A Study on Financial

Inclusion in India

Sanjukta Kumari
VAMNICOM
Pune

Under guidance of
E V Murray
DGM, RBI CAB Pune

June 2009

1
ACKNOWLEDGEMENT
THIS ACKNOWLEDGEMENT IS NOT MERELY A CATALOGUE OF NAMES BUT AN
EXPRESSION OF A DEEP SENSE OF GRATITUDE TO THOSE WHO HELPED ME IN
UNDERTAKING THIS PROJECT.

I OWE A GREAT DEAL TO VAMNICOM FOR LAYING THE BUILDING BLOCKS OF

LOGIC AND PRAGMATISM IN MY LIFE. THIS REPORT, IN A WAY IS A REFLECTION
OF THESE VALUES.

I WOULD LIKE TO EXPRESS MY EARNEST GRATITUDE AND THANKS TO MR. E. V.

MURRAY, DGM, RBI CAB, PUNE FOR HIS SUPPORT AND KIND BLESSINGS. I AM
ALSO THANKFUL TO HIM FOR HIS ENCOURAGEMENT AND GUIDANCE
THROUGHOUT THE PROJECT.

I SINCERELY THANK MR. D. RAVI FOR HIS CO-OPERATION AND GENEROSITY

AND PROVIDING A VERY CHALLENGING AND SATISFYING PROJECT.

THE REPORT IS THE RESULT OF CONTRIBUTIONS OF NUMEROUS PEOPLE- TOO

MANY TO MENTION INDIVIDUALLY, I THANK ALL THOSE NUMEROUS WHO HAVE
CONTRIBUTED IN THEIR OWN WAY IN DRIVING THIS PROJECT TO SUCCESS.

I ALSO THANK ALL THE RESPONDENTS WHO HAVE GIVEN THEIR VALUABLE
TIME, VIEWS AND AUTHENTIC INFORMATION FOR THIS PROJECT.

LAST BUT NOT THE LEAST, I WOULD LIKE TO THANK MY FAMILY AND
COLLEAGUES FOR THEIR CONTINUOUS SUPPORT.

SANJUKTA KUMARI (0609)

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 SUMMARY
I. Title: Study of present status of Financial Inclusion in India and recommendations to make it a
successful venture in India.

II. Project Guide: Mr. E V Murray

III. Student’s Name: Sanjukta Kumari
Project Brief:
The Project deals with the study of banking to the unreached pocket of India, & of Financial
Exclusion and its vagaries. It also deals with the process of Financial Inclusion and the
challenges involved in the process by taking into perspective both International and the Indian
context & experience into account. The Project also studies the initiative taken by various banks
to address Financial Exclusion.

Benefits of Financial Inclusion:

a. The non-institutional money-lender or ‘ informal’ financial sector seeks an exploitative
economic relationship so that
b. Borrower is squeezed for repayment with high interest rates (due to risk perception)
c. If income situation worsens, cash supply is tightened and interest rates are raised.
d. Further loans ensure that borrower can never repay principal
e. Borrower then loses collateral, readying him for another loan
Financial institution do not cater for ‘consumption’ loans as this is perceived as non-productive
and this market is controlled by money lenders

Recommendations:
 Banks to make available a basic banking ‘no frills’ account either with nil or very
minimum balances as well as charges that would make such accounts accessible to vast
sections of the population
 Nature and number of transactions in such accounts to be restricted and made known to
customers in advance in a transparent manner
 KYC procedure for opening accounts simplified for those who intend to keep balances not
exceeding Rs. 50,000 in all their accounts taken together and the total credit in all the
accounts taken together is not expected to exceed Rs.1,00,000 in a year.
 Banks should have flexibility in fixing the limit based on the assessment of income and
cash flow of the entire household.
 The borrowers should be eligible for credit provided under GCC without any insistence on
security and the purpose or end-use of the credit.
 50% of credit outstanding under GCC should be eligible for being treated as indirect
agricultural financing.

