Presentation on theme: "Fast tracking Financial Inclusion through Innovative Cooperative Models- Existing Scenario and Future Prospects A Paper written by Dr. Navin Anand."— Presentation transcript:
1Fast tracking Financial Inclusion through Innovative Cooperative Models- Existing Scenario and Future ProspectsA Paper written byDr. Navin Anand Dr. Mallika KumarSolution Exchange, Shri Ram College of Commerce,United Nations, UNDP University of DelhiNew Delhi
2Importance And Understanding of Financial Inclusion FI - Important for achieving MDGs and Goal of Millennium DeclarationFinancial cooperatives playing important role in FI world over – Raiffeisen Union, Rabo Banks, Sewa Bank, European Coop. Banks…..UN Declared as ‘International Year of Cooperatives’ - UN Document consider – Role of Financial Coops. importantMeaning of Financial InclusionEnsuring Access to financial services + timely and adequate credit at an affordable cost to the vulnerableShift from ‘Supply led’ to ‘Demand led' ApproachFinancial Deepening - Focus on ‘Client Oriented inclusion’:Depth (poverty level of clients Covered by MFIs);Breadth (No. of clients);Length (sustainability to provide services);Worth to Clients (Client’s willingness to pay) ;Costs to Clients; ( interests, fee etc.) andScope (variety of services)
3Need For Financial Inclusion in India More than 50% Farmer households have no access to any creditRural :27% of farmers receive institutional finance i.e. 73% have no access to formal sources of creditUrban: 91% workforce in informal sector having limited security cover & access to fin services .FI imparts formal identity, provides access to payment system & to safety net like insurance
4Important Initiatives for Financial Inclusion in India Reserve Bank of India (RBI) introduced Business Correspondent/ Facilitator model. Financial Cooperatives can also function as Business FacilitatorsRBI advised banks for opening of ‘No frill Accounts’ with low or ‘nil’ minimum balance and simplified (KYC) procedure;Government Created-Financial Inclusion Fund and Financial Inclusion Technology Development Fund with NABARDInnovative delivery channels/methods adopted by banks, including new age cooperative banks such as - Internet Banking, Mobile Banking, Mobile Automated Teller Machines (ATMs), multi-functional ATMs and smart card
5FINANCIAL COOPERATIVES An effective tool for financial inclusionCrucial role in improving demand side by -improving human & physical resources- enhancing productivity- mitigating risk- strengthening market linkagesHaving Less Dependency on External BorrowingsFCs were stable in the situation of Financial Crisis
6Share of Cooperatives in Micro Financing Through SHGs as on 31 March 2009 Total 61,21,147 SHGs Linked with banks (SB Accounts)SHGs’ outstanding savings - Rs.5, croreAbout 8.6 crore poor households - covered under SHG banklinkage programmeCooperative Banks - having savings bank accountsof 9,43,050 SHGs (15.4% share out of total coverage)Savings amount of SHGs in Coops - Rs crore (14.1%)Cooperatives’ Share in loan disbursements to SHGs - 8.2%
7Financial Cooperatives Structure – Traditional and New Age Cooperatives Special FeaturesThe Cooperative credit structure is Area Specific i.e. urban or rural & credit Need/Time period specific i.e. short, medium & long term credit.The Rural Coop Credit structure is not uniform across the statesRural and Urban StructureThe Rural cooperative credit structure is three tier - PACS at the primary/village level - DCBs at the District level - SCBs at the state level - National Federation of State Cooperative Bank (NAFSCOB)Urban Cooperative banks operate at the primary level in the urban areas with NAFCUB as their National Federation. Some Urban banks are registered under Multi State Cooperative Societies Acts.At the National level, Cooperative organizations like NCUI, NCDC, NCCT play very important role in Cooperative education, research, training & strengthening of Cooperatives providing financial and non financial support.The National Federations have Indian membership to International Cooperative Alliance.
