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Impact of Financial Inclusion

And Ways to Make

Financial Inclusion More Effective

Md. Danish

Post Graduate Diploma in Management

Jaipuria Institute of Management, Lucknow

A Project Submitted as a Partial Fulfillment of Post

Graduate Diploma in Management

May 3rd, 2010 - June 19th, 2010

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Impact of Financial Inclusion

And Ways to Make

Financial Inclusion More Effective

SUBMITTED TO:

MR. M.S. Mahanot

Chief Manager, Narhi Branch,

Bank of Baroda

Lucknow

SUBMITTED BY:

Md. Danish

Post Graduate Diploma in Management

Jaipuria Institute of Management,

Lucknow

A Project Submitted as a Partial Fulfillment of Post Graduate Diploma in Management

May 3rd, 2010 - June 19th, 2010

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Declaration

This is to declare that Mr. Mohammad Danish has done his Summer Project Training

in Bank of Baroda - Narhi Branch, Lucknow under kind guidance of Mr.G.M.Dayal,

under the overall supervision of Mr. M.S. Mahanot, Chief Manager - Narhi Branch,

Bank of Baroda, Lucknow. The data obtained and the report of the project has not

been submitted by the investigator for any other degree nor the project work is

published in any of the journals. This is an original work.

Mr. M.S.Mahanot Mr. G.M.Dayal Mr. Mohammad Danish

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Don't walk in front of me, I may not

follow.

Don't walk behind me, I may not lead.

Walk beside me and be my friend.

- Albert Camus

For

S.H.Rizvi

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Acknowledgement I Md. Danish, from Jaipuria Institute of Management, Lucknow would express my sincere gratitude to all those who

have helped me directly or indirectly in this summer internship project.

First, I thank my Project Supervisor Mr. M.S. Mahanot, Chief Manager – Narhi, Bank of Baroda, for his continuous

support in my Summer Internship Project. Mr. Mahanot was always there to listen and to give advice.

Without Mr. G.M.Dayal, this project could not be completed as he guided me at every level and provided relevant

study material and data. I owe a lot to him as he gave me a chance of practical experience in term of a field trip to

Raebareily, “Live Study on Raebareily”.

I also thank Mr. D.K.Pandey, Lead District Manager of Raebareily for taking out time for me from his busy schedule

and integrating my visit with other Bank of Baroda Rural Branches (Dalmau & Maharaj Ganj).

Special thanks goes to my faculty Mrs. Sushma Vishnani who is most responsible for helping me in framing my

Summer Internship Project as well as guided me on structuring my research.

I would like to acknowledge the role of Branch Managers of Dalmu and Maharaj Ganj, Business Correspondent Mr.

Shashi Bhavan, Raebareily‘s Integra service provider manager Mr. Ashish, FLCC counselor Mr.S.N.Lal.Srivastav,

Director of Baroda Swarojgar Vikas Sansthan and Smt. Kalpana Bansal for helping me to make my Live Study

effective by accentuating various aspect of Financial Inclusion and sharing problems faced by them.

I couldn‘t have completed my project report with the help of my friend Miss S.H.Rizvi. She taught me how to write

research papers, made me a better writer by correcting some of my grammatical mistakes, had confidence in me when I

doubted myself, and brought out the good ideas in me. I thank her for her patience bearing with me and correcting my

work when ever and where ever required.

Last, but not least, I thank my family: my parents, Mr. Abdul Haleem Khan and Mrs. Nikhat Khan, for giving me life

in the first place, for educating me, for unconditional support and encouragement to pursue my interests. My sister Uzra

Khan, for sharing her experience of the project writing endeavor with me, for listening to my complaints and

frustrations, and for believing in me.

Thank You All

Md. Danish

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Content

S.No Topics Page No

1. Executive Summary a) About Bank of Baroda b) Vision & Mission Statement c) Bank of Baroda‘s initiative toward Financial Inclusion d) About Reserve Bank of India e) Measure Undertaken by RBI toward Financial Inclusion f) RBI guidelines on Financial Inclusion by Extension of

Banking Services – Use of BFs & BCs g) Measure of Financial Inclusion/Exclusion

09-17

2. Chapter 1 - Introduction a) 11th Five Year Plan & Indian Growth b) Vision of 11th Five Plan c) Disparity & Divide d) Financing Development e) Introduction to Financial Inclusion f) What does Financial Inclusion Means? g) Who are Financially Excluded? h) What are the Problems & Difficulties? i) Understanding the Key Stakeholder j) RBI Initiative for Greater Financial Inclusion

18-32

3. Chapter 2 - IT Solution for Financial Inclusion a) Financial Inclusion through IT b) Role of ICT in Financial Inclusion c) ICT for Financial Inclusion – RBI Initiative d) Electronic Benefit Payment e) Regulatory Framework f) Role of Technology g) Technology & Financial Inclusion

33-40

4. Chapter 3 - Financial Inclusion through SHGs & Micro Finance

a) SHG Model b) Understanding SHG – Banking Linkage Program and their

Role in Financial Inclusion c) Impact of Bank Linked – SHG Program d) Issues in Bank Linked SHG Program e) Recent Initiative by NABARD f) Micro Finance Initiative by SIDBI

41-52

5. Chapter 4 - Live Study – Launching of Pilot Project in Raebareily District

a) Research Methodology (Part A) - Aim & Objective - Research Question

53-73

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- Research Approach - Research Method - Data Collection

b) Field Study Report (Part B) - Introduction - Pre-requirement of a Financial Inclusion System - Launching of Pilot Project in Raebareily District - Integra‘s iMFAST - About iMFAST - Technical feature of the Product, Integra – iMFAST - Business Correspondent Model - Modus Operandi - Meeting with Shashi Bhavan Chandra (BC) - Financial Literacy & Credit Counselling - In conversation with Mr. S.N.Lal Srivastav, Counselor

at FLCC, Raebareily - Rendezvous with Mr. Shiv Ram - In conversation with Bank of Baroda Branch Manager –

Dalmau

6. Chapter 5 - Data Analysis a) Some Glaring Facts About Financial Exclusion b) Role of Financial Inclusion in Achieving Inclusive Growth c) RBI to Evaluate Progress of Financial Inclusion

74-83

7. Chapter 6 - Interpretation a) State Level Banker‘s Committee (SLBC) b) SLBC Uttar Pradesh Profile c) Strategy & Approach d) Huge Increase in No-Frill Account

84-88

8. Chapter 7 - Findings a) Interaction with LMD – Raebareily b) Interaction with Branch Manager- Dalmau c) Interaction with Branch Manager – Maharaj Ganj d) Interaction with Integra Agent, Mr. Ashish e) Interaction with BC, Mr. Sashi Bhavan f) Interaction with Mr. S.N.Lal Srivastav

89-95

9. Chapter 8 - Measures to Make Financial Inclusion More Effective

a) To broaden the Role of FLCC b) Bridging Product Gaps c) Advance Technology to Minimize the Cost & Provide a

Wider Reach d) Toward Greater Financial Literacy

96-100

10. Bibliography 101

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List of Tables and Boxes

S.No Topics Page No.

1. Pros & Cons of Various Technologies (Table 1- (7.37)) 39

2. SHG Financed from 2001-02 to 2006-07 (Table 2) 43

3. SHG Post Office Linkage Program (Box V.2) 47

4. Micro Financed Development & Equity Funds (Box V.3) 48

5. Employment & Unemployment (Table 3) 76

6. Earner Having a Bank Account (Table 4) 77

7. Sources of Loan (Table 5) 77

8. Progress of No-Frill Account in Indian Banking (Table 6) 80

9. Physical Progress under SGSY Since Inception (Table 7) 81-82

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EXECUTIVE SUMMARY

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ABOUT BANK OF BARODA A saga of vision and enterprise

It has been a long and eventful journey of more than a century across 25 countries. Starting in 1908

from a small building in Baroda to its new hi-rise and hi-tech Baroda Corporate Centre in Mumbai is

a saga of vision, enterprise, financial prudence and corporate governance.

It is a story scripted in corporate wisdom and social pride. It is a story crafted in private capital,

princely patronage and state ownership. It is a story of ordinary bankers and their extraordinary

contribution in the ascent of Bank of Baroda to the formidable heights of corporate glory. It is a

story that needs to be shared with all those millions of people - customers, stakeholders, employees

& the public at large - who in ample measure, have contributed to the making of an institution.

Mission statement

To be a top ranking National Bank of International Standards committed to augmenting stake

holders' value through concern, care and competence.

Bank of Baroda‟s Initiatives toward Financial Inclusion

Bank of Baroda has adopted the ‗whole village approach‟ as part of its mandate for enabling for

financial inclusion by extending banking services to the country‘s rural population. To give rural

India access to finance and to enable economic independence, Bank of Baroda has introduced a slew

of services that extend credit facilities to small and marginal farmers, agricultural laborers and

cottage industry entrepreneurs. Villages in Dungarpur district of Rajasthan were among the first

500 villages to benefit from the Bank‘s financial inclusion and total integrated village development

programme.

In the past too, the Bank has taken a number of initiatives such as opening of specialised outlets of

Gram Vikas Kendras (GVKs) and Multi Service Agencies (MSAs). The Baroda Swarojgar

Vikas Sansthan (BSVS) was another initiative for capacity building and provided appropriate

training for skill up-gradation to unemployed youth and women for employment.

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The Baroda Kisan Credit Card (BKCC) is yet another facility offered by the Bank to empower the

farmer. The credit card designed exclusively for the benefit of the farmers aims to provide them the

opportunity to manage and utilize their funds in the manner they deem fit. The Kisan Credit Card

provides adequate and timely support to farmers for their production needs, which include among

others, purchase of quality inputs, investment requirements like purchase of agriculture

implements/tractor etc, farming expenses towards farm maintenance, unforeseen family expenses

and maintenance of non-farm activities.

As part of the Bank‘s commitment to Corporate Social Responsibility in its centenary year, i.e.,

2007-08, BoB launched the Baroda Grameen Paramarsh Kendra (BGPK) – a centre for

knowledge sharing, problem solving and credit counselling for the rural communities. The BGPK is

an effort to narrow the “knowledge gap” in financial literacy, better farming practices and

technology adoption. It offers rural communities a diversity of opportunities including market linked

prices, value addition services offered by various institutions, women empowerment and

employment opportunities for rural youth. The BGPK centre helps in spreading financial awareness

among rural masses through village level meetings and helps them to choose suitable banking

products. As part of information sharing and problem solving process, it holds interface sessions

with the specialists from institutions like agriculture universities, Kisan Vikas Kendras and NGOs

working in the rural development sector. The centre also provides extension services to the farmers

by encouraging their participation in Grameen melas, and organising television and radio talks. Each

of the BGVK centre also maintains a small library containing books, journals and audio-visual aids.

Information on the prices of agriculture commodities in various mandis across the country is also

provided, enabling the farmers to sell their products at the best prices. The farmers are also provided

credit counselling on repayment pattern and rescheduling of loans and fresh credit during situations

of rural distress. Another important initiative is the Baroda Kisan Group Loan – a joint liability

scheme – for purchase of heavy agricultural machinery like tractors, power-tillers, etc. either by

farmers having larger holdings with irrigation facilities or group of farmers with irrigation facilities.

The Bank also provides credit for purchase of second hand tractors to farmers interested in dry-land

farming or having a small land holding. Production credit is also provided for raising various crops

from the point of preparatory tillage till harvesting, for landowners or permanent tenants or

leaseholders or sharecroppers. It encourages the development of irrigation facilities; this covers

sinking of wells/bore wells, lifting of water by installation of pump sets, transporting of water

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through field channels, water saving systems like drip irrigation/sprinkler irrigation etc. for farmers.

It also extends working capital to dealers/ distributors/traders of agricultural inputs like seeds,

fertilisers, livestock inputs like cattle feed, medicine etc. and supply of agriculture machinery/

irrigation systems.

Employment is provided to the unemployed technical personnel through the Agro Service Centre.

The Bank also facilitates the setting up of agri-clinics and agribusiness centres by agriculture

graduates. To address the needs of rural infrastructure the Bank provides credit for the construction

of farm building/structures like cattle sheds, thrashing yards, fencing etc. to the individual farmer or

firms engaged in agricultural activity and are of long term nature. Credit is also provided for

construction/expansion/ modernisation/renovation of rural godowns and cold storages.

Other services provided by the Bank include, development of horticulture including production,

processing and marketing of various fruit, vegetables, plantations and flowers, from the nursery to

the point of market, by individual farmers, firms, organisations like co-operative societies. A number

of allied activities, like dairy, poultry, fisheries, sericulture, mushrooms and apiculture are also

encouraged by the Bank. To ensure financial inclusion for the Scheduled Caste and Scheduled

Tribes who have been provided/allotted land by the State government, the Bank finances their

purchase of farm implements, irrigation systems and bullocks etc.

The Bank has also allied itself with NGOs to encourage the formation of credit linked SHGs in the

villages. Under the Dungarpur Project, the Bank works through the People‘s Education and

Development Organisation (PEDO), a NGO working in rural development.

This initiative of the Bank has already brought about a change in the lives of people. Bank of Baroda

has also announced plans of adopting more villages across the country. It plans to disburse credit

worth Rs 1 billion, over the next three years in these villages.

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ABOUT THE RBI

The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the

Reserve Bank of India Act, 1934.

The Central Office of the Reserve Bank was initially established in Calcutta but was permanently

moved to Mumbai in 1937. The Central Office is where the Governor sits and where policies are

formulated.

Though originally privately owned, since nationalisation in 1949, the Reserve Bank is fully owned by

the Government of India.

Preamble

The Preamble of the Reserve Bank of India describes the basic functions of the Reserve Bank as:

"...to regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary

stability in India and generally to operate the currency and credit system of the country to its

advantage‖

Measures undertaken by Reserve Bank of India towards Financial Inclusion

In November 2005, banks were advised to make available a basic banking, no-frills account with low

or nil minimum stipulated balances as well as charges to expand the outreach of such accounts to

vast sections of the population. Several banks have since introduced such 'no-frills' account with and

without value-added features. According to the information available with the Reserve Bank, about

five lakh no-frill accounts have been opened until March 31, 2006, of which about two-third are

with the public sector and one-third with the private sector banks.

In order to ensure that persons belonging to low income group, both in urban and rural areas do not

encounter difficulties in opening bank accounts owing to procedural hassles, the know your

customer (KYC) procedures for opening accounts has been simplified. The Reserve Bank has

directed banks to make available all printed material used by retail customers in English, Hindi and

the concerned regional language. More recently, in January 2006, banks were permitted to utilise the

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services of non-governmental organisations (NGOs/SHGs), micro-finance institutions and other

civil society organisations as intermediaries in providing financial and banking services through the

use of business facilitator and business correspondent models.

To extend hassle-free credit to bank customers in rural areas, the guidelines on general credit card

(GCC) schemes were simplified to enable customer‘s access credit on simplified terms and

conditions, without insistence on security, purpose or end-use of credit. With a view of providing

hassle free credit to customers, banks were allowed to issue general credit cards akin to Kisan credit

cards. A simplified mechanism for one-time settlement of loans with principal amount up to

Rs.25,000 which have become doubtful and loss assets as on September 30, 2005 was suggested for

adoption. In case of loans granted under Government-sponsored schemes, banks were advised to

frame separate guidelines following a state-specific approach to be evolved by the State-Level

Bankers Committee (SLBC). Banks have been specifically advised that borrowers with loans settled

under the one time settlement scheme will be eligible to re-access the formal financial system for

fresh credit. Banks were advised to give effect to these measures at all branches for achieving greater

financial inclusion. Initiatives have also been undertaken towards achieving greater financial

inclusion in the North-Eastern region, which had perennially remained under-banked.

The Reserve Bank considers that IT-enabled services can meet the challenges which need to be

addressed for increasing the scope and coverage of financial inclusion such as lack of adequate

infrastructure, higher transaction costs and low volumes of transactions. The Reserve Bank has

already initiated action in the North-Eastern region.

