Presentation on

FINANCIAL INCLUSION
INITIATIVES IN RURAL
INDIA
BY:
DEVENDRA PUNDIR
SAKSHI VASHISHT
SHWETA DIXIT
SURBHI VERMA
SWATI JAIN
December 7, 2021 Wealth and Investment Management TARUN CHOPRA 1
 INTRODUCTION
With a huge rural population, that is economically challenged,
Government in India has rolled out many initiatives like

• National Rural Employment Guarantee Scheme (NREGA),

• Sarva Shiksha Abhiyan (Education for All),
• Bharat Nirman Programme

But to support the growth, a committee on Financial Inclusion (FI)

was also formed in June 2006, with Dr. C Rangarajan as Chairman to
recommend a strategy to achieve a higher Financial Inclusion in the
country.

December 7, 2021 Wealth and Investment Management 2

 FINANCIAL EXCLUSION
• Lack of access by certain consumers to appropriate, low cost,
fair and safe financial products and services from mainstream
providers

• More of concern in the community when it applies to lower

income consumers and/or those in financial hardship

• Results in a reduction of choices which affects social

interaction and leads to reduced participation in society

December 7, 2021 Wealth and Investment Management 3

 WHO ARE EXCLUDED?

• Marginal farmers
• Landless labor
• Unorganized sector
• Urban slum dwellers
• Migrants
• Ethnic minorities
• Socially excluded groups

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 EXTENT OF FINANCIAL EXCLUSION
• Coverage of (Estimates based on various studies and
Market Surveys):
Check in accounts - 40%
Life Insurance - 10.0%
Non-Life Insurance - 0.6%
Credit Card - 2%
ATM + Debit Card - 13%

• Geographical coverage
5.2% villages are having a bank branch

• Farmers coverage-
Out of 119 million farmers, small and marginal farmers are 97.7 million
(82.1 %)

December 7, 2021 Wealth and Investment Management 5

 WHAT IS FINANCIAL INCLUSION?

• Delivery of banking services

• at an affordable cost
• to the vast sections of disadvantaged and low income groups

• Focuses on the poor who do not have formal financial

institutional support and getting them out of the clutches of
local money lenders

Unrestrained access to public goods and services is the sine qua non
of an open and efficient society. As banking services are in the
nature of public good, it is essential that availability of banking and
payment services to the entire population without discrimination is
the prime objective of the public policy.
December 7, 2021 Wealth and Investment Management 6
• FI can be thought of in two ways. One is
exclusion from the payments system –i.e. not
having access to a bank account.

• The second type of exclusion is from formal

credit markets, requiring the excluded to
approach informal and exploitative markets.

December 7, 2021 Wealth and Investment Management 7

 FI Includes
• Financial Inclusion should include access to financial
products and services like,
– Bank accounts – check in account
– Immediate Credit
– Savings products
– Remittances & Payment services
– Insurance – Healthcare
– Mortgage
– Financial advisory services
– Entrepreneurial credit

December 7, 2021 Wealth and Investment Management 8

 For Example:
Attributes of the financial life of a street vendor
– Daily cash incomes
– Frequent purchase of stocks, largely in cash
– Seasonality of income
– High expenditure on health (as a proportion to
total income)
– No income in periods of absence due to ill health
– Sending money to family in village
– Small, regular fee for child's education

December 7, 2021 Wealth and Investment Management 9

 CONTD…
• What kind of financial services are needed for this
person
– A bank account, where he/she can save small amounts at
regular intervals ideally with savings being collected at
their place of work or a specified point of transaction
(SPOT) in the locality
– Micro-Credit for working capital to increase stock and
business
– Insurance for life
– Health Insurance for minor illnesses and hospitalization
– Investment plan for child's education
– Pension for old age

December 7, 2021 Wealth and Investment Management 10

 CONTD…
• Financial Inclusion therefore, is delivery of not only
banking, but also other financial services like
insurance, pension, remittance, mutual funds, etc.
delivered at affordable, through market driven costs
• Financial inclusion equation:
NFA + BC+ ICT = FINANCIAL INCLUSION

NFA = No frill saving bank account

BC = Banks + Other Financial Institutions (OFI) + MicroFinance Institutions
+ Information Technology
OFI = Insurance Companies, Mutual Funds, Pension Companies
December 7, 2021 Wealth and Investment Management 11
 Scope of Financial Inclusion
2 ways:

• State-driven intervention by way of statutory enactments (for

instance the US example, the Community Reinvestment Act
and making it a statutory right to have bank account in France).

