Building blocks of an economically inclusive market in India
While increased financial inclusion is an important starting point, a general lack of high-quality physical infrastructure in emerging markets creates additional obstacles for businesses.
By Maya Barkay
Globally, close to two billion adults – or over 45% of the adult population – don’t have access to a bank account. For those who do have access, an estimated 1.3 billion still rely on cash. Individuals who are considered unbanked or underbanked are excluded from most economic activities because they lack credit history. This lack means they don’t have access to loans at competitive rates, and must often face higher operational costs.
In developing markets, such as India, where unbanked and underbanked rates are high, widespread access to loans for micro, small, and medium enterprises (MSME) are missing. These loans are a key driver of investment and economic growth; however, in developing markets, only 15% of MSMEs have access to credit to grow their businesses.
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A lack of credit presents a serious problem for businesses, preventing them from increasing their revenue, hiring additional employees, and expanding their network. Unfortunately, it’s a vicious cycle. On one hand, they can’t grow without credit and a loan – but on the other, if they don’t grow, they can’t gain credit to apply for a loan.
While increased financial inclusion is an important starting point, a general lack of high-quality physical infrastructure in emerging markets creates additional obstacles for businesses. The key to changing the market and helping businesses is economic inclusion – or creating additional job opportunities and incomes by leveraging financial inclusion to drive economic activity. For India in particular, there are two key building blocks necessary for creating an economically inclusive market
Financial Literacy
One of the key parameters and precursors for driving a market towards true economic inclusion is financial literacy – and India has one of the lowest rates.
According to MasterCard’s Annual Index for Financial Literacy, it is situated at the bottom of the list among 16 countries in the Asia-Pacific region with 59 index points. The survey examined three aspects of financial literacy and India scored the worst on basic money management.
1. Basic Money Management
2. Financial Planning
3. Investment
The good news is that India is a country ripe for change – having recently evolved and opened up from a regulatory perspective.
Mobile financial services are the key to providing those customers with affordable and user-friendly access by greatly improving how banks and individuals communicate and perform banking services. What will truly drive economic inclusion is the ability for the underbanked to obtain credit scores for loans, integrate money transfers, make online payments and perform other basic financial services. A small farmer or agri-business man who isn’t able to hold a bank account at a traditional bank or who isn’t able to access these financial services simply because of his location should not hold back the country’s economic progress. By providing these individuals with mobile financial services, India can begin to improve the financial literacy and access of the country as a whole.
The key is to customise financial literacy programs based on the stages of life and the social, political, or economic environment of the targeted individual; there is no one-size-fits-all approach to financial literacy. Instead, each program should consider: attention span, cognitive ability, and general points of attraction. Financial literacy education can and should begin with school-age children and continue through until old age.
Vocational Training
In India only 6.8 per cent of the labour force have received or are receiving vocational training of any kind - and only 2.3% have received formal skills training. A labour force of unskilled workers causes wages to be suppressed, and a lack of resources can make it especially difficult for SMEs to locate viable employees.
Such a large informal labour market requires training in order for labourers to experience income security and become more productive and effective contributors to society.
Vocational training programs that allow workers to confidently invest in their personal development to achieve greater labour mobility are key. However, it’s crucial for workers to know that employers will recognize their achievements even in the absence of educational degrees.
Programs can be delivered via mobile-centric services that first focus on training the unskilled workforce and can then be transformed into financial tools and services by matching appropriately skilled workers to relevant jobs. The idea is to develop ongoing engagement with both sides of the market to create a captive audience over the long run.
For underbanked areas, vocational training that prepares workers to make use of mobile financial services should be a top priority. Using mobile to create ease and efficiency in buying supplies, making and receiving payments online and presenting products and services in a competitive way, will all serve to strengthen economic inclusion.
Cash transactions often go unrecorded, preventing businesses and workers from building their credit score and securing loans. These basic financial benefits, such as saving, gaining interest or buying insurance for natural calamities can all be made easier and far more common when made more accessible through mobile banking and vocational training.
Vocational training is a method of improving human capital and is crucial to enriching the workforce, and improved marketable skills can directly and indirectly help boost the market. In addition, once trained and better educated, workers can begin contributing to the economy on a much larger scale. Skilled workers have a far greater likelihood of earning a decent living, saving money, and entering the financial marketplace.
Conclusion
While financial literacy and vocational training are not the only elements required to create a market of economic inclusion in India, they offer a solid starting foundation. When supported by a mobile financial services solution, bringing financial literacy to the unbanked and underbanked becomes much more feasible. This mobile, personal form of banking can help accelerate market adoption of mobile financial services in India.
The author is Product Marketing Manager, Mobile Financial Services, Amdocs.
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