RBI order on 'Small Bank' not ideal for present needs: Samit Ghosh

Financial inclusion is not about geography, but people

Samit Ghosh, the widely-respected founder and Managing Director of Ujjivan Financial Services, a microfinance institution, has said that RBI's new recommendations on a 'Small Bank' will not help in financial inclusion.

"The solution lies in promoting specialised banks for financial inclusion which can provide directly - savings, loans and remittances, and as third party service provider (insurance and pension). (It is) similar to the 'Small Bank' recommended by the RBI recently but without any geographical restrictions. The restriction should be on occupations such as workers, micro-entrepreneurs and marginal farmers," Ghosh told Business Standard in an exclusive interaction.

According to him, these banks need to ensure that 90 per cent of their customers are the working poor and specialised banking institutions like these successfully exist around the world including in Bangladesh, Pakistan and Sri Lanka.

"We pride ourselves in having one of the world's (most) advanced banking system(s). It is high time we promote specialised banks for financial inclusion and close this vital gap in the organised financial service sector," he said.

Ghosh, who is also president of the Microfinance Institutions Network, said the myth of financial inclusion which needs to be broken is that of merely providing a no-frills bank account which are largely inactive or a microfinance loan.

"Real financial inclusion is by providing a comprehensive set of services which meet the total needs of the working poor. Their financial needs are basic - a safe place to save, credit for business, farming, animal husbandry, emergencies, education, family needs and housing, remit funds to support families and business, life & medical insurance for protection against frequent exigencies they face and pension to support them at old age," he said.

The mindset of our regulators, according to him has not changed, from focussing on geography by mechanically continuing to push for branches in unbanked rural areas with a population of less than 10,000 and this has not helped much.

"Some banks have a token programme for the poor which are not part of their mainstream business. Consequently, the poor remain unserved and have to resort to money lenders, fly-by-night finance companies to save and send physical cash home with friends and relatives. We have branhes in rural areas but they fail to serve marginal farmers and rural poor. (They) mostly serve farmers who have landholdings exceeding two acres," he said.