Financial Inclusion

In India

Financial Inclusion as defined by RBI

Financial Inclusion – 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

Agricultural and Industrial Labourers

Agricultural and Industrial Labourers

People engaged in un-organised sectors

Unemployed

Women Children Old people

Graphic: The World Bank / Global Findex project

Twin Aspects of Financial Inclusion

Financial Inclusion and Financial Literacy are twin pillars. While Financial Inclusion acts from supply side providing the financial market/services what people demand, Financial Literacy stimulates the demand side – making people aware of what they can demand.

WHAT limits access to financial services?WHAT limits access to financial services?

• Psychological and cultural barriers

• Low income

• Legal identity-.

• Geographical remoteness• Various terms and conditions

• Nil or low savings

• Lack of awareness/Financial illiteracy

• Unemployment/Under Employment

• Use of inappropriate products

Large section of population financially excluded!Large section of population financially excluded!Large section of population financially excluded!Large section of population financially excluded!

Why financial Inclusion?

•Economic Objective

•Mobilisation of Savings

•Larger Market for the financial system

•Social Objectives

•Sustainable Livelihood

•Political Objectives

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Reserve Bank of India (RBI) adopts two approaches to achieve Financial Inclusion

•The minimalist approach–availability of basic financial products and services.

• The expanded approach–availability of ancillary financial products such as general insurance, health insurance,micro-pension,housing finance and mutual fund.

Both the Approaches form a broader context of economic inclusion

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RBI and GoI Initiatives and Policy Measures and Involvement in Financial Inclusion

•No-Frill Accounts

•Overdraft in Saving Bank Accounts

•Simplification of Savings Bank Account Opening Form-

•Financial Literacy Program

•Simplification of Know Your Customer (KYC) Norms and Guidelines

•Overcoming language barriers

•Kisan Credit Cards (KCCs)

•Opening of branches in unbanked rural locations

•Rural Infrastructure Development

•SHG Bank-Linkage Programme

•Business Correspondents (BCs) and Business Facilitators (BFs) Model-

• Creation of Funds for Financial Inclusion-Financial Inclusion Fund and Financial Inclusion Technology Development Fund

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National Rural Financial Inclusion Plan (NRFIP) :

To provide access to financial services, including credit to at least 50% of the financially excluded rural households through rural/ semi-urban

branches of commercial banks and RRBs.

“ Swabhimaan”“ Swabhimaan” was launched in February, 2011 by the Government. This campaign promises to bring basic banking services to 73,000 unbanked villages with a population of 2,000 and above by March,

2012 and at least 5 crore new accounts will be opened.The movement will facilitate opening of banks accounts, provide

need-based credit, remittance facilities and help to promote financial literacy in rural India.

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World Bank models for Financial Inclusion

• Consultative Model

• Mandate-based Model

• Partnership Model

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Problems with Financial inclusion

Subprime mortgage crisisMicrofinance crisisReckless credit expansionPoliticizing Proportion of savers is more skewed

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State of Financial Inclusion in India

• Financial Inclusion Plan (FIP) is in progress, April 2010 onwards

– opening rural brick and mortar branches

– opening no-frills accounts through BC-ICT

– Opening of New Bank Branches with population below 2,000

• Negative gross margin of as high as 41.2 per cent

• Significant cross-subsidising

• direct cash transfers will translate into a saving of 4-5%

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Financial Inclusion future

• Huge increase in no frills accounts– More reach of services (e.g. ATMs, BCs)

• Use of intermediaries– Self Help Groups– NGOs and MFIs

• Role of Government– AADHAR schemes– State Level Bankers’ Committee (SLBC)– Entry of Private banks– Proposal to set-up a women’s bank– Focus on FI in annual Budget

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Thank You