CHAPTER 1: FINANCIAL INCLUSION – GLOBALPERSPECTIVE Contents: Global Scenario & Extent of exclusion. Practices adopted in European / African nations, Brazil and other countries for Financial inclusion Financial Inclusion aims to extend hassle free savings and loan facilities and other banking and non-banking services at an affordable cost, to the underprivileged, socially disadvantaged, low income group people who constitute the unbanked population. Access to finance, (especially by the rural or urban poor whether daily wage earners, small and marginal farmers, agriculture labourers and other vulnerable groups) - is predominantly required for employment, livelihood, alleviation of distress, economic growth, poverty reduction and healthy social cohesion. Further, easy and unrestrained access to finance empowers the vulnerable groups by giving them an opportunity to have a bank account (including a basic no frills banking account for low value small transactions) and overdrafts, insurance and remittance facilities, savings and investment opportunities as well as easy access to timely and adequate credit etc., thereby facilitating them to make their way out of poverty i.e. ultimately to break the chain of poverty and improve their living conditions. On 29 December 2003, Former UN Secretary-General Kofi Annan said:”The stark reality is that most poor people in the world still lack access to sustainable financial services, whether it is savings, credit or insurance. The great challenge before us is to address the constraints that exclude people from full participation in the financial sector. Together, we can and must build inclusive financial sectors that help people improve their lives.” In recent years Financial Inclusion (FI) has gained prominence in public consciousness. After observing 2005 as Year of Microfinance by UN and adoption of Millennium goal to reduce by half world poverty by 2015, efforts have been stepped up towards inclusive economic growth. Enormous resources are being committed by various stakeholders like Government, Banks, NGOs and Private sector for pulling out more than 2 billion people from abysmal poverty across the world through FI. Objective of FI is to extend choice and access to all financial services like banking, remittance, pension, insurance etc, we, as bankers, limit our concern to extension of banking services. 1 A lack of access to these tools and services and/or the absence of use of these represents a serious obstacle to a person’s economic and social integration into society. • Access to transaction services has become fundamental in today’s societies: people without any bank account are referred to as ‘unbanked’, while those who make little or no use of the services they could have access to, are generally described as ‘marginally banked’. • Similarly important, access to credit has become necessary for various aspects. A distinction has to be made between people who are refused any access to credit by lenders, that is ‘credit excluded’ people, and those who can only access credit through loan sharks at unaffordable rates. • Access to insurance services has increasingly come under scrutiny. Though it is, in some cases, compulsory to have insurance (as for example for a car), it has not yet been defined what kind of insurances are considered essential when talking about financial exclusion. • Finally, access to savings services is a problem for some people who either lack the necessary documents to open a deposit account or who do not see the point in opening one and have thus to be taken into consideration. The study of the Réseau Financement Alternatif establishes a list of basic financial services considered essential for one’s day-to-day life: • • • • Holding an account to receive one’s income Having a transaction bank account as a means of making payments Owning a savings account in order to be able to store money Enjoying unsecured credit to manage temporary cash shortages or unexpected expenses Source: http://www.european-microfinance.org Financial Exclusion – Who are these People? Underprivileged section in rural and urban areas like, Farmers, small vendors, etc. Agricultural and Industrial Labourers People engaged in un-organised sectors Unemployed Women Children Old people Physically challenged people Illiterate people 2 Reasons of Financial Exclusion Absence of Technology Absence of reach and coverage Delivery Mechanism Not having a Business model Rich have no compassion for poor Poor financial literacy/Knowledge gap Lack of identity in a new place(migrant population) Why the discussion on Financial Exclusion Focus on Inclusive Growth Banking Technology has arrived Realisation that Poor is bankable Exclusion promotes poverty: Inclusion opens opportunities FI is considered necessary for all round growth of the economy. Honohan P. (2007) conducted a study on ‘access to finance in 160 countries’. The study revealed that economies having higher financial access, are the developed / advanced economies and financial inclusion is an important factor for the growth of these nations. Following chart indicates composite index of inclusion across the select nations. The study indicates that the higher the poverty ratio lowers the inclusion and vice-versa. Most of the developed countries in Europe and USA are having higher index of inclusion due to low precedence of poverty. 120 100 80 60 40 20 0 Composite Index of Inclusion (% population with access to financial services) Poverty(% population below poverty line) 50 40 43 27 32 22 48 29 59 25 60 59 13 3 16 91 96 96 99 but is much closer to the global average when it comes to borrowing from formal institutions. 35 per cent of people had formal accounts versus the global average of 50 per cent and the average of 41 per cent in developing economies The survey also points to the ‘slow growth of mobile money in India. GLOBAL SITUATION In India. In US about 30% households are either unbanked or under-banked. Policy Research Working Paper. 6025. where only 4 per cent of adults in the Global Findex sample report having used a mobile phone in the past 12 months to pay bills or send or receive money’. A financial inclusion survey was conducted by World Bank team in India between April-June. credit and insurance. The UK government initiated action on Financial Inclusion by preparing strategy paper in the year 2004. April. according to the survey in 2009.formal family past based financial account quintile or year method institution friends 1 2 3 4 5 6 7 8 9 10 11 12 India 35 21 26 12 3 8 20 2 2 7 4 World 50 38 47 22 5 9 23 15 7 17 7 Source: Asli Demirguc .Key Statistics on Financial Inclusion in India is given in Table. about 60% of population is still considered out of ambit of formal banking system. He said that most of the poor people in the world are not getting access to financial services like savings. Financial 4 .Kunt and Klapper. The problem of financial exclusion is prevalent not only in India but in many other developed countries including United States (US) of America and United Kingdom (UK).2011 which included face to face interviews of 3. In India. The fact was acknowledged by the then UN Secretary-General Kofi Annan in the year 2003. The results of the survey suggest that India lags behind developing countries in opening bank accounts. L. World Bank. The sample excluded the northeastern states and remote islands representing approximately 10 per cent of the total adult population. (2012): ‘Measuring Financial Inclusion’.518 respondents. Table : Key Statistics on Financial Inclusion in India: A Survey (Per cent) Share with an account Adults saving in the Adults originating Adults Adults Adults Adults past year a new loan in the with a with an at a formal financial paying using credit outstanding personally mobile past year institution All Poorest Women Using a Using a From a From card mortgage for health money insurance in the adults income formal community. debit card and credit cards. both developed and underdeveloped. money transfer. flexible. In Sweden and France. • Thus. It is not required that everyone who is eligible uses each of these services.inclusion is now a common objective for many central banks among the nations. • Access to appropriate financial services can significantly improve the dayto..) • Unbanked people are exposed to informal sources of credit. but one should be able to have his/her own way to use them. • Access to a bank account provides avenues for secure and safe saving practices. are charged higher (often exorbitant) interest rates and they often face unethical/harsh recovery practices. • A number of financial services..day management of finances (bill payment. an inclusive financial system enhances efficiency and welfare of a society. • A bank account can also provide a passport to wide ranging financial services such as overdraft facilities. and appropriate to the national situation and preferably be owed by all the stakeholders. To this end. necessarily require access to a bank account. such as insurance and pension. Financial Inclusion – Policy Initiatives Financial inclusion is seen as a policy priority in many countries in recent periods. strategies for building inclusive financial sectors have to be creative. if so desired. banks are legally bound by to open an account for anybody who approach them Financial Inclusion Task Force (2005) in UK Community Reinvestment Act (1997) in US “No frills” accounts in India (2006) and SHG led bank linkage programme “Everyman” account in Germany (1996) “Mzansi” account in South Africa (2004) 5 . Inclusive Financial System • An inclusive financial system facilitates efficient allocation of productive resources and thus can potentially reduce the cost of capital. the Financial Inclusion Taskforce was launched on February 2005 and was composed of members drawn from the private. the National Council on Financial Inclusion was created. INDONESIA Bank Rakyat Indonesia has driven the Financial Inclusion Strategic shift from Govt aided programme to Commercial Orientation in 1986 Savings used as the lead product 50 million Savings Accounts and 25mn active loans (2004) CHILE Government driven programme. from regulatory agencies to social development and consumer protection agencies. The objective of this council is to organize the different entities working on financial inclusion in the country. BRAZIL Active role of Government in creation of low income financial services market Simplified Current Accounts offered through agent network. The taskforce in March 2011. In Mexico. In 2009. In the United Kingdom. Government (G) to Public (P) benefits through e-payment channels. who served in a personal capacity. public. the Financial Inclusion Project at the Central Bank was created with the objective of integrating various stakeholders to develop effective policies for financial inclusion in Brazil. the National Partnership for Financial Inclusion was launched in Brazil. 2011. and on a voluntary basis. Subsidies (based on bidding) to banks for giving loans. and non profit sectors. to provide an institutional mechanism to facilitate coordination among these agencies. In November 2011.200 fell from $240 (1993) to $80 (2000) 6 . made final recommendations for government and the private sector. Emphasis on right to have a bank account by Law on exclusion (1998) in France. Value of subsidy for an average loan of $1. Payroll and Pension linked Credit facilities. Germany. a European study on Financial Inclusion Indicators allowed the collection of information concerning financial inclusion in eleven Member States of the European Union(Belgium. Ireland. fight against poverty is at the heart of goals for jobs and growth. As such. Slovakia) and Norway measured the level of exclusion on the basis of the following definition: ‘Financial exclusion refers to a process whereby people encounter difficulties accessing and/or using financial services and products in the mainstream market that are appropriate to their needs and enable them to lead a normal social life in the society in which they belong’. as a particular factor of vulnerability and disadvantage (see ‘challenges section’ p. Greece.KENYA Telco led. Poland. the EU Commission has adopted the European Platform against Poverty and Social Exclusion to reach the social objective of EU 2020 Strategy. Spain.6). Bulgaria. This approach endeavors to integrate financial exclusion. 7 . but also that it is possible that the access is not accompanied by a satisfactory usage. To a large degree. In 2009. Netherlands. Thus. it has many directions which may interact with the concept of vulnerability. it will be understood that financial exclusion is not reduced solely to non-access to a bank account. access to (especially low cost) credit is at the crossroads of contracts and consumer laws. Consequently. remittance based model of M-PESA Customer accounts outside banking regulation Combined value of customer money stored in pool account with a bank. Italy. BRAZIL: On 16th December 2010. France. As per NSSO survey data (2003). RBI definition of Financial Inclusion The Reserve Bank of India (RBI) in December 2009 changed the definition of financial inclusion for Banks by stating that Financial inclusion is not restricted merely to opening of bank accounts but must also include the provision of all financial services like credit.CHAPTER 2: FINANCIAL INCLUSION IN INDIA Contents: Necessity. remittance.1. Thus about 73% farm households did not have access to formal source of credit. 21% from informal sources (like money lenders. we. pension. insurance etc. the one line statement is that financial inclusion should be an endeavor to ensure that a range of appropriate financial services is available to every individual and enabling them to understand and access these services. 8 .50 lakh farmer households in India. as bankers. benefits of financial inclusion. limit our concern to extension of banking services. steps taken by the government and financial sector Objective of FI is to extend choice and access to all financial services like banking.2 FI a National Imperative: Financial inclusion is providing banking and other financial services to those persons who have not availed it before or used these services on rare occasions. The extent of financial exclusion and indebtedness in India is given in Fig. 48% households were indebted which include 27% from formal sources. 2. as per their choice. remittance and overdraft facilities for the rural poor. out of 893. at an affordable cost. So. friends and relatives) and remaining 52% households were not covered by credit from any source. K H .. To o th his en nd. 27% % 459.24 43. house eh hold oldss in llak akh) Souce: Souc e: Base Based d on the the d dat data ta ad adap apted ted d fr from rom Rang Ra R ngar araja ajan n Co C Comm mmit mittee ttee eo on n Fin Finan nanci ncial ial Inclu Incclusio sion n (2008) (2008 8) To bring brring g tthese these disa disadv dvan anta tage ged d secti section ons s of socie society ety in into to the the fo form rmal al ba bank nkin ing g ssyste system m is the the majorr ccha major halle lleng nge e befo before re th the e Gove Govern rnm men entt of of Ind India ia. Majo Majorr in initia itiativ tives es wer were re chal chalke ked d out out aft after a er the the Rangar Rang araja ajan n Co Com mmi mitte ttee eR Re epo port rt in i 2 200 2008 08.9 96. 9 .2 26.R H. 1: Lev Level el of inde ind debte bted edne ness ss an and d finan fina ancia ciall e exc exclu clusio sion n in India India (No.2 28... 1 Fig. 21% % Ind deb bteed to fo orm mal so ourcees Ind deb bteed to in nform mal so ourrcees Non ind No i deb bteed ho ousseh holdss Fig. 52% % 19 90. the the R Res eser erve ve Ban Bankk and and alll th the e majo majorr fina financ ancia ciall in inst stitu itutio tions ns in the the count ccountry. of hous (No. et etc. s. 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Sim Simult ultan taneo eous usly ly it op open enss up vvas astt o opp ppor portu rtunit nities ies for fo or Bank Bankin ing g ssecto secctorr tto create creat e p produ product ctss to t servi service ice this this sect sector or whic which h is char charac acter terize ized d b by h high igh h vvolum vollumes ess but but sma smallll margins marg ins that that FII clien clliente ntele le can can afford afford.. rs.3 Rural Rur ral M Mar arke kett pot poten entia tial The tas The taskk of fina fiinanc ncial ial in incl clus usion ion iis s ch challe allen engin ging g in vview iew of th the geog geogra raph phic ic spre spread ad. e etc. ls. In his his blog. vast vast unccover uncov vered red popu popula latio tion. Bla Blade des. R Relia elianc ance. IT ITC C started starte d e--ch chou oupa pall to t pr prov ovide ide e ext xten ensio sion n serv service icess to the the farm farmer ers..K. s. 5 50 0 pe perr ccent cen nt of TV TV. s. 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Mar Maruti uti S Suz uzuk uki. 7 70 0 pe perr ccen entt of toilet toilett ssoa oaps ps. Sa Salt. ce. pesticides and irrigation equipment.1. Addition of new customers as well as transfer of government funds to the accounts of poor people will increase the volume of these transactions. Financial inclusion will provide access to safe and 11 . Social and political benefits 2. Moreover.4. etc. tractor. the large number of low cost deposits will offer banks an opportunity to reduce their dependence on bulk deposits and help them to better manage both liquidity risks and asset-liability mismatches.4. In fact many agro-based industries like fertilizer. will open up many opportunities for business as under: 2. 