By Rana Kapoor
The north-eastern region - comprising the eight states of Arunachal Pradesh, Assam, Nagaland, Manipur, Meghalaya, Mizoram, Tripura and Sikkim - is geographically, ethnically and culturally different from the rest of the country.
While significant initiatives have been taken by the government towards inclusion of the financially excluded in the country, the challenge gets accentuated for the north-eastern region due to its inherent characteristics that make it difficult to implement or replicate the inclusion models adopted elsewhere in the country.
The solution lies in developing low-cost banking models , by leveraging technology and forging local partnerships, and this is an opportune time to actualise execution of the financial inclusion strategy for the north-eastern region.
Inclusive growth has become a national imperative in the past few years, with increased focus from the government, policymakers and genuine initial progress by private sector and financial institutions.
There are several delivery models being practised and experimented in the country, including self-help groups (SHGs), cooperatives, mobile banking, Internet banking, business correspondents (BC), etc. These are being further supplemented by focused initiatives such as UIDAI project and a progressive regulatory environment. The success of a particular model in a region, however, will depend on the strengths and weaknesses of the region.
The regional economy of the north-east is largely dependent on agriculture, and most other economic activity is small scale and heavily dependent on traditional skills of weaving and handicraft. Inadequate infrastructure is another major challenge that isolates the region from the rest of the country.
This has led to the development of a diversely-organised informal financial market in the region, which reflects the creativity of local communities to meet their specific needs. For instance, Manipur has a well-established network of marups system among the Metei community, which has been an effective form of traditional socio-economic organisation that has benefited the community.
While the informal arrangements are working in some regions, the current formal financial systems running in other parts of the country have received limited success in the north-eastern region.
The microfinance movement started late in the region and was confounded by many regional complexities. The SHG movement, which is linked to banks, also could not catch up in the region, due to low branch network of banks, and non-availability of local staff.
Many diverse traditional systems and even geographical conditions of the region make it difficult to replicate the models adopted elsewhere in the country into this region.
The financial inclusion strategy for the north-eastern region needs to be built around the existing developments and trends in the region, and initiatives being taken by the government.
As per a recent report, North-East Migration and Challenges, over 3.1 lakh people migrated from the north-east to mega cities during 2005-09. With a high migration growth rate of 13%, there is a considerable number of north-eastern population that is now residing in the cities. This offers a huge opportunity for remittance solutions that may be flowing to the region.
Mobile penetration in the north-eastern region has increased from 26% in March 2009 to 47% in September 2010. Although less compared to an all-India penetration of 58%, the growth in subscriber base has been steadily rising.
Implementation of UID project at the national level can provide support to enable identity verification of people.
Government's initiatives to revamp the public distribution system through direct cash transfers will require payments infrastructure to be in place.
These trends and opportunities, along with the changing payments landscape in the country, and adoption of technology by banks including smart cards, magnetic strip cards, mobile accounts, mobile wallets, etc, put forth a number of options to design solutions that can be successfully implemented in the region.
A potentially feasible inclusion model for the north-eastern region could be a combination of mobile and smart card-based and business correspondent-based solutions that are supported by micropayment platform.
This essentially will form a large network of business correspondents that is a replica of the ATM network in the country - but at a much lower cost. The network can be accessed by residents through mobile or a smart card to receive ordeposit money, and by government schemes or migrants to remitmoney. I strongly believe that there is ample opportunity for these innovative solutions that can surpass the current regional and geographical barriers and bring more people under the formal financial system.
At Yes Bank , we have been working relentlessly towards developing sustainable models for financial inclusion. We are working towards building a mobile-based model for delivery of crop insurance to farmers by creating an enabling transaction environment that will be accessible through the most simplistic handset.
Last year, we introduced Mobile Money Services that will augment financial inclusion among the unbanked and underbanked consumer segments by bringing financial services to the consumer's mobile device and will create a financial ecosystem that is inclusive, sustainable and scalable.
(The author is founder, managing director and CEO of Yes Bank)
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