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Recommendations of the Committee on Financial Inclusion
The following is the Summary of the recommendations of the
Committee on Financial Inclusion which werereleased to the media by
its Chairman, Dr. C. Rangarajan, in Mumbai today
!ccess to finance by the "oor and #ulnerable grou"s is a
"rere$uisite for "o#erty reduction andsocial cohesion. This has to
become an integral "art of our efforts to "romote inclusi#e growth.
In fact,"ro#iding access to finance is a form of em"owerment of the
#ulnerable grou"s. Financial inclusion denotesdeli#ery of financial
ser#ices at an affordable cost to the #ast sections of the
disad#antaged and low%incomegrou"s. The #arious financial ser#ices
include credit, sa#ings, insurance and "ayments and
remittancefacilities. The objecti#e of financial inclusion is to
e&tend the sco"e of acti#ities of the organi'ed financialsystem
to include within its ambit "eo"le with low incomes. Through
graduated credit, the attem"t must beto lift the "oor from one
le#el to another so that they come out of "o#erty.
Extent of Exclusion
(SS) data re#eal that *+. million farmer households in the
country -+ .*/0, out of a total of 1 .2 millionhouseholds do not
access credit, either from institutional or non%institutional
sources. Further, des"ite the#ast networ3 of ban3 branches, only
45/ of total farm households are indebted to formal sources -of
whichone%third also borrow from informal sources0. Farm households
not accessing credit from formal sources as
a "ro"ortion to total farm households is es"ecially high at +.
/, 1 .46/ and 55.+ / in the (orth 7astern,7astern and Central
Regions res"ecti#ely. Thus, a"art from the fact that e&clusion
in general is large, it also#aries widely across regions, social
grou"s and asset holdings. The "oorer the grou", the greater is
thee&clusion.
Demand Side Factors
8hile financial inclusion can be substantially enhanced by
im"ro#ing the su""ly side or the deli#ery systems,it is also
im"ortant to note that many regions, segments of the "o"ulation and
sub%sectors of the economyha#e a limited or wea3 demand for
financial ser#ices. In order to im"ro#e their le#el of inclusion,
demandside efforts need to be underta3en including im"ro#ing human
and "hysical resource endowments,enhancing "roducti#ity, mitigating
ris3 and strengthening mar3et lin3ages. 9owe#er, the "rimary focus
of theCommittee has been on im"ro#ing the deli#ery systems, both
con#entional and inno#ati#e.
National Mission on Financial Inclusion
The Committee feels that the tas3 of financial inclusion must be
ta3en u" in a mission mode as a financialinclusion "lan at the
national le#el. ! (ational Mission on Financial Inclusion -(aMFI0
com"risingre"resentati#es from all sta3eholders may be constituted
to aim at achie#ing uni#ersal financial inclusionwithin a s"ecific
time frame. The Mission should be res"onsible for suggesting the
o#erall "olicy changesre$uired for achie#ing the desired le#el of
financial inclusion, and for su""orting a range of sta3eholders :
inthe domain of "ublic, "ri#ate and (;) sectors % in underta3ing
"romotional initiati#es.
! (ational Rural Financial Inclusion urban "o"ulation, ha#e to
be co#eredby 4= +. Semi%urban and rural branches of commercial
ban3s and RR?s may set for themsel#es a minimumtarget of co#ering
4+= new culti#ator and non%culti#ator households "er branch "er
annum, with an em"hasison financing marginal farmers and "oor
non%culti#ator households.
Development and Technology Funds
There is a cost in#ol#ed in this massi#e e&ercise of
e&tending financial ser#ices to hitherto e&cludedsegments
of "o"ulation. Such costs may come down o#er a "eriod of time with
the resultant businesse&"ansion. 9owe#er, in the initial stages
some funding su""ort is re$uired for "romotional andde#elo"mental
initiati#es that will lead to better credit absor"tion ca"acity
among the "oor and #ulnerablesections and for a""lication of
technology for facilitating the mandated le#els of inclusion. The
Committee
has, therefore, "ro"osed the constitution of two funds with
(!?!RD : the Financial Inclusion R?I > (!?!RD. This
recommendation has already beenacce"ted by ;oI.