2.2.3. they will add to the income of Banks through commission / exchange. Empowerment: Connecting the poor and disadvantaged people into the organized system will bring them into the mainstream of economy.1. 2. 2.3. Second. 2. Low cost deposits: Financial services to the excluded population will bring the untapped savings into the formal financial intermediation system and channel it into investment.3. 2.Shakti. financial inclusion will give opportunities to cross sell these products and earn fee based income.3.3. Cross selling opportunities: Since many Banks are offering Insurance and mutual fund products. Credit with widespread risk: Credit facilities to the low income group and disadvantaged section of people will be in small amounts.3 Opportunities for Banks: Bringing the vast population of weaker section under banking umbrella.4. have most of their consumer base in rural areas. Thus small ticket size will spread the asset quality risk of Banks. Reliance is purchasing farm produce directly from the farmers for selling through its outlets. Low value coupled with high volume will ensure scalability and profit margin. Remittance: Remittance transactions provide float funds to the Banks. Central government currently has 32 schemes like Employment Guarantee payments scheme (MNREGS a Rs 400 billion per annum). Old age Pension. Investment and employment opportunities in rural geography will arrest large scale migration to cities. where cash is paid out to target group. Reduction in transaction cost and Income leakage in Govt. like Financial Literacy and Credit Counseling Centres (FLCC) and Rural Self Employment Training Institute (RSETI) is expected to generate steady demand and proper use of Financial services offered on FI platform. FLCC create awareness of financial services amongst financially excluded. It will offer credit facilities at reasonable rate of interest and thus bring out the poor from the clutches of the usurious money lenders. Social and political stability: Financial inclusion will ensure equitable growth of the country which is necessary for social harmony and political stability for economic development of the nation.4.2. 2.secure facilities of deposit. 2.4. RSETIs run by banks in every district impart entrepreneurial training to rural youth below poverty line to generate self employment opportunities and increase credit absorptive capacity.4. there exists enormous opportunities in rural areas and ample scope for banking business.3. cash transfer activity: National and State Governments in India has plethora of cash schemes targeted at various category of beneficiaries.4. FI is being selectively used currently and Universal FI will ensure payment to the intended beneficiary ensuring speedy delivery with reduced transaction cost and plugging the leakages. This will remove the psychological barriers of negligence. Mid day meals etc. 12 . backwardness from the society and empower them as an active partner of the economy. offer of credit and remittance facilities will foster investment and capital formation in rural areas. Other recent Bank driven initiatives of the National Govt. Demand enhancement of FI and Economic Growth: Mobilisation of deposit. 2. enabling exercise of informed choice with full understanding of risks and rewards. Availability of insurance cover will protect these low income people from disasters or loss of income. Thus. better liquidity opportunties Generate management Credit Credit facilities reasonable rate Investment and for employment facilities consumer at Credit opportunities.1: Benefits of financial inclusion to various segments Product Poor people Banks/Financial Corporates Governments Institutions Deposit Safety & Security Harness Generate untapped. Regional Rural Banks. Plug the leakages Insurance and Protect other products low income Income from Social and economic stability people from disasters or cross selling loss of income 2. low demand and capital cost deposit. supply formation. a multitude of financial institutions like Commercial Banks (rural branches).5 Progress of FI in India In India. It will add increase through power commission exchange security benefits and in Employment to the income of purchasing Banks of Programme of through / poor people the bank is direct and fast. check migration to cities Thus out the poor from the small ticket size clutches of the usurious will money lenders.Table 2. spread the asset quality risk of Banks Remittances Better management of Remittance funds provide funds Better cash Payment float flow to will social the result Banks. Micro Finance Institutions and other Cooperatives as well as some 13 . of will be in small goods interest and thus bring amounts. Facilitation: Government support may be needed to create facilitating environment including support for capacity building. i. iii.Khan.not-for-profit societies/organizations are engaged in financial inclusion. 2.R. ii. 500 crores to meet the costs of technology adoption.1. Major initiatives were chalked out after the Rangarajan Committee Report in 2008. Banking system is encouraged to innovate and discover ideal and most appropriate delivery models taking into consideration of the best suited technological interventions. Government plays an important role by setting up roadmaps for accelerated action along with grants both for technology acquisition as well as for capacity building for people engaged at all levels in FI. The Government The Government initiated steps for FI in 2004 by setting a commission headed by Shri H. Recent instructions issued by Department of Financial Service. Financial Inclusion Fund was set up with initial corpus of Rs. 2012. iv. Thus the technology is considered as the important aspect of financial inclusion. Aadhaar Card: The Government initiative of providing Unique Identification Number through Aadhaar card will go a long way to support financial institutes for meeting KYC norms and smoothen the business processes. To speed up the process of financial inclusion the steps taken up by the Government of India. it would be necessary to have an intermediate brick and mortar structure (Ultra Small Branch) 14 . Banking-linked programmes are preferably important ones in as much as Banks have legitimate and adequate resources to address the related issues in Financial inclusion. 500 crores for meeting the cost of developmental and promotional interventions. GOI for greater financial inclusion is as under: • Monetary Policy Statement 2012-13 announced on April 17. Central Bank and Financial institutions have helped the Banks in India to mobilise the resources. Financial Inclusion Technology Fund was created with the same amount of Rs.5. training and incentives during stabilisation period to the operating agencies. between the present base branch and BC locations to provide support to a cluster of BC units at a reasonable distance. b. • Accounts are being opened as per guidelines on KYC issued by DFS. The process is to be completed by September 2012. • Banks must try to open as many brick and mortar branches in all habitations with population of 10.Each non-defaulter farmer living in the village falling in the service area of the branch to get a Kisan Credit Card (KCC).Opening of accounts of migratory workers. • Each non-defaulter farmer living in the village falling in the service area of the branch has got a Kisan Credit Card (KCC). • All households without account within 500 M of semi urban/ urban/metro branch to be covered. Service area of bank branches is to be defined by LDMs. loan and recovery. SLBC convener to identify pilot districts (2-4) in each state and the entire state is to be covered by Sept 2012. • Banks to implement revised ATM enabled KCC scheme.Account portability / opening of new bank accounts d. 15 . both for existing and new branches and the service area plan for the entire district is to be prepared and uploaded in the District website.000 and above without any bank branches at present with in a radial distance of 5 kms. • In rural and semi-urban branches to see that each village of 2000 more population is visited once a week on a fixed date. • Service area approach would be adopted for the coverage of entire country for financial inclusion. time and place and supports BCs for undertaking requests for account pending.Full operational facilities in joint account with spouse. • Branch Manager has to visit each of the service area village on a notified day every week. • Ministry has issued Guidelines for: a-Opening of accounts by close relatives. c. • Each non-farmer family living in rural area falling in the service area of the bank has got a Savings-cum-OD Account. Launch of campaign to ensure at least one bank Account for each family & capturing of Biometrics while opening accounts. • Urban Financial Inclusion .. name. under which benefits are to be given directly to the beneficiaries. Presently 32 schemes are in operation. and to ensure that a range of banking services are made available to the residents of such villages. • The bank branch responsible for financial inclusion of the village in its Service Area would designate a specific officer to visit such villages on pre-notified fixed day and time every week with a laptop which should have VPN connectivity to the CBS. census code of village2001 census) is to be identified and broadband connectivity to be ensured in all FI villages. The bank branch responsible for financial inclusion of the village in its Service Area would designate a specific officer to visit such villages on pre-notified fixed day and time every week. could be offered. • Each non defaulter non farmer living in the Service Area without any land holdings is to be granted a credit facility in the form of GCC. • Setting up of Ultra Small Branches (USB) in each FI village.• Transfer of subsidies into the accounts of the beneficiary under Electronic Benefit Transfer to enhance the efficiency of delivery of services. The officer shall also undertake various verification. Benefits in the areas covered under Financial Inclusion must be transferred electronically into the accounts of the beneficiaries. considering the need for close supervision and mentoring by the respective bank branch taken up/being taken up under Financial Inclusion Plan. funded by the Government of India. for allowing undertaking of banking functions by the person concerned. etc. • Opening of one bank account per family which is to be used for EBT/DTKS by making use of data from Census directorate (2011 census) / District Supply Officer. USBs are to be set up in all villages covered under financial inclusion. field inspections. 16 . • Financial Inclusion drive to open bank accounts of migrant laborers and street vendors / hawkers in urban areas. • List of villages having connectivity problem (block. etc. so that various other services such as account balance. This approach is expected to facilitate sustained financial inclusion through bank loan. • Establishment of Clearing house at centre’s with three or more branches.5. the RBI has initiated various measures like guidelines. promote livelihood development of women and deliver social development programmes for Women through SHGs linkage. 2. • Data entry module for GIS for Financial Inclusion through web site of DFS for Periodical updating of data about bank branches. insurance companies & Govt. • Implementation of Scheme for Promotion of Women SHGs in Backward Districts of India.on a geographical cluster basis. set the targets for Banks/Insurance Companies and monitor the progress of such expansion. ATMs. • Availability of web-based Desktop Video Conferencing and confirmation of opening of account & connectivity with DFS. Banks to prepare District-Month wise Rollout Plan which will be used by the lead bank for the preparation of the District-Month wise and Bank-Month wise Rollout Plan for the State/UT. Departments.leveraging NGOs as Business Facilitators. regulatory incentives and policy stance to streamline the process.• Preparation of Comprehensive District Financial Services plan in each district with the coordination of banks. • RFP is to be floated by Public Sector Banks for “Outsourcing of Installation and Managed Services of Cash Dispensers (CDs)”. clearing houses and currency chests of Scheduled Commercial Banks and branches of Insurance Companies at village level. • Automation of State government Treasuries and Interface with banks. Notable among those are under: 17 as .2. which will work as promoting and nurturing agency for SHGs as facilitator bank linkages and recovery of loans from SHGs for a due consideration. The Reserve Bank of India (RBI) Being the Central Bank. This would enable the DFS to easily identify the areas where expansion of branch/ATM/network needs to be carried out. The scheme envisages identification of an anchor NGO in each of the selected backward districts of the country. the RBI asked the Commercial Banks to open at-least 25% of the new branches in unbanked centres and Private sector Banks are required to ensure that minimum 25% of their total branch network is in semi-urban and rural centres on an ongoing basis. Banks can also use rural ATMs. This will speed up the process of reaching to the excluded people. MFIs. in their service area. etc. Now commercial Banks are not required to seek RBI permission to open new branch at the rural centres with population below 50. Steps for enlarging the scope of various models for financial inclusion including BC/BF. in habitations having population of 10.2012. extension counter to reach remote areas.000. commercial banks were asked to add at least 250 rural household accounts every year at each of their rural and semi-urban branches. open a regular brick and mortar branch in habitation with population of 5000 and above by September. iv. all the commercial Banks including private and foreign banks were asked to prepare Financial Inclusion Plan (FIP) to be implemented in 3 years. Expansion of Branch network: To use the existing network. Recently.i. v.000 and above by September. 2012 and in other districts . mobile vans. PACs. In January 2010.000 in other districts: As per the strategy and guidelines of financial inclusion issued by Department of Financial Services(DFS). vi. 18 . All the lead Banks were asked to ensure coverage of all the unbanked villages with population above 2000 by the year 2012. As per the FIP of Banks about 3. of India. Rural Based institutions like NGOs. USB opened in form of a satellite office will qualify for RBI instructions regarding opening of 25% branches in unbanked rural areas under Annual Branch Expansion Plan of the bank.It was also decided that in unbanked districts with population < 5000 but more than 2000 bank may set up Ultra Small Branch(USBs). Post offices. iii. RBI has permitted the banks to collect reasonable service charges from the customer in a transparent manner. Opening of branches in villages having population more than 5000 in under bank districts and 10. banks may establish outlets in rural centers from which BCs may operate. banks shall within their service areas in the under banked districts .48 lakhs villages will be covered by March 2013. Govt. the banks must try to open as many bricks and mortar branches. ii. These contained self-set targets in respect of opening of rural brick and mortar branches.03.2012 .For villages having population 5000 or above in unbanked district and 10. Ultra Small Branch (USBs): USBs will provide support to about 8-10 BC Units at a reasonable distance of 3-4 kilometers.475 brick and mortar branches of these banks in rural areas as in early March 2010. No-frills accounts 19 . As against 21.000 as also other unbanked villages with population below 2.47. kisan credit cards (KCCs) and general credit cards (GCCs) issued.000 through branches/BCs/other modes. This arrangement will increase legitimacy and credibility of BCs in the area and give people increased confidence to use their services . the bank may set up USBs in the shape of a Satellite Office of the link branch managed full time by at least one bank officer with laptop having VPN connectivity supported by BCA having normal business hours as the base branch initially for three days in a week which can be scaled up with increase business volume if required.000/. 1. The Satellite Office (USB) should have a pass book printer and a safe for cash retention. A brief analysis of the progress made under FIPs of banks shows that penetration of banks in rural areas has increased manifold. deployment of business correspondents (BCs).701 rural branches.478 outlets through other modes.534 outlets comprising 24. BCA shall be present on all working days and shall deal with all cash transactions (up to 10.20.providing banking services in rural areas through 1.355 BC outlets and 2.per customer) and other services assigned to BCA. and other specific products designed by them to cater to the financially excluded segments.vii. Officer of USBs will act as maker and will be supported by Officer of link branch as Checker for all transaction made at USB. banks are now as on 31.000 for other districts. opening of no-frills accounts.6 Financial Inclusion Plan for Banks It was indicated in the Monetary Policy Statement of May 2011 that all public and private sector banks had prepared and submitted their board approved three-year financial inclusion plans (FIPs). 2. coverage of unbanked villages with population above 2. where opening conventional brick and mortar branch is presently not viable. Such USBs should have minimum infrastructure such as a Core Banking Solution (CBS) terminal linked to a pass book printer and a safe for cash retention for operating large customer transaction and would have to be managed full time by bank officers/ employees. 