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The Suitability Approach to Client Protection: Comments on the Mor Committee Report

With the Increase in Financial Inclusion in India focusing on the global challenge to achieve financial inclusion by 2020, we have to consider the past and what approaches were taken to expand the same. Several approaches were taken, and some of them yielded results, but in the end, most of the population in the rural areas didn’t have access to any kind of financial inclusion.

However, with the combined efforts of the RBI governor and Nachiket Mor, financial inclusiveness has increased in rural areas. However, financial inclusion should also follow certain principles of client protection that help clients get the right information more simply so that they can make an informed decision. Here in this write-up, we have mentioned how the Mor committee has helped achieve financial inclusivity.     

What is Client Protection?

A client must be protected from the harms of financial inclusion. For financial inclusion to be right for the clients, the policies, terms and conditions, and pricing should be visible to the clients. In the case of responsible financial inclusion, clients should be aware that they shouldn’t borrow money that they can’t pay back or buy/purchase products that are not required of them. 

What is Client Protection?

A good financial inclusion model contains high ethical standards for treating clients, for instance, positive implications of how low-income households pay for healthcare in Mexico are noteworthy in this case. Clients should be given space to address their problems regarding financial inclusion so that the problem can be sorted out. Clients get protection against data breaches, and their data is kept secure; not only any clients, it protects the data of businesses but also some industries, resulting in the overall growth of the industry.

A good Financial inclusion model must address client protection principles and follow them. Client protection principles are the minimum things that are offered by any financial service provider. Client protection should be offered by financial lenders to any business that is being helped by them. These client protection principles should be followed by all the international workers associated with financial lending. Every official following the financial inclusion model should abide by the core principles of client protection. The core principles are:

Appropriate Product Design and Delivery

Financial providers should be careful in designing every product that is to be delivered, the delivery channel should not cause kind of harm to the client. Every product assigned to delivery should be made by taking the customer’s characteristics into account.  

Prevention of Over-indebtedness

Financial providers should keep in mind that any customer should not take loans that they can’t pay back. For this to happen, providers should closely monitor every phase of transactions taking place to stop any consumer from falling into over-indebtedness. There should be a separate department looking after credit risk management to avoid bad loans. This will improve the system’s efficiency, and clients will be saved from debt traps. This was extremely helpful by providing a source and acting as the role of microfinance institutions in post-Ebola recovery


Every information shared by the provider to the client should be clear and simple for the client to understand. Most of the client comes from low-income classes, those who don’t have any financial education, so a piece of the clear and right information is what they need to make informed financial decisions. The pricing and the terms and conditions should be communicated by the provider before giving away the loan to the client.

Responsible Pricing

The pricing of the financial help should be affordable to every client, it should be designed in a way that everyone can get the benefit of financial inclusion. Terms and conditions related to the loans should be communicated and made visible to every client who is about to take the loan. However, the financial inclusion should be sustainable to run the prices should be set in that way so that it can be run sustainably.

Fair and Respectful Treatment of Clients

Every financial service provider will make their agency free of any kind of discrimination. Every client should be treated fairly and equally when they arrive to get any kind of financial assistance. The agents of the agency will not be abusive or aggressive towards any client, especially during loan sales and collecting the loan. 

Privacy of Client Data

The data should be protected from any potential data breach; the data privacy policy should be in accordance with the laws and regulations in terms of data storage. The information can be accessed only if the client has agreed with it. However, the data of every individual should be protected, as many clients do not understand which information to give away and which needs to be protected.

Mechanisms for Complaint Resolution

The problems registered by the clients should be addressed immediately. The agency should work towards the problem that is being registered to find the solution that will benefit both the client and the agency. Continuous innovation in the working culture and products makes the process more efficient. 

What is Nachiket Mor Commitee? 

This committee was formed by the governor of the Reserve Bank of India, Mr. Raghuram Rajan. He formed this committee on 23 September 2013, mainly targeting small businesses and low-income individuals. The main agenda of this committee was to study financial inclusion in rural India. The final report after its study was submitted on 7 January 2014. 

The committee was headed by the experience Mr. Nachiket Mor, who was directly assigned by Raghuram Rajan. The committee aimed that every Indian adult by January 2016, will have a Universal electronic Bank Account (UEBA). The aim was targeted towards low-income and small businesses, Everyone in this sector will be having an account. The main idea was anyone having an Adhaar card will be able to open an account.

