What next after financial inclusion?

Sumita is one of hundreds of women who opened a savings bank account under the popular Pradhan Mantri Jan Dhan Yojana (PMJDY) scheme. When she opened the account, she also received a debit card which, the banker informed her, could be used at any ATM.

Sumita knows what an ATM is and confidently spouts “Any Time Money” when asked about it. She has never used the card though, and feels diffident about stepping into an ATM when she has seen it being used only by people stepping out of swanky cars.

Her fears are that she may be stopped at the entrance or she may make a mistake with the PIN and be humiliated. Worse, she doesn’t know what to do if the machine gives her incorrect change. It isn’t like she can have a conversation with the machine.

Sumita is not alone in her fears. Many like her across India are first-time users of accounts, and have multiple doubts on how they can transact using debit cards or technology.

Many measures 2015 has been hailed as the ‘year for India’s financial inclusion’ in various circles as we saw a spate of activity with initiatives between the Centre’s policies and the RBI’s regulations.

Notable amongst these are the PMJDY, the Atal Pension Yojana, Jan Suraksha, or the Mudra Bank to provide credit to small and medium enterprises.

The RBI lowered barriers to entry and increased competition among financial service providers by enabling 23 new licences including two universal bank licences, 11 payment bank licences and 10 small finance bank licences. All of these, however, represent a massive supply-side thrust that ensures access.

A study by consultancy MicroSave showed that of the total 136.8 million accounts opened under the PMJDY, 85.9 million (63 per cent) continue to have zero balance. Recommendations to reduce dormancy in these accounts include driving the government’s subsidy programmes through these accounts.

While direct benefit transfers (DBT) can reduce leakage to an extent, it still would not guarantee more than one or two transactions a month, usually restricted to withdrawal of funds. The launch of most of these policies and the sale of financial products are accompanied by provision of information.

However, these tend to be provided en masse at fairs or through group classroom sessions to low-income households. Most tend to use jargon that makes it hard to understand or recall.

Financial service providers pass off this provision of information to customers as ‘financial literacy’, effectively ticking off a regulatory requirement, and most spend little time on content or training the trainers.

Studies show that classroom training has a limited impact on long-term behaviour since the dissemination often lacks practical relevance.

According to the Global Findex, 700 million customers globally began using formal financial services for the first time between 2011 and 2014. The Center for Financial Inclusion (CFI) estimates that if this trend continues, India will include another 800 million customers by 2020.

Making them useful Successful financial inclusion requires a deeper understanding of demand-side barriers and translating this into messages that enable an active use of financial products for their own benefit by customers.

Recent research by CFI in financial capability across India and Mexico indicates that with a small number of financial service providers, there is a shift away from traditional financial education to interventions that are more closely linked with actual customer behaviour, especially at critical decision-making moments.

Janalakshmi Financial Services, a small finance bank licence holder, works with urban poor. When an in-depth customer research revealed similar fears as Sumita’s, they decided to develop a language-agnostic, short animation that shows a woman using an ATM, clearing all her doubts and fears.

The video is shown just after the clients are handed their cards. Once the clip is viewed, frontline staff initiate a dialogue with customers, encouraging them to ask questions and discuss what they saw in the video. In the process, the barrier of using an ATM is addressed.

Some of Janalakshmi’s branches even have a mock ATM, so customers know what to expect. For Janalakshmi, this is an important barrier to overcome since they have started providing debit cards to all customers, which reduces risks related to handling cash at branches.

In the evolving world of financial capability, Janalakshmi has used a combination of a teachable moment and learning by doing. Reaching the customers at the right time is core to usage, where the right time is just when the person is about to make an important decision regarding using the service. Practice through simulation further reinforces the message delivered at the critical moment.

In remote villages in Assam, Crisil Foundation uses board games such as ‘snakes and ladders’ to inform clients of their partner organisation, RGVN, about various financial products and their relevance to their lives. Such games not just make the gathering fun and establish an instant connect to their lives, they also double up as social occasions to catch up with neighbours.

In both examples, the common thread is a deep insight of customer lives, behaviour and their fears. Developing such an insight cannot be an easy task and requires dedicated resources.

However, if financial service providers such as large banks are required to deliver financial services to low income households by regulation, they would do well to begin thinking creatively and applying several of these principles.

This would encourage a higher usage of services, reduce dormancy and costs incurred with providing access, as well as more responsible usage by customers.

Capability initiatives Having successfully addressed supply-side constraints, regulators and the Centre would do well to encourage financial capability initiatives as well. This could be through creating a platform to showcase initiatives that have shown results and think of ways to scale.

There is also a need to involve a larger set of stakeholders, especially from creative industries, in delivering financial services and interacting with customers. Large banks could think of creating customer insights departments and commissioning research that helps them understand client behaviour.

In the long run, the biggest up-side to well-implemented financial capability initiatives is that it puts the customer at the centre of the business. In the process, it breaks down traditional power structures and ensures that low income customers are treated respectfully. While this seems like a tectonic shift for most financial service providers including banks, this could be the only way to make financial inclusion sustainable in the long run.

The writer is a consultant on financial inclusion