financial inclusion economics club
TRANSCRIPT
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Financial Inclusion By,
Great Lakes Economics Club
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??? • Financial inclusion: Providing financial services affordably to
disadvantaged and low income sections of society in a fair
and transparent manner.
• Objective of financial inclusion is to
– Ensure inclusive growth
– Moving the less privileged from unorganized money
markets
– Equipping them with confidence to make informed
financial decisions
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Magnitude of the problem
globally • According to UN, 3 billion people in the world do not have
access to financial services such as savings account, credit
& insurance
• More than half the population in developing countries and
more than 80 percent of households in most of Africa are
financially excluded
• Account ownerships by gender also sees a persistent gap of
6-9 percentage points across income groups within
developing and under-developed countries
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Proportion of households with
an account in financial
institutions
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Why does it matter • Eradicate extreme poverty
• Ensures sustainable economic growth
• Mobilizes savings in a very good way
• Provides growth opportunities to individuals and
entrepreneurs
• Empowering women
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Indian Scenario • 31 % of the Indian population has access to Banking
services. The rest 69 % are deprived of bare minimum
banking services
• India’s vision for 2020 is to open 600 million new customers'
accounts
• Illiteracy, low income savings & lack of bank branches in
rural areas are road blocks to financial inclusion
• RBI coming up with bank-led model for financial inclusion
• Other partners such as mobile and technology companies
allowed to partner
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Phases of Financial
inclusion • 1950-70: Consolidation of the banking sector & Facilitation of
Industry and Trade
• 1970-90: Focus on channelling of credit to neglected sectors
and weaker sections
• 1990-2005: Focus on Strengthening the financial
• institutions as part of financial sector reforms
• 2005+: Financial Inclusion was explicitly made as a policy
objective
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Steps taken • Commercial Banks permitted to freely open branches in Tier
2 to Tier 6 centres
• Banks must open 25 % of new branches in unbanked rural
centers
• Requirements for opening accounts relaxed for small
accounts
• No-frill accounts to be opened in rural areas
• Roadmap for banking services for all villages with a
population of over 2000
• Periodic review by RBI on the steps taken
• Creation of special funds
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A few indicators • Only 17 Credit Accounts per 100 persons with all institutions
• Only 54 Savings Accounts per 100 persons with all
institutions
• Only 13 per cent are availing loans from the banks in the
income
• bracket of less than Rs. 50,000
• Even rich people are excluded and have to depend on non-
institutional sources for loan purposes
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Role of Postal India in banking
• Fulfils UPAs agenda for financial inclusion.
• Converting post office into banks can be possible
Already it has money handling expertise
Huge Network
It’s core competency at stake
• Main disadvantage
No expertise in lending and risk-
assessment
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Some statistics • Number of No-Frill Accounts – 4.15 crore
• Number of rural bank branches – 31,727 constituting 39.7%
of total bank branches
• Number of ATMs – 47,953
• Number of POS – 5,22,148
• Number of Cards – 173 million
• Number of Kisan Credit cards – 76 million
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Twin Aspects Of Financial Inclusion • Financial Inclusion and Financial Literacy are twin pillars.
While Financial Inclusion acts from supply side providing the
financial market/services what people demand, Financial
Literacy stimulates the demand side – making people aware
of what they can demand.
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Challenges • Reach – difficult to provide services to small villages
• Delivery Mechanism – not efficient
• Financial Literacy – Awareness issue
• Lack of ownership by banks in Financial Inclusion
• Lack of co-ordination
• Infrastructure issues- Premises, Roads, Power, etc
• Economic viability due to transaction frequency
• Technology not leveraged entirely
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Pre-requisites For The Success of
Financial Inclusion
• Appropriate Technology
• Appropriate and Efficient Delivery model
• Mainstream banks’ determination and involvement
• Strong Collaboration among Banks, Technical Service
Provider, BC Services
• Involvement of all ,Especially the state administration at
grass-root level .
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What next • Focus should not be exclusively on rural areas. Should also
include urban areas
• Thrust on greater financial literacy
• All stakeholders such as SEBI, RBI, government, banks, civil
societies should work together
• Infrastructure should be developed
• Efforts should be made to bring attitude changes for all
stakeholders
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SBI – Steps towards FI 8750 Rural and semi-
urban branches
Rs.64000 cr. in
agricultural advances
covering in 80 lac accounts
“Business Facilitator” and
“Business Correspondent”
Model
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• SBI-Tiny: ZERO Technology Platform(2006)
• “Ultra small branch” through Business Correspondent – Bank officer from nearby branch connects to the CBS of bank (2010)
• One Rupee bank for Urban financial inclusion through kiosk banking model – 30,000 underprivileged customers(2011)
• “Bank on Bike” scheme introduced – much cheaper than Bank on Mobile Van: Representative reaches SBI Internet site with Laptop, accesses through Biometric.(2011)
• Total of 2,20,000 NFA as on 2011 and reached 100% Coverage in AP as per FIP at the start of this year
• Plan to include villages with population < 2000 in the next 2 years
SBI – Steps towards FI
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Other means of Financial Inclusion
• Apart from banks, the following
institutions also can be effective in
achieving Financial Inclusion:
– Microfinance institutions
– NGO’s
– Financial welfare programs by
Government
– Cooperatives
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Microfinance
• Private sector microfinance has grown dramatically because
it offers the best products and services to meet the massive
demand for credit amongst India’s rural poor.
• Andhra Pradesh shut down all the private players using AP
Microfinance Institutions (Regulation of Money lending) Act,
2010 and crippled the Microfinance institutes in the state.
• Reasons cited as usurious interest rates, coercive collection
practices causing suicides.
• Hidden motive is speculated to be to protect State
sponsored uncompetitive SERP program.
• RBI employed Malegam committee to study the issue and
make recommendations to create
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Conclusion
• India should focus on inclusive domestic
consumption & investment driven growth strategy
– Focus on increased social sector spending
An interesting quote
• Commercial banks act as spokes in the wheels for
drive to achieve 100 % financial inclusion in India
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Debate Topic
• Which is the better way to achieve
Financial Inclusion in India – Bank led
inclusion or Microfinance?
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THANK YOU