Financial Inclusion / Financial Literacy

in select districts of Jharkhand

A Project Report by

Prakash Agarwal

RBI Young Scholar 2009

Reserve Bank of India, Ranchi

[i]

FOREWORD Over the last decade, there has been expansion, competition and diversification of ownership of banks leading to both enhanced efficiency and systemic resilience. However, there are legitimate concerns in regard to the banking practices that tend to exclude rather than attract vast sections of population, in particular, pensioners, self-employed and those employed in unorganized sector. This culminated into the Reserve Bank emphasizing in its Annual Policy Statement for 2005-06, that bankers should empower the depositors by providing wider access and better quality of banking services. With the objective of ensuring greater inclusive growth, Reserve Bank has undertaken a number of initiatives to continuously widen the scope and extent of financial Inclusion. In order to explore the potential for integrating financial education and literacy into the Reserve Bank’s overall endeavour for financial inclusion, the Bank launched the ‘Reserve Bank of India Young Scholars Scheme’ for students between 18 and 23 years of age and studying in undergraduate classes at various institutions across the country. In this context, we consider ourselves fortunate enough to be allotted the project ‘Financial Inclusion/Financial Literacy’ of which the Young Scholar Scheme is an inseparable part. This report is not just the work done by two of us, it is also the result of our interactions with the staff at RBI, Ranchi office, which moulded and shaped over views on financial inclusion, which can be seen, reflected in the report itself. The continued guidance from Shri R.N. Mishra, GM & O-In-C and mentor Shri Chandan Kumar, AGM helped us focus on financial inclusion and not get distracted away from our core topic. Our visit to the SHG meeting at Ramgarh with Smt Bimla Bhagat, Manager and Shri S.T. Punnoose, AGM was our first foray outside Ranchi, which helped us understand the working of SHGs and Farmer Clubs. The number of surveys and visits we undertook would not have been possible without them being facilitated beforehand by our mentor, who took every pain so as to smoothen our project work, which sometimes used to get off track too. We are also thankful to Shri S. Das who guided us in the early days of our project and gave a macro view on the topic of financial inclusion.

[ii]

The entire staff at office made it a point that we learn something each day we attended office. We are indebted to all of them, who helped us in one or the other manner. [Prakash Agarwal] July 15, 2009.

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CONTENTS List of Abbreviations [v]

Chapter No.

Title Page No.

1 Introduction 1

2 Initiatives for Promoting Financial Inclusion – Pre 2005 7

3 International Experiences in Financial Inclusion 14

4 Initiatives for Promoting Financial Inclusion – 2005 Onwards 19

5 Role of ICT in Enabling Financial Inclusion 26

6 Survey on the Extent of Financial Inclusion 32

7 Field Visits 47

8 Recommendations 58

Annexures 70 – 85 References 86 – 87

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List of Annexures

Annexure I RBI Young Scholar Survey on Financial Inclusion (Questionnaire)

Annexure II Performance Report of ‘Abhay’ Credit Counselling Centre

Annexure III Working Hours of ‘Abhay’ FLCC (as displayed on the centre’s website)

Annexure IV Leaflet of Programmes Offered by BMIED, Hazaribag

Annexure V Annual Training Calendar of BMIED for the year 2009-10

Annexure VI Helpline for Farmers – A Self-Sustaining Model

Annexure VII Disha Financial Counselling Centre (Website Homepage)

Annexure VIII Detailed Working of The ‘Kiva’ Model

Annexure IX Homepages of Various Financial Education Websites – A Comaprision

[v]

List of Abbreviations

ADWRS Agriculture Debt Waiver and Debt Relief Scheme

AML Anti Money Laundering

ATM Automated Teller Machine

BC Business Correspondent

BF Business Facilitator

BMIED Birsa Munda Institute for Entrepreneurship Development

BPL Below Poverty Level

CCC Credit Counselling Centre

CDFI Community Development Financial Institution

CDMA Code Division Multiple Access

CFT Centralised Funds Transfer

CGM Chief General Manager

CRA Community Reinvestment Act

CRC Commission for Rural Communities

CSOS Civil Society Organisations

CSP Customer Service Point

CTF Child Trust Fund

DCC District Consultative Committee

DRDA District Rural Development Authority

DRI Differential Rate of Interest

FIF Financial Inclusion Fund

FITF Financial Inclusion Technology Fund

FLCC Financial Literacy and Credit Counselling Centre

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GCC General Credit Card

GDP Gross Domestic Product

GIPSA General Insurer’s Public Sector Association

GoI Government of India

GPRS General Packet Radio Service

GSM Global System for Mobile Communications

GUI Graphical User Interface

ICT Information and Communication Technologies

IDRBT Institute for Development and Research in Banking Technology

IVRS Interactive Voice Response Service

KCC Kisan Credit Card

KVIC Khadi Village Industry Corporation

KYC Know Your Customer

LBS Lead Bank Scheme

LDM Lead District Manager

LDO Lead District Officer

MFIS Micro Finance Institutions

MSMED Micro Small and Medium Enterprises Development

MoRD Ministry of Rural Development

NABARD National Bank for Agriculture and Rural Development

NBFC Non Banking Financial Company

NCC National Credit Council

NFC Near Field Communication

NGO Non Government Organisation

NPA Non Performing Asset

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NREGES National Rural Employment Guarantee Scheme

PACS Primary Agriculture Credit Society

PAIS Personal Accident Insurance scheme

PIN Personal Identification Number

PMEGP Prime Minister’s Employment Generation Programme

PMRY Prime Minister’s Rozgar Yojana

POCA Post Office Card Account

PoS Point of Sale

PPP Purchasing Power Parity

RCB Rural Credit Bureau

RFID Radio Frequency Identification Device

RPCD Rural Planning and Credit Development

RRB Regional Rural Bank

RUDSETI Rural Development and Self Employment Training Institute

SAA Service Area Approach

SGSY Swarnajayanti Gram Swarozgar Yojana

SHG Self-Help Group

SHPI Self-Help Promoting Institution

SIDBI Small Industries Development Bank of India

SIM Subscriber Identity Module

SJSRY Swarna Jayanti Shahari Rozgar Yojana

SLBC State Level Banker’s Committee

SLRS Scheme of Liberation and Rehabilitation of Scavengers

SME Small and Medium Enterprise

SMS Short Message Service

[viii]

SSI Small Scale Industries

SSP Society Security Pension

UCBS Urban Co-operative Banks

UI User Interface

UIN Unique Identification Number

UTLBC Union Territory Level Banker’s Committee

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1. Introduction India is the fourth largest economy in the world on a purchasing power parity (PPP) basis and twelfth on a nominal basis. With the real GDP forecasted to grow by 5.7% in the year 2009-10, the Indian economy is marching ahead. This rapid expansion is expected to continue as growth in the services and high technology manufacturing sector accelerates. Agriculture, which continues to support around 60% of the population, has grown by a mere 2.7% in the second quarter of 2008-09. In addition, the organized sector employment presently comprises less than 10% of the workforce, leaving the vast majority of the working population with irregular income streams. Notwithstanding the rapid increase in overall GDP and per capita income in recent years, a significant proportion of the population in both rural and urban areas still experiences difficulties in accessing the formal financial system. There is currently a perception that there are a large number of people, potential entrepreneurs, small enterprises and others, who may not have adequate access to the financial sector, which could lead to their marginalization and denial of opportunity to grow and prosper.

1.1 Financial Exclusion Broadly defined, financial exclusion signifies the lack of access by certain segments of the society to appropriate, low-cost, fair and safe financial products and services from mainstream providers. Financial exclusion is thus a key policy concern, because the options for operating a household budget, or a micro/small enterprise, without mainstream financial services can often be expensive. This process becomes self-reinforcing and can often be an important factor in social exclusion. Reserve Bank of India data shows that as many as 139 districts suffer from massive financial exclusion, with the adult population per branch in these districts being above 20,000 and only 3% with borrowings from banks. On the assumption that each adult has only one bank account (which does not hold good in practice, so that actual coverage is likely to be worse) on an all India basis, 59 percent of the adult population in the country has bank accounts. 41 percent of the population is, therefore, unbanked. In rural areas the coverage is 39 percent against 60 percent in urban areas. The unbanked

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population is higher in the poorer regions of the country, and is the worst in the North-Eastern and Eastern regions.

Causes of Financial Exclusion Demand-side Barriers: On demand constraints and opportunities, the following issues have a significant bearing on the extent of financial exclusion/inclusion: 1. Cultural factors - Women are often disadvantaged by credit requirements such as collateral since in most of the cases property is registered under their husband’s name and they are to seek male guarantees to borrow. 2. Mistrust of financial institutions - The feeling that there is no point in applying for financial products because he/she expects to be refused as banks are not interested to look into their cause has led to self-exclusion for many of the low income groups. 3. Level of income - A higher share of population below the poverty line results in lower demand for financial services as the poor may not have savings to place as deposit in savings banks. 4. Financial literacy and skills capacity – High information barriers, low awareness and limited literacy, particularly financial literacy, i.e., basic mathematics, business finance skills as well as lack of understanding often constrain demand for financial services. Supply-side Barriers: The following issues on the supply side are major obstacles in providing an adequate supply of financial services to the currently unbanked: 1. Locational constraints – Absence of physical infrastructure in interior-most parts of the country leads to difficulties in accessing financial institutions (like banks, etc) resulting in a substantial proportion of households in rural and remote areas being kept outside the ambit of the formal financial system. 2. Real and perceived risk in lending - The perceived risk of lending to the poor is higher than the real risk, creating a supply barrier by triggering higher than necessary transactions costs due to stricter than needed prudential requirements.

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3. Approaches and products - Generally, financial services tend to be concentrated in urban areas, allowing rural clients little access to services and information for making well grounded decisions. 4. Financial viability of MFIs - MFI practitioners encounter difficulties in having a “double bottom line”: at the same time aiming to be profitable and stimulating local economic development. Costs and Consequences of Financial Exclusion Broadly, the issue of cost of financial exclusion may be conceived from two angles, which are intertwined. First, the exclusion may have cost for individuals/entities in terms of loss of opportunities to grow in the absence of access to finance or credit. Second, from the societal or the national perspective, exclusion may lead to aggregate loss of output or welfare and the country may not realize its growth potential. In terms of cost to the individuals, financial exclusion leads to higher charges for basic financial transactions like money transfer and expensive credit, besides all round impediments in basic/minimum transactions involved in earning livelihood and day to day living. Individuals/families could get sucked into a cycle of poverty and exclusion and turn to high cost credit from moneylenders, resulting in greater financial strain and unmanageable debt. At the wider level of the society and the nation, financial exclusion leads to social exclusion, poverty as well as all the other associated economic and social problems. Another cost of financial exclusion is the loss of business opportunity for banks, particularly in the medium-term. Banks often avoid extending their services to lower income groups because of initial cost of expanding the coverage which may sometimes exceed the revenue generated from such operations.

1.2 Financial Inclusion The definitional emphasis of financial inclusion varies across countries and geographies, depending on the level of social, economic and financial development; the structure of stake holding in the financial sector; socio-economic characteristics of the financially excluded segments; and also the extent of the recognition of the problem by authorities or governments.

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The Report of the Committee on Financial Inclusion in India (Chairman: C Rangarajan) (2008) defines financial inclusion as the “process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost.” Measurement of Financial Inclusion/Exclusion While the importance of financial inclusion has been widely accepted, much less is known about how inclusive the financial systems are and who has access to which financial services. Individual indicators, viz. number of bank accounts and number of bank branches that are generally used as measures of financial inclusion, can provide only partial information on the level of financial inclusion in an economy. Financial services or products rendered by banks, postal savings banks, credit unions, finance companies, micro-finance institutions (MFIs), and other formal and quasi-formal non-bank institutions generally form the basis for measuring the financial inclusion. Core and headline indicators place a given population along a continuum of access, depending on its usage of formal, semi-formal, and informal financial services, and those excluded from the use of financial services. The access to finance could be divided into five segments: (i) The proportion of the population that uses a bank or bank like institution; (ii) The population which uses service from non-bank ‘other formal’ financial institutions, but does not use bank services; (iii) The population which only uses services from informal financial service providers; (iv) The proportion of the population transacting regularly through formal financial instruments; and (v) The population which uses no financial services. There exists no single comprehensive measure that can be used to indicate the extent of financial inclusion across economies. Specific indicators such as number of bank accounts, number of bank branches, that are generally used as measures of financial inclusion, can provide only partial information on the level of financial inclusion in an economy. Scope of Financial Inclusion The scope of financial inclusion can be expanded in two ways: (i) Through 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).

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(ii) Through 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. Internationally, financial exclusion has been viewed in a much wider perspective. Merely having a bank account is not regarded as an accurate indicator of financial inclusion. Rather, its scope is considered to be quite large and ranges from empowerment of people through schemes of financial literacy/education to ensuring their participation in institutional credit, insurance cover and remittance services. The scope of financial inclusion is much broader and hence, it is considered to be critical for achieving inclusive and sustainable growth in the country. Benefits of Financial Inclusion Improvements in access to financial institutions accrue several benefits to the consumer, regulator and the economy alike. Establishment of an account relationship can pave the way for the customer to avail the benefits of a variety of financial products. The bank accounts can also be used for multiple purposes, such as, making small value remittances at low cost and making purchases on credit. Furthermore, the regulator benefits, as the audit trail is available and transactions are conducted transparently in a medium that can be monitored. The economy benefits, as greater financial resources become transparently available for efficient intermediation and allocation, for uses that have the highest returns. Promoting financial inclusion can also help in the regeneration of local areas if money saved by increased access to financial services can be re-invested in the community. Inclusive finance - safe savings, appropriately designed loans for poor and low income households and for micro, small and medium sized enterprises, and appropriate insurance and payments services - can help people help themselves to increase incomes, acquire capital, manage risk, and work their way out of poverty. Increasing the inclusiveness of financial sectors, fuelled by domestic savings to the greatest extent possible, will, over time, bolster the poorer segments of the population as well as those segments of the economy that most affect the lives of poor people. Holding a bank account itself confers a sense of identity, status and empowerment and provides access to the national payment system. Therefore, having a bank account becomes a very important aspect of

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financial inclusion. While financial inclusion, in the narrow sense, may be achieved to some extent by offering a single financial service/product, the objective of “comprehensive financial inclusion” would be to provide a holistic set of services encompassing all of the above.

1.3 Financial Education/Financial Literacy Financial literacy allows people to increase and better manage their earnings - and therefore better manage their life events like education, illness, job loss or retirement. It also promotes understanding and acceptance of important political reforms, such as health care or pension reforms. While the significance of financial literacy has not yet been fully articulated and recognized by the international development community - or by policy makers and practitioners in developing countries - measures to promote and improve financial education are becoming more frequent. It has been noted that low financial literacy significantly contributes to financial exclusion in general and self-exclusion in particular. It accounts for many low-income households not using insurance and deposit services, for instance, or keeping their savings under the mattress. It prevents people from understanding how inflation affects the real value of money and what options they have to protect against erosion. Many poor people opt out of formal financial systems due to misconceptions about price of credit. Many are unaware of the best utilization of credit facilities and become over-indebted, including micro credit facilities where markets have become more competitive in recent years.

Improved financial education can bridge these gaps. It can also strengthen accountability and competitiveness across financial sectors, and reduce the elite capture of community level institutions, such as cooperatives, that provide financial services to low-income people. And it can also contribute towards efficient use of public resources that are targeted to assist the poor in various ways. Thus, benefits of financial education can be enormous not only to individuals, but to society as a whole. With increased financial literacy, there will also be an increased demand for financial services from the poor, which will further assist in percolating the benefits of inclusive finance throughout every strata of the society.

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2. Initiatives for Promoting Financial Inclusion – Pre 2005 India has a long history of banking development. After Independence, the major focus of the Government and the Reserve Bank was to develop a sound banking system which could support planned economic development through mobilization of resources/deposits and channel them into productive sectors. Accordingly, the Government’s desire to use the banking system as an important agent of change was at the core of most policies that were formulated after Independence. In order to expand the credit and financial services to the wider sections of the population, a wide network of financial institutions has been established over the years. The organized financial system comprising commercial banks, regional rural banks (RRBs), urban co-operative banks (UCBs), primary agricultural credit societies (PACS) and post offices caters to the needs of financial services of the people. Besides, MFIs, self-help groups (SHGs) also meet the financial service requirements of the poorer segments. Furthermore, development of the institutional framework in recent years has focused on new models of expanding financial services involving credit dispensation using multiple channels such as Civil Society Organizations (CSOs), non government organizations (NGOs), post offices, farmers’ clubs, and panchayats. Specific financial instruments/products were also developed in order to promote financial inclusion.

Overall Approach Financial inclusion in the Indian context implies the provision of affordable financial services, viz., access to payments and remittance facilities, savings, loans and insurance services by the formal financial system to those who tend to be excluded. Besides access, emphasis is also placed on affordability (low cost) of financial services such as savings, loan, and remittance to the underprivileged segments of the population. Although the term ‘financial inclusion’ was not in vogue in India then, since the late 1960s both the Government and the Reserve Bank have been concerned about the non availability of banking facilities to the under-privileged and weaker sections of the society. Accordingly, several initiatives have been taken over time.

