Union Bank of India believes that banks have to create the “need” for the rural poor to engage with banks. It is this belief that led to Ernakulam in Kerala—where UBI is the lead bank—to become the first “meanigful financial inclusion district” of the country, reveals D Sarkar, CMD. Edited excerpts of an email interview with Governance Now:

Financial inclusion has been in mission mode for more than three years. How has UBI contributed to it? What are its successes, learning and what have been the impediments?
Taking financial services to the citizens in rural and remote regions of the country assumes significance as even this day almost 50% have yet to gain access to rudimentary financial services. Union Bank launched Financial Inclusion (FI) initiative five years back in Chahania Block of Chandauli district near Varanasi.
 
The bank’s approach towards financial inclusion is to first create the “need” among the targeted group as we believe that there is enough demand for the products/services offered by the bank in the centres we operate. This conviction has been the driving force behind the bank’s pioneering efforts towards financial inclusion.

Union Bank has been the pioneer in:

• Introduction of biometric smart card based branchless banking
• Extending biometric smart card based banking for urban poor
• First bank to launch micro-credit products on biometric cards
• Introduction of biometric card based micro-remittance product in identified corridors for migrants.
• Leader in G2P (Govt-to-Person) payments on biometric cards.

Taking lead in these areas, as on December 31, 2012, our bank could extend its reach to over 28,900 villages. We have tied up with nine technology service providers and business correspondents for outsourcing the branchless banking activities. So far over 9,800 BC agents are servicing over 12 million branchless banking customers in the field across India.

The bank has devised saving and recurring deposit and loan products over biometric cards and extended micro loans of Rs 202 crore and deposits over cards were Rs 88 crore as on December 31, 2012. We are also facilitating the payment of wages/pension under MGNREGA/SSP through biometric smart card technology. This facility has been extended to 37.22 lakh beneficiaries in Andhra Pradesh, Haryana, Jharkhand, Kerala and Madhya Pradesh. We have also disbursed wages under MGNREGA & pensions under SSP in 15 districts aggregating Rs 1,432 crore up to December 2012.

As for urban financial inclusion, we have devised micro remittance product for migrant labourers using biometric technology. The bank has opened 12.46 lakh accounts over biometric cards under this project and handled 38.22 lakh remittances amounting to Rs 1,736 crore. We have also launched ‘Union Bank Money’ using the prepaid mobile platform for financial inclusion.

What about the viability of financial inclusion? Three years into the mission are we anywhere close to a business model for financial inclusion? Is direct benefits transfer (DBT) the business model we have been looking for?
There is untapped business opportunity in reaching out to the unreached and neglected members of society. The aim should be to be connecting with the people, understanding their needs and providing basic banking facilities as per their requirements by leveraging their strengths and expertise.
With the arrival of banking technology and realisation that poor are bankable, financial inclusion initiatives will strengthen banking activities further and provide resources to the banks to expand credit delivery. The banking technology initiatives meant for financial inclusion should be collaborative and innovative with an objective to reducing the transaction costs.

Technology holds the key to providing models for efficient delivery of small value transactions in large volumes while reaping economies of scale. The viability of the BC model depends much on high volumes and low transaction costs. Further, bank branches need to provide marketing support to inclusion initiatives through the BC model for increasing transactions over cards, cross selling of other products like micro insurance etc.
The direct benefit transfer (DBT) will facilitate efficient delivery of small value transactions in large volumes while reaping economies of scale. This will definitely generate modest revenue stream for the bank.

However much ahead of DBT, Union Bank has taken other initiatives to achieve meaningful financial inclusion as also enhance the financial viability of the BC model. Initially the bank’s focus was on customer acquisition by extending coverage to the maximum number of villages. However, for meaningful financial inclusion, it is imperative that these accounts remain operative and the customers inculcate banking habits and the banks provide emergency as well as entrepreneurial credit. Union Bank has therefore devised a basket of products over biometric cards to meet the customers’ needs/demands through the BC model. The focus hereafter will be more on increasing operations in these accounts, providing micro loans for undertaking income generating activities. The bank has adopted SHG/JLG model for extending micro loans to inclusion customers.  

We have specially devised loan products on biometric cards for JLGs formed by married women to enable them to undertake income generating activities. We also offer micro remittance, recurring deposit, micro loans, emergency credit and micro insurance using biometric card technology. We have a small value remittance product devised over prepaid mobile platform and have beenable to disburse micro loans of '287 crore under the BC model of which micro loans of '280 crore are to JLGs/SHGs.

There is no doubt that the need and aspirations of inclusion customers are on the rise as also their income. Extending banking services to the hitherto unreached is a bankable proposition provided the banks understand their needs and take proactive steps to convert these opportunities into business proposition.

Banks can open any number of accounts, but can financial inclusion be the responsibility of the banks alone? Do we not need to create economic activity in the rural areas to make inclusion a reality? If there is no economic/entrepreneurial activity how can bank accounts be active?
By inclusive growth what is meant is that there should be contribution of each member in the economic development of the country and at the same time every individual should stand to benefit from that development. Looking at the slow pace in reaching the unreached, the government and RBI have taken policy decisions to place financial inclusion in mission mode. Initially our focus remained more on acquisition of accounts thereby reaching the maximum number of unbanked villages. Today we (Union Bank) have built a customer base of over 12 million inclusion customers.

