Empowering The Unbanked And Underserved: Here's A Road Map To Financial Inclusion

Lending institutions have the responsibility to address the demand gap and promote financial inclusion that empowers marginalised communities

Customised digital lending initiatives, created to fit the specific situations of underbanked areas, utilise technology to overcome geographical limitations.

Source : Getty

By Dr Rashmi Saluja

As we navigate the intricate fabric of the global economy, one stark reality looms large: the staggering number of unbanked and underserved individuals who remain detached from the formal financial ecosystem. At the forefront of this challenge, India is home to an astonishing 130 million individuals lacking access to essential banking services, as highlighted in a recent World Bank report. Such individuals rely on alternative financial services, including payday loans and cash transactions, underscoring the urgency of a comprehensive road map towards financial inclusion.

The roots of this issue are multifaceted. Often, individuals within unbanked communities face a barrier to entry in the form of inadequate documentation, such as government-issued IDs, proof of residence and employment verification. In the absence of these essential papers, the doors of conventional banking remain frustratingly closed. 

A predominant segment of these individuals derives their livelihoods from the informal sector, where cash transactions reign supreme. Consequently, the motivation to engage with financial institutions dwindles, as their daily sustenance does not necessitate interfacing with established banking systems. Moreover, a significant number of those within these unbanked communities exhibit a preference for cash-based financial dealings, viewing physical currency as a simpler means of budgeting and circumventing the complexities often associated with banks.

Compounding this situation is the perception of the unbanked populace that scheduled loan repayments are an insurmountable challenge. This perception stems from irregular income patterns and, at times, a lack of understanding of effective credit management, thus further alienating them from financial institutions.

From the vantage point of lending institutions, the absence of a credit history looms as a formidable barrier to advancing loans to these marginalised communities. The absence of prior borrowing and repayment records renders these individuals high-risk borrowers, inadvertently shutting them off from essential financial opportunities.

The path to financial inclusion 

The onus now squarely rests on lending institutions to bridge this ever-widening chasm and usher in financial inclusion that empowers these underserved communities. Central to this endeavour is the imperative of educating the unbanked about the transformative benefits of financial services. Equipping them with this knowledge facilitates their seamless integration into mainstream economic activities, harnessing their existing resources with a newfound sense of financial discipline. The availability of various financial instruments also serves as a catalyst for their personal and societal growth.

Creating an environment of self-control is of utmost importance in the context of promoting financial inclusivity, especially within the informal sector. Active engagement with the banking system fosters financial discipline and planning, enabling the cultivation of savings and investments, thereby paving the way for sustained, long-term financial security. Additionally, the transition from cash to electronic transactions, facilitated by access to banks, reduces the inherent risks in handling physical cash.

By embracing inclusive financial practices, these masses will not be mere bystanders but active participants propelling economic growth. Through investments, savings and borrowing via formal channels people can become integral cogs in the broader economic growth.

The role of lending institutions

Lending institutions recognised as pivotal stakeholders in this transformative journey, bear the responsibility of driving initiatives that engender financial inclusion in the country. A prime example involves orchestrating social campaigns in unbanked locations, designed to demystify financial services for these unbanked communities. By providing clear and relatable information, these campaigns can dismantle perceived barriers to banking and cultivate a sense of financial agency.

Digital lending programmes

Digital innovation plays a paramount role in this trajectory. Customised digital lending initiatives, created to fit the specific situations of underbanked areas, utilise technology to overcome geographical limitations. These programmes encompass simplified account opening procedures, mobile banking, and other tech-driven initiatives that effectively democratise banking accessibility.

Introducing initiatives cased on govt schemes and policies promoting financial inclusion

Strategic collaborations between lending institutions and government-led initiatives amplify the thrust towards financial inclusion. These partnerships can manifest in diverse forms, such as specialised loan programs, simplified account-opening procedures, and financial educational initiatives, focused on enhancing financial literacy. Some case-in-point examples include Pradhan Mantri Jan Dhan Yojana (PMJDY), Atal Pension Yojana (APY), Pradhan Mantri Vaya Vandana Yojana (PMVVY), Stand Up India Scheme etc.

The quandary of unbanked and underserved communities casts a poignant shadow on the contemporary global economic landscape. These communities face unique and complex barriers that prevent them from fully engaging with the financial systems, which most take for granted. Addressing these barriers necessitates a holistic approach that merges education, tailored products and services and strategic collaborations with government endeavours.

Being stakeholders lending institutions in partnership with governments and community organisations, hold a prominent role in spearheading this paradigm shift. Through investments in knowledge dissemination, the simplifying of banking procedures, and the judicious employment of digital technology, we can bridge the gap between the unbanked and the financial services they yearn for.

In this noble pursuit, we not only empower these communities but also create the grounds for comprehensive economic growth, fostering an ecosystem rooted in equity and resilience. This vision is worth striving for, promising tangible transformation in the lives of countless millions.

The writer is the executive chairperson at Religare.

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