8COOPERATIVE CREDIT INSTITUTIONS NATIONAL FEDERATION (consultative role)UCB (1815)RURAL CCI ( 1.07)PACs (106384)PCARDBs (696)SCARDB (20)LONG TERMDCB (367)SCB (31)SHORT TERM
9Various Committees of Changes in the Indian Cooperative Emergence ofMutually Aided, Autonomous,Democratic cooperativesEmergenceofModel Coop.Soc. ActEnactment of MACS /Self Reliant CooperativeSocieties Acts indifferent statesVarious Committees ofCooperative ReformsApplication ofRevival Package forRural Cooperative CreditInstitutionsLegal reforms/amendmentsincooperative creditstructure/societiesBased onRival PackageChanges inthe IndianCooperativeScenario106th ConstitutionalAmendment Bill (2006) placedin the ParliamentNew Age FinancialCooperatives -financingthrough SHGs+PACS continue to dorural financingReduction inthe Government’sequity andtheir controlsRe-engineering of variousold CooperativeSocieties Acts
10NEW STRUCTURERural Areas – Short Term structurePACS ,DCCBs ,SCBs ,Multipurpose women thrift and credit coop.Thrift and Credit Cooperatives/ Multi Purpose cooperativesNew Age Cooperatives/Mutually Aided Cooperative Societies (MACS)Long Term :(SCARDB) through its branches & (PCARDBs) Urban as well as Semi Urban / Rural Areas: Women Urban Cooperative Banks ( WUCBs), Urban Thrift and Credit CooperativesUCBs registered under Multi-state Coop. Soc. Act ,Salary Earners Coop. Societies Insurance Cooperatives : Insurance Cooperative Societies (i.e. VIMO SEWA-Reg. under Multi State Cooperative Soc. Act)
11EXISTING LEGAL SCENARIO States having Self Reliant and Old Cooperative Societies ActStates having only Self Reliant Act – NEStates having Re-engineered Single Cooperative Societies ActStates having more or Less the Same Old ActMulti-State Cooperative Societies Act – Applicable Across all the States
12Status Related to Cooperative Acts Cooperative Acts of Different States differ fromeach other in context of various provisions forFinancial InclusionHigh level of diversity: Adoption of MACS/Self-Reliant ActLegal Environment for Cooperatives: State wiseVariations – Single Act/ Double ActUtilization and Understanding of Multi StateCooperative Societies ActDifference in terms of Acceptance ofVaidyanathan Committee Recommendations
13Lessons from Successful Experiments - International Scenario Present financial cooperatives based on the lessons drawn from the well known models promoted by Raiffeisen, Shultze – Delitzsch, Dr. Wollemborg, Desjardins and Rochdale pioneers.Few Examples : SICREDI ( Sistema de Cooperativa de Credito) in Brasil, SANSA in Sri Lanka, RCPB in Burkino Faso and KERUSSU (Kenya Rural Savings and Credit Cooperative Society Union) in Kenya.
14Lessons from Successful Experiments - International Scenario Learning of InnovationsInternational exchange services, a credit card and interbank transfers (SICREDI , Brasil)Insurance services provided in conjunction with two major insurers (SICREDI , Brasil)Micro leasing products and payment services ( SANSA, Sri Lanka)Customization of products as per the needs of different client segments ( RCPB, Burkino Faso)Salary advances (RCPB, Burkino Faso)Sale of school fee checks, access to ATMS, mobile banking services for remote areas not covered by branches. (KERUSSU, Kenya)‘Pay Points’ for salaries and pensions and crop payments for Farmers (KERUSSU, Kenya)Children’s account, Christmas accounts and market day loans. (KERUSSU, Kenya)
15Glimpses of some innovative Indian experiments Financial Cooperative Models in Rural AreasCooperative Development Foundation, Model Hyderabad (A Cooperative Thrift and Credit System (CTCS) as a community-owned self help model);SHG – PACS linkage Model – (Examples - Bidar DCCB/ DCCBs of West Bengal and other states); Cooperative Banks - SHG linkage model (based on NABARD’s SHG Bank Linkage Programme);SHG – Federation Models (Federation registered under MACS/ Self- Reliant Acts)Financial Cooperative Models in Urban AreasSEWA BANK, Gujarat (started Mobile Banking in India for serving rural clients); Bhagini Nivedita Sahakari Bank Limited, Pune and Mann Deshi Mahila Sahakari Bank, Mhaswad (Examples of micro financing to urban poor, especially women); andCuttack Urban Cooperative Bank, Orissa (Agent Model for daily collection of savings and to some extent for collecting loan installments);Thrift and Credit Cooperatives – (Example SHG-Urban financial cooperatives linkages in Maharashtra), Annapurna Mahila Cooperative Credit Society, Mumbai (A successful women thrift and credit coop.).
