ROLE OF POST OFFICESIN

FINANCIAL INCLUSION

HISTORY

OThe first postal account was opened in the UK in 1861 to encourage the poor to save.

OThe same began in India, soon after postal savings banks started in 1882.

O Indian post served Indian villagers as banker much before Financial Inclusion became buzzword.

O Indian post claims to be the pioneer of financial inclusion in India.

Indian PostAn Overview

OThe post office was established by East India Company in 1688 in Bombay followed by Calcutta and Madras.

OThe number of post offices(POs) increased from 23,344 in 1947 to 1,54,866 as on March 2011.

OOut of total POs in India, 139,040 are in rural areas (89.78% of total POs) and 15,826 in urban areas (10.22%).

Financial Inclusion

A Critical Look

O Out of total commercial banks, only 36.10% are in rural areas and 24.76% in semi-urban areas

O All India average population served by per bank branch is 13,503 unlike 7,176 by one PO as on March 2011. PO serves an area of 21.23 sq.km.

O POs contributes to the efforts in FI by payment of benefits under various social security pension schemes viz. IGNOAPS, IGNWPS, IGMSY etc.

OThe Department of Posts has taken the responsibility to disburse the MGNREGA wages through POs by opening savings bank accounts in the names of MGNREGA beneficiaries.

O It is operational in the entire country except Delhi, Jammu & Kashmir and Tamil Nadu Postal Circles.

Saving productof

Indian Post Office

O Saving account scheme: Any individual can open a POSB a/c with a minimum balance of Rs. 50. A pass book is provided, Cheque facility is also available. RoI is 4%

O Recurring deposit scheme: Maturity period- 5 yrs. Minimum deposit Rs. 10, no maximum deposit. RoI is 8.4%.

O Time deposit scheme: Deposit for 1 yr, 2 yr, 3 yr and 5 yr… RoI is 8.2%, 8.3%, 8.4% and 8.5% respectively. Minimum deposit Rs. 200, no maximum deposit.

O Monthy Income scheme: Lump-sum deposit giving him monthly interest. Minimum deposit Rs. 1000 (single depositor), Rs. 1500 (joint depositor). Maturity 5 yrs, RoI is 8.5%.

O National Savings Certificate: Tax exempted certificate sold by POs with a minimum investment of Rs.100, no maximum limit. Certificates are available in denomination of Rs.100, 500, 1000, 5000, 10000. RoI is 8.9%

O Public provident fund scheme: Tax advantage 15 yrs scheme with a minimum deposit of Rs.500 and maximum of Rs.70,000 per year. RoI 8.8%

O Postal Life Insurance: Initially the service was limited to employees of post and telegram department but later on, due to its popularity it was extended for all people in 1995.

O Rural Postal Life Insurance: Extended life insurance services to rural India in 1995 to benefit weaker sections and women workers.

Building Blocks of FIO Storage of cash (savings)O PaymentsO CreditIndian Post already has several decades of experience in performing the first function through POSB a/cs and the second function through money-orders. However, it does not yet deliver credit.

SavingsO The system for issuing & managing

POSB a/cs should be modernized by implementing a customized and scalable lightweight technology solution.

O The Indian Post should create a public- private partnership through a competitive process under which a technology services vendor builds and operates a hosted, lightweight CBS platform for India Post.

PaymentsO The domestic money-order (MO) is an India

post product that has huge brand value.O In the age of internet, it would not be

unreasonable for a customer to expect that MOs be delivered within seconds into their postal savings accounts.

O A payments system thus plays a major role. A mass market for pro-poor financial products, and for financial inclusion requires a reliable, low-cost, low-value payments platform.

Micro-CreditO Top 3 loan sources for rural people are

moneylenders, friends/relatives and SHGs and half of these loans carry RoI of 36%.

O The attitudes of formal sector lenders, formalities of loan process and time taken to issue loans are seen by borrowers as deterrents to using formal channels.

O Post Offices should be harnessed into delivering short-duration, fixed-size, non-collateralised micro-loans (of Rs.500 for one month).

Maximizingthe

Post Office

O The number of government social schemes that use PSBs is uncomfortably high. The schemes cover a range of areas such as insurance, pension, financial inclusion and priority sector lending.

O The biggest cost to banks is the opportunity cost they lose in implementing these schemes.

O Ambitious target take up the precious time that could have otherwise been used to carry out the original mandate of banks- accept deposits and make loans.

India Post has excelled in 2 criteria- reach and capability.OReach- India Post has network of

1.5 lakh branches across India, a reach that far exceeds all the PSBs combined.

OCapability- India Post already runs the POSB a/cs and cash payments in MGNREGA efficiently.

The following steps must be taken for India Post to play a bigger role: One of the smaller PSBs could be merged

with India Post so that the latter acquires a banking license and a trained workforce.

Incentives could be offered to the present workforce to sit for the banking exams.

Banking exams could be made a requirement for a percentage of the new recruits.

Banking division of the POs could be brought under the RBI’s regulatory purview.

Recommendations

India Post shouldO Deliver lightweight, low-cost bank

accounts to all Indian citizens and especially to the financially excluded population.

O Look for ways to leverage its low cost platform by providing India Post branded accounts to other strategic partners, such as MFIs, mutual fund and insurance companies.

O Apply itself towards the challenge of achieving high volumes of Money-Orders where payments of as little as Rs.10 are achieved at a charge of Rs.0.1

O Elicit a large number of partners in terms of FI players, mobile service providers & innovative new technological choices in order to increase the size of the network.

O Evolve the MO to become a mechanism for transferring money from one POSB account to another, instead of just being a mechanism for delivering cash from one person to another.

O The role of Post Office Savings Bank as an agent of the Ministry of Finance should be revisited and expanded to enable India Post to play a larger, direct role in FI and build apt enabling structure.

O If both RBI and Indian govt. are serious about FI, India Post should be allowed to float a bank. The govt. has awarded a Rs.1370 crore contract to Ricoh India Ltd., a part of Tokyo-based Ricoh Group, and Telecommunications Consultants India Ltd, to modernize the India Post network through automation and improve the quality and expand the scope of services.

Problemsand

Challenges

OLack of basic structureOLess number of staffOLack of coordinationOSlow progress of innovationOAbstain from landing

CONCLUSION“Succeeding with universal access to financial services will require considerable role for post offices. In parallel, and as some traditional functions of the postal network are being supplemented by new technologies such as email, India Post is also in the process of carving out a larger role for itself. Therefore, there is remarkable coincidence of needs between the twin problems of charting the future for India Post and resolving India’s challenges of financial inclusion.”

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