http://inclusion.in/index.php?

option=com_content&view=article&id=615&Itemid=78

http://statetimes.in/news/index.php/2011/04/12/financial-inclusion-still-a-challenge/

The irony is that whereas private sector looks glamorous the public sector is needed to keep the society
on an even keel. Mobile telephony for the last mile access is not attractive enough for private service
provider and is, therefore, the baby of BSNL. This kind of suo motto contradiction needs to be addressed
by taking a policy resolution. Unique identification data may be a great enabler for financial inclusion to
the extent that it can take care of ‘know your customer’ and ‘know your resident’. But the scope of
financial inclusion is much larger. Therefore, operationalising financial inclusion beyond slogans and
political advantage may be the biggest challenge of the decade.

http://business.in.com/printcontent/19262

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C Rangarajan: The Two Pillars of Financial Inclusion
Banks are in the best position to lead financial inclusion. They have just got more teeth
from the banking correspondent model and a sharper focus on self-help groups
by C. Rangarajan | Nov 18, 2010
The nationalisation of major commercial banks in 1969 was an important landmark in the history
of financial inclusion. It was felt that the nationalised banks can make a big push into the rural
areas. To some extent, this has happened. But the fact remains that despite a very focussed
expansion of branches in the rural and semi-urban areas, we have not been able to reach out to
the poor farm households and therefore a re-think has started now as to what more can be done.

An important development in the last 15-odd years has been the organisation of Self-Help
Groups (SHGs) or small groups of people who could borrow from the banking system. In some
ways the SHGs movement has been a success. But it is also seen that it is concentrated much
more in the South and therefore there is a regional disparity in terms of the growth of the SHGs.
We need to look for an organisational mechanism that would combine the widespread opening of
the branches of the rural areas and the SHG movement.

There are multiple institutions involved in financial inclusion. There are the rural branches of
commercial banks, rural branches of regional rural banks, the micro finance institutions (MFIs)
and some not-for-profit societies. We should encourage all types of institutions in this mission
but I think that the banking-linked programme would be the most important, because banks have
the resources. If the banking system can find the appropriate delivery system, then that would be
the most ideal thing. It is in this context that the scheme of business correspondents becomes
extremely important.

Surely, there are some problems relating to the BC model. One is about who should bear the
additional costs of introducing such a new tier of operation. Having business correspondents
implies extra costs. These costs may not be very high — they would be much lower than what
the banks will have to bear if they were doing the business directly — but nevertheless there is
an additional cost.

As far as the borrower is concerned, he cannot be asked to pay different rate just because the
loan passes through a business correspondent. There can only be one rate at which the bank can
lend whether it lends directly or through a business correspondent. Therefore the banks will have
to decide as to how to bear these additional costs. The committee on financial inclusion,
appointed by the government under my chairmanship, had indicated that at least 50 percent of
the financially excluded households must be covered by 2012 through rural and semi-urban
branches.

Can we achieve that? To me, it depends on how well the BC model takes off. Otherwise too, it is
possible because if you look at the numbers, it is doable given that we have 40,000 rural and
semi-urban bank branches. But the two pillars of financial inclusion — the SHG-bank linkage
and the BC Model — can make a
huge difference.

Dr. C. Rangarajan is the chairman of the Prime Minister’s Economic Advisory Council. He is a
former RBI Governor and Governor of Andhra Pradesh.

This article appeared in Forbes India Magazine of 19 November, 2010