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Financial inclusion is one of the main planks in India’s drive to wipe out poverty – equal to efforts to build physical infrastructure. Government experts define the policy as the “delivery of financial services at an affordable cost to the vast sections of the disadvantaged and low-income groups”. Officials estimate that more than half of Indian rural household about 46m homes – do not have access to credit.
Two third of the country’s population doesn’t have a Bank account and this situation is not expected to change dramatically in the near future. Inclusive growth demands providing financial services to this un-banked population. The attempt of the government is now rightly moving towards using alternate non-banking channels to route financial services into the interiors of the country. As a part of this process it would be only appropriate if the domestic remittance market is opened to the recognised money transfer agents who in any case are authorised to receive inward remittance from abroad. In fact it is quite paradoxical that a person sitting in India can receive remittance from anywhere else in the world but from other locations in India through this RBI approved private Money Transfer Agents. So a person in London can remit money to a person sitting in a remote village in Bihar by using the services of private Money Transfer players, whereas a person sitting in Bombay cannot do the same and the only option open to him is to use the postal department’s Money Order service.
The government has claimed it can end poverty by 2040. Presently, more than 250m Indians live on less than $1 a day.
The problems in India’s rural sector are well documented. About 72 per cent of the country’s 1.14bn people live in rural areas, yet agriculture produces only about 21 per cent of gross domestic product, according to the World Bank. That leaves the majority of the population living off a small chunk of the economic pie. Small and marginal farmers, those with two hectares (five acres) of land or less, comprise three quarters of the nation’s farming households but own less than one-quarter of its farmland. In the poorest states, such as Bihar, small and marginal farmers comprise about 96 per cent of those working the land, industry experts say. A lack of transport and other infrastructure forces farmers to sell their produce to village “aggregators”, the middlemen who take it to markets in nearby towns. With a better knowledge of prices than many of their poorly educated clientele, the middlemen can dupe farmers into a steep discount. They double up as money lenders, providing farmers with credit for seeds and equipment, often at crippling interest rates.
Micro finance and NBFCs can play a huge role in this space. Ofcourse a fully developed & integrated commodity market can also bring in all the related services including collateral management , warehouse receipt financing etc to remove the funding bottlenecks.
