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CHAPTER CHAPTER CHAPTER CHAPTER –––– VIIIVIIIVIIIVIII
SUMMARY & SUGGESTIONSSUMMARY & SUGGESTIONSSUMMARY & SUGGESTIONSSUMMARY & SUGGESTIONS
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In a developing country like India achieving inclusive growth is a mammoth
task. Indian economy has achieved phenomenal growth resulted from the territory and
secondary sectors during the last decade but this growth is not inclusive as the
benefits of economic prosperity have not trickled down to all the sections of the
society. RBI continued its focus on financial inclusion and financial literacy by
strengthening the credit delivery mechanisms to the targeted sections of the
population under different measures, initiatives and schemes. Inclusive growth always
received special emphasis in the Indian policy making. Governments of India and the
Reserve Bank of India have taken several initiatives to expand access to financial
systems to the poor. Some of the salient measures are nationalization of banks,
prescription of priority sector lending, differential interest rate schemes for the weaker
sections, development of credit institutions such as Regional Rural Banks, etc.
Despite the policy efforts, gap remains in the availability of financial services
in rural areas. The dependence of the rural poor on money lenders continues,
especially for meeting emergent requirements. Such dependence is more pronounced
in the case of marginal farmers, agricultural laborers, and petty traders and rural
artisans belonging to socially and economically backward classes and tribes whose
capacity to save is too small. Financial inclusion has been emphasized as an important
policy option aimed at alleviating poverty, minimizing social exclusion, enhancing
economic growth and is an important process to attain the goal of inclusive growth.
Financial inclusion is not just a matter of providing various financial products
and services to the excluded population but doing in a responsible manner. It is the
process of ensuring access to financial services and timely and adequate credit where
needed by vulnerable groups such as weaker sections and low income groups at an
affordable cost.
Review of Literature:
The researcher reviewed several books, journals, reports, records and other
literature relating to financial inclusion.
Need for the Study:
The review of literature on the financial inclusion leads us to make a few
conclusions like many gaps are identified in the demand side and supply side for
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promoting financial inclusion through micro finance institutions. Creating delivery
systems, usage of existing network and adopting ICT are some of the channels in
promoting financial inclusion. With about 19% of the State's population below the
defined poverty line, Karnataka has initiated various poverty alleviation programmes
both in rural and urban areas. While these programmes have resulted in a marked
decline in the number of the state's poor. Incidence of urban poverty is much higher in
Karnataka than in India as a whole for all the years. Financial infrastructure in the
state is robust with significant improvements being seen in key indicators such as
population per branch, credit deposit ration and priority sector advances. With
financial inclusion as an important policy initiative adopted by the state, the
government has initiated projects for financial inclusion through use of information
technology. Karnataka has been among the top three states in the country in SHG-
Bank linkage.
Urban Financial Inclusion (UFI) has not got the attention of GOI/RBI as a lot
of work required to be done to cover all the unbanked villages. However, now the city
wards have been allotted to bank branches under the Direct Benefit Transfer (DBT)
scheme of GOI. In Bangalore Urban District all wards in Bruhat Bangalore
Mahanagara Palike (BBMP) have been allotted by State Level Bankers Committee to
various banks, banks already started taking initiatives to move forward Urban
Financial Inclusion. That is why; a modest attempt has been made in this research
work to study financial inclusion initiatives taken by the different stake holders and its
impact. The study is intended to cover the financial inclusion initiatives taken by the
Government of India, State Government, Micro Finance Institutions and Non-
Government Organizations.
Objectives of the study are:
1. To examine the extent of financial exclusion in India
2. To understand the framework of financial inclusion policy and the phases of
financial inclusion in India.
3. To study various initiatives taken by the stakeholders to address the financial
exclusion.
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4. To study how microfinance institutions and technology is promoting financial
inclusion.
5. To analyse the progress of Self Help Group Bank Linkage Program.
6. To measure the operationalization of Basic Savings Banking Account.
7. To study the impact of Financial Inclusion initiatives on Self Help Groups,
Urban Self Help Groups, Micro Self Help Groups, Joint Liability Groups and
Individuals.
8. Finally to give successful strategies for improving the access to financial and
non-
financial services to underserved population.
Research Hypotheses:
The main hypotheses formulated for the study are as given below:
− H1: Bank branch penetration progressed the objective of achieving hundred
percent financial inclusion.
− H2: Existence of demand and supply side factors as hurdles in promoting
financial inclusion.
− H3: Micro finance institutions promoting financial inclusion has an impact on
the economic empowerment of poor people.
− H4: Availing credit from the formal financial system has improved the
economic conditions of the underserved population.
− H5: Financial inclusion initiatives taken by the stake holders have significant
impact on operationalization of Basic Savings Banking Account (BSBA).
− H6: The most important factors like savings, leadership qualities, credit
utilization, repayment, regular meetings and economic activities are
significant for the success of the Self Help Group Model.
− H7: The delivery channels like bank branches, NGOs, Joint Liability Groups,
Self Help Groups, Micro Finance Institutions and Business
Correspondents/Facilitators are significant to reach the unbanked and
underserved population.
− H8: Technology as a significant factor to minimize the transaction and service
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cost.
− H9: Self Help Group – Bank Linkage Program (SHG-BLP) is considered as an
important tool for inclusive growth.
− H10: The indicators like rapid urbanization, raising population, in-migration,
poverty, imbalanced growth in the rural and urban areas are significant
factors for the need of Urban Microfinance
Research Methodology:
To study the above research objectives case study and survey methodology
adopted. The study is based on both primary and secondary data. The primary data
collected through questionnaires and pre designed schedules. Primary data collected
by distributing pre designed schedules to self-help groups and micro self-help
groups(refer annexure I). By distributing questionnaires primary data collected from
bank managers(refer annexure II), joint liability groups and individuals(refer annexure
III). Secondary data have been collected from State Level Bankers Committee,
Reserve Bank of India, National Bank for Agriculture and Rural Development,
Planning Commission of India, Government of Karnataka, doctoral theses, referred
journals, working papers and research edited volumes.
