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The 3 Ps and 3x3x3 Matrix to Financial Inclusion

Do you pay monthly wages to your cooks, maid servants, drivers etc. in cash, rather than thru' mobile / internet banking or any other electronic mode of payment?

Have you ensured their financial security, by introducing them to various schemes such as Jan Dhan Yojana, Aadhar Card, Atal Pension Yojana, Pradhan Mantri Suraksha Bima Yojana, Pradhan Mantri Jeevan Jyoti Bima Yojana, etc.?

If not, you must ensure their Financial Inclusion by bringing these 'under-priviledged and unbanked' people within the ambit of formal financial system.

In this connection, presented below is the 'sum and substance' of an 'outstanding' speech delivered by Shri S. S. Mundra, Deputy Governor, Reserve Bank of India, on the subject of 'Financial Inclusion in India'.

Poverty anywhere is a threat to prosperity everywhere.

Given this belief, various schemes and plans initiated by the Govt. of India and RBI, have focussed on ensuring that the benefits of the same reach the under-priviledged sections of the society. For a sustainable and inclusive economic growth, financial inclusion of the 'poor and excluded' is a much cherished policy objective.

What is Financial Inclusion?

As per RBI, Financial Inclusion is the process of...
... ensuring access to appropriate financial products and services, 
... needed by all sections of the society in general, and vulnerable groups such as weaker sections and low income groups in particular,
... at an affordable cost, 
... in a fair and transparent manner, 
... by the mainstream institutional players.

RBI has been working towards financial inclusion since the 1960s... unfortunately, with limited success. Given the vast country and more than 6 lakh villages, cost-effective delivery of financial services and products has always been a challenge.

As such, despite many measures taken in the past, a very large part of our population is still deprived of the benefits of a formal financial sector.

In recent years, technological advancements have proven quite useful in taking forward this aim of Financial Inclusion. In addition, there has been a planned and structured approach towards this goal, through many new initiatives such as
- New Banking Entities like Small Finance Banks and Payment Banks
- New Payment Modes viz. Mobile Banking, Digital wallets, Aadhaar-Enabled Payment system, etc.
- Increasing the physical presence of banks, in addition to the Banking Correspondents
- Creation of Banking Correspondents Registry and Certification
- Aadhar-based Direct Benefit Transfer
- Financial Literacy Centres and Rural Self Employment Training Institutes 

In this regards, to bring in more and more 'unbanked' people within the banking channel, Shri Mundra has suggested a way forward through 'The 3 Ps' and 'The 3x3x3 Matrix'.

The 3 Ps - Products, Processes and People

"Suitable" Products
Unlike the existing customer base, the new target segment has certain peculiarities. For many, the income pattern is seasonal and erratic. For many others it is meagre. Therefore, traditional products may often not work for them. Secondly, they need to be protected against mis-selling. Thirdly, care must be taken that the over-zealousness does not result in over-indebtedness of these customers, who are still very new to the formal channels of finance.

"Transparent" Processes
Without 'trust' and 'confidence', it would be extremely difficult to pull people into the formal financial system. This is where "transparency" helps. Clear communication of the procedures, documentation and formalities involved, would help create that trust. 

"Committed" People
Right Products and Processes are not enough. They have to be backed by "Committed People", who are willing to put in that little extra effort, which is very essential to encourage people to try out the formal financial services.

Let's bring smile to the "disadvantaged", through the benefits of Financial Inclusion.

The 3x3x3 Matrix

For enhancing financial capability of individuals and for achieving financial inclusion, Shri Mundra proposes a 3x3x3 Matrix. It essentially refers to
a. Three sections of the society that require more focus
b. Three kinds of surpluses generated that need specific products
c. Three types of institutions that will play a central role

The Three Sections
People who are most in need of enhancement in their financial capabilities, can be classified into three categories. By the way, they contribute significantly to India's GDP and also constitute a large labour force. 

1. Small and marginal farmers, share croppers, etc.: Initiatives for this section of the society include among others consolidating small land holdings, vocational training, crop insurance, financing against warehouse receipts, financial literacy and more.

2. Micro and Small Industries: With not much in the form of credit history or the expertise to prepare financial statements, they have to be moved to the formal sources of finance, through innovative means of credit scoring and relevant low-cost products.

3. Low salary earners in the unorganized sectors: This section can benefit from Training, Skill Development Programmes, Formal and Vocational Education, etc. to improve their employability. 

The Three Surpluses
The three types of surpluses, and the financial products / services suitable for each of them, are:

1. Adequate Surplus: Those who generate adequate surplus have to be made aware of the various modes of investments (such as mutual funds, shares, gold bonds etc.) that can help them achieve their financial goals.

2. Meagre Surplus: Such people would more likely benefit from the regular investment products such as recurring deposits, SIPs etc.

3. No meaningful surplus: These people live on subsistence income. They can benefit from the Basic Savings Bank Deposit Accounts (BSBDA) or using electronic remittance channels for their day-to-day transactions. Secondly, they can be provided financial security through the Atal Pension Yojana (pension plan), Pradhan Mantri Suraksha Bima Yojana (accident insurance), Pradhan Mantri Jeevan Jyoti Bima Yojana (term insurance) and similar such schemes which target the poorer sections of the society.

The Three Institutions
Three types of institution, working with their relative strengths and in a coherent manner, present endless opportunities towards achieving Financial Inclusion. These are:

1. Banks: They are "existing and included", in the sense that they are already playing a role in bringing people into the formal financial system. However, they need to do a lot more, than what they are doing at present. They have to deliver on the 3 Ps.

2. Non-banking Financial Companies and Micro Finance Institutions: They are "existing" but "not yet included" in a structured manner to play a role in Financial Inclusion. They possess good last mile reach and this needs to be appropriately leveraged.

3. Small Finance Banks: These are "new" institutions. Three are soon to start their operations and seven more are in the pipeline. It is expected that SFBs would innovate on the last mile practices to reach their customers, through extensive use of technology.

Target: The Govt.'s vision on Financial Inclusion is, to bring over 90% of the hitherto under-served part of the population, into the formal financial system by 2021. They must become active stakeholders in India's economic progress. 

Concluding: As mentioned earlier, we too can play an important role in bringing more and more 'disadvantaged' people around us, to enjoy the benefits of the formal financial system (which we take so much for granted).

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