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The initiatives undertaken for the purpose of promoting financial inclusion in India can be broadly categorized into the following four phases. In the first phase during the early years of independent India from 1947 - 1967, the focus was on channeling of credit to the neglected sectors of the economy, especially agriculture and the spread of banking in the unbanked and rural areas. Special emphasis was also laid on weaker sections of the society. In the second phase beginning 1967 till the early 1990s, the focus was mainly on nationalization of private sector banks, the spread of banking, institution of directed credit through introduction of priority sector lending norms and setting up of Regional Rural Banks. The third phase from 1991-92 onwards till 2005 focused on improving the credit delivery system to the rural sector and SMEs.

2.1 Developments during 1947-1967 The banking scenario that prevailed in the early independence phase had two distinct disquieting features. Firstly, there was large concentration of resources from deposits mobilization in a few hands of business families or groups. Banks raised funds and on-lent them largely to their controlling entities. Secondly, agriculture was neglected insofar as bank credit was concerned. However, with the advent of planning for economic development and the growing social awareness of the role of bank credit in the economy, it was felt that the then commercial bank lending system had little social content and that it aided concentration of economic power. It was felt that the system was unresponsive to the needs of the weaker sections of the economy, small industry and agriculture, as it concentrated on lending to large customers. This period also witnessed several controls such as the credit authorization scheme and selective credit controls to ensure that credit was not concentrated in the hands of a few and that it was well disbursed.

Lending to Agriculture and Spread of Banking to Rural Areas With independence, not only did the operating environment change but policies were also geared towards planned objectives. Regulation was aligned to the attainment of these objectives. Banks were considered unique among financial institutions and were assigned a developmental role from the beginning of the planned era. The Reserve Bank assumed a unique role in this context that was occasioned by the predominantly agricultural base of the Indian economy and the urgent need to expand and co-ordinate the institutional credit structure for agriculture and rural development.

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Emergence of Administered Structure of Interest Rates This period was difficult for monetary policy as it had to accommodate fiscal policy that was under pressure on account of two wars and a drought. The rising deficit and the accompanying inflation led to an administered structure of interest rates and several other micro controls. In early years, the Reserve Bank relied on direct control over the lending rates of banks, rather than indirect instruments such as the Bank Rate for influencing the cost of bank credit. This was generally done by stipulating minimum rates of interest. The period during 1961 to 1967 was particularly difficult for the nation. Inflation was high and at times, shortages also developed.

2.2 Developments during 1967-1991 During this period, several initiatives were undertaken for enhancing the use of the banking system for sustainable and equitable growth. These included nationalization of private sector banks, introduction of priority sector lending norms, the Lead Bank Scheme, branch licensing norms with focus on rural/semi-urban branches, interest rate ceilings for credit to the weaker sections and creation of specialized financial institutions to cater to the requirement of the agriculture and the rural sectors having bulk of the poor population. The National Credit Council was set up in February 1968 mainly to assess periodically the demand for bank credit from various sectors of the economy and to determine the priorities for grant of loans and advances. The administrative framework for rural lending in India was provided by the Lead Bank Scheme introduced in 1969, which was an important step towards implementation of the two-fold objectives of deposit mobilization on an extensive scale and stepping up of lending to weaker sections of the economy. Realizing that the flow of credit to employment oriented sectors was inadequate, the priority sector guidelines were issued to the banks by the Reserve Bank to step up the flow of bank credit to agriculture, small-scale industry, self-employed, small business and the weaker sections within these sectors. The target for priority sector lending was gradually increased to 40 per cent of advances for specified priority sectors. The National Bank for Agriculture and Rural Development (NABARD) was set up in 1982 mainly to provide refinance to the banks extending credit to agriculture. RRBs, which were set up in 1975 to cater, to the credit requirements of the rural poor, were put on restructuring.

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Nationalization of Banks and Spread of Banking The Indian banking system underwent major structural transformation after the nationalization in 1969. To address the issue of urban orientation, specific emphasis was laid on making banking facilities available in the then unbanked areas. This was executed through two definite steps, viz., by designing a specific branch license policy and by initiating specific schemes like the Lead Bank Scheme (LBS). The LBS, launched by the Reserve Bank with a view to mobilizing deposits on a massive scale throughout the country and also for stepping up lending to weaker sections of the economy, became the principal instrument for branch expansion.

Institution of Directed Credit Programme Directed credit programme involving loans on preferential terms and conditions to priority sectors was a major tool of development policy in both developed and developing countries in the 1960s. An enunciation of the need to channel the flow of credit to certain sectors of the economy, known as the priority sectors with the social objectives in mind, was first discussed in India in July 1961. Banks were expected to play a more active and positive role in aiding sectors such as agriculture and small scale industries. The National Credit Council (NCC) was set up in February 1968 to assist the Reserve Bank and the Government to allocate credit according to plan priorities. The Differential Rate of Interest (DRI) Scheme was also instituted in 1972 to cater to the needs of the weaker sections of the society and for their upliftment. On the whole, scheduled commercial banks’ advances to agriculture, exports and small scale industries showed a significant rise, while those to industry declined. The distribution of bank credit to the agricultural sector increased from 2.2 % (end March 1968) to 15.8 % (end June 1989) whereas that for the industrial sector declined from 67.5 % to 37.5 % during the same period.

2.3 Developments during 1991-2005 With the onset of economic reforms in the beginning of the 1990s, a strong and resilient financial sector was considered necessary for accelerating the growth momentum in the country and also for expanding the coverage of financial services in a sustainable manner. Accordingly, the financial sector reform process placed more emphasis on creating a strong, vibrant and

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competitive banking system. A high-powered Committee on the Financial System (CFS) was constituted by the Government of India in August 1991 to examine all aspects relating to the structure, organization, functions and procedures of the financial system (Chairman: Shri M. Narasimham). The main issues faced in this phase were (i) increase the flow of credit to agriculture and SMEs; (ii) strengthen the urban cooperative banks and resolve the issue of dual control; and (iii) bring a large segment of excluded population within the fold of the banking sector. Credit to the SME and agriculture sectors decelerated in the 1990s and early years of the current decade. Given the significance of both the sectors, concerted efforts were made by the Government and the Reserve Bank to increase the flow of credit to these sectors. The restructuring of RRBs by merging them sponsor bank wise at the state level was done to make them larger and stronger to serve as a better instrument of rural credit delivery. An important step to bring financially excluded people within the fold of formal financial sector was the promotion of microfinance in India. The SHG-bank linkage programme was launched by NABARD in 1992, with policy support from the Reserve Bank, to facilitate collective decision making by the poor and provide ‘door step’ banking. Banks, as wholesalers of credit, were to provide the resources, while the NGOs were to act as agencies to organize the poor, build their capacities and facilitate the process of empowering them.

Improving Credit Delivery – Rural Sector Notwithstanding the impressive geographical spread, functional reach, improved credit flow to agriculture and consequent decline in the influence of informal sources of credit, rural financial institutions were characterized by several weaknesses, viz., decline in productivity and efficiency, erosion of repayment ethics and profitability. On the eve of the 1991 reforms, the rural credit delivery system was again found to be in a poor shape. In this context, it was felt that there was a need for better alignment of interest rates and mix of target and non target lending. The Reserve Bank initiated several measures to increase the flow of credit to the agriculture sector. These included (i) treating loans to storage units designed to store agricultural products, irrespective of location, as indirect credit to agriculture; (ii) treating investment by banks in securitized assets representing direct (indirect) lending to agriculture as direct (indirect) lending to agriculture; and (iii) waiver of margin/security requirement for agricultural loans up to Rs.50000 and in case of agri-business and agri-clinics

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for loans up to Rs.5 lakh. In addition, the Reserve Bank also aligned repayment dates with harvesting of crops by treating loans granted for short duration crops as an NPA, if the installment of the principal or interest thereon remained unpaid for two crop seasons beyond the due date. Improving Credit Delivery – SMEs Consequent upon the deregulation of interest rates, there was an expectation that credit flow to the needy will increase. However, credit to the SME sector decelerated in the 1990s and the first four years of the current decade. Realizing the critical role of small industries in the economy, the Reserve Bank initiated several measures with a view to increasing the flow of credit to Small Scale Industry (SSI) units. Several other measures were also initiated to increase the flow of credit to the SSI sector. These included identification of new clusters and adopting cluster-based approach for financing the small and medium enterprises (SME) sector; sponsoring specific projects as well as widely publicizing the successful working models of NGOs; sanctioning higher working capital limits to SSIs in the North Eastern region for maintaining higher levels of inventory; and exploring new instruments for promoting rural industry. Interest rates on deposits placed by foreign banks with SIDBI in lieu of shortfall in their priority sector lending obligations were restructured and the tenor of deposits was increased from one year to three years with effect from financial year 2005-06.

SHG – Bank Linkage Programme The problems in the beginning of 1990s were two fold i.e. institutional structure was neither profitable in rural lending nor serving the needs of the poorest. Reaching the poorest, whose credit requirements were very small, frequent and unpredictable, was found to be difficult. Further, the emphasis was on providing credit rather than financial products and services including savings, insurance, etc. to the poor to meet their simple requirements. Therefore, need was felt for alternative policies, systems and procedures, savings and loans products, other complementary services and new delivery mechanisms, which would fulfill the requirements of the poorest. As a result National Bank for Agriculture and Rural Development (NABARD), in India, launched its pilot phase of the Self Help Group (SHG) Bank Linkage programme in February 1992.

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Since 1992, SHG-bank linkage programme has been promoting micro finance facilities to the poor. A growing component of inclusive banking is the lending by MFIs that are societies, trusts, cooperatives or ‘not for profit’ companies or non banking financial companies registered with the Reserve Bank. The MFIs cover millions of borrowers and the NBFC segment within this sector is the fastest growing segment. Interest rates on lending to MFIs/NBFCs have been completely deregulated. Bank lending to such entities for microfinance is treated as priority sector lending. In India, there have been several innovative experiments with various variants of micro-finance taking into account the highly localized needs. To further promote the SHG-bank linkage programme in the country, banks were advised in 1998 that SHGs that were engaged in promoting the saving habits among their members would be eligible to open savings bank accounts and that such SHGs need not necessarily have availed of credit facilities from banks before opening savings bank accounts. Subsequent to the Monetary and Credit Policy announcement for the year 1999-2000, banks were advised that interest rates applicable to loans given by them to micro credit organizations or by the micro credit organizations to SHGs/member beneficiaries would be left to their discretion. Subsequently, banks were advised that they should provide adequate incentives to their branches for financing the SHGs and that the group dynamics of working of the SHGs may be left to themselves. The main advantage to the banks of their links with the SHGs is the externalization of a part of the work items of the credit cycle, viz, assessment of credit needs, appraisal, disbursal supervision and repayment, reduction in the formal paper work involved and a consequent reduction in the transaction costs. Though a variety of micro-finance models are followed in India, SHG-bank linkage programme is the predominant one. Along with the SHG-Bank Linkage Programme, a multi-pronged strategy was followed to promote financial inclusion which not only served better the diverse demand for financial services, but also reduced the systemic risks, increased competition, and improved efficiency. On the larger scale, a wide paraphernalia of institutional framework was established by the Reserve Bank and the Government to ensure better banking penetration and outreach so that the credit needs of agriculture and small enterprises were met while allowing sufficient flexibility to banks to evolve their own policies and strategies for the purpose.

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3. International Experiences in Financial Inclusion

While India has followed a multi-pronged strategy to promote financial inclusion, the global experience also suggests that countries that allow diversity in approaches are more likely to achieve better results. Diversity in approaches not only serves better the diverse demand for financial services, but also reduces systemic risks, increases competition, and improves efficiency. Many other countries have also followed more or less a similar approach. An interesting feature which emerges from the international practice is that the more developed a society is, the greater is the thrust on empowerment of the common person and low-income groups. The problem of financial exclusion is found even in several advanced countries. These countries have also initiated specific measures to bring financially excluded people within the fold of the banking system. The measures initiated by governments of developed as well as developing/less developed countries have been discussed below.

3.1 United Kingdom The Government of UK has been tackling financial exclusion since 1997. For example, in 1999, the Social Exclusion Unit’s Policy Action Team 14 (PAT 14) recommended the creation of basic bank accounts. The Government worked successfully with the banks to bring these products to the market, and there are now basic bank accounts available from 17 providers. Since 2006, the Financial Inclusion Fund (FIF) has provided Growth Funding of £42 million for third sector lenders. The Fund provides capital for lending to financially excluded customers, with revenue support to meet costs. A Post Office Card Account (POCA) has been created for those who are unable or unwilling to access a basic bank account. This enables cash withdrawals at post offices but does not offer an overdraft facility. The Government is also piloting Savings Gateway’s schemes in which those on low-income employment will receive £1 from the state for every £1 they

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invested, up to a maximum of £25 per annum. The forthcoming Child Trust Fund (CTF), which will offer all households a fixed sum for long-term investment at the birth of their children, is hoped to be most beneficial in lower income households. Initiatives to promote financial inclusion have not been restricted to just the urban centres. As part of the Commission for Rural Communities’ (CRC) work to tackle disadvantage in rural areas, some good and enterprising practices in rural financial inclusion includes the NatWest’s mobile bank, Cumbrian Debt Rescue and Financial Advice, Ely Citizens Advice Bureau, Farm Crisis Network and many others.

3.2 United States of America A civil rights law, namely Community Reinvestment Act (CRA) in the United States prohibits discrimination by banks against low and moderate income neighbourhoods. The CRA imposes an affirmative and continuing obligation on banks to serve the needs for credit and banking services of all the communities in which they are chartered. The US Community Development Financial Institution (CDFI) Fund uses Federal resources to invest in and build the capacity of CDFIs to provide capital and financial services to under-served people and communities. The Federal Reserve System’s recently redesigned financial education website, FederalReserveEducation.org, is dovetailed to increase the use of Federal Reserve educational materials and promote financial education in the classroom. It provides easy access to free educational materials, a resource search engine for teachers, and games for various ages and knowledge levels.

3.3 Brazil In 1997, banks and regulators in Brazil created a network of "correspondents bancarios" or "banking correspondents", small outlets with extended working hours that offered basic banking services. At that time, 40 out of the 68 million economically active Brazilians had no access to formal financial services. Today, an additional 4 million have begun using banks for the first time through 27,000 banking correspondents. Under this arrangement, banks are permitted to appoint a wide variety of institutions/entities as correspondents/ agents, which are easily accessible to people, e.g., drug stores, petrol pumps, super markets, small stores in neighbourhood, post

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offices and even lottery shops. The Brazilian model is largely technology driven. The agents use kiosks or automated teller machines to accept payment, open accounts, without a cheque book facility, take small deposits, provide micro credits, and sell savings bonds and insurance.

3.4 South Africa The Financial Sector Charter in South Africa led to the establishment of the ‘Mzansi’ account; a National no frills Bank Account (NBA). In its first year of operation itself, it garnered nearly 2 million accounts. Access to the affordable card based product is provided through a combination of existing service point outlets and physical branch outlets including own and shared ATMs, Post Offices, and merchant PoS devices. There is a money transfer service associated with the Mzansi account which makes it possible to transfer money between un-banked/banked customers from any participating bank or South Africa Post Office. All banks in South Africa are participants in this unique venture. As it is a technology intensive product, the transaction costs are very low and thus, what was thought to be as ‘too costly to serve areas and people’ has become an attractive proposition.

3.5 Singapore A sophisticated example of global payments network operating via postal banks is the Singapore Post which regards payments and remittance services, an important catalyst for enhancing financial inclusion. Singapore Post’s remittance services, in partnership with banks and other financial entities in a number of countries, provides consumer loan services, insurance and investment products on behalf of banks and finance companies, offices and investment managers to Singapore residents including workers from overseas.

3.6 Philippines In 2004, BSP, the central bank of Philippines sanctioned two e-money products. The first was ‘Smart Money’, product of a major commercial bank and the second was ‘G-cash’, a non-bank product whose provider was ultimately licensed as a remittance agent. The impact of these e-money products has been substantial. Some 8 million people use one or other of the two products, while the numbers of banks involved has grown rapidly. Apart from the larger commercial banks, increasing numbers of small rural banks

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has also participated in these products. Some banks have lowered interest rates, by up to 50bps/month, on microfinance loans administered via the phone repayment platform. Lower cost remittance channels have seen remittance costs fall markedly. These advances have increased financial inclusion in the country with the convergence of e-money, mobile technology and the traditional brick-and-mortar networks of financial institutions.