2011.000 were identified as unbanked. “Swabhimaan” the Financial Inclusion Campaign: In pursuance of the announcement made in the Monetary Policy Statement of April 2010. provincial (state) level committee of stakeholders from Govt. banks have been advised that FIPs prepared by their head offices are disaggregated at respective controlling offices and further at branch levels.1. formally launched “Swabhimaan” – the Financial Inclusion Campaign in February.30 billion with the addition of about 50. Banks were advised in 2010-11 to provide appropriate banking facilities to habitations having a population in excess of 2000 (as per 2001 census) by March. Going forward. Under the roadmap. “Swabhimaan” aims at providing branchless banking through use of technology. withdrawals and remittances using the services of Business Correspondents. 20 .2 million new no-frills accounts since April 2010. Banks provide basic services like deposits. Now the challenge is to cover all the unbanked villages of the country. banking regulator and other related institutions primarily engaged in monitoring resource flows in local geography. 74. Sonia Gandhi.414 villages with population above 2. The initiative enables Government subsidies and social security benefits to be directly credited to the accounts of the beneficiaries and who would be able to draw the money from the Business Correspondents in their village itself. 2. They were also advised to put in place a mechanism to monitor the progress at these levels periodically. 2012 under “Swabhimaan” campaign Smt.99. Banks have covered 74. the focus will be more on the number and value of transactions in no-frills accounts and credit disbursed through information and communication technology (ICT) based BC outlets.5 million with an outstanding balance of above Rs.199 (99.000 was finalised by State Level Bankers’ Committees (SLBCs). including regional rural banks (RRBs) for providing banking services by March 2012.7 per cent) of these unbanked villages. the roadmap to provide banking services in every village with a population above 2. Chairperson UPA.have increased to around 105. For the purpose.000. In order to extend the reach of banking to the rural hinterland. Banks. Roadmap to cover Villages with Population above 2.6. which were allocated to various banks. 120 billion 30 million Rs. so that the beneficiaries can draw branches. the “Swabhimaan” campaign was launched in pursuance of Budget Announcement (2010-11).753 4 No frills accounts 139 million 5. of outlets 37. 21 the money through bank . Type of outlets 1 Rural Banches 2 BC Outlets 3 Other Outlets No.3.146 Total Rural outlets 1. 2. About 45. ATM. Micro ATM and CSPs.136 3.Status of Financial Inclusion (31. 42 billion Source: RBI 2.41.6. Amount in No frills accounts 5 No. To build on the momentum and success achieved. No.000 such habitations have been identified to be covered under the extended “Swabhimaan” campaign.1 million Rs.2.03.471 1. of KCC accounts 6 Amount of KCC outstanding 7 Number of Accounts 8 Amount of GCC outstanding Rs. For better administration of subsidy extended by government through 32 schemes to reach the household through electronic benefit transfer scheme in the society. For transfer of subsidy benefits directly to the accounts of these underprivileged people through EBT .000 as per Census 2011. Opening of at least one bank account per family in rural and urban areas: Concept of social banking aims at providing financial services subsidised by the rich to the poor where banking business is oriented towards serving the masses instead of exploiting them.2068 billion 2.6. Extension of the”swabhiman campaign” for covering the villages with population less than 2000: To increase the penetration and FI. it is imperative to have at least one bank account per family among the financially excluded people.81. the “Swabhimaan” campaign was extended as per Budget Announcement (2012-13) to habitations with population of more than 1000 in North Eastern and hilly States and to other habitations which have crossed population of 2.2012) S. insurance..: Lot of poor people lives in urban areas to cater the need and integral part of urban development. credit products. so that proper and timely choice can be made for enhancing the economic security of oneself. the process to be extended beyond 500 meters so as to all these persons financially included. reaching the resource poor personally. migrant labourers etc. 2. With financial literacy. Customer calls centres to improve and facilitation of awareness along with adequate training of staff as well as BC/BF. Establishing FLC. pension products and small loans to start their small business. Ministry of Finance. for end user can be beneficial to improve literacy aiming the target group.6. his family business. Awareness programme about technology at villages/ branches can be conducted to improve financial literacy. Branches are advised to give top priority to this agenda. Opening of accounts of hawkers. pamphlets and road shows. 2.4. DFS directed all banks to launch campaign to ensure that each family living in the service area of a branch having rural villages attached to it has at least an a/c with the branch to transfer all the benefits administered through various schemes of Govt. Most of them are linked to their family staying in villages. of India.6. remittance. Branch officials are directed to contact migrant labourers/street vendors/hawkers who are working within 500 meters of the branches in urban and metro areas. target group can prepare ahead of time to take up economic financial activity for maintenance of their livelihood and to deal with emergencies without taking unnecessary debt. grievance redressal mechanism. labourers. GOI. Later on. 22 . has advised banks to launch a drive for opening of their account. products and process etc. To give boost to the urban financial inclusion to inculcate saving habits and to extend banking facilities to the migrant labourers and street vendors/hawkers in urban areas. Primarily financial literacy is relevant to the people who are resource poor. documentaries. Covering basic financial service like savings. This can also be done through innovative medium like films. Financial Literacy: Educating the financially excluded people and familiarising them to understand the various products and process available in the financial system especially the benefits and other risk factors associated with it. investments. Department of Financial Services (DFS). use of credit cards. and providing adequate information about use of technology. They also require financial services like savings.5.Keeping in view of the above . (i) savings cum overdraft account. FLCs and rural branches of banks should maintain record in the form of a register containing details such as name. For the purpose. Why borrow as far as possible for income generating activities. Why Save early in your Life. whether banked or unbanked. If necessary. banks may also prepare material on above illustrative topics in vernacular language using stories and pictorial representations to disseminate information on the four basic banking products i. details of services availed etc. contact details. Why repay in time. (ii) pure savings product ideally a recurring deposit scheme. In order to facilitate effective implementation of the above guidelines Standard financial literacy material/ training modules are to be distributed to branches for providing awareness and knowledge of basic banking throughout the country.awareness about electronic banking and the safeguards to be followed is necessary as a nationwide strategy. Why Save with banks. Why insure yourself. The officials working at FLCs should be provided training in behaviour orientation so as to enable them to work as effective trainers along with periodic knowledge up gradation on various banking products and services. it has now been decided by RBI to modify the existing FLCC Scheme.e. The Financial Literacy Centres (FLCs) will impart financial literacy in the form of simple messages like Why Save.Financial literacy activities will also be undertaken by all the rural branches of Scheduled Commercial Banks including RRBs. Why borrow from Banks. Lead banks are to set up Financial Literacy Centres (FLCs) in their Lead District in a time bound manner for opening of 630 plus FLCs in all the districts throughout the country . The FLCs and rural branches of the banks would also conduct outdoor Financial Literacy Camps with focus on financially excluded people at least once a month. age. The Head/ Controlling Offices of the concerned banks would monitor the financial literacy efforts undertaken by their 23 . profession. For scaling up Financial Literacy efforts manifold. While the existing FLCCs (60 nos) would continue to function with a renewed focus on financial literacy. and (iv) entrepreneurial credit in the form of General-purpose Credit Card (GCC) or Kisan Credit Card (KCC). Why Save for your retirement etc. the help of experienced NGOs may also be taken. gender. (iii) remittance product for electronic benefits transfer and other remittances. of “No Frills” March ’10 March ’11 March’ 12 Sept’12 76 97 13.) (opened by BC only) Loans (in Rs millions)(BC ch) 24 . The Convener Banks of SLBC have been advised to take up this matter in the SLBC meeting and the roadmap for Electronic Benefit Transfer in respect of each of the 32 scheme under which subsidies are provided by Central Government must be finalized.56 (8.8 16. 2.6.6. Gains from Financial Inclusion for SBI: Initiatives taken up by the Bank so far helped to achieve following quantifiable business.12 Accounts lakh thr (in million) BC) Balances in no frills 3360 6150 6220 6820 491 636 516 639 27870 54460 accounts (in Rs millions) Average Balance per Account (Rs. They would periodically (at least once in a year) undertake impact evaluation of their literacy efforts so as to make way for continuous improvement. Electronic Benefit Transfer Electronic benefit Transfer (EBT) is one of the products offered under Financial Inclusion in which benefits are directly credited into the account of beneficiary who can then withdraw it from the bank branch or the ATM or the Micro ATMs. Government in its strategy and guidelines on financial inclusion has advised banks that benefits in the areas covered under Financial Inclusion must be transferred electronically into the accounts of the beneficiaries. Table : Business performance through BC model in SBI Particulars No.FLCs/Branches through periodic reporting and also by resorting to random on-site visits. 09. 25 .12 million “No Frills” A/cs opened. Transactions worth Rs.2 million in 3. there exists enormous opportunities in rural areas and ample scope for banking business.The initiatives of Financial Inclusion helped the bank to accrue following benefits: Net Income from Aadhaar enrollments – Rs.6 crores.16. 6820 million of CASA deposit mobilised in “No Frills” accounts.9 million transactions through BC Channel Increase in customer base. Thus. 14.2012:3681nos.56 million a/c(Sept’2012) Establishment of USB as on 30. Rs. EBT disbursement:1129. 26850 million routed through BC outlets Decongestion of branches: 16. Various models adopted by the Indian banks and innovative steps taken for achieving financial inclusion described in following paragraphs. Banking on wheels. MFIs. Basic Savings Bank Deposit Account: Banks to make available a basic banking 'nofrills' account either with 'nil' or very low minimum balance as well as charges that would make such accounts accessible to vast sections of population. Banks have taken various steps and adopted following models like Branch network. 120 billion. SHG Bank linkage &JLGs). etc. Business Correspondent/Business Facilitator model. Modification in existing processes and systems were done based on the experience and the requirements. Apart from meeting the regulatory requirements.CHAPTER 3: MODELS OF FINANCIAL INCLUSION Contents: Branch Network (No frills. the task of financial inclusion has been taken up by the Commercial Banks with a passion. Backed by the government support and policy initiatives of the RBI. 3. Micro Finance Institutions (MFIs) / Non-Government Organisations (NGOs). etc were tried out and refined to suit processes and requirements.1. to achieve the financial inclusion. Concerted efforts are being made since last 3-4 years. several banks have taken proactive steps. novel initiatives like Banking on wheels and tools of technology like mobile. In their pursuit for achieving FI. Credit facilities in small amounts are also being offered to these accounts to inspire the account holders for doing regular transactions. Aadhar. Banks are to offer a ‘Basic Savings Bank Deposit Account’ with following features: 26 . Branch network: The existing network branches were put to use for by the scheduled commercial banks for achieving FI by undertaking following activities: 3.1.1 No frills account: To make the beginning. RBI data indicates that 139 million “No-frills accounts” were opened By the Banks at the end of March 2012 with outstanding balance of Rs. Co-operatives & RRBs. BC/BF. internet kiosk. the efforts were made to open “No-frills” accounts of the households of uncovered villages under relaxed “Know your customer (KYC)” norms. allowed a maximum of four withdrawals in a month.150 backward districts have been identified by Ministry of Rural Development. Above facilities are provided without any charges and no charge will be levied for nonoperation/activation of in-operative ‘Basic Savings Bank Deposit Account’. Credit facilities by banks to these vulnerable sections of society under group mechanism benefitted more than 7. Refinance is also available to banks for financing women SHGs for income generating activities with fixed assets at soft rate interest for a period more than one year and less than three years. Deposit and withdrawal of cash at bank branch as well as ATMs. Not have the requirement of any minimum balance. 3.2. Facility of ATM card or ATM-cum-Debit Card. role of SHGs is very vital. of India (list available in annexure-1) out of which SBI has lead bank responsibilities in 72 districts. Women SHGs Schemes in Backward Districts: For greater financial inclusion and empowerment of women. It is observed that the progress of women SHGs is very slow and there are imbalances and disparities in the SHG bank linkages in backward region across the states. receipt/credit of money through electronic payment channels or by means of deposit/collection of cheques drawn by Central/State Government agencies and departments.i. No limit on the number of deposits in a month.1. To assist women SHGs in these areas “Women SHG Development Fund” has been created with corpus of 500 crores to empower women and promote their SHGs.96 million SHGs as on 31st March 2012. 80 % of the allocated fund is earmarked for refinance on soft interest terms to eligible agencies for financing new SHGs and to existing women SHGs which has opened SB a/cs but have never availed any loan or cash credit facilities in the project areas. Govt. including ATM withdrawals. Commercial Banks need to maintain focus on this issue and further strengthen SHGs to engage in micro enterprises or income generating activities. SHG Bank linkage programme: The credit linkage of Self Help Groups (SHG) and Joint Liability Groups (JLG) by Commercial Banks is one of the major initiatives to bring low income people into the banking stream. The project is being implemented by NABARD. and v. ii. 3. iii. The poor people come together and pool the savings of group and dispense small loans for meeting the individual requirements of member. 27 . etc.136 BCs are employed by Commercial Banks as on March 31. 20% of the fund is allocated for supporting promotion by NGOs of Women SHGs in project areas at the rate of Rs.41. Business Facilitator (BF) model accelerate the process of banking by creating awareness /facilitating the process among the poor and unbanked/under banked people. The BCs have opened no frill accounts in all FI villages and these accounts are operational. recovery of bad loans. 2012. The Government of India also decided to adopt BC model for payment of wages under Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) through the Electronic Benefit Transfer (EBT) method. receipt and delivery of small value remittances. etc. The activities permitted to be performed by the BCs include: Collection of small deposits.1. The BC/BF model has been rolled out by many Banks and some Banks are in the process of upscaling the coverage. SHGs. The model is in evolution stage and more fine tuning in terms of tools.Different BCs use technology of different 28 . Corporates with large and widespread retail outlets. 3. Government Agencies like post offices. etc. 3. agents are appointed for offering banking services to excluded people of the society both in rural and urban areas by the banks. Business Correspondent (BC)/Business Facilitator (BF) model: This model is widely accepted by the Commercial Banks and the RBI. Many banks have fostered tie up with India Post and Corporates like Bharti. HUL. These agents or intermediaries generally work on commission basis. risk mitigation measures and cost factors need to be build up through the experience and experiments. payment of social security benefits /direct subsidies. MFIs. The BCs are either individual. technologies. security. NGOs. etc. Interoperability of BCs:-All financial Inclusion villages are covered either by opening Bank branches or appointing Business Correspondents which provides banking facility to customers in the village. So far 1. 