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Globsyn Business School : AIMS 3
“Imagine if the global economic communications systemof the banking world suddenly collapses and everyfinancial institution in the world stopped functioning.Banks everywhere would shut their doors. ATM screenswould go blank. Credit and debit would no longer work.And billions of families would be unable even to putgroceries on the table. Well, this is exactly thesituation that half the world’s population lives withevery day – a non-stop horror story.”
Mohammed Yunus
Globsyn Business School : AIMS 4
India has stellar Growth story and expectations are high : Deserve Kudos
• The recovery from the global economic downturn is faster in Indiaas compared with other countries in the world.
Of the more than 200 companies from over 50 countries that formpart of the World Economic Forum’s Global Growth Companies(GGC) Community, India today has the second largestrepresentation, with a total of 18 GGCs.
In less than 40 years BRIC countries together would be larger thanG 6 in US dollar terms
By 2025 BRICS – half of the size of G 6
In 2050 – of the current G 6 only US and Japan may be among theworld’s largest Six economies
By 2050 world’s largest in GDP may not be rich in terms of percapita income
Globsyn Business School : AIMS 5
The Rural India Story
• The bottom-of-pyramid (BOP) consumer segment is estimated atclose to 350 million
• But it is the biggest and perhaps the fastest growing in the countrywith about 40 million families making the jump from poverty tothe BOP club every year.
• Consumer product makers [such as GlaxoSmithKline, Nestle, Coca-Cola, PepsiCo, Hindustan Unilever, Marico, Godrej and Dabur] arerushing to the BOP market with custom-made products
• Major FMCG companies (like Hindustan Unilever (HUL), Marico,Godrej Consumer Products, Dabur and even brewers like SabMiller) have stepped up hiring in small towns and rural India—primarily appointing sales staff to increase visibility and connect,and simultaneously boost sales. .
Globsyn Business School : AIMS 6
The faster growth of last 15 years
Plan Period Average Growth of GDP pa
(%)
1950-51 to 1964-65 3.95
1965-66 to 1979-80 3.62
1980-81 to 1994-95 5.37
9th Plan 1997-98-2001-02 5.5
10th Plan 2002-03-2006-07 7.7
11th Plan (2007-08-20100 8.7 (four years)
Source: Planning Commission, 11th Plan Document, Report of the Steering Committee on Agri, PC
Expectations
Current year : 8.6%
FY 11-12 : 9%
But poverty impact of growth has been muted: poverty declined from 36% in 1993/94 to 28% in 2004/05, a 0.8% point reduction p.a. compared to 1.6% poverty reduction p.a. in Bangladesh and Nepal
So the question is :: Has it been inclusive?
Globsyn Business School : AIMS 7
Hard Fact
Banking services
503 mobile set users but 46%of them donot have no bank accounts
400 million have account – 40% of population
Rural India – 5.2% of 650000 villages have bank branches
although 39.7% of total bank branches are in rural India
Only 26.8% of people in rural India earning less than Rs 5000 have
bank accounts
Mutual Fund
45 million invest in mutual fund – only 4% of population
15 million (1.5%) hold demat account
Insurance
80% of population without life, health & non-life coverage
Per capita spent on life and non-life is just about Rs 2000 & Rs 300
Globsyn Business School : AIMS 8
A look at the Regional Inequalities would corroborate why we need inclusive
growth
Globsyn Business School : AIMS 9
Growth Rates have been lower in the poorer states
Globsyn Business School : AIMS 10
Public Services Weak in the poorer regions: e.g. Immunization Coverage
Globsyn Business School : AIMS 11
Four reasons that help to explain India’s growth is not adequately inclusive.
• Growth has diverged across regions, leaving behind the large populous states of North Central and North East India.
• Growth has not been creating enough good jobs, that provide stable earnings for households to climb and stay out of poverty.
• Growth in the agriculture sector, which employs more than half of India’s workers, has been an anemic 2%.
• Growth has left behind key sections of the population --females, the 90 million tribal population, some SC groups religious minorities, -- lagging behind in job opportunities, earnings, and human development.