Sampling:
Convenience data sampling is used to collect the primary data from the
respondents. Bangalore Urban district is taken for the study. Bangalore Urban District
comprises of five taluk’s Bangalore North, Bangalore North (Additional), Bangalore
East, Bangalore South and Anekal. 60 Joint Liability Groups, 120 micro self-help
groups, 120 matured self-help groups 76 bank branches and 40 individuals from all
the five taluk’s covered.
Statistical tools used:
The data collected through questionnaires and schedules are properly analysed
by applying the tools like ANOVA (Single Factor Analysis), Chi-Square Test,
Descriptive statistics and Percentages.
Limitations of the study:
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Any research by its inherent nature is bound to have some limitations and this
study is not an exception to that rule. The major limitation of the study is that it is
restricted to the Bangalore Urban District. However an effort is being made to
minimize the impact of this limitation by selecting the sample from all the five taluks.
As this study is based on the responses of the beneficiaries and bank managers there is
a possibility of personal bias. To minimize this impact cross reference questions asked
to the respondents. As financial inclusion is a process of ensuring access to financial
and non-financial services needed by vulnerable groups. In this study only few major
indicators and stake holders considered for in-depth study. With all these limitations
all the efforts are made to evaluate the impact accurately and objectively as possible.
Financial Exclusion:
According to Census 2011, out of 24.67 crore households in the country, only
about 14.48 crore (58.70%) of households had access to banking services. Out of
16.78 crore rural households only about 9.14 crore (54.46%) households were
availing banking services. To meet the credit requirements majority of the rural
households still depend on informal sources of finance particularly borrowings from
moneylenders. 13% adults borrowed from money lenders; and 32% from friends and
relatives. Gender disparity in terms of having bank accounts has not reduced as it is
observed majority of males have bank accounts compare to females. Majority of the
households have bank accounts but hardly they are using for savings and withdrawals.
43% of account holders did not make any deposits or withdrawals in their bank
accounts in the past year. 67% of account holders reported of not making a single
deposit in any typical month.
It is evident from the study that non institutional agencies played a vital role in
advancing credit. In rural areas except Tamilnadu State in the remaining states in
southern region is very high. In the urban areas Tamilnadu State percentage of
incidence of indebtedness is very high nearly 31.3 % of urban households accessed
the credit from the institutional agencies followed by Andhra Pradesh, Karnataka and
Kerala. The incidence of indebtedness was highest for the Backward Class (OBC)
households, 29% among rural and 21% among urban households. For Scheduled
Tribes (ST) the incidence was 18% in rural areas and 12% in urban areas. For
Scheduled Caste (SC) households this was 27% in rural areas and 19% in the urban
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areas. Overall in India among the social groups 27% of the rural households were
indebted and 18% of the urban households are indebted.
The lack of access to credit for the poor is attributable to practical difficulties
arising from the discrepancy between the mode of operation followed by financial
institutions and the economic characteristics and financing needs of low-income
households. For example, commercial lending institutions require that borrowers have
a stable source of income out of which principal and interest can be paid back
according to the agreed terms. However, the income of many self-employed
households is not stable, regardless of its size. A large number of small loans are
needed to serve the poor, but lenders prefer dealing with large loans in small numbers
to minimize administration costs. They also look for collateral with a clear title -
which many low income households do not have. In addition bankers tend to consider
low income households a bad risk imposing exceedingly high information monitoring
costs on operation. Microfinance institutions can broaden their resource base by
mobilizing savings, accessing capital markets, loan funds and effective institutional
development support.
Financial Inclusion:
India has been one of Asia’s fastest growing economies in recent years.
Despite this growth, data still shows that strong economic growth has not translated
into shared prosperity and better livelihoods for many Indians. The Government and
RBIs philosophy is sustainable development which recognizes and aims the growth to
be inclusive to be socially and politically sustainable. One key component of inclusive
development is financial inclusion, an area in which the country has been struggling.
Broadening access to financial services will mobilise greater household savings,
capital for investment, expand the class of entrepreneurs, and enable more people to
invest in themselves and their families.
There is a long history of financial inclusion in India. After independence, the
first initiative on financial inclusion was launched in July 1969 when 14 of the largest
privately-owned banks were nationalized. Bank nationalization marked a paradigm
shift as the policy aim was to take the banking services to the poor people. Access to
finance by the poor and vulnerable groups is a prerequisite for poverty reduction and social
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cohesion. This has to become an integral part of our efforts to promote inclusive growth.
Households need access to finance for several purposes, the most important being for
contingency planning and risk mitigation. Households build buffer savings for
retirement and purchase insurance and hedging products for insurable contingencies.
Once these needs are met households typically need access to credit for livelihood
creation as well as consumption and emergencies. Finally for wealth creation,
households require savings and investment products.
Financial inclusion initiatives have come from the financial regulators,
government and banking industry. Since the year 2005 RBIs has implemented many
policies and is more focussed followed structured approach to promote financial
inclusion in India. The following are some of the initiatives of RBI to promote
financial inclusion in India.
- RBI recognized the importance of banking industry as mainstream and
instructed all the banks to introduce a bouquet of products like savings,
payments and credit.
- Encouraged the bank led model for providing the financial access to the
unbanked population
- Instructed the regional rural banks to migrate to core banking platform.
- Deregulated fixing of interest rate on advances
- Domestic scheduled commercial banks are permitted to open the branches in
tier 2 – tier 6 towns.
- Mandated all the banks to open 25% of branches in the unbanked rural areas.
- Relaxed Know Your Customer norms (KYC) and minimum documentation
open no frills account.
- Encouraged SHG – Bank linkage programme.