• Voluntary effort by the banking community itself for evolving

various strategies to bring within the ambit of the banking
sector the large strata of society.

When bankers do not give the desired attention to certain

areas, the regulators have to step in to remedy the situation.
This is the reason why the Reserve Bank of India is placing a lot
of emphasis on financial inclusion.

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 Current Scenario: FI India
• The Indian economy growing at a steady rate of 8.5 % to 9% in the
last five years or so.

• Most of the growth is from industry and services sector. Agriculture

is growing at a little over 2 %.

• Potential for growth in the primary and SME sector is enormous

• Limited access to affordable financial services such as savings, loan,

remittance and insurance services by the vast majority of the
population in the rural areas and unorganized sector is a constraint
to the growth impetus in these sectors
December 7, 2021 Wealth and Investment Management 13
• Access to affordable financial services - especially
credit and insurance - enlarges livelihood opportunities
and empowers the poor to take charge of their lives

• Such empowerment aids social and political stability

• Apart from these benefits, FI imparts formal identity,

provides access to the payments system and to savings
safety net like deposit insurance. Hence FI is
considered to be critical for achieving inclusive growth;
which itself is required for ensuring overall sustainable
overall growth in the country.

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 Challenges to Financial Inclusion
• Coverage
• Cost of small value transactions
• Infrastructure
• Suitable products
• Flexibility
• Weak delivery model for community
enterprise
• Financial management support
December 7, 2021 Wealth and Investment Management 15
• Reaching out to the mass customers in remote
locations such as villages

• Infrastructure cost, operating expenses,

security, understanding of customer
behaviour and risk associated with it

December 7, 2021 Wealth and Investment Management 16

 Approach Towards FI

• Focus of the financial inclusion at present was

confined to ensuring a bare minimum access to
a savings bank account without frills, to all

• Having a current account / savings account on

its own, is not regarded as an accurate indicator
of financial inclusion.

December 7, 2021 Wealth and Investment Management 17

 Cont’d...
• The approach to FI in developing countries
such as India is thus somewhat different from
the developed countries

• In the latter, the focus is on the relatively

small share of population not having access to
banks or the formal payments system
whereas in India, we are looking at the
majority who are excluded.

December 7, 2021 Wealth and Investment Management 18

 Recent Developments
• In Budget speech 2010-11, the Finance Minister said that despite the
expansion of banking network in the country, there are still some areas
that remain under-banked or unbanked. "A sub-committee of State Level
Bankers Committee ( SLBC) will identify such areas and formulate an
action plan for providing banking facilities to all these areas in the next
three years,“

• Financial services secretary R Gopalan said the government has identified

60,000 areas with population of more than 2000 which do not have
banking facilities

• Rs 100 crore for 2010-11 as one-time grant-in-aid to ensure provision of at

least one centre or point of sales for banking services in each of the
unbanked blocks in the country. To increase the access of banking
facilities, banks have in place "no frill accounts" system, which do not
require any balance or very less minimum balance
December 7, 2021 Wealth and Investment Management 19
• In order to bring all people residing in remote villages upfront with
banking operations, the RBI has started a special drive. RBI, in
collaboration of the main bank in the area has decided to expand banking
operations by using wireless technology and banking correspondents as
tools. A business correspondent model is one model wherein NBFCs which
do not accept public deposits, Non Governmental Organizations (NGOs),
Micro Finance Institutions (MFIs) and other organizations of the kind can
act as business correspondents and thereby finance the rural community.

• Standalone and Mobile ATMs - To further increase the banking facilities,

the Reserve Bank has also allowed banks to set up standalone ATMs
without prior approval. Deploying mobile ATMs which will visit every
village in the area once a week. It will act as a mobile branch of the bank.
It is expected that by 2011 every village having a population of 2000 will
at least be connected once a week through mobile branch.

