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j  |   
ƥ 3     of population remaining excluded from
formal payments system & financial markets when financial
market developing & globalizing ƛ Obvious market failure ƛ
Government & financial sector regulators creating enabling
conditions for inclusive & affordable market
j   | 
ƥ G      = 8.5% - 9% (last 5 years) ƛ
Growth primarily in industry & services ƛ Agriculture at 2%
- Growth potential in SME sector enormous ƛ Limited
access to savings, loans, remittance & insurance in rural/
unorganized sector major constraint to growth ƛ Above
services enlarge livelihood opportunity & empowers poor ƛ
Empowerment aids socio-political stability ƛ Financial
inclusion provides formal identity, access to payments
system & deposit insurance
Financial Inclusion (FI) Ʀ
ƥ |    for inclusive growth which is necessary for
sustainable overall economic growth ƛ In developed
economies, focus is on small population ƛ In developing
economies (India), focus is on majority excluded
ƥ    |   G   : (i) exclusion from payment
system : not having access to bank accounts (ii) exclusion
from formal credit markets leading to approaching informal/
exploitative markets
ƥ  !  "  #$%$ : Expansion of branch network
to unbanked areas ƛ Increased lending to agriculture, SSI,
business ƛ Recent trend : access to basic banking services
j D    |    
ƥ Common measure : % of adult population having bank a/c ƛ
By this standard, 59% have accounts ƛ 41% unbanked ƛ In
rural areas 39% covered, 60% in urban areas ƛ Unbanked
population highest in NE and Eastern regions
Financial Inclusion (FI) Ʀ
ƥ G   from credit markets high : Number of loan a/cs
14% of adult population ƛ Coverage 9.5% in rural & 14% in
urban areas ƛ Regional disparity large : 25% in Southern, 7%
in NER, 8% in Eastern, 9% in Central region ƛ Of 203 million
households, 147 million in rural areas ƛ 89 million farmer
households ƛ 51% have no access to formal or informal credit
ƛ 73% have no access to formal credit ƛ No data available for
non-farm & urban households
ƥ &        ƛ Non-institutional from 70.8% (1971)
reduced to 42.9% (2002) ƛ Post-1991 increased ƛ Share of
money-lenders in rural areas increased from 17.5% (1991) to
29.6% (2002) ƛ Reduced from 40% (1981) to 25% (2002)
j    
ƥ Marginal farmers ƛ landless labour ƛ oral lessees ƛ self
employed ƛ unorganized sector ƛ urban slum dwellers ƛ
migrants ƛ ethnic minorities ƛ socially excluded groups ƛ
senior citizens ƛ women ƛ NER, Eastern & Central regions
most excluded
Financial Inclusion (FI) Ʀ
j     G  

ƥ Remote, hilly & sparsely populated areas with poor infrastruc-


ture and difficult physical access
ƥ Lack of awareness, low income, social exclusion, illiteracy
ƥ Distance from bank branch, branch timings, cumbersome
documentation/procedures, unsuitable products, language,
staff attitude are common reasons ƛ Higher transaction cost
ƥ Ease of availability of informal credit
ƥ KYC ƛ documentary proof of identity/ address
j         

