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India-has-2nd-largest-Financially-excluded-households
si Team
Friday, December 7, 2007
A report titled ‘The next billion consumers: A road map for expanding financial inclusion in India’ states that with only one out of three people having access to formal banking, India has the second largest number of financially excluded households.

“With barely 34 percent of its population engaged in formal banking, India has the second highest number of financially excluded households in the world at about 135 million,” said the report of Boston Consultancy Group (BCG), an international consultancy firm.

While Indians are on the cusp of high growth and voracious consumption, their demand for a range of services has not been met by suitable offerings. Hence, financial institutions have much to gain by carving new pathways to reach these overlooked, underserved consumers. Innovative business models, backed by government initiatives and regulatory reform, could reach an additional 30 million households by 2010, it said. The report also pointed that financial services companies have lacked a clear commercial impetus to reach the next billion.

The absence of a strong business case has stifled the development of solutions that could confront this problem on an industrial scale, it said. Banks that are bold enough to experiment and are committed to finding or devising new ways of delivering products and services could gain considerable advantage, said Arvind Subramanian, co-author of the report.

“The financially excluded families are discerning consumers. More than low income it is the volatility in their incomes that trouble them, as most of them are not salaried,” said Subramanian. He also stated these families have monthly variations in income that keep them outside the perimeter of formal financial services. This makes it hard for banks to assess their credit worthiness, reports BCG.

Besides, poor proximity to financial services outlets is another major barrier, the report said. The penetration of savings accounts in rural India is around 24 percent compared to around 56 percent penetration in urban India. Financial institutions should view these consumers through a prism of opportunity rather than obligation, it said. It also suggested how financial institutions could develop leaner, more cost-effective business models geared towards the next billion.

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