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Financial Inclusion—From Obligation to Opportunity


Financial inclusion is the process of ensuring access to mainstream financial services where and when needed by vulnerable social groups at an affordable cost. It is the usage intensity of financial product and services instead of mere ownership of a financial product, which results in sustainable financial inclusion.

Another relevant point regarding financial inclusion is that, even amongst the population that has access to formal financial sector institutions, the majority are often poorly served both quantitatively and qualitatively from the perspective of products and services.

Despite broad international consensus on the importance of financial inclusion as a powerful social development instrument, it is estimated that over two billion people continue to be financially excluded from the formal financial sector. With over 135 million financially-excluded households, India is home to the world’s second largest financially-excluded population after China. Only 34 percent of the Indian population is currently engaged with the formal financial sector and the urban rural divide is very apparent. TCS Financial OfferingIf usage intensity of a savings account is considered as a true indicator of financial inclusion rather than mere ownership, then the financial inclusion percentage will certainly be much lower.

Till recently, the focus of the financial inclusion interventions has largely been supply oriented and typically driven by government mandates. While progress has been made during the last few years, the formal financial sector continues to treat providing financial services to the poor as a social obligation rather than a viable untapped business opportunity.

To achieve a more balanced set of interventions and align the supply-side interventions with the needs of the financially-excluded consumer, it is important to develop an in-depth understanding of the consumer. Some typical challenges faced by the financially-excluded consumer toward accessing the mainstream financial services include complex products, bureaucratic procedures, lack of credit history and lack of collateral. To create a “demand pull” for their products and services, financial institutions will have to architect their products and services radically to address the real, rather than perceived, needs of the financially-excluded consumers.

From the supply-side perspective, the challenges for scaling up financial inclusion include high cost of transactions, huge upfront investments to create the infrastructure, market development expenses and lack of standards. In India, the challenge is exacerbated as IT adoption beyond the national public sector banks is quite low.

Ensuring sustainable financial inclusion will require supply-side and demand-side challenges to be addressed simultaneously through systemic solutions. All stakeholders of the financial inclusion ecosystem, including financial institutions, regulatory agencies, technology service providers and civil society organizations, will need to play their individual parts effectively. They will also need to collaborate with each other to architect and implement effective interventions. The size and the heterogeneity of the financially-excluded population necessitate contextual solutions and preclude a single “silver bullet” approach or model, which can be prescribed globally.

ICT interventions can enable financial institutions to create disruptive business models that will provide mainstream financial services to the poor. Mobile and wireless ubiquity coupled with the rapid increase in the telecommunication network and service quality has the potential of being the force-multiplier for scaling up financial inclusion. By leveraging ICT, financial institutions can lower down the cost of transactions, increase their outreach, reduce time-to-market, enable product and service innovation and achieve upstream and downstream integration within the financial ecosystem institutions.

The white paper below examines the demand and supply-side challenges and proposes a systematic Information and Communications Technology (ICT)-enabled approach to address the multiple financial inclusion challenges.
Read the white paper on Financial Inclusion—From Obligation to Opportunity