An immense amount of existing literature suggests that poverty alleviation and reduction in income inequalities have a direct relation to an increase in financial inclusion. Although financial inclusion has been given a huge push in India, it is far from being realized.
Financial inclusion can be defined as reaching out to underserved low income communities by providing them with access to banking products and services at affordable prices. However, just providing access to these products and services, with the aim of integrating them into the formal banking structure, isn’t going to solve the ever-growing gap in financial inclusion.
In spite of the government’s push towards bringing about financial inclusion through banking, there exists gaps that prevent this kind of inclusion a reality. Between 2014 and 2017, the ownership of accounts rose by at least 30%. However, it is surprising that, at 48 %, India has the highest percentage of inactive bank accounts. Of those people who have a bank account, only 7% of the population use it to save money (Global Findex Report, 2017). We also observed in our interactions with the community members that a majority of the population are sceptical about banks and prefer storing money at home. They are not aware of the different products and services provided by banks. With the world moving rapidly towards banking and digitization, it becomes all the more important for us to ensure that this population is not left behind.
The following are some of the issues that we at Rang De are trying to address:
Lack of financial awareness and knowledge:
Following the 2008 global financial crisis, the Indian government began paying increased attention to financial literacy. One of the main ways banks, financial institutions and other organisations have responded to this problem, is through financial literacy camps. These camps are only suitable for mass messages and is often limited to a single financial product or service that the local bank wants to promote. Most of the information, therefore, does not cater to individual or household needs and thus communities may be steered toward products of limited application in their lives. Since these camps tend to be held at remote locations that lack access to a bank branch, adoption and usage tends to be low.
With the support of our impact partners, Rang De will impart localised financial literacy training to our borrower communities. The training will cover the knowledge required for our borrowers to adopt usage of banking facilities, receive their loans and make repayments directly from their bank accounts. It will also educate them on how to make responsible credit decisions.
Lack of effective service designed to provide “individual”, need based digital credit to low income households:
Despite radical advancements in banking and technology infrastructure, credit scenario for the rural poor remains unchanged. Though the credit needs are high among low income communities, the percentage of people borrowing from formal financial sources is just 8.1%, according to the World Bank Findex report, 2017. This leaves them with no option but to borrow from informal sources [Money lenders, family, and friends] charging high interest rates. Even though the group structure [Semi formal lending sources] of borrowing has helped some communities, it has not addressed the unique individual needs and interests. Instead, individuals are forced to borrow loans when it is offered to them, and not when they need it. Additionally, most of the transactions is through cash, which leaves no data trail, and hence, no credit history, an essential criteria for banks to service their credit needs. Rang De will provide our borrower communities with customised need based credit. Their transaction history and repayment behavior will be recorded digitally, helping them build a credit score in RBI regulated credit bureaus.
Rang De’s work is not possible without the participation of you, our community of social investors.
By investing through RangDe.in you enable our borrowers to:
- access fair and responsible need based credit
- integrate into the digital financial system (by receiving their loan into their bank account and making repayments from their bank account)
- build a credit history in RBI regulated credit bureaus
As a social investor, you become an integral part of achieving the dream of a financially inclusive India!