How Nachiket Mor Helped in Financial Inclusion in India?

How Nachiket Mor Helped in Financial Inclusion in India?

Our Prime minister last year vowed that everyone who is still not included in the financial system will be brought into the financial system, and everyone will have an electric bank account. Nachiket Mor and the governor of the Reserve Bank of India are working towards achieving this dream. The process will work in a way where payment banks, non-bank institutions, and other financial institutions will use their existing channels to target the unbanked population.    

If you are poor then life is very expensive without a proper financial system you will be forced to take loans from informal centers that will charge high-interest rates which will force people into debt traps. According to the World Bank group, in the year 2014, around 53% people of in India did not have a bank account. They used to store tier wealth with themselves, in terms of gold jewelry or livestock which would be stolen easily leaving them helpless. 

Now, this is changing in India, more people from the rural and the urban areas are getting included in financial systems. The underserved population is getting financial education from financial providers, with which they can better store their money and grow their overall wealth. Quite a similar example can be cited here about the Kopo Kopo mobile money platform in Kenya, which has transformed many people’s lives regarding financial transactions.

Financial knowledge is key to understanding how to save money to come out of poverty. With this aim in the year 2013 the RBI governor made a committee to look after financial inclusion in India, the Committee of Comprehensive Financial Services for Small Businesses and Low-Income Households, popularly known as Mor Committee. Nachiket Mor took charge as the head of the committee. The member of the committee was filled with high officials of existing banks, Vikram Pandit, former CEO of Citigroup, and Shikha Sharma, managing director and CEO of Axis Bank, one of the largest private banks in India.

In the year 2014, the Mor Cometiee published a report on what they were working for when it was started. The report stated that payment banks can be the solution for financial inclusion in India. These banks which are not like traditional banks can issue debit cards, deposit money, process digital payments, and transfer funds. However, some of the functions that a traditional bank could offer would not be offered by payment banks. Still, payment banks could work as a conduit for third-party apps in sanctioning loans, credit loans, and auto insurance.

Nachiket Mor aged 55, has had a glorious journey, his upbringing was in a farming family in western India. After he had completed his studies at the Indian Institute of Management in Ahmedabad, he worked with many mushroom growers in Delhi, they were part of a non-government organization. Then he moved to ICICI Bank, which was still growing in the year 1987. 

After that, he went to us to complete his Ph.D. in finance at the University of Pennsylvania. When he reached India he again joined ICICI Bank as the deputy managing director of the newly formed department ICICI Foundation for Inclusive Growth and concentrated on rural development.

Nachiket Mor has recently joined with Bill & Melinda Gates Foundation, he joined as a senior advisor in the month of September. He mainly focused on advising the foundation’s programs that catered to healthcare. The experience he brings will have a lot of benefits in the financial services for the poor (FSP) program. 

Due to his experience in the banking sectors and rural areas, Nachiket Mor was appointed to the RBI’s financial inclusion program in May 2013. Following his appointment, he started researching financial inclusion and published a report stating the importance of payment Banks.          

What Did Nachiket Mor Report Reveal? 

On January 2014, Nachiket Mor published his report on financial inclusion in India. The Committee of Comprehensive Financial Services for Small Businesses and Low-Income Households was formed by the Governor of RBI on September 23 and was headed by Nachiket Mor. 

The committee had people who had banking experience in rural areas and some of them had worked in international countries as well. The committee required international experience as the Governor needed an international approach to the financial inclusion problem over here in India. 

People from the private sector provided the committee with innovations that gave disruptive results. With all these people on the committee, it was sure that the results would be successful. The committee gave positive results as well. The problem didn’t seem as usual. Financial inclusion is a long agenda of the government, with the help of financial inclusion not only the unbanked population will be banked, but the banks will go through changes that will improve the financial sector completely.

Well, before the committee was initiated there were several approaches to financial inclusion in the past. According to records around 7.2% of the rural area was under the financial sector this number doubled every decade with government approaches it reached 61.2% in 1981. Within the next decade, the number of people increased a little bit, it reached 64%.

