click to run video · cola, pepsico, hindustan unilever, marico, godrej and dabur] are rushing to...

Click to run video

Globsyn Business School : AIMS 3

“Imagine if the global economic communications systemof the banking world suddenly collapses and everyfinancial institution in the world stopped functioning.Banks everywhere would shut their doors. ATM screenswould go blank. Credit and debit would no longer work.And billions of families would be unable even to putgroceries on the table. Well, this is exactly thesituation that half the world’s population lives withevery day – a non-stop horror story.”

Mohammed Yunus


India has stellar Growth story and expectations are high : Deserve Kudos

• The recovery from the global economic downturn is faster in Indiaas compared with other countries in the world.

Of the more than 200 companies from over 50 countries that formpart of the World Economic Forum’s Global Growth Companies(GGC) Community, India today has the second largestrepresentation, with a total of 18 GGCs.

In less than 40 years BRIC countries together would be larger thanG 6 in US dollar terms

By 2025 BRICS – half of the size of G 6

In 2050 – of the current G 6 only US and Japan may be among theworld’s largest Six economies

By 2050 world’s largest in GDP may not be rich in terms of percapita income


The Rural India Story

• The bottom-of-pyramid (BOP) consumer segment is estimated atclose to 350 million

• But it is the biggest and perhaps the fastest growing in the countrywith about 40 million families making the jump from poverty tothe BOP club every year.

• Consumer product makers [such as GlaxoSmithKline, Nestle, Coca-Cola, PepsiCo, Hindustan Unilever, Marico, Godrej and Dabur] arerushing to the BOP market with custom-made products

• Major FMCG companies (like Hindustan Unilever (HUL), Marico,Godrej Consumer Products, Dabur and even brewers like SabMiller) have stepped up hiring in small towns and rural India—primarily appointing sales staff to increase visibility and connect,and simultaneously boost sales. .


The faster growth of last 15 years

Plan Period Average Growth of GDP pa

(%)

1950-51 to 1964-65 3.95

1965-66 to 1979-80 3.62

1980-81 to 1994-95 5.37

9th Plan 1997-98-2001-02 5.5

10th Plan 2002-03-2006-07 7.7

11th Plan (2007-08-20100 8.7 (four years)

Source: Planning Commission, 11th Plan Document, Report of the Steering Committee on Agri, PC

Expectations

Current year : 8.6%

FY 11-12 : 9%

But poverty impact of growth has been muted: poverty declined from 36% in 1993/94 to 28% in 2004/05, a 0.8% point reduction p.a. compared to 1.6% poverty reduction p.a. in Bangladesh and Nepal

So the question is :: Has it been inclusive?


Hard Fact

Banking services

503 mobile set users but 46%of them donot have no bank accounts

400 million have account – 40% of population

Rural India – 5.2% of 650000 villages have bank branches

although 39.7% of total bank branches are in rural India

Only 26.8% of people in rural India earning less than Rs 5000 have

bank accounts

Mutual Fund

45 million invest in mutual fund – only 4% of population

15 million (1.5%) hold demat account

Insurance

80% of population without life, health & non-life coverage

Per capita spent on life and non-life is just about Rs 2000 & Rs 300


A look at the Regional Inequalities would corroborate why we need inclusive

growth


Growth Rates have been lower in the poorer states


Public Services Weak in the poorer regions: e.g. Immunization Coverage


Four reasons that help to explain India’s growth is not adequately inclusive.

• Growth has diverged across regions, leaving behind the large populous states of North Central and North East India.

• Growth has not been creating enough good jobs, that provide stable earnings for households to climb and stay out of poverty.

• Growth in the agriculture sector, which employs more than half of India’s workers, has been an anemic 2%.

• Growth has left behind key sections of the population --females, the 90 million tribal population, some SC groups religious minorities, -- lagging behind in job opportunities, earnings, and human development.


In the global landscape of Financial Exclusion


Let us have a Close look at Financial

Inclusion as it is understood now


My driver Dibakar

My driver Dibakar is often penalized by

the traffic police for using his cell

phone while driving.

He can’t resist taking calls from the

“ladies” who call him “Sir” and offer him

credit cards and consumer loans.

Hopefully we are not talking such story as financial inclusion.


The narrow way of looking at it

Delivery of financial services (savings, Credit, Insurance, Remittances,

financial advisory) at an affordable cost to vast sections of disadvantaged

and low income groups so as to ensure that larger segment of population

get access to and uses the facilities of formal payment system and

financial market thereby gaining formal financial identity

What a great financial inclusion journey India is on. Banks, Governments,

Civil society, and private sector businesses are jumping onboard as the

train accelerates


Major Milestones of providing access to finance.

Should Financial Inclusion mean access to finance?