000/. proprietors of Kirana shop. to build synergy for using mutual networks and services. selling of micro insurance and pension products. disbursement of tiny loans under General Credit Card / Kisan Credit Card.2. Transactions are being done by the villagers through these BCs with the help of hand held machine of the BCs. Under the BC model.2.Further. All these hand held machines are connected with CBS system of Bank .per SHG. 10. GOI. Raigarh and Mahasamund). for Jharkhand and parts of Bihar.2. . said such a move would improve the economics of the BC model .The second RFP.In the first RFP for Maharashtra.48%. had taken up with RBI and NPCI the issue of interoperability at the level of BCAs. Efforts are on to convert Pilot into Production.It suggested that India be divided into 20 clusters.2. Interoperability will enable a customer of a bank to conduct transactions though BCA of not only his own bank but also BCA of any other bank also. This would also greatly benefit the common man as he/ she would be able to transact through any BCA of any bank. Based on these guidelines NPCI has also formulated the Standard Operating Procedures for all member banks.11% bid.03. 29 .the company won with its 0. RBI has issued guidelines relating to interoperability vide its letter dated 02. Two Pilot Projects in Mewat District of Haryana and Bulandshahar District of UP were implemented. however. almost all the BC companies in India are in the red and viability of BC/CSP model is of major concern.2012. FINO bid 0. GOI. has triggered fears that monopolies will be created in each cluster jeopardizing the interest of financially excluded people.Bangalore-based Strategic Outsourcing Services has won the tender to become the common BC for all public sector banks working in Orissa. It will also ensure standardization of PoS devices and procedures in transactions though the BC channel. RFP FOR APPOINTING COMMON BC IN STATE: The Finance Ministry's Department of Financial Services (DFS) triggered a sweeping reorganization of the BankBusiness Correspondent (BC) model in April.19% for Chhattisgarh (excluding the districts of Jashpur.Vendors which was causing problems of interoperability of transactions between one BC and another BC and between a/cs of one bank and other banks BC. The DFS. The Department of Financial services. each one of the cluster headed by one leader bank for appointment of common BC in the cluster. 2012. The move. 3. A common BC is to be appointed for all public sector banks operating in that geography (cluster). which bid 0. went to FINO. A couple of days later.35%.In line with the previous auctions. The news was received by bankers with tired cynicism. the bid amount for cash management costs was surprisingly low -. Right now. Vakrangee Finserve bid 0. as principal financiers of MFIs. The MFIs were disbursing loans to the newly formed groups within 10–15 days of their formation. Competing MFIs were operating in the same area. In many cases. cohesiveness and a sense of purpose were not being built up in the groups formed by these MFIs. the share of NBFC led MFI is about 34% of the outstanding loan portfolio as against 58% of SHG-Bank linkage model which is more than 18 years old. Proper regulatory mechanisms and risk management tools are necessary for sustainable growth of these agencies. 45-IB (maintenance of liquid assets) and 45-IC (transfer of profits to the Reserve Fund) of the RBI Act. do not appear to be engaging them with regard to their systems.3. including bank finance due to exemptions granted to NBFCs licensed under Section 25 of the Companies Act. including areas covered by the SHG-Bank linkage programme. Non-Banking Finance Companies (NBFC) led MFI model is more aggressive in deepening their products and expanding the reach.3. Banks. from the purview of Sections 45-IA (registration). MFI Model: Micro finance Institutions are playing an important role in financial inclusion by providing credit facilities to poor people through the network of SHGs / JLGs. As a result. An Increasing number of microfinance institutions (MFIs) are seeking non-banking finance company (NBFC) status from RBI to get wide access to funding. practices and lending policies with a view to ensuring better transparency and adherence to best practices. the following observations were made on MFIs & SHG-Bank linkage programme: Some of the microfinance institutions (MFIs) financed by banks or acting as their intermediaries or partners appear to be focusing on relatively better banked areas. resulting in multiple lending and overburdening of rural households. Within a short span of 5-7 years. no review of MFI operations was undertaken after sanctioning the credit facility. and trying to reach out to the same set of poor. in contrast to the practice obtaining in the SHG – Bank linkage programme. which takes about six to seven months for group formation and nurturing. In a joint fact-finding study on microfinance conducted by the Reserve Bank of India and a few major banks. 1934 010 and engaged in microfinance activities. microfinance has come under fire 30 . 1956. Microfinance institutions offer financial services to underprivileged and impoverished communities. and which do not accept public deposits. Recently. Many MFIs supported by banks were not engaging themselves in capacity building and empowerment of the groups to the desired extent. developing low cost small ticket remittance mechanisms and facilitating electronic fund transfers. feasible to have CBS for integration of technology based inclusion models for PACS as well. These charges resulted in the state government's passing of the Andhra Pradesh Microfinance Ordinance on October 15.in the state of Andhra Pradesh due to allegations of MFIs using coercive recollection practices and charging usurious interest rates. It would be. India Post. to shut down MFI activity. On realizing their importance. upgrading the technological infrastructure. The Committee also recommended for are view of the role of post office as an agent of GOI and to enable the institution to act as its own account in the financial inclusion space. Thus.55 lac post offices – mostly in rural areas is in the process of getting Cabinet approval for 31 . therefore. etc. provided there is a workable tie up with the higher tier cooperative banks. their role in financial inclusion cannot be underestimated. 3. PACS have started extending remittances. These agencies can supplement and expedite the work of financial inclusion. In a few states. modernising transaction platforms.5 Post Offices–Emerging Institutions for Financial Inclusion: The Expert Committee on harnessing the India Post Network on Financial Inclusion came up with a wide range of recommendations on the role of post offices in financial inclusion by entering into partnership with Banks. suo moto. 3. including sector heavyweight SKS Microfinance. Primary Agricultural Credit Societies (PACS): There are nearly one lac Primary Agricultural Credit Societies (PACS) with membership of over 14. insurance and remittances to their clients.4. can play the vital role in offering microfinance services. credit. The model would also improve the viability of these institutions. 2010. Consequent upon implementation of the recommendations of Vaidyanathan Committee.50 crore. PACS are ideally suited to provide a comprehensive range of services like savings. a few States have started utilizing their services for all activities related to agriculture. The Ordinance requires MFIs to register with the state government and gives the state government the power. A number of NBFCs have been affected by the ordinance. Other grass root organizations like NGOs and Primary Agricultural Co-operative Societies (PACs). NABARD has started supporting PACS for computerization. located in the rural hinterlands of the country. insurance. many PACS are well poised to take up viable business activities. with a network of more than 1. India Post is reportedly finalising tie up with various banks. iii. real-time. mobile phones. Some banks have already forged partnerships with post offices for expanding their outreach. SBI and India Post have entered into a partnership in which. can be harnessed to speed up the process of financial inclusion and achieve higher levels of scalability for operation. Communication and Technology (ICT). Wireless Application Protocol (WAP). iv. The department proposes to acquire ATMs in a bid to modernize its operations. 3. converting into a full-fledged bank branch may be quite feasible.Bank linkage. a camera and scanner cum printer.based application. PoS (Point of Sales) based biometrically enabled Smart Card ii. happened in the fields of Information. Since post offices already accept deposits. Some of the technology platforms used by the Banks are as under: i. General Packet Radio Service (GPRS). remote transactions and generate flawless MIS for the end users. postmen will act as BCs for SBI in more than 12. and Near Field Communication (NFC). Cell phone based messaging system or any other technology platform accepted to the appointing Bank. phonebased applications such as Java (J2ME)/Binary Runtime Environment for Wireless (BREW). Unstructured Supplementary Services Delivery (USSD). The Information and Communication Technology (ICT) on which the Financial Inclusion is riding today are: Short Message Service (SMS). Subscriber Identity Module (SIM) . All these technologies are basically distributed systems which can be seamlessly onnected to the Core Banking Database of the banks for on-line. Kiosk Banking: Kiosk Banking consists a computer connected to the banking system through the internet.000 villages. Customer transactions like opening of accounts.6. cash deposit and withdrawl are permitted through biometrics validation. Information. Communication and Technology (ICT) Recent innovations and development. Bank Link to hand hold devices. etc. Progress made so far is not up to the mark. 32 . internet based solutions. the Unique Identification Authority of India (UIDAI) has proposed a bank account for everyone in the country. This creates a pan India demand for lightweight bank accounts. it is needed to verify that it should conform to the security.100 into the bank account of each BPL resident who enrolls for a UID.7 Unique identification (UIDAI) project: Aadhaar In its vision document for financial inclusion.Financial institutions need to build up ties with the technology solution providers. 33 . vendors. mobile operators. to integrate the tools of technology with the Banking system to leverage on its capabilities. The 12 digit ‘Aadhaar’ number which has been provided by UID project is a very cost effective way in reaching to vast group of so far financially excluded society. audit and accepted standards. 3. Bank should actively position itself to offer a low cost No Frill bank account to anyone enrolling for a UID. While adopting the technology.000 crores to be used for delivering an incentive of Rs. NGOs. The Thirteenth Finance Commission has proposed a budget of Rs. etc.3. CHAPTER 4: TECHNOLOGICAL INTERVENTION UNDER FINANCIAL INCLUSION BY SBI Contents: Various ICT tools like ATM, Mobile Banking, PoS & Smart card model, Kiosk Banking, etc. 4.1 Leveraging Technology For Financial Inclusion With an objective of providing a viable and cost effective banking service at the door step of the financially excluded group, banks in India have adopted a branchless banking model called Customer Service Points (CSPs) which are manned by Business Correspondents (BCs). The CSPs are low cost and technology enabled alternate delivery channel that facilitate basic banking services to the rural communities at their doorstep at an affordable cost. It facilitates customers to transact from their villages and at their convenience depending upon their need. 4.2 Technology and Financial inclusion in SBI Basically there are three different technology enabled financial inclusion models adopted across the banking system and also in State Bank of India. These are Point of Sale terminals (POS), Internet enabled PC Kiosks and Mobile messaging system. The front end in all these cases is manned by Business Correspondents (BCs). The front end system is POS & SMART CARD CELL PHONE MESSAGING INTERNET KIOSK VENDOR- VENDORS SERVER CBS GATEWAY SBI KIOSK BANKING SERVER 34 CORE BANKING SYSTEM TECHNOLOGY ENABLERS CUSTOMER SERVICE POINTS integrated with the 24x7 CBS system through certain intermediate server. 4.2.1 POS and SMART CARD Model A POS and smart card model is a branchless banking model which facilitates opening of accounts and financial transactions. A smart card is a wallet sized card with an electronic chip designed to store information relating to the customer. A POS (Point of sale) is a device with the CSP, capable of reading a smart card. National level BCs like FINO (Financial Inclusion Network and Operations), and ZMF(ZERO Microfinance and Savings Support Foundation) are leading service providers of this integrated technology platform to enable sourcing and servicing of customers under financial inclusion. The working of ZMF model is explained below: 4.2.2 The Service Provider ZMF is a Company incorporated under Section-25 of Companies Act 1956. It acts as a BC of State Bank of India and many other banks in India for extending their outreach in villages where there is no bank branch. ZMF recruits and trains village based operators to work at the CSPs. A Little World (ALW) manages front-end technology and back-end systems with 24x7 centralized data Centre operations. It provides a variety of services including opening accounts, capturing fingerprint and photo with the help of mobile phones, end-to-end security and key management, biometric de-duplication, end-to-end account management system with the option of connectivity to any Core Banking system, multi-mode communications gateway and switch, card Issuance and card management (photo-ID / smart cards), a variety of transaction options at front end, reporting and predictive Cash Management System. 4.2.3 Hardware requirements 1. Mobile phone with Public Key Infrastructure (PKI) security. 2. POS with fingerprint scanner and printer (integrated or as separate units). 3. Smart card with magnetic strip (contact card) or smart card with Radio Frequency Identification (RFID) also called as a contact less card. 4. Alternatively a plain plastic card without any magnetic strip or RFID. 35 The mobile phone acts as a core bank branch and capable of storing up to 50000 customer account details like complete customer ID, photograph, 4 or 6 Fingerprints each, multiple account types and 5 years of transaction history for multiple transaction types. The system can work both online and offline and synchronization with their data server happens using GPRS. The system has up to 2 GB local memory to store offline transactions. There is provision of voice Prompts and local language voice overs during transactions or enrollment. 4.2.4 Transactions supported The system supports multiple applications which include Identification or authentication through biometrics, cash deposit, cash withdrawals, NREGA or pension disbursals, EBT payments, micro savings (no frills a/c), micro credit, micro insurance, cashless payments, utility payments, SHG utilities, loan disbursals, loan repayment etc. 4.2.5 Enrollment process- Government beneficiaries 1. The Government makes available the list of target areas and beneficiaries for disbursement of Wages or EBT payments. The names of the areas are entered in the enrolment system for Standardization. Generally the standard is the name of the location as per the Census data or as provided by the Government. The data is imported into the enrolment system after due validations for the various mandatory fields like NREGA ID, Location name etc. 2. Pre-Printed Account Opening Forms are generated by the enrolment System of ALW from the above data containing name, address, Pin Code, father’s name, age, date of birth, Sex etc which are mandatory for opening of an account in the Bank, unique government ID or NREGA ID , a unique Zero Serial Number ( ZSN) / Form ID. The ZSN -form ID combination is paired with an algorithm to ensure uniqueness of the combination across the platform. The application form is accompanied with a detachable laminated non-photo card bearing the personal details of the beneficiary along with the ZSN. 3. These Forms are sent to the CSPs for the target beneficiaries in their areas. The CSP carries out the enrolment, captures the bio-metric profile, the photograph and any other additional information provided by the customer which might not have appeared in the Government Data. 36 4.6 Enrollment process. Accounts are opened by the bank in CBS using file upload utility. The uploaded data is processed in the enrolment system with validation for the mandatory requirements of the bank. Electronic data files in the pre-defined and mutually agreed formats are created and sent to the bank through a secured protocol as decided by the bank. The physical account opening forms are handed over to the field executives of the business correspondent (BC). The data is uploaded securely to the ALW enrolment system. The ZSN or Form ID remains the common reference between the front end and the back end. 2. On the basis of the information from the customer. In case of SBI these files are sent to the Dedicated Accounting Unit (DAU) of the Bank through Secured File Transfer Protocol (SFTP). File upload is done by the respective LBs or FICs after verifying the data with physical account opening forms for compliance to KYC norms. Electronic data files in the pre-defined and mutually agreed formats are created and sent to the bank through a secured protocol as decided by the bank. CSP uploads the mobile enrolment data on their back end server through GPRS.The physical account opening forms are sent to Link branches (LBs) or Financial Inclusion Centers (FICs). The BC arranges for data entry in a data entry software user interface provided by ALW. ALW imports the account number and customer ID into the enrolment system against each ZSN for which account creation files were sent to facilitate card production. Blank Account Opening Forms are sent to CSPs.Other Customers 1. The bank sends to ALW the account number and customer ID of each of the accounts opened in CBS.CSP uploads the securely encrypted enrolment data to their back end server through GPRS. 4. In case of SBI these files are sent to the Dedicated 37 . CSP fills up the forms. The uploaded data is processed in the enrolment system with validation for the mandatory requirements of the bank. CSP also captures the biometric profile and the photograph of the customer on the mobile.2. The GPRS uploaded data for the ZSN/Form ID combination is also imported into the enrolment system to form a complete enrolment record for each customer. 