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Financial Inclusion-the Tasks ahead
Presentation by
Dr. J Sadakkadulla
Regional DirectorRBI, Chandigarh
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Extract from the speech of DG (RBI)-a thought for introspection
If all stakeholders realise that inclusivebanking is good business, then regulatory andpolicy frameworks that promote accessibility,
and responsible banking can definitely lead tothe desired outcomes.
Pre-requisite for FI- Realisation that ruralbanking is a viable preposition
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Financial Inclusion
Creating for everyone access to
appropriate financial services
For the Poor it means
Creating access to affordable banking and
other financial services
FI is frontal attack on poverty.
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Financial Inclusion not a new concept- earlier
initiatives Institutionalisation of rural credit-ACD
Democratic Socialism Model for Economic
Development. Establishment of SBI
Establishment of ARC- Renamed as ARDC
Social control over banks Introduction of Lead Bank Scheme
Growth with equity - objective of planning
Establishment of RRBs Establishment of NABARD
Initiatives on Micro Finance, SHGs
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Why inclusive growth ?
Growth in agriculture is necessary :
to keep manufacturing prices under check provide food security
keep inflation under control.
Price stability is not merely important as an anti poverty
measure but also as an instrument to ensure stable andsustained growth.
In India, growth process is knowledge based and service led,hence substantial requirement of skilled labour.
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Financial Inclusion & Development indicator
Recent data shows that countries with large proportion of population excluded from the
formal financial system also show higher poverty ratios and high inequality.
Country Composite index of financial inclusion
(percent of population with access to
financial services)
Poverty (percent of population
below poverty line)
India 48 28.6 (1999-00)
Bangladesh 32 49.8(2000)
Brazil 43 22.0(1998)
China 42 4.6(1998)
Indonesia 40 27.1(1999)
Korean Republic 63
Malaysia 60 15.5(1989)
Philippines 26 36.8(1997)
Sri Lanka 59 25.0(1995-96)
Thailand 59 13.1(1992)
Source : World Bank (2006) and (2008)
Co ri ht Dr. J.Sadakkadulla
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Who are financially excluded ? Small and marginal farmers
Landless labourers, oral lessees
Self employed and unorganized sectorsenterprises
Urban slum dwellers, migrants, ethnic minoritiesand socially excluded groups
Senior citizens , women , etc.
Poverty anywhere is a threat to prosperityeverywhere.
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Reasons for Financial Exclusion
Physical access difficult: Remote hilly & sparselypopulated areas with inadequate infrastructure
Demand Side: Lack of awareness, low income,social exclusion, illiteracy
Supply side: distance from branch, branch timings,
cumbersome documents andprocedures,unsuitable products, language, staffattitude, etc.
EFFECT: Higher transaction costs andprocedural hassles
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The Dimensions of the ChallengeArea - 3.3 million square kilometersPopulation - 1 billion +
GDP ~ US$3.9 trillionAnnual Growth rate 8.5 to 9% last 5YearsTotal number of banks in operation
in country - 300+Total number of bank branches incountry - 75000 +Unbanked Population: 400 Million !
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Financial Inclusion for Inclusive Growth
The formal financial sector -mainly the banking system serves most of thepopulation, in developing countries.
Most of the population in developed countries (99 per cent in Denmark, 96per cent in Germany, 91 per cent in the USA and 96 per cent in France)have bank accouonts.
In India Composite Index of Financial Inclusion (per cent of population withaccess to financial services) is only 48%.
Indiaa annual average growth rate 3.5 per cent during 1950 to 1980
6.0 per cent in the 1980s and 1990s
8.8 per cent in 2003-04 to 2006-07
9.4 and 9.6 per cent in 2005-06 and 2006-07 respectively Despite continuous growth, growth is not sufficiently inclusivespecially aftermid 1990s. The approach paper to Eleventh Plan indicates poor populationto be 300 million in 2004-2005.
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Inclusive growth in India
Financial sector in India is dominated by the banking system.
Scheduled commercial banks (SCBs) account for three-fourths of the totalassets.
Public sector banks (PSBs) account for 70 per cent of the total assets of SCBs
Developments relating to public policy objectives underlying banking policytook place in two distinct phases :
The 1st phase viz. the two decades since 1970
the period of State control
Average population per branch decreased from 64,000 to 16,000
Credit cum subsidy programmes sponsored by the government taken up forfinancial inclusion for the poor.
2nd phase
SHG Bank linkage programme by NABARD
Creation of RIDF(Rural Infrastructure Development Fund)
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Recent Strategies
Financial inclusion is intended to connect people to banks with consequentialbenefits.
Steps taken up for financial inclusion :
Reserve Bank advised banks to make available a basic banking no-frillsaccount with low or nil minimum balance as well as charges, with a view toexpanding the outreach of such accounts
The know your customer (KYC) procedure simplified. Revolving credit - besides the Kisan Credit Cards (KCCs), banks have been
asked to consider introduction of a General purpose Credit Card (GCC) facilityup to Rs.25000 at their rural and semi urban braches.
lending by MFIs that are societies, trusts, cooperatives or "not for profit"companies or non-banking financial companies registered with the RBI.