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 Chapter 1
Overview
Why focus on unreached?
“The future lies with those companies who see the poor as their customers”
~C.K.Prahalad
What makes Rural Markets attractive?
0 Substantial increase in purchasing power of rural communities.
1 Due to the effect of Green revolution, rural areas are consuming a large quantity of
industrial and urban manufactured products.
2 Rural marketing initiatives are driving manufactured or processed inputs or services to
rural producers or consumers.
Prosperity in Rural Areas?
0 If the rural market is to drive the economy, incomes should grow substantially.
1 For long, it was thought that directed lending would bring prosperity to the rural areas
2 It is now proven that only a self-sustaining economic model can be successful in the rural
areas
Household is the Key?
0 At the core of the rural community is the rural household.
1 Unless the household as a unit is able to generate surplus income, there cannot be
widespread prosperity in the rural areas.
2 Ensuring that every adult member of the family is empowered to generate surplus income
through gainful activity is the real challenge before the banking system.
Rural Growth and Unemployment?
0 The provisional results of 5th economic census 2005 throws up some interesting
information.
1 There has been pick-up in the growth of the Enterprises and employment.
2 However, the unemployment rate has also increased over the period.
3 For the solution, we must look at the household.

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Holistic household approach?
0 Often the land holding is not big enough to generate sufficient income for the whole
family.
1 Bank should therefore enable employment as under:
- Agriculture for head of the household
- Education for the son
- Enabling the daughter to take up an alternate activity.
- Women SHGs for the mother

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 Chapter 2
Exclusion
0 Exclusion as a “Process”
1 Exclusion as a “Situation”
2 Exclusion by “Markets”
3 Insufficient income
4 Inadequate capabilities
5 Inappropriate values
Financial exclusion is the lack of access by certain consumers to appropriate, low cost, fair and
safe financial products and services from mainstream providers. •
Financial exclusion becomes of more concern in the community when it applies to lower income
consumers and/or those in financial hardship.
Why Financial Exclusion happens
0 Some of the barriers to starting a banking relationship are: -
1 Fear of banks (environment and staff)
2 Fear of temptation (and getting into debt)
3 Fear of failure (or lack of confidence that they will achieve a successful outcome)

Poverty and Financial Exclusion

There is a large overlap between poverty and permanent financial exclusion. Both poverty and
financial exclusion result in a reduction of choices which affects social interaction and leads to
reduced participation in society

Financial Exclusion and Allied Phenomena

Financial
Financial Exclusion Financial
Discrimination Illiteracy

Financial
Exploitation

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Gradations of Financial Exclusion
Core Exclusion: Who operate their financial affairs completely outside the regulated financial
system
Limited Access: May have a basic bank account but poor financial habits and little advice
Included but using inappropriate products: Victims of inappropriate products.

Main types of Financial Exclusion

1. Transaction accounts
2. Time Deposits
3. Financial Advice
4. Appropriate small credit
5. Insurance
6. Mortgage Loans
7. Superannuation
8. Enterprise based loan

Who is Financially Excluded?

1. Poor
2. Socially Underprivileged
3. Disabled
4. Old as well as Children
5. Women
6. Uneducated
7. Ethnic Minorities
8. Un-Employed

Extent of Financial Exclusion

a. Coverage Area
0 Check in Account -70%
1 Insurance-10%
2 Financial Assets-2%
3 Assets Insurance-2.53%

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 4 Health Insurance-0.20%
5 Credit Card-3%
6 Debit-5.66%
7 Small Overdraft-3.65%
8 Entrepreneurial credit-2.06%
b. Geographical Area
1. 5% are having Branch Bank
c. SHG Coverage
1. Out of about 400 million poor, 125 million poor are covered of which 113
million are women
d. Farmers Coverage
1. Tenants Farmers/Share croppers/Oral lessees
0 Small and Marginal Farmers
1 Out of 89.35 million SF/MF, 34.70 million (46.30%) households are
covered
Most needed services for Socially Excluded
1. Access to Small loans or overdrafts
2. Check in Accounts
3. Small Savings Products
4. Health Insurance
5. Life Insurance
6. Insurance against the failure of activity
7. Financial Asset
8. Credit Card
9. Entrepreneurship credit

Main Drivers of Financial Exclusion

Most frequent
Low income •
Nil or low savings •
Lack of assets •

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Unemployment •
Under employment •
Use of inappropriate products •
Financial illiteracy •
Poor financial habits

