Expanding Access to Financial Services - Where do we go from here?

This paper discusses the need to improve the access to basic financial services for the poor in India. It talks about the:

• Lack of access to basic financial services such as savings and credit;
• Causal links between access, growth and poverty reduction;
• Need to learn from other countries and develop unique responses.

The author recommends three broad areas of action:

• Increased sophistication in the regulation of banks;
• Development of basic financial services infrastructure overcoming the physical barriers to access;
• Development of an adaptive regulatory framework.

The author presents the following vision for the future of financial services access in India:

• Several, privately owned, local financial institutions (LFIs), which are:
  • Unregulated, or lightly regulated;
  • Tightly focused in terms of geography;
  • Skilled to deal with the problems of adverse selection and moral hazard.
• A large number of hybrid direct access channels in the form of internet kiosks, bank and insurance franchisees, which complement the LFIs.

The author concludes by arguing that the steps outlined above would not only improve the access to basic financial services for the very poor, but would improve the overall functioning of the financial system in the country benefiting all segments of individuals and businesses.