ƥ 1969-1991 : expansion of branch network ƛ average


population covered per branch reduced from 64000 to 13711 ƛ
liberalisation/opening of economy ƛ financial sector reforms ƛ
deregulation ƛ increased competition ƛ strengthening of banks
through recapitalization ƛ prudential measures ƛ Indian
banking now robust & able to achieve global financial inclusion
Financial Inclusion (FI) Ʀ
ƥ Annual Policy Statement -2004-05 : Ơ..banks should be obliged
to provide banking services to all segments of population on
equitable basis.ơ
ƥ November 2005 : banks advised to provide basic banking Ơno
frillsơ accounts with low or minimum balance/ charges ƛ
expand banking outreach to larger sections of population ƛ
printed material used by retail customers made available in
local language
ƥ KYC principles simplified to open accounts for customers in
rural & urban areas ƛ Balances not to exceed Rs. 50000 &
credits Rs. 1 lakh in a year ƛ Introduction by a customer (KYC)
ƥ General purpose Credit Card (GCC) facility up to Rs. 25000 at
rural & urban branches ƛ Revolving credit ƛ Withdrawal up to
limit sanctioned ƛ Based on household cash flows ƛ No
security or collateral ƛ Interest rate deregulated
ƥ One-Time Settlement (OTS) for overdue loans up to Rs. 25000
ƛ Borrowers eligible (after OTS) for fresh credit
Financial Inclusion (FI) Ʀ
ƥ January 2006 : Bank allowed to use services of NGOs, SHGs,
micro finance institutions, civil society organisations as business
facilitators/ correspondents (BC) for extending banking services ƛ
BCs allowed to do Ơcash in-cash outơ transactions at BC locations
& branchless banking
ƥ Credit counselling & financial education ƛ Pilots set up
ƥ June 2007 : Multilingual website in 13 Indian languages launched
by RBI providing information on banking services
ƥ State/Regional Level : SLBC ( group of banks & government
officials) since nationalization ƛ SLBC Convenor ƛ Quarterly
review of banking developments
ƥ District Level : DCC/DLRC meetings by District Commissioner
ƥ April 2006 : 1 district in each state identified by SLBC for 100%
financial inclusion ƛ 13 districts identified in NE Regions for FI ƛ
RBI evaluation of progress through an external agency
Financial Inclusion (FI) Ʀ
ƥ In identified districts : Survey conducted based on electoral
rolls, public distribution system etc., to identify households
with no bank accounts ƛ Banks to open at least one account
per house ƛ Mass media deployed for awareness/ publicity ƛ
Bank staff/ NGOs/ volunteers take ration cards/ Electoral ID/
photos for fulfilling KYC norms & opening accounts
ƥ KCCs used for credit first, then savings ƛ with small overdraft
facility or GCCs with revolving credit up to a specified limit
ƥ In association with insurance companies, banks providing
insurance cover for life, disability & health cover
ƥ SCBs & RRBs being revived/strengthened with incentives for
better governance
ƥ Payments system being improved to cater to less developed
parts of the country
Financial Inclusion (FI) Ʀ
j         
ƥ '!  ( accounts : 6 million new accounts added between
March 2006 & 2007 ƛ 45000 rural & semi-urban branches of
RRBs & PSBs shown highest performance ƛ FI now a big
business opportunity ƛ Gives competitive advantage & growth
ƥ &)  linkage ƛ Access to banking system provided thru
SHGs (groups pooling savings & providing loans to members, a
NGO nurturing) ƛ NABARD supporting group formation, linking
with banks, promoting best practices ƛ Recovery excellent ƛ
2.6 million SHGs linked to banks touching 40 million
households ƛ SHGs given loans by banks against group
guarantees ƛ Rate of interest reasonable ƛ Loan size small,
mostly used for consumption purposes/ small business, for
agricultural activities ƛ SHGs mostly linked to PSBs
Financial Inclusion (FI) Ʀ
ƥ |  *   + : Access thru non bank companies
providing small value retail loans or by partnership with MFIs,
now an excellent substitute of formal sector ƛ Rate of interest
charged very high (24% - 30%) ƛ Reasons being high
transaction cost, small sized loans ƛ Better than usurious
informal sector loans ƛ Rates affordable ? Any surplus would
be left for borrowers & scale up their living standards ?
ƥ &   with lower cost of funds, size, scale ƛ
Cross subsidization of loans & lower rate of interest
ƥ &   , Partnering of banks with SHGs & MFIs with
reasonable cost of funding ƛ Current approach now
ƥ    -    - : Post offices, co-operative
societies, NGOs (trusts/societies) being used as BCs for
branchless banking ƛ Agency risk reduced thru local
organisations & IT solutions for tracking transactions ƛ Door
step banking at lower cost ƛ Viability & scalability dependent
on lower interest rate & service charges
Financial Inclusion (FI) Ʀ
ƥ  &  
Essential for doorstep banking ƛ Pilot projects
by SBI using smart cards for opening a/c with bio-metric
identification ƛ Link to mobile/ hand held connectivity devices
ensures transactions getting recorded in banksƞ books on real
time basis ƛ State governments making pension & other
payments under NREGS thru smart cards ƛ Other financial
services (low cost remittances, insurance) provided thru cards
ƛ IT solutions enable large transactions like processing, credit
scoring, credit record & follow up etc.
ƥ       
Proactive role by issuing identity cards
for a/c opening, thru awareness campaigns by district/ block
level officials, meeting cost of cards, financial literacy drives ƛ
India Post being used as BCs
ƥ |D    &  .//0 /1
2 Funds : (i) Financial
Inclusion Fund - developmental/promotional work (ii) Financial
Inclusion Technology Fund ƛ technology adoption/innovation
ƛ Each Fund of $ 125 million
Financial Inclusion (FI) Ʀ
ƥ        
Setting up of financial literacy centers ƛ
Credit counselling centers ƛ National financial literacy drive ƛ
Linkage with informal sources with safeguards ƛ IT solutions
ƛ Low cost remittance products etc.
ƥ -    |
Dr. C. Rangarajanƞs (Chairman : PMƞs
Economic Advisory Council) 10-Member Committee
2
Pattern of exclusion from access to financial services ƛ
Region, gender & occupational variation ƛ Constraints for
vulnerable groups ƛ Institutional constraints ƛ International
experience/ practices ƛ Relevance/ applicability to India ƛ
Strategy to extend financial services to small/ marginal
farmers ƛ Streamlining/ simplifying procedures ƛ Reduce
transaction costs ƛ Transparent operations ƛ Institutional
changes to be introduced (FIs) ƛ Monitoring mechanism to
assess quality/ quantity of financial inclusion ƛ Indicators for
assessing progress
Financial Education Ʀ
j     
Familiarity with/understanding of financial
market products, rewards, risks & make informed decisions
ƛ Personal financial education & capability to take decisions
for oneƞs well-being & avoid financial distress ƛ Ability to
grow, monitor, effectively use financial resources for
economic security of self, family & business ƛ Financial
markets now very complex, asymmetry of information ƛ
Informed decision making very difficult
j |   G  * 
Poverty, illiteracy & large
section of population out of formal financial set-up ƛ
Economic/ financial sector reforms have created higher
disposable income ƛ New financial products in credit &
investment side provided by financial intermediaries ƛ
Informed decision difficult ƛ Those excluded form formal
financial system need to be educated about banking & need
for relationship with banks
Financial Education Ʀ
j 3  |   3  
Disseminate information
about central bank, general banking concepts to target
groups (school/college children, women, rural/ urban poor,
defence personnel, senior citizens) ƛ 2 Modules : (1) Focus
on economy, RBI (2) General banking ƛ Material in Hindi,
English, Regional language ƛ Dissemination thru banks,
local govt. depts., schools, colleges, pamphlets, posters,
films, RBI Website (link for accessing in 13 Indian languages
j -   -    -  
Need for financial
counselling to avoid informal sector & debt trap ƛ A few
banks have started in rural/ semi-urban centers ƛ Provide
information about banks, financial management, repayment
obligations, avoiding indebtedness, rehabilitation of
distressed ƛ Knowledge Centers : Train farmers/ women ƛ
In Mayƞ 06, SLBC convener banks advised to set up at least
one center in each district ƛ Lead bank to set up more
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