Since opening up to private players in 2001,

the market has witnessed tremendous growth

It is expected to grow at ~15% per annum by

Sustained real GDP growth of 7-9% per

annum

Expected high household savings rate in

India of ~25-30% of GDP

0

400

800

1,200

1,600

FY

05

FY

06

FY

07

FY

08

FY

09

FY

10

FY

11E

FY

12E

FY

13E

FY

14E

FY

15E

FY

16E

FY

17E

New business premium

INRBN

Rapid

build-up

Financial

crisis

Regulatory

overhaul

Long term

growth

Penetration of Indian Life Insurance is very low indicating that the focus is not necessarily banking system

But present penetration is only 4.6%

Increasing life insurance by 1% signals

an additional INR630 BN in total

premiums (=25% increase in total

premium)

Favourable demographics as current

average age in India is only 25 years

with ~30% below the age of 14

Social Security consideration weigh high


Why do we need financial inclusion


“Look at these monkeys in the

big case that the man has

collected from you at the rate

of $10/ $25. I will sell them to

you at $35 and when he returns

from the city, you can sell them

back to him for $50.”

In a village in China

Great Financial Engineering : But at whose cost


“If the poor are to get a chance to liftthemselves out of poverty, it’s up to us toremove the institutional barriers we’vecreated around them. We must remove theabsurd rules and laws we have made thattreat the poor as minorities. And we mustcome up with new ways to recognize aperson by his or her own worth, not byartificially measuring sticks imposed by abiased system.”

Mohammed Yunus,21


Generates

Supply

Corporate

Growth

Focus

Access to

banking and

Financial

services

SOCIO

ECONOMIC

FABRIC

Social

Security

Product

suite

New Delivery

mechanism

Demand

Creation

Removal of Institutional barriers, social stigma, political

bias

Financial Literacy and right communication

Creating technology infrastructure and leveraging

Commercial Outlook (not CSR/ dole) to P-P-P and funding. Lowering Transaction cost

Key drivers

New Paradigm for FI mechanism

Pu

blic

sp

en

din

g b

y G

ovt


Indian Rural Market : Magnitude

• Is a value seeker

• Seeks comforts and amenities

• Does not wish to be seen as the deprived cousin.

• Does not experiment easily but this does not mean that “he would

not change”.

• Values local relationships because of unfavourable past

experiences


The Rural consumer Class

• Rural India too has its share of “The Rich”

• However, most of “rural India” would still comprise

• “The Aspirers”.

• Growing at a fast pace, this is the “FUTURE MARKET”,

• Creating buyers of quality products and services


There is shift in the Urban –vs- Rural Consumer Class composition


So Inclusive Growth have to be the means to the end

• Bringing socio economic reforms through policy changes that

– encompasses, evenly, all the sectors of the economy and

– where all segments of population are able to participate in the growth process and/or

– are able to benefit from it.

• Enhancing Capability of an individual, inter alia, by his/her access to

– education

– Health

– training and skill development

• Providing Opportunity to participate through

– access to resources, both physical and financial

– access to markets, both as a buyer and as a seller of goods & services

– level playing field in the market place

– employment opportunities getting created and

– Growth in the productivity (of workers/employees).


Socio Economic dimension in FI

Economic growth

8.5 to 9%Limited access to savings, loans, remittance &

insurance in rural/ unorganized sector major constraint to

growth

Growth primarily in industry & services –Agriculture at 2% -Growth potential in

SME sector enormous

Above services enlarge livelihood

opportunity & empowers poor –

Empowerment aids socio-political

stability

Financial

Inclusion

provides

formal

identity,

access,

Empowers

and enables

growth

participation


Money lender and the witty women

Unwilling to be unveiled as dishonest the lender waived the debt.

THUS A BIG PROBLEM GOT SOLVED

THROUGH USE OF LATERAL THINKING


Many loose ends to meet Financial Inclusion


Key stakeholders Universe in FI

Middle

Class

Multi/

Bilateral

Agencies

Rural &

Urban

Poor

Bureaucrat

Business

Community

Media

PoliticiansInfrast’ure

Players

NGO

Community

Based Orgns

Opinion

Leaders

Special

Interest

Groups


But their reactions ?

Middle

Class

Multi/

Bilateral

Agencies

Rural &

Urban Poor

Bureaucrat

Business

Community

Media

PoliticiansInfrast’ure

Players

NGO

Community

Based

Orgns

Opinion

Leaders

Special

Interest

Groups

• Can play vital role. But confused

• Low in agenda

•Financial illiteracy

• Does not know

what to expect

• Influence of local

money lenders

interest groups

• Lack of trust

• Minimal authority

• Lack of professionalism

• HR challenges

• Too much political

interference

• Too many agencies

• No authority to make

decisions

• Complex system

• Too much

interference from

higher political

players

• Look out for myself

•Less patience for

long-term reform

• Discriminatory

social fabrics –

work well

politically


Challenges to overcome by Financial Institutions


Illustrative business model to emerge for delivery

Delivery through Business Correspondents will eventually emerge as

major channel for financial service offerings for financial inclusion


Three pillars for delivery


Extremely large target population

Current Banking systems service merely 33% of total population

Customer profile different

Very low Literacy levels and Awareness

Business Processes need re-engineering

Existing processes can not produce desired results

Independent Delivery Agencies

Deployment of Business Correspondents/ Facilitators

Latest trends in Technology

Cost-effective state-of-the-art technologies are available today

Technology Infrastructure

To leverage on the UID number for financial inclusion

Accessing mobile enabled micro-transaction through Inter-bank mobile

payment service created by National Payments Corporation of India

Technology for FI – Why do we need to talk?