3.7 Bangladesh The Grameen Bank (GB) in Bangladesh has reversed conventional banking practice by obviating the need for collateral. It has created a banking system based on mutual trust, accountability, participation and creativity. GB provides credit to the poorest of the poor in rural Bangladesh, without any collateral. It offers credit for creating self-employment, income-generating activities and housing for the poor, as opposed to consumption, and provides service at the doorsteps of the poor. In order to obtain loans, a borrower must join a group of borrowers. The repayment responsibility solely rests on the individual borrower and there is no form of joint liability. Loans can be received in a continuous sequence. New loan becomes available to a borrower if his/her previous loan is repaid. All loans are to be paid back in instalments (weekly or bi-weekly). GB’s success can also be gauged from the fact that it has 7.46 million borrowers in Bangladesh alone and has grown into over 2 dozen enterprises represented by the Grameen Family of Enterprises. Grameen Foundation not only provides microloans in the USA itself but also supports microfinance institutions in Asia-Pacific, America and Africa.

3.8 Kenya Recent international experience indicates that micro savings are as important as micro credit. Moving in this direction, Equity Building Society in Kenya has developed the Jijenge Savings Account, a contractual savings product with an emergency loan facility. The client defines the length of the contract and the periodicity of the deposits, which could be weekly or monthly. A premium interest rate is offered to those who take out longer term contracts and there are significant penalties for premature withdrawals. All Jijenge savings account holders have guaranteed immediate access to an emergency loan of 90 percent of the amount in their Jijenge savings account. As well as providing a disciplined way to save, this product allows clients to meet their "illiquidity" preference and protects their savings against the demands of petty spending

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or "marauding relatives". The account is already proving extremely popular with existing as well as new clients. Commercial Bank of Africa in conjunction with local mobile operator Safaricom has enabled mobile subscribers to make micro payments from mobile phones. The majority of the people in Kenya do not hold bank accounts but purchase prepaid mobile refill cards. The technology allows settlement of bills by building up credit balance on the mobile phone and sending text message to make payments. The above discussed cross country experiences show that there has been several innovative experiments worldwide to promote financial inclusion with special emphasis on creating demand through diversified credit instruments, outreach considerations, sustainability aspects, delivery mechanisms among others. Although these international experiences come with their own merits and demerits, the initiatives undertaken in India (to be discussed in subsequent chapters) are unique in nature, formulated with due consideration to the diverse socio-economic conditions prevailing in the country.

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4. Initiatives for Promoting Financial Inclusion – 2005 Onwards The objective of bringing financially excluded people within the fold of the banking sector received renewed emphasis in 2005-06 as the term ‘financial inclusion’ was explicitly used for the first time in the Annual Policy Statement for 2005-06. It observed that there were legitimate concerns in regard to the banking practices that tended to exclude rather than attract vast sections of population, in particular pensioners, self-employed and those employed in the unorganised sector. It also indicated that the Reserve Bank would (i) implement policies to encourage banks which provide extensive services, while disincentivising those which were not responsive to the banking needs of the community, including the underprivileged; (ii) the nature, scope and cost of services would be monitored to assess whether there was any denial, implicit or explicit, of basic banking services to the common person; and (iii) banks urged to review their existing practices to align them with the objective of financial inclusion. The recent approach focuses on financial inclusion on the individual and household level. The important difference in the recent focus on financial inclusion is the adoption of market oriented approach that recognises the importance of business consideration of banks and other financial institutions for the long-term sustainability of the process.

4.1 Microfinance Of the different models for delivery of microfinance, the SHG-Bank Linkage Programme has emerged as the major micro-finance programme in the country. It is being implemented by commercial banks, RRBs and co-operative banks. As on March 31, 2008 3.6 million SHGs had outstanding bank loans of Rs.17000 crore, an increase of 25 per cent over March 31, 2007 in respect of number of SHGs credit linked. As at end-March 2008, SHGs had 5 million savings accounts with banks for Rs.3785 crore. Based on the findings of a joint study conducted by the Reserve Bank along with a few major banks, the banks were advised in November 2006 to encourage microfinance institutions (MFIs) assisted by them to (i) focus on

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unbanked and underbanked areas; (ii) desist from multiple lending; (iii) engage in capacity building and empowerment of the groups; and (iv) follow practices that maintain the cohesiveness of the groups. This led to banks financing NGOs/MFIs for on-lending under micro-finance. As on March 31, 2007, the number of MFIs that had outstanding bank loans was 550 amounting to Rs.1585 crore. Recognising the potential of microfinance to positively influence the development of the poor, the Reserve Bank has advised commercial banks that micro credit should cover not only consumption and production loans for various farm and non-farm activities of the poor, but also include their other credit needs such as housing and shelter improvements. A Micro Financial Sector (Development and Regulation) Bill, 2007, which envisages the regulation of the sector, is currently under consideration of the Parliament.

4.2 ‘No-Frills’ Accounts The Reserve Bank reiterated the concerns of financial inclusion in its Mid-term Review of Annual Policy Statement for 2005-06. All banks were advised in November 2005 to make available a basic banking ‘no-frills’ account either with ‘nil’ or very low minimum balances as well as charges that would make such accounts accessible to vast sections of population. The nature and number of transactions in such accounts could be restricted, but made known to the customer in advance in a transparent manner. All banks were also advised to give wide publicity to the facility of such a ‘no-frills’ account including on their web sites indicating the facilities and charges in a transparent manner. Significant progress has been made in this regard, and till now, banks have opened more than 15 million no-frills accounts in the country. As announced in the Annual Policy Statement for the year 2008-09, and in order to give further impetus to financial inclusion, banks were advised in May 2008 to classify overdrafts up to Rs.25000 (per account) granted against ‘no-frills’ accounts in rural and semi-urban areas as indirect finance to the agriculture sector under priority sector with immediate effect.

4.3 Relaxation of KYC Norms The Reserve Bank in its Annual Policy Statement for 2005-06, emphasised that banks should empower depositors by providing wider access and better quality of banking services. Furthermore, banks were advised in August 2005

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to ensure that customers belonging to poor sections of the society are not kept away from banking system, on account of difficulties in meeting the KYC requirements for opening bank account. The KYC procedure for opening accounts was simplified further for persons who intend to keep balances not exceeding Rs.50000 in all their accounts taken together and the total credit in all the accounts taken together is not expected to exceed Rs.1 lakh in a year. The customer is allowed to exceed the threshold limit only after the full compliance with the KYC norms. Based on feedback received on the extant KYC/AML/CFT regime, relevant guidelines were revised on February 18, 2008. These guidelines include among others (i) in case of close relatives who find it difficult to furnish documents relating to place of residence while opening accounts, banks can obtain an identity document and a utility bill of the relative with whom the prospective customer is living, along with a declaration from the relative that the said person (prospective customer) wanting to open an account is a relative and is staying with him/her. Banks can also use any supplementary evidence such as a letter received through post for further verification of the address; (ii) banks have been advised to keep in mind the spirit of the instructions and avoid undue hardships to individuals who are otherwise classified as low risk customers; (iii) banks should review the risk categorization of customers at a periodicity of not less than once in six months.

4.4 Kisan Credit Cards The KCC scheme enabling farmers to purchase agricultural inputs and draw cash for their production needs was further extended by providing personal accident insurance coverage on an ongoing basis at competitive rates/terms, thus safeguarding the interest of the KCC holders. Banks have been given the discretion to approach either any general insurance company which is a member of GIPSA (General Insurer’s [Public sector] Association of India) or any private sector general insurance company, to take advantage of the competitive offers. However, the banks have been advised that they may, while negotiating with the insurers, keep in mind the guiding principles of Personal Accident Insurance Scheme (PAIS), especially the aspects such as premium sharing formula and coverage. This “add on” benefit is expected to bring in an increasing number of farmers under the KCC fold, thereby leading to complete coverage. The cumulative number of KCCs issued by public sector banks aggregated 31.22 million (provisional) up to March 31, 2008 involving an amount of Rs.1.54 crore.

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4.5 General Purpose Credit Cards With a view to providing credit card like facilities in the rural areas, with limited point-of-sale (POS) and limited ATM facilities, the Reserve Bank advised all scheduled commercial banks, including RRBs, in December 2005 to introduce a General Credit Card (GCC) facility without insistence on collateral or purpose, with a revolving credit limit up to Rs.25000 based on the assessment of income and cash flow of the household to enable hassle free access to credit to rural and semi-urban households. The Reserve Bank also advised banks to classify fifty per cent of the credit outstanding under loans for general purposes under General Credit Cards (GCC), as indirect finance to agriculture under priority sector. The Reserve Bank further advised banks in May 2008 to classify 100 per cent of the credit outstanding under GCCs as indirect finance to agriculture sector under the priority sector with immediate effect.

4.6 Use of Intermediaries as Agents With the objective of ensuring greater financial inclusion and increasing the outreach of the banking sector, banks have been allowed to use the services of NGOs/SHGs, MFIs and other civil society organisations as intermediaries in providing financial and banking services through the use of business facilitator and correspondent models. The BC model allows banks to do ‘cash-in/cash-out’ transactions at a location much closer to the rural habitation, thus addressing the last mile problem. Banks are also entering into agreements with India Post for using the vast network of post offices as business correspondents, thereby increasing their outreach and leveraging on the postman’s intimate knowledge of the local population. Banks have also been permitted to engage retired bank employees, ex-servicemen and retired government employees as BCs with effect from April 24, 2008, in addition to the entities already permitted, subject to appropriate due diligence. While appointing such individuals as BCs, the Reserve Bank advised banks to ensure that these individuals are permanent residents of the area in which they propose to operate as BCs and also institute additional safeguards as may be considered appropriate to minimise agency risk. With a view to ensuring adequate supervision over the operations and activities of the BCs, the Reserve Bank advised banks that every BC should be attached to and be under the oversight of a specific bank branch to be designated as the base branch. The distance between the place of business of a BC and the base

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branch, ordinarily, should not exceed 15 kms. (further extended to 30 kms. from April 2009) in rural, semi-urban and urban areas. In metropolitan centres, the distance could be up to 5 kms. However, in case a need is felt to relax the distance criterion, the matter can be referred to the District Consultative Committee (DCC) of the district concerned for approval.

4.7 Financial Literacy and Credit Counselling Recognising that lack of awareness is a major factor for financial exclusion, the Reserve Bank has taken a number of measures towards imparting financial literacy and promotion of credit counselling services. The Reserve Bank has undertaken a project titled “Project Financial Literacy” to disseminate information regarding the central bank and general banking concepts to various target groups, including, school and college going children, women, rural and urban poor, defence personnel and senior citizens. It would be disseminated to the target audience with the help of, among others, banks, local government machinery, schools/colleges using pamphlets, brochures, films, as also, the Reserve Bank’s website. The Reserve Bank has also created a link on its web site ‘For the Common Person’ to give him the ease of access to information, in Hindi, English and 11 regional languages (Assamese, Bengali, Gujarati, Kannada, Malayalam, Marathi, Oriya, Punjabi, Tamil, Telugu and Urdu). A ‘Financial Education’ site link on the Reserve Bank’s website was launched on November 14, 2007, mainly aimed at teaching basics of banking, finance and central banking to children in different age groups. The comic books format has been used to explain the complexities of banking, finance and central banking in a simple and interesting way for children. In May 2007, convenor banks of the SLBCs/UTLBCs were advised to set up, on a pilot basis, a Financial Literacy and Credit Counselling Centre (FLCC) in any one district in the State/Union Territory coming under their jurisdiction. The objectives of the FLCCs are to provide free financial literacy/education and credit counselling - educating people in rural and urban areas with regard to various financial products and services available, providing face-to-face financial counselling services, and formulating debt restructuring plans for borrowers in distress and recommending the same to formal financial institutions for consideration. FLCCs should not, however, act as investment advice centres. In rural areas, the centres could concentrate on financial literacy and counselling for farming communities and those engaged in allied activities while the centres in metro/urban areas could focus on individuals

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with overdues in credit cards, personal loans, housing loans, etc. among others. So far, banks have reported setting up or proposing to set up 123 credit counselling centres in various states of the country.

4.8 Setting up of RUDSETIs The Reserve Bank has issued guidelines, framed by the Government of India, to the SLBC convenor banks to set up at least one Rural Development and Self Employment Training Institute (RUDSETI) in each district by 2010. These institutions will train at least one youth in a family below poverty line (BPL) in various fields and enhance capacity building. In all, 134 RUDSETIs have been set up as on December 31, 2008. A target for opening of 100 RUDSETIs by banks was set for the year 2008-09 and a grant of Rs.1 crore per RUDSETI has been earmarked by the Planning Commission for setting up the institutes. The Regional Offices of the Reserve Bank have been advised to monitor the progress of setting up of RSETIs under their jurisdiction on a quarterly basis.

4.9 Establishment of FIF and FITF In order to meet the costs of technology adoptions, developmental and promotional interventions for ensuring financial inclusion, the Union Finance Minister, in his Budget Speech for 2007-08 announced the constitution of the Financial Inclusion Fund (FIF) and the Financial Inclusion Technology Fund (FITF), with an overall corpus of Rs.500 crore each at NABARD. The FIF/ FITF would be in operation until financial inclusion to the extent of 100 per cent of rural families in all districts is achieved, over a period of five years from the date of commencement of the Fund or for such enhanced period as may be decided by the Government. The FIF would be used for activities such as funding support for capacity building inputs to BCs/BFs; providing promotional support to institutions such as resource centres, farmers’ service centres and RUDSETIs; providing funding support for promotion, nurturing and credit linking of SHGs; funding support for setting up of Rural Credit Bureaus and credit rating of rural customers; and supporting pilot projects for development of innovative products, processes and prototypes for financial inclusion. The FITF would be used for purposes such as providing financial support to technological solutions aimed at providing affordable financial services to the disadvantaged sections of the society; creating a common technology infrastructure with comprehensive credit information; providing viability

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gap/pilot project funding for unproven but potential technological interventions; and conduct of studies, consultancies, research, evaluation studies relating to technological interventions for financial inclusion.

4.10 Other measures The Reserve Bank has continued with its endeavour to improve credit delivery through its various measures. The revised guidelines on priority sector lending which became effective from April 30, 2007 have given special emphasis on agriculture, small enterprises, micro credit, retail trade, education loans and housing loans up to Rs.20 lakh. There has been significant improvement in the credit flow to the agriculture with the implementation of the Advisory Committee on Flow of Credit to Agriculture and Related Activities from the Banking System’s recommendations; provision of assistance packages to the distressed farmers of Maharashtra and Andhra Pradesh; and the more recently developed Agricultural Debt Waiver and Debt Relief Scheme (ADWRS), 2008. Sections of population employed in the MSME sector have also benefited with the formulation of the debt restructuring mechanism for small and medium enterprises and enactment of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006. Under the government sponsored schemes such as the SGSY, SJSRY and SLRS, a total number of 1,505,944 beneficiaries received bank credit during the year 2007-08 amounting to Rs.1523.64 crore. The beneficiaries of the above schemes included women, physically challenged persons, SC/STs and OBCs. Assistance under the PMRY scheme as on March 2008 amounted to Rs.1746 crore for 234,165 beneficiaries. The Government of India has decided to merge PMRY with REGP to form a new scheme viz. Prime Minister’s Employment Generation Programme (PMEGP). Efforts to promote financial inclusion have so far yielded good results with a large number of people having been brought within the banking fold. The momentum gained in respect of micro-finance through SHG-bank linkage programme, the largest of its kind in the world, would also be maintained. In future, greater emphasis would be placed on leveraging technology through a multiagency approach, which would not only expand banking outreach but also reduce the transaction costs and make the process of financial inclusion sustainable.

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5. Role of ICT in Enabling Financial Inclusion The use of Information and Communication Technologies (ICT) solutions for providing banking facilities at the doorstep holds the potential for scalability of financial inclusion initiatives. To be able to ensure that the challenges of banking the unbanked are met effectively and converted into growing and sustainable business for banks, there is no alternative to adoption of ICT solutions on a very large scale and range. ICT solutions capture customer details, facilitate unique identification, ensure reliable and uninterrupted connectivity to remote areas, offer multiple financial products through the same delivery channel, develop comprehensive and reliable credit information system, develop appropriate products tailored to local needs and segments, provide customer education and counseling, enable use of multimedia and multiple languages for dissemination of information and advice. Technology can play an important role in reducing operating cost of providing banking services, particularly in the rural and low income groups segments. There are three broad types of technologies that have been identified to drive the growth of financial services. These are (i) pro-poor new information and communication technology, primarily low-cost cell phones; (ii) ATMs and other point of sales devices; and (iii) smart plastic card.