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RBI Guidelines on Financial Inclusion by Extension of Banking Services –

Use of Business Facilitators (BFs) and Business Correspondents (BCs)

Based on queries received from certain banks, we had clarified that there is no objection to banks

engaging individuals as Business Facilitators (BFs) depending on the comfort level of banks, subject

to their taking adequate precautions and conducting proper due diligence before engaging

individuals as BFs.

In the light of the announcement made in paragraph 92 of the Budget Speech 2008-2009 by the

Honorable Finance Minister, Govt. of India, it has been decided to permit banks to engage retired

bank employees, ex-servicemen and retired government employees as Business Correspondents

(BCs) with immediate effect, in addition to the entities already permitted, subject to appropriate due

diligence. While appointing such individuals as BCs, banks may ensure that these individuals are

permanent residents of the area in which they propose to operate as BCs and also institute additional

safeguards as may be considered appropriate to minimise agency risk.

Further, with a view to ensuring adequate supervision over the operations and activities of the BCs

by banks, it has been decided that every BC will be attached to and be under the oversight of a

specific bank branch to be designated as the base branch. The distance between the place of

business of a BC and the base branch, ordinarily, should not exceed 15 Kms in rural, semi-urban

and urban areas. In metropolitan centres, the distance could be upto 5 kms. However, in case a need

is felt to relax the distance criterion, the matter can be referred to the District Consultative

Committee (DCC) of the district concerned for approval. Where such relaxations cover adjoining

districts, the matter may be cleared by the State Level Bankers' Committee (SLBC), which shall also

be the concerned forum for metropolitan areas. Such requests may be considered by the

DCC/SLBC on merits in respect of under-banked areas or where the population is scattered over

large area and where the need to provide banking services is imperative but having a branch may not

be viable, keeping in view the ability of the base branch of the bank making the request to exercise

sufficient oversight on the BC.

Where currently BCs are operating beyond the distance limits specified above, DCC/SLBC may be

kept informed and steps may be taken to conform to the stipulated limits within six months time,

unless specific approval is accorded by the DCC/SLBC on the grounds indicated in paragraph 4

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above. Needless to add, in the context of scaling up of BF/BC model which is a huge challenge

given the size of the country, banks should bring to the notice of RBI any important issues to

facilitate taking prompt corrective steps. The implementation of the BF/BC model should be

monitored closely by controlling authorities of banks, who should specifically look into the

functioning of BFs/BCs during the course of their periodical visits to the branches. Further, banks

should also put in place an institutionalized system for periodically reviewing the implementation of

the BF/BC model at the Board level.

Measurement of Financial Inclusion/Exclusion

While the importance of financial inclusion has been widely accepted, much less is known about

how inclusive the financial systems are and who has access to which financial services. The literature

on financial inclusion lacks a comprehensive measure that can be used to indicate the extent of

financial inclusion across countries. Though indicators of the depth of banking system, capital

markets, and insurance sector are widely available, there is less information available about the

degree of financial inclusiveness. Lack of information is more conspicuous in developing countries

where there is little systematic information on who is served by the formal financial sector, which

financial institutions or services are the most effective at supporting access by poor households and

small enterprises, or what practical and policy barriers may be hindering the accessibility. Individual

indicators, viz., number of bank accounts and number of bank branches that are generally used as

measures of financial inclusion, can provide only partial information on the level of financial

inclusion in an economy. Financial services or products rendered by banks, postal savings banks,

credit unions, finance companies, micro-finance institutions (MFIs), and other formal and quasi-

formal non-bank institutions generally form the basis for measuring the financial inclusion.

It is often observed that people may have access to financial services, but may not wish to use them.

Such voluntarily excluded persons, it is argued, should be included in measures of access even if they

do not use financial services. However, even among the voluntarily excluded, this may in reality be

because such services are unaffordable, unsuited to their needs, or because the potential users fear

that they will be declined upon request. Among the involuntarily excluded from services such as

credit, some represent high credit risk that lenders are discouraged to prudently serve them.

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There are various measures of access to finance. For instance, access to finance can be measured in

terms of access to certain institutions (such as banks, insurance companies, and MFIs or in terms of

access to the functions that such institutions perform, or the services that they provide (such as

payments services, savings or loans and credits). Yet another approach is to look at details on the

uses of specific financial products such as debit cards, credit cards, life insurance and home

mortgages, among others. However, these are highly country-specific. The core access indicators

often used are generally based on institutional distinctions concerning specifically the degree of

formality of the financial institutions.

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CHAPTER 1

INTRODUCTION

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Eleventh Five Year Plan and Inclusive Growth

Despite having an impressive growth of GDP at 8.7% during the 10th plan period, making India

one of the fastest growing economies in the world, large sections of the Indian population still

remain poor and do not have access to basic services.

The Eleventh Five Year Plan stresses the importance of inclusive growth and the plan is developed

keeping this as the main theme. Some of the major findings of the Planning Commission placed in

the public domain include:

Growth being not perceived as being sufficiently inclusive for many groups, specially

Scheduled Castes (SCs), Scheduled Tribes (STs), and minorities.

The percentage of population below the official poverty line is still at 28% (302 million) in

2004-05 based on the 1973-74 per capita incomes which were much lower.

National Family Health Survey – 3 shows that almost 46% of the children in 0 to 3 years‘

age group suffered from malnutrition in 2005-06.

The number of illiterate persons still exceeds 304 million, making India the country with the

highest number of illiterate persons in the world.

A person is poor because the endowments of capital, land, labour and skills are meager and

access to these is limited. The poor is trapped in the vicious circle of illiteracy, disease and ill-

health preventing them from getting the most out of the one asset that they have the labour.

The plan thus lays stress that access to basic facilities such as health, education, clean

drinking water, etc. impacts directly on welfare, in the longer run and determines economic

opportunities for the future.

Vision of Eleventh Five Year Plan

The 11th Plan provides an opportunity to restructure policies to achieve a new vision based

on faster, more broad-based and inclusive growth. It is designed to reduce poverty and focus

on bridging the various divides that continue to fragment our society. The 11th Plan must

aim at putting the economy on a sustainable growth trajectory with a growth rate of

approximately 10 per cent by the end of the Plan period. It will create productive

employment at a faster pace than before, and target robust agriculture growth at 4% per

year. It must seek to reduce disparities across regions and communities by ensuring access to

basic physical infrastructure as well as health and education services to all. It must recognize

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gender as a cross-cutting theme across all sectors and commit to respect and promote the

rights of the common person. The first steps in this direction were initiated in the middle of

the 10th Plan based on the National Common Minimum Programme adopted by the

government. These steps must be further strengthened and consolidated into a strategy for

the 11th Plan.

Rapid growth is an essential part of our strategy for two reasons.

o It is only in a rapidly growing economy that we can expect to sufficiently raise the

incomes of the mass of our population to bring about a general improvement in

living conditions.

o Rapid growth is necessary to generate the resources needed to provide basic services

to all. Work done within the Planning Commission and elsewhere suggests that the

economy can accelerate from 8 per cent per year to an average of around 9% over

the 11th Plan period, provided appropriate policies are put in place. With population

growing at 1.5% per year, 9% growth in GDP would double the real per capita

income in 10 years. This must be combined with policies that will ensure that this

per capita income growth is broad based, benefiting all sections of the population,

especially those who have thus far remained deprived.

A key element of the strategy for inclusive growth must be an all out effort to provide the

mass of our people the access to basic facilities such as health, education, clean drinking

water etc. While in the short run these essential public services impact directly on welfare, in

the longer run they determine economic opportunities for the future. It is important to

recognize that access to these basic services is not necessarily assured simply by a rise in per

capita income. Governments at different levels have to ensure the provision of these services

and this must be an essential part of our strategy for inclusive growth. At the same time it is

important to recognize that better health and education are the necessary pre-conditions for

sustained long-term growth.

Even if we succeed in achieving broad-based and inclusive growth, there are many groups

that may still remain marginalized. These include primitive tribal groups, adolescent girls, the

elderly and the disabled who lack family support, children below the age of three and others

who do not have strong lobbies to ensure that their rights are guaranteed. The 11th Plan

must pay special attention to the needs of these groups.

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The private sector, including farming, micro, small and medium enterprises (MSMEs), and

the corporate sector, has a critical role to play in achieving the objective of faster and more

inclusive growth. This sector accounts for 76% of the total investment in the economy and

an even larger share in employment and output. MSMEs, in particular, have a vital role in

expanding production in a regionally balanced manner and generating widely dispersed off-

farm employment. Our policies must aim at creating an environment in which

entrepreneurship can flourish at all levels, not just at the top.

To stimulate private investment, policy induced constraints and excessive transaction costs

need to be removed. To increase the number of successful entrepreneurs a competitive

environment must be created which encourages new entrants and provides enough finance

for efficient enterprises to expand. Competition also requires policies to curb restrictive

practices, particularly those that deter entry, for example, preemptive acquisition of property.

To achieve such an environment it is imperative that the reforms agenda be pursued with

vigor. Though licensing controls and discretionary approvals have been greatly reduced,

there are many remnants of the control regime that still need drastic overhaul. Quantitative

controls, where they exist, should give way to fiscal measures and increased reliance on

competitive markets subject to appropriate, transparent, and effective regulations. The

burden of multiple inspections by government agencies must be removed and tax regimes

rationalized. A major component of the 11th Plan must be to design policies that spur

private sector investment while encouraging competition by guarding against monopolistic

practices. Continued commitment to the developmental and social roles of banking is

important to ensure that the benefits are widespread.

While encouraging private sector growth the 11th Plan must also ensure a substantial

increase in the allocation of public resources for Plan programmes in critical areas. This will

support the growth strategy and ensure inclusiveness. These resources will be easier to

mobilize if the economy grows rapidly. A new stimulus to public sector investment is

particularly important in agriculture and infrastructure and both the Centre and the States

have to take steps to mobilize resources to make this possible. The growth component of

this strategy is, therefore, important for two reasons:

o It will contribute directly by raising income levels and employment

o It will help finance programmes that will ensure more broad based and inclusive

growth.

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All this is feasible but it is by no means an easy task. Converting potential into reality is a

formidable endeavor and will not be achieved if we simply continue on a business-as-usual

basis. There is need for both the Centre and the States to be self critical and evaluate

programmes and policies to see what is working and what is not. Programmes designed to

achieve specific objectives often fail to do so even though substantial expenditure is incurred

on them. It is therefore necessary to focus on outcomes rather than outlays, including a

disaggregated level to examine their impact on different groups and genders. The practice of

gender budgeting already begun by the central government should extend to the states, so

that performance is judged on the basis of gender disaggregated data. Particular attention

must also be paid to SCP/TSP guidelines for expenditure and monitoring of outcomes.

Disparity and Divide

There are many divides. Foremost among these is the divide between the Rich and the

Poor. Poverty is declining, but only at a pace which is no longer acceptable given the

minimalist level at which the poverty line is fixed. There is also a divide between those who

have access to essential services such as health, education, drinking water, sanitation etc., and

those who do not. Groups which have hitherto been excluded from our society such as SCs,

STs and some minorities and OBCs, continue to lag behind the rest.

Another important divide relates to Gender. It begins with the declining sex ratio, goes on

to literacy differential between girls and boys and culminates in the high rate of maternal

mortality. Differentials in educational status and economic empowerment are heavily biased

against women. Special, focused efforts should be made to purge society of this malaise by

creating an enabling environment for women to become economically, politically, and

socially empowered. Measures to ensure that society recognizes a woman‘s economic and

social worth, and accounts for the worth of women‘s unpaid work, will be a concomitant of

this.

The divide between Urban and Rural India has become a truism of our times. The central

government has already adopted a multi-pronged strategy to reduce this divide in its various

dimensions. For example, the Bharat Nirman programme addresses gaps in rural

infrastructure and covers irrigation, road connectivity, housing, water supply, electrification,

and telephony; the National Rural Employment Guarantee Act (NREGA) attempts to

ensures a social safety net as it provides guaranteed employment in rural areas and at the

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same time has the capacity to build rural infrastructure especially if resources from other

programmes are pooled in; the Sarva Shiksha Abhiyan and National Rural Health Mission

are ambitious programmes for providing elementary education and primary health services

respectively. All these programmes indicate the priority being given by the Government to

Rural Development and are meant to give a new hope to rural India. While making these

provisions for rural India, the 11th Plan must also provide basic amenities to the growing

number of poor in urban areas.

Regional backwardness is another important issue. Differences across states have always

been a cause of concern but there exists imbalances within states as well. Backward districts

of otherwise well performing states, present a dismal picture of intra-state imbalance and

neglect. The Centre and the states will together have to deal with this problem on a priority

basis otherwise discontent; injustice and frustration will only breed extremism. The spread of

Naxalite movement to more than hundred districts in the country is a warning sign. There is

anger and frustration where communalism has left scars. This is the direct fallout of the

failures of the state apparatus to create an environment where the bulk of the people reap

the benefits of development.

Special efforts must be made to give the people a sense of fairness, dignity and hope. The

Backward Regions Grant Fund is meant to address the problem of regional imbalance so

that the growth momentum is maintained.

Financing Development

One of India‘s strengths is that it has a financial system comprising commercial and

cooperative banks, various types of non-bank financing organizations, capital market

institutions, and insurance and pension funds. Indian skills are evident in financial markets

and institutions all over the world and the Indian financial system has evolved to meet many

specific needs, improving considerably over the years with an expansion in depth and

variety.

There are several problems in areas of cooperative banking and in reaching finance to small-

scale industry. Solving these problems expeditiously is critical for ensuring inclusiveness of

growth. The Vaidyanathan Committee has laid out a road-map to revitalize rural credit

cooperatives but the situation regarding finance for micro and small non-agricultural

enterprises (MSE) is even worse than for farm credit. Unlike agriculture, MSEs have to face

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direct competition from the corporate sector which not only has access to equity markets

but also appears able to preempt bank credit when it is tight. This lack of a level playing field

can have serious consequences for employment if thereby the corporate sector is able to

wrest markets from those MSEs which are otherwise competitive. A continuing

commitment to priority lending for both agriculture and MSEs remains therefore an

essential feature of the development banking required for growth. Nonetheless, the overall

financial system needs to be strengthened and developed through improved regulatory

mechanisms in line with international best practices and by liberalizing to encourage

competition.

There is an urgent need for financial innovation so to incorporate inclusive growth in the

economy. The insurance and pensions sectors are major sources for long-term finance for

infrastructure, and policies need to evolve to encourage the development of a healthy and

well-regulated industry. The need to manage risks of various types calls for new insurance

products. As Indian corporates acquire positions abroad, they will need to hedge themselves

against various risks. The need to encourage innovation and new entrepreneurship will

require encouragement of venture capital funds which are as yet in their infancy. A

comprehensive review of policy in the area is necessary and should be undertaken in the

11th Plan.

Micro-finance is another new development in which Indian institutions have acquired

considerable expertise and where up scaling holds great promise to expand the nature of

financial services offered to micro enterprises and also to make these the springboard for

entrepreneurial development. The 11th Plan must ensure that our policies are sufficiently

flexible to support the development of micro-finance. Interest rates in the micro-finance

sector have to be significantly higher than in the banking sector reflecting the much higher

cost of doing business. This sometimes attracts criticism but they still remain much lower

than rates charged by money lender and therefore provide competition to money lenders.

There have been incidents of state governments imposing restrictions on microfinance

institutions in a manner which does not appreciate the ground realities. Such excessive

regulation can prevent the development of a healthy and competitive micro-finance sector

which could compete with usurious money lenders.

