelihoods, stimulate economic development, finance reconstruction and facilitate renewed remittance flows. Access to financial services can also promote social inclusion, provide identity and build self-confidence and empowerment, in particular among the marginalized. When there are more poor in the labour force earning a reasonable income, benefits flow to their children in improved standards of wellbeing and educational attainment. Where they have the capacity, the opportunity and the skills to earn an income, the poor raise not only the quality of their own lives but also the lives of those around them. The ripple effect goes beyond the immediate family into the community. Suddenly they have the means – and the power – to break the poverty cycle. They are driven to free their families from a hand to mouth existence, and to put aside some capital for emergencies.
“Our family income of Rs. 7,000 would get over by the middle of the month. My husband would spend the money on drinks for himself and his companions. I was helpless to do anything. I tried robbing from his pockets when he was in a drunken stupor and hide the money in my pots and pans, under the mattress, in my children’s clothes etc. But he always found it and then would beat me. Then I tried to hide from him the actual number of houses I was working in (as a domestic) - in a bid to save at least some of the money that I was earning. But eventually he would find out the truth and turn his anger on me and my children. I had to send my children to beg on the streets and they stopped attending school. We tried to manage on what they brought in but soon we had to turn to borrowing and perpetual debt. Now we are constantly paying back various debts. How can I get out of this trap?” lamented 32-year old Savita, a basti dweller.
It was in response to such questions that the Don Bosco Research Centre launched its Financial and Social Inclusion initiative via its Connect All Network.
What is Connect All?
Connect All is a network of developmental organizations created to achieve a vision of total inclusion. The realm of financial and social inclusion is seen as a means of not only building up financial capital but also to ensure protection of assets owned by the marginalized. The goal is to ensure that all marginalized citizens of India are included in one or the other government mainstreaming and poverty alleviation programmes; this is best done through the wide range of NGO Networks across the country, networked through Connect All India.
Instruments of Identity- A Tool to Access their Rights
Most traditional identity instruments such as Ration Cards ( which enables the poor to obtain food grains through the Public Distribution System at subsidized rates) are regarded by the state as non universal, provide insufficient information, and are non verifiable. Obtaining a ration card required some proof of identity such as birth certificate or school leaving certificate, which the poor did not possess since they were born at home (and so were not registered with government bodies) and many never attended school (having to work in their village farm instead). The new instruments based on biometrics system are identity proofs that can be used to ensure consumer access to banking, insurance as well as government schemes. These instruments are seen by Government of India as essential for strengthening livelihoods strategies of poor households.
Three major elements form the essence of this conceptual framework-:
v People (especially poor people) they are actors who labour and have agency
v Assets and capabilities- leverage people’s agency by making people’s actions more effective and increasing the returns to their labor
v Institutions which establish people’s obligations and their claims on assets and capabilities
The Connect All Network aims:
Ø To reach out to those sections of the society who have been excluded from Government programme and/or are not serviced by formal financial institutions
Ø To strengthen networks with NGOs which need support to reach out to the excluded communities and groups they have been working with
Ø To work on financial and social inclusion by disseminating information on government projects and programmes, build capacities of all stakeholders; undertake research, documentation and policy analysis.
Enhancing Fiscal Capital
Biometric door-to-door mobile banking is a pro-poor move towards greater transparency.
v No Frills Biometric Bank Accounts: Taking the view that access to a bank account can be considered a public good, in 2005, RBI directed all banks to offer at all branches the facility of ‘no frills’ account to any person desirous of opening such an account. This account has a zero balance, there are no KYC (Know Your Customer) documents required to open this account. It can be operated by an NGO or any other private person/ handicapped person/ kiosk on a Commission basis. It has just two hand held machines, one a mobile phone and the other a finger printing biometric device (25% smaller than a credit card machine) and also a voice recorder- so the person speaks into the machine as to how much he is withdrawing or depositing. Only he/she can withdraw the money personally through fingerprint authentication thus eliminating the possibility of cheating. Such mobile banking is taken to the doorstep of the poor and enables money to be transferred from anywhere in India. This facility allows the family budget to be stretched to the end of the month and beyond, frivolous spending is reduced or even cut out (as in Savita’s case, page 2). If there is no food in the house, the lady of the house can go and withdraw a small amount (Rs.30-40) to buy what she requires, without sending her children to beg. This ensures that they go to school and are kept off the streets.
v Income Generation: Tie ups with some industrial centers (MIDC) have ensured that they outsource their semi-skilled jobs of packing, sticking, labeling, etc. to poor and vulnerable groups who earn about Rs.100 to 120 a day in urban areas and save it in their no frills accounts. Similar activities are being carried out in rural areas.
