Financial Inclusion : The Task

Gourav Kumar Vani

Financial Inclusion - Definition

Delivery of financial services at an affordable cost to vast sections of disadvantaged and low income groups

“The process of ensuring access to

appropriate financial products and

services needed by vulnerable

groups such as weaker sections and

low income groups at an affordable

cost in a fair and transparent

manner by mainstream Institutional

players.”

Scope

Of

FINANCIAL INCLUSION

Extending basic banking facilities to unbanked & marginally banked

Adopting both Branch and Branchless Banking

Providing Financial Literacy for gainful utilization of services

“ Need” creation among the target group

Extending a combination of banking product

• No Frill Savings Account• Micro Credit • Micro Insurance • Remittance • Overdraft

Spreading Financial Literacy

• Village Knowledge Centers• Financial Literacy and Credit Counseling Centers

No frills account?

An account with ‘zero 'or minimum balance with maximum balance of Rs 50,000/-at any given point in time and total credit in a year not exceeding Rs 1,00,000/-.

Benefits of Greater FI

For the common man–escape from the clutches of money lenders; sending / receiving remittances; no need to hold savings in cash etc.

For the banks–achieving access to a large untapped pool of customers.

For the Govt.-ensuring flow of aid / grants to the targeted beneficiary. (DBT Scheme )

For the RBI -spread of banking culture and extension of the reach of formal financial system.

Continued………

To achieve the growth with equity. Get rid of poverty. To attract global market players to

our country. To increase the employment and

business opportunity. To baring more transparency in the

system.

A few statistics

0

10

20

30

40

50

60

70

35

26

43

61

India

Other South Asia

Rest of develop-ing world

Other BRICS Economies

Adults with an account at a formal financial institution (%)

Account Penetration

Gender

Residence

Income

Age

0 10 20 30 40 50 60

26

0

0

0

44

0

0

0

0

33

0

0

0

41

0

0

0

0

21

0

0

0

32

0

0

0

40

0

0

0

38

0

0

0

56

0

0

0

0

27

0

0

0

38

0

0

0

34

65+25-6415-24Richest Q4Q3Q2Poorest Urban Rural Male Female

Percentage

Account Penetration in India by Individual Characteristics

Particular Highest Lowest India Karnataka

Bank offices per 1000 persons

Goa (24) Manipur (2) 5 6

Bank office per 1 lakh sq

km

Punjab (142) Arunachal Pradesh and

Jammu & Kashmir (1)

18 21

Total no. of bank office

UP (6773) Mizoram (33)

59107 3971

Summary of Bank Branch Scenario as on June 2010

Global Findex Database Only 35% of adults in the country

have an account at a formal financial institution.

About 50% of adults in Andhra Pradesh and the New Delhi, 40% in Gujarat, Kerala and Maharashtra report having a formal account.

While < than 30% do so in Bihar, Orissa and Rajasthan.

Only 8% of adults in India have debit card which comes to be 23% of account holders. The same is 41% in other BRICK economies.

Only 6% report accessing their account primarily over the counter at a retail store or through some other person associated with their bank.

31 % of account holders report having saved at a formal financial institution.

24% report having used their account to receive wages or payments for work or from selling goods. The same is 37 % in developing world.

About 13% of account holders in india report using their account for business purposes.

Only 7% of account holders reported having used their account to send or receive

Why Financial Inclusion ?

High transactions costs of borrowers

High transactions costs of savers

High transactions costs of banks

High risk cost

Inappropriate products

Who are excluded ? Marginal Farmers Landless Farmers Self Employed Urban slum developers Migrants Minorities Social excluded groups Senior citizens Women

Measures for promoting financial inclusion

Products

No frill accountKYC norms simplifiedIntroduction of GCCOTS (one time settlement) for overdue loans up to Rs.25,000/-KCC

Measures for promoting financial inclusion

Use of intermediariesLinkage of SHGs with bank

>29 lakh SHGs credit linked>42 million families covered

Linkage of MFIs with banks

Business facilitators and correspondence model.(2006, Cash in- cash out)

Measures for promoting financial inclusion

Others

IT solution for financial inclusion

Credit counseling and financial education (718 FLC as on 31st -03-2013).FIAC (Financial Inclusion Advisory Committee) chaired by Deputy Governor.

Funds for Financial Inclusion

Micro Finance Development and Equity Fund

Financial Inclusion Fund for Development and Promotional Interventions

Financial Inclusion Technology Fund to meet cost of technology

Meeting the expectations of poor from financial inclusion requires taking into account their

Seasonal inflow of income from agricultural and rural occupations

Migration from one place to another Seasonal/ irregular work availability and income Security and safety of depositsLow transaction cost Minimum paper workFrequent deposits in smaller amounts Quick and easy access to their savings in times of needsProducts suitability to income and consumption pattern in

villages

• Nearly 2, 68, 000 banking outlets have been set up in villages as on March 13 as against 67,694 banking outlets in villages in March 2010

• About 7,400 rural branches opened during this period

• Nearly 109 million Basic Savings Bank Deposit Accounts (BSBDAs) have been added, taking the total no. of BSBDAs to 182 million.

• Percentage of ICT accounts to total BSBDAs has increased from 25% in March 10 to 45% in March 2013.

What has been achieved so far under FIPs (April 10 – March 13)

• With the addition of nearly 9.48 million farm sector households during this period, 33.8 million households have been provided with small entrepreneurial credit as at the end of March 2013.

• With the addition of nearly 2.25 million non farm sector households during this period, 3.6 million households have been provided with small entrepreneurial credit as at the end of March 2013.

• About 4,904 lakh transactions have been carried out in ICT based accounts through BCs during the three year period.

But During the same period

• First, the number of banked centres in the country between 1991 and 2007 had actually come down (from 35236 to 34471).

• Second, the number of rural branches during the same period had also declined significantly (from 35206 to 30409). Against this backdrop, the progress made during 2010-13 is certainly remarkable.

Financial Inclusion : Challenges

Perception of people (lack of trust, religious reasons).

Poor People (26%,not enough money).

Illiteracy (82.14% males & 65.46% females are literate).

Too many formal procedures. Naxalites and Terrorist menace.

Continued .. Holistic approach( problem with

Adhar card ). Viability(low population & low

density). Scalability(no brick and mortar

structure) Adoption of technology.• Use of intermediate

agencies(Banking correspondents).

Lack of co-ordination.

Effective delivery mechanism- still being experimented.

Appropriate business model yet to evolve-availability of suitable products.

ICT based BC model –yet to stabilize.

Thank you