In the course of various initiatives we have undertaken, we learnt that the process of inclusion should be viewed both as a social mission and a high potential business opportunity. Reaching the unreached through the branch model is not only a difficult proposition but would also involve heavy administrative cost. As on date we have covered over 28,900 unbanked villages by providing basic banking services at the doorsteps of the villagers through the BCs. In the process the bank has made substantial investment. In the long run this investment is expected to generate matching returns making the BC model the alternate delivery channel adopted by the bank to service these customers, a profitable venture.

But the challenge still remains to augment the earnings of the people in the poor category for which we need to create opportunities, necessary skills and provide credit. The bank has taken various initiatives for spreading financial literacy, devising loan/deposit/remittance products over cards, financing of SHGs/JLGs and undertaking EBT benefits in various states. As per our estimates the BC model will generate surpluses within next five years.

What are the success stories that you are proud of in financial inclusion?
As I have already pointed out, there are many success stories such as the mobile-enabled micro remittance for urban poor, micro-lending for SHGs/JLGs and also our project for bill payment for NDDB milk producers. But I would like to tell you in detail our enormously successful project for ‘Meaningful Financial Inclusion’ in Ernakulam district, Kerala.

Ernakulam is one of the 14 districts in the country where our bank has “lead responsibility”. The bank has been very active in this district. The RBI governor, during his visit to Vengoor (West) village in Ernakulam district, in connection with the outreach programme of RBI observed the high penetration of banking and the high level of banking practice in the district. He proposed that the banks in the district should endeavour for achieving ‘Meaningful Financial Inclusion’ and develop the district into a model for the rest of the country.

As the lead bank we had a pivotal role to play in assessing the work remaining to be done and drive all the banks, local bodies etc to work towards achieving the common goal. We set out four clear objectives for the project:

a. To ensure at least one operative bank account for each family;
b. Provide micro credit to the needy for their genuine requirements;
c. To provide remittance facility to all;
d. To provide micro insurance to all.

Considering the existing high penetration of banking and the high level of banking practice prevailing in the district, assessing the level of financial exclusion across the district was a difficult task. But, by and large, in our country, the reasons for the inability to access basic financial services from formal financial institutions are largely on account of:

• Problems associated with access
• Problems arising out of geographical/social/economic conditions
• Pricing
• Self-exclusion as a result of discouraging past experiences.

We realised that “need creation” among the remaining excluded populace was necessary to bring them within mainstream. We needed to create awareness and spread financial literacy alongwith making these services more accessible. Thus the main challenges encountered were:

a. Unwillingness of customers of the co-operative sector to shift to the technologically advanced commercial banks;
b. Demographic conditions in certain areas like Kuttampuzha;
c. Unwillingness of certain sections of people to join hand. Special efforts required to evoke positive response from officials of certain bank because of their initial low commitment;
d. Negative publicity by certain organisations;
e. To work with existing staff strength of branches for successful implementation of the project.

After assessing the level of financial exclusion and taking into account the issues to be tackled the project was rolled out on the following lines:
 
a. We conducted a baseline survey through the NGO, Kudumbasree Mission, through their community development society (CDS) set-up at panchayat level and area development society (ADS) set-up at the wards. Kudumbasree Mission has deep roots among the common people. Based on the findings of the survey, responsibility to open accounts was assigned to the service area bank branch. A coordinator was identified in each panchayat, municipality and a cluster of wards in the corporation area. The stakeholders involved were asked to meet and evolve joint strategies;
b. We conducted awareness programmes at different locations including among migrants;
c. Created awareness through press, media, notices etc;
d. Implemented the government decision on ‘direct cash payment transfer scheme’;
e. Conducted account opening in remote areas in campaign mode;
f. Held BLBC meetings, branch managers meetings, conducted visits of all branches of different banks by team consisting lead district manager and representatives of RBI.
g. Conducted meetings of people’s representatives with the support of the district administration;
h. With the support of the people’s representatives conducted account opening campaigns.
i. Extra efforts were put in by existing staff of the branches.

The result of this intense exercise was that Ernakulum was declared as the first district in the country having achieved ‘Meaningful Financial Inclusion’ at a function, held on November 22, 2012, by the RBI governor in the presence of the chief minister and finance minister of Kerala.
We could undertake this higher task with available resources and infrastructure because as a leader we assumed full responsibility and implemented the project in a planned manner. Our Ernakulam project for ‘Meaningful Financial Inclusion’ is a model for other banks to follow.

What have been the bank’s learnings?
There is a huge untapped market opportunity for providing banking services to deserving customers residing in six lakh-plus villages of the country and in the urban slums. A number of non-traditional routes and several alternative technology options need to be out. However, to enable a successful financial inclusion, innovation of products for the specific needs of the poor is not just a necessary but an essential condition. We also learnt that excluded people want to get connected with the banking sector if they are convinced that they are ‘welcomed’ like any other customers.

Migrant labourer appreciate a ‘simple and hassle-free’ remittance facility. They need to be guided and encouraged to use alternative delivery channels. We need to create a conducive atmosphere for the poor to inculcate the saving habit in them and make small remittances in their bank accounts.  
We have to take up on a war footing the job of linkage of accounts with Aadhaar numbers to enable Aadhaar Enabled Payment System (AEPS) for facilitating government-to-people (G2P) payments.

Branchless banking customers appreciate the benefits of being financially included. Extended usage of micro ATMs will boost banking culture among the poor and marginalised. With increased synergy levels of the banking community, NGOs and people’s representatives this humungous task of financial inclusion can be achieved with available resources and infrastructure.
 
(This interview appeared in the March 1-15 issue of Governance Now magazine as part of a special series: Bank India Bank)