Globsyn Business School : AIMS 12
In the global landscape of Financial Exclusion
Globsyn Business School : AIMS 13
In the global landscape of Financial Exclusion
Globsyn Business School : AIMS 14
Let us have a Close look at Financial
Inclusion as it is understood now
Globsyn Business School : AIMS 15
My driver Dibakar
My driver Dibakar is often penalized by
the traffic police for using his cell
phone while driving.
He can’t resist taking calls from the
“ladies” who call him “Sir” and offer him
credit cards and consumer loans.
Hopefully we are not talking such story as financial inclusion.
Globsyn Business School : AIMS 16
The narrow way of looking at it
Delivery of financial services (savings, Credit, Insurance, Remittances,
financial advisory) at an affordable cost to vast sections of disadvantaged
and low income groups so as to ensure that larger segment of population
get access to and uses the facilities of formal payment system and
financial market thereby gaining formal financial identity
What a great financial inclusion journey India is on. Banks, Governments,
Civil society, and private sector businesses are jumping onboard as the
train accelerates
Globsyn Business School : AIMS 17
Major Milestones of providing access to finance.
Should Financial Inclusion mean access to finance?
Globsyn Business School : AIMS 1818
Since opening up to private players in 2001,
the market has witnessed tremendous growth
It is expected to grow at ~15% per annum by
Sustained real GDP growth of 7-9% per
annum
Expected high household savings rate in
India of ~25-30% of GDP
0
400
800
1,200
1,600
FY
05
FY
06
FY
07
FY
08
FY
09
FY
10
FY
11E
FY
12E
FY
13E
FY
14E
FY
15E
FY
16E
FY
17E
New business premium
INRBN
Rapid
build-up
Financial
crisis
Regulatory
overhaul
Long term
growth
Penetration of Indian Life Insurance is very low indicating that the focus is not necessarily banking system
But present penetration is only 4.6%
Increasing life insurance by 1% signals
an additional INR630 BN in total
premiums (=25% increase in total
premium)
Favourable demographics as current
average age in India is only 25 years
with ~30% below the age of 14
Social Security consideration weigh high
Globsyn Business School : AIMS 19
Why do we need financial inclusion
Globsyn Business School : AIMS 20
“Look at these monkeys in the
big case that the man has
collected from you at the rate
of $10/ $25. I will sell them to
you at $35 and when he returns
from the city, you can sell them
back to him for $50.”
In a village in China
Great Financial Engineering : But at whose cost
Globsyn Business School : AIMS 21
“If the poor are to get a chance to liftthemselves out of poverty, it’s up to us toremove the institutional barriers we’vecreated around them. We must remove theabsurd rules and laws we have made thattreat the poor as minorities. And we mustcome up with new ways to recognize aperson by his or her own worth, not byartificially measuring sticks imposed by abiased system.”
Mohammed Yunus,21
Globsyn Business School : AIMS 22
Generates
Supply
Corporate
Growth
Focus
Access to
banking and
Financial
services
SOCIO
ECONOMIC
FABRIC
Social
Security
Product
suite
New Delivery
mechanism
Demand
Creation
Removal of Institutional barriers, social stigma, political
bias
Financial Literacy and right communication
Creating technology infrastructure and leveraging
Commercial Outlook (not CSR/ dole) to P-P-P and funding. Lowering Transaction cost
Key drivers
New Paradigm for FI mechanism
Pu
blic
sp
en
din
g b
y G
ovt
Globsyn Business School : AIMS 23
Indian Rural Market : Magnitude
• Is a value seeker
• Seeks comforts and amenities
• Does not wish to be seen as the deprived cousin.
• Does not experiment easily but this does not mean that “he would
not change”.
• Values local relationships because of unfavourable past
experiences
Globsyn Business School : AIMS 24
The Rural consumer Class
• Rural India too has its share of “The Rich”
• However, most of “rural India” would still comprise
• “The Aspirers”.
• Growing at a fast pace, this is the “FUTURE MARKET”,
• Creating buyers of quality products and services
Globsyn Business School : AIMS 25
There is shift in the Urban –vs- Rural Consumer Class composition
Globsyn Business School : AIMS 26
So Inclusive Growth have to be the means to the end
• Bringing socio economic reforms through policy changes that
– encompasses, evenly, all the sectors of the economy and
– where all segments of population are able to participate in the growth process and/or
– are able to benefit from it.
