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The Key Role of Financial Institutions The Key Role of Financial Institutions for the for the

Sustainable Development in India.Sustainable Development in India.

Keynote AddressKeynote Address

Dr. Vijayamohanan Pillai NDr. Vijayamohanan Pillai NCDSCDS

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Sustainable Development and Sustainable Development and

Financial inclusionFinancial inclusion

Dr. Vijayamohanan Pillai NDr. Vijayamohanan Pillai NCDSCDS

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Sustainable development: Sustainable development: first used by Brundtland CommissionBrundtland Commission, (the World Commission on Environment and World Commission on Environment and

DevelopmentDevelopment, WCED, 1983)

Gro Harlem Brundtland

Convened to address the growing concern “about the accelerating deterioration of the human environment and natural resources and the consequences of that deterioration for economic and social development.”

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April 1987April 1987

Sustainable development =Sustainable development =

““development that meets development that meets

the needs of the present the needs of the present

without compromising without compromising

the ability of future the ability of future

generations to meet their generations to meet their

own needs.”own needs.”

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Development becomes sustainable only when there is a sustained natural resource base.

the inherent tensions between economic development and environmental protection.

environmental degradation through the consumption of nonrenewable resources, the overuse of renewable resources, and the production of waste and pollution.

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Diverse interpretations:

the technocentricthe technocentric: environmental problems viewed as

a threat to human quality of life; technology and science viewed as

the solution

the ecocentricthe ecocentric: emphasis on the need for radical

change in political structures and

human organization.

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Development not spontaneous phenomenon

A dynamic process of effects

Finance: one facilitative factor

major factor governing the rate of development process :

capital accumulation.

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The mobilization of domestic and external resources

to facilitate the process of capital accumulation.

WW Rostow : a rise in the rate of productive

investment to over 10 % of national income

as a necessary requirement for a country’s take off.

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Agenda 21 Agenda 21 of the United Nations Conference on Environment and Development (Earth SummitEarth Summit, 1992) in Rio de Janeiro :

a blueprint for the world’s transition to sustainable development.

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Chapter 33 of Agenda 21Chapter 33 of Agenda 21: a framework for financing financing

sustainable developmentsustainable development.

assesses the costs of its implementation at US$ 625 billion a year of which $125 billion as additional financial transfers from North to South.

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The United Nations World Summit on Sustainable Development (Earth Summit 2002) in Johannesburg

preceded by the United Nations Summit on financing for development, 2002.

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The two important sources of external resources :

Official development assistance (ODA) and Foreign Direct Investment (FDI).  ODA fallen steadily since 1990 to less than 0.3% of the GNP of developed countries, under half of the UN global target of 0.7% of the GNP.

Development banks as financiers of sustainable development

Since 1989, tied with structural adjustment programmes

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Since the Rio Summit, commercial credits and foreign direct investment (FDI) in developing economies substantially.

In 1990, for every dollar of long-term ODA, less than one dollar in long-term capital did flow from the private sector.

Now, for every dollar ODA there are four dollars FDI.

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Domestic resource mobilization absolutely critical.

Agenda 21 : the domestic resource mobilization needs of developing countries for implementing sustainable development : $500 billion a year.

Increased national savings and capital formation to offset resource depletion and population growth, to expand infrastructure and human capital and to improve the environment.

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Shrinking funds

Ineffective use

Lack of legitimacy

This dynamic into a virtuous cycle:

By supplementing the current

preoccupation with ‘supply’ side issues

with ‘demand’ side issues

Debate on the effectiveness of aid: Vicious circle

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‘Supply’ side issues: the enhancement of the inflow of

financial resources into development activities

‘Demand’ side issues :enhancing the capacity of

individuals, communities, governments and development institutions

to accessaccess and effectively utilize

financial resources.

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Enhancing the capacity to accessaccess financial resources:

Significance of Financial inclusion

Financial exclusion: the unavailability of banking services

to people living in poverty.

one factor preventing poor people from exiting poverty,

by forcing them to manage their finances on a cash-only basis

and restricting their access to equitable sources of credit.