FI Innovations : Making a difference

Triggering Rural economy

Creates Purchasing Power by focusing

on increasing Income Levels

Enabling implementation of New

Technology in Agriculture

Providing Urban Amenities in Rural

AreasDeploying IT for real empowerment


The enlarged vision


Last mile

Reach thru people

with local feel and

pulse and

Market presence

Economic capital

through value creation

In the economy

Innovation in

Distribution

Network with capability

to make deep penetration

And technology

Enabled delivery

Doorstep service and

Building Trust

Relationship selling

Identifying the

Right target group

that deserve and

Make commercially

Viable proposition

Right Product

And pricing with product

design focussed to

commercial viability for

the target segment with

low margin

Cutting edge

Commercial Viability of FI - On six key strategic cornerstones


Measuring Financial Inclusion – IFIIndex of Financial Inclusion

39

The index of financial inclusion is a measure of inclusiveness of the financial sector of a country. It is constructed as a multidimensional index that captures information on various aspects of three key dimension of financial inclusion (i) banking penetration, (ii) availability of banking services and (iii) usage of the banking system

Accessibility has been measured by the penetration of the banking system proxied by the

number of bank A/C per 1000 population. Availability has been measured by the number of bank branches and number of ATMs per 100,000 people. The proxy used for the usage dimension is the volume of credit plus deposit relative to the GDP

Mandira Sarma

Indian Council for Research on International Economic

Relations

Jesim Pais

Institute for Studies in Industrial Development

India ranks 29th of the 49

countries under research


Promotion of Financial Inclusion

40

Issues to address

• Go beyond the number of bank accounts as measure of access

• Establish the linkage between financial inclusion policies and improvements in the well being of the poor.

• Barriers to access emanating from both demand side and supply side factors

• Lack of communication and language barriers,

• Lack of infrastructure,

• low literacy levels

• Poor technology for delivery


Promotion of Financial Inclusion

– From the demand side

- Generate awareness about financial services and products,

- Enhance literacy, especially financial literacy of the populace

- Remove social exclusion.

– From the supply side

- Reduce the transaction costs that the bankers perceive.

41

(I) Rise of the cost of providing services

(ii) Inhibit bankers from taking initiative from the supply side


Need for a F I Policy : Design Issues

• Principles that must be at the forefront of the design.

– The sustainability of financial institutions and the consumers of financial services.

– Exploration and promotion of commercially-driven, innovative business models that best suit our economy

– Strong, committed and capable service providers should be encouraged to participate in the market.

– Supportive Infrastructure to ensure sustainability

42

Combination of these can be eased through cooperation and experience sharing among policy makers in all institutions and

borrowing lessons from other countries.


Improving Access to Public Goods and Services

• Health

• Challenge of providing basic health services by revitalizing the Primary

Health centers.

• The challenge of eradicating epidemics/diseases through regular health

campaigns and awareness

• Training and Skill Development

• Challenge for the Govt. to revitalize the Industrial Training Institutes for

creating trained manpower and retraining the existing workforce

• Education

• Challenge of bridging the male-female literacy gap through concerted

awareness/education campaign and effective incentivisation.

• Challenge of achieving universal education, especially in the villages by

educating and suitably incentivizing the parents and the children.


Improving Access to Financial Services

• Challenge of improving access to basic financial services – opening

branches in all the villages by 2012, opening of No Frills Accounts,

simplified KYC norms

• The challenge of up-scaling the SHG-bank linkage

• The challenge of promoting greater flow of credit to Agriculture -

doubling of agriculture credit in three years, introduction of KCCs,

Farmers clubs, interest subvention scheme for agricultural loans.

• Challenge of spreading financial education and planning – opening

at least one centre for financial education and planning in each district.

• Challenge of overcoming the problem of last mile in reaching to the

poor and disadvantaged – Using technology of the smart cards, low

cost, mobile ATMs and mobile.


As We Sow So We Reap

That night, the girl slept peacefully.

But the boy couldn't sleep.

Why???

I will give you all my marbles if

you share the sweets that you have

with me

Are you sure ?

Yes! See the marbles in my hand!

Take whatever you like or all of

these.GREAT! Take all the sweets that I

have .

The boy fixed his chances by keeping the biggest and

the most beautiful marble aside and gave the rest to

the girl.

He kept wondering if the girl had

hidden some sweets from him the

way he had hidden his best marble


Questions?

click to run video · cola, pepsico, hindustan unilever, marico, godrej and dabur] are rushing to...

Documents