5.1 ICT Solutions and Technology Enablers The centralised data processing system and the non-conventional methods based on computer systems, which do not require uninterrupted electric supply and radio frequency network, can significantly reduce the cost of extending financial services. Mobile phone-based services can be provided using various available connectivity technologies, each one of which has its own pros and cons (Table 5.1). However, the extent to which technology will be integrated into the financial service industry at the low end will depend on supportive government policies and the quality of the infrastructure, particularly in rural areas. While self-service solutions like ATMs, PoS and mobile phone applications are

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readily available and have been deployed widely in the country, financial Table 5.1 Pros and Cons of Various Technologies

Connectivity Pros Cons

Short Message Service (SMS)

Easier to build applications

Already a popular medium to communicate

Billing activities can be automated by tight integration with operator’s systems

Still unreliable – delivery of message is not guaranteed

Requires user to remember codes/ keywords

Data size per message is restricted to 160 characters

Multiple SMS based transactions can cause user resistance

General Packet Radio Service (GPRS) / Code Division Multiple Access (CDMA)

Provides ability to build advanced features

User interacts with a well designed user interface (UI) and does not require training

Can integrate seamlessly with e-commerce scenarios

GPRS in particular requires separate hardware and is not present wherever GSM connectivity is available

Both in turn do not have a pan India presence

CDMA requires specialised skillset which is not widely available

Handset Technologies

Subscriber Identity Module (SIM) Toolkit

Ensure availability of application as and when customer buys a new SIM

Operator is closely associated with the mobile banking project, hence the delivery of service is easy

Requires operator’s assistance in replacing existing SIM cards

Operator lock-in for banks Technology may not be inter-

operable in multiple operator scenarios

Mobile Application Development

Operator independent Development skillset is

widely present for GPRS Ability to deliver better

features and UI

Development skillset is rare for CDMA

Data security is a concern

Emerging Technologies

Near Field Communication (NFC)

Ease of use Experience similar to

credit card usage

Still in nascent stages. Mobile phones still costly

Mobile Phone as a device

Round the clock availability with customer

More handsets, than bank accounts

Not built for mobile transactions Compared to PoS/ATM devices

which are built and certified for banking activities

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inclusion presents some unique challenges. Low levels of literacy, the high number of languages spoken and poor infrastructure, for example, require enabling technologies to bring self-service closer to the unbanked population.

Biometric Recognition eliminates the need for a personal identification number (PIN). It authenticates the user by scanning a thumb impression or retina of the account holder. Biometrics is an important enabler when reaching out to the illiterate and semi-literate population that avoids banking due to fear of technology and security concerns.

Interactive Voice Response Services (IVRS) are software-based solutions that relate the transaction process in a synthesized voice format and guide a customer through the entire transaction flow. In India, this has obvious and immediate benefits as a large section of the population cannot read or write.

Multilingual Software: There are about 1600 languages spoken in India and, according to the country’s constitution there are 22 ‘official’ languages of communication. This creates a complex environment for the consistent delivery of any service. As an extension of IVRS, multilingual software provides a navigation solution in multiple languages, overcoming regional barriers, communication issues and illiteracy.

Graphical User Interfaces (GUIs) as part of the navigation process helps to guide a user through a transaction by providing an intuitive set of graphical images or pictorial references instead of words. For India’s poor and illiterate, GUIs increase confidence in performing a transaction and thereby encouraging adoption of new technology. GUIs can also help to eliminate transactional errors through step-by-step guidance.

Wireless Connectivity: Every month, nine million new Indians subscribe to a mobile service. The growing wireless networks provide an excellent platform to reach out to the financially excluded population in the diverse and remote regions of the country. Mobile banking applications can deliver banking facilities to the financially excluded population at low costs. For a geographically divided country like India with the growing rate of mobile connectivity, banking through mobile phone presents a strong future for technology enabled financial inclusion.

Internet Connectivity: A person’s usage of Internet banking basically depends on access to Internet through computer or mobile phone either at home or in the office. In most of Asia, where home computer penetration is much lower 15.3 percent, access to the internet, is

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increasing via the wireless mobile phone networks. Nevertheless, India’s internet penetration is barely more than five percent and it is difficult today to see the internet by itself being a key self-service enabler for eliminating exclusion and bridging the divide.

5.2 Initiative by the Govt. of Andhra Pradesh The Rural Development Department of Government of Andhra Pradesh launched a pilot project in Warangal District for payment of Social Security Pensions (SSP) and National Rural Employment Guarantee Scheme (NREGS) benefits to the beneficiaries. The project involves payment through BCs with the use of smart card and mobile technology. The BC uses a fingerprint scanner cum identifier, a mobile and a printer to process the payments. The beneficiaries hold smart cards with their photographs and images of their fingerprints pre-loaded at the time of their enrolment. The photograph and fingerprint are used for identification and authentication of the beneficiary. Once authenticated, the RFID chip embedded in the card gets charged. When the card with charged chip is brought close to the mobile phone, message templates for deposit, withdrawal and balance enquiry are generated in the mobile. The BC needs to select the relevant option and feed the amount of transaction through the mobile keypads and send the message to the back-end server. The server authenticates the message, processes the transaction and sends an update back to the mobile, which, in turn, writes back to the card. When the card is brought close to the printer, transaction report is printed in triplicate. The BC carries cash physically for making payments to the beneficiary. Thus, in effect, each BC carries a pocket ATM to the village in which it operates. The mobiles connect to a central data base server of the banks. The application has an off-line model also, which enables its operation in remote areas where there is no connectivity. Presently, the SSP and NREGS benefits are being paid through post offices which are given a commission of 2 per cent. The State Government, for the initial pilot agreed to pay Rs.90 per smart card, Rs.10000 per hand held device and 2 per cent commission on transactions, with the Government agreeing to meet a part of the infrastructure costs to kick start the project. The banks pay Rs.1000 to the village organisation member in the village who is the representative of the BC of the bank. The cost of cards is a one-time exercise and enrolment of beneficiaries also involves an expense of Rs.50 per person in addition to the card cost.

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The technology holds potential for a whole range of activities that banks can conduct through BCs and this includes other products like fixed deposits, various loans, and insurance, among others. Thus, this model is very likely to gain acceptance when more products of the banks are routed through them.

5.3 State Bank of India Tiny Initiative SBI launched a project in Nov-Dec 2006 on making available banking facilities to the excluded people of Aizwal, Pithoragarh and Medak in the states of Mizoram, Uttarakhand and Andhra Pradesh respectively. SBI appointed a NGO named Zero Mass as its business correspondent (BC). Each village is served through a SBI-Tiny CSP, who is a BC. The CSP is the face of BC in the village, a banking outpost delivering banking services to the customers. The process of enrollment of beneficiaries for issue of smart cards begin with the distribution of enrolment forms by the CSPs. Prospective customers come to the CSP with filled forms, the CSP collects the forms, enters the data in a personal computer, captures one photo and two fingerprints of each customer. The collected forms are sent to nearest SBI branch for approval and enrolment data are sent to card production centre. The printed cards are dispatched to the CSP and the CSP hands over card to the customer after verifying the fingerprint and photo. The cards store extensive identity profile including bio-metric finger print data, multiple accounts, last known balance and history of recent transactions. The BC carries portable equipment - NFC mobile, fingerprint unit and transactions printer - which operate on portable battery with a stand-by time of up to 10 days. Customer identification takes place by matching of photo and fingerprint. The fingerprint unit matches the fingerprint on the card with client fingerprint. Once authenticated, the process followed is the same as in the case of Andhra Pradesh State Government (discussed in previous section 5.2). The BC keeps working capital in an aggregator account in a SBI core banking branch and carries cash physically for making payments to customers. The available services include savings product (SBI-Tiny no-frills pre-paid account), microcredit, micro-insurance, cash withdrawal and can be used for routing Government payments too.

5.4 Cost Considerations IT-enabled financial inclusion models can be acquired at relatively low costs. A smart card is estimated to cost around Rs. 100 and a terminal with the BC

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between Rs.10000 to Rs. 20000 depending upon its features and accessories like printers. The cost of the central processor would depend upon the configuration which in turn is dependent upon the number of accounts, types of accounts, number of transactions, type of reports etc. As compared to the cost of establishing and operating a physical bank branch in a rural area, the system would be extremely cost effective. It will extend outreach at the doorstep of the farmers, handle even small size transactions, is capable of being operated by persons having local presence and feel, have necessary checks and balances to avoid frauds, protect the interest of depositors and help expand the volume of business for the bank. The experience of many banks in India suggests that the appropriate use of information technology can help in reducing the cost of providing financial services and make it operationally viable to expand the coverage of financial services. The appropriate technology combined with an effective use of banking correspondents has the potential of creating a banking outpost/ATM in every village, as has been observed in the case of Andhra Pradesh, which has successfully implemented mobile phone technology for providing banking services in remote areas in coordination with the Reserve Bank and IDRBT. There are several other instances where it has been observed that technology has the potential to overcome the problem of high operating cost. The need, therefore, is to increase the use of technology to expand the outreach in the hitherto untapped areas. A wide range of technologies is available. Financial inclusion offers a huge potential for business in terms of resources and assets. However, while selecting a technology, banks need to ensure that the solutions are highly secure and amenable to audit. It must have widely accepted open standards to ensure eventual inter-operability among the different systems as was highlighted in the Reserve Bank’s Annual Policy Statement for 2007-08.

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6. Survey on Extent of Financial Inclusion Substantial literature on financial inclusion in India with particular reference to groups with low incomes is very much available. Although various organisations especially NGOs, are working with people who are especially vulnerable to financial exclusion, significant changes on a much wider and larger scale can be brought about only by giving special emphasis to financial inclusion by Indian policy makers and practitioners. In order to address the needs of these underserved sections of the population, a number of financial inclusion initiatives have been launched by the Reserve Bank of India. Since these initiatives are relatively recent and remain at the early stages, our survey aims at evaluating the impact of these very initiatives in the sphere of financial inclusion.

6.1 Objectives The broad objectives of conducting the survey are as follows: (i) To identify the extent and nature of financial inclusion in and around Ranchi; (ii) To understand the drivers of financial exclusion/inclusion; (iii) To determine the level of awareness of people in various financial products and interest in undergoing courses in financial inclusion; (iv) To assess further thrust needed to achieve 100 percent financial inclusion so as to enable appropriate policy modifications; and (v) Finally, to hear from the very people for whom various financial inclusion initiatives have been launched, what they think and what needs to be done by government agencies to make them financially included.

6.2 Methodology Primary data collected from 160 randomly selected households have been analysed and the results interpreted in this chapter. Households have been selected both in urban as well as rural areas, and a comparison has been drawn. Survey of urban areas have been conducted both inside and outside of bank premises which include ICICI Bank, Ranchi Main Road; PNB, Mahavir Chowk; SBI, Pandra; Pandra Krishi Market and Mesra all lying in rural and urban areas of Ranchi. We also visited the under-developed Gumla district for

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the purpose, for it being more prone to financial exclusion, as also has been brought out by our survey. We looked at various aspects of financial inclusion. One was the savings side where we tried to assess the number of households having/not having a bank account, the type of account, the reasons behind opening an account as well as reasons behind not having such an account, and the awareness among people on the recently launched initiative of no-frills accounts. On the borrowing side, we identified households which have ever availed of loans whether from institutional or non-institutional sources, their reasons of availing a one and whether they have ever been refused credit and on what grounds. We also looked at other financial products (mainly insurance) and services (mainly credit counselling) as well as financial education being provided by organisations and the financial services sector. The survey questionnaire employed is provided in Annexure I.

6.3 Major findings from the survey (i) Sample Data: Total number of households surveyed: 160 Urban households: 82 Rural households: 78 (ii) Households having at least one bank account: Out of the 82 urban households surveyed, 78 % of households were having a bank account whereas in case of rural households, it was a mere 41 %. More than half of the rural respondents, i.e. 59 % were not having any bank account. This reinforces the belief that financial exclusion is widespread in rural areas than it is in the urban ones.

78%

22%

Fig 6.1 Urban Households

Households with a bank account

Households without a bank account

41%

59%

Fig 6.2 Rural Households

Households with a bank account

Households without a bank account

34

(iii) Number of accounts in a household: The graph (Fig 6.3) below shows the % of households having one, two, three and more than three accounts in urban as well as rural areas. Out of the 78 % urban households and 41 % rural households who were having a bank account, 66 % urban households were having two or more than two accounts. On the other hand, 75 % rural households were having just one account. This observation should serve as a caution before we declare that 100 % financial inclusion has been achieved. It has to be ensured that there is no duplicity of accounts when we are taking into comparing the number of accounts and the number of households. It has to be ensured that each household has at least one bank account, rather than simply dividing the total number of bank accounts and the total number of households to obtain a somewhat misleading ratio. In the figure below, it may be seen that, whereas in urban areas, households with one, two or three accounts are relatively uniform, in case of rural households there exists a large variation. Moreover, in case of rural households, there exists not even a single household surveyed with more than three accounts. This clearly brings to light that there exists a section of people in urban areas who are ‘super included’ having more than three accounts. In fact, we encountered a few households having double the number of accounts than the number of members in the family. Also there were households having one account each for the adult members as well as the children in the family. The accounts include savings, current, recurring as well as fixed deposit ones, but excludes accounts maintained in post offices. This highlights that, while financial deepening already exists in urban centres, financial widening is what needs to be achieved, especially in rural areas.

34 33

1914

75

19

60

01020304050607080

1 2 3 More than 3

% o

f hou

seho

lds

Number of accounts

Fig 6.3 Number of accounts in a household

Urban

Rural

35

(iv) Households having a bank account with cheque book facility: In urban areas, out of total number of households having a bank account only 44 % were having a cheque book facility, whereas in rural areas, it comes out to be a mere 12 %. This disparity may be due to the fact that rural households generally deal in cash transactions and cheque books are not accorded much importance. High illiteracy rates among rural households can also be a contributing factor. (v) Reason behind households opening a bank account: The graph (Fig 6.4) below shows the various reasons behind opening of accounts in rural and urban areas. In rural households, while few have opened accounts for the sole purpose of receiving NREGS payments, there is hardly such a household to be found in urban areas, which is quite obvious when seen from the context of the place of implementation of such programs. When it comes to receiving remittances, rural households are ahead of their urban counterparts, since many men folk have migrated to the cities in search of work and continue remitting money from their work places. Moreover, urban households seem to be more aware of saving money than rural ones, which may also be because of their higher earning incomes. That urban households are more inclined in availing credit from institutional sources is reflected in their opening accounts just for requesting a loan. While it is 7 % in case of urban households, the same is just 3 % for rural ones.

8

7

70

12

3

0

6

3

49

30

5

7

0 10 20 30 40 50 60 70 80

Others

To request a loan

For saving money

For receiving remittances

To receive Govt payments from other schemes

To receive Govt payments from NREGP

% of households

Fig 6.4 Reasons behind households opening a bank account

Rural

Urban

36

(vi) Reasons for not having a bank account: For a vast majority of households not having bank accounts, for 63 % of urban respondents and 72 % of rural respondents, the sole reason was – they had no or little money to put in. Since the areas we surveyed were having at least one bank branch in their vicinity, so there were no respondents complaining of not having an account because of absence of a bank branch in their area. Although no one said they were not having an account as they thought it not important to them, there were many instances (17 % in urban and 20 % in rural) where people were put off just because of anticipated rejection, lengthy processes and the pre condition of maintaining a minimum balance in the accounts. (vii) Reasons for being refused a bank account: As pointed out by the respondents, the primary reason for being refused of a bank account was their lack of identity proof. Lack of legal identities like identity cards, birth certificates, etc came out as the major reason resulting in exclusion of women and especially migrant workers who are most likely not to have an address proof. There were also people complaining that their application forms were outright rejected without bank authorities offering any explanation. This comes not as a surprise considering the indifferent attitude of officials towards the disadvantaged groups, whom they do not consider a viable business opportunity. (viii) Awareness regarding no-frills account: Awareness on no-frills account was limited to a handful of 4 to 5 people we surveyed. This finding is consistent with our observation of the different banks we visited, where we did not come across any notice or poster giving information on no-frills account. Even if it was present it was not an eye catching one, not to the eyes of a person seeking one, let alone to one who is unaware of any such scheme. In one of our visits, replying to our query on whether any notice on no-frills account was put up inside the bank premises, we were pointed to a more than 30 page thick booklet placed near the notice board. And the supposedly easy task of finding the word ‘no-frill’ in the booklet was achieved not by us, but by the bank’s manager who consulted the contents table and finally brought out the page where a two line note on no–frill account was mentioned. If this is the scenario prevailing in and around Ranchi, we can fairly estimate

37

the situation in far flung areas of a State like Jharkhand with large tracts of areas populated with tribal sections. With bank employees adopting such an indifferent and insensitive attitude towards the needs of the disadvantaged groups, there is no doubt the scheme will take an indefinite period to take off in a full blown manner. (ix) Sources of availing loans for households: Of the 82 urban households surveyed, only 40 % had availed credit from institutional and non-institutional sources. In case of rural households, the percentage was 62 % but the majority was from non-institutional sources. The graph (Fig 6.5) below shows the different sources from where loans were availed by urban and rural households. It has been observed that while financial institutions esp. banks play a major role in fulfilling the credit requirements of urban households, in case of rural households, it is done mostly by moneylenders. When it comes to small and immediate borrowings, the majority prefers taking help from their relatives and friends, which is why the proportion of households in urban and rural areas is relatively close to each other (24 % in urban and 31 % in rural). In urban areas, households have a wider choice in the other category too which was seen to be dominated by the firms in which they worked. This can be explained when seen in the context of relationship lending. People found it much easier to approach their employers asking for loans than going to a bank, which they believed would be a complicated process. It was also easier to repay such a borrowing as the installment was deducted from their salaries right at the source.