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Introduction to Financial Inclusion

Before elaborating on what exactly Financial Inclusion is we must comprehend the concept of

Inclusive growth. To explain the concept of Inclusion we need to understand the meaning of

INDIA and BHARAT. These are known as two names for the same country and ironically they are

extreme contrasts to each other. India is said to be the Land of Opportunity, Land of Fashion Designer,

Land of Information Technologies, Land of Automobile and Jet planes etc. Bharat on another hand depicts a

picture which is a Land of Scarcity, Land of Snakes Charmers, Land of Traditional Crafts and Land of Bullock

Carts etc. The crux is there is an India that is Global and there is a Bharat that is Local. The aim of

Inclusive growth is to make “India and Bharat make One, Connected and Integrated”. To

achieve this aim, following are some main objectives of Inclusive growth:-

Give equal opportunity, capabilities, opportunities and rights to all.

To make our country free of poverty, deprivation and exclusion.

Freedom from hunger, disease and illiteracy.

Financial inclusion is not only the process of ensuring access to financial services or making

available timely and adequate credit when needed by vulnerable groups, such as weaker sections and

low income groups, at an affordable cost but the definition of financial inclusion is much wider. It is

not only providing accessibility of the entire range of financial products and services, it must also be

appropriate, it must also be fair and it must be transparent. In that sense, we can say that 95 per cent

of the population is financially excluded, with most of us not knowing what an appropriate financial

product is suitable for us. Today, what we are seeking to do is first improving access to various

financial products and services for the entire population and ensuring that such access is provided

by mainstream institutional players. Enabling people to get credit from small institutions, money-

lenders and the like is not financial inclusion.

What does Financial Inclusion mean?

One of the major steps taken by government for poverty alleviation is Financial Inclusion. Role of

Financial Inclusion is very wide and covers various aspects of the financial need of an individual.

Eminent personalities like Mr. Pranab Mukharjee, Mr. C. Rangarajan Mr. Duvvuri Subbarao, Mrs.

Usha Thorat and Dr. K.C.Chakrabarty given their definition, explaining the scope of Financial

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Inclusion. I see Financial Inclusion as a “Mechanism that bridges the financial gap of an

Individual”. Before elaborating it we must comprehend the meaning of Gaps.

Financial Gaps according to me represents the lack of financing opportunity and improper financial

infrastructure for vulnerable group who need formal system of finance at an affordable cost. Apart

from this other factor which contributes in widening the gap between the financial institution and

investors are lack of awareness about the financial products, unaffordable products, high transaction

costs, and products which are not convenient, inflexible, not customized and of low quality.

According to Mr. C. Rangarajan, the Chairman of the Committee on Financial Inclusion defines

financial inclusion as “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”.

It is said Financial Inclusion will promote thrift and develops culture of saving and also enables

efficient payment mechanism strengthening the resource base of the financial institution which

benefits the economy as resources become available for efficient payment mechanism and

allocation.

In Financial Inclusion two terminologies are used very commonly, the first thing is a check-in

account, what we in the system call a No-Frills Account. And the next stage is immediate credit.

Today, what the poor wants is accessibility to immediate credit. As most of the data shows that 80

per cent of the credit requirement of the poor is not for business or entrepreneurship but, it is for

meeting a financial emergency, like health, or urgent domestic needs. While the Reserve Bank of

India in 2005 facilitated that every no-frills account can be opened with a readymade overdraft, the

question that arises is how many banks have opened a no-frills account with a readymade overdraft

facility. This immediate credit stage is followed by introduction of various savings products, i.e.

other types of savings, followed by remittances and payments services. This is followed by

insurance, especially health insurance, mortgage, life insurance, housing loans, and then by financial

advisory services. Entrepreneurship credit comes at the last.

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Who are Financially Excluded?

They are basically the underprivileged sections of the society, i.e., farmers, small vendors, agricultural

or industrial labourers, people engaged in unorganized sectors, unemployed people, women,

children, old people, and the physically challenged. The extent of financial exclusion become clear

from these figures: only 40 per cent of the people have a check-in account, 20 per cent have taken life

insurance products, 0.6 per cent has taken non-life insurance products; only 2 per cent have access to

credit cards. This gives us the scope of business opportunities that are there if we can reach out to

all the people. Today, geographically, only 5.2 per cent of the country‘s villages have a bank branch.

It is not that efforts have not been made earlier to promote financial inclusion. One of the prime

aims of the cooperative movement was bringing financial inclusion. The setting up of State Bank of

India in 1956, the nationalization of banks, the introduction of the Lead Bank Scheme, establishing

Regional Rural Banks, evaluation of the Service Area Approach, and formation of Self-Help Groups

were all steps taken to take banking services to the general masses. But, despite such measures only

10 per cent of the population has access to the institutional credit system. A major reason for our

failure to promote financial inclusion has been Technology. Without technology we cannot reach

out to the people. Banking technology is only of recent origin and business delivery model is yet to

evolve. Today, it is clear that we will not be able to promote financial inclusion with a branch-based

delivery mechanism. We have to experiment with new types of delivery mechanisms, what we can

call the ICT-Based Delivery Mechanism.

Here, the problem is that we do not have a business model as to how such a mechanism will be

viable. One must remember here that giving a subsidy does not necessarily lead to a better delivery

mechanism. So, it is important that any service that seeks to cover the poor and the excluded must

be at an affordable cost but never at a loss. We must not exploit the poor, but he must pay the full

cost otherwise there will be leakages. Any such delivery mechanism will be ineffective and the

system will be doing greatest disservice to the poor. When we say that we must give the credit to

poor at a cheaper rate, we have to realize that if the formal system fails to give credit to the

excluded, the alternative is a far costlier option.

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The 11th Five Year Plan also talks about inclusive growth. Inclusive growth cannot come without

financial inclusion. Today, globally, the mainstream financial institutions have realized that the poor

are bankable. And the technology to make this possible is also there. The Banking Correspondent

Model is one of the most revolutionary reforms which have taken place in our banking system.

However, it is one that we are not taking the full advantage of. Under the KYC/GCC guidelines, the

poor need not go every time for a transaction to a bank branch. For opening branches in unbanked

rural centres, the rules have also been liberalized. Similarly, we have a liberalized policy for ATMs.

Today, no license is needed for setting up ATMs. But the ATMs will work only if bank have

customers. We have opened lots of no-frills accounts, but not even 1 per cent of such accounts have

been extended overdrafts despite the rules allowing this. Simply opening a no-frills account is not

financial inclusion. It is just the beginning. The available statistics and this Study reveal that we have

opened over 28.23 million no-frills accounts, but less than 11 per cent of them are active. Opening

no-frills accounts will not give any help to the poor if they do not conduct any transactions. Today,

the number of rural bank branches is only 31,727 as against more than 600,000 villages in the

country. Similarly, the number of ATMs is 44,857 with a majority of them being in metros and

urban centres. Again, there are 470,237 points of sale (POS) but these are of little use to the rural

poor as they cannot deliver cash, which is what they need. Today, a bank branch covers a population

of 16,000. So, it is clear that bank branch-based delivery model will not work. We have to go for a

different delivery mechanism.

What are the Problems and Difficulties?

The problem is that while there are islands of excellence, large ocean of deprivation and non-

performance remain. It is clear that scaling-up of activities is just not possible. This is because of the

fact that transaction costs are high. But, here it should be clear that such costs should be shared by

all stakeholders. It must be shared by the State if it feels that it will lead to development. It has to be

shared by the bank, provided they feel that there is a future business in this. It must be borne by the

customer also if he gets the banking service or product he needs at his doorstep. The key here is to

effectively work out this cost. Today, with the technology we have on our side, we can provide all

State services and benefits directly to the poor. But there is no reason why the banks should not be

paid for this as it helps the State to reduce its cost of administration of such service. Similarly, if a

bank feels that this will become a profitable business in future, it should be first prepared to invest in

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this business. So, it is important that we work out an appropriate business model for promoting

financial inclusion. It is true that the existing Banking Correspondent model is too restrictive. So

changes are to be made in the existing guidelines to make it more flexible and operative. But easing

the policy is only one part of it. For inclusion to succeed, we need to be clear that we want inclusion

to happen and we are ready to work for it. We may give everything but if we don‘t have the

determination and involvement and if we do not believe that it is a viable business, we will not

succeed. Strong collaboration among banks, technical service providers, BC service providers is

what is required. Currently, this is lacking. Further, if we believe inclusive growth and financial

inclusion is part of the development process, without the involvement of the State at the

implementation (local) level, it will not succeed. An example of this is Punjab National Bank, when

we started doing financial inclusion, we started with 30 pilot projects and in one year we could open

only 2 lakh no-frills accounts. But in Rajasthan when we co-opted the State Government, we opened

26 lakh no-frills accounts in just 40 days. Also, given the size and scale of the task on hand, it is

important that big players in the technological field become part of the process. Their interest in this

area is vital. We require much larger institutional players in the area of technology, research and

development, and for evolving cost-effective business solutions to ensure success of financial

inclusion.

Today, when we are in the midst of a global meltdown it is the right time to focus on financial

inclusion. The meltdown globally has brought more focus on inclusive growth. Today, everybody‘s

attention has shifted from the West to the East, from the US/Europe to India, China, and Asia, and

this is an opportunity. Focus on domestic consumption and investment - This will not come without

linking the people with the banking system. Focus on increased social sector spending - If we want

to make spending more productive and more efficient, its delivery has to be through a bank account.

Today, everybody is saying that we must give subsidies directly to the poor. In fact, Dr Meghnad

Desai, the noted economist said that everything should be given to the poor in cash and put directly

into their bank accounts. This is because this is much more beneficial to the poor. Financial

inclusion is necessary not only for the poor; it is a must for ensuring the sustainability of our society.

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Understanding Key Stakeholders in Financial Inclusion

One has to first define who the stakeholders are: viz., banks, NBFCs, insurance companies, market

players, pension funds, postal system. Then define the regulators such as Reserve Bank of India

(RBI), Insurance Regulatory and Development Authority (IRDA), Telecom Regulatory Authority of

India (TRAI), and Securities and Exchange Board of India (SEBI); institutions and think-tanks and

certainly the government. Unless all these stakeholders come together and there is some kind of a

broad consensus on what needs to be done, the purpose of the study would not be adequately

served.

1. Government

Planning Commission

Ministry of Communications & Information (MoCIT)

Ministry of Rural Development (MoRD)

Ministry of Finance (MoF)

Economic Advisory Council 2. Players

Banks

NBFCs

Insurance Companies

Market Players

Pension Funds

Postal System 3. Regulators

RBI

IRDA

TRAI

SEBI 4. Academia

IIT

IISc

5. Institutions & Think Tanks

NABARD

Banking Codes and Standards

Board of India

IDRBT

NIPFP

IGIDR

ICRIER, NCAER, CMIE, IDF, BCG etc.

6. Civil Society

NGOs

MPFI

E-Communities 7. Industry

Technology Providers, (FINO, Integra, A Little World, Atom, Nokia, Intel, etc)

BCs & BFs

ICT industry

Telco‘s

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RBI‟s Recent Initiative for Greater Financial Inclusion

Reserve Bank of India initiative aim to ―connect people‖ with banking system and not just opening

account has given impetus to greater financial inclusion. This includes meeting the small credit needs

of the people, giving them access to the payments system and providing remittance facilities. This

has led to some notable developments:

No Frills Accounts: In November 2005, RBI asked banks to offer a basic banking ‗no-

frills‘ account with low or zero minimum balances and minimum charges to expand the

outreach of such accounts to the low income groups.

Easier Credit facility: Banks were asked to introduce a General Purpose Credit Card

(GCC) facility up to Rs. 25,000. However, total number of GCCs issued by banks as at end-

March, 2009 was only 0.15 million.

Simpler KYC Norms: In order to ensure that people belonging to the low income groups,

both in urban and rural areas, do not encounter difficulties in opening bank accounts, the

'Know Your Customer' (KYC) procedure for opening accounts was simplified for those

accounts with balances not exceeding Rs 50,000 and credits thereto not exceeding

Rs.100,000 in a year.

Use of Information Technology: Banks have been urged to scale up IT initiatives for

financial inclusion speedily while ensuring that solutions are highly secure, amenable to audit,

and follow widely-accepted open standards to ensure eventual inter-operability among the

different systems. Two of the important initiatives are:

o Smart cards for opening bank accounts with biometric identification. These help the

customers get banking services near their doorstep.

o Link to mobile hand held electronic devices for banking transactions. In October

2008, the RBI advised banks on issues relating to technology, security standards, and

customer protection.

EBT through Banks: The Reserve Bank is in consultation with state governments to

encourage them to adopt Electronic Benefit Transfer (EBT) by banks.

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100% Financial Inclusion Drive: The Reserve Bank launched a financial inclusion drive

targeting one district in each state for 100% financial inclusion. To make it viable RBI

advised banks to:

o Ensure provision of banking services nearer to the location of the no-frills account

holders through a variety of channels.

o Provide GCC/small overdrafts along with no-frills accounts to encourage the

account holders to actively operate the accounts.

o Conduct awareness drives of the facilities offered to the no-frills account holders.

o Review the extent of coverage in districts declared as 100 per cent financially

included.

o Efficiently leverage on the available technology enabled financial inclusion solutions.

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CHAPTER 2

INFORMATION TECHNOLOGY

SOLUTIONS

FOR

FINANCIAL INCLUSION

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Financial Inclusion through Information Technology

The use of IT solutions for providing banking facilities at doorstep holds the potential for scalability

of the FI initiatives. Pilot projects have been initiated using smart cards for opening bank accounts

with bio metric identification. Link to mobile or hand held connectivity devices ensure that the

transactions are recorded in the bank‘s books on real time basis. Some State Governments are

routing social security payments as also payments under the National Rural Employment Guarantee

Scheme through such smart cards (see pictures below). The same delivery channel can be used to

provide other financial services like low cost remittances and insurance. The use of IT also enables

banks to handle the enormous increase in the volume of transactions for millions of households for

processing, credit scoring, credit record and follow up.

Point of Transaction Machine

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Pensioners with Bio-metric cards line-up to receive payments

Biometric validation of Smart Card

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Role of ICT in FI

To be able to ensure that the challenges of banking the unbanked are met effectively and converted

into growing and sustainable business for banks, there is no alternative to adoption of ICT solutions

on a very large scale and range. ICT solutions are required to capture customer details, facilitate

unique identification, ensure reliable and uninterrupted connectivity to remote areas and across

multiple channels of delivery, offer multiple financial products (banking, insurance, capital market)

through same delivery channel while ensuring consumer protection, develop comprehensive and

reliable credit information system so essential for efficient credit delivery and credit pricing, develop

appropriate products tailored to local needs and segments, provide customer education and

counseling , enable use of multi media and multi -language for dissemination of information and

advice.

ICT for FI - RBI initiatives

I now turn to the specific initiatives of RBI in regard to ICT for Financial Inclusion. The very first

initiative was emphasizing the use of IT solutions while adopting the agency or BC model for

financial inclusion. A paper placed on the RBI website has envisaged a scheme with RBI support for

providing satellite connectivity for remote area branches. The reports of three working groups set up

by RBI to consider support to RRBs and UCBs in computerizing their operations and adopt IT

solutions for financial inclusion have been placed in public domain for comments. These groups

have recommended that the IDRBT could offer interest free loans to UCBs and RRBs for adoption

of IT. Based on comments and response RBI will be firming up these schemes. Recognizing the

penetration of mobile phones (including amongst the low income population) and the enormous

opportunities they offer in extending the banking outreach. RBI had placed a paper on mobile

banking in the public domain and the guidelines are now being finalized. The NFS is able to offer

nationwide networking of ATMs and can facilitate banking transactions including remittances

through ATMs linked to the NFS. Effective from April 1, 2009 a customer will be able to use any

ATM (including other bank ATMs) to operate his /her account at no cost. Other initiatives include

those aimed at ensuring quicker, safer currency and funds transfer. In fact RBI has put on its web-

site yesterday an approach paper on rationalization of service charges for usage of electronic

products, which would facilitate easier movement of funds at lower costs.