- Set up Financial Stability and Development Council (FSDC) to focus on
financial inclusion and financial literacy issues.
- Banks are advised/encouraged to migrate to Core Banking System (CBS) to
provide remittances using electronic payments systems such as Real Time
Gross Settlement System (RTGS), National Electronic Funds Transfer (NEFT),
National Electronic Clearing Services (NECS), immediate payments Service
(IMPS) and Aadhar Enabled Payment Systems (AEPS).
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- Liberalised the mobile banking guidelines in December 2011, to facilitate
funds transfer for remittances and purchases.
- For developing viable, sustainable and affordable banking products and
services RBI has constituted a Financial Inclusion Advisory Committee (FIAC)
to leverage the experience and expertise of members who are from central
board of the RBI, NGOs and civil society.
- For building financial capability RBI has setup Financial Literacy Centres
(FLCs) and mandated the scheduled commercial banks to have minimum one
outdoor financial literacy program for bringing the financial discipline among
the adult population.
- Under the aegis of NSFE, a National Centre for Financial Education (NSFE) is
proposed to set up and will launch a website exclusively for financial
education.
- Advised all the commercial banks to submit board approved Financial
Inclusion Plans (FIPs) to make FIP as integral part of banks corporate plans.
- For providing anywhere and anytime banking services RBI encouraged
electronic payment systems by drafting 'The payment system Vision
Document 2012-2015'.
- Provided guidelines for appointing Business Correspondents (BCs) where
there is no availability of branches. Encouraged BC model to promote
financial inclusion in the villages.
- Advised the banks to setup intermediate brick and mortar infrastructure in
rural areas as a base branch for cluster of BCs
- To facilitate financial inclusion interporability was permitted at the retail
outlets or sub-agents of BCs
Government of India increased the financial access through Reserve Bank of
India (RBI) especially by the way of priority sector lending. GoIs National Rural
Financial Inclusion Plan (NRFIP) has set targets to achieve complete financial
inclusion through commercial banks, regional rural banks and Co-Operative banking.
The GoI is giving more importance to the financial inclusion which is evident from
the previous budgets. Directly advising banks and insurance companies to extend their
services to the remote areas. The Self Help Group-Bank linkage programme (SBLP);
Kisan Credit Card (KCC) scheme for farmers; Rashtriya Swashtya Bima Yojana
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(RSBY); financing and refinancing of various cooperative banks, regional rural banks
and public sector commercial banks that extend credit to rural clients, especially
farmers; and various state level programmes for extending credit to rural areas are
examples of more direct efforts.
During 2007-08 in order to improve credit delivery and to promote financial
inclusion RBI has number of initiatives. One of the initiatives is revision of priority
sector lending guidelines based on the draft technical paper by an internal working
group on priority sector lending chaired by C. S. Murthy in September 2005. Through
priority sector lending RBI ensured adequate flow of credit to the sectors like weaker
sections, employment intensive, agriculture, tiny and small industries. Majority of the
banks has not achieved the lending targets. Only foreign banks has achieved the target
(32% for foreign banks). During the year 2014 public sector banks achieved the target
of when compare to corresponding year it was only 36.2%. Private sector banks have
achieved more than the target rate with 43.9% when compared to previous year it was
37.5%. In terms of banks 10 out of 26 public sector banks, 4 out of 20 private sector
banks and 1 out of 39 foreign banks has not achieved the target of the overall priority
sector lending as on March 31, 2014.
RBI adopted the recommendations and advised commercial banks have SME
branch in every district where there is a SME cluster, to open more SME focused
bank branches, to achieve a target of 10% growth every year in terms of number of
micro enterprises accounts, to achieve 20% growth in terms of credit to MSMEs every
year.
The reasons behind the poor performance of priority sector advances in India
are firstly the nature of the loans under the sponsored programs, absence of security,
ineffective and costly legal recovery system, lack of follow-up due to large number of
accounts. Secondly social consideration and commercial considerations are important
for the priority sector lending in India. At present commercial banks have to
concentrate on the rural credit development mechanism so that majority of the
population will have accessibility to direct and indirect finance.
Public and private sector banks had been advised to submit board approved
three years Financial Inclusion Plan (FIP). These policies aimed at keeping self-set
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targets in respect of rural brick and mortar branches opened, BCs employed, coverage
of un-banked villages with population above 2000 and as well as below 2000, BSBD
accounts opened, KCCs, GCCs issued and others. RBI has been monitoring these
plans on a monthly basis.
The study observed that performance of the SHG-BLP is declining due to
many attributable reasons like decline in the formation of new SHGs, decline in the
number of SHGs formed under SGSY/NRLM/sponsored, increase in the awareness
level of SHGs of using savings for internal borrowings, continued decline in the
number of SHGs availing fresh loans, declining recovery performance of MFIs,
commercial banks raising NPA against the loans disbursed to SHGs are some of the
reasons.
RRBs as local institutions well suited for achieving financial inclusion and
played a critical role in the multi-agency approach to delivery of agriculture and rural
credit in India. Co-Operative banks have also played a limited but important role in
the banking system of the country especially in the rural areas extended short term
and long-term credit. The Co-Operative Banks plays a crucial role in the process of
financial intermediation but at the same time they are vulnerable to disruptions
created by economic shocks. NABARD has taken various policy and developmental
issues to enable these institutions to with stand against economic shocks. To
encourage people from the unorganized sector to voluntarily save for their retirement
the Central Government launched a co-contributory pension scheme, 'Swavalamban
Scheme’. Setup of Financial Inclusion Fund (FIF) and Financial Inclusion
Technology Fund (FITF) with corpus of Rs.500 Crores each helped to setup financial
literacy Centre’s, farmers club, upscaling the activities of SHGs etc.