16Glimpses of some innovative Indian experiments of Financial Cooperatives – Cont… Other ExperimentsIndian Cooperative Network for Women (promoted by Working Women’s Forum), Chennai;Al-Khair Cooperative Credit Society, Patna and Marwar Sharia Co-operative Credit and Savings Society, JodhpurAnkuram Sangamam Poram, Hyderabad (An AP Dalit-Bahujan Cooperative Societies’ Federation Limited (Ankuram);Rawain Women’s Multipurpose Autonomous Cooperative Society Ltd. (RWMACS), Uttarkashi and Swaraj Bahu Udeshiya Swayatta Sahkari Samiti, GuptkashiCooperatives Promoted under the projects of ILO, IFADInsurance CooperativesNational Insurance Vimosewa Cooperative Ltd. a society is registered under Multi State Cooperative Societies Act and promoted by SEWA Ahmedabad
17Key Issues related to Fast Tracking Financial Inclusion through Cooperatives SHG Federations: In majority of the MACS/Self Reliant cooperative Societies Acts, provision of nominal and associate membership is not included. SHG federations depend largely on ordinary members’ share capital and deposits.PACS as SHPIs and Mini Banks: PACS having mini banks are appropriate FIs for undertaking multiple financial services. However these PACS, are not allowed to use the savings/deposits for lending to the poor. PACS can function as ‘Business Correspondents’ for BanksSHG Membership in Cooperatives: Some States still have laws that do not permit SHGs becoming members and holding equity in PACS/Thrift and Credit Cooperatives.
18Key Issues related to Fast Tracking Financial Inclusion through Cooperatives MF through Sub-Sectoral Cooperatives: Sub-Sectoral cooperatives are not able provide microfinance services to their members. Members depend on other cooperatives, Banks or money lenders.Financial Support from Government: The MACS/ Self Reliant Cooperative Societies Acts do not permit government shares in the societies. At present, no grant/financial support is being provided by the Government even to the well functioning cooperatives registered under MACS Act.Value Delivery Chains: The value delivery chains of microfinance products and services are different for different organizations and therefore the models and methodology for undertaking each activity also differ case by case.
19Key Issues related to Fast Tracking Financial Inclusion through Cooperatives Enhancing Urban Micro financing: Selected Urban Cooperative Banks are successfully functioning as Microfinance institutions in different states. In order to widen the scope, UCB registered under Multi State Cooperative Societies Act have still to take up lead role in micro financing.Participation of Members : There is Low participation of members in the activities of Cooperatives. There is a need for Provision in Indian cooperative law to ensure that members are users and for removal of inactive members expeditiously and on a regular basis.Differentiation between Banking and Cooperative Activities: There is less clarity about - what constitutes banking activity to be regulated by RBI (Triangular Regulation) and what constitutes cooperative activity to be regulated by Registrar Cooperative Societies.
20Key Issues related to Fast Tracking Financial Inclusion through Cooperatives Using Salary Earners cooperative Societies in Financial Inclusion: The SHGs of ultra poor and excluded people can be linked with these cooperatives for financial inclusion under ‘concern for community’. In this arrangement the provision of nominal membership can also be explored. Alternatively, minor changes in the cooperative societies Acts and bye-laws of these cooperatives can help to undertake these cooperatives for financial inclusion.Financial Literacy and Counseling initiatives : The RBI has initiated to introduce a model scheme of Financial Literacy and Credit Counseling Centres (FLCCs). Service Type of cooperatives can undertake the literacy and counseling work.