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Electronic Benefit Payments

Recognizing the several advantages of using bank accounts for disbursal of government benefits,

many State Governments have decided to disburse NREGA payments social security benefits

electronically through no frills bank accounts and in some States with such accounts operated

through smart cards with bio–metric identification. A Committee set up by RBI examined the

various models through which such payments can be made and has recommended a bank led model

with sharing of costs between Government and banks. Appropriate support from the RBI or the

Financial Inclusion Technology Fund could also be thought of in the initial stages. Such accounts

that have been opened to receive government benefits/payments can become the base for a host of

other financial services and facilitate the objective of financial inclusion.

Regulatory framework

The regulations relating to IT solutions for banking services in general and financial inclusion in

particular relate to ensuring integrity of banking system and ensuring customer protection. These

cover customer identification/authentication, customer confidentiality/ privacy, KYC/AML issues,

outsourcing, bank‘s responsibility for their agents, ensuring inter–operability and open standards,

imaging standards and adherence to payments system regulations.

Role of Technology

Technology can play an important role in reducing operating cost of providing banking services,

particularly in the rural and low income groups segments. The technology, if blended appropriately

with the right business model and policy, holds the key to extending affordable, viable and

sustainable access to finance for the population at large. There are three broad types of technologies

that have been identified to drive the growth of financial services. These are

Pro-Poor New Information and Communication Technology, primarily low-cost cell

phones.

ATMs and other Point of Sales Devices.

Smart plastic card.

The centralized data processing system and the non-conventional methods based on computer

systems, which do not require uninterrupted electric supply and radio frequency network, can

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significantly reduce the cost of extending financial services. There are a number of cases where

banks have expanded the coverage of banking services to remote and un-banked areas with

affordable infrastructure, while keeping operating costs low with the use of appropriate technology.

Technology has the potential to lead to new delivery mechanisms and business models. For instance,

technology will allow branchless banking and establishment of new partnerships between financial

service providers and a range of other service providers that was not feasible before to provide

services to clients in remote areas and low-population density areas.

Mobile phone-based services are revolutionizing micro-finance services in a number of countries

(Asian Development Bank, 2007). Mobile banking (or mobile payment) is a term used for

performing balance checks, account transactions, payments, etc. via a mobile device such as a mobile

phone, PDA or other such device. Most of the mobile payment platforms fall into four categories:

Mobile banking enabling users to perform banking transactions using mobile phone like,

balance checks, fund transfers, bill payments

Remote purchase

Person to person transfers

Point of sale, i.e., using phones to pay for goods at merchant location.

These services can be provided using various available connectivity technologies, each one of which

has its own pros and cons (Table 1(7.37)). However, the extent to which technology will be

integrated into the financial service industry at the low end will depend on supportive government

policies and the quality of the infrastructure, particularly in rural areas.

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Different technologies have been successfully adopted in many countries to promote financial

inclusion. Banks in India have initiated pilot projects utilizing smart cards/mobile technology to

increase their outreach. Biometric methods for uniquely identifying customers are also being

increasingly adopted. Banks are also increasingly adopting technological solutions for delivery of

credit at affordable price and to a wider section of the population. State Bank of India (SBI) initiated

a project called the SBI Tiny Card Accounts (SBITCAs) recently in Aizwal. The project is a

combination of ―no-frills‖account and BCs/BFs model. The SBITCAs are operated through new

generation mobile phones based on near-field communication (NFC) technology, enhanced with

fingerprint recognition software and attached to receipt printer. The card allows activation of

transaction of funds for the purpose of micro-savings (SBI-tiny no-frills pre-paid account), cash

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deposits and withdrawal, micro-credit (including KCCs, GCCs), money transfer (account-to-account

within the system), micro-insurance, cashless payments to merchants, SHG savings-cum-credit

accounts and attendance systems, disbursements of Government benefits like the national rural

employment guarantee scheme, for equated monthly installments (EMIs), utility payments, coupons,

vouchers and tickets, loyalty points, automatic fare collection systems, portable and fixed positions

for front-end devices (fully inter-operable).

Technology and Financial Inclusion

In the Philippines, two cell phone companies – Smart and Globe Telecoms – offer innovative cell

phone based facilities, also called electronic wallet, to transfer money, pay bills, and make payments

for purchases from stores, among other things, called Smart Money and G-Cash, respectively. In

February 2005, the Rural Bankers Association of the Philippines Microenterprise Access to Banking

Services (RBAP-MABS) launched a project called Text-A-Payment (TAP). TAP is an innovative

mobile technology product that uses the SMS technology of Globe Telecom (powered by G-Cash)

to pay for micro finance loan payments of borrowers. TAP seeks to bring in new and low cost

technology tools to improve efficiency and outreach. Small borrowers can utilize the service for

payments of their micro-finance loans. The other applications of TAP are remote deposit taking,

cash withdrawal, international and domestic remittances, purchases and bills payment.

In South Africa, banking institutions, together with mobile phone companies, have begun to expand

access to financial services targeting low-income customers with an interest-bearing bank account

accessible through mobile phones, and debit card with which they can make purchases at retail

outlets and deposit or withdraw money at ATMs. Customers can use their mobile phones to make

person-to-person payments and transfer money.

Prodem, the first micro-finance organization to create a chartered bank, BancoSol, in Bolivia started

Prodem Smart ATM, a smart card cum ATM recently. The smart card stores customer‘s account

balance every time the transaction is made using the card. This enables Prodem Smart ATM to

operate even in the absence of internet connectivity, thereby, making it an ideal instrument to extend

financial services in many rural parts of Bolivia that lack the technological infrastructure for a wide-

reaching, online network.

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CHAPTER 3

FINANCIAL INCLUSION

THROUGH SHGs AND

MICRO FINANCE

Page | 42

SHG Models

Generally, the SHGs need self-help promoting institutions (SHPIs) to promote and nurture them.

These SHPIs include various NGOs, banks, farmers‘ clubs, government agencies, self-employed

individuals and federations of SHGs. However, some SHGs have also been formed without any

assistance from such SHPIs.

There are three different models that have emerged under the linkage programme:

Model I: This involves lending by banks directly to SHGs without intervention/facilitation

by any NGO.

Model II: This envisages lending by banks directly to SHGs with facilitation by NGOs and

other agencies.

Model III: This involves lending, with an NGO acting as a facilitator and financing agency.

Model II accounted for around 74 per cent of the total linkage at end-March 2007, while Models I

and III accounted for around 20 per cent and 6 per cent, respectively.

Understanding SHG – Bank Linkage Programme and Their Role in Financial

Inclusion

A Self Help Group (SHG) is a small, economically homogeneous and affinity group of rural poor

which comes together to:

Save small amounts regularly.

Mutually agree to contribute to a common fund.

Meet their emergency needs.

Have collective decision making.

Resolve conflicts through collective leadership and mutually discussion.

Provide collateral free loans on term decided by the group at the market driven rates.

SHG a form of Microfinance has been long recognized and practiced in India as a tool for extending

banking services to the poor to enable them to save and invest or partake of credit thereby

facilitating them to break the chain of poverty. Several micro-credit schemes have brought rich

rewards to the beneficiaries. With hardly any non-performing asset (NPAs) in micro-credit, more

and more banks are looking at increasing their operations in this area in a big way.

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The Self Help Group (SHG) which provides a good Bank Linkage programme is a major plank of

the strategy for delivering financial services to the poor in a sustainable manner. As at the end of

March 2007, as many as 2.92 million SHGs have been credit linked with banks, benefitting more

than 40 million poor families; 80 per cent of members of Self Help Groups constitute women.

Initially there was a slow progress in the programme up to 1999 as only 32,995 groups were credit

linked during the period 1992 to 1999. Since then the programme has been growing rapidly and the

number of SHGs financed increased from 81,780 in 1999-2000 to more than 6.20 lakh in 2005-06

and 6.87 lakhs in 2006- 07 (Table-2 below).

Year No. of SHGs financed

during the year (in Lakhs)

Cumulative no. of SHGs

financed (in Lakhs)

2001 – 02 1.98 4.61

2002 – 03 2.56 7.17

2003 – 04 3.62 10.79

2004 – 05 5.39 16.18

2005 – 06 6.20 22.38

2006 – 07 6.87 29.25

Impact of Bank Linked - SHG Programme

The main findings reveal that the programme has following impacts:

Reduced the incidence of poverty through increase in income, and also enabled the poor to

build assets and thereby reduce their vulnerability.

Enabled households that have access to it to spend more on education than non-client

households. Families participating in the programme have reported better school attendance

and lower drop out rates.

Empowered women by enhancing their contribution to household income, increasing the

value of their assets and generally by giving them better control over decisions that affect

their lives.

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Reduced child mortality, improved maternal health and the ability of the poor to combat

disease through better nutrition, housing and health - especially among women and children.

Contributed to a reduced dependency on informal money lenders and other non-institutional

sources.

Facilitated significant research into the provision of financial services for the poor and

helped in building ―capacity‖ at the SHG level.

Finally, it has offered space for different stakeholders to innovate, learn and replicate. As a

result, some NGOs have added micro-insurance products to their portfolios, a couple of

SHG federations have experimented with undertaking livelihood activities and grain banks

have been successfully built into the SHG model in the Eastern Region. SHGs in some areas

have employed local accountants for keeping their books, and IT applications are now being

explored by almost all for better management information systems (MIS), accounting and

internal controls.

Issues in Bank Linked SHG Programmes

Regional Imbalance – Historically, there has been a concentration of SHGs in Southern

Sates. The share of cumulative SHGs linked in southern states has been at around 60 per

cent of the total SHG credit linkages in the country. To correct this anomaly, NABARD had

taken up intensification of SHG-bank linkage programme in 13 identified priority states

which account for 70 per cent of rural poor population, namely, Uttar Pradesh, Orissa, West

Bengal, Madhya Pradesh, Gujarat, Rajasthan, Chhattisgarh, Jharkhand, Bihar, Uttaranchal,

Assam and Himachal Pradesh in the year 2004-05. Focused attention was paid to these states

so as to flood the market by promoting a large number of quality SHGs.

Quality of SHGs - With fast all-round spread of the SHG-bank linkage programme having

credit linkages with a huge number of SHGs, the quality of SHGs has come under stress and

is reportedly getting impaired, in certain areas. This is reflected in poor maintenance of

books and accounts at SHG level and diminishing skill sets on part of SHG members in

managing their groups. Significant financial investment, capacity-building and technical

support is required for meeting this challenge. NABARD has taken up various measures like

barefoot account, computer ‗munshi‘, smart card, IRV programmes to combat this

challenge. The IRV scheme is taken up with a view to finding solutions for the NGO deficit

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areas where motivated and suitably oriented individuals can assume the NGO‘s role as well

as hand holding the SHGs.

Impact of SGSY on SHG-bank linkage programme – There is no subsidy element in

SHG-bank linkage programme, whereas the government is giving some amount of

subsidiary to the SHGs promoted under SGSY. From field-level feedback, it is found that

many members of existing SHGs are inclined to join SGSY groups in view of the

subsidiaries being offered and as a result quite a few quality SHGs do disintegrate. Various

studies point out that the SGYS groups lack quality and the poor do not get long – term

benefit under the programme.

Recent Initiatives by NABARD

NABARD has been playing a crucial developmental role for the micro finance sector in India.

NABARD has been organising/ sponsoring training programmes and exposure visits for the benefit

of bank officials, NGOs, SHGs and Government agencies to enhance their effectiveness in the field

of micro finance. The best practices and innovations with respect to the sector are widely circulated

among Government agencies, banks and NGOs. NABARD also provides support for capacity

building, exposure and awareness building of the SHGs and NGOs.

NABARD launched the ―Micro-Enterprise Development Programme‖ (MEDP) for skill

development in March 2006. The basic objective was to enhance the capacities of matured SHGs to

take up micro enterprises through appropriate skill up-gradation. The programme envisaged

development of enterprise management skills in existing or new livelihood activities, both in farm

and non-farm sectors. The duration of training can vary between 3 to 13 days depending upon the

objective and the nature of training. During the year 2007-08, 394 MEDPs were conducted covering

9,182 SHG members on activities like bee-keeping, mushroom cultivation, horticulture and

floriculture, vermi-compost/ organic manure preparation and dairy. As on March 31, 2008, 674

MEDPs had been conducted covering 16,761 participants.

In 2005-06, a pilot project for ―promotion of micro-enterprises” was launched among members of

matured SHGs. This is being implemented by 14 NGOs acting as ―micro-enterprise promotion

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agency” (MEPA) in nine districts, viz., Ajmer (Rajasthan), Chandrapur (Maharashtra), Kangra

(Himachal Pradesh), Madurai (Tamil Nadu), Mysore (Karnataka), Panchmahal (Gujarat), 24 north

Pargana (West Bengal), Puri (Orissa) and Rae Bareli (Uttar Pradesh). The project is being

implemented by each NGO in two blocks in each of the selected district. As on March 31, 2008,

2,759 micro-enterprises were established under the project involving bank credit of Rs.238 lakh.

NABARD also provides marketing support to the SHGs for exhibiting their products. During the

year 2007-08, NABARD supported three exhibitions of products prepared by various SHGs at

Bhopal, Chennai and Navi Mumbai involving grant of Rs.3.8 lakh. In addition, NABARD also

provides promotional grant support to NGOs, RRBs, DCCBs, farmer’s clubs and individual

volunteers and assists in developing capacity building of various partner agencies. NABARD has

been making efforts to increase the number of partner institutions as self-help promoting

institutions (SHPIs). NABARD launched a pilot project in December 2003 to link post-offices with

the SHGs with the objective of examining the feasibility of utilizing the vast network of post offices

in rural areas for disbursement of credit to rural poor on an agency basis.

The SHG Federations are emerging as important players in nurturing SHG, increasing the

bargaining power of group members and livelihood promotion. The features and functions of SHG

federation models promoted in the country vary, depending on the promoting agencies.

Recognizing the growing role of the SHG Federations and their value addition to SHG functioning,

NABARD, during the year 2007-08 decided to support the Federations on a model neutral basis.

Support is extended to the Federation by way of grant assistance for training, capacity building and

exposure visits of SHG members. NABARD has also formulated the broad norms for deciding the

grant of financial assistance to SHG Federations. During the year 2007-08, grant assistance

amounting to Rs 10 lakhs was sanctioned to two federations.

Recognizing the role played by MFIs, in extending micro finance services in the unbanked areas,

NABARD extends support to these institutions through grant and loan based assistance. NABARD

has been selectively supporting MFIs for experimenting with various micro finance models such as

replication of Grameen Model, NGO networking (bigger NGOs supporting smaller NGOs), credit

unions and SHGs federations, among others, to meet credit requirements of the unreached poor.

NABARD provides loan funds in the form of revolving fund assistance (RFA) on a selective basis

to MFIs to be used by them for on-lending to SHGs or individuals. This loan has to be repaid along

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with service charge, within a period of 5 to 6 years. During the year 2007-08, RFA amounting to

Rs.8 crore was sanctioned to six agencies taking the cumulative credit sanctioned to Rs.36 crore

covering 35 agencies.

In order to identify, classify and rate MFIs, NABARD introduced a scheme for commercial banks

and RRBs to enable them to avail the services of accredited rating agencies for rating of MFIs.

Banks can avail the services of credit rating agencies like CRISIL, M-CRIL, ICRA, CARE and Planet

Finance for rating of MFIs and avail financial assistance by way of grant to the extent of 100 per

cent of the total professional fees of the credit rating agency, subject to a maximum of Rs. one lakh.