NABARD's SHG-BLP has shown the significant achievement in terms of
outreach and coverage of rural households. RBI through the policy efforts advised the
banks to consider the SHGs as business activity. GoI launched the three social
security schemes Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), Pradhan
Mantri Suraksha Bima Yojana (PMSBY) and Atal Pension Yojana (APY) aimed at
providing affordable universal access to essential social security protection in a
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convenient manner. The strategies adopted by the stakeholders are effective and they
have been able to affect financial inclusion in the economy.
Karnataka State has a fairly well developed financial infrastructure. Majority
of the banking business is from seven leading commercial banks. Currently there are
twenty six public sector banks, sixteen private sector commercial banks and three
regional rural banks are operating in Karnataka State. The ever growing demand for
institutional finance has resulted in the expansion of banking. The expansion has
resulted in better access to financial services. As on 31 December 2014 there are 9844
branches comprising of 3713 branches in rural areas, 2315 in semi-urban, 1943 in
urban areas and 1873 in Metropolitan areas. Over all there is an increase in the branch
network, but in the urban and metropolitan areas there is huge variation in terms of
number of branches. During 2012-13 there is a variation of 34 branches in the urban
areas and 66 branches in metropolitan areas increased drastically to 163 branches in
urban areas and 166 branches in the metropolitan areas during the period of 2013-14.
In the last couple of year there is increase in branch network in the rural, semi
urban and urban areas. As on 31 December 2014 deposits and advances registered
positive growth. Deposits with 20.33% when compared to previous year it was
15.30%, advances growth rate increased to 16.93% when compared to 2012-13 it was
16.21%. Credit Deposit (CD) Ratio stood at 73.45. It is observed that during the
period 2012-13 there is a negative growth of -5.14% to total advances increased
drastically to 15.27% during the 2013-14 December end. Improvement in the
agricultural advances to weaker sections, SCs, STs and advances to education
marginally increased year after year. In terms of deposit mobilization and in gross
credit flow Karnataka State has done fairly.
In Karnataka State there are 23126 unbanked villages identified with the
population below 2000 as per census 2001, has been provided with banking outlets. In
terms of provision of banking outlets in the villages with population above 2000, so
far as on 3395 unbanked villages identified and provided with banking outlets. 2870
banking outlets provided in the form of ultra-small branches and business
correspondent model, 499 brick and mortar branches and 26 banking through mobile
vans has been made available to access the financial services provided by banks.
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Karnataka has been among the top three states in the country in SHG-BLP. The State
Government through its Women and Child Development Department (WCDD)
through its mission empowered 9,00,000 families as on 31 March 2014.
According to Census 2011 Bangalore has an estimated population of
96,21,551 persons, 18th populus city in the world and the fastest growing metropolis
after New Delhi in India. Bangalore district’s population ballooned 46.68 per cent
over the past decade to around 9.59 million in 2011. The district today with 15.69 per
cent of the state’s population. This, despite the thrust of the state on deflecting growth
towards tier II and tier III cities in the state. 4,378 persons cram every square
kilometer space of the district110. Bangalore is dealing with many problems that
come from growing very rapidly in a developing country, including social inequality,
an increasing number of slums, public health crises from sewage issues and water
shortages, and mass displacement. Much of the population growth in Bangalore is due
to migration from other states, which has increased tension between locals and
immigrants.
Bangalore also has a much skewed female-male gender ratio: 908 women for
every 1,000 men. It also has the lowest work participation rate among women, with
just 24% of women working. Interms of population and area wise Bengaluru City
ranks no.1 with share of 87.76%. The levels of poverty in Bangalore are growing
faster than the technical industry. More and more people inhabit the city attracted to
its industrial growth. Bangalore is a place where extreme poverty exists directly
alongside wealthy high-tech culture. While globalization has brought some
opportunities to some sections of the urban lower classes in Bangalore, there is as yet
no substantive analysis of the precise nature of these opportunities, and more
importantly, whether these translate to increased access to economic and social
resources for the urban poor and their progeny.
It should be noted that large sections of the urban underclass in Bangalore
have remained untouched by the process of globalization which appears to have
offered no significant opportunities to those, for example, which have only unskilled
labor to sell. According to official statistics from the Karnataka Slum Development
Board (KSDB), the state has 2,796 slums housing 40.5 lakh people. With the
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expansion of Bangalore, the slums have also increased, taking the official number of
slum from 473 in 2003 to 597 in 2013. 13.86 lakh out of 84.25 lakh people in
Bangalore, which is 16.45%, live in slums. Bangalore's situation is different from
other cities, as it has many temporary (migrant workers living near construction sites)
and scattered slums, which are hardly counted by the officialdom. The poor migrate
from various parts of the country are flowing into the city. Except in the city in all the
four taluks inhabited and uninhabited villages exist. These villages if not provided
with basic amneties and employment, urban poverty may rise. As Bangalore has
highest number of industrial estates, towns and units which has provided employment
opportunities to the unskilled labors attracted population from rural areas. In
migration continuously rising. The population in the Bangalore city is ballooning with
unexpected rate. To meet the requirements growing population is mammoth task.
The performance of the SHG Bank Linkage Programme in Karnataka is steady
and progressive. Every year formation of new SHGs and linkage by banks is
increasing. Even in terms of loan disbursement to SHGs also increased since from
inception. As SHG-BLP is considered an important tool for inclusive growth,
stakeholders of the programme like commercial banks, RRBs, Cooperative banks,
MFIs and NGOs played a vital role in the performance and success of the SHG-BLP
in Karnataka State. Savings linked number of SHGs is increasing with commercial
banks when compared to RRBs and Co-operative banks. In terms of credit linkage of
SHGs commercial banks performed well compared to RRBs and Co-Operative banks.
