It is an undeniable fact that poverty is the single greatest source of national shame for India. Poverty is a complex issue, and complex problems require imaginative solutions.
Having said that, certain government initiatives - Aadhaar, Skill Development Program, Jan Dhan, Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), Pradhan Mantri Suraksha Bima Yojana (PMSBY) and Housing for All - are inspiringly imaginative ideas which cohesively create the building blocks for winning the battle against poverty.
But, are we missing something?
What good is a job, if a household doesn’t channelize its savings to achieve financial well-being? How is Housing for All possible, if one can’t bring down the cost of loans for the poor borrower? Can the Jan-Dhan overdraft scheme be extended to cater to the loan needs of all? Can PMJJBY and PMSBY be extended to provide adequate term insurance to every citizen?
Financial inclusion is incomplete without access to great financial products.
Let’s illustrate this through an example. If a poor household had started investing Rs. 100 a month in a good diversified Equity Mutual Fund in 1999, they would have generated wealth to the tune of close to 2.20 lakhs by the end of 2015. Imagine how transformational this sum would have been for a family that had the ability to set aside just Rs. 3 a day!
Did many poor people invest in Mutual Funds? The answer is No – which in itself is nothing short of a national tragedy.
While lack of awareness is a culprit, perhaps the bigger culprits are the systemic flaws and myopic regulations which make it virtually impossible for poor people to access and consume financially empowering products. One of the biggest reasons why financial products have such limited penetration is because companies do not find low value customers to be profitable, and therefore do not invest to expand their reach.
The success of the Jan-Dhan, PMJJBY and PMSBY schemes prove that there is merit in creating an ecosystem which takes simple products to the masses. A ‘shared utility’ that helps create a large distribution network by distributing costs across manufacturers and industries, could be one solution. Kirana stores already do this for FMCG products.
While a shared utility naturally tackles the problem of Access, it must also be empowered with certain characteristics to make it a success.
Firstly, financial products represent a classic case where a simple and powerful benefit gets lost in a barrage of complex delivery. How can we expect a common man to even consider buying something as complicated as an “Ultra Short Term Debt Fund”? If we want great financial products to reach the masses, we must simplify both the product and the process so that anyone can on-board a customer. This requires innovation and regulatory relaxation and we must be open to new ideas. An individual with a Jan-Dhan Aadhaar linked bank account with a registered mobile should be able to start investing in mutual funds in 2 minutes.
Secondly, none of this will matter, if we can't make the sellers of financial products, sell to the poor. Today commissions are percentage based which make the sellers chase the rich. A flat fee structure would provide reasons to sellers to chase low value customers.
We should look at lowering the cost of doing business for companies – which gets passed on to consumers in the form of cheaper products, which in turn impacts adoption. The JAM (Jan-Dhan, Aadhar, Mobile) trinity coupled with Start-up India and Innovation, can help take transaction costs toward zero – which makes the ticket size of a customer irrelevant.
Back in 1999, within a week of PayPal’s launch, I accompanied Elon Musk to meet Mr. Roger Ferguson, the Vice Chairman of the Federal Reserve. Ferguson conceded that PayPal was trying to do what the Federal Reserve wanted banks to do for twenty years and said that we should remember we had a friend in Washington. For many years, PayPal was allowed to operate without anyone being clear as to what kind of licence it needed. Today PayPal is a multi-billion dollar company but if it had not been encouraged by the government, it would have died.
We require innovation, not only in how we harness technology but also in freeing up our thinking to the way we approach problems.
I hope the Finance Minister makes poverty elimination a measurable time bound goal for the nation. Mr. Amitabh Kant, the CEO of Niti Aayog, is probably the right point person to use the power of Start-Up India to challenge entrepreneurs to set “Big Hairy Audacious Goals” to reduce poverty in a short time.
We should have clear, transparent metrics to track progress in the battle against poverty and if we are failing we should course correct. The battle against poverty should unite all political parties with no one claiming credit and no blame games.
Nobel Laureate, Mohammed Yusuf once said, “Poverty is an artificial, external imposition on a human being; it is not innate in a human being. And since it is external, it can be removed. It is just a question of doing it.”