What Does the Underbanked Population Need?
Unbanked population in India offers a plethora of opportunities the only thing is to in cash those
Before we explore what the underbanked population wants, we should set the context and understand what under-banked actually is. Like many things in India, there are various shades of underbanked. No bank account, namesake bank account, salary account with ATM card and so on and so forth. In general, under-banked can be broadly classified as some sort of bank account only but with no other services. Now let’s see what this population requires and what as a nation, we need to do to bring this population into mainstream finance.
One of the fundamental issues we see with this segment is the lack of awareness of what it means to be fully banked or banked. They view the bank as a laborious stiff upper lip place stuck in the colonial era. Banks were started at some point in time in history and their services gradually extended to the general populace. Part of that expansion would be to educate people on what banks can do for them. Sure, there would have been initial resistance/reluctance to give up wads of cash to some external entity and trust them. But it did happen the world over and in India as well. The problem is it stopped at a certain level and didn’t march on to cover the entire population. People were left out by design. This is the first order of what needs to be done. Otherwise underbanked will remain relatively underbanked always.
Access to Credit
Once banks make some headway in awareness, the immediate requirement after is access to formal credit
– both short term and long term. They understand short term well but long term is not that straight forward for them. Credit (short-term) takes care of the immediate situation on hand. But constantly looking out for credit, unavailability during an emergency and stuck in a credit rut could set progress back by miles.
Consequently, in the long term, micro savings need to be part of the package. Without them getting into some sort of regular savings model, they will continue in the cash & carry and crash model. They need to be introduced to the habit of regular savings and actively encouraged to follow. Savings will show (monetary) discipline in life and financial institutions can then plan around bigger products for them. If money comes in and goes out randomly, it will be very difficult for institutions to help them in the long run.
Long Term Products
If we switch to long term products, like everyone else, these people also want their own place to live in and be mobile. For many, the dream of owning a home remains a dream for generations on end. A vehicle and housing loan are considered secured products by financiers hence the availability of consideration (for these products) is higher. Consideration doesn’t mean the products are readily available. Documentation requirements are even more onerous in such situations.
Working Towards Financial Inclusion
Another way to look at this segment is to see what they need to do to get what they want. In other words, how they should contribute to the process so they have access to formal credit. Steady employment characteristics, proper id and address proof are simple starting points. Financial awareness, entry into formal credit space and managing the credit scores properly by showcasing financial discipline and financial planning would certainly push them right up to the front of the line.
It is not rocket scient. It is a lot of awareness, hard work and discipline. Slowly but surely, we will get to a point where financial inclusion will be the norm.
Prior to co-founding OpenTap, Senthil worked in Barclays (2012 – 2013) where he set up their Indian technology operations for the Investment Bank division. Senthil worked with JP Morgan (2004 – 2012) in New York, London and Mumbai (OTC Derivatives - IT).
Earlier in his career Senthil worked for HSBC and Lehman Brothers in New York and Hong Kong building risk platforms for OTC Derivative Trading Desks. Senthil has extensive work experience in credit products like Collateralized Debt Obligations, Loan trading and Credit Default Swaps.