Financial Inclusion - AMP 2020-21 - Soumya - 23082020 PDF

BANKING PRODUCTS &
SERVICES – FINANCIAL
INCLUSION
Ms. P. Soumya
Deputy Director - Academics
Faculty, IIBF
INDIAN INSTITUTE OF BANKING & FINANCE
Session Objectives
 Introduction to Financial Inclusion

 BC/BF Model
 Government Schemes
 Risk & Fraud Management
 India vis-à-vis Developing Economies
 RBI’s NFSI 2019-2024
 Role of DFIs

Introduction to Financial Inclusion

What is Financial Inclusion?
As per World Bank - Financial inclusion means that individuals
and businesses have access to useful and affordable financial
products and services that meet their needs – transactions,
payments, savings, credit and insurance – delivered in a responsible
and sustainable way.
As per RBI Rangarajan Committee Report, 2008 - Financial

inclusion has been defined as “the process of ensuring access to
financial services, timely and adequate credit for vulnerable groups
such as weaker sections and low-income groups at an
affordable cost”.
Financial inclusion is the provision of affordable, accessible and
relevant financial products to individuals and businesses that had
previously not been able to access these products.
Savings
Bank
Insurance
Accounts
Financial
Inclusion
Financial Payment &

Advice Remittance
Affordable
Credit

Who are Financially Excluded?
As per the World Bank Global Findex, a person is unbanked if
‘(s)he is without an account at a financial institution or
through a mobile money provider’. Global Findex 2017
shows that 1.7 billion adults remain unbanked globally.
Adults without an account by the

economy (%), 2017
Source: World Bank, Findex Database

Causes of Financial Exclusion
Not suitable to customer’s
Lack of surplus income
requirements
Lack of awareness of the

Lack of requisite documents
product
Lack of trust in the system High transaction costs
Poor quality of services

Remoteness of service provider
rendered
Nil/Poor credit history Inadequate manpower
Difficulty in relating to rural

Geographical challenges
areas

Reasons for % of individuals without account with Financial Institution
Source: World Bank, Findex Database

Need for Financial Inclusion
✓ Develop a culture of savings among large segment of
rural population
✓ Protect financial wealth of the low income group
✓ Mitigate the exploitation of vulnerable sections by

money lenders by facilitating easy access to formal
credit.
✓ Play a positive role in the process of economic

development
Evolution of Financial Inclusion - Global
 Origins traced to United Nations initiatives
 Global financial crisis – financial exclusion
 Few examples
 The Community Reinvestment Act (1977) of United States
 “Everyman” bank account by German Bankers Association
 “Mzansi”, a low cost bank account launched in 2004 by
South Africa
 Financial Inclusion Task Force constituted by the UK
government in 2005
 Financial Stability and Development Council (FSDC) set up by
Government of India in 2006

Evolution of Financial Inclusion - India
 Nationalisation of banks – 1969 (14 banks) & 1980
(6 banks)
 Lead Bank Scheme – 1969
 Regional Rural Banks – 1976
 Priority Sector Guidelines – 1980
 Service Area Approach – 1989
 SHG-Bank Linkage – 1992
 BC/BF Model – 2006
 Differentiated Banking – 2015
Recent Initiatives in India
SECTORS
 MSMEs – Udyami Mitra, psbloanin59minutes, TReDS
 Agriculture – now also includes animal husbandry and fisheries
 Aspirational districts – identified 117 districts across 28 states across 5
sectors viz health and nutrition, education, agriculture and water
resources, financial inclusion and skill development, basic
infrastructure
REGULATORY FRAMEWORK – BANKING
 Financial Inclusion Fund (FIF) – to support adoption of technology and
capacity building with an initial corpus of Rs. 2000 crores
 BC Registry under the aegis of IBA to identify BC’s having good service
track record
 Mandatory BC certification course from IIBF
Twin Pillars
Financial Financial
Literacy Inclusion
Demand Side Supply side
(awareness (providing the
amongst people financial market
of what they can services that
demand) people demand)