• Enhancing Capability of an individual, inter alia, by his/her access to
– education
– Health
– training and skill development
• Providing Opportunity to participate through
– access to resources, both physical and financial
– access to markets, both as a buyer and as a seller of goods & services
– level playing field in the market place
– employment opportunities getting created and
– Growth in the productivity (of workers/employees).
Globsyn Business School : AIMS 27
Socio Economic dimension in FI
Economic growth
8.5 to 9%Limited access to savings, loans, remittance &
insurance in rural/ unorganized sector major constraint to
growth
Growth primarily in industry & services –Agriculture at 2% -Growth potential in
SME sector enormous
Above services enlarge livelihood
opportunity & empowers poor –
Empowerment aids socio-political
stability
Financial
Inclusion
provides
formal
identity,
access,
Empowers
and enables
growth
participation
Globsyn Business School : AIMS 28
Money lender and the witty women
Unwilling to be unveiled as dishonest the lender waived the debt.
THUS A BIG PROBLEM GOT SOLVED
THROUGH USE OF LATERAL THINKING
Globsyn Business School : AIMS 29
Many loose ends to meet Financial Inclusion
Globsyn Business School : AIMS 30
Key stakeholders Universe in FI
Middle
Class
Multi/
Bilateral
Agencies
Rural &
Urban
Poor
Bureaucrat
Business
Community
Media
PoliticiansInfrast’ure
Players
NGO
Community
Based Orgns
Opinion
Leaders
Special
Interest
Groups
Globsyn Business School : AIMS 31
But their reactions ?
Middle
Class
Multi/
Bilateral
Agencies
Rural &
Urban Poor
Bureaucrat
Business
Community
Media
PoliticiansInfrast’ure
Players
NGO
Community
Based
Orgns
Opinion
Leaders
Special
Interest
Groups
• Can play vital role. But confused
• Low in agenda
•Financial illiteracy
• Does not know
what to expect
• Influence of local
money lenders
interest groups
• Lack of trust
• Minimal authority
• Lack of professionalism
• HR challenges
• Too much political
interference
• Too many agencies
• No authority to make
decisions
• Complex system
• Too much
interference from
higher political
players
• Look out for myself
•Less patience for
long-term reform
• Discriminatory
social fabrics –
work well
politically
Globsyn Business School : AIMS 32
Challenges to overcome by Financial Institutions
Globsyn Business School : AIMS 33
Illustrative business model to emerge for delivery
Delivery through Business Correspondents will eventually emerge as
major channel for financial service offerings for financial inclusion
Globsyn Business School : AIMS 34
Three pillars for delivery
Globsyn Business School : AIMS 35
Extremely large target population
Current Banking systems service merely 33% of total population
Customer profile different
Very low Literacy levels and Awareness
Business Processes need re-engineering
Existing processes can not produce desired results
Independent Delivery Agencies
Deployment of Business Correspondents/ Facilitators
Latest trends in Technology
Cost-effective state-of-the-art technologies are available today
Technology Infrastructure
To leverage on the UID number for financial inclusion
Accessing mobile enabled micro-transaction through Inter-bank mobile
payment service created by National Payments Corporation of India
Technology for FI – Why do we need to talk?
