Promoting Financial Inclusion

LETS CONNECT EVERYONE

A PRESENTATION BY: RPCD, RBI PATNA

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Definitions
Financial inclusion means extending basic banking services at affordable prices to the low income and disadvantaged groups. Purpose: to connect the excluded with the formal banking system in order to help them obtain an understanding of the financial services available and equipping them with the confidence to make informed financial decisions. Basic services include deposits / withdrawals, credit, remittance, investment, insurance etc. No frills account: An account with zero or minimum balance with maximum balance of Rs 50,000/- at any given point in time and total credit in a year not exceeding Rs 1,00,000/-.
Banks can restrict the nature of services offered, number of transactions permitted etc.

Some misconceptions
Financial Inclusion (FI) is the latest fad . FI is only social service; not a good business proposition. FI simply means opening as many bank accounts as possible. Everyone handles money. Therefore, everyone is financially literate.
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Benefits of Greater FI
For the common man escape from the clutches of money lenders; sending / receiving remittances; no need to hold savings in cash etc. For the banks achieving access to a large untapped pool of customers. For the Govt.- ensuring flow of aid / grants to the targeted beneficiary. For the RBI - spread of banking culture and extension of the reach of formal financial system.

A few statistics
51.40%: Farmer excluded. households financially

73%: Farmer households having no access to formal sources of credit. 64%: Share of Central, Eastern and North Eastern regions in the total financially excluded farmer households in the country.
Source: NSSO Survey 59th Round
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TARGET
By 2012: Cover at least 50% (55.77 million) of the excluded. By 2015: Include the remaining. 250 new households per branch per annum to be covered by all semi-urban and rural branches of banks and RRBs.
Source: Report of the Committee on Financial Inclusion in India (Chairman: Dr C. Rangarajan); 6 January 2008

Initiatives by RBI
No-frills accounts in November 2005. Now, with Overdraft facility. Business Facilitator/Business Correspondent model for greater outreach. KYC norms relaxed. GCCs introduced. Project Financial Literacy & multi-lingual website. Working Group Report on Technology based FI for RRBs.

Funding support through IDRBT envisaged.

Contribution to FIF and FITF (managed by NABARD).
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Progress made by banks so far

Number of no-frills accounts opened as on:
31.03.2006 Public sector banks Private sector banks Foreign banks TOTAL 332878 156388 231 489497 31.03.2007 5865419 856495 2753 6724667 31.03.2008* 13925674 1879073 33115 15837862

*Provisional

Source: RBIs Report on Currency & Finance 2006-08

Select success stories

Andhra Pradesh
Pilot project in six districts of Warangal for disbursement of SSP and NREGS benefits through BCs with the use of smart cards and mobile technology. Launched by Rural Development Deptt. of A.P. Govt. Involving 6 banks. Project coordinated by RBI. MIS provided to Govt. by IDRBT. Project now being up-scaled to cover the entire State.

Source: Report on Currency & Finance 2006-08

Contd on next slide

Dharavi (Maharashtra)
Dharavi is Asias largest slum with 3-3.5 lakh workers. Smart card based banking introduced by Indian Bank to provide doorstep-banking for the slum dwellers, many of whom are migrants. The facility has enabled workers to save and migrants to send remittances easily and reliably. Life and health insurance are also being offered. The model is now being extended to Guntur town (AP) and Tharamani (Chennai).
Source: Report on Currency & Finance 2006-08
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Some innovative steps

Pragati Gramin Bank, Bellary: Loans under DRI scheme disbursed to 260 small vendors. Mann Deshi Mahila Bank, Mahaswad (Satara): Business school on Wheels to enable poor women in rural areas to become entrepreneurs. SBI Tiny Card: Tech. based FI in Aizawl. PNB: Bhamashah Project for rural women in Rajasthan.
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Financial Inclusion in Bihar

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Where are we?

To paraphrase Winston Churchill: (during the London blitzkrieg- World War II) This is not the end [of financial exclusion]; not even the beginning of the end [of financial exclusion] but perhaps the end of the beginning [of financial inclusion campaign].

Some States have reached this stage. We have a lot of catching up to do!
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Numbers tell the story

Only 33% of the population covered. One bank branch for 20,500 people. (national average:15,000)
Andhra Pradesh entering Phase II: One account per adult. Bihar still in Phase I: One account per household.
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Goals
By March 2009: 100% financial inclusion in the 19 identified districts.
For other districts, all branches to adopt 5 villages of their area for 100% financial inclusion.

By March 2012: One bank account per household.

Source: 25th review meeting of SLBC for Bihar: Aug 21, 2008
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Major Initiatives by RBI Patna

Programme on IT-Enabled Financial Inclusion for banks and senior Govt. officials. Distribution of financial literacy related books in Maithili and Bhojpuri. State Level Essay Competition for school children. Jingle on FI on Radio Mirchi. RBI Stall at Sonepur Mela.
Skit on FI, distribution of pamphlets, caps bearing FI message etc.

Regular interaction with senior bankers, RRB Chairmen etc.

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In the pipe line

Seminar on Financial Inclusion involving State Govt., bankers, experts, Industry chambers, NGOs etc. Programmes on local radio / TV. Debates in schools / colleges. Comic booklet on FI. Road-shows on FI in various districts of Bihar.
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Problems? No Challenges!
Measuring actual extent of financial exclusion. Inadequate awareness levels. Low literacy rates. Poor saving habits. Consumption oriented expenditure patterns. Lack of infrastructure. Varied local conditions. Small ticket transactions & high transaction costs. Agent and vendor risk. Recovery related issues. Dormant accounts. Sustainability factor.

AND.OUR ATTITUDE

Not all hurdles can be removed but surely all can be overcome!
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Prescription
Innovative promotion. Basic product design. Affordable pricing model. Inexpensive and reliable delivery module. Continuous monitoring. EXTEND : Financial advice and credit counselling. MODIFY : Credit usage pattern. ENHANCE : Credit absorption capacity.

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Agencies / intermediaries to be involved

State Government & local administration. Banking Industry and Developmental Institutions. Section 25 companies / Insurance agents. NGOs / SHGs /MFIs/ Farmers clubs/ PACS. Ex servicemen /retired govt. and bank employees/ teachers. Post Offices / Panchayats. IT service providers. Schools and Colleges. Media.
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It pays to remember
Good ideas are not enough: An idea is only as good as its implementation. Detailed schemes are not enough: Lack of public awareness can bury the best scheme.

We can all contribute by generating publicity and ensuring action at the ground level.
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THANK YOU!

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