Wednesday, November 26, 2008

Financial inclusion and banking regulations

The Government of India has launched an ambitious program of Total Financial Inclusion (TFI) to provide access to formal credit mechanisms to those below the poverty line. The Government will do well to pay heed to a study by the World Bank on financial inclusion, which concludes that certain types of regulation and excessive document work is detrimental to increasing access. The graphic below clearly proves that fewer the number of documents required to open an account, the greater the number of accounts for every thousand population.

The report also finds that jobs in the organized sector increases access to formal credit streams. This poses formidable challenges for a country like India, where a recent report finds 96% of the jobs are in the unorganized sector. It also finds that stripped down or simplified banking products can contribute towards increasing access, something on which the TFI initiative has made considerable progress.

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