However, with the liberalization agenda the financial inclusivity decreased to 57.1%. In the years between 1995 to 2001, the number of banks decreased, and small cooperative banks increased. So far every idea that the government has taken, the idea had worked and given results, even the report published by Mor Committee shows this exact thing. 

The report even includes that the licensing policy which was controlled by the center had a negative impact on the poverty outcomes. The report states that there are majorly three approaches by the government that caused problems. The first one is the partnership between states and cooperatives in 1950. 

Secondly, the nationalization of banks in the 1960s. Lastly, the setting up of regional banks in the 1970s. After these ideas, the government has not produced any more ideas that have generated any kind of results. The committee holds the view that there is a need for an approach that can sort out many other problems, one approach many problems. 

Even aggressive approaches are welcome by the committee, but the task is kind of huge to cover the unbanked population. The panel consists of big-time bankers who just make it possible for the committee to achieve what they are aiming for. The committee contains the CEO of Axis Bank, the third-largest private bank in India, and the managing director of Bank of Baroda.

The approach taken by the Mor Committee is quite different they want to deliver financial services through a larger structure that is supported by the legal and regulatory framework; combined with this and others support the global appeal for responsible microfinance. There are rules and guidelines for a system to operate. The approach is going to be neutral compared to institutional forms. The spending model is going to be externally based in terms of delivery. The committee even plans on initiating interoperability that will allow you to access the bank with just a touch, through this feature financial inclusion can reach many people.

The financial providers followed the principles of client protection, by ethically selling many financial services by the concept of suitability. While it is a challenge to open vanilla accounts, maintaining the quality of the products offered is an even bigger challenge. The product should pass the suitability criteria which is extremely tough indeed. The cost of the products falls to the customers who require the financial service.

The next cost comes from maintaining the client protection framework. It is expensive to maintain the framework as every agent of the financial service prodigy agency should be trained in ethically practicing selling financial services. Maintaining transparency in the whole process seems difficult, for example, in Andhra Pradesh, the financial providers would recite all the terms and conditions to the client before taking their confirmation; this did seem a good method but was not practical in most cases. 

There have to be other methods to maintain client protection. This is one of the most essential things that need to be sorted by the financial providers as conditions and pricing are the two things that need to clear before someone takes a loan. The committee decided this was one of the most crucial steps in providing financial assistance. 

Frequently Asked Questions (FAQs)

Q1. What was suggested by the Nachiket Mor Committee?

Nachiket Mor community suggested the use of payments banks, payments banks could issue debit cards just like traditional banks. It can store money. It works just like traditional banks, but some of its functions of it couldn’t be done by payment banks. The report suggested using payment banks to expand the reach of financial services.  

Q2. Which committee recommended payment banks?

After thorough research on financial inclusivity in India, the Mor Committee published a report stating the use of payment banks other than traditional banks. Payment banks can include a lot of people in the financial system.    

Q3. Who was the chairman of the Nachiket Mor Committee?

The Nachiket Mor Committee was formed by the governor of RBI, Mr. Raghuram Rajan on September 23, 2013. The committee had members who were big-time bankers. Members included the CEO of axis bank and the Managing Director of Bank of Baroda. The Chairman of the Mor committee was Nachiket Mor.

Bottom Line 

The Prime Minister had a vision to bank the unbanked population of India, as there had been many approaches in the past to get this done many had even given results but in the end, the majority population of the rural areas didn’t get included in the financial system. Well, in 2013 the governor of the Reserve Bank of India formed a committee that was led by Nachiket Mor. This Committee focussed on the rural population and low and poor-income individuals who were unbanked till now. 

The combined approach of the Mor Committee and the RBI has helped a lot of the rural population get financial inclusion. The report published by the Mor Committee just shows how it is difficult to abide by the principle of Client protection and provide financial service. However, they need to follow the principles of client protection and then provide financial services, the agents should be trained in that way to provide such service. 

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Jonas Taylor
Jonas Taylor
Jonas Taylor is a financial expert and experienced writer with a focus on finance news, accounting software, and related topics. He has a talent for explaining complex financial concepts in an accessible way and has published high-quality content in various publications. He is dedicated to delivering valuable information to readers, staying up-to-date with financial news and trends, and sharing his expertise with others.

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