Globsyn Business School : AIMS 36
FI Innovations : Making a difference
Triggering Rural economy
Creates Purchasing Power by focusing
on increasing Income Levels
Enabling implementation of New
Technology in Agriculture
Providing Urban Amenities in Rural
AreasDeploying IT for real empowerment
Globsyn Business School : AIMS 37
The enlarged vision
Globsyn Business School : AIMS 38
Last mile
Reach thru people
with local feel and
pulse and
Market presence
Economic capital
through value creation
In the economy
Innovation in
Distribution
Network with capability
to make deep penetration
And technology
Enabled delivery
Doorstep service and
Building Trust
Relationship selling
Identifying the
Right target group
that deserve and
Make commercially
Viable proposition
Right Product
And pricing with product
design focussed to
commercial viability for
the target segment with
low margin
Cutting edge
Commercial Viability of FI - On six key strategic cornerstones
Globsyn Business School : AIMS 39
Measuring Financial Inclusion – IFIIndex of Financial Inclusion
39
The index of financial inclusion is a measure of inclusiveness of the financial sector of a country. It is constructed as a multidimensional index that captures information on various aspects of three key dimension of financial inclusion (i) banking penetration, (ii) availability of banking services and (iii) usage of the banking system
Accessibility has been measured by the penetration of the banking system proxied by the
number of bank A/C per 1000 population. Availability has been measured by the number of bank branches and number of ATMs per 100,000 people. The proxy used for the usage dimension is the volume of credit plus deposit relative to the GDP
Mandira Sarma
Indian Council for Research on International Economic
Relations
Jesim Pais
Institute for Studies in Industrial Development
India ranks 29th of the 49
countries under research
Globsyn Business School : AIMS 40
Promotion of Financial Inclusion
40
Issues to address
• Go beyond the number of bank accounts as measure of access
• Establish the linkage between financial inclusion policies and improvements in the well being of the poor.
• Barriers to access emanating from both demand side and supply side factors
• Lack of communication and language barriers,
• Lack of infrastructure,
• low literacy levels
• Poor technology for delivery
Globsyn Business School : AIMS 41
Promotion of Financial Inclusion
– From the demand side
- Generate awareness about financial services and products,
- Enhance literacy, especially financial literacy of the populace
- Remove social exclusion.
– From the supply side
- Reduce the transaction costs that the bankers perceive.
41
(I) Rise of the cost of providing services
(ii) Inhibit bankers from taking initiative from the supply side
Globsyn Business School : AIMS 42
Need for a F I Policy : Design Issues
• Principles that must be at the forefront of the design.
– The sustainability of financial institutions and the consumers of financial services.
– Exploration and promotion of commercially-driven, innovative business models that best suit our economy
– Strong, committed and capable service providers should be encouraged to participate in the market.
– Supportive Infrastructure to ensure sustainability
42
Combination of these can be eased through cooperation and experience sharing among policy makers in all institutions and
borrowing lessons from other countries.
Globsyn Business School : AIMS 43
Improving Access to Public Goods and Services
• Health
• Challenge of providing basic health services by revitalizing the Primary
Health centers.
• The challenge of eradicating epidemics/diseases through regular health
campaigns and awareness
• Training and Skill Development
• Challenge for the Govt. to revitalize the Industrial Training Institutes for
creating trained manpower and retraining the existing workforce
• Education
• Challenge of bridging the male-female literacy gap through concerted
awareness/education campaign and effective incentivisation.
• Challenge of achieving universal education, especially in the villages by
educating and suitably incentivizing the parents and the children.
Globsyn Business School : AIMS 44
Improving Access to Financial Services
• Challenge of improving access to basic financial services – opening
branches in all the villages by 2012, opening of No Frills Accounts,
simplified KYC norms
• The challenge of up-scaling the SHG-bank linkage
• The challenge of promoting greater flow of credit to Agriculture -
doubling of agriculture credit in three years, introduction of KCCs,
Farmers clubs, interest subvention scheme for agricultural loans.
• Challenge of spreading financial education and planning – opening
at least one centre for financial education and planning in each district.
• Challenge of overcoming the problem of last mile in reaching to the
poor and disadvantaged – Using technology of the smart cards, low
cost, mobile ATMs and mobile.
Globsyn Business School : AIMS 45
As We Sow So We Reap
That night, the girl slept peacefully.
But the boy couldn't sleep.
Why???
I will give you all my marbles if
you share the sweets that you have
with me
Are you sure ?
Yes! See the marbles in my hand!
Take whatever you like or all of
these.GREAT! Take all the sweets that I
have .
The boy fixed his chances by keeping the biggest and
the most beautiful marble aside and gave the rest to
the girl.
He kept wondering if the girl had
hidden some sweets from him the
way he had hidden his best marble
Globsyn Business School : AIMS 46
Questions?