Financial Inclusion CGAP

8/14/2019 Financial Inclusion CGAP

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Financial Inclusion Policies,tools and institutions

N.Srinivasan


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Financial Inclusion the Indian

context Bringing underserved and marginalised in to the

mainstream economy

Covering barter and cash economy under the

formal payments system Ensuring effective and safe savings and credit

facilities to all sections of people

Banking services are a public good- to be madeavailable to those who have a need


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Institution Number of deposit

accounts (Millions)

Commercial banks 320.9

Regional Rural Banks 52.7

Urban cooperative banks 50.0

Rural cooperative banks --

Post office 60.8

Total Formal Institutions

Primary cooperativesocieties (members)

125.8

Self Help Groups (member

savers)

53.3

Total 663.5

Savings accounts - March 2007


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Numbers ahead

Number

of adults

No of

loan a/cs

No of

deposit

a/cs

Gap

India 600 mn 122 mn 466 mn 480 mn

or

130 mn?

Multiple accounts of the same borrower not factored the gap is actually larger


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Issues

Large number of potential clients not covered Sparsely populated areas and remotely located

areas not covered

Uncovered clients not economically significant in

terms of business volumes Branch network limited compared to the number

of excluded


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Issues

Staff strength in banks low compared toadditional effort needed

Large inter-state variations in per branch

and per staff work loads KYC norms entail additional time and cost

Impact on profitability


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What is inclusion today

No frills accounts

General Credit Cards

Offering low balance savings accounts is adrain on banks resources

Loans especially for livelihoods is the

better option but not preferred by banks Insurance only distribution - ineffective

coverage


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New client acquisition -MF

Client outreach (in millions)

2006-07 2007-08

Banking system (SHGs) 38.02 45.20MFIs 10.04 14.01

Total 48.06 59.21


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Significant initiatives

AP experiment of smart card based

NREGS payment accounts

Bhamashah campaign in Rajasthan

enrolment of 5 million new clients to

achieve inclusion with states support

now facing hurdles of a political nature

Several bank specific initiatives


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Policy

Inclusion as an objective

Study of the issues, institutions and

means

Launch of new products

Introduction of new mechanisms (BC, BF,

Mobile banking, Prepaid instruments, etc) Linking benefits transfer with inclusion


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Tools

Funding mechanism to cover technology

and other costs

Financial literacy drive

Debt counseling initiative

New products as tools?


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Technology

Wide variety

to help in customer acquisition

Transaction processing

Accounting

MIS

Monitoring

Handheld devices, Point of Sale devices, card

readers, cell phone devices, cell phones


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concerns

Physical network inadequate faster roll out oftechnology and agency banking needed

Savings emphasized - much less talk of credit and

insurance

Primary focus on commercial banks

Cooperatives, MFIs ignored

CSR view of inclusion is not helpful

Technology to make institutions life comfortable customer focus needed

Agent banking could increase risks mitigation to

take care of customer protection too


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Conclusion

It is a challenge but also an opportunity Tomorrows clients today with some costs

hopefully being absorbed by inclusion fund Investment in technology would be of long term

help FITF is available Business volumes would get up built up over the

next few years on the back of large number ofnew clients

It is not a cost; nor a vain effort it is aninvestment in future of the bank as well theunderserved people.


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thanks


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Internal preparedness

Need to identify staff and train staff in fast clientacquisition

Skills of contracting outsourced services

Investment in software and networking to render remote

KYC compliance easy Active role of SLBC and DLCC for documenting best

practices and sharing the same

Lobbying with RBI for a relook at KYC norms for the

inclusion agenda Lobbying with GoI and RBI for access to financial

inclusion fund - based on results achieved andinvestment in technology


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How the strategies

Overarching concerns

Cost effectiveness

Early completion of the taskStrategies

Use of technology

Outsourcing of services correspondentsand facilitators


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How - strategies

Devising a credible KYC compliance procedure

that would satisfy RBI ( such as a bankers

committee at the block level)

Campaign mode of enrolling clients Usage of facilitator model to use SHGs, NGOs,

Farmers clubs and MFIs - especially in

agriculture finance

Financing of MFIs, cooperatives and SHGs in

larger numbers to achieve indirect inclusion -

Documents

Financial Inclusion CGAP