4. Finger print validation is done through the finger print reader if it is a withdrawal transaction. 4. after printing these are individually personalized electronically.2. At the beginning of the day the CSP downloads the customer details of the new customers and the balances from their server where there have been transactions. CSP prints 2 receiptsone for the customer and the other for transaction records.8 Transactions through smart cards 1. Once the Card is dispatched the details of the account and the card are imported into the transaction system to facilitate transactions. 6. 4. 38 . 4. The bank sends to ALW the account number and customer ID of each of the accounts opened in CBS. No validation is required for a deposit transaction.2. 3. CSP enters the type (deposit or withdrawal) and amount in the Transaction menu. On successful validation. ALW imports the account number and customer ID into the enrolment system against each ZSN for which account creation files were sent to facilitate card production.9 Transactions through plain plastic card 1. CSP gives cash to Customer.7 Card Production system All accounts that have been opened are processed for card issuance in the card production system. File upload is done by the respective LBs or FICs after verifying the data with physical account opening forms for compliance to KYC norms. the customer touches or swipes the smart card at POS terminal and the transaction menu is displayed. All eligible records are extracted from the enrolment system and sent for printing of cards.Accounting Unit (DAU) of the Bank through SFTP (Secured File Transfer Protocol).The physical account opening forms are sent to LBs or FICs. After printing and electronic Personalization. After the cash is handed over (withdrawal) or taken (deposit). In case of Smart Card. At CSP. 5. 2. the cards are dispatched. At the beginning of the day the CSP downloads the customer details of the new customers and the balances from their server where there have been transactions. Accounts are opened by the bank in CBS using file upload utility.2. When a customer approaches the CSP and provides the ZSN. The special features of the channel are Biometric authentication and functioning both online and offline. CSP retrieves the customer photo and account details and navigates to the transaction Menu. 3. 6. CSP prints 2 receiptsone for the customer and the other for transaction records. 5. Oxigen Services India Pvt Ltd. After the cash is handed over (withdrawal) or taken (deposit). There is no outside technology vendor for Kiosk banking channel.2..3. 4. 4. CSP gives cash to Customer. 39 . The technology has been developed in house. Finger Print validation is done through the finger print reader if it is a withdrawal transaction. On successful validation. The front end kiosk operation is integrated with 24x7 CBS data Centre. No validation is required for a deposit transaction.3 Kiosk Banking: Under Kiosk Banking model stationary locations at remote places enroll and service customer through internet accessing the customer accounts on core banking platform of the bank. 4.1 The Service Provider A social enterprise . CSP enters the type (deposit or withdrawal) and amount in the Transaction menu.‘Geosansar’. and other Individual BCs who do not have their own technology or technology partners are the front end service providers called Kiosk Operators (KOs) at the CSPs. 3. KO submits physical account opening form to the LB or FIC for verification.3 Transactions supported The Kiosks provide a variety of services including Customer Creation. capturing fingerprint and photo with the help of webcam. They also support transactions like cash deposit. 4.4 Enrollment Process 1. 40 . 3. issuing identity card etc. The KO can also capture the signature of the customer during offline customer creation.2 Required Components 1.4.3. Printer. logs into the Kiosk application and prints Identity Card for the customer. cash withdrawal. On successful uploading of customer information. Documents as per the liberalized KYC norms are also collected during this process. The transactions are voice prompted which explains or confirms transactions to customers in local language. The KO uses a simplified account opening form from the customer. using the reference number already generated for the customer. statement of account and fund transfers. Finger print scanner. 2. 2. The data captured at the KO is also sent to them for verification with the particulars in the physical account opening forms. 4. the system generates a reference number and acknowledgement receipt. Internet connectivity.3. The file is uploaded in CBS by the LB or FIC for creation of CIF and opening of savings bank account with zero balance making the LB as the home branch. A simple PC with web camera / digital camera and speakers. opening accounts. balance Enquiry. The KO enters the customer details captures the finger print (using scanner) and photo (using the web camera) in the system. 4.3. The KO. The transactions are supported by voice prompt which explains it to the customers in local language. along extra ability to make other bill payments. 4. KO validation for Media Access Control (MAC) ID which is unique for a network adapter. 3. for the State Bank Of India. Cost effective and no dependency on technology vendor.4 STATE BANK MOBICASH MOBILE WALLET State Bank Mobi Cash is a pre-paid Mobile Banking based Application for consumers who would like to have facilities like money transfer.6 Special features The special features of the channel are Biometric authentication. For conducting any transaction.This application has been developed by Oxigen. beyond regular banking hours. mobile top ups etc on their Mobile. Usable Anytime. 4. It also supports transactions in non-kiosk accounts.3. online-real time transactions.Transaction process 1. cash payments.Oxigen Services(India) Private 41 . The kiosk operator logs into the system using his own ID which is password protected and biometrically verified. 2. 4. The transactions take place only after successful validation of the customer’s fingerprint. the customer needs to visit the kiosk along with the identity card. Anywhere! These services are available at your finger tips. this network will also be available for State Bank MobiCash services. As Oxigen. for make payments for goods and services.000 CSP’s across India.Limited has signed up with State bank of India to provide the State Bank Mobi-Cash service and customer enrolment for virtual/mobile prepaid accounts to enable consumers. and cash in/ out at Oxigen customer service point. remittances via the State Bank Mobi-Cash application. • Cash Withdrawal/ Cash out from wallet • Cash Deposit/Cash in to wallet What Services will State Bank Mobi-Cash provide? • Cash Deposit • Cash Withdrawal • Transfer from wallet to wallet • Transfer from wallet to SBI bank account • Transfer from wallet to another bank account • Mobile/Utility Payments • Prepaid Mobile/ DTH Recharges What Benefits does the CSP get? • Earning on New Account Activation • Earning on Cash Withdrawal • Earning on Cash Deposit 42 . A State Bank Customer can visit any of the Oxigen CSP’s and can get the following facilities • Opening of State Bank Mobi-cash wallet (With KYC). Sahyog Microfinance and SBI have already tied up for providing SBI’s Kiosk Banking solutions through Oxigen’s CSP’s and Oxigen has appointed 2. Anytime. with which they can make Banking transactions at their fingertips from whatever location they are. fully secure. A MobiCash user need not visit the retailer for any service other than Cash in and cash out .What Benefits does the Customer get ? Now the Mobi Cash user has a unique mobile pre paid bank account. Anywhere Banking. Quick & Real time transactions. No wastage of time. with which they can make Banking transactions at their fingertips from whatever location they are located.No standing in long Queues. Quick & Real time transactions. and the ease of making payments on the go. No wastage of time. A Mobi-Cash user need not visit the retailer for any service other than Cash in and cash out . which really means they have the benefit of Extended banking hours too. How to enroll as Retailer for this service? Individuals need to enroll with Oxigen as an Customer Service Point(CSP) by submitting the application form along with acceptable KYC documents. and the ease of making payments on the go. Anytime. 43 . which really means they have the benefit of Extended banking hours too.No standing in long Queues. fully secure. Anywhere Banking. Facilities to Customer : • Easy Cash deposit into MobiCash Account • Cash Out ability at all appointed CSP Oxigen Outlets • MPIN Change Facility • OTP (One Time Password) Generation for Cash Out • Peer to Peer Money Transfer (Mobile wallet to Mobile wallet) • Domestic Fund Transfer (Mobile wallet to SBI/ Other Bank Account) • Facility of Instant Mobile Top-Up / DTH Payments and Bill Payments • Easy Balance Enquiry / Mini Statement • Easy Blocking / Unblocking of Mobile Wallet Now the Mobi Cash user has a unique mobile pre paid bank account. The other transactions supported on the customers mobile are mini account statement. The system is based on MIFOs open source and the implementation partner is WIPRO. they require the intervention of the CSP.5. PIN Change. 4. Ordinary mobile handset capable of sending simple SMS text messages. Checking & Completing the AOF filled in by customer • Collecting KYC and Processing Fee • Completing Documentation in the Banking system (information is uploaded on O2 portal) • Allocating a Tracking number to Customer Once KYC is accepted by SBI.3 Transactions supported Cash deposits.What is the CSP responsibility? CSP will open customer account : • By providing customer the AOF(Account Opening Form) • Collecting.1 The Service Provider The CSP in this case is EKO which has a cloud based Core banking system with a mobile phone front end to facilitate transaction. Cash withdrawals. 2. registration of new Okekey Booklet etc. OkeKey which is a numeric key attached to the account for secure transaction 4. Balance check and P2P transfer do not require such interventions.5. Since the deposit and withdrawal transactions involve cash.5 • Cash withdrawal • Cash deposit CELL PHONE BASED MESSAGING: 4. balance check and transfer transaction from personal account to another persons’ account (P2P) transfer.5.2 Required Components 1. 44 . money transfer retrieval list. CSP will assist Customers for the following services through web vending and POS on behalf of customer 4. an ID proof and an address proof. The data reaches the LB as well as the physical account opening forms. internet connectivity. PC-kiosk and fingerprint scanner. the application forms are segregated. The customer can only conduct deposit and withdrawal transactions till such time that the account opening form is verified and reaches the LB.6 Special features The special features of the channel are 3 level security checks – Mobile number. there is no additional cost of acquiring POS. okekey & PIN. 4. CSP explains the service with the help of a comic and leaflet. LB-wise the data is captured.5. After preliminary scrutiny. 4. 5. For any transaction happens in an account. Customer walks to the EKO Counter to enquire about the service. 45 .5. 3. The customer receives a message once his KYC has been completed and on receipt of a confirmation that P2P money transfer services are enabled. 2.5 Transaction process 1.5. 2. The file is uploaded in CBS by the LB for creation of CIF and opening of savings bank account with zero balance making the LB as the home branch. both the sender and the receiver get a confirmatory SMS. 4. Besides. 6. CSP fills a Mini account opening form and attests the form. customer’s documents & photograph and dials from his phone to open customer’s account. A confirmation Message is received both on the mobile of CSP and customer with a request to the customer to register the ‘okekey booklet’ which is given at the time of account opening request. 3.4.4 Enrollment Process 1. Customer provides one photograph. and remembering PIN numbers for ATM access is a hassle.5. • ATMs solve the problem of time of access.4. • Banks have sampled the use of biometric ATMs which are installed in vehicles. They include biometric. ATM maintenance and ATM security is high. • Several new-technology ATM devices have been designed to improve financial services in rural and remote areas so that even the illiterate customers in unbanked areas can avail ATM facilities. =====================================*********================================ 46 . mobile and micro-ATMs. The issues around deployment of ATMs are: • Cost of maintenance of the ATM such as refilling cash. given the distribution. This has a negative impact on customer experience and also increases the cost of customer maintenance with the additional load on PIN management.7 Products and coverage The range of products made available through technology channels in SBI are Savings Bank. especially in rural areas.6 ATM-BASED SOLUTION ATMs are limited in the scope of transactions that they can handle. Remittance. Generation of a good business ground by the beneficiaries will decide the winners and losers. Sustenance of this model in Indian Financial inclusion will depend on the volume of transactions and profitability on the long run. Saving-cum-Overdraft and. It is believed that the technology enabled models adopted by Indian banks are neither viable for the CSPs nor for the Banks as of date. These mobile biometric ATMs were successful in solving issues of reach and security but the cost of maintenance remained quite high and hence the model was not very successful. 4. Recurring Deposit. • The customer segment is not very digitally savvy. All these channels put together have enrolled approximately 60 lacs customers. but the cost of the ATM installations works against a large scale deployment. Financial viability is the key to success for any business model. SB Tiny Cards to SHGs. b) Other Bank Branches/ Business correspondents.00. etc. Financing to SHG/JLGs. 5.PRODUCTS & SERVICES IN SBI Contents: Small accounts. the aggregate of all loads in a financial year should not exceed Rs. Savings cum OD. Indian Rupee only. SBI TINY. General Purpose Reloadable prepaid card to be used at any of the Interoperable BC outlets besides being accepted at all Visa accepting ATMs and merchants.10. Loading / top up options features Any individual with an Aadhaar Card can avail the Card. III. (subject to balance not exceeding Rs. the aggregate of all withdrawals and transfers in a month should not exceed Rs.CHAPTER 5: FINANCIAL INCLUSION. Krishak Uthan Yojana. 100/One Rs. 47 . 50. Enabling Aadhaar authenticated payments with open loop Visa prepaid cards.at any point of time. 1.000/I.000/. II. Rs. the value of the card should not exceed Rs. RD. which are members of Aadhaar Saral Money programme.000/-. SBI Tatkal. The card can be loaded/ reloaded at: a) Selected State Bank branches.1 STATE BANK SARAL MONEY Objective: Tap the unbanked/ un-carded consumer & provide a superior/alternative to receive and make payment vis-à-vis cash. 50. 50.000/-. Description Eligibility Card Type Currency of Issue Minimum amount of Issue Cards per person Maximum amount.000). Visa powered Prepaid Cards. GCC. onlinesbi.2 Opening of "Small Account" The definition of ‘small account’ as communicated by RBI/GOI is applicable to the accounts enrolled by Business Correspondents/CSPs and need to be conducted and monitored as per para (b) of the GOI’s notification No.No. b) Can be used (free of cost) for purchases at any merchant location accepting Visa / MasterCard Cards (both in stores and online) c) for cash withdrawals at any State Bank Group ATMs (free of Cost) and other Banks ATMs (at a charge). cash withdrawal.6/2/2007-ES. etc. for fund deposit.in such accounts. 10. 48 . 5. 10.000/-.prepaid. 