Banking the unbanked


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Banking the unbanked

  1. 1. Banking the Unbanked
  2. 2. The Needs & Enablers of Modern Banking People Financial Institutions Technology Save for a rainy day Advent of micro-computers Diffusion of Internet Automation in related functions of other businesses Evolution of Smart Card Technology Mobile technology Cash on the go Bank in the wallet Anywhere anytime banking Reduce operational costs High value added services Product bundling & Cross Selling Piggy Banks Traditional Banking Modern Banking (online) Interest Protection against theft Transfer large sums of money Trade Instruments Interest Service Charges
  3. 3. Banking & Technology Driving further technological innovation Technology Enables Impact on Business
  4. 4. <ul><li>Post liberalization, the growth in banking industry has been phenomenal </li></ul>
  5. 5. Development of Key Payment Systems - India
  6. 6. The Growth of ATMs - India 22110 25247 34547 44857 20 % 20 % 37 % 30 % 2005-06 2006-07 2007-08 2009-10 2010-11E > 60000 Source – CyberMedia Research DQ Estimates
  7. 7. Adoption of CBS & RTGS - India Source – Report on Trend & Progress of Banking in India – RBI * - As of March, 2009 # - As of August, 2009
  8. 8. <ul><li>Still… </li></ul>
  9. 9. % of Un-banked Rural Households Source - Rural Financial Access Survey (RFAS – 2003 ) Landholding Marginal farming households < 1 acre Small farming households = 1 to 4 acres Large farming households > 4 acres
  10. 10. Penetration of Banks & ATMs 1 Bank Branch for 20 Villages Number of ATMs per million of population (Mar-2009) Year Average Population Served by a Bank Branch in India (Approx.) 2005 16000 Source: ASSOCHAM’s Report on Investment Prospects in Indian Economy (2008-09) Global ATM Market & Forecasts 2013 report published by Retail Banking Research (RBR) 6,34,321 Villages 32,227 Rural Bank Branches Country Number Country Number Country Number Country Number India <40 China 98 Singapore 419 South Korea 1600
  11. 11. “ No Frills” Bank Accounts Source: Speeding Financial Inclusion – Skoch Development Foundation ( 20 th Skoch Summit, 16-17 July 09, Mumbai – Inclusive Growth 2.0) National Seminar on Launching a National Initiative for Financial Inclusion (NABARD) – September, 09 2015 ------------------------------------------------------- Targeted “No Frills” Accounts – 111.55 mn Projected Active “No Frills” Account – 13.81 mn (at current pace) Number of No Frills Accounts (in millions) Active “No Frills” Accounts (in millions) Year Active Accounts are those with more than two transactions per year Mar, 2009 ------------------------------------------------ “ No Frills” Accounts Opened – 30 mn Active* “No Frills” Account – 3.3 mn % of Active Accounts – 11% <ul><li>As informed by MoRD, at present </li></ul><ul><li>Total A/c s = 80 mn </li></ul><ul><li>Total Bank A/c s = 40 mn </li></ul><ul><li>Total PO A/c s = 40 mn </li></ul>No of “No Frills” Accounts (in millions)
  12. 12. <ul><li>A number of initiatives have been taken but the impact has been limited </li></ul>
  13. 13. Challenges in Rural Banking & Viability But Banks & BCs are unable to operate a profitable model based on large number of tiny accounts and micro-transactions Revenue Cost Gap Large & Scattered Rural Population Financial Illiteracy & Unfamiliarity with Technology Inadequate Infrastructure – Power, Connectivity etc. BC/BF Model Simplified KYC Norms “ No Frills” Bank Accounts
  14. 14. <ul><li>During this time, Mobile Subscribers have grown faster than bank accounts </li></ul>
  15. 15. The Mobile Growth Story
  16. 16. Mobile Subscribers Vs Bank A/c Holders (Rural) Rural Mobile Subscribers (in millions) Total Number of No Frills Accounts (in millions) 280 136 56 320 112 40
  17. 17. <ul><li>There is a need to leverage Mobile technology & penetration to provide basic financial services to the unbanked </li></ul>
  18. 18. Policy Initiative - Constitution of Inter-Ministerial Group (IMG) <ul><li>IMG constituted on 19 th November 2009 </li></ul><ul><ul><li>To enable finalization of a framework for delivery of basic financial services using mobile phones </li></ul></ul><ul><li>Given an indicative list of the issues to be addressed </li></ul><ul><li>Met twice </li></ul><ul><ul><li>3 rd December 2009 </li></ul></ul><ul><ul><li>24 th December 2009 </li></ul></ul>
  19. 19. Key elements of framework Decisions Taken
