Financial inclusion from Poverty to Prosperity

Financial inclusion in India

From Poverty to Prosperity

SUBMITTED BY: SUBMITTED TO:

Tejasvi Karnatak Dr. Anand RaiVishal Kumar singh

Dipayan Ganguly

Sundeep Kumar

Siddharth Mehta

ECONOMIC CONDITION OF INDIA

India is the 10th largest economy in the world by nominal GDP and 3rd largest by

purchasing power parity .

India is the 19th-largest merchandise and the 6th largest services exporter in the

world. India's economic growth slowed to 4.7% for the 2013–14 fiscal year.

The Indian Finance Ministry projects the GDP growth for fiscal 2014 will be 5.5%.

Where as IMF projects India's GDP to grow at 5.6% over 2014-15.

Agriculture sector is the largest employer in India's economy but contributes a

declining share of its GDP (13.7% in 2012-13).

India's manufacturing industry has held a constant share of its economic

contribution, while the fastest-growing part of the economy has been its services

sector - which includes construction, telecom, software and information technologies,

infrastructure. tourism, education, health care, travel, trade and banking in the

economy.

SECTOR WISE COMPARISON AS % OF GDP

ON THE DIFFERENT SIDE

Post-Independence Period (60 years ahead).

Disadvantaged people of the society

Poor Population living below Poverty line.

Role of Indian government in this context.

Lets see in this context-

In 2013, the Indian government stated 21.9% of its population is

below official poverty limit.

According to World bank, the world has 872.3 million people below

the new poverty line, of which 179.6 million people lived in India.

GRAPH SHOWING INDIAS WORKING LEVEL

SEGMENT

COMPARISON OF INDIA VS CHINA

Indias growth comparison with china is not

measurable because china is 20 years

ahead of India.

China GDP which is approximately 7.5%

where as Indias GDP stands around 5%.

Reason behind this GDP Gap.

THAN WHAT’S THE SOLUTION?

Steps that should be taken by the government to eradicate financial exclusion-

Initiation of no-frills account

Electronic benefit transfer

To make this facility more cost effective.

These are the basic steps which government needs to work upon to eradicate financial exclusion and to bring inclusive growth i.e. financial exclusion

History of Financial inclusion

•The Reserve Bank of India setup a commission (Khan Commission) in 2004 to look into Financial

Inclusion and the recommendations of the commission were incorporated into the Mid-term

review of the policy (2005-06).

•RBI exhorted the banks with a view of achieving greater Financial Inclusion to make available a

basic "no-frills" banking account.

•In India, Financial Inclusion was first introduced in 2005.

•In January 2006, the Reserve Bank permitted commercial banks to make use of the services of

non-governmental organizations, micro-finance institutions and other civil society organizations as

intermediaries for providing financial and banking services.

•Emphasizes on the access to basic formal financial services at an affordable cost in a

sustainable manner for the vulnerable people (NABARD, 2008).

•The bank asked the commercial banks in different regions to start a 100% Financial Inclusion

campaign on a pilot basis

Meaning

Financial inclusion refers to a process that

ensures the ease of access availability in usage of

the formal financial system for all the members of

economy.

According to C.rangarajan

“The process of ensuring access to financial

services needed by vulnerable groups such as

weaker sections and low income groups at an

affordable cost in a fair and transparent

manner by mainstream institutional players”.

Why financial inclusion ?

Economic objectives

Mobilization of economy

Larger market for the financial system

Social objectives

Sustainable livelihood

Political objectives

Need of Financial Inclusion

Some Facts about FI in India

90% of small businesses have no links with formal financial institutions.

About 60% of the rural and urban population does not even have a functional bank account.

Bank-credit to GDP ratio in the country, as a whole, is a modest 70%.

In Bihar, Bank-credit to GDP ratio is even lower, at 16%.

Saving as a proportion to GDP has fallen from 36.8% in 2007-08 to 30.8% in 2011-12.

MEASURES FOR FINANCIAL INCLUSION

•MAKING THE BANKING SYSTEM SELF SUSTAINING

•LEADS TO INCREASE IN SAVINGS, INVESTMENT AND WILL

SPUR THE PROCESSES OF ECONOMIC GROWTH

•INCREASING THE HABIT OF SAVING IN LOWER INCOME GROUP

•CREATES AVENUES OF FORMAL CREDIT TO THE UNBANKED

POPULATION

•INCREASING ENTREPRENEURIAL SPIRIT

•MAKING AVAILABLE THE FORMAL REMITTANCE FACILITIES TO

LOWER INCOME GROUP

TOWARD FINANCIAL INCLUSION

• RBI APPROACH

Toward Financial Inclusion RBI’S Approach

Twin Aspects of financial inclusion

• To Increase Demand = Financial Literacy–i.e.

creating a demand for the financial products and

services by making people aware about their

easiness to use & its advantage.

