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Thursday, March 08, 2007

Achieving financial inclusion

Banks these days have been trying every trick in the book to mobilize deposits, financial inclusion being one of them. But Syndicate Bank recognized its importance in the 1920s.

BANKS ARE RUNNING short of loan funds. While all banks vie for the deposit pie in the urban and the semi-urban areas, the rural areas sadly remain relegated, probably on account of underestimation of the potential by banks. But it did surprise me when I learnt from the media that the public sector Syndicate Bank had decided to launch a newer version of the 80-year old Pigmy 1928 (a deposit scheme under which the bank’s agent calls on the customer everyday to collect deposit). The newer version is called Pigmy Plus 2007. I was surprised because we Indians begin to appreciate the value of our own invention only when it comes back to us through the American or European route. Don’t we see this happening in respect of Yoga, Bharatanatyam, Ayurveda, to name just a few?

The man who introduced this product was none other than the visionary banker TMA Pai, the founder of Syndicate Bank. He had to overcome teething problems, but he plodded on, nevertheless. The great man knew where there’s muck there’s brass. Pygmy 1928 achieved two things for the bank: It generated deposits and facilitated a higher level of financial inclusion. It provided employment to semi-skilled local people (from whom agents were appointed) and inculcated the saving habit in them. The agent would accept even 25 paise (I am talking of the 1970s; the floor may have been much lower, say 10 paise, earlier). After all, as they say, tall oaks from little acorns grow. Pygmy 1928 eventually became a hit and the rest, as they say, is history. The bank, which was personified as a Pygmy, became a giant. None but Mr Pai could have foreseen that financial inclusion would make all the difference to the bank.

Ms. Usha Thorat, Deputy Governor, Reserve Bank of India, in her address circulated at the Annual Bankers’ Conference 2006, in Hyderabad on November 4, 2006 admitted, “…The barriers to access to formal banking system have been identified as relating to culture, education (especially financial literacy), gender, income and assets, proof of identity, remoteness of residence, and so on. Efforts are being made by the authorities- especially banking regulators- to improve access to affordable financial services through financial education, leveraging technology, and generating awareness……In developing countries, the added dimension, and the main difference is that the focus of financial inclusion is on promoting sustainable development and generating employment for a vast majority of the population especially in the rural areas.”

She further suggested, “RRBs and well functioning cooperatives can be supported by banks to increase outreach. …Unlike other parts of the financial system, the RRBs with nearly 14,500 branches are concentrated in regions that are relatively backward and populous but where the incremental prospect for business and banking penetration is high…” But I would like to add commercial banks to the list suggested by Ms Thorat.

She also quoted from the speech of the Chairman of the Fed Reserve Board Ben. S. Bernanke at the Opportunity Finance Network’s Annual Conference at Washington DC on November 1, 2006. Mr Bernanke had remarked, “……. in dealing with scale and using technology, banks tend to adopt highly standardized and automated processes. But financial inclusion requires substantial efforts in understanding the needs of the customer, counselling, financial literacy, screening and monitoring…….”

Pigmy Plus 2007addresses all these requirements – the agent is a local man and he can be relied upon to dismantle barriers of the kind Ms Thorat has cited. It will leverage technology – the bank will equip the agents with a hand-held device (computer). The locally-appointed agent is better placed to understand the needs of the customer, counsel him, screen his requirements, etc.

I don’t think our IIMs or other reputed institutions of higher learning have undertaken a case study of the role played by the Pigmy 1928 in the growth of Syndicate Bank. Probably they will, once somebody at the Harvard Business School does it! Right now they seem to be more interested in listening to politicians who have serendipitous achievements to show against their name!

1 comment:

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