Less frequent
Psychological/disability issues •
Feeling of being excluded •
Indigenous/ethnic issues •
Geographical remoteness •
Lack of time •
Lack of PC/Internet Access •
Availability of alternative products and suppliers ••

Problems of Financial Exclusion in India

Coverage •
Cost of Small Value transaction •
Infrastructure •
Suitable products •
Flexibility •
Weak Delivery model •
Community Enterprise and Financial Management support

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 Chapter 3
Data of Financial Exclusion
Situation Assessment Survey
0 Rural Households 148 million
1 Farmer Household 89 million of which financially included 49%
2 Of which financially included – 49%, Of which financially excluded- 51 %
Assessment
0 By Marginal/Sub Marginal farmer
1 By spread of States
2 By Social Groups
3 By Size class wise distribution of land

1. Inclusion of Marginal Sub-marginal farmers

Categories No. of families (‘000) Percent
Excluded Included Excluded Included
S&MF 40.27 34.7 53.71 46.29
OF 5.66 8.72 39.36 60.64
Total 45.93 43.42 51.40 48.60

2. By Social Group
Social Number of households (‘000) Percent
Group
Included Excluded Included Excluded
SC 78323 77603 50.23 49.77
ST 43304 75937 36.32 63.68
OBC 190467 179963 51.42 48.58
Others 122014 124870 49.42 50.58
Total 434108 458373 48.64 51.36

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3. By Size- Class-wise distribution
Land Holding No of Households (‘000) Percent
Included Excluded Included Excluded
Up to 0.4 ha 135820 169641 44.5 55.5
0.41 to 1 ha 129211 154399 45.6 54.4
1.01 to 2 ha 81920 78680 51 49
2.01 to 4 ha 54409 39095 58.2 41.8
Above 4.01 32882 17447 65.3 34.7
Total 434242 459262 48.6 51.4

Percentage share of institutions in cash borrowings of households

Sources of credit 1971-72 1981-82 1991-92 2002-03

Non institutional 68.3 36.8 30.6 40.5

Of above money lenders 36.1 16.1 17.5 29.1

Institutional 31.7 63.2 66.3 59.5

Of above Co-op 22 29.8 35.2 31

CBs 2.4 28.8 35.2 24.5

Unspecified 3.1

Total 100 100 100 100

Source: Decennial All India Debt & Investment Surveys

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Pre-conditions for success
1. Attitude and will power
2. Technology
3. Delivery Mechanism
4. Support Services •
0 Infrastructure •
1 Community Development Support •
2 Product Innovation
5. Regulatory and Policy Interventions
6. Involvement of all, especially Development/Administration at District/Block/Village level

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 Chapter 4
4.1 FINANACIAL INCLUSION
The Objective:
 Financial inclusion is a process of delivering financial services and facilities to all people in
transparent and equitable manner in affordable cost.
“The financial inclusion provides business opportunity for the financial institution at the bottom
of the pyramid tot expands the volume of the business. Profitability can be only be increased by
finding newer avenues for deployment of funds.”
 Economically and socially empower poor and low income people leading to the overall
development of the household, village state and finally the nation.
 Financial exclusion can be defined as the inability of individuals, groups and communities to
access and use appropriate and affordable personal, business and organisational financial
products and services.
4.2 The process
 Allocation of the village s to the banks
 Village or the household survey
 Assessment for the need of financial inclusion products
4.3 Financial Inclusion products offered
 No frill SB account
 Small overdraft facilities for general consumption
 General credit card for income based activities
 Micro insurance
 Health insurance
 Mutual fund proposed
4.4 Banking System vs. Performance
0 Rural Banking infrastructure 1,59,912 outlets
1 5000 rural population: 1 credit outlet
2 1000 rural households: 1 credit outlet
3 Why should exclusion persist?

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4.5 Theory of 3 Pillars
0 The role of the State in providing an inclusive framework is through fiscal measure which
increase investment in economic and social capital (Infrastructure)
1 The role of financial System in reducing poverty in all its forms is through providing
savings facilities, livelihood opportunities economic infrastructure and payment systems
2 The role of the CBO and NGOs is to catalyse local participation and thereby enhance
efficiency and transparency of services essential for financial inclusion.