The assistance is available for the first rating of MFIs with a minimum loan outstanding of Rs.50

lakh and maximum loan outstanding of Rs.500 lakh. During the year 2007-08, rating support

amounting to Rs 3 lakh to four agencies was provided. Recognizing the need for up scaling the

micro finance intervention in the country, the Union Finance Minister, in the budget for the year

2000-01, announced creation of a Micro Finance Development Fund (MFDF). The objective of the

MFDF is to facilitate and support the orderly growth of the micro finance sector through diverse

modalities for enlarging the flow of financial services to the poor, particularly for women and

vulnerable sections of society, consistent with sustainability. Consequently MFDF with a corpus of

Rs.100 crore was established in NABARD. The Reserve Bank and NABARD contributed Rs.40

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crore each to the fund, while the balance was contributed by eleven select public sector banks. As

per the Union Budget announcement for the year 2005-06, the MFDF was re-designated as Micro

Finance Development and Equity Fund (MFDEF) with an increased corpus of Rs.200 crore. The

fund is being managed by a board consisting of representatives of NABARD, commercial banks and

professionals with domain knowledge. The Reserve Bank is a member of the Advisory Committee

of the MFDEF. The MFDEF maintained by NABARD is used for promotion of micro finance

through scaling-up of the SHG-bank linkage programme; extending RFA and capital support to

MFIs and undertake various promotional initiatives. During 2007-08, Rs.27 crore was utilized from

the fund towards micro finance related activities.

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The North-Eastern Council (NEC), Shillong parked a fund of Rs.50 lakh with NABARD during the

year 2007-08 for facilitating miscellaneous training programmes involving Government/bank

officials, NGOs, SHGs from States in the NER and Sikkim. During the year 2007-08, 73

programmes were sanctioned out of the fund involving a total grant assistance of Rs.45 lakh.

Micro Finance Initiatives by SIDBI

SIDBI launched its micro finance programme in February 1994 on a pilot basis. The programme

provided small doses of credit funds to the NGOs all across the country. NGOs acted as financial

intermediaries and on-lent funds to their clients. Limited amount of capacity building grant was also

provided to the NGOs.

With a view to reducing the procedural bottlenecks, expanding the outreach, meeting the huge

unmet demand of the sector and striving towards its formalization, SIDBI reoriented its policy and

approach to create a sustainable micro finance model that would significantly increase the flow of

credit to the sector. To take the agenda forward, the SIDBI Foundation for Micro Credit (SFMC)

was created in January 1999. SFMC‘s mission is ―to create a national network of strong, viable and

sustainable Micro Finance Institutions from the informal and formal financial sector to provide

micro finance services to the poor, especially women‖. SIDBI was one of the first institutions that

identified and recognised NGO/MFI route as an effective delivery channel for reaching financial

services to those segments of the population not reached by the formal banking network. As a result

of bulk lending funds provided, coupled with intensive capacity building support to the entire micro

finance sector, it has come to occupy a significant position in the Indian micro finance sector.

Today, SIDBI is one of the largest providers of micro finance through the MFIs.

SIDBI‘s pilot programme of 1994 brought out one of the major shortcomings in micro finance

lending programme. It showed that collateral-based lending does not work insofar as micro finance

is concerned. NGOs/ MFIs acting as financial intermediaries do not have tangible collateral to offer

as security for the loans. Doing away with collateral-based lending in MF necessitated that a

mechanism be developed which would minimise the risks associated with lending. With a view to

catering to this objective, SIDBI pioneered the concept of capacity assessment rating (CAR) for the

MFIs. As part of its developmental agenda, SIDBI encouraged a private sector development

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consulting firm to develop a rating tool for the MFIs which was rolled out in 1999. Today, rating is a

widely accepted tool in this sector. SIDBI has also succeeded in developing a market for rating

services. Two mainstream rating agencies, viz., CRISIL and CARE have also started undertaking

micro finance ratings, besides M-CRIL. SIDBI has also adopted the institutional capacity assessment

tool (I-CAT) of access development services (ADS), a private sector consulting organisation, for

rating of start-up/small and mid-sized MFIs.

SIDBI introduced a product called ―transformation loan‖ in 2003 to enable the MFIs to transform

themselves from an informal set up to more formal entities. This loan is a quasi-equity product with

longer repayment period and features for conversion into equity at a later date, when the MFI

decides to convert itself into a corporate entity. Consequently, a number of MFIs went ahead with

the transformation and some of them have now grown significantly and are serving millions of

clients across several states. Recognizing the need to offer the MFIs equity capital so as to

adequately capitalise them, SIDBI set up a fund of Rs. 50 crore which was christened as SIDBI

Growth Fund for MFIs. The fund takes care of equity investment in large corporate MFIs, as also

equity capital in start-up/smaller institutions, along with quasi-equity support for MFIs on the verge

of transformation.

SIDBI also supports incubation of potential local community based organisations through two-

tier/umbrella NGOs/MFIs. The approach not only helps SIDBI to increase its outreach through

double intermediation but also enables it to channelise finance to smaller NGOs that otherwise may

not meet the criteria for availing direct assistance from SIDBI. SIDBI has also been able to nurture

and develop a few new intermediaries set up by experienced professionals. Another approach in this

direction involves incubation of new start-up MFIs promoted by first-generation

development/micro finance professionals. The incubation support is either given through well-

reputed management institutes or through institutions specialising in capacity building and technical

support services.

As at March 31, 2008, the SIDBI had 58 partners in the underserved States, out of its total partner

base of 104. The increased thrust on development of underserved States has also resulted in the

share of these States going up from 19 per cent (Rs.38 crore) in the total outstanding micro finance

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portfolio of SIDBI in the financial year 2005 to over 31 per cent (Rs.299 crore) in the financial year

2007-08.

Substantial growth of the micro finance sector would be possible only if the capacities of all

stakeholders are built up adequately. SIDBI has taken some initiatives in this direction. One such

initiative has been in the area of human resources where SIDBI has tried to address the issue both

from the demand and supply side factors. On the demand side, MFIs are encouraged to hire young

management/accounting graduates from reputed institutes through campus placement and SIDBI

provides partial salary support for these young professionals (YPs) for a period of two years.

Additionally, MFIs are also provided grant funds for hiring trained and experienced professionals as

second line managers. This helps in bringing and retaining the talent in the micro finance sector. On

the supply side, some of the management training institutes have been provided support in the form

of training and exposure visit of their faculty members to reputed national and international training

programmes and other MFIs across the world. Besides, SIDBI was instrumental in bringing

international experts to lend support to these institutes for developing a course on micro finance

that has been incorporated as an elective in their rural management courses.

Other major initiatives towards capacity building of the sector comprised developing the capacities

of consultants and technical service providers (TSPs), developing a common chart of accounts for

the sector, creating gender and environment awareness, promoting innovations and action research

on emerging concepts.

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CHAPTER 4

LIVE STUDY

Launching of Pilot Project in Raebareily Districts (Lucknow Region)

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PART A RESEARCH METHODOLOGY

Research methodology that is used here was purely exploratory because we know it is used when

one is seeking insight into the general nature of the problem possible decision alternative and

relevant variables that need to be considered.

The Research methodology is highly flexible, unstructured and qualitative. Exploratory research

hypothesis are either vague or ill defined, or they don‘t exit at all.

AIMS AND OBJECTIVES

The aim of this research is to study the Impact of Financial Inclusion on customers covered and

ways to make it more effective. The research has accomplished the following objectives:

To conduct a literature review on various recommendations by committees on Financial

Inclusion, understanding Financial Inclusion, role of Information Communication and

Technology (ICT) in enabling low cost banking for rural people and other relevant data

pertaining to Financial Inclusion.

To conduct field study in Raebareily District, so as to critically understand and experience

the effectiveness of Financial Inclusion.

RESEARCH QUESTIONS

What are the efforts of Government of India to make Financial Inclusion more effective?

What is the role and contribution of Information Communication and Technology towards

the development of branch less and low cost banking in the rural India?

Whether various modes of channelizing credit like Micro-Finance, Bank Linked Self Help

Groups etc are effective in Inclusive growth?

RESEARCH APPROACH

The method of Inductive research focuses on the inductive interpretation of thought, reasoning

which can change any specific forms of observations into a general theory. Although by this method

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researchers can view things in a general way. If the researchers analyze any forms of observation in

the society, then they have to make an assumption on it, for that they have to conduct a

experimental based survey to check his assumption to reach towards a certain conclusion. In

addition to that the deductive research is a process by which deductive thought can change the

ordinary theory into new hypothesis.

In relation to this, researchers thought goes from one point to the other i.e. from general to the

specific. He may form perception regarding the human behavior or some observable fact and after

that he may go further to collect the data to come to a certain conclusion. While working on a

certain piece of thought his primary objective may be to form a new thinking to test the hypothesis.

If the data helps this thinking then we can assume that his theory is correct.

The Inductive method helps in building a generalized approach about specific events. It opens with

the singular thought and proceeds for the universal implication.

It makes an explanation about the workings of the thought in a pure, dispassionate and neutral way,

rather than on pre assumed notions.

RESEARCH METHOD

Quantitative research deals with the calculating things, and to find an estimated difference between

various groups. Qualitative research has its origin in social science and is more apprehensive with

understanding approach of how people behave in regards to their knowledge, beliefs, fear and

attitude etc.

Qualitative research impasses on giving much attention on the dynamics of research pattern to give

the researcher, valuable insights which might have been missed by any other method. This method

not only provides a valuable insight of the information to certain questions but also increases the

area of quantitative research methods.

Focus groups

For this method the researcher brings out some of the interesting features. The group size is kept

precisely small, so that its members can express their views freely on any topic. A solution guide is

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always prepared before the actual implementation of thought into action to ensure that a range of

aspects of the topic can be explained in a convenient way. The discussion can be frequently tape-

recorded for further use and analysis.

Direct observation

The collected information in the form of Data can be stored by an external observer, transferred to

the non-participant observer or it can be collected by a participant observer, who has the exact

knowledge of working in the process. In this type of study the researcher‘s motto is to become a

part of the population study so that he finds out a detailed approach in the understanding, values

and beliefs.

In-depth interviews

Interviews have the same perception on focus group, but subjects are studied separately for an

interview. Interviews in qualitative research have a wide range of inquiry. They generally ask the

same set of predetermined questions, which would help in conducting a quantitative survey.

Withstanding the view they encourage subjects to express their views and feelings at certain length.

One particular technique in the critical incident study is in which subjects are asked to give their

views on real events that giving a generalized view. This study also helps in focusing more on the

beliefs, behaviors and attitudes. Then the researcher may be able to find more exhaustive

information about the subject but he may lose the essence which can raise debate among various

groups.

DATA COLLECTION

It is important that how and by which method you are going to check results of your research, and

how effectively you are going to implement that in making your decision. The person in the research

will know how the data collection, planning, and its implementation will help in analyzing the

potentiality of a method for decision making.

Secondary form of data collection incorporates collecting material level problem, but does not

collect the information for the existing data. This can be produced internally or externally to do a

better research.

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Primary information is gathered mainly to help the users whom you are addressing. It is collected on

the basis of observation. There may become more rigid form of data collection but these trends are

flexible w.r.t. its desired group of audiences. Suppose you want to invest in commercial market then

choose the research consultants to do research for you.

Observation is the method by which you can examine the methods and information for reference

materials, or the amount of time it would take in the process to complete a certain phase of work

because if a person knows that he is being observed then his behavior may change.

Surveys Interviewing is another method by which a survey is conducted. Written questionnaires are

more widely used for information gathering. There are various methods by which we can gather

information and response from audience.

If we have to collect a huge amount of information where the target audience is too large then by

choosing a small number of people to represent mass population is the most suitable method for

it or you can also try to remove the biasness approach by using: (i) Random sampling; (ii) Stratified

sampling; and (iii) Quota sampling .

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PART B FIELD STUDY REPORT

Introduction

One of the most critical parts of this report is my Field work, which I refer to as the Live Study. I

covered two villages under Raebareily district, Dalmau and Maharaj Ganj. Under this I met various

banking and non-banking Authorities, Customers, Business Correspondents and Authorities of

Integra Service provider, who shared their views with me and I further observed them by asking

pertinent question regarding the subject matter.

Among the initiatives taken by RBI most important steps are regulatory relaxation through

branchless banking (providing banking services through business correspondents) and usage of

Information Communication Technology (ICT) in a big way to reach out to the villagers in the most

cost effective manner.

Pre-requirement of a Financial Inclusion System.

Some of the features desirable in a system to address inclusion of financially excluded population

are:-

The Population to be covered in the financial inclusion must feel confident of the banking

transaction.

The transaction terminal should be portable to handle anytime, anywhere transaction in a

branchless banking scenario.

The system should work effectively in the conditions prevailing in the rural environment.

Some major problems faced by rural folk include uncertain power supply, connectivity,

weather, dust etc.

The system should provide secure identification and authentication of the customer, in ways

other than signature and PIN numbers.

Should be able to work in online and offline modes, to address issues relating to

connectivity.

The system should address issues relating to loss, theft and breakage etc., of any hardware,

and adequate redundancy should be built into the system for continuity of business.

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Launching of Pilot Project in Raebareily Districts (Lucknow Region)

Driven by the passion of inclusive growth and inspired by the concept of financial inclusion, Bank

of Baroda identified Raebareily region (Sultanpur is another district covered in this pilot project) for

implementation of Smart Card based Financial Inclusion.

M/S Integra Micro System (P) Ltd. was identified as service provider in Raebareily region. Five

Branches have been designated to provide the smart card by business correspondents.

Under the process, the vendors will engage their personnel as field BCs who will work exclusively

for Bank of Baroda in their identified area of operation. Customers identification, collection of their

profile, capturing their photographs & fingerprints will be done by the BCs. Cards will be

personalized by the vendor after approval of the branch. Compliance with the KYC norms will be

the responsibility of the concerned branch.

Integra‟s Mobile Financial Applications Secure Terminal (iMFAST)

Bank of Baroda‘s Lead Branch, Raibareli with the help of Integra Micro System Private Ltd. has

extended banking facility in the rural areas which are Financially Excluded. Integra with its product

Integra‟s Mobile Financial Applications Secure Terminal (iMFAST) has so far connected 5

villages in Raibareli district; Dalmau, Salon, Tilo, Maharaj Ganj and Lal Ganj with 10,000 Smart Cards.

In the second phase we will see Uchahar, Jagatpur, Mohan Ganj, Rastamau, Simrie, Dedeur, Bachnawa,

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Bedaru, Odari and Tarkari Dandi to be connected by banking facilities. A target of 15000 Smart Cards

is set for these 10 Villages, cumulating to 25000 Smart Card in total.

Integra facilitated banking services to ―financially excluded‖ rural India, overcoming the challenges

of power and connectivity. It identifies and authenticates the user, facilitates voice-guided

transactions and prints receipt for each transaction, this help the rural folk who are mostly illiterate.

It represents the evolution of newer systems for rural environments capable of lowering the cost per

transaction.

Till date Integra facilitate transaction of NAREGA, Pension Fund and general banking like

accepting and lending money like function. Even though deposits are as small as Rs. 10 per person,

but this is creating a habit of saving and thrift in rural people.

Integra has made Brick & Mortar less banking possible which as a result helps in cutting exorbitant

cost of providing banking facility in Rural Area. Rural banking is said to be High Volume and Low

Quantity business which make it less lucrative than urban & city banking. But with the advent of

ICT it‘s a blessing in disguise for banker and now turning out to be a big untapped market for them.

About iMFAST

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Integra designed iMFAST to address the specific pains of rural banking: a semi-literate population,

harsh rural environments, and issues of security and authentication. It is designed to be transported

to the villages by an agent (who may work for the bank or a postal service) and who can visit

multiple villages in a day.

The small portable compact electronic device as can be seen in the picture above brings in cash into

the banking system through cashless transactions. This machine is capable of working in both online

and offline mode, it record transaction when working in offline mode. It has a secure identification

and authentication system through a live biometric fingerprint sensor. Voice guide system to assist

the customers instructs them in various languages. Apart from English this device is programmed

with different local languages which include Hindi, Tamil, Kannad, Marathi, Telgu, Malayalam etc.

and offers both, wired and wireless connectivity. On the spot transaction slips are issued so to verify

the details of transaction.

