As a part of IMTFI's March 2015 visit to India for an update on a selection of research projects, Liz Losh and IMTFI postdoctoral scholar Mrinalini Tankha stopped by the local Bill & Melinda Gates Foundation office in Delhi to interview Dan Radcliffe.
For Dan Radcliffe, Senior Program Officer for Financial Service for the Poor at the Bill & Melinda Gates Foundation, the key terms to know about financial inclusion in India right now are: 1) Pradhan Mantri Jan-Dhan Yogana (Prime Minister's People Money Scheme or PMJDY), an enormous national initiative with a mission to ensure access to financial services in an affordable manner, and 2) Payments Banks, a special category of a no-frills bank that can take deposits and remittances but are not allowed to lend. The guidelines for this new type of bank has been set up by the Reserve Bank of India (RBI) and 11 firms were recently granted licenses. (For a discussion on whether or not India's Central Bank got it right, read CGAP here).
In the interview, he recounted how he became interested in global approaches to technology and poverty and described how after earning a degree in economics at UCLA, he had begun his career at the Venture Capital Unit (at the now defunct investment bank Lehman Brothers). After leaving Lehman, Dan went abroad to teach English internationally, an experience which ultimately inspired him to study development finance at Harvard's Kennedy School.
Dan along with Kabir Kumar, who works at the Consultative Group to Assist the Poor (CGAP), writes on the CGAP blog about how 2015 is a "big year" for financial inclusion in India, the challenges to achieving universal digital financial inclusion in the country, and the conditions for helping payment banks to succeed.
Over the past few years, the Gates Foundation has been evolving its financial inclusion strategy. Dan recalls that when he began his tenure at Gates, "the Foundation's strategy at the time" had a "savings focus." This was logical given that the approach was geared to "crack the proximity problem of financial inclusion, because customers are not going to walk more than a kilometer to deposit their surplus income from the day." Over time, the Foundation began to view "savings as one of many applications that sit on top of a digital payments infrastructure." Hence, the Foundation's current strategy focused on expanding digital payment connectivity in poor and rural areas and then driving a broad range of financial services over those payment platforms.
Dan emphasizes that digital payment connections create an opportunity to directly link the government at New Delhi with India's vast citizenry, securely bypassing a range of intermediaries who tend to siphon off funds and other services intended for the poor. "With the rollout of Jan Dhan, Modi sees this as a way to revamp how India delivers fuel, fertilizer, and food subsidies. Rather than offer generalized price subsidies, the Modi government aims to directly transfer the cash equivalent of those subsidies into bank accounts… It is very exciting at the moment, because the government is situating digital financial inclusion around a broader narrative about public services and how to use it to restructure public service delivery which is not limited to mere digitizing of payment flows." These digital payment connections, he notes would enable the providers to have an opportunity to apply behavioral economics and would lead them to "offer services and tools that help people overcome cognitive biases." For example, Radcliffe examines a scenario in which a government transfer recipient might be able to easily select a percentage of the inflows and direct those inflows into a long-term savings account. Similarly, the Indian government is trying to incentivize citizens to conduct digital transactions at local stores. Here, it could garner lessons from Slovakia which, in order to fight tax evasion, allows citizens to enter their receipts online in a monthly national tax lottery to win cash prizes or a new car.
All in all, Radcliffe has been happy with how the financial inclusion situation has evolved in India over the past few years. He cites four key regulatory reforms in particular: First, the Reserve Bank of India has introduced Payments Banks regulations which permit non-banks with deep distribution expertise to offer payments and deposit accounts on their own. Second, the RBI has eliminated the 30KM rule in which you couldn't set up an agent more than 30KM from that institution's nearest bank branch, leveling the playing field between large and small banks with regards to agent banking. Third, the RBI has provided some flexibility in its Know Your Customer (KYC) regulations, allowing customers to provide proof of current address or proof of permanent address (rather than both). Fourth, India's telecoms regulator has made the USSD channel universally accessible by any provider, promoting the net neutrality standpoint.