• To Increase Supply = Financial Inclusion–i.e. for

creating access to the financial services

RBI POLICY INITIATIVES

Branch expansion in rural areas

Banks need not to require prior permission to open branches in

centres with population less than 1 lakh

Banks have been mandated to open at least 25 per cent of their new

branches in unbanked rural centres

Relaxed KYC norms

Small accounts can be opened with self certification in the presence

of bank officials

RBI has allowed ‘Aadhaar’ card

KEY INSTITUTIONS INVOLVED IN FINANCIAL

INCLUSION

NABARD

RBI

RRB’S ,SCB’S

India Post, NGO,etc.

Micro finance institutions

United nations development programm

Progress in financial inclusion

Number of branches opened

Due to RBI’s concerted efforts since 2005, the number of branches of Scheduled Commercial Banks increased manifold from 68,681 in March 2006 to 1,02,343 in March 2013.

As compared with rural areas, number of branches in semi-urban areas increased more rapidly.

KISAN CREDIT CARD ISSUED:

Banks have been advised to issue KCCs to small

farmers for meeting their credit requirements total

number of KCCs issued to farmers at 33.79 million with

a total outstanding credit of Rs.2622.98 billion

EXPANSION OF ATM NETWORK

The total number of ATMs in rural India witnessed a

CAGR of 30.6% during March 2010 to March 2013. The

number of rural ATMs increased from 5,196 in March

2010 to 11,564 in March 2013.

Financial education

Microfinance transformation

Reaching out to new client groups

Village savings and loan associations

Improved demand side information

State bank reform

FINANCIAL INCLUSION –OPPORTUNITIES

FINANCIAL INCLUSION - CHALLENGES

Limited financial literacy

A large section of financially excluded population- need to be told of benefits

of financial inclusion and also to be provided

A large growing segment of educated middle class-requiring financial education

A growing capital market with increasing retail participation-requiring financial

education and consumer protection

A growing insurance market with participation of private players - need

consumer protection and financial education

A large section of workers having no pension

A move from Defined Benefit Pension Schemes to Defined Contribution

Pension Schemes

Hence, a large workforce need to be told about riskiness of various investment

portfolios

ROLE OF NABARD IN FIN. INCLUSION

MISSION OF NABARD

To facilitate sustained access to financial

services

To increase the living standard of working

class

To provide services at cost effective manner

To make poor sections financially

independent

JAN DHAN YOJANA

Pradhan Mantri Jan-Dhan Yojana (PMJDY) is National Mission for

Financial Inclusion to ensure access to financial services, namely,

Banking/ Savings & Deposit Accounts, Remittance, Credit, Insurance,

Pension in an affordable manner.

PMJDY focuses on coverage of households as against the earlier plan

which focused on coverage of villages. It focuses on coverage of rural

as well as urban areas.

Financial inclusion covers Jan dhan yojana under which delivery of

financial services at affordable costs to vast sections of disadvantaged

and low income groups (for example "no frill accounts").

It provides accidental insurance cover upto Rs.1.00 lac without any

charge to the customer.

LIST OF BENEFITS ATTACHED TO PMJDY

Interest on deposit.

Accidental insurance cover of Rs.1.00 lac and Life Insurance Cover of Rs.30000/- will be available to all account-holders. However, overdraft facility up to Rs.5000/- will be available to only one person in the family (preferably lady of the house).

No minimum balance required. However, for withdrawal of money from any ATM with Rupay Card, some balance is advised to be kept in account.

Life insurance cover of Rs.30,000/-

Easy Transfer of money across India

Beneficiaries of Government Schemes will get Direct Benefit Transfer in these accounts.

After satisfactory operation of the account for 6 months, an overdraft facility will be permitted

Access to Pension, insurance products.

CURRENT SCENARIO OF (PMJDY) IN INDIA

The Pradhan Mantri Jan Dhan Yojana (PMJDY), a flagship programme launched in August to provide a bank account to every family, reached up to an extent of 2.95 million bank accounts in last four months in india.

The target includes reaching 75 million unbanked families across the country by January 26, 2015.

The two RRBs- Odisha Gramya Banka and Utkal Grameen Bank, under the financial inclusion plan, have opened 2, 81,565 accounts and 1,19, 273 accounts respectively.

State Bank of India (SBI), the country largest lender.

WAY FORWARD – FUTURE OF FINANCIAL INCLUSION

One of the major challenges under Financial Inclusion has been addressing the last mile connectivity problem. The need is to develop and implement scalable, platform-independent technology solutions which, if implemented on a large scale, will bring down the high cost of operation.

Banks need to perfect their delivery and business model. A number of different models involving handheld devices with smart cards, mobiles, mini ATMs, etcare being tried out and it is necessary that they are integrated with the backend CBS system for scaling up.

Banks should strive to provide a minimum of four basic products and, in addition, design new products tailored to income streams of poor borrowers and according to their needs and interests. Banks must be able to offer the entire suite of financial products and services to the poor clients at an attractive pricing. Though the cost of administering small ticket personal transactions is high, these can be brought down if banks effectively

THANK YOU