Technical feature of the products of INTEGRA – iMFAST

Field Distribution System – The Point of Transaction (POT) terminal is a small box type light

weight device capable of Biometrics fingerprint based identification and authentication. It has

inbuilt smart card reader and an impact printer. The Biometrics authentification is done by

optical and capacitative scanner. The device is a voice guided system and is indigenously

manufactured by the vendor. The system runs on Embedded Linux and Embedded XP

operating system.

Smart Card – It is a chip enabled contact less card. This chip is not seen from outside and is

personalized with data pertaining to the customer. The card is manufactured by GEMALTO.

Every transaction is directly stored in the field BC‘s Smart Card as well as in the customer‘s

Smart Card but not in the device.

Data Loading at the Back End – The POT device is connected to the line at the end of the

day and push the transaction to the back end server through iMAFAST software which works as

switch. The iMFAST terminal talks to the back end over internet, communication with back end

happens through secure socket layer (SSL) and encrypted data communication.

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Connectivity – This system has the portability and ability to connect to the back end server

using both wire and wireless connectivity like PSTN/GPRS/CDMA/LAN/WIMAX networks.

Reports – On successful completion of the transaction, POT would print 2 receipts. On one

receipt field BC would sign and would hand over the same to the customer. On the second

receipt customer would put his signature/thumb impression and the same would be kept with

the field BC for record purpose. Reconciliation reports are generated through back end database.

The device can handle multiple applications requiring identification and authentication. The device

currently has 256 MB of memory, which can be scaled up to 8 GB. Smart card is of 4 K memory

currently and can be extended up to 144 K. iMFAST was initially deployed in a pilot site with a

leading bank in South India. It is now successfully running in over 50 locations of this bank. In

addition, the solution has been deployed in multiple locations by five other leading banks.

Future development plan addresses both technology and services. Technology options include mini-

ATM with minimum maintenance cost, enumeration devices for e-governance, support for various

smart cards, NFC-based point of service/payments and information kiosks. Future services would

include doorstep banking for urban regions and value added services for microfinance,

microinsurance, etc.

Impact – The solution provides benefit to both the bank and the rural population.

Benefits for Rural Population

Customer need not come to the branch for carrying out basic banking transaction such as, cash

deposit, cash withdrawals, balance enquiry, mini statement etc.

Saves travel time cost of travel to the customers.

Most of the rural populations are daily wage earner; this branchless banking helped them to save

their opportunity loss of daily wage which they have to forgo before. Alternately they can use

this saved time for his occupation or his income generation.

No constraints on time as the Business Correspondents can be accessed practically any time of

the day.

Need not feel diffident for remitting or withdrawing small amounts.

Creating a habit of saving and thrift for rural population.

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Advantage to the Bank

Viable business model to tap the rural saving and deploy credit. This as a result has increased

banking scope for Bank of Baroda as now they can reach far flung areas.

Capability to mop rural savings

Banking remittance of social payment schemes to villagers like NAREGA, Pension funds etc

were on one hand adding cost of transaction to bank and on another side it increased work

pressure at the counter. Integra with its iMFAST has helped bank to reduce the high

maintenance cost by converting these accounts into Integra Account. So in place of managing

2500 saving accounts of rural population now bank have to maintain only one account of

Business Correspondent who is responsible for managing maximum of 2500 accounts of rural

people. These have drastically reduced the cost for bank and reduce work pressure at the

counter.

Reduced frauds as the transaction are handled in secure manner. Transactions are handled by

devices and hence it insures greater accuracy and increased security.

Increased in the customer base without concomitant increase in manpower or infrastructure at

branches.

The business correspondent would be able to identify the borrowers and assist in borrower

identification, loan recovery, etc.

The bank is aiming to extend the reach of the new structure both geographically and functionally to

incorporate gradually, a host of service akin to those generally available in a small rural branch.

Business Correspondent Model

Possibly the most important initiative of the Reserve Bank has been the Business Correspondent

(BC) model. The BC model ensures a closer relationship between poor people and the organized

financial system. Recognizing this, in 2006, banks were permitted to use the services of non-

governmental organizations, micro-finance institutions, retired bank employees, ex-servicemen,

retired government employees, Section 25 companies, and other civil society organisations as

Business Correspondents in providing financial and banking services.

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Even as the BC model has taken off, it needs to be fine tuned and monitored appropriately to

improve its efficacy, including by better training BCs. Recently, the scope of the BC model is further

enlarged by permitting banks to appoint individual kirana/medical/fair price shop owners,

individual Public Call Office (PCO) operators, agents of Small Savings schemes and insurance

companies, individuals who own petrol pumps, retired teachers and self-help groups linked to banks

as BCs. With a view to ensuring the viability of the BC model, banks have also been permitted to

collect reasonable service charges from the customer in a transparent manner. Going forward, the

Reserve Bank will endeavor to give complete flexibility to banks to appoint BCs with only a negative

list of entities that would not be eligible.

Modus Operandi of the System

This service is unique delivery channel in banking services to facilitate rural people in banking with

the help of sophisticated technology. This service is branchless banking service through point of

transaction (POT) machine by using smart cards.

This is a major leap forward towards inclusion through branchless banking. The customer can avail

the facility of banking at his/her own convenient time. Besides that he/she will earn interest on the

savings and this fund will remain secured.

Bank will identify and appoint its Business Correspondents (BC) at remote areas and associate

them with the nearest branch of the Bank.

BCs will be provided one unit of Point of Transaction (POT) Machine to carry out banking

transactions like accepting deposit, allowing withdrawal.

Remittance from abroad can also be credited to these accounts and can be withdrawn through

BCs Location.

BCs will be provided their Agent card to operate the machine. Agent card is only for the

operation of POT machine.

BCs will source the Customer and collect the filled application form from the villagers along

with the photograph and all the required documents and submit them to the designated

branches.

After opening their account, a smart card bearing the photograph and the demographic details

of the account holder will be given to the customer.

Page | 64

BC will obtain the card and to activate the card, the fingerprint of the customer is grabbed and

the card is handed.

As the card is biometric, it can be operated only after recognition of the fingerprints.

After completion of each transaction, customer will be provided a signed receipt as a proof of

the transaction. Besides, machine will also prompt various voice messages regarding the

transaction and inform the current deposit or withdrawal.

BCs, on daily basis, transfers data to the Bank through various means like Telephone Line,

GPRS or through Internet and the transaction occurs in Banks Software.

Most important point for the customer is to obtain the signed receipt of each transaction and also to

listen the voice prompts after the transactions.

This product is the most secure product; the concerned account holder himself has to be present

along with Smart card at the Business Correspondent‘s location for the withdrawal and deposit.

Random selection of Fingerprint impression is made during the transaction.

Page | 65

Meeting with Mr. Shashi Bhavan (Business Correspondent)

In conversation with Mr. Shashi Bhavan, I observed following facts.

Within a time span of 3 months he has linked 200 plus customer indirectly with Bank of Baroda.

Another set of 100 applications were ready, so to integrate more customers in this branchless

banking model.

He lacks formal training from Bank of Baroda. In case of any technical assistance regarding

Point of Transaction machine, Mr. Ashish (Raebareily district coordinator - Integra) helps him.

His living conditions have improved gradually when compared to his only farm income.

Working as a Business Correspondent for Bank of Baroda there is substantial rise in his income

and there also is an improvement in his social status. He feels his native people respect him

more now..

He feel very comfortable with the machine and till date has not confronted any mechanical

error.

Awareness level of Mr. Shashi Bhavan regarding other financial product was almost nothing.

No knowledge of Financial Literacy and Credit Counseling.

Just to inculcate saving habit in the customers he motivate them to save as low as Rs 10 per day.

Page | 66

Suggestions

There should be some formal training from Banks to Business Correspondents. Bank should

insure that BCs are aware of various financial schemes for rural people so they can inform them

better. This as a result will benefit both Bank as well as the rural people.

An integration of FLCC with BCs should be established. FLCC must ensure up to date

information to BCs in their respective districts. This can be done through organizing weekly or

monthly camps for BCs in villages.

Financial Literacy and Credit Counselling.

Financial literacy or financial education can broadly be defined as 'providing familiarity with and

understanding of financial market products, especially rewards and risks, in order to make informed

choices. Financial literacy is primarily on the individual, who usually has limited resources and skills

to appreciate the complexities of financial dealings with financial intermediaries on a day-to-day

basis.

In India, the need for financial literacy is even greater considering the low levels of literacy and the

large section of the population, which still remains out of the formal financial set-up.

For sustaining financial inclusion, the financial literacy becomes a very critical component. There is a

need to simultaneously focus on the financial literacy part.

Research findings have revealed that the low level of financial literacy is one of the reasons why the

financial inclusion drive has not picked up.

Page | 67

The RBI India has asked both the private as well as public sector banks to set up more Financial

Literacy and Credit Counselling Centre (FLCC) in every district and has suggested the lead banks to

hold a public meeting every quarter in each district to address grievances of the bank customers.

These centres should provide both pre and post credit counseling. Post credit counselling should be

on management of finances and debt servicing in times of unexpected losses and natural disasters

(like drought, flood, etc). Lead banks are expected to open a Financial Literacy and Credit

Counselling Centre (FLCC) in every district where they have lead responsibility.

While credit counselling services may be provided by banks both in rural and urban areas, it is

observed that a large segment of the Indian population is resident in rural areas with literacy levels

lower than in urban areas. The rural population is also more dependent on the informal sector for its

financing needs. It is necessary that a segmented approach, rather than broad-based generalized

approach to counselling for all types of borrowers, is adopted. The centres in rural areas could

concentrate on financial literacy and counselling for farming communities and those engaged in

allied activities. The centres in metro/urban areas could focus on individuals with overdue in credit

cards, personal loans, housing loans, etc.

All forms of publicity--press conferences, workshops, publications, websites, road shows, mobile

units, village fairs—should be actively explored. A suitable budget needs to be provided by all banks

for the purpose. In order to go ahead in a planned manner, a committee on financial literacy and

counselling may be set up by the Reserve Bank with members from the Reserve Bank, NABARD,

IBA, BCSBI, CIBIL, NGOs working in the area and consumer organisations; this will foster greater

collaboration in areas relating to consumer education and protection of consumers‘ interest.

The scheme of FLCCs needs to be linked up with BC/BF model as the mobility and reach of

BC/BF up to the doorsteps of poor will be an important factor of success of this scheme. Besides

promoting awareness and giving counselling for credit and savings it would be good to link FLCCs

with insurance companies so that the poor can get information and counselling services from a

single door.

Urgent need is required to dovetail financial literacy into school curricula at all levels. A pilot

programme has been launched recently on financial literacy in Karnataka. The programme, launched

Page | 68

by RBI in collaboration with the state government, will involve introduction of financial and related

material in the curriculum of schools and colleges. Significant steps would also be taken to make

financial literacy a part of non-formal education.

In conversation with Mr. S.N.Lal Srivastav, counselor at FLCC, Raibarelly

Mr. Srivastav an ex-banker has joined FLCC Raebareily as a counselor. In conversation with him the

following observations were noted by me.

I noted Mr. Srivastav as a very responsible and calm person. His cognizance regarding banking

and financial services was very satisfactory.

Profile of clients who visited FLCC mostly belongs to service or business class. There was hardly

any evidence of visitors from rural area.

Lack of marketing effort was observed, as the reach of FLCC was restricted till city Raibareily

only. On my visit to Village Dalmau & Maharaj Ganj almost none of them were aware of FLCC.

Page | 69

Suggestions

Promotion of FLCC should be done at city and village level, so that maximum people can take

advantage of this. Main motive of FLCC is to provide free counselling to rural people and in my

observation this objective has not been met so far.

Regular rural camp should be organized, so that the rural population can be covered. These

camps should be consistent in operation with respect to frequency and timing and other such

issues.

Special preference should be given to the FLCC referred clients. This will give FLCC a distinct

image in the eyes of the non-banking customers and they will prefer to approach FLCC prior to

banks.

Financial literacy should target school children also. Small workshops and seminar could be

organized at school level so to broader their financial ken.

Page | 70

Rendezvous with Mr. Shiv Ram

On my visit to Dalmau branch of Bank of Baroda, I met Mr. Shiv Raj (in photograph), he is a daily

wage earner under NAREGA program. Even though he has a bank account with Bank of Baroda

Dalmau Branch which is exclusively for receipt of NAREGA payment, in my observation he

belongs to a financially excluded segment. Following observations led me to this conclusion.

Lack of a bank account for other than NAREGA transaction purpose.

No awareness of financial services that accompany the program it.

Reliance on alternative forms of credit, such as doorstep lenders and pawnbrokers.

Lack of other key financial products, such as insurance, savings products and pensions.

Lack of capacity and livelihood alternatives. Relied only on NAREGA and brother‘s shop.

Page | 71

In conversation with Mr. Gulab Singh, Branch Manager Bank of

Baroda - Dalmau

It was a long journey from 2006 till about late 2008 when the recommendations were actually

accepted, and it was mandated that NREGA payments should be done only through banks and the

post office system in conjunction.

Mr. Tiwari accentuated why other rural branches are reluctant which is causing delay in these

payments. He justified his argument by giving two valid reasons for it.

One is that either the banks are unwilling to cope with the load or they are unable to cope

with the load. Just look at the plight of a bank, which has a small rural kind of a branch

where they would, may be, get 70 or 80 customers in a day, and suddenly a NREGA muster

roll has to be paid, with upwards of 500 beneficiaries seeking their payments turning up on

the same day week after week.

The other problem, of course, is that NREGA as a scheme does not provide for any money

to handle the transaction fee. Why would the banks want to undertake this responsibility

given the costs? All banks are commercial entities; they have shareholders to answer to; the

bank chairman‘s career graph depends on what the bank‘s bottom-line looks like. They have

to make some money in the process of handling NREGA payments, which entail very, very

small amounts that just come in and go out of the bank. Somebody working under NREGA

is unlikely to have a substantial savings account. Only in states like Andhra Pradesh has the

State government been proactive and provided for 2 per cent of the money to be given to

the banks for handling NREGA payments. In other states, this is not the case. So, viability is

a big issue and a recurrent one in the various discussions and meetings we had.

With the advent of Integra as a service provider in Raebareily Districts, Bank of Baroda Dalmau

Branch has shifted crowd of NAREGA and reduced transaction cost. But still substantial numbers

of people are not integrated with this ICT and branch has to face these issues as listed by Mr. Tiwari.

Page | 72

Page | 73

CHAPTER 5

DATA ANALYSIS

Page | 74

Some Glaring Facts about Financial Exclusion

45.9 million Farmer households out of a total of 89.3 million households do not have access to

credit either from the institutional or non-institutional sources (NSSO, 2008).

One branch is catering to the banking needs of 16,000 populations (June, 2007).

Only 17 credit accounts and 54 saving accounts are there per 100 persons with all the

institutions (June 2007).

Only 13 per cent are availing loans from the banks in the income bracket of less than Rs.50,000.

53 per cent people are still taking loans from the institutional and non-institutional sources only

for emergency purposes.

These figures do tell us something – the ‗urgent need‘ for extending the banking and financial

services to every part of the country for achieving the objective of inclusive growth.

The Indian economy, though achieved a high growth momentum during 2003-04 to 2007-08, could

not bring down unemployment and poverty to tolerable levels. Further, a vast majority of the

population remained outside the ambit of basic health and education facilities during this high

growth phase. In recent decades, economic and social inequalities have increased alongside high

growth rates which have exacerbated regional inequalities. The latest seventh quinquennial survey by

the National Sample Survey Organisation (NSSO) (61st Round) reveals that growth rate of

employment increased from an annual 0.98 per cent in the period 1993-94 to 1999-00 to 2.89 per

cent in the period 1999-2000 to 2004-05, while the acceleration in the rate of growth of labour force

from 1.03 per cent to 2.93 per cent during same period had negative impact on employment rate

(Table 1). Similarly, poverty ratio has been declining during the recent period, but it continues to

remain at a very high level of 27.5 per cent (Uniform Recall Period) in 2004-05 from 36.0 per cent in

1993-94. The most disturbing fact is that the income inequality as commonly measured by

consumption expenditure (Gini coefficient) has increased in India from 32.9 in 1993 to 36.2 in 2004

(Ali, I. and J. Zhuang: 2007).