14/2010/F. apart from the threshold fixed for aggregate credits in a year and maximum balance that is permissible in such accounts.000/- Domestic / International Card Validity Refund / Cancellation.10000/. the aggregate of all withdrawals and transfers in a month should not exceed Rs. Daily Point of Sale/ Online Transaction Limit Rs.Card Acceptability a) Can be used at selected State Bank branches having the Micro ATMs & other participating Bank BC/ branch having Aadhaar logo. Minimum: Rs.and Maximum: Rs. Domestic use only 5 years Once card is expired or surrendered the unspent / unutilised amount will be refunded only to the Cardholder.com Alternatively he can go to selected State Bank branches having the Micro ATMs & other participating Bank BC/ branch having Aadhaar logo for Balance enquiry. As per the revised definition. Balance enquiry Cardholder can view the balance free of cost at any State Bank Group ATM in India and also online at www. Daily Cash withdrawal limit. 100/. the KYC details are verified in line with RBI guidelines laid down for “No Frills accounts” and the CSP authenticates these details on the account opening form. The CD/DVD is sent to the Back Office of the Front End vendor on the same day.50.000. 5. the personal bio data of the customer and the type of account to be opened. 49 . The Back Office of the Front end Vendor converts the data received from the CSP into the bulk upload format given by CBS after attaching a unique identifier to each account and sends the file to the Dedicated Accounting Unit ( DAU ). with the entire relaxation provisions to be reviewed in respect of the said account after twenty four months. With the help of enrollment software.3 SBI TINY SAVINGS BANK ACCOUNT Customer visits Customer Service Point (CSP) outlet of Bank appointed Business Correspondent ( BC ) Completes the account opening form with the assistance of the CSP Customer provides required KYC details For amounts less than Rs. These details are saved in a CD/DVD depending on the number of accounts which have to be opened. and thereafter for a further period of 12 months if the holder of such an account provides evidence before the banking company of having applied for any of the officially valid documents within 12 months of the opening of the said account. the CSP captures fingerprints (as required). The CD/DVD contains in addition to biometric data. DAU routes the bulk uploads to the Link Branch. photograph and copy of account opening form. The hard copy of the account opening forms is sent by the CSP to the Link branch of the Bank. II) A small account shall remain operational initially for a period of twelve months.Further the revised procedure to be followed in opening such accounts inter alia includes the following conditions: I) Foreign remittances shall not be allowed to be credited into a small account unless the identity of the client is fully established through the production of officially valid documents. With a view to provide the facility of micro credit to FI customers. cash in. purpose or end use of the credit. The CSP. is sent to DAU which forwards the particulars to the Front End vendor. ii.CUM. He will also get the acknowledgement of the customer in the register maintained for this purpose.OD’ PRODUCT ON KIOSK BANKING CHANNEL Kiosk Banking. An electronic extract of all accounts thus opened containing the account numbers. a product has been developed where customers enrolled in the channel can avail of overdraft in their saving Bank account on meeting a few eligibility criteria. The facility is sanctioned at the Branches and serviced at BC/ CSP outlets engaged by the Bank. an internet based technology initiative rolled out by the Bank for financial inclusion. Eligibility: Individuals having SBI tiny a/c (Savings Bank a/c) for the last 6 months and have not availed KCC from any branch. A list of all the new smart card numbers issued along with name of the customer.4 ‘SB. enters the details in a register and hands over the cards to the customers after finger print verification . The salient features of the product for Kiosk Banking channel are as under: i. father’s/ husband’s name . account number . 5. A copy of this list is also sent to the DAU for maintaining the master at their end as well as to the Link Branch for its record. Purpose: General purpose loan to provide hassle free credit to low income group/ underprivileged customers to meet their exigencies without insistence on security. cash out and remittance product to customers. The front end vendor after personalization despatches the smart cards to the CSPs for handing over to the customer after verification of finger prints. The Financial Inclusion account namely the SBI Tiny SB A/c gets opened in CBS. provides the facility of SB and RD account opening. The Link Branch verifies the particulars in the upload file received from DAU with the physical account opening forms and uploads these files ( after editing if required) by using the interface provided by CBS. address and CBS account number is sent to the CSP( 2 copies). 50 . on receiving the personalized cards. I. checks the particulars of the SB account through the OD enquiry menu. The branch will assess OD limit as per the laid down norms i. the branch will send sanction letter indicating the date of execution of documents to the KO. iv. whichever is higher. Security documents: DP note (COS-229) and DP note delivery letter. Repayment: Repayable in 24 equated monthly installments with auto reduction in DP. Sanctioning authority: Loan amount is sanctioned by the respective link branch. Arrangement letter. v.25% over base rate per annum at monthly rests on debit balance in the account.e. Interest: 6. Kiosk operator (KO) after verification of customer finger prints. IV.iii. On sanction. III. vi. Loan amount: 4 times of monthly average balance (15th day of the month) of preceding 6 months in SB account or equal to 4 months net income assessed by link branch. He/ she forwards the completed application to the link branch for processing and advises the customer to visit the kiosk after 7 days from the date of submission of completed application.and maximum of 25000/-. The process flow for the product in Kiosk Banking channel will be as under. 4 times of average balance of last 6 months in the account and 4 times of net monthly income assessed by the branch. The link branch will dispose the loan application within 5 working days of receipt of the application and advises the KO about sanction / rejection of the loan application by sending sanction / rejection letter in duplicate. • Auto reduction in drawing power every month. vii. II. The KO will deliver one copy of the sanction letter to the customer under acknowledgement and advises the customer to visit the link 51 . viii. Other features: • It is a clean OD and no security is insisted on. whichever is higher with a minimum of 1000/. Customer visits kiosk outlet and submits the loan application form (as per the standard format) along with KYC documents. Pre-mature payment: Interest will be paid @ 1% less than the interest applicable on the deposit for the period for which the it has run. Monthly instalment: No fixed instalment.‘SBI Tiny Recurring Deposit’ has been launched on the Kiosk Banking channel. No passbook is issued. Mini statement with the last ten transactions is issued at the request of customer. Interest is calculated on month end balances and compounded every calendar quarter. OD limit will be set up in the SB account in CBS. a new product.(Initial deposit and subsequent deposits to RD account are by way of transfer from customer’s SB account only.5 SBI TINY RECURRING DEPOSIT The Bank has rolled out Kiosk Banking channel which is operable through BC CSP model on internet platform with biometric authentication. 5. 52 . V. Multiple deposits can also be made in the account during a month. Now. Nomination: Nomination is compulsory Other features: No penalty is imposed for non-payment of any amount in the account. Any amount can be credited to the account. The features of the product are as under: Eligibility: The existing SBI Tiny Savings bank account holder is eligible to open SBI Tiny Recurring Deposit a/c. Tenure: Fixed period of 36 months Rate of Interest: As applicable to a three year time deposit as on the date of opening of account. The channel was introduced with savings bank and remittance products.10/. Mode of operation: single Initial deposit amount: Minimum . The customer can operate his account within the available drawing power at CSP. On execution of the documents.branch on the date as advised by the link branch for execution of documents. The KO forwards the acknowledged copy to the link branch for keeping it with the documents. 8 Mode of transaction Single through BC channel only. CSP will issue the printed receipt generated from technology device after successful transaction / receiving deposit amount form the customers. 5.thereafter in multiple of Rs 500/- 6 Minimum Deposit amount Maximum Deposit amount Tenure of Deposit 7 Rate of interest As applicable to STDR accounts in CBS from time to time for normal as well as senior Citizen customers.000/. Salient Features: 1 Eligibility Single Individual holding Savings Bank Tiny FI account 2 Mode of Operation Single operation only 3 Available at BC / CSP / KO outlets of the Bank 4 Rs 1000/. 24 & 36 months only 53 . 12 KYC Norm s As laid down by RBI for “ No Frills Account “ 5 Rs 10. However on the request of the customer for converting into joint account the branch may create new CIF and link to existing account. 11 Operation of the account and applicable charges STDR acknowledgement will be printed and issued by the Link Branch.6 SBI TINY SPECIAL TERM DEPOSIT “SBI Tiny special Term Deposit” has been introduced for financial inclusion customers in BC channel. at the request of customers submitted at BC / CSP.in all the liability accounts of the customer. 10 Number of accounts Multiple accounts may be allowed subject to the ceiling of max balance of Rs 50. No action is required at the link branch level. 9 Facility of premature withdrawal Available. Payment before maturity request will be sent to the link branch.The RD accounts are opened instantly based on the existing demographic details available in CBS.000/6. the ‘link’ branches will keep custody of account opening requests for RD accounts received from BC / CSP.12. However. Penalty as applicable in branch channel for normal branch customer. selfemployed and small entrepreneurs working in the cities. User Profile The target segment for this product includes migrant labourers.500. SBI TATKAL: Tatkal is an instant money transfer service that allows customers to deposit cash into any regular SBI branch based account at all existing Eko-SBI customer service providers2 (CSPs) in Delhi. Customers have to pay the service charge of Rs.10. Step 2: The CSP dials another USSD string to deposit money into the SBI A/c registered *543*11 Digit SBI A/c Number*Amount*CSP OkeKey with PIN#.2.000 per account per day. 54 . Step 1: A customer visits the CSP with the cash to be deposited. The customer is charged a flat Rs. Once the transaction is completed the sender and the recipient receive a confirmation SMS on the mobile number(s) registered. The average transaction size ranges from Rs.000-5. daily wage workers. 5. Typically the services are used by customers on a fortnightly or monthly basis. while others use it to make deposits in their own account.5. Bihar and Jharkh and the recipient only needs to have a SBI account for Tatkal to work. but a small fraction also uses it to remit business payments. The CSP dials a USSD (Unstructured Supplementary Service Data) numeric string from his mobile phone to register the 11 digit account number .8 Financing of Joint Liability Groups of Tenant Farmers The scheme aims at the following objectives: (i) To augment flow of credit to tenant farmers cultivating land either as oral lessees or sharecroppers and small farmers who do not have proper title of their land holding through formation and financing of JLGs. 25 upfront.7. Most customers use this service for remittance purposes (by depositing cash in the recipient’s bank account). Remittances are mostly for personal use.*543*11 Digit SBI A/c Number*Depositor Mobile Number*Receiver’s Mobile Number (optional)#. It is a simple two step process. 25 fee per transaction with a limit of Rs. (ii) To extend collateral free loans to target clients through JLG mechanism. The JLG members would offer a joint undertaking to the bank that enables them to avail loans. General features of JLG A Joint Liability Group (JLG) is an informal group comprising preferably of 4 to10 individuals coming together for the purposes of availing bank loan either singly or through the group mechanism against mutual guarantee. Bank will assess the credit requirement.Financing the Group: The JLG would consist preferably of 4 to 10 individuals and function as one borrowing unit. JLG Models Model A – Financing Individuals in the Group: The JLG would normally consist of 4 to 10 individuals. The individual members of JLG would be eligible for the loan after the branch verifies the individual members’ credentials. 55 . JLG is mainly a credit product. depending on the crops to be cultivated. which could be combined credit requirement of all its members. All members would jointly execute the document and own the debt liability jointly and severally. However. there has to be mutual agreement and consensus among all members about the amount of individual debt liability that will be created. The group would be eligible for accessing one loan. (iii) To build mutual trust and confidence between bank and tenant farmers. Model B . But if the members want to save through the group. The credit assessment of the group could be based on the available cultivable area by each member of the JLG. The management of the JLG is to be kept simple with little or no financial administration within the group. All members would jointly execute one inter-se document (making each one jointly and severally liable for repayment of all loans taken by all individuals in the group). The JLG members are expected to engage in similar type of economic activities like crop production. available cultivable land and credit absorption capacity of the individual. Bank can open saving account in the name of the JLG to Credit Assessment Model A: The JLG would prepare a credit plan for its individual members and an aggregate of that is submitted to the branch. The group would be eligible for accessing separate individual loans. Enhance coverage of rural populace under financial inclusion. Accounts are to be operated with biometric validation of two authorized signatories as per the resolution of SHG. for the last 6 months. The credit requirements for the group may be worked out based on combined credit plan needs of individual members. Decongestion in link branches Inculcate the habit of thrift among SHG groups as well as their members as the services will be offered at their places.00 lac 5. 56 . say. will be issued by Link Branch. Salient features: Enrolment and A/c opening for Group (with full KYC) & Individual members at CSP. or so. They may also be graded by banks on the basis of performance parameters. Loans in the form of CC/OD or Term loan to be sanctioned by the Link Branch as per eligibility norms and disbursement at the BC/ CSP from saving bank account of group. Signature of authorized signatories will be scanned and uploaded in the link branch. Maximum Transaction limit at CSP in a day – Rs 2. Linking of individual member to group account for relationship with group. 5. the quantum of credit need not be linked to groups' savings as in the case of SHGs.Model B: JLGs that undertake savings apart from credit are required to maintain books of accounts.10 GENERAL CREDIT CARD ELIGIBILITY All existing customers with the branch having satisfactorily conducted deposit accounts including no frills deposit accounts in our books. Cheque book for SHG.9 KIOSK BANKING CHANNEL FOR SELF HELP GROUP This product has been launched to provide facility to SHG groups to avail banking services at kiosk-based CSPs which will facilitate the following: Service to the groups in the villages. if required. However. Eligibility: Landless labourers. It will help increase their income from agriculture production activities.. electricity charges etc. 5. (also covering oral tenants & small farmers) having no recorded land records are eligible if the sanctioning authority is sanguine of the applicant carrying on the activity. which normally prevail during the harvest season can also be considered. tenant farmers. All existing loan account holders where accounts are classified as standard assets NATURE OF FACILITY Revolving credit GCC holder will be entitled to draw cash from the specified branch up to the limit sanctioned QUANTUM OF LIMIT Based on the assessment of income and cash flow of the entire household Total GCC credit not to exceed 20% of the eligible production limit for cultivators and/ or 20% of Annual Income from known sources or Rs. share croppers. share croppers and oral lessees who do not have recorded land records and where there is no written undertaking/ document available to substantiate raising of crops by the tenant farmer/ share cropper/oral lessee.000/. Purpose: To provide credit for purchase of various inputs for crop cultivation including irrigation charges.whichever is less SECURITY No collateral security / end use / purpose should be insisted upon.25. oral lessees. For meeting part of consumption needs and An additional support loan to tide over the adverse market conditions. subject to production of 57 . if any.11 SBI KRISHAK UTHAAN YOJNA Objective: To provide easy access to short term production and consumption credit to meet genuine requirements of tenant farmers. 