The Economic Times, an online business publication, recently interviewed KC Chakrabarty, Deputy Governor of the Reserve Bank of India (RBI), regarding how competition among microfinance institutions (MFIs) may help increase the financial inclusion of poor people.
Financial inclusion is not only defined as access to loans, but has come to include “at the very least, four banking products: a savings-cum-overdraft account, a pure savings product, a remittance product and entrepreneurial credit,” the article states.
Dr Chakrabarty believes that if competition in urban areas increases, MFIs will look to rural areas for new markets. He argues that the government in India has helped increase the level of competition, “We have made pricing free, we have done away with restrictions governing the opening of bank branches. Wherever the banks go, they will find competition is already present, and the next bank will go another 5 km down the road. That is how financial inclusion will spread.”
Chakrabarty stresses that adapting business models to meet the unique demands of poor people is fundamental to increasing financial inclusion. He states, “My basic philosophy is that commerce with the poor is more viable, more profitable, provided you have the ability to do business with them. That is what we are asking the banks in the financial inclusion plans: develop the ability to do business with the poor. Not as a social obligation, but as pure banking.”
In regards to financial inclusion plans, MicroCapital reported in December 2009 that the RBI would require all banks to formulate and get RBI approval for financial inclusion plans by March 2010.
By Matthew Fox, Research Assistant
Sources and Additional Resources:
The Economic Times: Creating Competition the Only Solution for Financial Inclusion, 5 July 2010: http://economictimes.indiatimes.com/Opinion/Comments–Analysis/Creating-competition-the-only-solution-for-financial-inclusion/articleshow/6129286.cms?curpg=1
MicroCapital Brief: Reserve Bank of India (RBI) Deputy Governor State that nearly 50 percent of Farmer Households in India Still Have No Access to Credit; Calls for More Measures to Extend Financial Services in the Country, 18 August 2009: https://www.microcapital.org/microcapital-story-reserve-bank-of-india-rbi-deputy-governor-states-that-nearly-50-percent-of-farmer-households-in-india-still-have-no-access-to-credit-calls-for-more-measures-to-extend-financial/
MicroCapital Brief: Reserve Bank of India (RBI) Asks Banks for Plans on Financial Inclusion and Criticizes Microfinance Institution Interest Rates, 21 December 2009: https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-asks-banks-for-plans-on-financial-inclusion-and-criticizes-microfinance-institution-interest-rates/
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