16 Aug 2010

http://economictimes.indiatimes.com/news/economy/policy/The-holy-grail-of-financial-inclusion/articleshow/6316880.cms

Telecom firms, outgunning one another in a bloody tariff war, know that it must end someday. There has to be some other way to make money to prune

their debt and keep the interest alive in their stocks. The ray of hope, they feel, lies in mobile banking. If Filipina maids in Hong Kong can remit money to their moms from basic handhelds, why can’t those in Mumbai and Delhi do the same to send a slice of their salaries to their families in Bihar and Bengal? But, how do you make it happen? Regulators, paranoid about terror finance, will argue that a loose remittance channel can make money laundering easier. How do you convince them? Use the magic term ‘financial inclusion.’

If you have to give unique identification numbers to millions spread across 600,000 villages, how do you go about it? Not an easy job. It can be more difficult when NGOs and citizen activist groups complain that the very idea is an infringement on privacy. But the noise will slowly die down when you call it a gateway to ‘financial inclusion.’ Since banks will not spend on full-fledged ATMs in all villages, the poor and unbanked can use the identification numbers to withdraw cash from micro ATMs — inexpensive machines that serve as cash dispensers.

What about business houses trying to realise their dreams of owning banks? They will have to counter well-honed arguments: corporates will find multiple ways to use their banks to fund group firms, place their own men on bank boards and that there is no supervisory mechanism to check all of that. In the ‘80s, American banks backed a new set of rules, better known as Basel I, to fix the minimum capital a bank must have to lend. Many felt it was a ploy to cut down the huge Japanese banks that were sponsored by zaibatsus, operated on wafer-thin capital and bought almost anything they liked. But outspoken advocates of Basel I and Wall Street banks which quietly backed them, were emboldened by instances of corporate houses mismanaging banks.

In the past two decades they sharpened their views into formidable intellectual objections. This is the tallest wall a corporate had to climb before it could own a bank. None could. And, for years RBI found itself safe behind the wall as it denied a banking licence to even the biggest of corporate houses. Today, there is a crack in that wall. What has changed? Besides the hectic lobbying and the corporates own intellectual ammunition, something else helped. Once again, it’s ‘financial inclusion.’ Something that’s being peddled around as an idea whose time has come.

A lot of people have learnt to use it. Seasoned politicians have been quick to sense it. Bankers acknowledge it. Corporates know how to weave the magic term with their proposals. Even event managers have found out that few turn down an invitation to a seminar on ‘financial inclusion.’ And, the regulator is powerless before it. RBI fears that the old wall will crumble in time. Grudgingly, it will have to dole out licences to corporates. Whether that “limited number” of licences is three or eight will depend on the outcome of a game that will be played out in the next one year.