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Business Correspondent Model
7&tending outreach on a scale en#isaged under (RFI< would
be "ossible only by le#eraging technology too"en u" channels beyond
branch networ3. !do"tion of a""ro"riate technology would enable the
branches togo where the customer is "resent instead of the other
way round. This, howe#er, is in addition to
e&tendingtraditional mode of ban3ing by targeted branch
e&"ansion in identified districts. The
?usinessFacilitator>?usiness Corres"ondent -?F>?C0 models
riding on a""ro"riate technology can deli#er this
outreach and should form the core of the strategy for
e&tending financial inclusion. The Committee hasmade some
recommendations for rela&ation of norms for e&"anding the
co#erage of ?F>?C. Altimately,ban3s should endea#our to ha#e a
?C touch "oint in each of the 6,==,=== #illages in the country.
Procedural Changes
business de#elo"ment ser#ices in the farm and non%farmsectors
res"ecti#ely, will hel" in e&tending financial inclusion.
Role of RR?s
RR?s, "ost%merger, re"resent a "owerful instrument for financial
inclusion. Their outreach #is%B%#is other
scheduled commercial ban3s "articularly in regions and across
"o"ulation grou"s facing the brunt offinancial e&clusion is
im"ressi#e. RR?s account for 25/ of total rural offices of all
scheduled commercialban3s and / of their wor3force is "osted in
rural and semi%urban areas. They account for 2 / of de"ositaccounts
and 25/ of loan accounts in rural areas. RR? s ha#e a large
"resence in regions mar3ed byfinancial e&clusion of a high
order. They account for 2*/ of all branches in (orth%7astern, 2=/
in 7asternand 24/ in Central regions. )ut of the total 44.21 la3h
S9;s credit lin3ed by the ban3ing industry as on 2 st
March 4==6, 22/ of the lin3ages were by RR?s which is $uite
im"ressi#e to say the least. Significantly themore bac3ward the
region the greater is the share of RR?s which is am"ly demonstrated
by their +6/ sharein the (orth%7astern, *1/ in Central and *=/ in
7astern region.
RR?s are, thus, the best suited #ehicles to widen and dee"en the
"rocess of financial inclusion. 9owe#er,there has to be a firm
reinforcement of the rural orientation of these institutions with a
s"ecific mandate onfinancial inclusion. 8ith this end in #iew, the
Committee has recommended that the "rocess of merger ofRR?s should
not "roceed beyond the le#el of s"onsor ban3 in each State. The
Committee has alsorecommended the reca"italisation of RR?s with
negati#e (et 8orth and widening of their networ3 to co#erall
unban3ed #illages in the districts where they are o"erating, either
by o"ening a branch or through the?F>?C model in a time bound
manner. Their area of o"eration may also be e&tended to co#er
the 15districts, "resently not co#ered by them.
S ! " #an$ %in$age Scheme
The S9; % ?an3 in3age
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emergence of strong and robust coo"erati#es with conduci#e legal
and institutional en#ironment for it to"ros"er. ! financially sound
coo"erati#e structure can do wonders for financial inclusion gi#en
its e&tensi#eoutreach.
Micro Insurance
Micro%insurance is a 3ey element in the financial ser#ices
"ac3age for "eo"le at the bottom
of the "yramid. The "oor face more ris3s than the well off. It
is becoming increasinglyclear that micro%insurance needs a further
"ush and guidance from the Regulator as wellas the ;o#ernment. The
Committee concurs with the #iew that offering micro credit
withoutmicro%insurance is self%defeating. There is, therefore, a
need to em"hasise lin3ing of microcredit with micro%insurance.The
country has mo#ed on to a higher growth trajectory. To sustain and
accelerate the growth momentum,we ha#e to ensure increased
"artici"ation of the economically wea3 segments of "o"ulation in
the "rocess ofeconomic growth. Financial inclusion of hitherto
e&cluded segments of "o"ulation is a critical "art of
this"rocess of inclusion. 8e ho"e that the recommendations made in
this Re"ort, if im"lemented, willaccelerate the "rocess of
financial inclusion.
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