22Need of addressing the issues at three levels : Micro, Meso and Macro Macro Level EnvironmentImportant in terms of addressing Policy and Regulatory changesRegulatory bodies like IRDA, RBI, GOI and State Governments pursue the agenda of changing policies, Acts and regulations.National federations and research/training/Knowledge Sharing organizations play role important roleMeso level EnvironmentThis environment reveals interface potential with Macro and Micro environmentA variety of promotional agencies, financing institutions, support and capacity building institutions form the Meso level environment.Micro Level EnvironmentThe issues relate to strengthening these institutions and making them more autonomous and self- GovernedSegmentation of the excluded people into Rural, Semi-urban and Urban poor, SC/ST Backward, physically and mentally challenged people including visually impaired, poor widows, transient laborers and poor people from minority class etc. will help to develop strategies
23Activities for changes in the Regulatory Scenario In order to make changes in the policy and regulations there is a need to analyze –The relevance and appropriateness of existing provisions in different Cooperative Societies Acts of various States and Multi-State Cooperative Societies Act, 200Innovative provisions in the cooperative societies Acts of different countries that have facilitated in the development of microfinance sectorOther initiatives RequiredA field based study - legal setup and operational implications of the provisionsSynergizing cooperative law with the National Rural Livelihood Mission and the proposed MF bill in relation to policy and operational aspects.Analyzing of the provisions under different Acts related to disposal/utilization of surplus especially dividends, bonus and incentives to the members and staffComing out with innovative financial solutions by shifting from traditional products to need based innovative products, services and processes
24in context of Financial Inclusion and Micro Financing Framework for undertaking cooperative legal and regulatory issuesin context of Financial Inclusion and Micro Financing
25Road Map For Future & Possible Models Cooperatives should become 'ONE STOP SOLUTION' for poor‘Proactive Approach’ to make changes in Macro, Meso and Micro level environments‘Cafeteria Approach’ at the micro level - required so that cooperative can provide solutions to a wide range of clients through multiple financial products and services.
26Strategy for Financial Cooperatives Focus on Clients – existing and potential ( Financial Deepening)Change Business Process based on reforms – Legal and OperationalCollaborate Horizontally, Vertically and externally (out side cooperatives)
27Broad Model Suggested for Fast Tracking Financial inclusion through Cooperatives in India
28Extension Model Showing Types of Cooperatives and Microfinance Products and Services
29Exhibit : Proposed SHG and Individuals Based Federation Model Financial Services in the model include Savings/Deposits/Investment (Multi-Savings Products), Micro Credit, Micro Leasing Social Security- Insurance, Micro-Pensions, Transfer of Money - Remittances, Payments Services, Financial Literacy and Counseling Services
31Positive Features of the Proposed Models Generation of Resources at the local level - less dependency on external source of fundsGenerating Low cost funds so interest rates are affordableTaking Advantage of Heterogeneity of membership effectivelyInvolving non-poor people in the society by making them nominal members and getting their savings and deposits from themPromoting savings habits by providing multiple options of SavingsKeeping the ownership, governance and management of the society in the hands of poorInvolving service providers in the form of Associate members and getting deposits from them to use it for on-lendingProviding benefits to different kind of members innovatively
32Summing upThe future agenda of financial cooperatives in India can be depicted through ‘Nine R’.REEXAMINE the existing and new Acts, cooperative structures, Financial Products andServices in the new liberalized environmentREORIENT cooperative policy towards changing environmentRECAPITALISE cooperatives as per the recommendations of the Vaidynathan committeeREVIEW strategies of financial cooperatives in context of clients and capacities of theorganizationsRESTRUCTURE the cooperatives’ - ST, MT and LT financing structure based on emergingSHG based cooperative movementREDEFINE Cooperative philosophies by balancing between the ‘Service to the Members’ and ‘Profitability and sustainability’REORGANISE activities based on new strategies for the financial inclusionREENGINEER the cooperative systems – MIS, M&E and delivery mechanisms by studyingvalue chainsREVAMP financial cooperatives by medicating the exiting ones through upgrading or modifyingoperations , services , functions or organizational structures and creating systems for the new ageCooperatives