As it is mandatory to scheduled commercial banks to monitor closely the performance
of the SHGs and their income generating activities. Overall the banking sector in
Karnataka state has scaled up the SHG-BLP in terms of number of SHGs and loan
disbursement but commercial banks and co-operative banks played vital role in
scaling up of SHG-BLP in the state. Overall in Karnataka State public sector banks
performed well in promoting the SHGs. As the objective of the cooperative banks and
RRBs is to provide access to financial services where there is no bank penetration.
Because of the initiatives taken by the public sector banks like setting up of the rural
branches, rural banking strategies, no frills accounts, technology, BC model etc.
helped public sector banks to perform well.
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The economic activities taken up by the SHGs enhanced the consumption and
expenditure pattern of the members. Through the additional income members are able
to acquire low value assets, as there is a relationship between the formation of group
and individual household income. Collective and collaborative decision making
helped the groups to perform well in meeting the group objectives without leader and
group representatives. Equal opportunity in the group and making the members to
participate in the decision making process and group activities contributed to the
transformation of the group from micro to matured self-help groups. Weekly meetings
helped the members to review their performance, solving the individual member’s
problem, guiding the members, supporting the members to achieve the group and
individuals objectives.
In the case of matured SHGs and micro SHGs basic literacy and illiterates are
also able to manage the group activities with the support from the children, family
members, friends and representatives from the MFI, NGOs and banking institutions.
Household occupation is one of the main indicators as it is the basic source of income.
Without income it is very difficult to meet the basic requirements of the household.
Majority of the women who join the SHGs are unemployed and joined to generate
additional income to meet their financial requirements.
SHGs are not only availing the credit but also saving to meet their financial
requirements. Majority of the members are not only using credit for income
generating activities, but also using for personal consumption like providing
education for children, loan for marriage, constructing house, to meet the hospital
expenses and to buy low value assets. From the analysis it is found that majority of
the SHGs are not maintaining the complete records due to the lack of skill and basic
literacy.
SHGs and members opined that requirements like income generating ideas,
skills to run the business, marketing facilities, child welfare services, credit, housing
and training to improve the group and individuals performance. It is found from the
study that after joining the SHGs asset acquisition in the low value assets observed.
SHG member’s economic and social status improved. Sustainable livelihood activities
helped the members to overcome the poverty level.
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The financial inclusion objective has an impact on the inclusive growth by
providing financial services to the organized group. Access to the financial services
empowered the women and contributed to achieve the inclusive growth and
development of the economy.
Urban development in Karnataka State is assuming more importance due to
the rapid urbanization. If urbanization is not tackled properly it gives rise to various
issues like urban poverty, rising urban slums, difficulty in providing the basic
services, more demand for urban education and healthcare. Karnataka India's 7th most
urbanized state in India as per Census 2011 nearly 38.57% population reside in urban
areas (refer table). The population has grown by 31.27% between 2001 and 2011
compared with 28.85% which indicates the rapid urbanization in Karnataka.
In the State Bangalore district tops in terms of urbanization with 91%.
Population living in urban slums in Karnataka state has risen from 14.02 lakhs to
32.91 lakhs (Census, 2011). Bangalore district itself has 21.5% of the total slum
population. Urban micro finance plays a crucial role in providing the sources of
livelihood in the urban areas and urban slums. Rapid urbanization and rural and urban
regional imbalance growth, decreased agricultural and farm activities, increased
employment opportunities in the urban areas and in migration contributed for the
rising urban poor population in Bangalore.
Group based lending is one of the most novel approaches of lending small
amounts of money to a large number of clients who cannot offer collateral. The size
of the group can vary, but most groups have between four to eight members. The
group self-selects its members before acquiring a loan. Loans are granted to selected
member(s) of the group first and then to the rest of the members.
Most MFIs require a percentage of the loan that is supposed to be saved in
advance, which points out the ability to make regular payments and serve as
collateral. Group members are jointly accountable for the repayment of each other’s
loans and usually meet weekly to collect repayments. To ensure repayment, peer
pressure and joint liability works very well. The entire group will be disqualified and
will not be eligible for further loans, even if one member of the group becomes a
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defaulter. The creditworthiness of the borrower is therefore determined by the
members rather than by the MFI.
The study concludes that the financial and non-financial services provided by
the urban micro finance institutions have an impact on improvement of economic and
social status of the urban poor. The impact factors like consumption level, standard of
living, income generation activities, income and occupation strengthened the need for
urban microfinance. After joining JLG members were now able or better financially
resourced to send their children to school provide educational materials for their
children, access healthcare facilities or provide clothing to their family.
Again a majority indicated they now had better housing conditions and can
now participate fully in communal activities due to their improved financial stand.
MFIs provide education and training to their clients, as well as support their micro-
enterprises. Clients must be given training in financial literacy and money
management so that they can meet both their business and personal needs. The access
to finance for unbanked in Indian economy is available through the intermediaries like
SHGs & MFIs. Even the commercial banks like private, foreign banks, public sector
banks and non-banking companies integrated and using technology in delivering the
financial services to unbanked poor. It is found that most of the MFIs use either paper
based or excel based method to track the accounts. Few banks partnered with MFIs in
providing access to finance for unbanked. Inspite of such initiatives also a large
segment of population is excluded.
In Indian economy business correspondents (BC) model is very popular where
Bcs will provide the access to finance with the help of ICT (Information,
Communication & Technology). As technology is the platform which will connect the
masses and remote areas in providing access to financial services. For providing
banking services through technology and information technology (IT) solutions will
have an impact on financial inclusion initiatives and also enables banks to increase the
volume of transaction. The usage of existing mobile communications will bring down
the cost and increases the operational efficiency.
In India all most all banks got enough financial resources and expertise in
operating. These banks should invest in technology and R & D (Research &
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Development) in developing low cost banking facilities for the rural and semi urban,
which brings the excluded people into included.
In India telecom companies have advantage over commercial banks, MFIs and
SHGs in reaching unbanked poor. In India most of the unbanked poor have informal
access to finance many of them are poor but own a mobile phone.