Business Correspondent / Business
Facilitator Model

Methodology Conduct of
Financial
Literacy Camps
Basic Products –
SB with inbuilt Create
OD, RD, Credit, Awareness
Remittance
Access -
Gain
Account
Knowledge
Opening
Change in
Behaviour

Banking Products & Services in FI
Products Services
• Savings Account • Account Opening
• Recurring Deposit • Collection/Deposit
• Overdraft • Payment/Withdrawal
• GCC/KCC • Funds Transfer
• Insurance • Refund
• Pension
• DBT (NREGA, LPG
subsidy)

Role of Technology
 Micro-ATMs
 Aadhaar Enabled Payment System (AEPS)
 Aadhaar Payment Bridge System (APBS)
 Rupay Debit Cards

Agent
approaches Customer
customer swipes
Customer
debit card Customer
details
on device chooses
appear on
type of
screen
transactio
n
Bank
Confirmatio Validates Customer’s
n receipt finger print finger print
printed & processes
INDIAN is scanned
INSTITUTE OF BANKING & FINANCE
txn
Direct Benefit Transfer (DBT) process
Example - LPG Consumer Id with Bank A/c
With Aadhaar Without Aadhaar

Number Number
Link Aadhaar with Link LPG Consumer

bank branch Id with bank branch
LPG Consumer Id Link bank a/c no.

with LPG distributor with LPG distributor

Business Facilitator
Eligible Eligible
Scope of Activities
Institutions Individuals
NGOs
School Teachers Creating awareness about
Cooperative Societies savings and debt
Balwadi workers
Account opening
Farmers Clubs Village officer
Advising on managing money
Post offices Ration Dealers
Identify borrowers
Insurance agents Kirana Merchants
Collection of loan applications
Panchayats Postal staff
Credit counselling
Agri Business Centres Municipal/Gram
Panchayat Staff Follow-up for recovery
KVIC/KVIB units
Business Correspondent
Eligible Institutions /
Scope of Activities
Individuals
NGOs/MFIs
Activities carried out by BF
Section 25 (8 under the new
act) companies
Disbursal of small value credit
Post Offices
Mobilisation of small value deposits
Cooperative Societies
Petrol Pumps Carry out remittances

Kirana shops
Multiple product selling
Retired bank employees

BC/BF - Eligibility Criteria
Individuals Institutions
Permanent resident of the Voluntary / registered organization
area / village
If registered, should be authorized by its
Minimum SSC qualified documents to work as BF
Age 21-50 years except for Check Credentials of promoters/office-bearers

teachers, retired bankers
Check Latest audit report/balance sheet
Not a defaulter to any bank
Not a defaulter to any bank
No criminal proceeding
Attached only with 1 bank
Not be engaged with more
than 1 bank as BF Undertaking not to join anywhere during the
period they work for the Bank
Role of BC
 Intermediary between the bank and the villagers
 Confidant of the bank
 Information assimilator
 Customer counselling
 Customer educating
 Identify prospective borrowers
 Collection of application forms
 Verification of information given
 Pre and post loan disbursal verification and monitoring
 Provide mini account statements
 Follow-up for recovery

GOVERNMENT SCHEMES

PMJDY – Pradhan Mantri Jan Dhan Yojana
 Launched in August 2014, provide banking services at affordable
cost
 Focus on household coverage, rural and urban
 At least one basic banking account for every adult
 Access to credit - Overdraft facility upto Rs. 10,000 after 6
months of satisfactory conduct of account, upper age limit
revised from 60 to 65 years
 Life Insurance cover of Rs. 30,000, available between 18-59
years
 Accidental Insurance Cover of Rs. 1 lakh if Rupay Debit Card
held, accounts opened after 28.8.2018 cover revised to Rs. 2
lakh
PMJDY – Pradhan Mantri Jan Dhan Yojana
 Map 6 lakh villages, according to Service Area of each bank,
into 1.6 lakh SSA
 Sub-Service Area (SSA) – 1 fixed point banking outlet catering to

1000-1500 households
 Facility available at reasonable distance, every 5 kms
 SSA combination of banking outlets i.e. branch banking

(traditional Brick & Mortar branches) and branchless banking.