The 3 pillars perform distinctly but mutually reinforcing roles in achieving social transformation
4.6 Why Financial Inclusion?
 The non-institutional money-lender or ‘ informal’ financial sector seeks an exploitative
economic relationship so that
 Borrower is squeezed for repayment with high interest rates (due to risk perception)
 If income situation worsens, cash supply is tightened and interest rates are raised.
 Further loans ensure that borrower can never repay principal

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  Borrower then loses collateral, readying him for another loan
 Financial institutions do not cater for ‘consumption’ loans as this is perceived as non-
productive and moneylenders control this market.
4.7 Scope of Financial Inclusion
0 Multiple levels
1 Savings facilities
2 Insurance facilities
3 Remittance facilities
4 Credit facilities
4.8 Early indirect approaches
0 Multi agency approach
1 Expansion of cooperatives –More than 1 lakh outlets
2 Nationalisation of Banks and branch expansion
3 Establishment of RRBs for financing target groups
4 From 8,321 in 1969 to 68,681 branches (including RRBs) in 2006
5 45% of branches in rural & 22% in semi-urban areas
6 Average population per CB branch fell from 64,000 to 16,000
7 There is a credit outlet for every 5000 population or 1000 house hold
8 Directed lending programmes
9 Reservation of credit to certain category
10 Specifying purposes
4.9 Financial Exclusion means lost or neglected business, opportunities as it
limits growth and effectiveness.
a. Excluding the people at the bottom of the pyramid has economic consequences.
b. In Indian context financial exclusion means stifling of growth of agricultural sector
and the small/unorganised sector cutting across the secondary and tertiary sectors
which together contribute to 40% of GDP and 80% of the population.
c. This is a barrier to achieving a high economic growth rate with sustainability.
d. India cannot afford to have financial exclusion

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 Chapter 5
5.1 Initiatives for Financial Inclusion
a.SHG - Bank Linkage Programme - 2.2 million SHGs with loans outstanding of
Rs.11397.50 million (average size of SHG - 15 members and 90% women SHGs)
b. MFI - Bank Linkage
c. Women Entrepreneurs Development Programmes (Micro Enterprises) with NGO
assistance
d. Credit - marketing related
e. Rural Entrepreneurship programme with the help of Banks and NGOs (25% women)
f. Area Development Programmes in clusters - skills upgradation and capacity building
g. Farmers’ Clubs 18,000 with the help of banks for technological transfer, banking
promotion schemes
h. Joint Liability Groups of Farmers (850 JLGs with Rs. 124 million finance) (4-10 farmers)
i. Kisan Credit Cards - for quick credit to farmers’ 59.1 million cards
j. Swarojgar Credit Cards - for unorganized poor people - both rural and urban
k. Gramin Tatkal Card - project for loans up to Rs.50,000 without collateral for family’s
credit needs. (pilot schemes launched)
l. Business correspondent and facilitators (January 2006 - to enhance rural outreach
m. SGSY Scheme for poverty alleviation (restructuring various credit programmers like
IRDP, TRYSEM , SITRA, DWACRA etc.) Cluster Development Programme (for Credit
intensification) with shared infrastructure, markets, services.

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 Chapter 6
CHALLENGES FOR FINANCIAL INCLUSION
I. Rural barriers:
 Choice of and access to services more limited – heightened by concern over post offices
 ‘Specialist’ support limited – extra pressure on partners such as CAB
 Both above exacerbated by costs of providing services in most remote and fragile
communities
 Local people not inclined to give information about themselves relating to finance
 Scale/nature of communities precludes any targeting of services at too narrowly defined
social groups
 Financial wellbeing of young people migrating for education/work, without the support
available to their mainland peers is a concern
 Awareness of good practice in financial inclusion in a rural setting is very limited.
II. Coverage
III. Access to diversified financial products and services
IV. Delivery model-Day to Day transaction
V. Greater focus on credit rather than other financial services
By cooperatives
0 Under directed lending to ‘priority sector’, ‘weaker sections’ women, Minorities
1 Under Government sponsored subsidy-linked poverty alleviation and employment
generation programmes
2 Poor need credit plus
0 Lack of awareness
1 High transaction costs at the client level due to expenses such as travel costs, wage
losses, incidental expenses
2 Documentation issues
3 Non-availability of ideal loan products to suit the requirements
4 Prior experience of rejection by/ indifference of the formal banking system
5 Easy availability of timely and doorstep services from money lenders/ informal
sources.