52

24

159

21

31

43

5

0

10

20

30

40

50

60

Banks Relatives/Friends Moneylenders Others

% o

f hou

seho

lds

Fig 6.5 Sources of availing loans for households

Urban

Rural

38

(x) Reasons cited for borrowing from banks: The graph (Fig 6.6) below gives an overview of the different reasons cited for availing loans from banks. In urban households, it was found that this was also because a larger amount of credit was involved, for example while purchasing a house, a four wheeler, etc. However, for majority of respondents in rural as well as urban households, ‘low rate of interest’ and ‘bank being a trustworthy lender’ were the primary reasons behind availing of credit facilities from banks. The graph also shows that cases where loans were offered or arranged by banks were generally higher in case of urban households than rural ones. This also shows that banks are generally averse in meeting the credit requirements of their rural customers and consider them as risky. 52 % of rural households citing low interest rate of banks as the biggest reason may also be because of a much larger prevalence of moneylenders charging exorbitant rates of interest in the countryside.

(xi) Reasons for borrowing from sources other than banks: The graph (Fig 6.7) below shows the various reasons for opting out of banks while availing credit. Borrowing sources, other than banks are dominated mainly by friends, relatives and moneylenders. Borrowing from friends and relatives can be justified on the grounds of it being generally security free, which is also evident from the plot where % of households citing this reason was almost equal (35 % in rural areas and 32 % in urban). But reasons for borrowing from moneylenders can be explained only by looking at the ‘other’ category in which respondents said they had no friends or relatives who could afford to lend a relatively large sum. This situation is obvious because poor households are more likely to have relatives who themselves are

6

33

11

13

37

4

29

10

5

52

0 10 20 30 40 50 60

Others

Trustworthy lender

It was easier (vague)

Was offered/arranged by banks

Low rate of interest

% of households

Fig 6.6 Reasons for borrowing from banks

Rural

Urban

39

poverty stricken too. Moreover, borrowing from moneylenders at exorbitant interest rates of 2 % per month (which amounts to 24 % p.a.) speaks of the compulsions such people face which ultimately leads to their getting into such debt traps of these unscrupulous moneylenders. Ignorance and illiteracy kept aside, this also highlights how much inaccessible some of our banks have become to poor households. Most of these respondents have developed an aura of fear of stepping into bank premises, which has been facilitated to an extent, by the banks themselves, creating procedural hassles for those who are in dire need of credit, and who finding no other means, finally fall into the clutches of such non-institutional financial intermediaries.

(xii) Type of loan availed: While in urban areas, credit was availed for a number of reasons – housing (21 %), business (39 %), education (7 %), vehicle (10 %) as well as personal loans (23 %), the scenario was completely different in rural households. In rural areas, the majority of households surveyed borrowed just for consumption purposes – for marriages, meeting medical expenditures, and even to pay off other debts (62 % in case of rural areas compared to just 23 % in urban areas). This can also be ascertained from Fig. 6.5 where 43 % of rural households had to borrow from moneylenders, since banks tend to avoid doling out personal loans for consumption purposes, esp. in poor households. (xiii) Difficulties faced in availing a bank loan: Lengthy time-consuming processes, documentation and indifferent behaviour

8

31

10

32

19

23

10

11

35

21

0 5 10 15 20 25 30 35 40

Others

Because of knowing the lender

It being available locally

No security/guarantee was to be provided

Being able to borrow realtively small sums

% of households

Fig 6.7 Reasons for borrowing sources other than banks

Rural

Urban

40

of bank personnel were cited as the major hurdles in taking out a bank loan. Some even complained of unwillingness by public sector banks to lend to self employed persons (salaried people working in government enterprises were the ones those banks preferred). Indifferent attitude of bank employees towards their customers even resulted in some people taking the help of agents in order to get a quick loan. In one case, we encountered a person who was sent to a branch 4 km away from his home branch (both branches of the same bank, of course) just because the loan application form was not available in the home branch. This was in spite of technology making progress in leaps and bounds. The bank could have simply given him a downloaded print out of the loan application form, but it didn’t. Thus, we can see that banks faced with viable business opportunities too, leave no stones unturned in transforming simple processes to time consuming ones, thus adding to the inconveniences of the masses. If potential bank customers are made to undergo such hassles, there remains no doubt what poor households are made to bear while applying even for loans of a modest amount, not speaking of what difficulties they are made to face while applying for a no-frills account (which is more seen as a mere obligation by commercial banks rather than prospective business opportunity). (xiv) Households using other financial products: The graph (Fig 6.8) below gives the distribution of households possessing an insurance policy, a debit card (ATM card) or a credit card. Although 64 urban households had a bank account, when it came to possessing a debit card, the number came down to a stunning 46 nos. (i.e. only 72 % of bank account holders had a ATM facility too). In rural areas, the situation was worse, only 26 % were having a debit card. Similar was the difference between urban and rural households in insurance too (41 % in urban areas compared to a mere 7 % in rural areas). Insurance product in the graph provided below includes all types of insurance – life insurance, health insurance, vehicle insurance, and miscellaneous others. One aspect that the graph doesn’t bring to picture is the difficulties faced by households (if any) in availing the three products mentioned in the graph. It was a bit surprising to us that not a single household faced even a minor difficulty in buying an insurance policy, whereas a large majority of households had to deal with some or other problem when availing a bank loan.

41

(xv) Different sources of advice on money matters: The following graph (Fig 6.9) gives the different sources where households have sought advice on financial matters. Most of the respondents both in urban as well as rural areas consulted their friends and family members. However some of them from urban households also discussed their financial problems with bank officials and a few even paid a visit to a financial adviser. But in case of rural households, the number of people consulting bank officials was negligible. Even those who went to a financial adviser were the ones surveyed in Gumla district. This was mainly because of the presence of a bank sponsored credit counselling centre in the area (the only one in the entire of Jharkhand) ‡. This also brings to light how such centres can go a long way in resolving the financial problems of the affected people.

72

41

5

26

70

0

10

20

30

40

50

60

70

80

Debit Card Insurance Credit card

% o

f hou

seho

lds

Fig 6.8 Households using other financial products

Urban

Rural

3

5

6

68

18

4

9

3

55

29

0 10 20 30 40 50 60 70 80

Others

Financial Adviser

Bank

Family/Friends

No where

% of households

Fig 6.9 Souces of advice on money matters

Rural

Urban

‡ More information on this Credit Counselling Centre has been provided in the next chapter.

42

(xvi) Managing money: The graph (Fig 6.10) below shows how well respondents thought were they managing their money. As expected, urban households were more adept at managing their money with 29 % of respondents saying they were managing well, whereas for their rural counterparts, it was a mere 11 %. While in urban households 23 % expressed their difficulties in managing their money, 45 % households said the same in rural areas. Moreover, 19 % rural households could not even decide how well they were at money management. This highlights to their lack of self confidence in financial matters and points to the greater need of catering to the rural sections’ money managing abilities.

(xvii) In case of emergencies: The graph (Fig 6.11) below shows what respondents do when they are in need of money in case of exigencies. In case of urban households, while 15 % would resort to taking a loan from sources other than a bank, it was mainly from the firm in which they were employed (for servicemen only). But 30 % of rural households taking a loan from other sources meant mainly from moneylenders. Also rural households were more disposed to sell something in order to meet their emergency needs than their urban counterparts (22 % and 7 % respectively). In urban areas, those with credit cards were also more likely to use it in emergency. With 5 % urban households possessing a credit card, 3 % said they would use their credit cards in such a situation.

29

41

23

7

11

25

45

19

0 10 20 30 40 50

Not sure

Getting into difficulties

Just getting by

Managing well

% of households

Fig 6.10 Money management by households

Rural

Urban

43

(xviii) Level of interest in basic financial services: Table 6.1 below shows the level of interest of households (both urban and rural households) in basic financial services. It can be seen that rural households were much more inclined in saving small amounts of money than their urban counterparts. Urban households were more interested in availing a loan if it comes with a reasonable interest rate than rural households. This may be explained on the grounds that urban respondents were more likely to use the loan for investment purposes and were in a better position to repay Table 6.1 Level of interest of households in basic financial services:

Financial services Very

interested %

Fairly interested

%

Not very interested

%

Not at all interested

%

Not sure %

Saving small amounts of money 17 (53) 31 (24) 28 (14) 21 (04) 03 (05)

Taking out a loan at reasonable interest 35 (15) 28 (19) 12 (27) 23 (22) 02 (17)

Taking a business loan 35 (15) 05 (15) 05 (30) 49 (24) 03 (16)

Advice about managing debts 30 (31) 26 (23) 19 (22) 23 (17) 02 (07)

Advice on welfare benefits 36 (56) 37 (21) 19 (11) 05 (09) 03 (03)

More information on financial matters 38 (44) 40 (20) 12 (16) 07 (10) 03 (10)

NOTE: Numbers without brackets are for urban households and those within brackets for rural households.

7

7

3

15

33

35

4

22

0

30

14

30

0 5 10 15 20 25 30 35 40

Others

Sell something

Use credit card

Take out loan (other than banks)

Draw on savings

Ask family or friends

% of households

Fig 6.11 Arranging money in times of emergencies

Rural

Urban

44

when compared to rural households, for whom it was mainly for meeting their consumption needs. However, an interesting feature that came out was that rural households were more interested in managing debts which indicates their borrowings were more in emergency cases than in a well thought out process. Rural households were also more interested in welfare benefits, as well as other financial matters. (xix) Level of interest in courses and sessions: Table 6.2 below shows the level of interest of households in various courses and sessions. It gives the general picture that whatever the course/session is, rural households are more likely to participate in such events than urban households (be it support for numbers, with reading or writing). This also brings to light the high illiteracy still prevailing in rural areas. Although only 41 % of rural households were having a bank account (please refer to Fig 6.2), 48 % of rural respondents were ‘very interested’ in knowing how to operate a bank account and 23 % ‘fairly interested’. This shows that in spite of not having a bank account, they are much willing to have one and operate it too. Table 6.2 Level of interest of households in various courses and sessions:

Courses/Sessions Very

interested %

Fairly interested

%

Not very interested

%

Not at all interested

%

Not sure %

Support for numbers or arithmetic 05 (41) 08 (33) 14 (10) 69 (10) 04 (06)

Support with reading 09 (52) 09 (30) 14 (08) 65 (06) 03 (04)

Support with expressing yourself in writing 08 (55) 14 (26) 12 (10) 63 (06) 03 (03)

Support with how to operate a bank account 12 (48) 16 (23) 30 (14) 38 (10) 04 (05)

Support for taking a loan 36 (29) 08 (21) 12 (21) 40 (20) 04 (09)

Support for various bankable products 40 (33) 38 (27) 09 (18) 11 (15) 02 (07)

NOTE: Numbers without brackets are for urban households and those within brackets for rural households.

(xx) Level of importance given by households to financial products: Table 6.3 below gives the level of importance households attach to various financial products and services. Having a bank account is of utmost

45

importance in urban households (with 81 % of respondents considering it ‘very important’). This is true for rural households too, but to a lesser extent with 45 % respondents of the view that it is ‘very important’ and 24 % considering it ‘fairly important’. Lack of any interest in credit cards in rural areas is self explanatory. Even in urban areas, only 32 % of respondents viewed possessing a credit card is ‘very important’ and among those having one, some equated it with status too. While rural households attached more importance to financial education, the level of importance to financial counselling and investment advice was much lower. This may be because they viewed financial education as more of basic education than in purely financial terms. However, in case of urban households the level of importance was distributed more or less uniformly in all the three matters. Table 6.3 Level of importance to various financial products:

Financial products Very

important %

Fairly important

%

Not very important

%

Not at all important

%

Not sure %

Bank account 81 (45) 13 (24) 03 (17) 02 (12) 01 (02)

Small personal loan 39 (30) 25 (31) 12 (18) 23 (18) 01 (03)

Credit card 32 (00) 10 (00) 14 (09) 40 (89) 04 (02)

Financial counselling 58 (45) 21 (35) 07 (11) 10 (04) 04 (05)

Investment advice 64 (25) 16 (20) 07 (30) 09 (19) 04 (06)

Financial education 58 (60) 22 (24) 09 (09) 08 (05) 03 (02)

NOTE: Numbers without brackets are for urban households and those within brackets for rural households.

(xxi) Suggestions by respondents to achieve financial inclusion: Across households, whether rural or urban the consensus was on giving wide publicity to financial inclusion promoting initiatives through newspapers, posters, public gatherings, advertisements, etc. Other suggestions included reducing paper work or documentation, making available a number of retirement schemes, opening of financial advice centres, simplifying borrowing procedures, awareness campaigns, relaxation of KYC norms (already in existence), increasing social welfare benefits, rethinking on negative areas marked by banks, among many others.

46

The survey findings point out that although financial exclusion is widespread in rural areas, it would be incorrect to say that urban households have been satisfactorily financially included. The common thread that runs between rural as well as the urban households who still remain outside the financial net is poverty and illiteracy combined. Though financially excluded, there is no lack of willingness on the part of the excluded sections to uplift themselves from their present status. What remains to be done is fast and effective implementation of the already launched initiatives on a nationwide scale so as to bring the benefits of the country’s economic growth to all and one.

47

7. Field Visits Apart from conducting financial inclusion surveys in and around Ranchi, we also embarked on our journey to evaluate the myriad initiatives that have been launched to promote financial inclusion, by undertaking field visits and assessing the ground reality. We went on to meet members of SHGs and farmers’ clubs in Ramgarh district, visited the FLCC (the only one in Jharkhand) in Gumla District and also visited the RUDSETI / BMIED (the oldest RUDSETI in the state) in Hazaribag district. Besides, we gave a presentation on financial inclusion/financial literacy to students of St. Francis School, Ranchi. In all these visits and sessions, we tried to assess whether the financial inclusion initiatives that have been undertaken were working in accordance with the issued guidelines or not, and if not, what were the reasons holding it back. For example, in our visit to the FLCC in Gumla district, we assessed the centre keeping in mind the framework proposed in the ‘Financial Literacy and Credit Counselling Centres: Concept Paper’ released by RBI. Similarly, while reporting on the RUDSETI/BMIED, Hazaribag our evaluation has been based on the ‘Guidelines for RSETIs’ issued by the MoRD, GOI. This has been done, because we believe that only with effective implementation of such schemes, can their desired goals be achieved, and their benefits realised by the targeted groups.

7.1 Meeting members of SHGs and Farmer Clubs: Our interaction with members of SHGs and Farmer Clubs provided us a new insight in the working of such groups, their activities, their problems and their feedback on the scheme. The interactive session was chiefly between members of SHGs and Farmer Clubs and representatives of the NGO named ‘SUPPORT’ on one side; and the LDO, LDM and the manager of the local bank (the only commercial bank in the area) on the other. The session was conducted in the NGO’s office in Mandu block of Ramgarh district. The Mandu Block has around 400 - 500 SHGs and 12 Farmer Clubs having 80% credit linkage with banks. The SHPI in all these cases is the NGO - ‘SUPPORT’. The entire block is having only one commercial bank, i.e. Bank of India and one PACS.

48

(i) Interaction with SHGs: The SHGs were involved in activities like poultry, wormi-compost, brick manufacturing, etc – poultry being the key activity. SHG members were imparted a one month duration training by the NGO, teaching them the basics and intricacies as well of poultry activities. Although all the groups were maintaining group accounts in banks, many of the SHG members were not having individual bank accounts. Moreover, the groups were not routing their savings through their group accounts, instead they were doing their transactions directly with the group members. This was resulting in their savings not being reflected in the bank accounts. This even led to improper grading of the groups. They were unaware of the fact that not having proper transactions in their account books necessitated them to produce character certificate to banks for availing further credit. Some SHG members were also harbouring confusion regarding the subsidy on the revolving fund of Rs. 10000 (under the SGSY scheme). They were under the wrong notion that the revolving fund that was the subsidised amount, rather than the interest on the revolving fund that was the subsidy. Although the area was having a good poultry market, during the bird flu period, insurance companies were not willing to insure their livestock and this had led some groups to incur losses in those difficult times. (ii) Interaction with Farmer Clubs: There were relatively few Farmer Clubs in comparison to the number of SHGs. NABARD had sent some of the club members to Ahmednagar for nursery training. Prior to the training, they were of the opinion that lac cultivation was possible only on large sized trees, but the training program taught them that it could be done in smaller ones too. They cited many such examples of how the training program has benefited them. The key activity among the Farmer Clubs, though, was agriculture and pig farming. Post-farmer club formation, they had started recognising the advantages of team work. Instead of all the members visiting the market for seed purchasing (as was in earlier occasions), now only one of the group member visits the market. This has distributed and brought down their travelling expenses. Farmer Club members were encountering difficulties in availing the Kisan

49

Credit Card (KCC) facility. This was so, as the farmers were not having the title deeds of their land which the banks sought, in order to give the KCC facility. Also, the Land Possession Certificates (LPCs) issued by the district administration were not recognised as an authentic document by the banks and this had led to many groups not being able to access the KCC facility. (iii) Assessment: Although the SHGs were having some minor confusions regarding the revolving the credit subsidy and not routing the savings through bank accounts, overall, they were in an advanced stage of micro-enterprise development. They even admitted of their living standard being improved, albeit to a somewhat little extent, after entering in the SHG fold. Similarly, the Farmer Club members too had imbibed the philosophy of working with each other in tandem and were availing themselves of credit facilities under the Government sponsored schemes chiefly through KCC. One problem that was common to both the groups was the presence of only one bank in the entire block. Because of the Service Area Approach (SAA) followed in the Government sponsored schemes, some had to travel as much as 5 – 6 km to reach their bank, in spite of having a bank just one km away (since it was outside the service area). This was accentuated by the manpower crunch in the only bank present in the block. The bank has only three personnel – one manager, one officer and one cashier. This resulted in long standing hours and daily wage labourers had to lose their one day’s pay, if they had to visit the branch for cash withdrawal or any such purpose. It was also noticed that linkages under the SGSY scheme were much lower than normal linkages. This was amplified by the SHPI/NGO’s view that under the SGSY scheme, people were more interested in availing the revolving fund interest subsidy rather than undertaking productive activities with the credit availed. The SHPI’s preference for normal linkages rather than SGSY linkages, prevented villagers to fully exploit the benefits envisaged under the SGSY scheme.