Basic Savings Bank
Deposit A/c (BSBDA) Small Accounts
 Those that don’t have any of the OVDs
 Nil minimum balance  Total Deposits/Credits – not more than Rs. 1 lac
in a year
 Maximum 4 withdrawals  Total Withdrawals – not more than Rs.10,000 in a

month
 No limit for deposits  Balance not more than Rs.50k at any point of
time
 ATM Card  Valid for 12 months
 Extend further 12 months subject to confirming
 No extra cost application made for any one of the OVDs
 CBS based – a/c can be transferred to any branch

of a city/town

PMJDY - statistics

PMMY-Pradhan Mantri Mudra Yojana
 Launched on April 2015 to facilitate credit to small
Gen –
businesses 48%
 Loans categorised as Shishu (upto Rs.50k), Kishore (Rs.50k
to Rs.5lakh) and Tarun (Rs.5-10 lakhs)

% of MUDRA loans to % of accounts under
women as on 31.03.2019 various social categories –
(Rs.12.73 crores) 31.03.2019
Male – OBC –
30% 30%
Gen –
Female – 48%
ST – 5% SC –
70%
17%
Share of New Entrepreneurs/Accounts as on 31.03.2019
New 26.52% Existing

entrepreneurs 73.48%
entrepreneurs
/ accounts / accounts

Stand up India
 Launched in April 2016
 To promote entrepreneurship amongst women, SC/ST
 For setting up greenfield enterprises in trading,

manufacturing and services sectors
 Facilitates bank loans between Rs.10 lakh and Rs. 1 crore

Central Schemes
Central Sector Schemes
• 100% funded by Union Govt
• Implemented by Central Govt
• Example - Pradhan Mantri Awas Yojana (PMAY)
Centrally Sponsored Scheme (CSS)
• Some percent of funding borne by States
• Ratio 50:50, 70:30, 75:25, 90:10
• Implementation by States
• Example - Deendayal Antyodaya Yojana-National
Rural Livelihoods Mission (DAY-NRLM)
RISK & FRAUD MANAGEMENT

Risk Management
 What is Risk?
 Probability of gaining or losing something in value
 Where is Risk?
 Exists everywhere, integral part of our life
 Is certain, only timing and impact is uncertain
 Financial Risk
 On Deposits
 On Loans / Advances / Investments
 Outsourcing risk in BCBF model

Risk Types & Mitigation
S.No. RISK TYPE MITIGATE
1. Strategic Risk
Service Provider conducting Roles of BC clearly defined so as to
activities on its own behalf; not enter into any other acitivity on
mismatch with the overall goals of behalf of the bank by signing an MoU
the entity with the BC.
Inadequate expertise to oversee the Proper training to be given to staff

service provider of entity
2. Reputation Risk
Poor service from service provider Feedback from customers or enquiry
from reputed persons of the village
can be done.
Customer interaction by the service Proper training to be given to BC

provider not satisfactory

Risk Types & Mitigation
S.No. RISK TYPE MITIGATE
3. Compliance Risk
Privacy, consumer laws not Any breach of privacy may be
adequately complied with by the penalised and the service provider
service provider black listed. An undertaking may also
be taken to this effect.
Systems of the service provider Compliance/controls may be ensured

are inadequate by the bank before engaging BC.
4. Exit Strategy Risk /
Concentration Risk
Occurs when over reliance with a Business should be distributed through
single agency and also exit many BC by which stand by
strategies are not in place. arrangement or replacement is easily
possible without any hindrance.
5. Contractual Risk / Access Risk
Unable to enforce the contract Before deploying BCs, to carry out due
diligence
INDIAN INSTITUTE OFcheck
BANKING & FINANCE
Risk of BCs
 Cash transactions
 Types of Customers and their behaviour
 Threat to life
 Threat of theft
 Cash management
 Technology related like usage of different modes of banking, ATM out of cash,
wrong PIN used 3 times, wrong debit in account
 Security concerns unknown/unaware in the digital products
 Customer confidentiality

