Financial InclusionRonak Nahar & Sagar Arora

Definition(As defined by RBI)

Financial Inclusion is the process of ensuring access to appropriate financial products and services needed by vulnerable groups such as weaker sections and low income groups, at an affordable cost, in a fair and transparent manner by mainstream institutional players.

Informal Definition

Delivery of financial services at an affordable cost to vast sections of disadvantaged and low income groups.

Who are excluded ?

Marginal Farmers

Landless Farmers

Oral Lessees

Self Employed

Urban slum developers

Migrants

Minorities

Social excluded groups

Senior citizens

Women

TWIN ASPECTS OF FINANCIAL INCLUSION

• Financial Inclusion and Financial Literacy are twin pillars. While Financial Inclusion acts from supply side providing the financial market/services what people demand, Financial Literacy stimulates the demand side – making people aware of what they can demand.

Demand Side & Supply Side

Financial Literacy -Fair &

Appropriateness

Financial Inclusion - Access

• Developing Economies face the problem of low level of literacy, poor accessibility and low demand. Therefore it is necessary for developing an Index for measuring both Access as well as the level of Literacy.

Issues – Inclusion & Literacy

Demographic Spread – How to provide banking services to villages with low population – Viability?

Evolving of an Appropriate Business Model & an Efficient Delivery Mechanism

Financial Literacy – How to increase financial awareness mainly amongst the excluded masses

How to have a National Level Coordination of all stakeholders like Banks, Governments, Civil Societies, NGOs etc. required to achieve the objective of financial inclusion & literacy.

The Financial Tripod

• Financial education, financial inclusion and financial stability are three elements of an integral strategy.

• Financial inclusion works from supply side of providing access to various financial services.

• Financial Stability Development Council (FSDC) has explicit mandate

to focus on financial inclusion and financial literacy simultaneously.

• Financial education feeds the demand side by promoting awareness among the people regarding the needs and benefits of financial services offered by banks and other institutions.

Financial Inclusion Plan 2010

Public and private sector banks had been advised to submit board approved three year Financial Inclusion Plan (FIP) starting from April 2010.

These policies aim at keeping self-set targets in respect of rural brick and mortar branches opened, BCs employed, coverage of un-banked villages with population above 2000 and as well as below 2000, BSBD accounts opened, KCCs, GCCs issued and others. RBI has been monitoring these plans on a monthly basis.

Banks have been advised that their FIPs should be disaggregated and percolated down up to the branch level. This would ensure the involvement of all stakeholders in the financial inclusion efforts

Financial Inclusion Plan Progress

Methodology

NSSO Survey Result

51.4% farm household do not have access to formal credit sources.

27% of total farm households are indebted to formal sources.

Farm households not accessing credit from formal sources as a proportion to total farm households is especially high at 95.91%, 81.26% and 77.59% in the North Eastern, Eastern and Central Regions respectively.

Thus, apart from the fact that exclusion in general is large, it also varies widely across regions, social groups and asset holdings. The poorer the group, the greater is the exclusion.

The report of the Rangarajan Committee is summarized as -

Rangarajan Committee Report on Financial InclusionThe attempt to lift the poor from one level to another so that they come out of poverty.

National Mission on Financial Inclusion (NaMFI)

The Committee feels that the task of financial inclusion must be taken up in a mission mode as a financial inclusion plan at the national level.

A National Mission on Financial Inclusion (NaMFI) comprising representatives from all stakeholders may be constituted to aim at achieving universal financial inclusion within a specific time frame.

The Mission should be responsible for suggesting the overall policy changes required for achieving the desired level of financial inclusion, and for supporting a range of stakeholders – in the domain of public, private and NGO sectors - in undertaking promotional initiatives.

National Rural Financial Inclusion Plan (NRFIP)

NRFIP may be launched with a clear target to provide access to comprehensive financial services, including credit, to at least 50% of financially excluded households, say 55.77 million by 2012 through rural/semi-urban branches of Commercial Banks and Regional Rural Banks.

The remaining households, with such shifts as may occur in the rural/urban population, have to be covered by 2015.

Semi-urban and rural branches of commercial banks and RRBs may set for themselves a minimum target of covering 250 new cultivator and non-cultivator households per branch per annum, with an emphasis on financing marginal farmers and poor non-cultivator households.

Business Correspondent Model

The Rangarajan Committee recommended that extending outreach on a scale envisaged under NRFIP would be possible only by leveraging technology to open up channels beyond branch network.

Adoption of appropriate technology would enable the branches to go where the customer is present instead of the other way round. This, however, is in addition to extending traditional mode of banking by targeted branch expansion in identified districts.

The Business Facilitator/Business Correspondent (BF/BC) models riding on appropriate technology can deliver this outreach and should form the core of the strategy for extending financial inclusion.

The Committee has made some recommendations for relaxation of norms for expanding the coverage of BF/BC. Ultimately, banks should endeavour to have a BC touch point in each of the 6, 00,000 villages in the country.

Procedural Simplification

Procedural Changes like simplifying mortgage requirements, exemption from Stamp Duty for loans to small and marginal farmers and providing agricultural / business development services in the farm and non-farm sectors respectively will help in extending financial inclusion.

Financial Inclusion Initiatives

RBI Policy Initiatives

RBI has adopted a bank-led model for achieving financial inclusion and removed all regulatory bottle necks in achieving greater financial inclusion in the country.

Further, for achieving the targeted goals, RBI has created conducive regulatory environment and provided institutional support for banks in accelerating their financial inclusion efforts.

Basic Saving Bank Deposit (BSBD)

Relaxed and simplified KYC norms

Simplified Branch Authorization Policy

Compulsory Requirement of Opening Branches in Un-banked Villages

Financial Literacy Centres (FLCs)

Licensing of New Banks

Financial Inclusion Initiatives – Private Corporates

A few large private corporate have undertaken projects such as E-Choupal/E- Sagar(ITC), Haryali Kisan Bazaar (DCM), Project Shakti(HUL), etc.

Reportedly, these pioneering projects have brought about vast improvement in the lives of the participants and set the tone for economic development in their command areas; which is a pre-requisite for Financial Inclusion efforts to be undertaken by the banking system.

Progress in Financial Inclusion

Number of Branches Opened

Due to RBI’s concerted efforts since 2005, the number of branches of Scheduled Commercial Banks increased manifold from 68,681 in March 2006 to 1,02,343 in March 2013.

As compared with rural areas, number of branches in semi-urban areas increased more rapidly.

Kisan Credit Cards (KCC) Issued

Banks have been advised to issue KCCs to small farmers for meeting their credit requirements. Up to March 2013, the total number of KCCs issued to farmers remained at 33.79 million with a total outstanding credit of Rs.2622.98 billion

General Credit Cards (GCC) Issued

Banks have been advised to introduce General Credit Card facility up to Rs. 25,000/- at their rural and semi-urban branches. Up to March 2013, banks had provided credit aggregating to Rs.76.34 billion in 3.63 million GCC accounts

Expansion of ATM Network

The total number of ATMs in rural India witnessed a CAGR of 30.6% during March 2010 to March 2013. The number of rural ATMs increased from 5,196 in March 2010 to 11,564 in March 2013

The Way Forward…

With the improvement of connectivity, online transaction model to be implemented.

Web based kiosk/ mobile based model to be made available at villages

Introduction of combo card (smart chip with magnetic stripe) to enable payments through ATMs.

Integration with UIDAI project

Thank You