A. The Dilemma:

The great dilemma is more than 55 percent of the adult population in our country is excluded from formal  financial sector. It is not just people in the rural areas; many of the lower income categories of the urban population are also excluded on the other hand all form of financial product companies are are not technologically ready to offer this services.

This is largely because of the way the supply of such services is organized. For instance, the transaction costs of financial services to the poor are exceedingly large in comparison to their potential exposure. From the demand side too, there is financial illiteracy and the consequent fear of approaching formal institutions.

B. Our Focus :

We shall  focuses on developing complete solutions and not on restatements of the problem. The paper deliberates on the following types of questions:

We shall try and answer questions like ,how can we reduce transaction costs of dealing with the poor?

Can we develop institutions to act as intermediaries between existing institutions and the excluded?

How to build a technology platform on which these issues can be tackled ?And  also What sort of legal environment is necessary to support an innovative use of technology?

Authorities like Bangladesh Bank and MRA attempt has been to define the regulatory framework that encourages greater and universal access to financial services based on a technology platform that allows solutions that are otherwise infeasible.

C: The leveraging effect

It has been found that technology is the key to providing low cost financial services in rural areas.

Functions like Disbursement of loans, Application processing and maintaining accounts can be made easy as technology will help reduce transaction costs and time taken by banks. Outreach to the distant customer is a tough challenge to the banks and this challenge can be overcome with the help of IT.  It has the potential to address the issues of outreach and credit delivery in rural areas, in a cost effective manner. Banks will have to find cost-efficient ways to reach the rural customers. They can achieve this through a variety of technology devices like weekly banking, mobile banking, satellite offices, rural ATMs and use of Post offices. Mobile phone penetration in rural areas can be leveraged by banks to facilitate banking transactions. Mobile phones can be used to transfer funds real time from and to bank accounts and could make remittances and payments at very low cost. An array of financial services such as savings, remittance, transaction banking such as receipt of salaries, pensions and payments for utilities, loan including home loans, insurance and MF products can be provided once the technology infrastructure is in place. This allows the bank to provide more services to existing customers. Besides that it also aids the bank in increasing the customer base.

Financial inclusion offers a huge potential for business in terms of resources and assets and banks therefore need to take aggressive steps to use technology, business processes and personnel to be able to exploit this potential in innovative and creative ways. In fact use of technology is critical in building up a reliable credit information system, build up data base on customers for a variety of purposes, thereby reducing the transaction cost involved in checking encumbrances and collaterals and also facilitating better pricing of risk.

From the standpoint of ‘inclusive banking’, it needs to be realized that technology per se is not an end in itself. It is to be made sure that technology aids the reform process and acts as a ladder to achieve the ultimate goal of providing financial services to the financially excluded.