The “no-frills account” (NFA) has been one of the landmark financial
products which allowed financially excluded individuals to access banking services
for the purpose of savings and also had credit feature in the form of overdraft facility.
To ensure that more and more people come within the banking fold and realizing that
there is some stigma attached to the NFA, it is now felt that banks should offer all the
customers a “basic savings deposit account” with certain minimum common facilities
and without the requirement of minimum balance.
Majority of the unbanked population opened the account to receive the
payments from the government schemes and subsidies. In case if account holders stop
receiving the payments, there is a problem of dormant accounts and also it will
increase the operational cost to the banks. Bank managers opined that they require
more human resources, separate information system, and updated technology and also
opined that if they maintain separate records, banks can measure the performance and
achievement of financial inclusion objective. Bank managers are also opined that
accounts opened by BF/BCs are not operational, in few areas they have achieved
100% and in few areas savings are very low with less number of transactions.
As in the case of Bangalore district, majority of the customers lack income
generating activities and few customers opined that when they have additional income
they save in the account. Due to the lack of regular income majority of the customers
opened the BSBA only to receive the payments, wages and subsidies from the
Central, State Governments and from other agencies.
Suggestions:
SHG Bank Linkage Programme in Karnataka State:
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H0: Since from the inception SHG-BLP in Karnataka State there is steady progress in SHG
credit linkage and loan disbursement
H1: There is no steady progress in credit linkage of SHGs and loan disbursement to SHGs
SHG Bank Linkage Programme in Karnataka is steady and progressive. Every year
formation of new SHGs and linkage by banks is increasing. Even in terms of loan
disbursement to SHGs also increased since from inception. As SHG-BLP is
considered an important tool for inclusive growth, stakeholders of the programme like
commercial banks, RRBs, Cooperative banks, MFIs and NGOs played a vital role in
the performance and success of the SHG-BLP in Karnataka State. Hence null
hypothesis accepted.
Banking sector played vital role in linkage and mobilization of SHGs savings:
Ho: Commercial Banks, RRBs and Co-Operative Banks played vital role in linkage and
mobilization of savings.
H1: Commercial Banks played vital role in linkage and mobilization of savings in Karnataka
State.
H2: RRBs played vital role in linkage and mobilization of savings in Karnataka State.
H3: Co-operative banks played vital role in linkage and mobilization of savings in Karnataka
State
From the study it is clearly evident that savings linked number of SHGs is
increasing with commercial banks when compared to RRBs and Co-operative banks.
Hence Alternative hypothesis H1 is accepted as commercial banks outperformed than
RRBs and Co-Operative banks in terms of savings linked SHGs. It is suggested that
NABARD and Government should provide refinance support to these banks whereas
inturn these banks will lend to the SHGs.
Credit linkage by various banks in Karnataka:
Ho: SHGs Credit linkage by the banking sector scaled up SHG-BLP in Karnataka State.
H1: SHGs Credit linkage by the commercial banks scaled up SHG-BLP in Karnataka State.
H2: SHGs Credit linkage by the RRBs scaled up SHG-BLP in Karnataka State.
H3: SHGs Credit linkage by the Co-Operative banks scaled up SHG-BLP in Karnataka State.
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From the study it is evident that in terms of credit linkage of SHGs
commercial banks performed well compared to RRBs and Co-Operative banks. Hence
alternative hypotheses H1 and H3 is accepted. It is suggested that RRBs in the state
has to concentrate on credit linkage of the SHGs and also RRBs has to give incentives
to increase the number of SHGs with credit linkage.
Promoting SHGs under SHG-BLP in Karnataka State:
Ho: Agencies like public sector banks, private sector banks, regional rural banks and co-
operative banks actively promoting SHGs in Karnataka State.
H1: Public Sector Banks are actively promoting SHGs in Karnataka State.
H2: Private Sector Banks are actively promoting SHGs in Karnataka State.
H3: Regional Rural Banks are actively promoting SHGs in Karnataka State.
H4: Co-Operative Banks are actively promoting SHGs in Karnataka State.
It is clearly evident from the study that public sector banks performed well in
promoting SHGs compared to Co-operative banks and RRBs in Karnataka State.
Hence alternative hypothesis one is accepted. It is suggested that Co-operative banks
and RRBs has to take initiatives like setting up of the rural branches, rural banking
strategies, no frills accounts, technology, BC model etc.
Literacy among the SHG Members:
Ho: Financial Literacy as an important factor for taking financial decision for
economic development of SHGs
H1: Without basic literacy also SHGs are good in taking financial decision making
As the chi square calculated value is 6.67 which is greater than critical value at
5% is 6.64. Hence alternative hypothesis is accepted. There for it can be concluded
that without basic literacy also SHG members are able to take financial decisions.
Therefore it is suggested to MFI that they should continue the literacy programs and
awareness programmes regularly not only on the aspects of financial literacy and also
on the sustainable activities and health care
Occupation of the SHG members:
Ho: Women join SHGs to generate additional income to uplift their family economic
status.
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H1: Lack of income is a factor which is motivating women to join the SHGs
As the chi-square calculated value is 12.93 which is greater than the critical
value at 5% is 7.82. Hence alternative hypothesis is accepted. Therefore it is
suggested to MFI, NGOs and Government to provide sustainable income generating
opportunities.
Leadership / Group Representatives in the SHG:
Ho: Having Leaders/Group Representatives will improve the activities taken up by the
SHGs
H1: Without leaders/group representative collaborative participation will improve the
activities taken up by the SHGs
The chi-square calculated value for the above factor is 60, which is greater
than the critical value at 5% is 3.84 and also greater than when critical value at 1% is
6.64. Hence alternative hypothesis is accepted. It is suggested to MFIs instead of
appointing group leader through MFI, let the SHG decide leadership role or
encourage the SHG members to participate in all the activities and decision making
actively.
