Financial Inclusion By,

Great Lakes Economics Club

??? • 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

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

Proportion of households with

an account in financial

institutions

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

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

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

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

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

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

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

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.

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

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 .

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

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

• 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

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

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

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

Debate Topic

• Which is the better way to achieve

Financial Inclusion in India – Bank led

inclusion or Microfinance?

THANK YOU