Factors Affecting Financial Inclusion: A Study in Rourkela

Abstract

Financial services are a ubiquitous need, but the urban rich have easy and universal access with wider options, compared to the low-income group who are forced to accept informal, expensive and riskier means to fulfil their financial needs. While the need for a mix of financial products including credit, savings, insurance, remittance, social & welfare receipts, pension and so on, is well established, the demand for specific services can vary widely. Key influencers of demand and willingness to pay are demographics, literacy levels, social-dynamics, local enablers and inhibitors, availability of informal and alternate channels (together with their cost and convenience), adaptability to change, comfort with technology, and other exogenous and endogenous factors. At the same time, the demand and the supply of financial services for the poor is imbalanced, with supply being acutely constrained by lack of viability and sustainability of current business models. Evolving and newly emerging business models, rapid technological innovations and state initiatives have greatly facilitated supply conditions to improve and for the providers to consider building market-led self-sustaining alternatives to extend banking and other financial services to the excluded. The policy environment has evolved and (using a mix of loose and tight regulations and taking a controlling, direction setting or mentoring approach) provided suitable incentives and disincentives to promote financial inclusion. It enabled banks to extend outreach through third party agents and agent network managers. Financial inclusion confronts enormous barriers to adoption, some of which can be better dealt with by leveraging the wealth of knowledge and experience from diverse initiatives. The key guiding principles are to stay focussed on: –The consumer needs and expectations around - accessibility, proximity, simplicity, product relevance, ability to transact in low values, promise of adequate returns, pricing according to willingness to pay, establishing trust, ensuring portability, interoperability and safety. –The agent needs around viable returns, liquidity management, operational handholding, marketing, speed of response, security and keeping them motivated through a diverse range of incentives.