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“The stark reality is that most poor people in the world still lack access to sustainable financial services, whether it is savings, credit or insurance. The great challenge before us is to address the constraints that exclude people from full participation in the financial sector. Together, we can and must build inclusive financial sectors that help people improve their lives.”

Kofi Annan Former UN Secretary-General

29 December 2003

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Beatrice's Goat is a 2001 children's story based

on the true account of Beatrice Biira,

an impoverished Ugandan girl whose life is transformed by

the gift of a goat from the nonprofit world hunger

organization Heifer International.

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Based on a true story, the children’s book,

“One Hen: How One Small Loan Made a Big

Difference” tells the inspirational tale of Kojo,

a boy from Ghana burdened with the

responsibility of helping his mother collect and sell

firewood to survive. Kojo’s life gets lucky when

he gets a small loan to buy a hen. Kojo eventually

builds a flock of 25 hens and earns enough money

to feed and educate himself.

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“Forty years after nationalization of banks, only 5 per cent of the 6 lakh habitations in the country have a commercial bank branch; the proportion of the population havinga bank account is less than 35 per cent and nearly 90% do not get loans.”

KC Chakraborty, deputy governor, RBI

more than 650 million people have mobile phones fewer than 350 million have bank accounts.

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Financial Inclusion first featured in 2005:

under a pilot project of Indian Bank in Union Territory of Pondicherry (புதுச்சே�ரி�)

Mangalam Village : the first village in India where all households were provided banking facilities.

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Mangalam Village : the first village in India where all households were provided

banking facilities.

in response to the recommendations of Khan Commission set up in 2004 by the RBI to look into financial inclusion.

2008: the Committee on Financial Inclusion headed by C Rangarajan.

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RBI commercial banks in different regions to start 100% financial inclusion campaign on a pilot basis.

Puducherry, Himachal Pradesh and Kerala :100% financial inclusion in all their districts.

RBI’s vision for 2020 :to open nearly 600 million new customers' accounts

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For promoting greater financial inclusion:

Initiatives like banking correspondents, banking facilitators, no frills accounts, introduction of microfinancial sector bills …….

Special funds like Microfinance Development and Equity Fund (MFDEF), Financial Inclusion Fund and Financial Inclusion Technology Fund, each with a seed capital of Rs. 500 Crores

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January 2006, the Reserve Bank permitted commercial banks to make use of the services of NGOs/SHGs, micro-finance institutions and other civil society organizations as intermediaries for providing financial and banking services.

As business facilitators (BF) or business correspondents (BC)

the role of microcredit in enhancing financial inclusion.

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Microcredit :

extension of very small loans (microloans) to those in poverty designed to spur entrepreneurship.

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a part of microfinancemicrofinance:provision of a wider range of

financial services to the very poor:

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Originated with The Grameen Bank in Bangladesh in the 1970s for which its founder Muhammad Yunus was awarded the Nobel Peace Prize in 2006.

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42 families of Jobra village in Chittagong

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42 families of Jobra village in Chittagong

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In Jobra village

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In Jobra village

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Microcredit sector also needs to be regulated

The Micro Finance (Development & Regulation) Bill, 2010

The Malegam committee, headed by central bank official YH Malegam, to look into various issues, including ways and means of making interest rates charged by microfinance institutions (MFIs) reasonable.

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Large-scale defaults due to high interest rates

and

reports of suicides especially in Andhra Pradesh and Orissa due to mounting debt.

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From Andhra Pradesh

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India's MFIs operate in 209 out of 331 poorest districts

served over 33 million Indians in 2007-08, up by 9 million over the previous year,

Around 80% clients : women.

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As on 31st March, 2008, outstanding microcredit portfolio of Indian Microfinance sector:about Rs. 22,000 crore,

75% : accounted for by SHG-Bank Linkage Program,

20% by large MFIs and

5% by medium and small MFIs.

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