Fraud Management
Question Explanation
An intentional act committed to
What is Fraud? secure unfair or unlawful gain
3 objectives
Prevention – ensure processes in place to
stop it from occurring
How to manage
fraud? Detection – monitor processes regularly to
find such occurrences
Remedy – correct process and take
necessary course of action
DO’s for BCs
 Should know the banking products offered
 Should be aware on the usage of digital product
 Should know the security concerns of the technology used
 Should educate or assist the customers being face of the bank
 Should Maintain confidentiality of customer information
 Should be impartial and provide service equally to all classes

DON’Ts of BCs
 Not indulge in in politics, caste-divisibility
 Not carry out transaction when system is down
 Not charge any separate fee directly to the customer
 Not offer any type of guarantee in favour of any customer
 Not offer banking services on his own accord
 Not undertake any cheque transactions
 Not provide any cash advances
 Cannot subcontract his job to another agency

Where does India stand amidst the
Developing Economies?

National Financial Strategy for
Financial Inclusion 2019-2024

Financial
Inclusion
policies
Financial
Inclusion
Triad
Customer
Financial
Grievance
Literacy
Redressal
Initiatives
Framework

S Strategic Recommendations
No. Objectives
1. Universal Access to extend digital financial
Financial Services infrastructure to co-operative
access to a financial service banks, Payment Banks, Small
provider within a reasonable Finance Banks and non-bank
entities such as fertilizer shops,
distance of 5 KM radius
Office of the Local Government
bodies / Panchayats, fair price
shops, common service centres,
educational institutions etc.
2. Providing Basic Bouquet of banks should strive for capacity
Financial Services - to include building of their BCs so that they
a Basic Savings Bank Deposit can be utilised for delivery of a
Account, credit, a micro life wider range of financial products
and non-life insurance product,
a pension product and a
suitable investment INDIAN
product.INSTITUTE OF BANKING & FINANCE
S Strategic Recommendations
No. Objectives
3. Access to Livelihood and to attain convergence of
Skill Development - to help objectives of various employment
the new entrant to augment generation and skill development
their skills and engage in programmes like National Rural
meaningful economic activity Livelihoods Mission (NRLM),
and improve income National Urban Livelihoods
generation Mission (NULM), Pradhan Mantri
Kaushal Vikas Yojana (PMKVY) and
other state level programmes
through an integrated approach
4. Financial Literacy and coordinated efforts are made by
Education – are bedrocks of a RBI, NABARD, NRLM resource
vibrant financial system - in persons, NGOs, PACS, Panchayats,
the forms of Audio-Video/ SHGs, Farmers’ Clubs etc. to
booklets shall be made promote financial literacy at
available for understanding grassroots
INDIAN INSTITUTE levels & FINANCE
OF BANKING
the product and processes
S. Strategic Recommendations
No. Objectives
5. Customer Protection and internal audits should also assess
Grievance Redressal – To the qualitative efficacy of the
ensure adequate safeguards customer grievance redressal
for storing and sharing of mechanism already in place in the
customer’s biometric and banking system viz., Internal
demographic data, to Ombudsman Scheme.
protect the customer’s Right
to Privacy
6. Effective Co-ordination - assigning specific responsibilities to
between the key all, promoting co-ordination through
stakeholders viz. technology and adopting a
Government, the Regulators, decentralized approach to planning
financial service providers, and development by creating
Telecom Service Regulators, separate smaller forums
Skills Training institutes etc.
Measurement of Progress of FI
Key Dimensions
Access Usage Quality
•Physical • Formally banked • Financial
accounts
points of Literacy and
• Adults with
service insurance & Capability
credit at formal
institutions
•Digital • Grievance
• Cashless and
points of Mobile based Redressal
transactions
service • Frequency of
Account Usage
• Remittances
Indicators to measure Access
No. of
Bank
branches
per
100,000
Adults
No. of Access
Business of No. of
Correspon ATMs per
dents per Financia 100,000
100,000 l Adults
Adults Services
No. of PoS
machines
per
100,000
Adults

Indicators to measure Usage
tells how the bouquet of financial services
are being used by target customers
% adults with savings account