Credit Utilization:
Ho: SHG members availed credit for business purpose and for taking up income
generating activities
H1: SHG members utilized credit not only for income generating activities but also for
personal requirements.
As the Chi Square calculated value is 64.13 greater than the critical value @5%
12.59 and at 1% critical value are 16.81. Hence alternative hypothesis is accepted. It
is suggested to MFIs to develop varied products which can meet the financial
requirements of the members. Also suggested that SHG members has to utilize the
credit for the purpose SHG has availed.
Book Keeping and Records Maintenance:
Ho: Book keeping and records maintenance is followed by micro self-help groups
H1: Minimum documentation is maintained by micro self-help groups
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The chi-square test significance of the members in maintaining book keeping
and records as 960 which is greater than the critical value at 5% is 13.28 and at 1%
are 7.78. Therefore it is suggested that SHGs has to maintain the proper
documentation and also they have to follow the guidelines given by NABARD. And
also the records of members and SHGs should be updated periodically.
Economic activities taken up by the self-help groups:
The sustainable income generating activities are in the form of petty business,
vegetable vending, provisional stores, tailoring, pickle making, hand crafts etc. These
groups are creating their own sustainable livelihood opportunities to generate income
on a sustainable basis. From the data it is observed that SHGs have taken up these
economic activities based on the availability of local resources, opportunities for
business and member’s individual entrepreneurial skills. It is suggested to MFIs that
they have to concentrate on developing the entrepreneurial skills, organizational
management and financial management practices. And also MFIs has to develop
group based community activities which are in the nature of sustainable income
generating activity.
Future Requirements of SHGs:
As there is huge requirement from the members. Therefore it is suggested that
MFIs has to organize workshops, training programs and awareness programmes on
income generating activities, sourcing the raw material, business improvement,
marketing and sales, education, housing and skills upgradation
Joint Liability Groups:
After joining JLG members were now able to meet their financial requirement.
The member’s social and economic status has improved after joining the JLG.
Therefore the study has stressed on the need of the urban microfinance in Bangalore
district as it is considered one of the important tools to eradicate extreme poverty. It is
suggested that stakeholders like MFIs, NGOs, NABARD, Banks and Government has
to concentrate in identifying the urban poor by supporting them with credit to take up
income generating activities to generate additional income. Clients must be given
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training in financial literacy and money management so that they can meet both their
business and personal needs.
Operationalization of the Basic Savings Bank Account (BSBA):
Ho: Financial Inclusion initiatives has increased the usage and access to banking services in
Bangalore Urban district
From the anova single factor significance test it is clearly evident that F value is
greater than F critical value. Hence null hypothesis is rejected. Therefore it is
suggested to banks that to increase the usage and access of BSBA, banks should
create awareness among the vulnerable population about the importance of savings,
developing savings behavior, educating about the various banking products, schemes
and other non-financial based services provided by the banks. With minimum
documentation, banks should process the loan applications and should provide credit
at right time. Banks should develop affordable credit products linked with savings
account. Low interest credit products will attract the population towards the bank,
who are dependent on local money lenders. Providing access through ATMs, POS
devices, mobile banking, any bank any branch model will help the account holders to
access and usage of banking services. Banks should develop self-banking practices to
increase usage of BSBA.
Opening BSBA through various channels:
Ho: Savings accounts opened through various channels like NGOs, MFIs, SHGs and
JLGs contributed for speedy financial inclusion process.
H1: Financial inclusion schemes and benefits under financial inclusion objective has
attracted more number of unbanked population to open BSBA
Opening of BSBA through various channels like NGOs, JLGs, SHGs and
MFIs. Majority of the commercial banks opened the savings accounts through various
channels. These channels helped for speedy financial inclusion. The anova test
signifies that F value is greater than F critical value, hence null hypothesis is rejected.
Therefore it is suggested that banks need to educate the customers about the
importance of the savings, banking products, access and usage of account through
various modes will help the customers; and also enhances the access and usage of
banking account and banking services.
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Operationalization of BSBA through Business Facilitator/Business
Correspondents:
Ho: Appointing Business Facilitators/Business Correspondents helped the
operationalization of BSBA in Bangalore Urban District
From the study anova significance test of appointing BF/BC to improve the
operationalization of BSBA resulted that F value is greater than F critical value.
Hence null hypothesis is rejected. It is suggested to banks that instead of
concentrating on the number of accounts they have to concentrate on the financial
viability of operations through BF/BCs. Banks need to provide minimum knowledge
on the banking operations so that they can train and educate the customers. Providing
fixed pay to the BCs will help in meeting their operational expenses. Allowing BCs to
charge nominal fee on the customers for providing different services which will make
the customers to use the services properly. Effective use of BF/BCs channel will
improve the operationalization of the BSBA in the Bangalore Urban district.
Branch Policy in delivering the services to the BSBA holders:
Ho: Bank branch managers are not risk cautious in providing the products and
services like general purpose credit card, overdraft facilities and credit to BSBA
holders
H1: Bank branch managers are risk cautious in providing the products and services
like general purpose credit card, overdraft facilities and credit to BSBA holders.
The anova significance of the branch policy in providing the services to the
BSBA holders shows that F value is greater than F critical value, hence null
hypothesis is rejected. It is suggested that bank branches should educate the
customers on financial education, usage of the credit card and terms and conditions of
credit products. Even bank branches should educate the account holders when they
will get eligibility to avail certain products and services. Bank branches should
educate through campaigns in their locality also by leveraging the financial literacy
Centre to bring awareness about the products and services among the customers will
improve operationalization of BSBA. Public should be made aware of the benefits of
operative accounts. Banks should have mechanism in the case of overdraft NPA shall
be ineligible for all aadhar linked subsidies and invalidate insurance cover. Banks
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should also encourage the customers for routing of all family savings through the
account. Banks should give higher OD facilities when the customers bring the account
into credit balance at least once in a year (not by one-time credit shall make the
account eligible for an increased overdraft limit. A short term consumption loan with
regular repayment linked to SB Account will be a better option with higher loan on
every renewal.