7.2 A visit to ‘Abhay’, Gumla: The Credit Counseling Centre (CCC) named ‘Abhay’, in Gumla, Jharkhand, sponsored by Bank of India was set up on 8th September, 2008. The centre is situated within the premises of the sponsoring bank’s Lead District Office and

50

is manned by only one counsellor. According to the Credit Counselling Centre’s performance report sent to CGM, RPCD, RBI Central Office (please refer to Annexure II for the full report), the centre has handled 1237 cases till 31st March, 2009 and has arranged 21 seminars/meetings wherein 2647 persons were present. The Gumla centre provides counselling services to distressed people on their heavy debt burden, creates awareness among the masses emphasising on financial inclusion, and offers counselling to people who come for advice on various financial problems. The debt counselling that is being done here is more curative than preventive. (i) Organisational Set-up: The Gumla centre (as well as other three centres in Mumbai, Wardha and Chennai) is being run by the trust christened ‘Abhay’, which was formally launched at New Delhi on 25th August 2006. Bank of India being the lead bank in Gumla district has taken the initiative of setting up the FLCC in its Lead District Office. Counseling and debt management services are provided free of charge to the customers so as to put no additional burden on them. (ii) Working: The centre remains open thrice a week, i.e. on Tuesdays, Thursdays and Saturdays from 11 am till 4 pm.‡ The days have been selected giving die consideration to the local conditions. Tuesdays and Saturdays being ‘market days’ and Thursdays being ‘non-ploughing day’ in the area, attracts more people to the centre than any other day would have done. On Wednesdays and Fridays, the counsellor accompanies the sponsoring bank’s LDM on his visits to nearby villages for meeting with SHGs, Farmer Clubs, etc in order to spread awareness on credit counseling services as well as the ‘Abhay’ centre. The counsellor also undertakes personal visits to local places where weekly meetings are held in the early morning hours. The counsellor has also visited a few banks in the area for promoting the centre. The centre does maintain liaison with local NGOs working in the field of farming and allied activities.

‡ The working days and working hours as told by the counsellor

during our visit, is inconsistent with those provided on the centre’s website http://abhaycreditcounselling.com/contact.htm (can also be found in Annexure III).

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(iii) Infrastructure: The centre consists of a single room in the Lead District Office, and is not equipped with adequate communication and networking facilities. The only interface the centre has is face to face. Bereft of a phone, computer and a fax facility, it is not in a position to deal with requests received by phone or e-mail (though the latter one is unlikely to be used considering the socio-economic conditions prevailing in the district). (iv) Qualification and Training – Counsellor: The counsellor has been a scale I officer in Bank of India’s East Singhbhum branch before opting for voluntary retirement. The counsellor being a local person was given preference in manning this centre. After induction, the counsellor was sent to the sponsoring bank’s Mumbai office in Dadar for a two day training programme on credit counselling services. (v) Monitoring: The functioning of the CCC is monitored by the sponsoring bank’s head office. The monthly, quarterly and annual performance reports of the centre are submitted to RBI Ranchi, apart from being sent to the bank’s zonal office and head office. (vi) Assessment: Although the initiative taken by Bank of India of opening a CCC in Gumla District is laudable (the only one such centre in entire Jharkhand), there still remains a few stumbling blocks which need to be cleared off. In spite of the centre having counselled a number of clients, the proportion of clients from non-sponsoring banks to the sponsoring bank cannot be termed satisfactory. There was not even a single case where a non-sponsoring bank had taken the initiative of recommending its customers to this counselling centre. Whenever customers from other banks visited the centre, it was on their own initiative. The counsellor was quick enough to point out a case of how one of his clients (from the sponsoring bank) had greatly benefitted from the counselling sessions. Due to the bank’s computer fault, the client had been charged Rs. 14500 in excess, at an interest charged higher than the stipulated one. The counsellor helped his client in interest recalculation, in applying for a refund

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and ultimately got the matter sorted out. This effort definitely deserves praise. But we did not come across any such cases when clients were customers of some other bank. This is not to imply that the counselling centre restricts itself to the sponsoring bank’s customers only, but it does show that the sponsoring bank is more willing to send its customers to the centre than are other banks in the same area. In course of our interaction with the counsellor, it also came to our notice that although the counsellor did not indulge in marketing the sponsoring banks products and services, there was an unsaid implicit directive/instruction from the bank’s management to counsel more number of clients from the sponsoring bank’s customer pool rather than other banks’ customers. The absence of modern facilities like phone and an internet enabled PC, in a way hampered the effective functioning of the centre. In one of the instances, a group of people approached the centre to know how to avail the subsidy from the National Horticulture Board in case of horticultural loans, but the counsellor had no information on the topic, and finally the group had to leave empty handed. Since the counsellor has not been provided any internet facility, he is unable to keep himself updated with the recent developments. The counsellor is not even authorised to place an order for a time-table board from the local carpenter, which he wants to put up in front of the centre. For such a minor task too, he had to write a letter to the bank’s zonal office requesting for the same. Since the centre remains open only for three days a week, this has caused much inconvenience to people who unknowingly land on the centre’s premises on non working hours/days. With this little autonomy assigned to the counsellor, it gets difficult for him to implement any such improvements he wishes to undertake for the centre’s upgradation. A comparison of the centre’s performance report (to be found in Annexure II section 2 A (iv)) and our findings from the counsellor’s interview throws up a few mismatches. With the centre counselling a minimum of 30-35 clients monthly (as found during our interview) it is not clear how could the centre have handled 1237 cases till 31st March 2009 as have been reported in the bank’s communication to RBI. From 8th September 08 to 31st March 09 (even considering a period of 7 months) at a rate of even 40 clients per month, the centre could have managed around 280 clients only. In order to handle 1237 cases in just 7 months, the centre has to counsel people at a rate of 176 people per month instead of 30 – 35 cases on a monthly basis. This is even so, when the number of persons attending the 21 seminars/meetings has been provided separately at 2647. Also, with an initial contribution of Rs. 51 lakh

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as a corpus for ‘Abhay’ (please refer to Annexure II section 4) it is difficult to find a reason why is the Gumla centre having just one fan, one table and two chairs, and is bereft of as basic a thing as a landline telephone connection (although the Lead District Office of which the centre is a part, is having phone, cooler and computers too). The analysis of the CCC is in no way to criticise the efforts that the sponsoring bank has undertaken in taking cognizance of the directives of the Reserve Bank of India to set up financial literacy and credit counselling centres. The initiative the bank has taken in setting up the first ever FLCC in Jharkhand is highly appreciated and is worthy of praise. But this analysis is just to give a picture of the real ground situation, to know what has been done till now and what still needs to be done which is not at all an insignificant task. Until and unless we have a fair and transparent picture before us, it would be difficult to undertake corrective measures. The analysis provided, just aims to present a clearer picture, not to undermine the picture itself.

7.3 A visit to BMIED, Hazaribag: Our visit to Birsa Munda Institute for Entrepreneurship Development (BMIED), Hazaribag threw up some mixed results. Established on 14th September 2001, the RUDSETI sponsored by Allahabad Bank has since trained more than 3000 unemployed youth towards self- employment, and now it has set a target of training 900 youth for the year 09-10. The institute offers a variety of courses for both the male and female youth, ranging from mushroom cultivation to beautician course, screen printing to electric motor winding, and readymade cloth manufacturing to two –wheeler repairing. The BMIED leaflet (which includes the programmes offered, eligibility criteria of trainees and facilities provided at the institute) has been provided in Annexure IV. Courses are offered free of cost to the trainees. Along with the training, they are also provided with breakfast, lunch, snacks and dinner (all free of cost) and out-station students can avail themselves of the free accommodation in the institute premises itself. Training is imparted to candidates by people associated with the local NGOs, etc. (i) Administrative Cost: The institute has been functioning since September 2001 on hired premises.

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The current rent being paid by the institute is Rs. 11000 per month for a 3200 sq feet area. Cost of running the institute is around is Rs. 1 lakh per month which was being fully borne by the sponsoring bank until the formation of the Allahabad Bank Rural Development Trust on 1st April, 2009. From October 2007 onwards, NABARD has been refinancing 40 – 50% of the cost of running the training programmes. For the financial year 09-10, the budget for running the courses has been pegged at Rs. 12.44 lakhs and the funding agencies for different programmes include KVIC and DRDA apart from NABARD. The annual training calendar of the institute for 09-10 can be found in Annexure V (it includes the period, duration, budget and funding source of each training program). (ii) Infrastructure: The institute has one classroom, accommodation provisions for 20 trainees with one common bath and toilet facility, one kitchen and one dining hall, one Director’s room cum office and one personal room for the Director (the Director resides in the institute premises itself). (iii) Programme Structure: The institute has till now offered around 12 training courses, and is ready with 30 skill development programmes to be implemented in the year 09-10. All the programmes are of short duration ranging from one to four weeks. The programmes already/to be organized are in the trades of agriculture, product manufacturing, process and repair, skill development for PMEGP, SGSY-SHG, among many others (please refer to Annexure V for the complete list of programmes). (iv) Size of Batch: The batch for each of the programmes consists of a maximum of 30 candidates. In case a course falls short of this number, the Director and his supportive staff (only one) makes a visit to the nearby villages for public awareness and finally brings the size of the batch to 30. This ensures that maximum number of youth avail themselves of the benefits of the programmes and simultaneously, publicity of the institute also gets done. (v) Selection of trainees: The minimum qualification for enrolling in a programme is that the applicant should be literate. Some other programmes require higher qualifications - the

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candidate to be Class VIII passed or having secondary education. Selection procedure is a two stage process – review and scrutiny of received applications followed by personal interview of the applicant by the institute Director and DDM, NABARD. (vi) Assessment: Although BMIED is not officially a RSETI, it follows all the guidelines for RSETIs (issued by the MoRD, GOI) to the maximum extent possible, in spite of constraints such as manpower crunch (one Director, one staff and one faculty on contractual basis) and lack of modern infrastructure. This is in sharp contrast to RUDSETI, Ranchi which we were willing to visit but could not do so because no training program was currently going on over there, to put it simply, it was closed. First, we were informed by its sponsoring bank that training will commence from 6th July, 09 but when the day arrived, the commencing date got postponed to one more week. And it seems likely to get postponed once again after this one week also passes away. Coming back to BMIED, lack of modern infrastructure like computers and workshops did not come in their way of conducting programmes like screen printing and carpet making for which they hired five computers (in the former case) and conducted practical classes in the District Industry Center Workshop (in the latter case). Still, the institute is in severe need of a LCD projector, PCs with internet connections and a fax machine other than the basic infrastructure facilities like chairs, tables, etc. The institute is having just one computer for official work only and that too is not having an internet connection. Since the institute is functioning from a smaller area, i.e. 3200 sq feet, the infrastructure standards are not at par with the guidelines for RSETIs. Moreover due to shortage of rooms and facilities, programmes for boys and girls are not run simultaneously. There is facility of holding only one programme at a time and only in exceptional circumstances, does the institute hold two or more than two programmes side by side as was the case in March – April 2009. But talks are ongoing with the district administration over land being allotted to the institute, the area of being larger than the minimum stipulated, so as to ensure smooth expansion in the future. During our interaction with the trainees (in their T.V. and radio repairing classes) we encountered some students with qualifications much higher than the prescribed norms. Some were even doing their under graduation while

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simultaneously undergoing the training course. Almost all the students present over there, had come to the institute based on the recommendations they received from the passed out students of the institute. This conveys that the ones who were trained in the institute have found it effective and beneficial, and thus are recommending the institute to their peers. From our interaction with the Director, staff and the trainees, it could not be judged whether the trainees were from BPL families or not. Also this was not the criterion for selection of candidates. The institute has started training programmes for SGSY-SHGs from this academic year and has informed DRDA of this new course. Since DRDA has not yet sponsored or sent any list of BPL candidates to the institute, BMIED is continuing with its other programmes only. But the Director is very much willing to enroll the BPL trainees, understanding that they are in more need of such training than the others who are well-off and literate too. Although the institute has done whatever was in its scope to train the rural youth, manpower crunch has been a major stumbling block which has held it back in their follow up of the trainees for longer periods as has been provided in the guidelines of handholding of trainees for a minimum period of two years. However, the major challenge facing the trainees was of credit – linkage, which was between 10 – 20 % of the total candidates trained in the institute. After the completion of each programme, the institute sends the trainee list to all the nearby banks, so as to ensure financial assistance to the trained youth. In spite of this, the banks have not shown any interest in sponsoring the candidates. The scenario was no different with the institute’s sponsoring bank too. Although the institute has been making repeated calls to the banks for trainee sponsoring, banks have only tried to put off the matter on the backburner. This has led to trainees working as employees in garages or shops rather than starting their own micro-enterprise. In other cases, it has also led to a feeling of dejection among the trainees as well as the institute officials. This situation highlights that banks are not giving due recognition to certificates issued by the BMIED/RUDSETI for extending credit to the trainees. Until and unless, trainees are provided with proper financial assistance, the role of RUDSETIs in rural development and upliftment of the poor youth will remain limited even with the best intentions of the policy makers. The full potential of the trainees can be brought out only by providing them with proper credit linkage after they are done with their training programmes.

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7.4 Presentation in St. Francis School, Ranchi: As part of our project and in order to promote financial literacy among the school going children, we gave a presentation on financial inclusion/financial education to students of class X in St. Francis School, Ranchi. The group addressed comprised of 62 students, boys and girls combined. We started off with a brief introduction of the roles and functions of the Reserve Bank in our country’s economy. Among the core functions, we discussed currency management, public debt management, monetary regulation, exchange management and the Reserve Bank being the banker to the Government. Regulatory and developmental roles like regulation and supervision of financial intermediaries, priority sector lending, etc. were also briefed on. This was followed by our core topic ‘Financial Inclusion’. After elaborating on what financial inclusion means, why is it needed and who the target groups are, we shed some light on the present financial inclusion scenario prevailing in Jharkhand. Finally, we switched over to the initiatives that have been undertaken by RBI and the GoI to promote financial inclusion and financial literacy. We spoke on Government sponsored schemes, SHGs, no-frill accounts, relaxed KYC norms, KCCs and GCCs, the BC/BF model, FLCCs, RUDSETIs and the RBI’s financial education website. The question-answer session turned out to be extremely interactive with students expressing their doubts over the possibility of the BCs being robbed of their money on their way to villages, of no-frills accounts being misused by the rich households and many others such queries. To do away with these apprehensions, we elaborated the schemes further, clarified their doubts, and finally ended the session. The immense response we received from the students was indicative enough of their desire to know more. Through such sessions, we can create awareness among school going students of the recent developments going over in our economy as well as promote the cause of financial education. Imparting financial literacy to the already literate will result in a considerable section of the Indian population being aware of various financial aspects of day to day life. They will also act as a medium of further spreading financial literacy. But caution is to be exercised that our quest to make the literate ones financially literate too, is not at the cost of leaving behind those illiterate ones, who are in dire need of not just financial literacy but literacy in the broader context as well.

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8. Recommendations

From the diversity of households covered in our survey, the major issue that came up was the lack of awareness among the masses (both literate and the illiterate ones alike). Although Reserve Bank of India has undertaken a myriad of initiatives to promote the cause of financial inclusion, no mass sensitization has taken place yet. This is evident from our survey findings, where only 59 % of rural households were having a bank account and knowledge of no-frills account was limited to a handful of four to five people only. This is in spite of the fact that no-frill accounts have been in existence since the last three years, if not more. (For more information on these particular findings, please refer chapter 6, section 6.3 [ii] and [viii]). Sensitisation regarding the importance of financial inclusion has been limited to the banking sector’s top level officers only, and it has yet to reach the line functionaries – branch managers, branch staff and the like. This has also contributed to ignorance among the masses, in general and the targeted groups (the ones financially excluded), in particular.