Usage
% adults having access to credit, insurance,

pension
% MSMEs having access to formal credit

Indicators to measure Quality
• Financial Knowledge Score: Arithmetic
Financial score which sums up correct responses to
questions about basic financial concepts
Literacy and such as: (a) inflation; (b) Interest Rate; (c)
Compound Interest; (d) Money illusion; (e)
Capability Risk Diversification; (f) Main Purpose of
insurance
• Existence of formal internal and

Grievance external dispute resolution
mechanism, measured through: i) No.
Redressal of complaints received ii) No. of
complaints resolved

Role of DFIs in FI
Name of Development Finance Institutions

NABARD National Bank for Agriculture and Rural Development
NPCI National Payments Corporation of India
IBA Indian Banks Association
IDRBT Institute for Development and Research in Banking
Technology
NCFE National Centre for Financial Education
DSCI Data Security Council of India

References
 IIBF courseware on BC/BF

 RBI Circular on BC/BF model
 World Bank
 Department of Financial Services
 RBI approach paper on NFSI

Questions ?

Contact Details (Optional):
Phone / Email

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BANKING PRODUCTS &

 Introduction to Financial Inclusion

INDIAN INSTITUTE OF BANKING & FINANCE

INDIAN INSTITUTE OF BANKING & FINANCE

As per RBI Rangarajan Committee Report, 2008 - Financial

Financial Payment &

INDIAN INSTITUTE OF BANKING & FINANCE

Adults without an account by the

Source: World Bank, Findex Database

INDIAN INSTITUTE OF BANKING & FINANCE

Lack of awareness of the

Lack of trust in the system High transaction costs

Poor quality of services

Nil/Poor credit history Inadequate manpower

Difficulty in relating to rural

INDIAN INSTITUTE OF BANKING & FINANCE

Source: World Bank, Findex Database

INDIAN INSTITUTE OF BANKING & FINANCE

✓ Protect financial wealth of the low income group

✓ Mitigate the exploitation of vulnerable sections by

✓ Play a positive role in the process of economic

INDIAN INSTITUTE OF BANKING & FINANCE

INDIAN INSTITUTE OF BANKING & FINANCE

INDIAN INSTITUTE OF BANKING & FINANCE

INDIAN INSTITUTE OF BANKING & FINANCE

INDIAN INSTITUTE OF BANKING & FINANCE

 Aadhaar Enabled Payment System (AEPS)

 Aadhaar Payment Bridge System (APBS)

 Rupay Debit Cards

INDIAN INSTITUTE OF BANKING & FINANCE

With Aadhaar Without Aadhaar

Link Aadhaar with Link LPG Consumer

LPG Consumer Id Link bank a/c no.

INDIAN INSTITUTE OF BANKING & FINANCE

Petrol Pumps Carry out remittances

INDIAN INSTITUTE OF BANKING & FINANCE

Age 21-50 years except for Check Credentials of promoters/office-bearers

INDIAN INSTITUTE OF BANKING & FINANCE

INDIAN INSTITUTE OF BANKING & FINANCE

 Sub-Service Area (SSA) – 1 fixed point banking outlet catering to

 Facility available at reasonable distance, every 5 kms

 SSA combination of banking outlets i.e. branch banking

INDIAN INSTITUTE OF BANKING & FINANCE

 Maximum 4 withdrawals  Total Withdrawals – not more than Rs.10,000 in a

 ATM Card  Valid for 12 months

 Extend further 12 months subject to confirming

 No extra cost application made for any one of the OVDs

 CBS based – a/c can be transferred to any branch

INDIAN INSTITUTE OF BANKING & FINANCE

INDIAN INSTITUTE OF BANKING & FINANCE

INDIAN INSTITUTE OF BANKING & FINANCE

Share of New Entrepreneurs/Accounts as on 31.03.2019

New 26.52% Existing

INDIAN INSTITUTE OF BANKING & FINANCE

 Launched in April 2016

 To promote entrepreneurship amongst women, SC/ST

 For setting up greenfield enterprises in trading,

 Facilitates bank loans between Rs.10 lakh and Rs. 1 crore

INDIAN INSTITUTE OF BANKING & FINANCE

INDIAN INSTITUTE OF BANKING & FINANCE

INDIAN INSTITUTE OF BANKING & FINANCE

Inadequate expertise to oversee the Proper training to be given to staff