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 Chapter 7
Present Position
0 Coverage of population by formal financial sector is unsatisfactory
1 Scheduled Commercial Banks covered only 18.4 % of the rural population through
savings/deposit accounts and 17.2 % by way of loan accounts (2004)
2 Average population per branch is uneven - Low in South and central while high in
Eastern and North-Eastern States
3 Ratio of deposit accounts to the total adult population was 59% as on March 31, 2004
(Kerala-89%, Bihar-33%, Nagaland-21%); increased to 63% in March 2005.
4 Out of 19.19 crore house holds 6.82 crore avail bank (out of 13.83 crore rural house holds
4.16 crore i.e. 30.11% avail banking. 49.52% in urban area)
5 Artisans generally avail credit from informal system

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 Chapter 8
FINANCIAL INCLUSION INDIAN BANK EXPERIMENT
Indian Bank was the first bank to implement financial inclusion on pilot basis in Union Territory
of Pondicherry.
0 Introduction of a basic `no frills’ Banking account
1 A simplified general purpose credit card (GCC) facility
2 Introduction of a Pilot Project for 100 percent Financial Inclusion in the Union Territory
of Pondicherry and one district each in all States/UTs.
3 provision of financial services in the North-Eastern region and prepare an appropriate
State-specific monitorable action plan
NABARD
0 SHG- bank Linkage Programme
1 micro-Finance institution
2 Bank Correspondent facilitator model
3 Watershed Development approach
4 Tribal Development Program through WADI approach

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 Chapter 9
INTERNATIONAL EXPERIENCE-UK
0 Priority areas for financial inclusion
1 Financial Inclusion Fund
2 Banks and Credit Unions Obliged
3 “NO FRILLS” Basic bank account
4 Post Office Current Account
5 Savings Gateway
6 Community Finance Learning Initiative
INTERNATIONAL EXPERIENCE-USA
0 22% of the low income families do not have access to bank accounts !!
1 Community Reinvestment Act.
2 Banks Obliged to provide basic bank low cost account
3 Redlining addressed CR Act + HM Act
An interesting feature which emerges from the international practice is that the more developed a
society is, the greater is the thrust on empowerment of the common person and low-income
groups. The experiences in financial inclusion are unique to each country. Only limited country-
wise experiences are documented and available in public domain.
Hence, for the purpose of drawing lessons on financial inclusion, restricted survey of select
country experiences are drawn. An attempt has been made in the following paragraphs to
categorise these learnings over a few broad parameters :
Products (including Credit Side):
• Basic Banking Account (BBA),
• Post Office Card Account (POCA) – (United Kingdom - UK; USA),
• Piloting of concept of Savings Gateway (Government funded match of all money saved by
those on low income employment, up to a certain limit. Government is making a matching
contribution of up to a maximum of £ 25 per month) - (UK),
• Credit unions offered functional flexibility for providing affordable credit with simultaneous
tightening of legal provision to ensure investor safety (UK),
• Free encashment of Government cheques (even for non-customers) – (Canada),

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• “MZANSI” – a low cost card-based savings account with easy availability at accessible outlets
like merchant points-of-sale, post offices, etc. (South Africa),
• Introduction of a savings based demand driven sustainable microfinance programme called
PATMIR where savings have precedence over credit (Mexico),
• Product differentiation by end-use and target segments (Bangladesh – Grameen Bank).
Demand Side :
• Developing proposals for delivering a significant increase in the capacity of free face-to-face
money advice targeted in areas of high financial exclusion (UK),
• Recognition that the most financially excluded would benefit from face to face money advice
and set up by Government of a support fund of £ 45 million for the same (UK),
• Banks contributing to a Money Advice Trust (UK),
• Face to face money advice provided by identified counseling points, viz., citizen advice
bureaus, community development groups, etc. (UK).
Outreach Considerations / Sustainability Aspects:
• Set up of a Financial Inclusion Fund with corpus of £ 120 million to offer 3-way access to
banking services, affordable credit and money advice (UK),
• Set up of Financial Inclusion Task Force for monitoring (UK),
• Formulation of enabling legislation: Community Reinvestment Act (CRA) prohibits
discrimination by banks against low and moderate-income households (USA); the legislation on
Access to Basic Banking Services Regulations ensures that all citizens could obtain personal
bank accounts without any difficulty (Canada); the Bank Act makes the access to bank accounts
a legal right (France), MoU between the Federal Government and financial institutions on
financial inclusion to ensure the access to affordable banking services by all citizens (Canada),
• Benevolent regulation that enables a level playing field for all entities in micro finance from a
compliance and regulatory perspective. Subsidies, promotional schemes, etc. were avoided and
the range of financial products was broadened (Bolivia),
• Regulatory framework along with strengthening institutional capacity, supervision thru’
autonomous supervisory committees (Mexico),
• Institutional restructuring coupled with deregulation of the banking sector and removal of
restrictions on credit and interest rates. Supervision delegated while building mainline
supervisory capacity in Bank of Indonesia (BI) - (Indonesia).