00.an Affidavit for cultivation of crops. Another 20% of the production limit would be added for purpose of immediate needs of the borrower after harvest of the crop by the borrower. Margin: Nil Application & Terms and Conditions: As applicable to KCC/ACC accounts Documents: I. Migratory tillers are not eligible under the scheme. The specimen 58 . Arrangement letter IV. . Affidavit (as per annexure) [Affidavit: Specimen of Affidavit drafted by the law Dept. This will help the farmer to avoid distress sale of their produce. DP Note (COS229) II. Should have a permanent residential address proof & have been residing at the place for at least past 2 years. This should be stamped as per stamp duty applicable in the State and should be attested either before Oath Commissioner or before a Notary Public. ii) Voters’ list/Identity card Or iii) any other local document prescribed by the LHO concerned. Corporate Centre is enclosed as annexure. Identification: The applicant must be from the area of operation of the branch and his/her identity should be verified through one or more of the following sources: i) Documents related to house of the applicant.(maximum) Limit will be calculated on the basis of: Land area to be cultivated and Scale of Finance applicable to the crops cultivated inclusive of amount required for consumption needs. which should be capped at 20% of the production limit. Limit: Upto Rs 1. DP Note take delivery letter III.000/. Application of prudential norms: The prudential norms as applicable to crop loans would apply to these accounts also. iv) Though drawls in the account are expected as per seasonality of the crops/sub limits. the beneficiary should present the passbook for recording the transaction. Sanctioning Authority: As per extant delegation of powers under agri segment for crop loans / KCC loans.. 59 . ii) Withdrawal from the account will be through withdrawal slip as used for KCC. Accident Insurance: The account will be covered under Personal accident insurance scheme (PAIS) as applicable to Kisan Credit Card. yet. Repayment: The sale proceeds should be routed through the cash credit account. in consultations with LHO’s Law Dept. some flexibility may be allowed to enable the farmer to purchase inputs at convenient times when availability/prices are favourable.may be suitably modified considering the requirements of the State.] Security: Clean Loan Interest: As applicable to agriculture Cash Credit loan Type of facility: Revolving cash credit – Annual Review and renewal once in 3 yr. Supervision and follow-up etc. as borrowers use limit/sub-limits on the basis of scale of finance. by gathering information from the borrowers of the same village. Remaining 80% amount will be disbursed in phases only after satisfying that already released amount has been used for the purpose for which it was disbursed. This can be done. iii) At the time of withdrawal and deposit. v) Submission of invoices/quotations should not be insisted upon.: As applicable to KCC facility. Disbursement: 20% of loan amount on sanction. Operation in the account: i) Disbursements will be made in phases as per the requirements of the borrower for raising crops. if need be. 3 Customer protection: Dy Governor of RBI. 6. Most of the people in rural areas 60 . life insurance. The success.2 Long term financial viability Banking system is required to commit large doses of financial resources without compensating revenue streams in the short run. commission. 6. To sustain the momentum till volumes grow with suitable intervention on both demand and supply side is a major risk. Volume of transactions. There are various structural issues and operational aspects in implementation of FI.1 Lack of Commitment of the operating staff: FI program of the commercial banks in India is in a stage of infancy and faces numerous risks.CHAPTER 6: ISSUES AND CONCERNS Structural and systemic issues.g. depends on the ability of the system to train its human resources and change their attitudes towards FI. system needs to pump in resources for technology. The biggest risk is that the field staffs of the commercial banks don’t share the values and belief that FI is the way forward towards rural prosperity and hence greater volume of business and profitability for rural branches. power projects etc. Shri K C Chakrabarty in a recent speech (April 2012) emphasized that the success of FI initiative rests on two pillars of Financial Literacy and customer protection. technology issues. The situation is further complicated because FI program has multiple players with complex relationships like policy makers. Institutions providing BCs or individual BCs each searching for its own financial viability. In the absence of any historical precedence of such business model. Rural areas are widely spread and scattered. Rangarajan Committee Report (2008) also bemoans the fact that staff posted in rural areas nurse a negative attitude towards the work they are involved in. etc relating to alternate Business Models. FI objectives are reluctantly accepted as a top down forced program. capacity building and organizational structure in a fond hope that in the long term the efforts will be rewarded as in business with long term gestation e. The major aspects and issues are briefed in following paragraphs: 6. Cassandra’s in the system are predicting its doom owing to deep fault lines which currently exists. therefore. IT vendors. Bank branches. D. they commute from the urban centres. Protecting their rights in their dealing with BCs providing financial services requires strong customer protection policies and monitoring by the Banks. In 1991 rural branches were 35206 which went down to 30551 by 2007 and increased to 32494 by 2010. They do not add human touch to the transaction which is utmost important for dealing with rural people.are illiterate or neo-literate and are unaware of their rights as compared to their counterparts in urban areas. gullible and vulnerable to exploitation. the number of rural branches decreased from 1991 to 2007 and it started increasing afterwards.5 Ticket size: Ticket size of bank business to the poor and low income group people will be small and scattered. Thus the business per transaction is much less as compared to their counterparts in urban areas. The RBI Governor. 6. 6. these employees somehow try to complete the business hours. In Commercial Banks. Subbarao (2010) stated that the unfriendly and un-empathetic attitude of the banks to the customers also plays an important role in undermining the demand for financial services. Since agriculture is the major occupation and most of the people are small / marginal farmers and land less laborers.00 lakh villages in the country. 61 . They have limited manpower and resources at the rural centres. Up to 2007 the rural branches could not expand the reach or connect to the rural masses with the banking system. 6. their earning and credit absorption capacity are limited. Stay in rural area is not considered attractive.4 Infrastructure and manpower: Regional Rural Banks and Co-operative Banks which have local roots suffer from low capital base and lack of professional management. Rural presence of commercial bank branches is miniscule considering that there are over 6. Commutation takes about 2 to 4 hours and also causes fatigue.6 Basic Amenities for staff at rural centres: Due to unavailability of the basic amenities most of the bank staff try to avoid posting at the rural centres or if posted due to compulsion. Thus these employees do not understand the problems/difficulties and empathise with the rural masses. These people are superstitious. Majority of the bank or government employees try to complete their tenure without much interest or with indifferent attitude. Due diligence to be exercised at the time of selection of BC. transaction cost is also one of the remarkable problems to banks in dealing with the rural masses who primarily and predominantly need most basic services like deposits.. whereas banks are required to make substantial arrangements and incur expenditure on account of different delivery channels with most advanced technology. a gradual diminution in the number or strength of BC within a few months of starting operations due to low compensation/absence of adequate compensation (c) Improper recognition of their (BC/BF) candidature (d) Accounts becoming inoperative .1 Steps taken by SBI Following measure are taken by the SBI to mitigate the risks associated in dealing with BC model: 1. 6. 6. thereby resulting in low levels of business and consequently meager or inadequate remuneration to BCs (e) Unsatisfactory service delivery etc. poverty.7 Structural issues: Another major problem is that of the unsatisfactory broadband/mobile connectivity as also inadequate connectivity (road and rail) to un-banked villages. Banks are also bound to face huge reputational risk in relying of the network of BCs who are presently not adequately trained and groomed to take up the challenges of acquisition of new customers as well retaining the existing customers with them profitably. to mitigate which banks need to take appropriate action. withdrawals. micro-credit etc.e. Creating a bank structure to develop and monitor BC network.6.8 Risk of agency engagement and risk mitigation efforts: The engagement of BCs by banks for delivery of banking services exposes banks to the multiple types of risks : (i) credit risk (ii) operational risk (iii) legal risk (iv) liquidity risk and (v) reputational risk. Besides the basic impediments (roadblocks to Financial Inclusion) viz. environment as well as cultural and psychological barriers. i. ignorance (low level of financial literacy). At present Financial Inclusion Centre (FIC) structure has been created with middle Manager to look after a set 62 . remittances. 2.8. the problem being encountered by banks in their outreach efforts and implementing the FIP are: (a) difficulty in engaging and retaining Business Correspondents (b) attrition. Additionally. Of course. 5. Close monitoring of the activities of BCs by Bank staff including periodical visits 6. 6. need to introspect and analyze the related issues/concerns and factors for smooth roll out of financial inclusion plan. 7. So. Obtention of feedback from customers at periodic interval. How to ensure greater and close collaboration between banking and telecommunication regulators to facilitate deposits. 10. The point is that any endeavor relating to financial inclusion may be possible only on the wheels of technology. Audit of the BC outlet by Circle Auditors while conducting the audit of the Link Branch. Imparting training to BCs and handholding at the time of recruitment. designing innovative/appropriate products and services as well as adoption of modern and innovative technologies have become necessary where technology and financial 63 . remittances and other conventional banking services through mobiles technologies and services keeping in view of the fact that now there is an explosive growth of mobile phone usage around the world. 4. Customer education and financial literacy. Displaying the structure of fess/charges to be borne by the customers at BC outlet.Awareness campaign in the villages where BCs are functioning. Let us consider the undernoted issues/concerns in this context: 1. therefore. 9.of BCs in a district. Encouraging customers to approach Managers over phone for grievance redressal by displaying their cell phone numbers at BC outlets. 3. It is also proposed to create a position at the Regional level called Manager(FIC) who will assist the Regional Head in FI initiative. withdrawals. Displaying Do’s and Don’t’s for customers while dealing with BCs outlet. We. 8. Identifying opinion leaders in the villages and keeping contacts with them for knowing the functioning of BCs. 11.9 Other Concerns For inclusive growth process as well as sustainable development of society/state/nation. financial inclusion has predominantly become an integral part. however. To make a holistic financial inclusion. community based organizations. development institutions etc. fair recovery practices may also be introduced. consumer protection is again a vital point. developmental programmes etc. 4. Many poor people in rural areas and remote hinterlands lack personal identity like date of birth certificate/record. Financial education is a must. Government’s interventions and initiatives like UID project will definitely ease the KYC concerns of bankers. Capacity building of the financially excluded people helping them to generate income. Financially excluded people need to be educated about banking and need for relationship with the Banks. Government. removing demand constraints (financial literacy etc) will play a very important role. 64 . Financial literacy programmes need to go hand-in-hand with financial inclusion initiatives to create the pull for accessing formal channels of finance. Regulatory reforms relating to financial identification. Of course. 5. also requires attention. civil society. 2. RBI. So. More importantly. and only then. as well attrition of Business Correspondents due to meager volume of transaction and thereby meager income will continue with ultimately no fruitful result. can we think of counseling centres at different vulnerable places where there is highest level of financial-illiteracy? Special projects may also be run by the Governement or non-Governement organizations for imparting financial literacy. training. address-proof etc which are major impediments in their accessing to formal financial services. Therefore. providing financial literacy to the low income group people is absolutely desired in order to enable them to use the financial services from the formal financial sectors. 3. There is absolute lack of financial literacy. any of the efforts of any stake holder will be viable & sustainable. Tighter credit norms need to be relaxed to include financially excluded people where role and intervention of all stake holders (viz.players are required to work on the same platform to facilitate achievement of financial inclusion goal.) will be required. overrides all the preconditions of financial inclusion concept because only then. Otherwise the present status of No-frills accounts being opened and remaining dormant. 9. 8. A faster growth of small and micro enterprises is also required. can we create efficient and accessible labour markets for all categories by improving our education and training systems which need to be multi-dimensional. the government should provide a less perspective environment in which banks are free to pursue the innovations necessary to reach low income consumers and still make a profit. A peer-to-peer learning and knowledge sharing platform. Millions of micro-entrepreneurs need to be created across the country for fulfillment of our dream of “Inclusive Growth”. Telephone/Mobile/Internet connection and network of paved roadways are definitely to play important roles in enhancing financial inclusion. many sectors also face manpower shortages. 12. Importantly. for bringing out innovative ideas is very much required. Technological and organizational innovations can accelerate the efforts of financial inclusion. While financial inclusion is a great step to alleviate poverty in India but to achieve this. 65 .6. While our country believes in a sustainable GDP growth of 8% (which may be increased to 9 or 10% with more mobilization of investment resources). Physical and electronic connectivity as well as availability of required information by the customer and all concerned needs great attention to address the issues relating to challenges and concerns of financial inclusion. Resource centres for promoting entrepreneurship (viz. 10. So. how commercial banks can be more effective in addressing the issues relating to Microfinance sector? Is it not a matter of bringing good attitude towards financial inclusion? 7. Financial service providers need to learn more about the consumers and new business. However. on a regular basis. it is also believed that our country’s growth is not generating enough jobs or livelihood opportunities. and with great convenience needs to be discussed on a continuous basis for innovative ways/ideas to come out in order to help all those who are engaged in achieving financial inclusion goals. RSETIs etc) will yield sustainable financial inclusion. 11. How to deliver financial services to unbanked customers at lower cost. Our Government has already since started National Rural Financial Inclusion Plan on national level and it is perceived that once the targets fixed under NRFIP have been achieved. Can we think of roll out of both national level and state level financial inclusion plans to be judiciously prepared and holistically rolled out? 14. State Level Financial Inclusion Plan will be formulated and rolled out with the help of SLBC and NABARD. It goes without saying that SHGs have proved themselves to be the most popular vehicle of taking at-least microfinance to remote rural hinterlands and SHG-Bank linkage programme is considered as the largest microfinance programme in terms of outreach in the world. Government’s ownership needs to have a significant association with financial inclusion.13. Financial inclusion through Business Correspondent model and Self help Groups requires more attention to be paid because Indian banking industry has now some specific sort of experience with BCs and SHGs which may be used for designing new steps in this regard. 