v Government Policies: There are several Government policies for those Below Poverty Line, the urban and rural poor, like Rozgar Yojnas, employment guarantee schemes, medical schemes, disaster related schemes, development schemes etc which only partially reach the people. Connect All has begun researching procedural systems to help obtain these for the poor in urban and rural areas.
v Insurance Policies: SEBI has given a mandate to several Insurance agencies to design programmemes especially for the poor. Under the Education Plan Yojna for students from Classes 8 to 12, they have to put in Rs. 50/- per month, the State and Central Governments put in a matching amount so that after 4 years (after Class 12) the student has the money to pursue graduation studies should he so desire. There is the pension scheme by UTI – wherein any poor person can put in Rs. 100-200 or more per month anywhere after the age of 18+ upto 58 years, after which he gets a pension every month on his capital amount. Hence the poor farmer has security in his old age. There are several policies like these that Connect All are negotiating with the issuing companies, and delivering it as a package to NGOs in different parts of India.
v Assets Valuation: Helping the poor and marginal segment get their live stock valued by the bank enables them to obtain credit for it, multiplies the livestock, farm produce, small scale businesses etc. as the poor are enabled to bargain from a point of reference of possessing/owning assets.
Social inclusion involves the removal of institutional barriers and the enhancement of incentives to increase the access of diverse individuals and groups to assets and development opportunities through documentation and instruments of identity such as:
v The PAN Card: It provides access to a bank account, helps to obtain organized employment, obtain access to Government funds as well as other documents like the Voters card, the Ration Card, Passport etc. Through a tie-up with UTI, the main Pancard issuing authority of India, Connect All is helping NGOs to help the poor in remote regions to make their Pan cards at the Government rate (so they are not cheated by agents) and obtain access to further fiscal capital.
v The UIDAI: The Government of India is mapping the 1 billion plus residents of India through a biometric Unique Identification Number (UID). Through a tie-up being worked out with the chief executive of UIDAI, Connect All is getting NGOs to access their services and help the rural poor get access to all other proofs of identity. The Unique Identification Number is a transparency instrument for good governance and helps to track whether Government funding has reached the poor directly. Criticisms on confidentiality and procedural issues are being addressed.
v The Medical Benefit Card for the Below Poverty Line (BPL): It helps the poor get 50% off on their medical bills, but most are not aware of this benefit. When they get ill, they borrow money and remain entrapped in indebtedness their entire life. By facilitating the procedure for obtaining this and other cards, the NGOs are able to reach out to those most in need.
v The Senior Citizens Card: This card helps those above 65 years get 50% discount on electricity, water, transport, medical payments etc. There are some agencies appointed to do this for the rural and urban poor. Connect All has built up contacts with these agencies to help the poor obtain these cards.
There are other documents such as the Postal ID Card which operates in some states of India, and which can help obtain other identity documents. With over 350 million people who are below the poverty line, the Government has been introducing several schemes in a bid to alleviate their poverty, but ineffective implementation means that the benefits do not percolate to the poor as envisaged. Hence these cards are a way of helping the poor get access to these benefits.
Specifically financial and social inclusion is expected to have the following outcomes:
Ø Improve access of marginalized to banking and insurance services
Ø Build skills in savings, budgeting and asset management
Ø Improve access of Self Help Groups to credit facility
Ø Reduced borrowing from informal money lenders, peth pedhi, chit funds and lessening of indebtedness
Ø Improve access of marginalized to government poverty alleviation programmes
Ø Reduce rural seasonal migration, family disintegration, increase children studying in village schools etc
Ø Increase livelihood assets, capabilities and networks of poverty groups
Ø Reduce the number of people living below poverty line.
Financial and Social Inclusion is a long term programme which requires an ongoing investment and input from all the stakeholders. An investment climate geared to pro-poor growth and creation of financial and social capital leads to lateral development. The GDP growth cannot be ascribed to the efforts of just a few business houses and a corporate sector that has a vertical perspective to development with its concentration of wealth at the top rung. It is a methodology to bring about collateral development, without leaving out those at the bottom of the ladder.
For us Salesians, it is another perspective on individual and family development with its macro dynamics at reducing poverty, migration, urbanization and family disintegration while simultaneously enhancing youth dividends by increasing education, skilling opportunities and keeping children out of early labour and off the streets, an effort towards a just society, wherein the poor obtain access to what is deservedly their right.