Amir Ullah Khan June 2011 Financial Inclusion and development Focus South Asia
The landscape <ul><li>Dominated by small and tiny farmers </li></ul><ul><li>A 100 million small farms </li></ul><ul><li>Su...
Financial inclusion Financial inclusion is the “ the process of ensuring access to financial services and timely and adequ...
High costs <ul><li>Transaction costs high, especially in thinly populated areas, often inaccessible.  </li></ul><ul><li>Te...
Farm problems Access to technology has been low.  Flow of institutional credit a constraint.  Although 18% of priority sec...
Liberalisation Liberalisation of FDI limit in banking companies. Interest rate deregulation - Rates on deposits and lendin...
Developing the business <ul><li>Markets needs to be developed for viability. Need to study incentives structure for robust...
Government policy The Global crisis has created a doubt among the policy makers in Asia that an opening up of the banking ...
Economies of scale Small transactions and mandated interest rates:  The regulatory environment discourages small transacti...
Government policy Regulated technology  A narrow focus into regulation Value of transaction  – The  Income Tax Act  mandat...
Guidelines Prepaid instruments –  The Federal Bank is understandably cautious on these payment mechanisms.  Electronic Pur...
<ul><li>Thank you </li></ul><ul><li>[email_address]   </li></ul>
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  • Poverty has reduced, but absolute numbers high. Dispersion scary. As per census poverty 2004-05 is 22%. What is the source for the poverty 2006-07??
  • Poverty has reduced, but absolute numbers high. Dispersion scary. As per census poverty 2004-05 is 22%. What is the source for the poverty 2006-07??
  • Poverty has reduced, but absolute numbers high. Dispersion scary. As per census poverty 2004-05 is 22%. What is the source for the poverty 2006-07??
  • Poverty has reduced, but absolute numbers high. Dispersion scary. As per census poverty 2004-05 is 22%. What is the source for the poverty 2006-07??
  • south-asian-mobile-conference-2011-Amir

    1. 1. Amir Ullah Khan June 2011 Financial Inclusion and development Focus South Asia
    2. 2. The landscape <ul><li>Dominated by small and tiny farmers </li></ul><ul><li>A 100 million small farms </li></ul><ul><li>Subsistence farming </li></ul><ul><li>Small loans required each year </li></ul><ul><li>More than 70% farmers without access to finance </li></ul><ul><li>Large proportion of unorganised labour </li></ul><ul><li>Tiny entreprises </li></ul><ul><li>A monetised economy central to sustaining consumer demand </li></ul>
    3. 3. Financial inclusion Financial inclusion is the “ the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost .”
    4. 4. High costs <ul><li>Transaction costs high, especially in thinly populated areas, often inaccessible. </li></ul><ul><li>Technology can overcome some of these costs through connectivity, monitoring and reporting. </li></ul><ul><li>Lack of private sector involvement, in the organised sector, a serious concern. </li></ul><ul><li>Private sector discouraged. </li></ul><ul><li>The banking sector is tightly controlled and the central banks have become even more careful after the global crisis </li></ul>
    5. 5. Farm problems Access to technology has been low. Flow of institutional credit a constraint. Although 18% of priority sector lending is supposed to be for agriculture, agriculture’s share in net bank credit has been more like 12%. The biggest challenge is lowering transaction costs for small loans and deposits, using technology.
    6. 6. Liberalisation Liberalisation of FDI limit in banking companies. Interest rate deregulation - Rates on deposits and lending need to be deregulated with banks enjoying greater freedom to determine their rates. Adoption of prudential norms in terms of capital adequacy, asset classification, income recognition, provisioning, exposure limits, investment fluctuation reserve, by banks
    7. 7. Developing the business <ul><li>Markets needs to be developed for viability. Need to study incentives structure for robust private sector participation. </li></ul><ul><li>Government schemes that can be integrated using electronic records, smart cards and connected terminals/mobile phones. </li></ul><ul><li>For over a decade now, the microfinance industry has been the poster child of financial inclusion in the region. </li></ul><ul><li>From being tiny non-profits, MFIs have built up a base of 30 million clients and $3 billion in loan outstanding </li></ul>
    8. 8. Government policy The Global crisis has created a doubt among the policy makers in Asia that an opening up of the banking sector is fraught with risks. Therefore the need for strict adequacy measures and tight control over non performing assets The increased threat of laundering and illegal transactions, the need to enforce tight measures for the banks to accept new accounts. Therefore time consuming Know Your Customer norms
    9. 9. Economies of scale Small transactions and mandated interest rates: The regulatory environment discourages small transactions, primarily by imposing the same transaction cost on small players as on the big ones. Business facilitators - Business correspondents necessarily have to be non profit organisations
    10. 10. Government policy Regulated technology A narrow focus into regulation Value of transaction – The Income Tax Act mandates that payments greater that Rs 20000 be made only through crossed cheques and demand drafts. ATM’s face similar restrictions under the Banking Regulation Act and therefore cash withdrawals of large amounts not permitted.
    11. 11. Guidelines Prepaid instruments – The Federal Bank is understandably cautious on these payment mechanisms. Electronic Purse Schemes: The federal bank prohibits companies from providing ‘internet based electronic purse schemes’. Internet Banking: Internet banking governed by central banks, aims at regulation and supervision of the internet banking activities of the banks. Mobile Banking: Operating Guidelines for Mobile Payments in India for regulating mobile banking.
    12. 12. <ul><li>Thank you </li></ul><ul><li>[email_address] </li></ul>

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