• Correspondents can be considered to be an excellent channel which

banks can use to distribute their product information. Educating the
consumers about the financial benefits and products of banks which are
beneficial to low income groups will be a great step to tap their potential.
December 7, 2021 Wealth and Investment Management 20
• Setting up of financial literacy centres and credit
Counselling on a pilot basis,

• Launching a national financial literacy campaign,

forging linkages with informal sources

• Evolving industry wide standards for IT Solutions

• Low cost products are some of the initiatives

currently under way for furthering FI

December 7, 2021 Wealth and Investment Management 21

 Present Situation In India
• Number of No-Frill Accounts – 28.23 million (as on Dec.
31, 2008)
• Number of rural bank branches – 31,727 constituting
39.7% of total bank branches (as on June. 31, 2009)
• Number of ATMs – 44,857 (as on May 31, 2009)
• Number of POS – 4,70,237 (as on May 31, 2009)
• Number of Cards – 167.09 million (as on May 31, 2009)
• Number of Kisan Credit cards – 76 million
(Source: CMIE publication 2007-08)

• Number of Mobile phones–403 million (as on Apr.30, 2009)

-out of which 187 million (46%) do not have a bank account
(Source: Cellular Operators Association of India)

December 7, 2021 Wealth and Investment Management 22

 POPULATION PER BANK BRANCH
(SCBs)

• Number of people per branch still very high

Source: Report on Currency and Finance 2006-08 (BSR of SCBs)
December 7, 2021 Wealth and Investment Management 23
 NUMBER OF SAVING ACCOUNT
(Million)

•DecemberTotal
7, 2021 AccountsWealth
perand100 persons
Investment Management still too less! 24
 EARNER HAVING A BANK ACCOUNT
2007 (Per cent of Total Earners)

• Very low percentage in people having bank accounts in Annual Income less than
Rs.50,000 bracket in urban and rural area
• Even in higher income bracket exclusion exists
December 7, 2021
Source: Report on Currency and Finance 2006-08 (IIMS, 2007)
Wealth and Investment Management 25
 SOURCES OF LOAN
(Per cent of Indebted Earners)

• People having Annual Income less than Rs.50,000 bracket

still heavily dependent on money lenders
Source: Report on Currency and Finance 2006-08 (IIMS Survey, 2007)
December 7, 2021 Wealth and Investment Management 26
 Report Of The FI In India
(CHAIRMAN: DR. C RANGARAJAN 2008)

• Setting up of a National Rural Financial Inclusion Plan with a

target of providing access to financial services to at least 50
per cent (50.77 mn) of excluded rural households by 2012
and the remaining by 2015
• Encouraging SHGs in excluded regions, measures for urban
micro-finance and separate category of MFIs
• RRBs to extend banking services to unbanked areas
• Use of PACS and other co-operatives as BCs and co-
operatives to adopt group approach for financing excluded
groups

December 7, 2021 Wealth and Investment Management 27

 Measures Taken By RBI
• No Frill account
• Easier credit facility
• Simpler KYC norms
• Use of Information Technology
– Smart Card
• EBT through banks
• OTS Scheme for Small Borrowers and Eligibility for Fresh Loans
• 100% financial inclusion drive
– Ensure provision of banking services nearer to the location of the no-frills
account holders through a variety of channels
– Provide GCC/small overdrafts along with no-frills accounts to encourage
the account holders to actively operate the accounts
– Conduct awareness drives of the facilities offered to the no-frills account
holders
– Review the extent of coverage in districts declared as 100 per cent
financially included
– Efficiently leverage on the available technology enabled financial inclusion
solutions

December 7, 2021 Wealth and Investment Management 28

 CONTD…
• Bank Branch and ATM Expansion Liberalized
• Expansion of Banks in the North-East
• Project Financial Literacy
– Financial Literacy and Credit Counselling
– Financial Curriculum in Schools and Colleges
• Business Correspondent Model

December 7, 2021 Wealth and Investment Management 29

 SOME FINANCIAL INSTITUTIONS ENABLING FI

• to enable financial
institutions (FIs) to serve
the under-served and the
unbanked sector and also
to service the technology
requirements of entities
engaged in servicing the
bottom of pyramid
customers
December 7, 2021 Wealth and Investment Management 30
 Biometric validation of Smart Card & Transaction
Confirmation Receipt

December 7, 2021 Wealth and Investment Management 31

 SBI with KDFS
• State Bank of India has joined hands at the national level with
Kalanjiam Development Financial Services (KDFS) promoted by
DHAN Foundation, a non-governmental organisation, 3i Infotec
Foundation and India Post, to carry banking facilities to rural
population in a big way. They will handle kiosk banking and
biometric smart cards in the villages.