Page | 75

Table 3. Employment and Unemployment (UPSS) (Source: RBI, DEAP work paper, 2009)

1993-94 1999-00 2004-05 1993-94 to 1999-00 1999-00 to 2004-05

In million Point to Point Growth Rate

Annualized (CAGR)

Labour Force 381.94

406.05 469.06 1.03 2.93

Workforce 374.45 397.00 457.82 0.98 2.89

Number of Unemployed

7.49 9.05 11.24

As a Proportion of labour force in per cent

Unemployment Rate 1.96 2.23 2.39

Labour Force Workforce Number of Unemployed

381.94 374.45

7.49

406.05 397

9.05

469.06 457.82

11.25

Employment and Unemployment

1993-94 1999-00 2004-05

Page | 76

Role of Financial Inclusion in Achieving Inclusive Growth

It has been the endeavour of both the Government and the Reserve Bank to expand banking sector

across the length and breadth of the country to ensure reasonably priced credit in a timely manner to

all the deserving borrowers. Notwithstanding the significant expansion in bank network in unbanked

areas after bank nationalisation in India, there are still large segments of the society that remain

outside the financial system. A quick look at the data on the sources of loans and also percentage of

persons having annual income less than Rs. 50,000 show that 28.3 per cent had bank accounts and

only 13 per cent had availed of bank finance and even in higher income bracket exclusion existed

(Tables 3 and 4). Hence, the recent focus has been on providing access to affordable banking

services to every person.

Table 4: Earners Having a Bank Account – 2007 (Figures in per cent) Source: Report on Currency and Finance 2006-08 (IIMS, 2007)

Annual Income (Rs) Urban Rural Total

<50,000 43.1 26.8 28.3

50,000 – 100,000 75.5 71.2 73

100,000 – 200,000 91.8 87.4 89.9

200,000 – 400,000 95.5 93.6 94.9

>400,000 98.0 96.3 97.6

All 61.7 38.0 44.9

Table 5: Sources of Loans (Per cent of Indebted Earners) Source: Report on Currency and Finance 2006-07 (IIMS Survey, 2007)

Annual Income (Rs) Banks Money Lenders Other Institutional & Non Institutional Sources Total

<50,000 13.0 34.0 52.1 100

50,000 – 100,000 34.5 19.6 45.9 100

100,000 – 200,000 49.3 12.0 38.7 100

200,000 – 400,000 51.6 11.8 36.6 100

>400,000 62.8 5.5 31.7 100

Page | 77

43.1

75.5

91.8 95.5 98

61.7

26.8

71.2

87.493.6 96.3

3828.3

73

89.994.9 97.6

44.9

<50000 50,000-100,000 100,000-200,000 200,000-400,000 >40000 All

Earners Having a Bank Account – 2007

Urban Rural Total

13

34.5

49.3 51.6

62.8

34

19.6

12 11.8

5.5

52.1

45.9

38.7 36.631.7

<50000 50,000-100,000 100,000-200,000 200,000-400,000 >40000

Sources of Loans (Per cent of Indebted Earners)

Banks Money Lenders Other Inst & Non-Inst Sources

Page | 78

The process of financial inclusion in India can broadly be classified into three phases. During the

First Phase (1960-1990), the focus was on channeling of credit to the neglected sectors of the

economy. Special emphasis was also laid on weaker sections of the society. Second Phase (1990-

2005) focused mainly on strengthening the financial institutions as part of financial sector reforms.

Financial inclusion in this phase was encouraged mainly by the introduction of Self- Help Group

(SHG)-bank linkage programme in the early 1990s and Kisan Credit Cards (KCCs) for providing

credit to farmers. The SHG-bank linkage programme was launched by National Bank for

Agriculture and Rural Development (NABARD) in 1992, with policy support from the Reserve

Bank, to facilitate collective decision making by the poor and provide ‗door step‘ banking. During

the Third Phase (2005 onwards), the ‗financial inclusion‘ was explicitly made as a policy objective

and thrust was on providing safe facility of savings deposits through ‗no frills‘ accounts. A Synoptic

View of Financial Inclusion is as under:

Number of No-Frill Accounts – 3,30,24,761 at end-March 2009

Number of rural bank branches – 31, 727 constituting 39.7% of total bank branches (as on June,

31, 2009)

Number of ATMs – 44,857 (as on May 31, 2009)

Number of POS – 4,70,237 (as on May 31, 2009)

Number of Cards – 167.09 million (as on May 31, 2009)

Number of Kisan Credit Cards – 76 million (Source: CMIE publication 2007-08)

Number of Mobile phones – 403 million (as on Apr.30, 2009) - out of which 187 million (46%)

do not have a bank account.

(Source : Cellular Operators Association of India)

The number of ‗no frills‘ accounts increased from 4,89,497 at end-March 2006 to 3,30,24,761 at end-

March 2009. Notably, the public sector banks account for the majority of these ‗no frills‘ accounts as

at end-March 2009 (Table 6). Similarly, the number of credit as well as savings accounts per 100

adults has also shown increasing trend over the period 2002 to 2007.

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Table 6: Progress of „No frills‟ Accounts in the Banking Sector in India

Category March 31, 2006 March 31, 2007 March 31, 2008* March 31,2009*

Public Sector Banks 3,32,878 58,65,419 1,39,09,935

2,98,59,178

Private Sector Banks 1,56,388 8,60,997

18,45,869

31,24,101

Foreign Banks 231

5,919

33,115

41,482

Total 4,89,497

67,32,335

1,57,88,919

3,30,24,761

*: Provisional.

Source:

o Report on Trend and Progress of Banking India – 2007-08.

o Data for 2008-09 are received from banks.

0

5000000

10000000

15000000

20000000

25000000

30000000

35000000

2006 2007 2008 2009

Nu

mb

er o

f N

o-F

rill

Acc

ou

nts

Years

Public Sector Banks

Private Sector Banks

Foreign Banks

Total

Page | 80

Since micro finance has been accepted as the main vehicle to address the issue of lending to small

borrowers dispersed over vast expenses of geographical areas involving high transaction costs and

also as a business opportunity. Following details will further accentuate SHGs role in Financial

Inclusion.

There are over 3 million SHGs in India, many of which are already undertaking individual group

micro-enterprises. A large number are also doing advocacy work and many especially in south

India have formed federations. For economic viability and greater effectiveness, however, SHGs

should be provided means to start group enterprises, especially in the rural areas, and provided

access to land and other means for this purpose.

All self-employment programmes integrated into Swarnajayanti Gram Swarojgar Yojana (SGSY)

in April 1999 has made rapid progress over time covering more than 31 lakh (Table 5).

However, only 22 per cent of the SHGs were provided with bank finance for undertaking

income generating activities including micro enterprises. The bank assistance was abysmally low

leading to low level of investment activity. This shortcoming has been attributed to failure of

public intervention to enhance the credit absorption capacity of SHGs as well as to the failures

of credit delivery systems to reach the poor. The poor credit absorption capacity of poor can be

illustrated by the prevalent credit-subsidy ratio under SGSY at about two, much below the target

ratio of 3:1, partly due to failure to strengthen the demand side of the credit by improving the

capacity of the poor to absorb credit for income generating activities (GoI, 2009).

Table 7: Physical Progress under SGSY since Inception (thousands)

Years SHGs Formed

No. of SHGs Passed

Grade – I

No. of SHGs Passed

Grade – II

SHGs Taking Up Economic Activities

SHG Swarozgaris Assisted

Individual Swarozgaris Assisted

1999-00 292 125 29 35 586

2000-01 223 214 74 26 319 687

2001-02 434 176 54 31 365 573

2002-03 399 190 95 35 414 412

Page | 81

2003-04 392 205 91 51 578 320

2004-05 266 220 106 68 789 327

2005-06 276 211 92 80 873 278

2006-07 246 222 156 138 1472 220

2007-08 306 251 117 181 1154 254

2008-09 298 201 62 46 557 117

Total 3134 2014 948 685 6869 3772

Even in the better performing State of Andhra Pradesh, the income gain to a swarojgari from enterprise

activities under SGSY was a mere Rs.1,228 per month (Purushotham, 2008). Government‘s proposal for

universalizing the SHG coverage of all poor households by 2013 and increasing the proportion of

assisted persons among swarojgaris to 50 per cent from the existing 22 per cent is a welcome initiative in

this direction. Trained groups in SGSY would be a severe handicap in moving towards the Eleventh Five

Year Plan goal of inclusive growth. The proposal to cover 1.7 crore BPL households by 2015 under skill

development and placement is to be seen as an encouraging step (GoI, 2008).

Well designed poverty alleviation programmes, if effectively implemented, not only supplement the

poverty reducing effects of growth but also could promote pro-poor growth. There is need to design

financial instruments that would help people to reduce their risk and vulnerability whether it is for

smoothening incomes or ensuring higher education for family members or reducing exposure to health

shocks.

To address the problem of high transaction cost and outreach, the banks can increasingly use

Information Technology based solutions, such as mobile phones and smart cards, create data base for

credit risk management and pricing. There are over 403 million mobile phone users today of which

around 187 million (46 per cent) do not have a bank account. The Financial Inclusion Fund (FIF) and

Financial Inclusion Technology Fund (FITF) can be used to

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(i) Fund support for capacity building of BCs and BFs and render promotional support for

SHGs and other grass root level institutions; and

(ii) Financial support for rural kiosks, IT and such other technological solutions for financial

services in rural India in general and excluded groups/regions in particular (GoI, 2009).

RBI to Evaluate Progress of Financial Inclusion

The Reserve Bank of India (RBI) proposes to evaluate the progress of districts under financial

inclusion through an independent external agency. The State Level Bankers Committee (SLBC) will

identify one district in each state for 100 per cent financial inclusion. To bring more such districts

under financial inclusion, RBI has asked banks to introduce more no-frill accounts and general

purpose credit cards (GPCCs) with limits of up to Rs 25,000 in rural and semi-urban branches. The

credit facility will be in the nature of revolving credit entitling the holder to withdraw up to the limit

sanctioned. About 50 per cent of general credit card (GCC) loans could also be treated by banks as

part of priority sector lending Till June 2007 around 70 lakh no-frill accounts have been opened by

commercial banks. Of these, around 67 lakh accounts have been opened by public sector banks and

around 11 lakh accounts by private sector banks, besides around 12,000 by foreign banks. so far, 68

districts have been fully financially included – 14 in Kerala, 11 in Haryana, nine in Punjab,

Pondicherry, 12 in Himachal Pradesh, 7 in Karnataka, 1 in Tamil Nadu, 1 in Gujarat, 1 in Andhra

Pradesh, 1 in West Bengal, 1 in Rajasthan, Diu, Dadar and Nagar Haveli, 3 in Uttar Pradesh, 1 in

Orissa, Daman, 1 in Maharashtra and 1 in Assam. In certain less developed areas like the North

East, Bihar, Chhattisgarh and Uttarakhand, working groups headed by RBI representatives have

been set up. The recommendations of these working groups for financial inclusion, strengthening of

financial institutions and improving currency and payment systems are being implemented and

monitored by Reserve Bank regional offices.

Page | 83

CHAPTER 6

INTERPRETATION

Page | 84

State Level Bankers' Committee (SLBC) SLBC Profile

State Level Bankers' Committee is one of the highest bodies of bankers in the state and it is set-up

as per the Lead Bank Scheme of the Reserve Bank of India. The committee meets once a quarter

and discuss various issues concerning the economic development of the state, where banks play a

pivotal role. The meetings aim at finding solution to the various problems confronting the state. The

forum takes the lead in initiating, streamlining and accelerating the process of development in close

co-ordination with various government departments, Reserve Bank of India, NABARD and other

developmental agencies. The quarterly meetings are attended by top-level functionaries of member

institutions of SLBC, thereby enabling them for meaningful and purposeful discussions on various

matters aimed at solving the various issues.

SLBC Uttar Pradesh Profile

Covering an area of 240928 square kms. UP is one of the largest states of India. It is divided into 70

districts and 820 blocks, the state has 107452 villages. Ranking first in the country in terms of

population, the state is densely populated. As against the national average of 324 persons/Sq. km.,

the state has a population density of 689 persons/Sq. km. Another feature of Uttar Pradesh is its

predominantly rural character, high level of poverty and low percentage of working population.

About 80% of the population lives in rural areas and more than 30% of the population still lives

below poverty line.

Page | 85

The state economy is predominantly agrarian and more than 70% of the work force is engaged in

agriculture and allied activities. The importance of agriculture in the state economy can be gauged

from the fact that share of agriculture in State Domestic Product is 35% as against 22% share in the

National GDP.

The State has a wide network of banks. It is being served by 43 Commercial Banks, 12 RRBs and 2

Cooperative Banks. Out of total 9123 branches of All Scheduled Commercial Banks (including

RRBs) operating in the state, 4866 branches are operating in the rural areas and 1594 in Semi-urban

areas.

Strategies and Approach

State Level Bankers Committee (SLBC) meets quarterly and reviews the banking developments in

the State. At the district level, the district level committee functions; it is headed by the District

Magistrate and is convened by a designated lead bank for the district. In early 2006, one district in

each State was identified by the SLBC for 100 per cent financial inclusion. So far, SLBCs have

reported having achieved 100 per cent financial inclusion in the Union Territory of Pondicherry and

in some districts in Haryana, Himachal Pradesh, Karnataka, Kerala and Punjab & Uttar Pradesh.

Reserve Bank proposes to undertake an evaluation of the progress made in these districts by an

independent external agency to draw lessons for further action in this regard.

In the districts taken up for 100% financial inclusion, surveys were conducted using various data

base such as electoral rolls, public distribution system, or other household data, to identify

households without bank account and responsibility given to the banks in the area for ensuring that

all those who wanted to have a bank account were provided with one by allocating the villages to the

different banks. Mass media was deployed for creating awareness and publicity. The banks used

different approaches to communicate the advantages of having a bank account. Bank staff or their

agents who are usually local NGOs or village volunteers would contact the people at their

households. Ration card / Electoral ID cards of the families were taken for fulfilling the simplified

KYC norms. Photographs of all the persons who opened bank accounts were taken on the spot by a

photographer accompanying the bank team. In most States, the product used for launching the

program for financial inclusion is the ‗No frills‘ accounts. In one State the farmer‘s credit card or

KCC is being used ensuring first to credit rather than savings. In other States no frills account was

Page | 86

followed by small overdraft facility or a general purpose revolving credit up-to pre-specified limit.

Recognizing the need for providing social security to vulnerable groups, in some cases in association

with insurance companies, banks have provided innovative insurance policies at affordable cost

covering life, disability and health cover.

Cooperative banks and regional rural banks being local level institutions are well suited for achieving

financial inclusion. These banks are being revived and strengthened with incentives for better

governance. Being local institutions they are ideally suited for achieving FI.

The role of an efficient payments system for FI cannot be overstressed and we efforts are being

made to bring about Improvements in the payments system especially in the relatively less developed

parts of the country.

Huge increase in No Frills Accounts

Source: Speech by Mrs. Usha Tharot (Financial Inclusion – The Indian Experience) RBI Archive

The outcome of the efforts made is reflected in the increase of 6 million new ―no frills‖ bank

accounts opened between March 2006 and 2007. In view of their vast branch network (45000 rural

and semi urban branches) public sector banks and the regional rural banks have been able to scale

up their efforts by merely leveraging on the existing capacity. FI is being viewed by these banks as a

huge business opportunity in an overall environment that facilitates enterprise and growth. It

provides them a competitive advantage and defines a clear niche for their growth.

Page | 87

Role of Government

State Governments can play a pro –active role in facilitating FI. Issuing official identity documents

for opening accounts , creating awareness and involving district and block level functionaries in the

entire process, meeting cost of cards and other devices for pilots, undertaking financial literacy

drives are some of the ways in which the State and district administration have involved themselves.

