This document discusses the role of technology in promoting financial inclusion in developing economies. It notes that while mobile phone and internet usage is growing, access to bank accounts remains low, especially in rural areas. It outlines various technology solutions that have been used in India to increase access, such as smart cards, mobile banking, biometric identification, and banking agents. However, challenges also exist around regulation, infrastructure, literacy, and scaling solutions. Overall, the document argues that technology can help increase outreach in a cost-effective way but must go beyond transactions to meet more needs.

1. Role of Technology In Financial Inclusion
Melbourne, Australia
October 18, 2012
Sanjay Saxena
‘Regulatory Environments To Promote Financial Inclusion In Developing
APEC And Other Regional Economies’
The views expressed in this presentation are the
views of the author and do not necessarily reflect
the views or policies of the Asian Development
Bank Institute (ADBI), the Asian Development
Bank (ADB), its Board of Directors, or the
governments they represent. ADBI does not
guarantee the accuracy of the data included in
this paper and accepts no responsibility for any
consequences of their use. Terminology used
may not necessarily be consistent with ADB
official terms.

2. Challenges in
Empowering
Underserviced
Groups in
Accessing
Financial
Services

3. Indian
Population

4. Extent of Financial Inclusion
India Rural Agri-economy - 50% of GDP Yet
• 59% of rural households do not have a deposit account
• 58%of rural commercial establishments do not have a deposit account
• 70% of farmers do not have a deposit account

5. World Population: 7 billion people
30% Bank Accounts (2.1 billion)
75% Mobile Phones (5.2 billion)
32% Internet Users (2.3 billion)
Financial vs Technology Inclusion
India: 1.2 billion people
17% Bank Accounts (200 million)
75% Mobile Phones (900 million)
10% Internet Users (1.2 million)

7. Growth of
mobile and
internet
users

8. Growth of mobile
traffic and
internet and
willingness to
pay

9. Link between Annual
Income and Bank
Accounts by
Occupation Group
Source: IISS, 2007
True Cost of Lending
for Banks for
Small Ticket Loans
Source: ICICI Bank Staff Estimates (for cost of funds) and Boston Consulting Group (2007), The Next Billion
Consumers: A Road Map for Expanding Financial Inclusion in India

10. Household Access to Financial Services
Retirement Savings
Buffer Savings
Insurable Contingencies
Business Livelihood
Emergency Loans
Housing Loans
Consumption Loans
Saving & Investments based on
household’s level of financial
literacy and risk perception
Contingency Planning
Credit
Wealth Creation
Access
Source: IISS, 2007

11. Popular Solutions in India to Address FI
• Branchless banking or community
banking
• Agent Banking / Facilitator Models /
Business Correspondents
• Satellite Offices, Postal Banking,
Mobile Banking
• No Frills Accounts - About 50 million
established no-frill accounts across
the country
(although only 11% are active)

12. Technology Option
Smart Card
Issue Addressed
Distance /Accessibility
Impact
Cost effective outreach

13. Technology Option
Portable ATMs
Issue Addressed
Distance /Accessibility
Impact
Reach

14. Technology Option
Mobile Phone Technology
Issue Addressed
Distance /Reach /Accessibility
Impact
Cost-effective outreach
New products such as insurance
remittances, Pensions, Capital market,
Savings
Real time transactions

15. Technology Option
KYC and Unique Identification
Issue Addressed
Information asymmetry
Impact
Verification of customers
and greater reach

16. Technology Option
Multi-media Kiosks / E-Learning Websites
Issue Addressed
Financial literacy among
Poor / Rural customers
Impact
Greater
information
accessibility

17. Technology Option
Satellite Branches
Issue Addressed
Distance / Reach
Impact
Cost effective / Limited
infrastructure required

18. Technology Option
Citizen Centers / Customer Service Centers
Issue Addressed
Distance / Reach
Financial literacy programmes
Impact
Greater accessibility to the
underserviced population

19. Technology Option
Electronic Clearing Systems / Cheque Truncation System
Issue Addressed
Business Efficiency
Impact
Real time payment and settlement

20. Technology Option
Internet Banking
Issue Addressed
Business Efficiency
Impact
Access, Speed,
Real time
transactions

21. Technology Option
Online Reporting Systems / MIS
Issue Addressed
Transparency and accountability
Impact
Greater supervision / Improved bookkeeping
especially in remote areas / agent banking

22. Technology Option
Credit Information Systems – CIB / STR / CAR
Issue Addressed
Information asymmetry
Impact
Reliable credit information / borrower
data / better management
of risks

23. What Technology can do for Bankers
Technology can help to :
 Meet Social Business Objectives
 Enhance Cost Effectiveness - thereby increase outreach,
coverage and scale
 Enhance Efficiency and Business Productivity (reliable /
uninterrupted delivery, economies of scale, lower transaction
costs)
 Improve Management of Risks – improved control and oversight
 Facilitate provision of Value- Added Services (insurance,
remittances, pensions, savings, credit rating, financial literacy)
 Improved KYC and Identification Authentication mechanisms
The transaction costs in serving the poor is high but so are
the rewards for those who do it right.