• SBI also hiring tens of thousands of BCs, who use smart cards,
mobile phones and handheld devices to reach the poor and
illiterate with little knowledge of financial services

• It is a "powerful model" that helped Brazil go from numbers similar

to India's to more than 80 percent financial inclusion in five years

December 7, 2021 Wealth and Investment Management 32

 Initiative of a State Government - pictures of technology at
work
Pensioners with Bio-metric cards line-up to receive payments

December 7, 2021 Wealth and Investment Management 33

 PNB in Tineri - Bihar
• Punjab National Bank made a model way of
financial inclusion that is not only to open the
bank accounts but also free them from the
clutches of the money lender
• http://corporate.skoch.in/index.php?
option=com_content&view=article&id=645

December 7, 2021 Wealth and Investment Management 34

Branchless Banking - Corporation Bank
• Corporation Bank developed a business model
for each of the beneficiary, whereby these
villagers don’t commute to the bank for any
kind of transaction
• http://corporate.skoch.in/index.php?
option=com_content&view=article&id=671

December 7, 2021 Wealth and Investment Management 35

 Jeevan Madhur - LIC
• A micro-insurance policy that is providing
social security to under-privileged people at a
minimum premium of 25 rupees payable on a
weekly basis for a life cover ranging from
5,000 rupees up to 30,000 rupees

December 7, 2021 Wealth and Investment Management 36

 Barriers

• From the demand side, the big barriers are the lack of
awareness about financial services and products, limited
literacy, especially financial literacy of the populace, and social
exclusion.
• Many of the generic financial products are unsuitable for the
poor and there is not much of an effort to design products
suitable to their needs
• The unfriendly and unempathetic attitude of the banks to the
customers also plays an important role in undermining the
demand for financial services
• On top of that, exorbitant and often times non-transparent
fees, combined with burdensome terms and conditions
attached to the financial products, also dampens the demand

December 7, 2021 Wealth and Investment Management 37

 Cont’d..
• From the supply side, the main barrier is the transaction costs
that the bankers perceive. Because of current low volumes,
banks find that extending financial services is not cost
effective
• Furthermore, lack of communication, lack of infrastructure,
language barriers and low literacy levels all raise the cost of
providing services and inhibit bankers from taking initiative
from the supply side

December 7, 2021 Wealth and Investment Management 38

 Opportunities
• Demographic profile – young labor force of age group 15-64
on a rise job opportunities grow and people start
earning banks ahead of the curve get first movers
advantage in exploiting this huge opportunity
• Capturing remittances – 1000s of crores of rupees of
remittances across the country from migrant labor over
90% through non-formal channels
• EBT – Electronic Benefit Transfer banks fear if business
would be cost effective if all or even most govt.
payments are captured through EBT it can give banks large
float making it an attractive business proposition

December 7, 2021 Wealth and Investment Management 39

 Conclusion
Financial inclusion is a great step to alleviate
poverty in India. But to achieve this, the
government should provide a less perspective
environment in which banks are free to
pursue the innovations necessary to reach low
income consumers and still make a profit.
Financial service providers should learn more
about the consumers and new business
models to reach them.
December 7, 2021 Wealth and Investment Management 40
• Only 5.2% of the 650,000 villages nationwide
have a bank branch. This goes on showing the
amount of business opportunity out there
• “Across the globe, financial institutions are
realizing that poor are bankable assets. Yet,
we fail to realize that.”

December 7, 2021 Wealth and Investment Management 41

 THANK YOU

December 7, 2021 Wealth and Investment Management 42