Measures have been taken to step up credit to the micro, small and mediumenterprises (MSME) sector In the Union Budget 2007-08, the Government announced the creation of two
funds - Financial Inclusion Fund and Financial Inclusion TechnologyDevelopment Fund - for meeting the costs of development, and promotionaland technology interventions
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Approach to financial inclusion
Aim at connecting people with banking system Aim at giving people access to payment & credit
system Use of BC/BF multiple channels such as NGOs,PO, farmers clubs, etc.
Retired bank employees, ex-servicemen, retired
Government employees and Section 25Companies permitted as BF/BCs
Sub agents allowed with distance criteria
Use of ICT- Affordable infrastructure and lowoperational costs
RBI welcomes suggestions for resolution ofany issue
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Comics brought out on role of RBI & banking system in general invarious regional languages for wider circulation and coverage.
Launch of RBIs multilingual website in 13 Indian languages on allmatters concerning banking.
Conduct of an Essay competition for 3 different levels VI to XII classschool children in Hindi / Punjabi and English in this region in Sep-Oct
last year with and overwhelming response of 2911 entries. For students pursuing degree courses, RBI has announced the Young
Scholars Award Scheme this January and conducted the objectivetype exam last month and announced 150 awards for the year all overthe country who will have a stint with RBI, a sort of summer internshipwith a stipend of Rs.7500/- pm.
Copyright Dr. J.Sadakkadulla
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A pilot project has been set up on credit counseling and financial education.A model paper is in the public domain for comments.
H.P. has become the first state in the country to achieve 100% financial
inclusion and very recently the state of Punjab has also achieved 100%financial inclusion in the rural areas and Haryana is marching ahead in thisregard.
The KYC procedures for opening accounts were simplified for thosepersons with balances not exceeding Rs.50,000/- and credits in the
accounts not exceeding Rs.1lakh in a year.
General credit card facility upto Rs.25,000/-in rural and semi urbanbranches of banks is introduced.
In Jan 2006, banks were permitted to utilize the services of NGOs / Self
Help groups to provide micro finance through the use of business facilitatorand business correspondent. India being agrarian in economy, RBIcontinues to play its vital role in rural credit dispensation.
Copyright Dr. J.Sadakkadulla
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FI- Initiatives in Budget 2008-09
A fund of Rs. 5000 crore in NABARD to enhance its re-finance operations to short term co-operative creditinstitutions
Two funds of Rs. 2000 crore each in SIDBI- one for riskcapital financing and other for enhancing re-financecapability to Micro & Small and Medium Enterprises
sector. Fund of Rs. 1200 crore in NHB to enhance its refinance
operations in the rural Housing
Banks to meet entire credit need of the SHGs-(a) incomegeneration activities (b) social needs like housing,education, marriage, etc. and (c) debt swapping.
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Different Technology Models
Simputers
PDAsComposite Hand Held Devices
Programmed Mobiles
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Programmed Mobile as a Hand Held Device
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Composite Hand Held Device
Receipt Generation SlotReceipt Generation Slot
Slot tocapturethumb print
Slot tocapturethumb print
Slot to insert Operator /Customer card
Slot to insert Operator /Customer card
Arrow Key forstarting the device
Arrow Key forstarting the device
F buttonF button
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Simputers/PDAs/Laptops/PCs can be effectively used
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Operating Model - Customer
Data Collection SystemDemographic DetailsBiometric Details etc.
Issuance of Biometric EnabledMulti-Function Card
Financial TransactionsThrough Field DevicesSingle Device supports
multiple application
Transaction data loadingTo IntegratedCore Banking SystemThrough phone line (PSTN)
PHOOLVANTI JOSHI
DoB: 05-AUG-1965D/o: JATINBHAI JOSHI
Near Railway Stn.V: Jamkhandoli, T: UmariyaD: Jamkhambaliya, P: 398252, Guj
Issued: July 2006
9 0 0 0 0 1 1 9 5 4 5 7 2 2 0 0 0
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FI- Task Ahead/further roadmap
FI a dynamic concept -Opening of no frills accounts every adult should be the target.
overdraft facility in no frills account- upto Rs.25000/-
reckoned as indirect finance to agriculture. One time Settlement Scheme for credit outstanding uptoRs.25000/-
General Credit Card (GCC) Scheme credit dispensedupto Rs. 25000/- to be reckoned as indirect finance to agri.
Extension of Banking Services Use of BusinessFacilitators and Correspondents.
Extend banking outreach to the remote corners by ICT -Banks to ensure that the solutions developed are:
a) highly secure, b) amenable to audit and c) allow inter-operability amongst different systems adopted by differentbanks."
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Credit Inclusion- a next step WG Recommendation- banks cover households
who have not yet availed bank credit within aperiod of 3 years.
Access to revolving credit through KCC/GCC/ ACC/SCC . Exercise first be done in identified accounts. Identification of remaining borrowers through
district administration implementation of Radhakrishnan Expert Group
recommendations - to meet credit needs oflandless labourers, oral lessees, tenant farmers &Share-croppers-
Implementation of DRI scheme -poorest of poorReach the unreached
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Thank You
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