  20. 20. Key elements of framework Decisions Taken
  21. 21. Additional features
  22. 22. Governing Principles for a Sustainable framework <ul><li>People </li></ul><ul><li>Boost Financial Literacy </li></ul><ul><li>Develop Products that meet their needs </li></ul><ul><li>Create Awareness </li></ul><ul><li>Technology </li></ul><ul><li>Reduce transaction cost </li></ul><ul><li>Ensure interoperability </li></ul><ul><li>Reach remotest areas </li></ul><ul><li>Channel </li></ul><ul><li>Reduce distribution cost </li></ul><ul><li>Scale up network of Business Correspondents/ Sub-agents </li></ul><ul><ul><li>Engage “ for profit” companies </li></ul></ul><ul><ul><li>Devise suitable compensation for channel partners </li></ul></ul><ul><li>Pricing </li></ul><ul><li>Provide services at Optimal cost to the consumers </li></ul><ul><li>Create a Viable model for all stakeholders </li></ul>
  23. 23. Framework for delivery of Basic Financial Services Basic transactions
  24. 24. Framework for delivery of Basic Financial Services Back End Once a Micro Account is opened, the citizen can use his mobile phone to perform basic transactions Alternatively, citizens who do not have a mobile phone or find it inconvenient to use one, can approach a BC to perform a transaction An Account Mapper that intelligently identifies the bank & micro account associated with a mobile number A central payments switch to route the transaction to the issuing & receiving bank A shared depository for hosting and maintenance of micro accounts Middleware Front End Micro Account s in the CBS of Banks or Outsourced Partners of Banks
  25. 25. This framework will enable …
  26. 26. Payment under Government Schemes
  27. 27. <ul><li>Jan 12, 2010 – An earthquake of magnitude 7.0 strikes Haiti </li></ul><ul><li>According to the Mobile Giving Foundation (MGF), a Bellevue, Wash.-based non-profit organization that enables mobile giving in the U.S. and Canada, Americans donated over $11 million dollars to Haitian relief efforts via text message </li></ul><ul><li>By the first week in February that number had ballooned to over $35 million </li></ul><ul><li>In all, approximately 14 percent of all donations to Haiti relief efforts were made via text message according to a survey by the Pew Research Center . That's slightly less than the 20 percent threshold some experts use to determine whether a given technology has reached critical mass, but it's still a giant leap forward </li></ul>Source - by Nathan Conz
  28. 28.
  29. 29. Indicative list of issues for IMG <ul><li>The type/types of transactions that could be allowed </li></ul><ul><li>The quantum of financial limits which may be imposed </li></ul><ul><li>  Eligibility of the agencies involved </li></ul><ul><li>The role, responsibility and accountability of telecom service providers </li></ul><ul><li>Regulatory issues to ensure accountability, auditability and traceability of money transfers </li></ul><ul><li>Need for inter-operability between various service providers and standards involving the agencies processes, transactions and formats involved </li></ul><ul><li>Interface with banking regulator </li></ul><ul><li>Safety of deposits </li></ul><ul><li>Security standards governing transactions </li></ul><ul><li>Issues with respect to KYC-Know Your Customer provisions </li></ul><ul><li>Customer Protection, complaints & redressal mechanism </li></ul><ul><li>Linkages with the proposed Unique ID for residents </li></ul><ul><li>Geographical coverage of services with respect to inclusion of border/sensitive areas </li></ul><ul><li>Leveraging the </li></ul><ul><ul><li>existing infrastructure established and operationalised by the telecom service providers across the country   </li></ul></ul><ul><ul><li>electronic service delivery outlets in the form of Common Service Centres/Bharat Nirman kiosks being established across the country </li></ul></ul><ul><ul><li>existing infrastructure created by the States/any other agency </li></ul></ul><ul><li>Any other issue with respect to conceptualization and operationalisation of the mobile-based basic financial services model </li></ul>
  30. 30. Second meeting of IMG – 24 th December 2009
  31. 31. Early Data on Viability of BC model for Banks Revenue per client is only one-fourth of the total Cost Source: Business Correspondents & Facilitators - Pathway to Financial Inclusion? ( Retreat on the BC Model – CAB, RBI, ACCESS)