ICT-driven financial inclusion initiatives for urban poor in a developing economy: implications for public policy

ABSTRACT

A key agenda of policy-makers in both the developing and the developed worlds is to have an inclusive growth. Financial services have been recognised as one of the fundamental services that have the potential to achieve this objective and help move towards a more just and equitable society. This paper attempts to assess the impact of three information and communication technology-driven initiatives in the field of financial services by differentiating them on the basis of service design. This study goes beyond the stated objective of these services and uses Sen’s capability perspective to study their impact across three non-economic outcome variables viz. literacy, service-specific well-being and empowerment. The data for the study are collected from the urban poor across different locations in a large metropolitan city in South India where the three different services are being offered. The study follows a quasi-experimental design (field study) and ensures matching of the treatment and control groups through propensity score matching. The matched data are analysed using an independent sample t-test. The result of the analysis shows that service design plays a key role in increasing service literacy, improving service-specific well-being and empowering end users. The study suggests that the true challenge for providers (government and partner agencies) of these services is in designing a service that ensures a balance of structure and flexibility without constraining the choice of end users through innovative service blueprints.

KEYWORDS:

• Inclusive growth
• ICT4D
• transformative services
• service design
• financial inclusion

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. United Nations Development Program (2009) provides this summary:

The Millennium Development Goals (MDGs) are the most broadly supported, comprehensive and specific development goals the world has ever agreed upon. These eight time-bound goals provide concrete, numerical benchmarks for tackling extreme poverty in its many dimensions. They include goals and targets on income poverty, hunger, maternal and child mortality, disease, inadequate shelter, gender inequality, environmental degradation and the Global Partnership for Development.

2. The services provided by facilitators include (i) identification of borrowers and fitment of activities; (ii) collection and preliminary processing of loan applications including verification of primary information/data; (iii) creating awareness about savings and other products and education and advice on managing money and debt counselling; (iv) processing and submission of applications to banks; (v) promotion and nurturing Self-Help Groups/Joint Liability Groups; (vi) post-sanction monitoring; (vii) monitoring and handholding of Self-Help Groups/Joint Liability Groups/Credit Groups/others; and (viii) follow-up for recovery (RBI 2006).

3. The services provided by business correspondents, in addition to the above, would include (i) disbursal of small value credit, (ii) recovery of principal/collection of interest (iii) collection of small value deposits (iv) sale of micro insurance/mutual fund products/pension products/other third-party products and (v) receipt and delivery of small value remittances/other payment instruments (RBI 2006).

4. The term ‘accessibility’ here is not related to the general accessibility concept (related to special needs). It is more related to reach, approachability and availability.

5. The reluctance in reporting of income was a challenge that the enumerators faced during data collection. Therefore, identification of the urban poor was made on the basis of several other characteristics. One indicator of the economic status of the respondents was lack of access to formal channels of financing (may be due to lack of documentation). Further, information related to the nature of dwelling, the occupation type, education, indebtedness was used to identify the urban poor. These are similar to the characteristics of the urban poor observed in India Urban Poverty Report (United Nations Development Program 2009). It was observed that about 78% of the respondents were staying in unorganised settlements (like nomadic establishments & Slums) and about 76% of the respondents claimed that they did not own their place of residence. About 20% of the respondents had no formal education at all (completely illiterate). While close to 37% of the respondents were employed and 23% were self-employed, only about 5.2% of the respondents were employed with some formal contract (at the time of data collection). About 87% of the respondents had some kind of debt, while about 34% claimed that they were very indebted.