India is a country with a desperate need for financial inclusion. With millions of people living in poverty, many have a hard time qualifying for financial services because they aren’t able to maintain the minimum balance. This is the case highlighted in a recent article by Moin Qazi from Qrius, an authoritative commentary and analysis on economics, business, policy, technology, and culture in India.
Qazi reported that between April and November of 2017, the State Bank of India closed over 4 million savings accounts for not having the minimum balance. Not only is this troublesome and harmful for those who held the accounts, but it means the bank netted over $17 billion from closing these accounts. He explains,
“The official emphasis on financial inclusion keeps re-emerging in policy documents, but bankers show little earnestness in pursuing it on account of a plethora of constraints.”
The problem is amplified because the banks place high quotas on bankers to open accounts for unbanked people but then are later forced to close them when the accounts become an economic deadweight. Qazi explains how many poor people have either been burned by banks in the past and walk away from the hope of using traditional banking services or the excessive amount of documentation required to open an accounts prevents them from doing so in the first place. So while banks like the State Bank of India say they are inclusive, their actual practices don’t actually make a way for poor customers.
Qazi does express hope that digital technology will continue to help the unbanked in India gain access to financial services. For people with access to a mobile device, there is a whole realm of microfinance institutions available at the touch of a fingertip. Still, there are a number of obstacles which will have to be overcome to see a change like poor customers not trusting these new banking institutions, bad network coverage for mobile devices, and not enough capital to fund these new business models.
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