21
Delivery Mechanisms :
• Sensitising HR by promoting awareness, providing information and imparting training (UK),
• Support to financial sector development in a three step process : Undertaking a financial sector
assessment, adoption of a national level inclusion plan and finalizing strategy for its
implementation by various stakeholders and handholding the institutions while implementing the
plan adopted (Regional programme : Building Inclusive Financial Sectors in Africa - BIFSA),
• Existing rural outlets converted to commercial units (BRI model – Indonesia).
Commonalities Observed in the Various Approaches Applicable in the Indian Context:
• Identification and geographical demarcation of excluded areas - and segments of society -
formulating suitable policy to facilitate inclusion,
• Regulation is a must, even if it is “regulation by exception”,
• Strategy to be adopted thru’ interaction with stakeholders,
• Inclusive efforts have a cost - to be met by Government and banks,
• Institutional reforms are a must - for only strong institutions can serve social mandate in full,
• Effective participation and coordination among Government, private service providers,
financing banks and members of civil societies,
• Adopting technology to widen outreach in excluded areas,
• Enacting legislation mandated to increase levels of inclusion,
• Product development and differentiation to meet the varying demands of excluded segments,
• Financial counseling and advisory services thru’ identified touch points,
• Improving absorptive capacity of excluded segments.

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 Chapter 10
IMPLICATION FOR FINANCIAL INCLUSION
0 Branches of banks rose from 8321 in 1969 to 68282 in 2005
1 Average coverage per branch reduced from 64,000 per branch in 1969 to 16,000 persons
per branch in 2005.
2 Despite viability, profitability and competitiveness by banks, basic banking services not
available to large segment of poor people.
3 Increased travel requirements and higher crime incidence
4 General decline in investment and increased rural unemployment
5 Higher cash handling costs and delay in money remittance
6 Deprivation of choices and freedom for life cycle needs
7 Need for product simplification and low cost technologies for inclusion
8 More product / process innovation and dissemination costs.
9 Safety of deposits and how to be more inclusive without adding to cost.
10 Exclusion imposes cost on individuals impacting livelihoods adversely
11 pushing up cost of capital
12 Reduces competitive efficiency
13 High personnel and enterprise risks
14 Cost to society in form of socio-economic inequities and regional imbalances

Shortcomings in the System

0 Distances are too long for servicing and supporting the accounts.
1 Human resources related constraints both in terms of inadequacy of manpower and lack
of proper orientation/expertise.
2 High transaction costs particularly in dealing with a large number of small accounts.
3 Lack of collateral security
4 Lack of data base and absence of credit history of people with small means
5 Expanding branch network is not feasible and viable.

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 Chapter 11
Strategy of Financial Inclusion by different banks
 RBI’s Annual Policy Statement for the year 2005-06
 Concerns with regard to the banking practices that tend to exclude rather than attract vast
sections of population
 Banks to make available a basic banking ‘no frills’ account either with nil or very
minimum balances as well as charges that would make such accounts accessible to vast
sections of the population
 Nature and number of transactions in such accounts to be restricted and made known to
customers in advance in a transparent manner
 KYC procedure for opening accounts simplified for those who intend to keep balances not
exceeding Rs. 50,000 in all their accounts taken together and the total credit in all the
accounts taken together is not expected to exceed Rs.1,00,000 in a year.
 General Credit Card (GCC) facility -
 Banks have flexibility in fixing the limit based on the assessment of income and
cash flow of the entire household. The borrowers would be eligible for credit
provided under GCC without any insistence on security and the purpose or end-
use of the credit.
 50% of credit outstanding under GCC is eligible for being treated as indirect
agricultural financing.
 Support to mFIs – Financial intermediaries
 Bank correspondent / facilitator
 Watershed Development / Wadi programme
 Role of SLBC convenor banks
 One district in every state identified for 100% banking coverage in the first stage Jalna
 20 Districts of Maharashtra in the second stage