India Post is also looking to diversify its activities and leverage on its huge network of post offices,

the postman‘s intimate knowledge of the local population and the enormous trust reposed in him.

Banks are entering into agreements with India Post for using post offices as agents for branchless

banking.

Page | 88

CHAPTER 7

FINDINGS

Page | 89

Research methodology that is used here was purely exploratory. Data like research paper,

recommendations of various Committees on Financial Sector Reform, guidelines on Business

Correspondent and other such relevant data formed a part of secondary source of information. Face

to face interview with Lead District Manager - Raebareily, Branch Managers, Bank Customers,

Business Correspondent, Integra Employee etc. served as primary source of information.

Interaction with Lead District Manager - Raebareily, Mr. T. K. Panday

Mr. Panday informed that 100% financial inclusion in the villages of Raebareily has been completed.

He said that, the teams are made at village levels and they were told the villages and the family

numbers. They go to every family and enquire about their accounts in any formal institution with the

type of account. Financial inclusion of districts along with the villages is being done. He said that

there are a total of 176 branches in the area for this purpose with 1745 villages and 269 mohallas

making it a total of 2014.

Mr. Panday highlighted some figures of INITIAL Mandate for issuance of Smart Card, which show

successful achievement of targets. In the phase I five villages were identified, these are Salon,

Lalganj, Dalmau, Tiloi and Maharaj Ganj; number of smart cards issued are 3240, 1492, 1917, 1180

and 2169 respectively. In the phase I, a target of 10000 Smart Cards was set and in actual 99.98%

target was met. In the phase II extension of mandate for issuance of smart cards is increased by

15000. For extension of the project 10 more branches have been identified these are Uchahar,

Jagatpur, Mohan Ganj, Rastamau, Simrie, Dedeur, Bachnawa, Bedaru, Odari and Tarkari Dandi.

He also elaborated on the success of women empowerment and loans given through SHGs. There

are a total of 34000 SHGs working in the area each comprising of 10 families approximately. A total

of 350000 families are involved into it. He told that we have 5 lakhs in Raebareli and 5 lakhs in

Sultanpur making it a total of 10 lakhs out of which, 7 lakhs were in rural areas and 3 lakhs were in

urban areas. 3.5 lakhs have been already covered in the rural areas.

He told that DLRC meetings are conducted on a regular basis to get feedback about the work done

by every branch and how much inclusion is done.

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Interaction with Mr. Gulab Singh, Branch Manager - Dalmau, Raebareli

Mr. Tiwari expressed his views on the mandatory NARAGE payment via banks. He accentuated

why other rural branches are reluctant which are causing delay in these payment. He justified his

argument by giving two valid reasons for it.

One is that either the banks are unwilling to cope with the load or they are unable to cope

with the load. Just look at the plight of a bank, which has a small rural kind of a branch

where they would, may be, get 70 or 80 customers in a day, and suddenly a NREGA muster

roll has to be paid, with upwards of 500 beneficiaries seeking their payments turning up on

the same day week after week.

The other problem, of course, is that NREGA as a scheme does not provide for any money

to handle the transaction fee. Why would the banks want to undertake this responsibility

given the costs? All banks are commercial entities; they have shareholders to answer to; the

bank chairman‘s career graph depends on what the bank‘s bottom-line looks like. They have

to make some money in the process of handling NREGA payments, which entail very, very

small amounts that just come in and go out of the bank. Somebody working under NREGA

is unlikely to have a substantial savings account. Only in states like Andhra Pradesh has the

State government been proactive and provided for 2 per cent of the money to be given to

the banks for handling NREGA payments. In other states, this is not the case. So, viability is

a big issue and a recurrent one in the various discussions and meetings we had.

With the advent of Integra as a service provider in Raebareily Districts, Bank of Baroda Dalmau

Branch has shifted crowd of NAREGA and reduced transaction cost. But still substantial numbers

of people are not integrated with this ICT and branch has to face these issues as listed by Mr. Tiwari.

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Interaction with Mr. Gopal Krishna, Branch Manager – Maharaj Ganj,

Raebareily

He said that Maharaj Ganj branch covers 21 villages which are divided into 3 groups comprising 7

villages each. It had a total of 4 smart card machines. It has issued 3500 smart cards out of which,

1500 are operational.

Interaction with Integra‟s Raebareily District Coordinator - Mr. Ashish Kumar

Verma

1. Concept of Point of Transaction Machine

Mr. Ashish explained me the concept of Point of Transaction Machine (iMFAST). This machine is

given to Business Correspondent for facilitating banking facilities in remote areas. This machine

brings in cash into the banking system through cashless transactions. One of the most remarkable

features of this machine is capability of working in both online and offline mode, it records

transaction in an offline status.

From safety point of view this machine is very secure. To prove this point Mr. Ashish has actually

demonstrated how POT machine rejects the request when customer card (Biometric) does not

authenticate and customer figure prints.

Apart from English this device is programmed with different local languages which include Hindi,

Tamil, Kannad, Marathi, Telgu, Malayalam etc. and offers both, wired and wireless connectivity. On

the spot transaction slips are issued so to verify the details of transaction.

2. Entire process of biometric card issuance

Issuance of Biometric Card is very simple from a customer point of view. He just needs to fill a

form which is available at local branches. He needs to specify his need, like, Pension Fund,

NAREGA payment, SC/ST/Minority Scholarship etc. In the next stage the local bank verifies the

entries made by applicant in the form and sends it further to Bangalore so to get card in the name of

applicant. After collecting cards back from Bangalore, applicant‘s biometric details in term of their

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10 figure prints are recorded in it. This card is activated once it is entered the POT machine. All

authentications are done through this Biometric card.

Mr. Ashish demonstrated how this Biometric card is very secure. In terms of making any transaction

one has to give a finger print impression as commanded by machine. This machine will reject the

request of transaction if it finds any discrepancy with biometrically stored finger prints and actual

finger print. This makes it safe and secure and even an illiterate person can‘t be cheated with this

system, as finger print is unique and comparatively it is much better than ATM – PIN Code.

3. Concept of Day Beginning and Day End Slip

A Business Correspondent has been given an overdraft facility of Rs. 25000. Once he reaches this

limit he has to report it to bank. This is done by giving a day end slip to bank showing the amount

of credit disbursed. This day end slip is issued either at the end of day which shows all transactions

done in a day or when the BC reaches its credit limit (Rs. 25000). When his limit is renewed then a

day beginning slip is generated by him, showing current limit.

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4. Transaction Slips – A sample collected by me of various transactions is attached below.

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Interaction with Business Correspondent – Mr. Shashi Bhavan

Following points are the main findings which I observed in our conversation

Within a time span of 3 months he has linked 200 plus customer indirectly with Bank of Baroda

via Integra. Another set of 100 applications were ready so to integrate more customers in this

branchless banking model.

He lacks formal training from Bank of Baroda. In case of any technical assistance regarding

Point of Transaction machine, Mr. Ashish Kumar Verma (Integra‘s Raebareily District

coordinator) helped him.

His living condition has improved gradually when compared to his only farm income. Working

as a Business Correspondent for Bank of Baroda there is substantial rise in his income and also

improvement in his social status. He feels his native people respect him more now as compared

to his prior farmer image.

He feel very comfortable with the machine and till date has not confronted with any mechanical

error in it.

Awareness level of Mr. Shashi Bhavan regarding other financial product was almost nothing.

No knowledge of Financial Literacy and Credit Counseling.

Just to inculcate saving habit in the customers he motivate them to save as low as Rs 10 per day.

Interaction with Mr. S.N.Lal Srivastav, Counselor Financial Literacy and

Credit Control.

Mr. Srivastav an ex-banker had joined FLCC as a counselor. By nature Mr Srivastav is a very kind

and generous person. He told me since the inception of this FLCC center (Jan 8, 2010) 273

individuals have marked their presence in it, and I am 274th. A careful look at the register I tried to

find the profile of visitors, I noticed most of them are from Raebareily city. This shows narrow

reach of FLCC. To make it more popularize Mr. Srivastav showed me his camp in the local carnival.

Set of pamphlets were also there to be distributed, which shows continues effort of Mr. Srivastav to

spread awareness among general people.

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CHAPTER 8

MEASURES TO MAKE

FINANCIAL

INCLUSION MORE

EFFECTIVE

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“There is need for an attitudinal change, there is need for a change in organizational

structure and there is need for innovative models of delivery at the doorstep. Financial

inclusion is no longer an option, it is a compulsion.”

- Mr. C. Rangarajan (2007). Financial Inclusion: Some Key Issues, Mangalore University

1. To broaden the role of FLCC I would like to put two cases which I encounter on my visit to Raebareily.

a) Passbook?

In the first case, I had a conversation with a villager who owns a Passbook but don‘t know what it is

meant for. That person now owns a Bank Account and is said to be a part of financially included

segment, sounds ironical to me!

A huge part of the problem is that the end users did not understand what an account was meant for.

A business facilitator comes to the village, opens an account for them, gives them a passbook but

they don‘t know what that passbook means.

b) Insurance?

In the second case I did a small survey by contacting 10-12 rural people in Dalmau who have a Bank

Account and belong to financially included segment. 99 per cent of my samples do not understand

the concept of Insurance. Banks may have all the products, but the poor villager does not know

them and what can be done with them. In rural India, death means the end, there is no economic

future. So, who will teach them what the concept of insurance is? When a cow dies someone is

willing to pay, when a house is destroyed in an earthquake someone is willing to pay. They cannot

comprehend these things.

Suggestion The role of Business Correspondent is very critical and they form the very basis of inclusive

financial literacy. There has to be some quality investment on BCs in term of their training, this

might increase cost of operation to banks but in long run surely this won‘t be proved as a sunk cost.

Today they are simply told that they have been recruited, they take the account opening form, go to

a village, fill that account opening form, they may or may not be in a position to digitize that data. If

they are in a position to digitize, they have been told that you digitize and send it to your server and

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that is all. But for an inclusive literacy scope of BCs should be escalated. When a person is visiting a

village for financial inclusion as a BC on behalf of a particular organization, he has to first make the

people or the end-user understand what the purpose of his visit is and that requires proper training.

BC will play a very important role in financial literacy. The primary role that they will play is in

educating the people on how it can really benefit them.

If we want no-frills accounts to be used, we need to make the connection between banks and BCs

much more productive and we need to make people more aware of the kinds of products that they

can use. For that there is a need for an awareness campaign.

We don‘t need separate infrastructure for capacity building of BCs; institution like FLCC can be

used for this purpose. Their capabilities can be leveraged so to make them pervasive and they should

be given some authority to monitor the effective functioning of BCs. FLCC main work is to provide

free consultancy services to people, their reach can be widen only through FLCC trained BCs.

FLCC should organize weekly camps in the rural branches and objective of such camps should be

on disseminating information regarding Micro Insurance, Micro Finance, and Government

Sponsored Programmes etc. Proper marketing of FLCC should be done so the real message of

setting up FLCC reaches its target audience.

2. Bridging Product Gaps (product innovation)

Too much of our focus has been on Point of Sale, on card, and other things and not really on what

does banking give you. Small deposits, insurance products, other investment products and most

importantly, small loans are a few products. These are the kind of things with which one needs to go

with. It is assumed that poor have no need to save. Fact is they have a more pronounced need to

save than all of us. Banks must come up with innovative products which have low risk but a better

return than a saving bank account.

Product should be customized to village level. To design such a product, whether savings or

investment, one will first have to know the cash flow of that particular area, the activity that is being

pursued in that area, so household surveys is the starting point. As RBI also insists on quality of

financial inclusion, not just on quantitative aspects such a move will be a RBI guideline of quality.

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Any product must first make sense from a customer point of view. The reason why MFIs succeeded

is that it gave small loans. Small loans for consumption at reasonable interest will probably become

one of the key drivers. Then, the customer does not have to go to the moneylender or even MFI at

24 per cent interest if they can get a 12-16 per cent loan largely for consumption purposes because

most of the MFI loans have been by and large for consumption purposes.

SBI pioneered with Micro mutual funds at Rs 100 per month for poor people in rural/semi-urban

areas. Such endeavor should be taken so to achieve quality financial inclusion.

3. Advance Technology to Minimize the Cost and Provide a Wider Reach

Technology fortunately is moving in a direction where the cost will really comedown. Everybody

wants to reduce the cost of transactions and Mobile phone can be a solution for this. Poorer people

who are not necessarily even literate can use a mobile phone. This will involve talking on phone,

answering questions on phone, talking to the bank‘s computer one will be able to first identify

yourself uniquely. Voice authentication fortunately is reaching and becoming superior to even the

fingerprint. If one has a mobile phone, the CLI of a mobile phone becomes one authentication

point. After that one basically needs a PIN. Instead of PIN voice authentication is far superior and

uniquely identifies and works out better. Once somebody is able to uniquely identify himself, one is

able to talk in local language to a bank and carry out the transaction. In six months to a year, such

technologies will become available and will help in scaling.

The key thing is that should it be totally in local language, with the local dialect, with voice

authentication and using simplest mobile phone for calling. Voice will end up replacing most

platforms.

4. Towards Greater Financial Literacy

For sustaining financial inclusion, financial literacy becomes a very critical component. There is a

need to simultaneously focus on the financial literacy part besides delivery / access. The following

measures are suggested:

Education campaigns to showcase banking services advantages and how to use them.

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Provide training packages at CSCs and other e-kiosks.

Utilize Panchayati Raj Institutions to mobilize the people.

Greater role for NGOs.

Inculcate financial literacy at school itself. Present day school pass-outs need to be a lot more

financially literate than their parents were, if they are to manage their personal finances

successfully through life.

FLCCs may be linked to the RUDSETI – Rural Development & Self Employment Training

Institutes, which are providing micro-enterprise training.

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Bibliography

―Report of the Committee on Financial Inclusion,‖ Economic Advisory Council to the Prime

Minister, Government of India

Rangarajan C. (2007). Financial Inclusion: Some Key Issues, Lecture delivered at Mangalore

University, Mangalore, August 10, 2007.

Rangarajan, ―Reduce Economic Disparities, Improve Social Indicators‖, Inclusion, April-June

2009,

―Banks must promote financial literacy: RBI‖, The Financial Express, May 28, 2009.

Reddy, Y.V. (2006) ―'The Role of Financial Education: The Indian Case‖, Address at the

International

Conference on Financial Education, OECD and Pension Fund Regulatory and Development

Authority,

New Delhi, September 21, 2006.

http://www.adb.org/Documents/Periodicals/Microfinance/finance-200803.pdf

Thorat, Usha (2008) Keynote address on ‗Financial Inclusion and Information Technology‘ at

‗Vision

2020 - Indian Financial Services Sector‘, Mumbai, September 12, 2008.

―Report of the Committee on Financial Inclusion,‖ Economic Advisory Council to the Prime

Minister,

Government of India, January 2008

Thorat, Usha, ―Financial Inclusion – the Indian experience‖, Speech on June 19, 2007.

Financial inclusion still poor in many districts‖, The Hindu Business Line, January 27, 2009.

Promote No-frills Accounts‖. Hindu Business Line. September 26, 2006.

Thorat, Usha. 2007. ―Financial Inclusion – The Indian Experience‖. Speech made at the HMT-

DFID

Financial Inclusion Conference 2007, London, June 19, 2007

www.rbi.org.in/scripts/speeches

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Leeladhar, V (2005). ―Taking Banking Services to the Common Man Financial Inclusion‖

The Blue Book: Building Inclusive Financial Sectors for Development, UNDESA and UNCDF,

2006

Vijay Kelkar, ―Financial Inclusion for Inclusive Growth,‖ N P Sen Memorial Lecture at

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Staff College of India, Hyderabad, January 13, 2008,

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http://www.solutionexchange-un.net.in/ictd.htm

www.bankofbaroda.com

www.rbi.org.in

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Speeding Financial Inclusion – Sameer Kochhar