Financial Inclusion By,Great Lakes Economics Club
???• Financial inclusion: Providing financial services affordably to disadvantaged and low income sections of society in a fair and transparent manner.• Objective of financial inclusion is to – Ensure inclusive growth – Moving the less privileged from unorganized money markets – Equipping them with confidence to make informed financial decisions
Magnitude of the problem globally UN, 3 billion people in the world do not have• According to access to financial services such as savings account, credit & insurance• More than half the population in developing countries and more than 80 percent of households in most of Africa are financially excluded• Account ownerships by gender also sees a persistent gap of 6-9 percentage points across income groups within developing and under-developed countries
Proportion of households withan account in financialinstitutions
Why does it matter• Eradicate extreme poverty• Ensures sustainable economic growth• Mobilizes savings in a very good way• Provides growth opportunities to individuals and entrepreneurs• Empowering women
Indian Scenario• 31 % of the Indian population has access to Banking services. The rest 69 % are deprived of bare minimum banking services• India’s vision for 2020 is to open 600 million new customers accounts• Illiteracy, low income savings & lack of bank branches in rural areas are road blocks to financial inclusion• RBI coming up with bank-led model for financial inclusion• Other partners such as mobile and technology companies allowed to partner
Phases of Financial inclusion• 1950-70: Consolidation of the banking sector & Facilitation of Industry and Trade• 1970-90: Focus on channelling of credit to neglected sectors and weaker sections• 1990-2005: Focus on Strengthening the financial• institutions as part of financial sector reforms• 2005+: Financial Inclusion was explicitly made as a policy objective
Steps taken• Commercial Banks permitted to freely open branches in Tier 2 to Tier 6 centres• Banks must open 25 % of new branches in unbanked rural centers• Requirements for opening accounts relaxed for small accounts• No-frill accounts to be opened in rural areas• Roadmap for banking services for all villages with a population of over 2000• Periodic review by RBI on the steps taken• Creation of special funds
A few indicators• Only 17 Credit Accounts per 100 persons with all institutions• Only 54 Savings Accounts per 100 persons with all institutions• Only 13 per cent are availing loans from the banks in the income• bracket of less than Rs. 50,000• Even rich people are excluded and have to depend on non- institutional sources for loan purposes
Role of Postal India in banking• Fulfils UPAs agenda for financial inclusion.• Converting post office into banks can be possible Already it has money handling expertise Huge Network It’s core competency at stake• Main disadvantage No expertise in lending and risk- assessment
Some statistics• Number of No-Frill Accounts – 4.15 crore• Number of rural bank branches – 31,727 constituting 39.7% of total bank branches• Number of ATMs – 47,953• Number of POS – 5,22,148• Number of Cards – 173 million• Number of Kisan Credit cards – 76 million
Twin Aspects Of Financial Inclusion • Financial Inclusion and Financial Literacy are twin pillars. While Financial Inclusion acts from supply side providing the financial market/services what people demand, Financial Literacy stimulates the demand side – making people aware of what they can demand.
Challenges• Reach – difficult to provide services to small villages• Delivery Mechanism – not efficient• Financial Literacy – Awareness issue• Lack of ownership by banks in Financial Inclusion• Lack of co-ordination• Infrastructure issues- Premises, Roads, Power, etc• Economic viability due to transaction frequency• Technology not leveraged entirely
Pre-requisites For The Success of Financial Inclusion• Appropriate Technology• Appropriate and Efficient Delivery model• Mainstream banks’ determination and involvement• Strong Collaboration among Banks, Technical Service Provider, BC Services• Involvement of all ,Especially the state administration at grass-root level .
What next• Focus should not be exclusively on rural areas. Should also include urban areas• Thrust on greater financial literacy• All stakeholders such as SEBI, RBI, government, banks, civil societies should work together• Infrastructure should be developed• Efforts should be made to bring attitude changes for all stakeholders
SBI – Steps towards FI 8750 Rural and semi- urban branches Rs.64000 cr. in agricultural advances covering in 80 lac accounts “Business Facilitator” and “Business Correspondent” Model
SBI – Steps towards FI • SBI-Tiny: ZERO Technology Platform(2006) • “Ultra small branch” through Business Correspondent – Bank officer from nearby branch connects to the CBS of bank (2010) • One Rupee bank for Urban financial inclusion through kiosk banking model – 30,000 underprivileged customers(2011) • “Bank on Bike” scheme introduced – much cheaper than Bank on Mobile Van: Representative reaches SBI Internet site with Laptop, accesses through Biometric.(2011) • Total of 2,20,000 NFA as on 2011 and reached 100% Coverage in AP as per FIP at the start of this year • Plan to include villages with population < 2000 in the next 2 years
Other means of Financial Inclusion• Apart from banks, the following institutions also can be effective in achieving Financial Inclusion: – Microfinance institutions – NGO’s – Financial welfare programs by Government – Cooperatives
Microfinance• Private sector microfinance has grown dramatically because it offers the best products and services to meet the massive demand for credit amongst India’s rural poor.• Andhra Pradesh shut down all the private players using AP Microfinance Institutions (Regulation of Money lending) Act, 2010 and crippled the Microfinance institutes in the state.• Reasons cited as usurious interest rates, coercive collection practices causing suicides.• Hidden motive is speculated to be to protect State sponsored uncompetitive SERP program.• RBI employed Malegam committee to study the issue and make recommendations to create
Conclusion• India should focus on inclusive domestic consumption & investment driven growth strategy – Focus on increased social sector spendingAn interesting quote• Commercial banks act as spokes in the wheels for drive to achieve 100 % financial inclusion in India
Debate Topic• Which is the better way to achieve Financial Inclusion in India – Bank led inclusion or Microfinance?