Regulators team up for financial inclusion

An inter-regulatory coordination group, plus an outside group of experts is busy creating the plan

Banks, insurance companies, mutual funds and pension funds will now chip in to create a common strategy to further the government’s financial inclusion agenda in a targeted manner and based on a customer’s need.

A national strategy for financial inclusion is almost ready and soon all financial entities would be directed to coordinate with each other to introduce products step by step. They might even have to customise offerings based on the financial inclusion journey of a customer, Reserve Bank of India Deputy Governor S S Mundra told Business Standard in an interview.

But before that, the financial institutions would put their heads together to educate customers about the importance of various products. A national strategy for financial education is also getting formulated as a corollary to the inclusion strategy. 

An inter-regulatory coordination group, plus an outside group of experts (the financial inclusion advisory committee) is busy creating the plan. The first draft is ready and was discussed at a recent inter-regulatory meeting. It would be fine-tuned further, Mundra said.  

All the financial regulators — Reserve Bank of India (RBI) for banking, the Securities Exchange Board of India (Sebi) for markets, the Insurance Regulatory and Development Authority of India (Irdai) for insurance, the Pension Fund Regulatory and Development Authority (PFRDA) — have products to bring the excluded population into the fold. But there is no common strategy.

The idea is to present a package to a person by understanding the stage of the inclusion journey he is in. “Someone opens an account with no job at hand and you try to sell an insurance or pension product to that person … then it’s meaningless,” Mundra said, adding opening an account is just the start of the inclusion journey. “Once an account is opened, there should be some transaction. Then the person should be given some productive credit. Once credit is given and she can generate surplus, that surplus should be used to buy some micro-insurance, and save some money for a rainy day or for old age. In those stages, pensions and investment products would be introduced.” 

There is no need to develop new products, but the credit scoring model will have to change and the products customised.

The strategy here would be determining what kind of credit should be given once an account is opened, and then what kind of products should be offered. There would be changes in how the information technology would be used, and how a customer can be tracked.

“It is important to create a different scoring model for these customers. How various people or groups be given suitable products, which would be useful for the customer, depending on his or her journey, rather than peddling off-the-shelf products, which is exactly opposite of what you need but is something I want to sell,” Mundra said. 

Here, the national strategy on financial education comes into place. Education would ensure there is a ready demand for the products. “The regulators have done a lot in terms of supply. Now, if customers are not aware of these products, all these supplies have no meaning,” he said, adding demonetisation had increased the supply of these products and demand was also increasing, but more needed to be done.