Financial services

Financial market..
Comprises of: a) Banks b) Microfinance institutions c) Insurance. Currently rural India has 32,000 rural bank branches, 46,000 rural and semiurban branches of MFIs, more than 96,000 cooperative institutions and over 135000 post offices. Average annual household savings Rs 22,960 (2010, MART)

 85% of household save cash at home 25% invest in gold Critical question before financial institutions a) Micro savings b) Frequent withdrawals.

Banking services..
There are approx 185 million potentially bankable people in rural India who dont use formal banking services because of reasons like poor access or usage of services. Only 7% indian villages have banks and more than 80% villages dont have a bank branch within 2 km radios. Critical challenge before bankers are: a) Low deposits b) Low credit penetration c) Low average value.

 Cost of opening and operating is high in formal banking system on account of additional costs incurred in reaching the bank and the opportunity costs of low wages. Mostly people inclined towards informal banking system which were risky, involve lower transaction cost.

Banking distribution channel in rural

Business correspondent model(BC)

Introduced in Jan 2006, provides no frill account with 0 balance. The intermediaries chosen to spread banking services are called business facilitator(BF) and Business correspondent(BC) Facilitators identify borrowers , processes loan application and create awareness about savings and banking products Correspondents handle money directly collecting deposits, disbursing loans, accepting loan repayments, selling MF, LI, pension policies.

 Under BF model, banks utilize the network of intermediaries such as non profit organisations, MFIs, post offices, NBFCs and retired bank employees Now a days banks are also using petrol pumps, provision stores, pharmacies and fair price shops in this model.

 Banks have also initiated credit plus services under which it provides training facility for small enterprises, farmers club, knowledge centers, credit counseling centers,

Micro finance and credit services..

Rural consumers need credit not only for productive purposes but also for their consumption needs. Microfinance is defined as the provision of thrift, credit and other financial services and products of very small amount to poor people enable them to improve their quality of life.

Microfinance lending operates using two models..

1) SHG-Bank linkage model SHG financed directly by commercial banks(both public and private), regional rural banks and cooperative banks 2) MFI-Bank linkage model-This model covers the financing of MFIs by banking agencies for on lending to SHGs and other small borrowers covered under microfinance sector. The Microfinance industry grew from 8.1 billion in 2005 to Rs 215 billion by 2010.

 Kisan credit card: Introduced by the Govt in 1998-99 aims to provide adequate and timely financial support from the banking systems to farmers for their short term credit needs, primarily for agriculture. By august 2010, 96 million KCCs had been issued by commercial banks, cooperative banks, RRBs and an amount of rs 437 billion had been sanctioned under this scheme. As per KCC norm 20% of the credit limit can be used for the purchase of non agricultural product.

 Chit funds.

Insurance..
Life insurance: 41 billion Low penetration (25%) and high awareness (73% ) offers a great opportunity to grow. Currently we have one public sector company and 22 private players. Penetration is expected to scale up to 35-42% by 2012. Rural and social obligation set up by the IRDA has ensured that new players would serve the rural market to improve penetration.

 Non life insurance

Distribution of insurance products..

Non life insurance-direct mail, direct sales force, insurance agents, agreement with the corporations, banks, real estate companies etc Life insurance- Usually via agents. LIC has a network of 1.4 million agents. MFIs are important distribution channel for insurance companies. Many companies are selling term group insurance policies A few insurance companies have also toed up with consumer goods companies like HUL, ITC etc to leverage on the latters distribution network.