11.1 Expanding Outreach of Banks

0 How to expand the outreach?
1 Geographical limitations
2 Cost considerations

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 3 THE FINANCE MINISTER’S BUDGET SPEECH FOR 2005-06 proposed to examine
the issue of allowing banks to adopt the "agency model", by using the infrastructure of
civil society organisations, rural kiosks and village knowledge centers, to provide credit
support to rural and farm sectors…
4 The Budget Speech proposed to identify MFIs, classify and rate such institutions, and
empower them to intermediate between the lending banks and the beneficiaries.
5 It stated that commercial banks may appoint MFIs as “banking correspondents” to
provide transaction services on their behalf.

Expanding outreach of banks:

0 The Business Facilitator Model
1 The Business Correspondent Model

11.2 BUSINESS FACILITATOR MODEL

0 Facilitation support services
1 identification of borrowers and activities
2 collection of applications and verification of primary information/data
3 preliminary appraisal of credit based on standard norms set by banks and using
local data/information
4 marketing of the financial products including savings / providing product
information
5 processing and submission of applications to banks
6 post-sanction monitoring and follow-up for recovery
7 Institutions/ persons
8 NGOs, Farmers Clubs, Functional Cooperatives, IT enabled rural outlets of
corporate entities, Postal agents, insurance agents, well-functioning Panchayats,
Post Offices/ Postal employees etc.
9 Well defined terms and conditions by way of contractual arrangements.

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BUSINESS CORRESPONDENT MODEL
0 In addition to the functions of a business facilitator, also to provide assistance in financial
functions on behalf of banks as pass through agents.
1 disbursal of small value credit
2 recovery of principal / collection of interest
3 sale of micro insurance/mutual fund products/ pension products
4 collection of small deposits, receipt and delivery of remittances / other
payment instruments
The Business Correspondents can be
1. NGOs/ MFIs set up under Societies/ Trust Acts
2. Societies registered under Mutually Aided Cooperative Societies Acts or
the Cooperative Societies Acts of States
3. Section 25 companies (not-for-profit companies)
4. Registered NBFCs not accepting public deposits
5. Post Offices

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 Chapter 12
CONCLUSION
The financial system in India has grown rapidly in the last three decades and more. The
functional and geographical coverage of the system is truly impressive. Nevertheless, data do
show that there is exclusion and that poorer sections of the society have not been able to access
adequately financial services from the organized financial system. There is an imperative need to
modify the credit and financial services delivery system to achieve greater inclusion. The
implementation of the recommendations made in this Report could go a long way to modify
particularly the credit delivery system of the banks and other related institutions to meet the
credit requirements of marginal and sub-marginal farmers in the rural areas in a fuller measure.
However, creating an appropriate credit delivery system is only a necessary condition. This
needs to be supplemented by efforts to improve the productivity of small and marginal farmers
and other entrepreneurs so that the credit made available can be productively employed. While
banks and other financial institutions can also take some efforts on their own to improve the
absorptive capacity of the clients, it is equally important for Government at various levels to
initiate actions to enhance the earnings capacity of the poorer sections of the society. The two
together can bring about the desired change of greater inclusion quickly.

REFERENCES
Journals and Articles
Conference of in charges of priority sector advances of commercial banks. By Reserve Bank of India, College
of Agriculture Banking, Pune.

Websites:
1. www.icici.com
2. www.ficci.com
3. www.iqidr.ac.in
4. www.fmc.gov.in
5. www.agmarknet.nic.in
6. www.statebankofindia.com
7. www.rbi.org.in
8. www.emandi.ac.in
9. www.ikisan.com
10. www.manage.gov.in

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