2 “The future lies with those companies who see the poor as their customers” ~C.K.Prahalad The Potential of the Unreached
4 Financial Exclusion No Savings No Insurance No assets No bank account No access to money advice No affordable credit
5 Financial Inclusion - Scope Financial Inclusion should include access to financial products and services like, Bank accounts – check in account Immediate Credit Savings products Remittances & Payment services Insurance - Healthcare Mortgage Financial advisory services Entrepreneurial credit
Extent of Financial Exclusion Only 5% of villages have a Bank branch. 81% villages do not have a bank branch in 2 km radius Number of deposit accounts per adult population is only 59%. Who are Financially Excluded: 1.Poor 2.Socially under-privileged. 3.Disabled. 4.Old as well as children. 5.Women. 6.Ethnic Minorities. 7.Uneducated. 8.Mobile population. 9.underprivileged section in rural and urban areas like, Farmers, small vendors, etc. 10.Agricultural and Industrial Labourers 11.People engaged in un- organised sectors 12.Unemployed FINANCIAL EXCLUSION
Financial Exclusion is multi-dimensional
Financial Exclusion is universal Financial exclusion is an issue even in developed economies As per Census 2001, in India only 36% of the people use any kind of banking services Country/location % of population with an account Denmark99.0 United States 91.0 Europe89.6 Botswana47.0 Brazil (urban) 43.0 Swaziland35.3 South Africa 31.7 Namibia28.4 Djibouti24.8 Mexico City 21.3 Lesotho17.0 Tanzania6.4
Drivers of Financial Exclusion Drivers of financial exclusion Drivers of financial exclusion: ◦ Most frequent: Low income, Nil or low savings, Lack of assets, Unemployment, Use of inappropriate products ◦ Less Frequent: Psychological/disability issues, Feeling of being excluded, Indigenous/ethnic issues, Geographical remoteness, Lack of PC/Internet Access Personal and social factors Personal and social factors: Cultural norms, Gender, Age, Legal identity Inadequacy of financial infrastructure and weaknesses of financial sectors can limit access
11 Financial Inclusion - Definition Financial Inclusion - Definition “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” - The Committee on Financial Inclusion (Chairman: Dr. C. Rangarajan, 2008) “The process of ensuring access to appropriate financial products and services needed by vulnerable groups such as weaker sections and low income groups at an affordable cost in a fair and transparent manner by mainstream Institutional players.”
Steps of Rural Development Enthusiasm Skills Implemen- tations Networking *Threats *Opportunities *Basics *Programmes *Technology *New work cultures *Cooperation *Purchasing *Production *Marketing *Selling Will *Commit- ment Modernisation *Cooperation *Contents *Benefits
Financial Inclusion – What exist s n lacking Steps Taken Co-operative Movement Nationalization of banks Lead Bank Scheme RRBs Service Area Approach Self Help Groups Self Help Groups 13 What was lacking Absence of mod Technology Inadequate reach and coverage Delivery Mechanism Well defined Business Model Rich have no compassion for poor
14 Why Are we Talking of Financial Inclusion Now? Focus on Inclusive Growth Banking Technology has arrived Realisation that Poor is bankable
FINANCIAL INCLUSION AND TECHNOLOGY
Technology- An Enabler For Simplification of process Cost reduction to make it affordable to masses Product design to suit the requirements of the Rural masses Innovation does not become technology till it reaches the masses.