Leveraging Technology:
In this era technology is driving the business growth and improving
performance. In India every sector is leveraging technology to grow in the industry.
The Microfinance industry is not left behind. Minimizing operational cost is challenge
in promoting financial inclusion; this is possible only by adopting and integrating with
the technology. It is found that most of the MFIs use either paper based or excel
based method to track the accounts. The appropriate use of technology will help the
service providers in reducing the operating costs. Now the biggest challenge in front
of the service providers is to develop scalable and independent technology solutions.
India at this stage has to adopt best practices from around the world in bringing
excluded people in to the inclusion by leveraging the technology and existing
telecommunications network.
Developing low cost banking facilities to the rural and semi urban people will
bring the excluded people into included. RBI has to liberalize some of the legal
requirements so that other than banks, other institutions which have physical presence
in remote areas may accept the deposits. The issues like affordability of technology,
scalability, reliability and security has to be solved in promoting financial inclusion
through technology. Technology is an essential tool for MFIs in reaching underserved
in remote areas and helps in lowering operational costs, increases efficient use of
resources and cost effective.
The account holders with little knowledge about the banking products and
services need personal attention from the officer to make them to understand the
operation and usage of the account. When teller is provided to advice and guide the
poor households there may be a possibility of enhancing the operationalization of
BSBAs. As majority of the banks are concentrating on the delivery of services
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through technology to reduce the operational cost. When it comes to customer
satisfaction, account holders are satisfied when their queries are attended by an
officer. To achieve the objective financial inclusion, banks are opening number of
branches in the unbanked area. To serve in the unbanked areas banks need
infrastructure and manpower to provide access to banking services. The real goal of
ICT in banking is not just to provide access to technology, but linking communities
together in the long run.
Mobile Banking:
The study observed that majority of the respondents are comfortable with
physical banking and banking operations through ATM. Stakeholders has to educate
and encourage the customer to utilize and access the financial services through mobile
banking. Though the mobile penetration is very high in the Bangalore district still
majority of the population are using traditional way of banking. With regard to mobile
banking certain issues like affordability of technology, scalability, reliability and
security has to be solved, in promoting mobile banking through technology. Banks
should concentrate on resolving the grievances and complaints received from the
customers with respect to technical defaults. Banks should also improve the service
reliability through network system testing and by developing user interface mobile
banking applications. It is also suggested to develop the mobile banking application in
the regional language so that customers with low literacy also can operate the mobile
banking application.
Access to financial services:
Indian banking sector is both a driver and beneficiary of the strong macro-
economic growth that has been realized over the years. Banks play a crucial
intermediary role within the economy; gathering savings, then facilitating the transfer
of financial capital towards alternative productive uses in the form of credit. Banks
has to leverage the existing branch network and ATM network to reach customers far
and wide. Unbanked population should find the banking agent within the walking
distance. Banks should depute more bank mitras/business correspondents/banking
agents to reduce the access barrier.
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The quality of the financial inclusion is questionable as majority of the
customers opened the bank account as a storage tool. Instead of developing more
number of products banks has to educate and help the customers to navigate the
existing products in a more opportune way. The financial products and services which
are not used by the customers is meaningless. Banks has to develop certain products
(Example: emergency loan for meeting hospital expenses within 24 hours) which
actually meets the financial requirements of the customers. In the study as it is
observed that majority of the customers saving and borrowing for the same reason.
While lending to beneficiaries banks need to evaluate their financial requirements and
loan proposal, if the objective is same then banks need to educate beneficiary.
Financial inclusion is no longer about access, banks has to ensure that beneficiaries
are optimizing the usage of BSBA.
Priority Sector Lending:
The general perception of the banks is that 40 percent of the net bank credit
towards priority sector lending has led to the deterioration of efficiency and
profitability of banks. The reasons behind the poor performance of priority sector
advances in India are firstly the nature of the loans under the sponsored programs,
absence of security, ineffective and costly legal recovery system, lack of follow-up
due to large number of accounts. Secondly social consideration and commercial
considerations are important for the priority sector lending in India. At present
commercial banks have to concentrate on the rural credit development mechanism
and lending to the small and medium enterprises, so that majority of the population
will have accessibility to direct and indirect finance.
Microfinance:
On the basis of the findings of the study the following suggestions have been
made to improve the function and performance of the MFIs in Bangalore District.
- It is found from the study that the annual income of the respondents has
increased after taking the loan from micro-finance institutions. Hence the
Government should encourage MFIs to continue lending to the poor by
providing funds to them in form of grants and support these institutions for
overall growth in the society.
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- Banks has to increase the refinance support especially to Co-Operative banks
and regional rural banks.
- MFIs have to reduce the operational cost by setting up branch offices in the
different localities.
- MFIs have to concentrate more on the urban poor as majority of the
population in the Bangalore district is urban poor. As urban population is
rising drastically MFI has to consider this as an opportunity to tap the
unbanked population.
- As in the Bangalore district the presence of the top MFIs has created
competition in the microfinance industry. To sustain in the competitive market
MFIs have adopt client retention strategies by providing quality services.
- MFIs should ensure that the uniform distribution of micro financing in both
rural and urban areas.
- MFIs should avoid ambiguity in pricing the financial and non-financial based
services.
- MFIs should provide bouquet of products including credit, savings, remittance,
financial advice and also non-financial services like training and support. As
MFIs are acting as a substitute to banks in areas where people don’t have
access to banks, providing a complete range of products will enable the poor
to avail all services.
- By using new technologies and IT tools and applications MFIs can reduce
their operational cost.