66 . This could be in the form of a low cost simple brick and mortar structure consisting of minimum infrastructure such as a core banking solution (CBS) terminal linked to a pass book printer and a safe for cash retention for operating larger customer transactions. At the grass root level. G2P payments 7. Human resources. necessary to have an intermediate brick and mortar structure between the present base branch and BC locations so as to provide support to about 8-10 BC units at a reasonable distance of 3-4 kms. Technology innovation is a key ingredient in overall success of financial inclusion. The important proviso is to improve process efficiencies and reduce transaction costs by adopting technology based finest and successful solutions (which definitely is possible only after trail-runs and pilots). Presently.CHAPTER 7: FUTURE PROSPECTS Contents: Focus on inclusive growth. documentation. it is also important that quality services are provided through newly set up ICT based BC delivery model. leveraging technology to provide access to banking facilities requires holistic attention besides the above mentioned issues. knowledge gap about banking and banking products (particularly that of innovative products under financial inclusion) is the major impediment in making bankers’ endeavours a grand success.) but also an opportunity for the banks to increase their outreach to rural hinterlands and thereby substantially increasing their market share. This will lead to efficiency in cash management. Moreover. consequences of which are social/political unstability etc. staff of the banks 67 . Aadhar project. Development of profitable and acceptable model. Let us accept that Financial inclusion is not only a compulsion (in as much as Financial Exclusion directly means Social Exclusion. It is. Financial resources. too. So. so far as technology and delivery models are concerned. therefore. in which case they will be subject to regulatory reporting. full scale financial inclusion may not be achieved. ultimately it is the man power to deliver the baking services to financially excluded people at their door step which itself means that unless trained man power is available. redressal of customer grievances and close supervision of BC operations.1 Inclusive Growth: While all the efforts made for financial inclusion have expanded the access to banking services. These BC outlets will be treated as bank branches only when managed by full time authorised employees of banks. where Government. They need to increase their willingness to serve upto the lowest end of the market and reach the significant scale by virtue of alternate channels/alternate business models. BC/BF lack in creating awareness about the USP or user friendly propositions of the products which they are expected to market for increasing volume of business and thereby ensuring their sustainability.. 68 . the concept of financial inclusion comes into picture. too. In India. to financially excluded people.income downtrodden people i. Appropriate technology and efficient delivery models with bank’s determination and involvement may help the government to win all the matches in financial inclusion. socially disadvantaged. By far. Ultimately the important point is that some sort of structured training is a must for the BC/BF for desired success which needs to be taken care of seriously because the strength of banks lies in the vast network of Business Correspondents. Further. Because financial sector is the only sector which can provide financial services to the underprivileged. Inclusive growth has become one of the biggest challenges that our nation is facing today. be ignored/ ruled out.e. technology providers/vendors are lagging behind. may surely go a long way in achieving the related targets. also. Bankers need to have focus on inclusive growth with emphasis on giving legitimate benefits to poor. Banks and banking have since been changing substantially and at least after introduction of BC/BF Models. We are using different construct of words like ‘pro-poor-growth’ or ‘broad-based-growth or ‘shared-growth’ but the end result is simply “inclusive growth”. rather needs top attention. along with integrated participation of financial institutions and community based organizations. as and when required. appropriate man-power as well as personnel development now matters a lot for success of the strategies. Human resource function cannot be ignored. The possibility of lessselling/incorrect selling/mis-selling cannot. State administration at grass-root level and state driven interventions. Banks. development of eco-system and perfection of delivery models are definitely the key issues and concerns to be addressed to . low.does not have enough time to spend with the Business facilitators/Business correspondents to clarify their doubts/issues. as also to improve acceptability of BC/BF by the populace. which do not have access to basic banking services resulting in financial exclusion. The products for low income people should also withstand the marketing aspects of 4Ps called as Product. despite rapid expansion of the banking network over the last four decades. This will help to ensure optimum volume to generate sufficient margin for viability of these units. Financial inclusion also necessitates tailor made products for proper delivery of services. Price. Even adopted model may be integrated with the other one or new technology to bring out synergy. Recharge vouchers of Mobile companies in denomination of Rs. Price. Banks and financial institutions need to work out strategies and modalities to evolve commercially viable delivery model to provide access to the disadvantaged strata of society.But. i. 69 . Product – Suitability: FMCG companies have adapted to the needs of consumers and started developing products as per the requirement. Process and Promotion. Place. Place and Process (Table 2). “One size cannot fit all”.2 Development of profitable model No model is full proof or not any single model can meet all the requirements of all the banks. experience and experiments. Outlet of bank / BC should offer variety of products and range of financial services so that customers have wider options. They have started packaging in small pouches at an affordable cost to rural masses. Innovations will come through the necessities. 7. geographic profile. Pool of multiple products will trigger the mindset of customer to avail / select one or more products from the basket. Such measures will enable these units to sell more products per customer. RBI Governor (2010) pointed out that many of the generic financial products are unsuitable for the poor and there is not much of an effort to design products suitable to their needs. Banks need to evolve products and technologies to match the psyche and needs of the rural masses. Shri Subbarao. The products for low income people should also withstand the marketing aspects of 5Ps called as Product. etc.. demographic situations. One or the other model may be adopted based on the local conditions. in our country. 10/.has become popular even in rural centres. there is a vast majority of people. creating infrastructure like bandwidth or telephone.ii. it needs proper balancing of the cost of providing the service and affordability by the consumer. Price: Any product or service offered to the customer should be self sustainable. the Government support may be considered necessary. 70 . iii. purchase of equipment or stabilisation fund for 1 to 2 years to be worked out depending on the geographical and demographic profile of the area of operation. However. wherever feasible. Most of the consumer durables and household items used in rural areas are sold out at the same rates of prices as in the urban/metro areas. The additional cost of providing services at far flung areas may also be added to make these initiatives viable. In fact those indebted households to informal sources are paying much more than what is charged by the formal source of banking. since the volume would be lower. Place or Availability: Financial Services / product have to be made available at the place of convenience and should be easily accessible to the rural masses. reducing prices. At the initial level. so as to bring cost-effective and a wide variety of alternatives to customers”. leading to a shift in the supply curve to the right. desired that “Multiple providers of financial services. Mobile services does not have subsidy element in it for the rural areas and still it has become popular in every nook and corner of the country. and making financial services affordable to a larger section of the population. The funds for capacity building may be provided by the Government for training. There may not be necessity of subsidy or government support except in some cases during the stabilisation period. Mehrotra & Others (2009) expressed that intervention through public policy is necessary so as to increase competition among providers and build relevant institutional and physical infrastructures. The banking services to rural and disadvantaged sections of society need to be priced at the same rate to that charged for services in urban and metropolitan areas. This arrangement may ensure fair competition among the service providers and checking unscrupulous practices. United Nations (UN) while outlining the goal of financial inclusion. Even in a village with population of 2000 availability of 2 to 3 outlets (including BCs) of different banks may be considered to provide wider choice for the customers. Rural masses do not feel any hindrance in communication with the postal staff.etc. mortgage requirements / charge creation. there should be mechanism of resolution of complaints which is similar to the service centre in case of consumer goods. Another important finding is that poor people avoid banks because of complicated forms. Promotion: Promotion through the proper medium is essential for successful launch of the product or service.3 Financial Resources: To promote FI. procedures etc. however awareness among the public especially people from disadvantaged and low income segments is very low. Convenient access through the Call centres / phones. These agencies will be used as platform to promote the banking products. Agrawal (2008) pointed out that poor people are reluctant to go to banks as they are not clear of the directions. Being financial services. 7. If requirements for using the financial services are explained to the customers in their language. loan documentation. However. Simple forms and procedures are to be devised to suit the requirement of product and people (Customer. Identifying Nodal Branches to address the issue of exclusion. Grievance redressal mechanism is already in place at the commercial banks. Rangarajan Committee (2008) suggested simplified processes for Account opening. The post office staff in that respect is worth to emulate. in a friendly manner they will respond positively. Looking at the low returns on this investment/ expenditure for the present cautious commitments are being made and also relief is sought in the form of tax reliefs in FI investment from the Govt. v. Micro Finance Institutions. Self Help Group (SHGs) which have local roots can be the best bet to supplement the efforts of formal banking channels. Bank and Regulator). less bureaucratic and affordable to majority of the customers. They are easily accessible and less bureaucratic. 71 . Co-operative Societies (PACs). Process should be in tune with the psyche and feel of the people of the region. and prompt responsiveness are the key for gaining the confidence of rural masses in the system. financial support is provided in select activities like capacity building of BCs and also in technology investment in select geographies like North East India. significant financial resources of Banks have also been invested in various capex needs as well as continue to be expended in current operations. Process: Process of operation should be simple.iv. processes etc. 72 . accountability and transparency in governance of various schemes. 7. b) People with banking knowledge (largely recently retired employees) for channel management functions. Also financial resources of other players in the program like BCs (both individual and institutional). This will play a vital role in government initiated payment schemes and other financial inclusion programmes.5 The Unique Identification (Aadhar) project: The Government of India is emphasizing on issuing Unique Identification numbers with a view to improve service delivery. A number of schemes like Public Distribution Schemes (PDS) that provides grains. c) Field agents in form of people either directly selected by the Bank (individual BCs) or provided by institutions with contractual arrangement (institutional BCs) With the growth of network more people will be required for all functions particularly for development and monitoring of field staff as the business growth and success of FI relies on foot soldiers on the ground. food items. fuel and fertilizers meant for poor families operated inefficiently. 7. a) Banks own employees in staff roles largely in policy formulation. technology providers and Govt (through NABARD) will continue to be invested till the activity turns remunerative for all. 7. To support the project there is a need for a scalable model to maximize reach and inclusion and also a robust technology backbone for control and consistency. government has decided to transfer cash instead of subsidy to the beneficiaries.Since significant existing branch network and human resources are being utilised for the FI separate assessment of cost is difficult. To overcome the inefficiencies in the current system and provide more structural distribution. roll out and monitoring functions.6 G2P payments: Indian government has decided to shift to direct cash transfer program instead of subsidy.4 Human resources: In the FI program Bank is using three categories of people viz. This is certainly a greater task for the banks and business correspondents to efficiently handle such transaction. State Bank of India is both a registrar and a partner in the project. as it wants to route all benefits under its social security schemes through electronic benefit transfer (EBT). involved in the FI project. The Ministry of Finance has also asked the IBA (Indian Banks Association) and RBI to prepare an action point for this during the forthcoming meetings.7 Conclusions: As against the initial target of 73. new viable models may be worked out by banks and technology providers for desired success in financial inclusion. it would not be out of place to mention that on account of corporate coming in as Business Correspondents. IBA is expected to write to the SLBCs in the country to get the details from their respective district level coordination committees so as to prepare a roadmap. In the scaling up financial inclusion programme. banks have been asked to prepare plans to cover six lakh-odd villages in the country where all the banks. As a whole. Incidentally.7. Also. Since these services have to be provided at zero or minimal charge to the customer. 73 . banks need to lower their own cost of customer acquisition and maintenance to make this a profitable proposition. A paradigm shift in methods of payment through Inter Bank Mobile Payment Service may also be expected in future that would simply revolutionise the happenings on the financial inclusion front. which could make or mar the inclusion plan. the government has also asked them to include those villages with a population to 1. the government has asked the banks to take the Swabhiman project (a nationwide awareness programme on financial inclusion). have to furnish the details of the villages to be covered by them. there are nearly 1 lakh such villages in the country with a population of 1000 and above. In this backdrop.000 that are located in the periphery of those villages that are having population above 2000 and which are already being covered under the programme. So the Government is keen that banks cover all rural habitations in the next phase of their financial inclusion plan.000 villages. financial inclusion calls for intelligent selection of a mix of business models and their successful implementation. The choice of technology driven models is therefore a crucial decision. Technology is the final element of financial inclusion strategy and an enabler of all the others. 2011 (Chairman: Y.REFERENCES 1. “The fortune at the bottom of the pyramid”. 12. (2011) “Financial Inclusion . Puhazhendi V.K ( 2004). 3. Government of India (2008). NSSO (2003) Survey on “Indebtedness of Farmer Households” 9. (2007). “Financial Inclusion: Challenges and Opportunities” RBI monthly Bulletin.(2012). D.ibef.C. (Chairman: C. 4. Honohan P. Chakrabarty K.“The fortune at the bottom of the pyramid 13. March 15-16.wikipedia. “The need for Financial Inclusion with an Indian perspective” Economic Research: March. “Cross-Country Variation In Household Access To Financial Services. January. www://en. January. 2. paper presented at World Bank conference on Access to Finance. National Bank for Agriculture and Rural Development (2009). Occasional Paper . Reserve Bank of India (2010): Annual Report 10. 6. (Mehrotra N & others) 8.H. 74 . Pralhad C. Agrawal A (2008). The Committee on Financial Inclusion. Subbarao.Blog of Shinyvikas: India’s Rural Market . Reserve Bank of India (2011): Report of the Subcommittee to Study Issues and Concerns in the MFI Sector.Achievements So Far and Road Ahead” Presentation made at 26th Skoch summit MUMBAI. 3.org 14.Malegam) 11.”Microfinance India – State of the Sector Report 2012 7. Information available across Newspapers/Internet.org 15. Rangarajan 5. www. “Financial Inclusion – An overview”. (2010). June 2. www. Wharton School Publishing.