24. What Technology can do for the Financially Excluded
 Banking at doorstep – last mile connectivity
 Financial literacy and access to information
 Expanding outreach despite low Population density and geographical
accessibility
 Provide credit history information leading to better access to credit
 Choice in selecting credit providers
 Provision of Value- Added services (insurance, remittances, pensions,
savings, credit rating, financial literacy)
 Enhance savings and remittances and Capital Formation
 Making (health and education fees / charges) and receiving payments
(social benefit schemes, pensions, etc.)
 Speed
and eventually …..
improve income.

25. Challenges in Technology Integration
• High volume, low ticket data storage and processing
• Technology averse target group and low literacy levels
• Third party / technology vendor intervention / dependency
• Regulation (financial and technology regulators)
• End to End Security and reliability
• Speed and quality of performance
• Transferability and flexibility in
adoption of technology solutions

26. Regulatory Environment
Financial Regulators
• Reserve Bank Of India RBI
• Securities and Exchange Board of India (SEBI)
• Forward Markets Commission FMC
• Pension Fund Regulatory and Development Authority
Technology Regulators
• Telecom Regulatory Authority of India (TRAI)
• Telecom Disputes and Settlements Appellate Tribunal (TDSAT)
• Office of Controller of Certifying Authorities M/o Communications &
Information Technology
Other Regulators
The Competition Commission of India M/o Company Affairs

27. • Too many regulators
• Heavy regulation - difficult supervision
• Lack of a harmonized approach to regulation -
technology vs financial regulators
• The need for a ‘Common Supervisor’
• Eg Central Bank Issues Licenses for Telecom
Operators to operate mobile banking in some
countries
• Need to balance the tension between allowing space
for innovation – light touch regulation and attendant
risks
• Need to balance the tension between ‘innovators
must be rewarded’ and ‘monopolistic tendencies
must not be allowed to distort market conditions’
Regulatory Challenges

28. Common / Uniform technology policy –
standards & guidelines (for ICT
interoperability, Smart Cards, ATMs
etc.), unified structures (such as for
KYC, centralized hub/switches for CBS)
and modalities
Some Solutions …
Scaling Up Technology Based Interventions

29. Roadmap for investments in
technology that can be leveraged by
multiple banks – economies of scale
and reduction in operating costs
Some Solutions …
Scaling Up Technology Based Interventions

30. Incentives to financial sector for
viability gap funding for technology
investments and operational risks
Some Solutions …
Scaling Up Technology Based Interventions
FI Technology Fund
for financing the
creation of common
technology platforms
or back office services
for small financial
services providers
who are serving the
poorest clients

31. Develop an investment framework for
banks , IT institutions & civil society
organizations to partner and promote
collaboration in technology adoption
Some Solutions …
Scaling Up Technology Based Interventions

32. Banking Correspondents (BC) with
Internet Kiosks & Mobile at the villages
with back-end interface to CBS
Some Solutions …
Scaling Up Technology Based Interventions

33. A unique ID for each citizen
would help accelerate FI
Some Solutions …
Scaling Up Technology Based Interventions

34. Common KYC norms for Banking,
Telecom and Insurance
Some Solutions …
Scaling Up Technology Based Interventions

35. Invest in Development of new products
and services to meet the emerging
needs of customers
E.g. Kiosks are becoming outdated due to
mobile phones or digital pens instead of
smart cards
Some Solutions …
Scaling Up Technology Based Interventions

36. Handholding through networks with
NGOs, government and other
extension agencies, CBOs etc
Some Solutions …
Scaling Up Technology Based Interventions

37. Promote knowledge exchange and
experience sharing on technology use
Some Solutions …
Scaling Up Technology Based Interventions
“Technology must go beyond handling transactions & reporting”

38. Total Synergy Consulting Private Limited
S-85, Second Floor, Greater Kailash II, New Delhi – 110048, India
Tel. +91.11.29219397 | +91.11.41435754
www.tscpl.com | sanjay@tscpl.com
A
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