How NOT to promote financial inclusion

Financial inclusion is the talk of the day- everybody wants it, nobody knows how to make it happen.

In today's BS, Christopher Butel puts forward the sort of non-solution that market players often favour. He says that banks don't have much of an incentive to invest in branches and ATMs in under-served areas because the transaction volumes don't justify these investments.

I am not very sure. Banks really don't collect charges for volumes - issue of cheques or usage of ATMs of banks where they have accounts- unless volumes exceed a certain level. Even in urban areas, most people would tend to stay within the limit. I don't see how increasing transaction volumes hold the key to greater income for banks.

Suppose we grant this. How are we to increase volumes? Butel has two ideas. Let employers change the payment cycle- hand out pay in two instalments instead of a single payment every month. But wouldn't this increase transaction costs for employers and for employees? Are they to bear more costs so that banks can benefit?

Secondly, Butel wants some of the post office infrastructure to be made available to banks. That would help banks reach out without having to make big investments in infrastructure. Sorry, but India Post is planning to offer banking services itself, so why would it fall for such an idea?

One cannot help telling the corporate types: get real.