8.1 Raising awareness: Ensuring take up of services emerges as a vital area. The awareness approach has to be both top-down as well as a bottom-up one. The top-down approach is to begin with sensitisation of staff at the rural as well as urban branches. This is because financial exclusion, though higher in rural households, is not limited to rural areas alone. There is exclusion among the poor urban households too. Simultaneous adoption of both the approaches will lead to their convergence, and thus expedite the process of financial inclusion. Poor households are often apprehensive about the indifferent nature of bank personnel. This leads them to the clutches of moneylenders who charge as exorbitant a rate as 24 % per annum. 43 % of rural households borrow from moneylenders, compared to just 21 % borrowing from banks. (Please refer to chapter 6, section 6 [ix] for further details on the different sources of availing loans for rural as well as urban households). The top-down approach may comprise of training programmes being conducted for branch managers. Training modules may be developed for the

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rural staff, with special emphasis on loans for agriculture and allied activities. Manpower crunch in bank branches of remote locations lead to long standing queues, results in work overload for the staff and makes bank customers impatient. To mitigate such stress causing situations, there is an urgent need to adequately staff those branches having just two or three personnel, in spite of being the only bank in an entire block as was the case in Mandu block of Ramgarh district, Jharkhand. (Please refer chapter 7, section 7.1 [iii] on the difficulties faced by rural households mainly from BPL families in such cases). This is all the more important in rural areas as there as few ATMs in these villages, which lead customers to visit branches even for cash withdrawal. This is not the case in urban areas, where people visit bank branches for various purposes but rarely for withdrawing cash. The staff may be trained to develop a positive attitude towards their customers. Banks may also devise suitable incentive structures for rural posting including monetary benefits, so as to make them lucrative. Branch managers, with a rural background and inclination towards serving rural people may be given preference while considering such postings. The bottom up approach may comprise of different mechanisms from door-to-door leafleting, public meetings, and advertising through print as well as non-print media. Where resources are not put into an awareness raising campaign, there is a danger that knowledge of the financial services will remain restricted and target groups of financially excluded people not reached. Since majority of rural households tend to borrow money so as to meet their consumption needs, they need to be sensitised for availing credit in order create income generating assets. (Please refer chapter 6 section 6.3 [xii] for more information on types of loan availed by households).They are to be made known of the various Government Sponsored Schemes (GSSs). This can be effectively done in partnership with NGOs working in the fields of poverty alleviation. The long list of schemes like SGSY, SJSRY, PMEGP and SRMS can be made effective only if they are known to people whom they target. Except NREGS, there is hardly any news of the other GSSs in the media, although the other schemes too have been devised with the sole aim of poverty alleviation and ultimately, financial inclusion. Awareness of the GSSs and their benefits will also lead more people to opt for them. This will also be beneficial to SHGs, some of whom are led by NGOs preferring direct linkages rather than SGSY linkages, as was the case in Mandu block, Ramgarh. (Please refer chapter 7

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section 7.1 [iii] for the detailed reasons behind preferring normal linkages over SGSY linkages by NGOs). With 2130 dailies being published in the country and a circulation of more than 88 million, 1 the print media has a huge potential of creating mass awareness about the measures being taken by the Reserve Bank for promoting financial inclusion. Statistics also show that people prefer their regional language newspapers, and hence awareness through such media can go a long way in bringing financial awareness to the grass-root level. With high illiteracy levels prevailing in the country, non-print media too can be effectively used. With the national network DD1 alone having a viewership of 167 million 2 and the only one having a pan India reach (DD1 being more popular in rural households), it can be an effective medium of reaching the rural masses. The fast growing radio segment, registering an increase in listenership with each passing day can also be utilised for promoting the cause of financial inclusion/financial literacy in rural as well as urban India. With the top three FM stations having a combined 83 million listeners 3, they can be used to promote and sensitise the common man at the grass-root level on the need to open bank accounts by developing appropriate audio capsules. Also, one may be of the opinion that people coming to bank branches need not be told about no-frill accounts or other financial services, since they are already financially included. But this belief is based on shaky grounds, as we found out during our surveys. In some of the surveys conducted inside bank premises, we encountered people who were standing in queues for depositing cash in accounts that were not their own. They had been sent to the bank by their employers and to our surprise, they didn’t have their own account. These people can be financially included at ease. They are regularly visiting banks, carrying out transactions and yet they themselves don’t have a bank account. And this is because some banks have tried their best not to let them know about no-frills account. The banks have displayed no such notices, although they have put up huge boards showing their various schemes on credit cards, personal loans, etc (the more profitable ones). So there is an urgent need to immediately include these bank-coming-but-not-having-bank-account people in the financial sector, and this be can be done by just putting up a no-frills poster on the banks’ display boards.

1. Registrar of Newspapers for India (2005-06 figures). 2. Indian Readership Survey 2009 Round 1 data. 3. The top 3 FM stations being Radio Mirchi, AIR FM Rainbow and Big FM (in order of their rank): IRS 2009 Round 1 data.

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8.2 Financial Counselling Helpline: FLCCs being sponsored by a particular commercial bank are viewed with suspicion by the non-sponsoring banks. This was evident from our visit to the Credit Counselling Centre ‘Abhay’ in Gumla, Jharkhand where we did not encounter any case of a non-sponsoring bank recommending its clients to the counselling centre. Also there is a legitimate concern of the centre being misused by the sponsoring bank. (Chapter 7 section 7.2 [iv] provides a complete assessment of the hurdles coming in the way of the ‘Abhay’ centre). In order to mitigate such apprehensions, a national helpline may be set up for providing financial counselling. This can help in assisting customers even from rural areas to get information on availability of credit and terms to comply. Since the helpline is to provide financial counselling rather than financial help, it may be accordingly named ‘Financial Counsel-Line’ rather than a helpline, to set it apart from other such services. Commercial banks, instead of opening their own separate FLCCs, may pool their resources for this new helpline. The expenditure may be shared among the participating banks. The contribution of banks can be in the basis of their customer base. With banks all over India contributing their share for this helpline, it will be possible to create one having the capacity of serving the entire country. Since all the banks will mandatorily be a part of the project, they will show little hesitation in recommending their clients to this helpline. Also chances of the service being used by a bank for its promotional and marketing purposes will also get drastically minimized, thus enabling financial counselling to be more neutral than it is being viewed of in the existing scenario. Such centres can also have advanced networking and communication facilities like internet enabled PCs, fax facilities, etc. Considering the fact that people are not in an emergency situation when seeking financial counselling, the service can also be provided at some delay rather than instantaneously of a call being received. This approach can be adopted in the initial stages of the project, and if found more cost-effective than the instant service, may be continued with. In order to ensure that poor rural households who are in more need of such advice, and who have the least number of options available of accessing such advice, ‘market segmentation’ can also be thought of. The helpline may be made toll-free for calls from rural areas, while charging a small fee for calls from urban centres. This will also reduce the cost of building the helpline, thus garnering greater acceptability from its developers, i.e. the banks.

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Instead of banks building this service, the project can also be made a self-sustaining one by adopting a ‘user-pays’ model. Charging users a small fee per call can make the project self-sustaining. But counselling being not similar to just answering a question, it may be time consuming and lead to a rather higher bill for distressed farmers, etc, thereby putting an additional burden. Still, market segmentation remains a viable option. Such a self-sustaining helpline extended by telecom companies is already available in 700 villages across 3 states (as of October 07) providing farmers with export advice on pest control, modern farming methods, etc, charging Rs. 5 per call. 4 A free phone counselling is already in existence provided by Disha Financial Counselling under the ICICI Trusteeship Services Ltd. One just needs to sms DISHA to 53030 and within 48 hours, he/she id contacted by a financial counsellor. 5 This service has been verified by us too. Since ‘Disha’ does not have a presence in Jharkhand or Bihar, we intentionally texted the centre from a Bihar mobile number, and to our extreme delight, we were contacted by a counsellor from Hyderabad, within 48 hours as was promised. With a single trust being able to provide such a service free of cost, there is hardly any doubt, what can a service provided by all the banks in the country, can achieve. These kinds of ‘digital inclusion’ will definitely a major step forward in promoting financial inclusion across the nation.

8.3 Improving Credit Linkage to RUDSETI Trainees: Prior to our visit to BMIED/RUDSETI, Hazaribag we were of the opinion that banks which sponsor such institutes benefit immensely from these. But this belief of ours was turned upside down when we visited the institute. Instead of the sponsoring bank forming a major chunk of the credit being availed by its trainees, we found that the credit linkage from the entire banking sector was at a dismal 10 – 20 %. (The entire assessment of the institute is provided in chapter 7 section 7.3 [vi]). This kind of situation in the state’s oldest such institute begs attention. The sponsoring bank’s indifferent attitude to the trainees’ credit requirements necessitates some strong actions to be taken. In this regard, RBI may instruct the sponsoring bank as well as other banks in the area to direct their lendings to the RUDSETI trainees. Since there is no compulsion on the part of banks to

4. An article on this helpline has been provided in Annexure VI and can also be accessed at http://www.business-standard.com/bs_csr/news.php?autono=302628 5. The financial counselling centre’s URL: www.dishafc.org (Annexure VII).

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provide loans to such trainees, they continue to adopt a hands free approach. But considering that so much is being done by the institute for the rural youth in providing such training, let’s not leave the last mile problem unaddressed. Since the trainees are expected to start off with their own micro-enterprises after the training is complete, it would be of immense help if they are provided loans right after their training gets over. The sponsoring bank, if not willing to fund the entire project cost, may be directed to compulsorily lend a minimum of 60 % of the cost of the project to be undertaken by the trainee. Similarly, directives may also be issued to the other banks in the area so as to meet the entire project cost of the trainee’s enterprise. Also, the Reserve Bank may review whether a loan to such a RUDSETI trainee be included in priority sector lending or any such GSS. Quick and hassle free loan to these trainee will boost their morale, increase the institute’s popularity and most importantly, increase banks’ lending, thus finally translating into profits.

8.4 Financial Education in School Curriculum: Our interaction with students of class X during the presentation in Financial Inclusion/Financial Education brought out the wide gulf existing between financial literacy and literacy in general. Although simple interest and compound interest calculations, problem on shares an dividend, etc were being taught in class, financial literacy as a whole was missing in the curriculum. In this regard, RBI can join hands with the leading educational boards in the country, those having a strong presence in rural areas, to develop curriculum framework so as to promote basic financial education. The subject may cover topics such as basic banking, importance of bank account, developing a savings attitude, and initiatives taken to promote financial inclusion and financial literacy. The financial education course can start from class VI onwards. Elementary economics can also be incorporated in the course and continued till the secondary level. Financial Markets Management (FMM), a joint certification course introduced by NSE and CBSE for standard XI and XII is already in place. The course curriculum includes accounting for business, introduction to financial markets, BPO skills, computer applications in financial markets, economics,

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etc. The course was being offered in 58 schools in 07 – 08 and 120 more schools in 08 -09. Considering the low reach of the FMM course because of its specialised nature, Reserve Bank’s focus should be to reach maximum number of schools so as to integrate them with the school curriculum quickly. The immense work still left to be done in financial inclusion, quick implementation of a basic financial education course has the potential to develop a large financially literate work force in the country.

8.5 Connecting donors/lenders and entrepreneurs: One of the survey findings that could not show itself in the graphs, was of person with bad credit history (or staying in banks designated negative areas) not being able to get a traditional bank loan. This is a serious and complicated issue. Since some people living in these areas are having high default rates, banks have declared them negative and do not conduct business with residents of those areas. This although may be justified to an extent, does punish the innocent too by denying them credit and treating them at par with the willful defaulters. Also, if people from these areas are not given an opportunity to prove themselves, the entire section is going to lead such a life forever. In such a scenario, microfinance or microcredit can play a significant role in addressing this problem. There have been instances where people with bad credit history have been provided with small amount of loans, only to see it being repaid on time and with interest too. Since banks are unwilling to serve these people, private donors contributing small sums of money and aggregating to larger amounts, can come to the rescue. In fact, there are non-profit organisations such as ‘Kiva’ which enables people to connect with and make personal loans of as little as $ 25 to low income entrepreneurs in the developing world. How these organisations work by bringing together lenders and worthy entrepreneurs on the web, etc can be found on their website www.kiva.org (Please refer to Annexure VIII for more details). Such a model, if implemented in India, can free up those who have been labelled as negative. Sponsoring these poor households to purchase business related items such as sewing machine or livestock can empower them to earn their way out of poverty. After a loan is refunded, journal updates keep the lenders informed about the progress of the entrepreneurs they sponsored. Once the loans are repaid over the course of 6 – 18 months, lenders can choose to withdraw their principal or re-loan to another entrepreneur.

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There are organisations such as ‘Microplace’ which even offer interest to such lenders with the interest rate being fixed by the lender, whether one wants to give an interest free loan or at an interest of 1 %, 2 % or 3 % whatever. The working model and its advantages can be understood from the following self-explanatory picture:

The best part of such a model is that people give a loan, not a handout. They get it repaid, choose to re-loan and continue to do so with little sums of money from their side which adds up to a substantial amount when aggregated at their end. Adopting such a model can free up those people shackled in the chains of ‘negative area’ and can finally integrate them into the mainstream financial sector, thus enabling financial inclusion.

8.6 Upgrading RBI’s Financial Education Website: The financial education site launched by Reserve Bank on 14th Nov, 07 is one of the first sites on financial education. Even now, a Google search by the word ‘financial education’ displays result with the RBI’s site at the top slot. The site available in English, Hindi and 11 other regional languages has comic books dealing with topics such as monetary policy, bank regulations, currency notes, etc. It has a games section too which aims to educate children through entertainment. But has the site achieved its aim to promote true financial education. A comparative study of popular financial education sites available on the web throw some startling results, pointing out that the Reserve Bank’s financial education website needs an overall change.

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Financial education sites such as www.federalreserveeducation.org, www.mymoney.gov and www.meine-schulden.de (a German site) seem to be much more popular in attracting visitors. A comparison of the top keywords driving traffic to these sites from search engines, gives us a fair idea of what users are looking for in these sites. Here is the list of keywords: www.rbi.org.in www.federalreserveeducation.org

www.mymoney.gov www.meine-schulden.de

The German translation is as follows: schulden - owe/liabilities haushaltsplan - budget inkasso - law contract eidesstattliche versucherung - affidavit schuldnerberatung - debt counselling umschuldung - rescheduling meine schulden - I owe haushaltsbuch - budgetary accounting inkassoburo - collection agency konto pfandung - pledge account

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The above comparison is clear enough to prove that people visiting RBI’s website are not looking for financial education, but in all the other three cases. Users do visit the sites for financial education/financial counselling. So there remains little doubt that the site should be made more aligned to financial counselling and at the same time public awareness regarding the site is to be substantially raised. (Please refer Annexure IX for more details). Again, if we compare the time spent on the above four sites, RBI’s website comes at a distant third (as evident from the following graph). People visiting RBI’s website spend less time on the site than users visiting the sites www.federalreserveeducation.org and www.meine-schulden.de.

Comparing the daily reach of these sites, RBI’s website wins hand down (please refer the following graph), and this is what we will have to capitalise on to popularize the financial education website. It was also observed that www.meine-schulden.de with the lowest number of sites linking in at 83 is also the one where people spend more minutes per day. This may be because meine-schulden.de is the only site specifically aimed at debt counselling. The Federal Reserve System’s financial education website, FederalReserveEducation.org, is dovetailed to increase the use of Federal Reserve educational materials and promote financial education in the classroom. The website has material intended for the general public, as well as materials specifically geared toward teachers and high school and college students. It provides easy access to free educational materials, a resource

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search engine for teachers, and games for various ages and knowledge levels. The other regional Feds also have various interactive online programmes on their website designed to generate awareness about better financial management and assessment of one's own financial position. Similar in nature is the site mymoney.gov with articles on budgeting and taxes, credit, financial planning, home ownership resources, retirement planning, credit card repayment calculator, etc. The site meine-schulden.de provides first information to people seeking advice on how to deal with their debt problems. It consists of three parts covering information, services and guidance. On the information sites, visitors are systematically guided through the regulations around the subject of debt relief. The workflow of a debt settlement process and consumer insolvency proceedings are described as are the many practical notes on what creditors are allowed to do and what they are not. In case visitors have a concrete request they can search for support in the guide-book on the right side of the website. Typical questions from the debt counselling practice are answered here and first tips on how to deal with financial problems are given. On the service sites, many model letters are published and a search module to find the next debt advice centre. The site provides, among others, model letters to apply for a Current Account for everyone and contact details of the banks’ dispute settlement and customer complaint offices. The RBI’s financial education website which is more inclined towards children, should be geared towards adults as well with articles on credit and

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debit cards, deposits, general banking, safe banking, financial counselling, loans, etc. It may also have online tools like financial health check-up and debt test, etc. Videos prepared by RBSC, Chennai like the one on NBFC fraud named ‘Mani Loses Money’, etc should be uploaded on the site so as to acquaint the masses with such scams and prevent them from getting trapped in such frauds. Also the site can have a list of credit counselling centres in India. In all, it should act as a repository of information related to customer education, and act as a one-stop site for people looking for anything related to financial literacy. Only then can the site aim to achieve its goal of spreading financial literacy.

