shahqureshi - Tumblr blog

[shahqureshi]

Mobility-Driven Financial Inclusion for India in 2019

I am enthused by the opportunities that technology can enable in driving India’s financial inclusion agenda. Today, it is possible to marry an effective method of communication and technology that benefits the unbanked population of India, eliminating the need to visit a financial institution or any personal interaction.

India’s unbanked population is estimated at close to 190 million[1], accounting for ~11 percent of the world’s unbanked adults[2]. However, since 2011, the adult population with a bank account has more than doubled to 80 percent[3].

Financial inclusion: a crucial step towards escaping poverty

In India, notable demand-side hurdles towards advanced stages of financial inclusion are poverty, uncertainty of finances, inability to manage & save resources and a lack of job security, among others. The supply-side challenges include penetration of banks and ATMs, the overwhelmingly time-consuming process of banking and an uneducated populace with scepticism towards formal banking.

Digital technology can bring people into the financial system. Case in point, even though a whopping 1.7 billion adults in the world remain unbanked3, two-third of them own a mobile phone.

Steps by the government

The JAM movement (Jan Dhan Yojna, Aadhar and Mobile penetration) by the government aims to make financial services accessible and affordable to the unbanked and under-banked sections of the society. Today, nearly 1.23 billion Indians are enrolled in Aadhar, the world’s largest unique digital identity program[4]. India is estimated to have 829 million smartphone users by 2022, accounting for 60% of the country’s population[5]. In June 2018, this figure was close to 480 million[6].

Mobile banking has the means to overcome logistical factors such as limited access to banks and the lack of financial feasibility, and therefore is the only means to achieve 100% financial inclusion.

Creating a technology aided rural reality

An IAMAI report estimates the next upsurge of mobile internet penetration primarily from rural India. The report identifies young students as the most active users of internet in India – 46% of urban users and 57% of rural users under the age of 25. Most of these users fall under the purview of financial inclusion. The convenience and the easy adaptability of mobile phones in vernacular regions cannot be questioned. In fact, the promotion of digital payments throughout the country has been one of the few primary agendas of the Indian Government in the past four years. CRISIL Inclusix, India’s very first financial inclusion index that was launched in 2013 recorded a rise from 50.1 in FY 2013 to 58 in 2016[7]. In fact, the UPI mode of digital payment launched in 2016 witnessed a growth of 300 percent in transaction volumes in 2018, as compared to the year before.

It necessitates us to rethink financial inclusion in a way that it circumvents the hurdles faced by the banking system. Mobility driven models have seen phenomenal success across the world. In Sub-Saharan Africa, financial inclusion efforts have resulted in a 250% growth since 2011[8]. Disruptions and innovations in the fintech sector have encouraged a cashless society in the Philippines, Indonesia, Israel, Bangladesh and India.

However, from a security standpoint, I notice that even though trust levels in online and mobile financial transactions have gone up, digital literacy, raining and adoption of robust encryption systems need attention. The BFSI sector is aware of these factors, and is taking steps in the right direction towards mobility driven financial inclusion.

 - Shekhar Bhandari, Sr. EVP & Business Head – Global Transaction Banking & Precious Metals, Kotak Mahindra Bank

[1] World Bank

[2] Global Findex Database

[3] World Bank

[4] UIDAI

[5] Cisco

[6] IAMAI

[7] https://www.livemint.com/Opinion/EYDsPA60qlvujdln9SJcdN/India-is-doing-well-on-financial-inclusion.html

[8] Check out the full report here

Disclaimer: Views expressed are personal

[shahqureshi]

HOW TO DIVERSIFY YOUR PORTFOLIO & ITS IMPORTANCE

One of the biggest mistakes you can make when investing is putting all your eggs in one basket. If you have all your funds tied up in a single type of investment, you leave yourself exposed to facing financial losses if something unfavorable happens. That is why financial experts and analysts recommend that investors should diversify their investment portfolios. Such a strategy not only increases the probability of better returns, it also ensures that any loss on one asset is evened out by the profits from other assets.

Diversify your investment portfolio

A good portfolio is the one which has multiple instruments like equities, bonds, mutual funds, life insurance, Provident Fund etc. By having a right mix of different instruments, your portfolio works towards both dividends and long term gains while keeping the risk-return ratio low.

 Both Long Term and Short Term investments are important

A crucial part of your strategy should be to combine short term gains with long term financial growth. While short term investments are good when funds might be required within a specific time frame, long term investments can really help you understand investment risk management and pave the path to financial independence. Read more on different types of short term and long term investment options.

 Invest in Mutual Funds

Mutual funds follow the model of diversified investment with your capital getting invested across assets as well as sectors depending on the kind of mutual fund. In addition to that, you have the advantage of a professional fund manager managing your account whichensures that your money is being invested wisely. Read more on mutual fund and its benefits.

 Take low to moderate risks for higher returns – Understand your risk profile

Investment in assets like equities comes with inherent risks but that is not something that should discourage you while investing in them. Invest in direct equity for long term for rewarding gains and beating inflation. Depending on your risk tolerance, also invest in debt assets for assured returns and to keep the equity-debt ratio balanced so that it can tackle market fluctuations.

 Seek advice from financial experts and broking firms to invest smartly in these assets as the accompanying returns are higher. They can contribute significantly towards fulfilling your short term financial goals like purchasing a four-wheeler or meeting the expenses for a foreign trip.

 Invest in Retirement planning instruments

As a smart investor, you should ensure that a significant portion of your financial resources goes towards investing and saving for your retirement. That is why you should start early with buying Life Insurance (Premiums are lower at a younger age) and contributing towards your Employee/Public Provident Fund. Not only do you get assured returns on maturity, you also safeguard your later years from any unforeseen financial implications.

 Avoid over-diversification

The age old adage is that “excess of everything is bad”. The same is applicable to investment diversification as well. Let’s consider a hypothetical scenario: Investor A has diversified his investment portfolio by investing in assets U, V and W. Subject to market ups and downs, the unified return on his investments in better than he had expected. This entices him to further diversify his portfolio and he duly obliges by adding assets X, Y and Z to it while having high expectations of getting even greater returns. However, the market fluctuations result in the losses on X,Y and Z exceeding the returns on U, V and W, thereby resulting in a net loss on investment.

 Of course there is also a possibility that the risk pays off and the returns are greater. But the market volatility makes this very likely. So it is better to diversify your investment in a controlled manner.

 Also think about Financial Planning which is another important facet for handling your finances tactfully. Consult a financial planner who can help plan your portfolio effectively to allow smooth regulation of your capital for expenses, investments and for paying taxes