Financial inclusion in India has the mandate at the highest levels of policy making. The Reserve Bank of India’s (RBI) recent efforts to design regulation that allows both public and private actors to pursue digitized payment services as a viable business opportunity is a promising initiative. Allowing non-banking financial companies (NBFCs) to become banking agents, removing the 30-km restriction for agents, launching pilots to enable cash-out for prepaid issuers, and using e-KYC (paperless submission of know-your-customer requirements) to enable account opening and use within 24 hours are all very important steps towards achieving the goal.
While regulation is headed in the right direction, the market has yet to respond positively. Understanding demand for financial services is key for regulators and providers to design services that reach scale.
According to the just released Intermedia survey, funded by the Bill and Melinda Gates Foundation, only 6% of India’s residents are aware that mobile money exists and only 0.3% have accessed such services. This is despite some of the biggest telecom players having launched services more than two years ago. The survey also showed that 48% of India has bank accounts, but only 25% are active. Cash dominates transactions and remittances: more than 90% of the survey respondents who receive remittances and wages do so through cash. The story is clear: the vast majority of India’s population does not have access to, or does not use, formal financial services.
Photo Credit: Joydeep Mukherjee
The gender gap in mobile money and bank account holders
The survey shows that while mobile phone access is high, women are less than half as likely as men to own a phone. Beyond access, personal mobile phone ownership is gendered, with 68% of men and 31% of women owning a phone nationally. Within the northern states in particular, there are significant differences in mobile phone ownership between men and women. In Haryana and Uttar Pradesh for instance, men are three times more likely than women to personally own a phone. Overall, mobile money awareness is highest in cities and among urban men.
The survey also showed disparities in access and active use of bank accounts across gender and location within states that often mirror socio-economic differences in India. In Punjab, Rajasthan and Jharkhand, there is a large gender gap between male and female active bank account use. State breakdowns of active and inactive users show that most states have equal proportions of active and inactive bank account users.
With regards to bank account holders, nationally more urban men use their accounts actively (70%) than do urban women, rural men, and rural women. Rural women are least likely to use their bank accounts actively (42%). The differences in how frequently men and women, and urban and rural residents use their bank accounts become starker within certain select states. In Punjab, of those with bank accounts, 55% of men and 32% of women are active bank account users. The gender gap is the narrowest in Bihar where 53% of men and 42% of women are active bank account users.
Part of the reason for the gender divide across key remittance corridors, like Delhi-Bihar, Mumbai-UP, Gujarat-Orissa, could be that the channel is structured for the male migrant worker who sends money home. Usually, it is the wife, or mother, withdrawing the monthly amount at the other end. This payments channel can tap the demand on the other side, developing products for women and their segmented needs.
Leakages in government welfare payments
In recent years, the central government of India and some state governments have begun transferring welfare payments directly into beneficiaries’ bank accounts to ensure accountability, and safe and complete delivery of payments.
Across India, 35% of these beneficiaries said they receive their payments via a direct deposit to a bank account. Differences in payment methods are observed in different states: Maharashtra, for example, has a high proportion of direct deposit beneficiaries, whereas payments are largely collected in person in the state of Bihar.
The majority of payments are received in full, but 13% nationally said they have to pay a bribe to be able to access their payments. There are differences among states, with 32% of beneficiaries in Karnataka, 25% in Kerala and 20% in Madhya Pradesh saying they have to pay a bribe to access their payments.
As we know from extensive studies conducted on electronic payment systems in Andhra Pradesh by both CGAP and JPAL, a digital payments ecosystem can provide the basic underlying infrastructure for the provision of financial services, and thereby increase efficiencies. Additionally, the Committee on Comprehensive Financial Services in its recommendations to the RBI, lays out an over-arching vision to “proactively encourage electronic payment systems for ushering in a less-cash society in India.”
Through empowering policy measures and targeted business models, digital financial services can gradually set the stage to further the financial inclusion mandate in India. Public funds and donor money needs to be channeled towards building awareness and financial capability of people to spread use of services already available.
India already has many elements in place that put the country in a strong position to make further progress on financial inclusion: strong demand, a stable banking system, a competitive mobile landscape, and significant technological capabilities. If regulators, providers, state governments, can all come together, India will soon no longer be a missed opportunity.
The article covers most angles -from reach to use and possibility. If only the author had also mentioned what the possibilities are and how to bring the states, providers and regulators to work in tandem.Nevertheless the information is exhaustive enough to make them take note and give the necessary
I suspect there could be a reasonable correlation between gender-ratios that are an indicator of social attitudes towards a woman's "place" in the home or society and mobile ownership. During an almost two year trial with ASHA workers in Bihar that Eko ran with support from NIPI, it was reported that women were openly discouraged from having mobile phones with accusations from in-laws suggesting that they were doing so to conduct illicit relationships, when in fact all they wanted to do was to keep savings safe from domestic rodents including of the human variety :)
I agree with your comments. Apart from Metros Women in rural and urban areas are accused of all sorts of things and pressured against owning their mobile phones. There is always someone watching them and eves dropping their conversation. Whatever piggy savings they achieve ends up in petty household "un-expected" expenses. BOP communities will substantially benefit from financial inclusion when social attitudes towards women change.
Thanks Anand, glad you found the post useful. I agree with your point about gender disparities. In fact, our entire remittance channel is designed for a male worker sending back money home to his wife or mother. We need to view the women as active users of a financial system and not just recipients.
Hi Anand, Thanks for your comment. True that there are several cultural issues that prevent women from becoming active users. It would be interesting to study women headed households and their use of available banking infrastucture.
Wonderful article, professionally done, and showing that good organisations such as Gates, CGAP, and JPAL were involved in the study. It is heartening to see the bureaucrats coming around. What I saw though was that the entire ecosystem attempting to come to life here seems to be based on the product and less around the needs and beliefs of the customer. It would benefit all parties to sit down with individuals and see what. other than habit and custom, their reticence is in adopting the product and device multiple strategies that overcome this. One possibility might be to engage people's heroes in this effort, show the actor or cricketeer or local holy man using the service, putting up banners, turning up at market places with demonstrations etc. The second phase would be to more widely distribute the availability, example through kirana shops of which there are so many, just like Kenya did with MPesa. I have a feeling that once this clicks, takes hold, it will take off sharply. We have just been late to the game but there is hope, a lot of it, it will work. My compliments to all the players, yes even the government for finally stepping aside and letting it happen.
Thank you Ajit. Like you say, the potential of aggressive marketing and communication about the value of mobile money is largely unmet so far.