Amish Dhungel

Financial inclusion is a situation in which individuals and businesses have access to meaningful and affordable financial products and services. It means that customers regardless of their geographical location, ethnic, social-cultural, educational, or economic background have an access to suitable financial products, while ensuring the fairness in service delivery at a reasonable cost. Financial inclusion is popular because of its role in reducing poverty and boosting prosperity. Generally, financial inclusion is measured in terms of access of people and business to a bank account. Having a bank account means that people can save, send and receive payments. They are connected with one of the important part of life - banking. Such an account serves as a starting point for the users to facilitate day-to-day living, make immediate and long-term financial plans and use a variety of financial services, among others.

Access
Access to finance at present is not only limited to having a bank account in physical banks. With the use of modern technology in the field of banking and finance, financial services are offered through mobile phones, personal computers, internet, or via linkage of card to a digital payment platform known as digital financial services (DFS). For any product offerings to be called DFS, it should enable the users to perform basic banking functions like payments, savings, borrowings, making use of internet, and without having to go to the physical branch location.
Historically, financial inclusiveness throughout the globe has been low. The World Bank estimates that around 1.7 billion adults worldwide (or 31 per cent of adults) do not have a basic transaction account. In the case of Nepal, around 60 per cent of the population is still said to be outside the coverage of formal banking channel. Low financial literacy, complex KYC requirement, unequal access to infrastructure, convenience in using informal market tools, lack of trust in financial service providers and inadequate financial awareness, has excluded a large portion of citizens from the ambit of the banking industry.
Having realised the importance of financial inclusion, the Government of Nepal has taken measures to increase the access of people to financial services. It has given priority to opening a physical branch of commercial banks in all local levels. As of October, 2019, only 12 local levels out of 753 do not have a physical branch.  All these local levels are likely to have a branch by the end of current fiscal year. With about 81 per cent of Nepal's population living in rural areas, the increase in number of banks at local level will increase bankable population. Banking at doorsteps will create a convenience to the users which was a matter of privilege some years back.  Similarly, the government has launched opening bank accounts campaign targeting every citizen. To ensure its effectiveness, the process of opening bank accounts has been simplified. Opening bank account earlier required a copy of citizenship but now can be done by presenting a copy of driving license, national identity card, etc. Similarly such accounts will receive deposit of Rs. 100 from banks side.
The government has also introduced 'Digital Nepal' campaign, which highlights the role of the Digital Financial Services to promote digitisation of financial transactions. It aims to increase the limit of digital transactions, reduce cost of digital financial transactions, issue national biometric card and introduce Telecommunication Company (TelCo’s) into payment industry.
The country in 2018 had 47 per cent of adults in financial channel, which was a 10 per cent increase from 2017. Such number has soared up to 60 per cent as per recent study report from the Nepal Rastra Bank. Such a progress is because of larger portion of population having access to Mobile Financial Services (MFS). The growth was possible because of the government’s financial inclusion strategy via ‘Digital Bangladesh’ that promoted Mobile Financial Services (MFS) like bKash, Rocket, iPay, etc.
Large unbanked population together with predominant cash based economy has been a constant problem to Nepal’s financial system since long. A solution to both of these can be via extension of digital financial services throughout the country. With mobile penetration rate greater than 100 per cent, declining cost per unit of data, high-speed internet solutions, expansion of physical infrastructure and 50 per cent of internet penetration rate, the environment is supportive for establishment a conducive ecosystem of digital financial services. This context is more suitable to popularise mobile financial services. This population base with wide access to mobile and internet can be tapped easily to open digital wallet which would be game-changing to enhance financial inclusion in Nepal. Licensed mobile financial services providers from the NRB in the form of PSP’s and PSO’s can tap virgin unbanked population across the country.
 Digital finance is instrumental to ensure broader financial inclusion. Similarly, in contrast to the traditional brick and mortar banking, digital finance is more affordable and convenient.  The major advantage of digital finance comes from its ability to offer product offerings at an affordable price and ensuring interoperability across various service providers. It also enables the regulators to easily control the flow of black money, or undue financial transactions. Use of innovative digital finance services can have long-lasting positive impact on the banking performance.  

Contribution
Access to digital finance is also more likely to boost the gross domestic product of the economy by providing the service users with wide range of digital finance products and services. Under banked groups like SME’s, women, and population at the bottom of the pyramid will have access to financial services. This will boost aggregate expenditure leading to a positive contribution to GDP and will also contribute to reduction of poverty level. With this collection of government revenues, fees and charges will also increase.
As such the government in coordination with other stakeholders should create an enabling legal and physical infrastructure to promote digital finance in the country. Making use of the technology to offer existing banking solutions and leveraging the benefit of technology to offer mobile financial services across geographical area will significantly enhance financial inclusion in the country. Such measures will significantly help the government materialise its mission of ‘Digital Nepal’.

(Dhungel is an assistant Director at Nepal Rastra Bank)