Technological Banking to the Common Man Opportunities Coverage Access to Diversified Financial Products and Services Delivery Model- Day to day transactions Availability of infrastructure Dedicated software Door Step Banking & no. of touch points to be increased
Technology is costly …. The Solution lies in Networking Smart Card - A great technological challenge Collaboration
19 TECHNOLOGY INITIATIVES “PARAM” By Ogilvy & Mather ELECTRONIC KNOWLEDGE DELIVERY By M.S.Swaminathan Research foundation e-CHOUPAL By ITC
-Account Opening -Transactions Data Captured Through Labtop & POS/POT Service provider Intermediate Server Activity is Performed by BC - Laptop for A/c opening POS/POT for transactions Security Equipment FIN CBS Server Service Provider’s (Intermediate Server File converted into format of CBS Data is uploaded into FIN-CBS Interest Calculation done centrally and the details sent back to POS and inserted to the smart card of customer Villages Data Flow Block Diagram of Financial Inclusion
FINANCIAL INCLUSION AND RBI
RBI ‘s Contribution No-Frill Accounts Overdraft in Saving Bank Accounts BC / BF Model KCC / GCC Guidelines Liberalised branch expansion Liberalised policy for ATM Introducing technology products and services Pre-Paid cards, Mobile Banking etc. Allowing RRBs’ / Co-operative banks to sell Insurance and Financial Products Financial Literacy Program Creation of Special Funds 431 districts identified by the SLBC convenor banks for 100 per cent financial inclusion across various States/UTs and the target in 204 districts of 21 States and 7 UTs has reportedly been achieved 22
PROBLEMS WITH FINANCIAL INCLUSION
Basic Challenges of financial inclusion Coverage Access to Diversified Financial Products and Services Delivery Model - Day to day transactions Cost-effective technology Customer education/financial advice Change in banker’s mindset
25 Problems / Difficulties Problems / Difficulties Scaling up of activities Appropriate business model yet to evolve BC model too restrictive Limitation of cash delivery points Lack of Interest / Involvement of Big Technology Players
Problems of Financial Exclusion in India Coverage Cost of Small Value transaction Infrastructure Suitable products Flexibility Weak Delivery model Community Enterprise & Financial Management support
Pre-conditions for success Attitude and Will power Technology Delivery Mechanism Support Services ◦ Infrastructure ◦ Community Development Support ◦ Product Innovation Regulatory and Policy Interventions Involvement of all ◦ especially Development/Administration at District/Block/Village level
28 Pre-requisites For The Success of Financial Inclusion 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 Liberalisation of BC model
Initiatives for financial inclusion 1904 Cooperative Societies Act 1954Rural Credit Survey Committee 1955State Bank fo India created Commercial Banks Nationalised, All India Rural Credit Review Committee 1970Lead Bank Scheme introduced 1975Regional Rural Bank set up more Commercial Banks nationalised 1992SHG - Bank Linkage Programme 2001Kisan Credit Card introduced However, efforts to achieve financial inclusion have failed
FINANCIAL INCLUSION AND GLOBLIZATION
Benefits of globalization Globalization cannot be sustained unless we move towards inclusive growth Financial inclusion will lead to growth with equity ◦ This will help empowering the poor to break out of the vicious circle of poverty and live with dignity Then only globalization can be considered truly beneficial.
Globalization has changed the world economic order New global markets in services including banking, insurance, transport New global markets in services including banking, insurance, transport Deregulated financial markets with 24 hour trading Deregulated financial markets with 24 hour trading Increased cross-border Mergers & Acquisitions Increased cross-border Mergers & Acquisitions Global consumer markets and global consumer brands Global consumer markets and global consumer brands
Globalization & its discontents Although globalization has brought wider choice, free flow of trade and investment, better technology, in most developing economies, financial services are available only to a small minority More than 3 billion people world-wide are financially excluded ◦ Majority of the people in developing countries do not have any banking relationship ◦ They seldom get credit, insurance or receive remittances through formal financial institutions
34 Global Meltdown - An Opportunity Focus on Inclusive Growth Focus on Domestic Consumption and Investment Focus on increased Social Sector Spending Emphasis on giving benefits to poor clients Global (bigger) players looking Inward Reduction of Cost (?) Let us Give One Big Push to Financial Inclusion!
CONCLUSION 36 Financial Inclusion is a win-win situation for the financially excluded, the Corporates, the Govt. and the Banks. Bankers can support by financing the Agri products including their preservation and sales. Corporates can sell / market their products to the large untapped rural markets.
CONCLUSION 37 Public-Private partnership can utilise “Common Service Centres”for enabling access to Banking Services and products including consumer loans; Micro-finance Services Farm Equipment, Home & Construction Loans Credit Cards, Debit Cards,etc., Bill Payment – Electricity, Utilities, etc.,Payment Gateway, ATMs Multi-purpose “Smart Cards” can simplify the financial inclusion process to reach the unreached.
Bangladesh Grameen Bank - Microfinance Founded by Mohamed Yunus in 1974 with $27 own money Micro-lending scheme for poor in Bangladesh, mostly women In 30 years bank has 6.6m borrowers including 97% women Founder Mohamed Yunus got Nobel Peace Prize 2006
Extent of Financial Exclusion 1. Coverage of (Estimates based on various studies and Market Surveys): Check in accounts - 40% Life Insurance % Non-Life Insurance - 0.6% Credit Card - 2% ATM + Debit Card - 13% 2. Geographical coverage -5.2% villages are having a bank branch 3. Farmers coverage- - Out of 119 million farmers, small and marginal farmers are 97.7 million (82.1 %) 39