8.7 Integrating UIN with Financial Inclusion: As was observed in our survey, the primary reason for respondents being refused of a bank account was their not having any identity proof. (Please refer chapter 6 section 6.3 [vii] for further details). Unique Identification Number (UIN) can be a way to address the identification challenges of Indian banks and the financial sector. The UIN programme will be the first step towards a universal financial inclusion. The impact on inclusive growth and India’s saving arte from implementing this would be massive, considering that a large section of the Indian population does not have a bank account. The programme can be dovetailed with financial inclusion with all Government cash transfers for instance NREGP, through the UIN linked account. The national ID when integrated with SHGs, microfinance and micro-insurance institutions, would link financing options for the poor more closely with bank accounts. Each citizen of India having this UIN linked bank account can truly claim the target of 100 % ‘comprehensive’ financial inclusion we aspire to achieve.

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ANNEXURES

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ANNEXURE I

RBI YOUNG SCHOLAR SURVEY ON FINANCIAL INCLUSION (QUESTIONNAIRE) Place of Survey: ________________________ Name: ________________________________ Gender: M/F

Date: _____________________________ Age: ______________________________ Occupation: ________________________

No. of family members: ___ adults ___ children

A. SAVINGS: 1. Is your household having a one bank account? � Yes � No 2. No. of accounts in your household: � 1 � 2 � 3 � 4 � More than 4 3. Which type of account do you have? � Savings Bank a/c � Current a/c � Recurring Deposit a/c � Fixed Deposit a/c � If others, (please specify) ___________________________ 4. Is the bank account with a cheque book? � Yes � No 5. What were the reasons that your household opened the account? � To receive Govt. payments from NREGP � To receive Govt. payments from schemes other than NREGP � For receiving remittances � For saving money � To request a loan � If others, (please specify) ___________________________ 6. Who helped you open the account? � Village Panchayat Officials � Bank Officials � Neighbour � Friends/Relatives � If others, (please specify) ___________________________ 7. How frequently do you save in your account? � Don't save / never � At least once a month � Less than once a month � I put in money as and when I can � I have paid money in but not in past 12 months � I have not added money since account was opened � If others, (please specify) __________________________

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8. Reasons for not having a bank account: � I have no money/little money to put in � No bank in this area � No point - benefits received in cash � No point - paid in cash � Concerned there may be too many charges � Tried to open but was refused � Lengthy processes � Not important to me � Anticipated rejection � If others, (please specify) _____________________________ 9. Reasons for being refused a bank account: � No ID � Previous bad credit history � No job, unemployed � Had to have a minimum amount � Had debts � Thought I was a risk � Not lived here long enough - no credit history - use spouse's account � Don't know - did not say � If others, (please specify) ___________________________ 10. Are you aware that banks are opening zero min. balance accounts for everyone? � Yes � No 11. How did you find out that banks were opening such ‘no-frills’ accounts? � Bank Officials � SHG Members � NGOs � Neighbours � Village Panchayat � Farmer Clubs � Posters � Village Meetings � Newspapers/Advertisements � If others, (please specify) ___________________________ 12. Do you have any grievances in your ‘no-frills’ a/c? � No � If yes, please specify? _____________________________________

B. BORROWINGS: 13. Have your household ever borrowed or taken a loan? � No � If yes, from where? � Banks � Relatives � Friends � Moneylenders � If others, (please specify) ___________________________

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14. If borrowed from banks, which of the following reasons led to this choice? � Low rate of interest � Good deal, good rate � Was offered/arranged by the banks � It is easy (vague) � Trustworthy lender � If others, (please specify) ___________________________ 15. If borrowed from sources other than banks, which of the following reasons led to this choice? � Being able to borrow relatively small sums � I did not need to provide security or guarantees � It was available locally � I can make repayments in cash in small weekly or fortnightly sums � It is convenient because they come to the door to collect � It is because I know the lender/collector � If others, (please specify) ___________________________ 16. If ever borrowed, what was the type of the credit/loan? � Housing loan � Business Loan � Training/Education loan � Vehicle loan � If personal loan, purpose of the loan � Household items � Computer � Day to day living expenses or bills � To pay off other debts � If others, (please specify) ________________________ � If others, (please specify) ________________________ 17. If loan was availed, what difficulties were faced in the process? ____________________________________________________________________________________________________________________________________________________________________

18. In the past three years, have you been refused a loan or credit? � Yes, been refused credit � No, been given credit I wanted � Not asked for any credit 19. If you were refused, do you know why you were turned down? Please give details. ____________________________________________________________________________________________________________________________________________________________________

C. OTHER FINANCIAL SERVICES 20. Are you using any other form of financial service or product? � No � If yes, then which one: � Insurance � Credit card � Debit card � If others, (please specify) __________________________

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21. What were the reasons for not availing any form of insurance? � Too expensive, can't afford it � Just don't bother, no real reasons � No need for it � I don't have much, nothing valuable � I am in process of doing it � No insurance men coming to door now � Have to have bank account � If others, (please specify) ___________________________________ 21. If already having insurance, which of the following type is it? � Life insurance � Health insurance � Vehicle insurance � If others, (please specify) ____________________________ 22. Reason for using the above said financial service(s)? ____________________________________________________________________________________________________________________________________________________________________

23. What difficulties were faced in the process of accessing the above financial service(s)? ____________________________________________________________________________________________________________________________________________________________________

24. In the past three years, have you been refused any of the above financial product(s)? � Yes, been refused credit � No, been given credit I wanted � Not asked for any credit 25. If you were refused, do you know why you were turned down? Please give details. __________________________________________________________________________________

__________________________________________________________________________________

26. Over the past couple of years, have you been anywhere for advice about money matters? � No, no where � Family/friends � Bank � Financial Adviser � Social worker � If others, (please specify) ___________________________________ 27. And would you say this advice was � Very helpful � Helpful � Neither helpful nor unhelpful � Very unhelpful � Not sure 28. Is there any financial advice centre/credit counseling center in your area? � Yes � No 29. If yes, how satisfied are you with its working and the advice it provides? � Completely satisfied � Satisfied � Just ok � Unsatisfied � Completely unsatisfied 30. If you are not satisfied with its working, then please give reasons. ____________________________________________________________________________________________________________________________________________________________________

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31. At present how well do you think you are managing your money? � Managing well � Just getting by � Getting into difficulties � Not sure 32. At present how worried are you about getting into debt? � Very worried � Fairly worried � Not very worried � Not at all worried � Not sure 33. What would you do if you needed money in an emergency? � Ask family or friends � Draw on savings � Take out a bank loan or overdraft � Take out loan from other sources � Use my credit card � Sell something � Don't know � If others, (please specify) ___________________________________ 34. Level of interest in local financial services (1. Very interested 2. Fairly interested 3. Not very interested 4. Not at all interested 5. Not sure): Saving small amounts of money � 1 � 2 � 3 � 4 � 5 Take out a loan at reasonable interest � 1 � 2 � 3 � 4 � 5 Taking a business loan � 1 � 2 � 3 � 4 � 5 Advice about managing debts � 1 � 2 � 3 � 4 � 5 Advice on welfare benefits � 1 � 2 � 3 � 4 � 5 More information about financial matters � 1 � 2 � 3 � 4 � 5 35. Level of interest in courses or sessions (same system of marking as in Q.34 above): Support for numbers or arithmetic � 1 � 2 � 3 � 4 � 5 Support with reading � 1 � 2 � 3 � 4 � 5 Support with expressing yourself in writing � 1 � 2 � 3 � 4 � 5 Support with how to operate a bank account � 1 � 2 � 3 � 4 � 5 Support for taking a loan � 1 � 2 � 3 � 4 � 5 Support for various bankable products � 1 � 2 � 3 � 4 � 5 36. Level of importance in the following (1. Very important 2. Fairly important 3. Not very important 4. Not at all important 5. Not sure): Bank a/c � 1 � 2 � 3 � 4 � 5 Small personal loan � 1 � 2 � 3 � 4 � 5 Credit card � 1 � 2 � 3 � 4 � 5 Financial counselling � 1 � 2 � 3 � 4 � 5 Investment advice � 1 � 2 � 3 � 4 � 5 Financial education � 1 � 2 � 3 � 4 � 5 37. Are you satisfied with the BC/BF model or you feel the need of a bank branch at your place? � Yes, satisfied � No, not satisfied (please give reasons) ________________________________________________ __________________________________________________________________________________ 38. What do you think that the Government, local bodies, banks, NGOs and others might need to do to further achieve financial inclusion? _______________________________________________ _________________________________________________________________________________ _________________________________________________________________________________

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ANNEXURE II

PERFORMANCE REPORT OF ‘ABHAY’ CREDIT COUNSELLING CENTRE

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78

ANNEXURE III

WORKING HOURS OF ‘ABHAY’ FLCC AS DISPLAYED ON THE CENTRE’S WEBSITE

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ANNEXURE IV

LEAFLET OF PROGRAMMES OFFERED BY B.M.I.E.D, HAZARIBAG

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ANNEXURE V

BIRSA MUNDA INSTITUTE FOR ENTREPRENEURSHIP DEVELOPMENT, HAZARIBAG, JHARKHAND

ANNUAL TRAINING CALENDAR FOR THE YEAR 2009-10

Sl. No

NAME PERIOD DURATION Channel

BUDGET (Rs.)

FUNDING SOURCE

1 REDP – Beautician Course 4 weeks 01/04/09 - 30/04/09 I 69,500 NABARD

2 PMEGP Training 2 weeks 04/05/09 - 16/05/09 I 65,600 KVIC

3 PMEGP Training 2 weeks 18/05/09 - 29/05/09 I 65,600 KVIC

4 Two Wheeler Repairing 4 weeks 01/06/09 - 27/06/09 I 75,000 NABARD

5 T.V. & Radio Repair 4 weeks 29/06/09 - 25/07/09 I 73,000 NABARD

6 SGSY – SHG 1 week 06/07/09 - 11/07/09 II 20,400 DRDA

7 SGSY – SHG 1 week 13/07/09 - 18/07/09 II 20,400 DRDA

8 Mushroom Cultivation 2 weeks 27/07/09 - 08/08/09 I 34,000 NABARD

9 Cell Phone Repairing 4 weeks 10/08/09 - 05/09/09 I 77,500 NABARD

10 SGSY – SHG 1 week 07/09/09 - 12/09/09 I 19,400 DRDA

11 SGSY – SHG 1 week 14/09/09 - 19/09/09 I 19,400 DRDA

12 Readymade Cloth Manufacturing

4 weeks 21/09/09 - 17/10/09 I 65,500 NABARD

13 Screen Printing 4 weeks 19/10/09 - 14/11/09 I 76,000 NABARD

14 SGSY – SHG 1 week 16/11/09 - 21/11/09 I 20,400 DRDA

15 Agarbatti Manufacturing 2 weeks 23/11/09 - 05/12/09 I 49,000 NABARD

16 PMEGP Training 2 weeks 07/12/09 - 19/12/09 I 65,600 KVIC

17 SGSY – SHG 1 week 21/12/09 - 26/12/09 I 20,400 DRDA

18 SGSY – SHG 1 week 28/12/09 - 02/01/10 I 20,400 DRDA

19 SGSY – SHG 1 week 04/01/10 - 09/01/10 II 20,400 DRDA

20 SGSY – SHG 1 week 11/01/10 - 16/01/10 II 20,400 DRDA

21 Beautician Course 2 weeks 04/01/10 - 30/01/10 I 69,500 NABARD

22 SGSY – SHG 1 week 01/02/10 - 06/02/10 I 20,400 DRDA

23 SGSY – SHG 1 week 08/02/10 - 13/02/10 I 20,400 DRDA

24 Photo Lamination & Photography

1 week 15/02/10 - 20/02/10 I 27,800 NABARD

25 SGSY - SHG 1 week 22/02/10 - 27/02/10 I 20,400 DRDA

26 SGSY - SHG 1 week 01/03/10 - 06/03/10 I 20,400 DRDA

27 Electric Transformer Repair

1 week 08/03/10 - 13/03/10 I 29,800 NABARD

28 Irrigation Pump Repair 1 week 15/03/10 - 20/03/10 I 31,800 NABARD

29 Electric Motor Winding 2 weeks 22/03/10 - 31/03/10 I 42,000 NABARD

30 PMEGP Training 2 weeks 22/03/10 - 31/03/10 II 63,600 KVIC

Rs. 12.44 lakh

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ANNEXURE VI

HELPLINE FOR FARMERS - A SELF-SUSTAINING MODEL

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ANNEXURE VII

DISHA FINANCIAL COUNSELLING CENTRE (WEBSITE HOMEPAGE)

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ANNEXURE VIII

DETAILED WORKING OF THE ‘KIVA’ MODEL

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ANNEXURE IX

HOMEPAGES OF VARIOUS FINANCIAL EDUCATION WEBSITES – A COMPARISION

01. RBI’s website on financial education:

02. German debt counseling/financial literacy website (www.meine-schulden.de):

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03. Federal Reserve Education Website (www.federalreserveeducation.org):

03. U.S. Financial Literacy and Education Commission’s site (www.mymoney.gov):

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REFERENCES

01. Alliance for Financial Inclusion - Workshop Report on Promoting Financial Inclusion through Innovative Policies, May 2009 02. C Rangarajan – Report of the Committee on Financial Inclusion, Jan 2008 03. Chant Link & Associates, Australia – Summary Presentation: Research on Financial Exclusion in Australia, Nov 2004 04. College of Agricultural Banking, Pune - Financial Inclusion and Financial Literacy: Union Bank’s Initiatives, July – Sep 2007 - Some ICT Devices: A Primer, April – June 2006 - Universal Financial Inclusion in India: The Way Forward, July – Sep 2007 05. Commission for Rural Communities, UK – Promoting Financial Inclusion in Rural Areas, Nov 2007 06. Department of Rural Development, Govt. of India – Draft Guidelines for ‘Rural Self Employment Training Institutes (RSETIs)’, 2008 07. Financial Inclusion Observatory – Debate on Financial Exclusion/Inclusion – Country Report: Germany 08. Financial Services Authority, UK – Building Financial Capability, March 2007 09. H M Treasury, UK – Financial Inclusion: An Action Plan for 2008 – 11 10. House of Commons, Treasury Committee, UK – Financial Inclusion: Credit, Savings, Advice and Insurance, Nov 2006 11. Joseph Rowntree Foundation, UK – Financial Inclusion in the UK: Review of Policy and Practice, July 2008 12. Leeds City Council, UK – Financial Exclusion: It’s Impact on Individuals, Disadvantaged Communities and the City Economy, Dec 2004 13. Rakesh Mohan, Reserve Bank of India – Economic Growth, Financial Deepening and Financial Inclusion, Nov 2006 14. Reserve Bank of India - Annual Policy Statement 2009 – 10 - Annual Report 2005 – 06 - Annual Report 2006 – 07

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- Annual Report 2007 – 08 - Bulletin June 2009 - Bulletin May 2009 - Draft Guidelines on Outsourcing of Financial Services by Banks, Dec 2005 - Master Circular on Credit Facilities to SCs and STs, July 2008 - Master Circular on Priority Sector Lending – Credit Facilities to Minority Communities, July 2008 - Master Circular on Priority Sector Lending – Special Programmes: SGSY - Master Circular on Priority Sector Lending – Special Programmes: SJSRY - Master Circular on New “Self Employment Scheme for Rehabilitation of Manual Scavengers” (SRMS) - Mid-Term Review of Annual Policy Statement for the year 2007- 08 - Report on Currency and Finance 2006 – 08 Vol. I & II - Report of the Internal Group to Examine Issues Relating to Rural Credit and Microfinance, July 2005 - Report on Trend and Progress of Banking in India 2007 – 08 - Working Group on Improvement of Banking Services in State of Jharkhand, 08 15. Scottish Council Foundation – Financial Inclusion and Capability in Rural Scotland, June 2007 16. Scottish Executive – Financial Inclusion Action Plan, 2005 17. Shyamala Gopinath, Reserve Bank of India – Inclusive Growth: Role of Financial Education, Nov 2006 18. Usha Thorat, Reserve Bank of India - Financial Inclusion and Information Technology, Sep 2008 - Financial Inclusion: The Indian Experience, June 2007 - Financial Inclusion for Sustainable Development: Role of IT and Intermediaries - Inclusive Financial System for the Aged, April 2008 19. V Leeladhar, Reserve Bank of India – Taking Banking Services to the Common Man – Financial Inclusion, Dec 2005 20. Y V Reddy, Reserve Bank of India - Credit Counselling: An Indian Perspective, Sep 2006 - The Role of Financial Education: The Indian Case, Sep 2006