1

CHAPTER 1: FINANCIAL INCLUSION – GLOBAL PERSPECTIVE

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.

2

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

3

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.

32

40 4348

59 59 60

91

96 96 99

50

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29 2513 16

0

20

40

60

80

100

120 Composite Index of Inclusion (% population

with access to financial services)

Poverty(% population below poverty line)

4

Key Statistics on Financial Inclusion in India is given in Table. A financial inclusion survey

was conducted by World Bank team in India between April-June,2011 which included face

to face interviews of 3,518 respondents. The sample excluded the northeastern states and

remote islands representing approximately 10 per cent of the total adult population. The

results of the survey suggest that India lags behind developing countries in opening bank

accounts, but is much closer to the global average when it comes to borrowing from formal

institutions. In India, 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, 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’.

Table : Key Statistics on Financial Inclusion in India: A Survey

(Per cent) Share with an account

at a formal financial institution

Adults saving in the past year

Adults originating a new loan in the

past year

Adults with a credit card

Adults with an

outstanding mortgage

Adults paying

personally for health insurance

Adults using

mobile money in the past year

All adults

Poorest income quintile

Women Using a formal account

Using a community-

based method

From a formal

financial institution

From family

or friends

1 2 3 4 5 6 7 8 9 10 11 12 India 35 21 26 12 3 8 20 2 2 7 4World 50 38 47 22 5 9 23 15 7 17 7Source: Asli Demirguc - Kunt and Klapper, L. (2012): ‘Measuring Financial Inclusion’, Policy Research Working Paper, 6025, World Bank, April.

GLOBAL SITUATION

In India, about 60% of population is still considered out of ambit of formal banking system.

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).

The fact was acknowledged by the then UN Secretary-General Kofi Annan in the year 2003.

He said that most of the poor people in the world are not getting access to financial

services like savings, credit and insurance. In US about 30% households are either

unbanked or under-banked, according to the survey in 2009. The UK government initiated

action on Financial Inclusion by preparing strategy paper in the year 2004. Financial

5

inclusion is now a common objective for many central banks among the nations, both

developed and underdeveloped. It is not required that everyone who is eligible uses each

of these services, but one should be able to have his/her own way to use them, if so

desired. To this end, strategies for building inclusive financial sectors have to be creative,

flexible, and appropriate to the national situation and preferably be owed by all the

stakeholders.

Inclusive Financial System • An inclusive financial system facilitates efficient allocation of productive resources and

thus can potentially reduce the cost of capital.

• Access to appropriate financial services can significantly improve the dayto- day

management of finances (bill payment, money transfer...)

• Unbanked people are exposed to informal sources of credit, are charged higher (often

exorbitant) interest rates and they often face unethical/harsh recovery practices.

• Access to a bank account provides avenues for secure and safe saving practices.

• A bank account can also provide a passport to wide ranging financial services such as

overdraft facilities, debit card and credit cards.

• A number of financial services, such as insurance and pension, necessarily require

access to a bank account.

• Thus, an inclusive financial system enhances efficiency and welfare of a society.

Financial Inclusion – Policy Initiatives

� Financial inclusion is seen as a policy priority in many countries in recent

periods.

� In Sweden and France, 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)

6

� Emphasis on right to have a bank account by Law on exclusion (1998) in France.

� In 2009, 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.

� In November 2011, the National Partnership for Financial Inclusion was launched in

Brazil.

� In the United Kingdom, the Financial Inclusion Taskforce was launched on February

2005 and was composed of members drawn from the private, public, and non profit

sectors, who served in a personal capacity, and on a voluntary basis. The taskforce

in March 2011, made final recommendations for government and the private sector.

� In Mexico, 2011, to provide an institutional mechanism to facilitate coordination

among these agencies, the National Council on Financial Inclusion was created.

The objective of this council is to organize the different entities working on financial

inclusion in the country, from regulatory agencies to social development and

consumer protection agencies.

BRAZIL

� Active role of Government in creation of low income financial services market

� Simplified Current Accounts offered through agent network.

� Government (G) to Public (P) benefits through e-payment channels.

� Payroll and Pension linked Credit facilities.

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.

� Subsidies (based on bidding) to banks for giving loans.

� Value of subsidy for an average loan of $1,200 fell from $240 (1993) to $80 (2000)

7

KENYA

� Telco led, remittance based model of M-PESA

� Customer accounts outside banking regulation

� Combined value of customer money stored in pool account with a bank.

� In 2009, a European study on Financial Inclusion Indicators allowed the collection of

information concerning financial inclusion in eleven Member States of the European

Union(Belgium, Bulgaria, Germany, Greece, Spain, France, Ireland, Italy,

Netherlands, Poland, 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 such, it will be

understood that financial exclusion is not reduced solely to non-access to a bank

account, but also that it is possible that the access is not accompanied by a

satisfactory usage.

BRAZIL:

On 16th December 2010, the EU Commission has adopted the European Platform against

Poverty and Social Exclusion to reach the social objective of EU 2020 Strategy.

Consequently, fight against poverty is at the heart of goals for jobs and growth.

� This approach endeavors to integrate financial exclusion, as a particular factor of

vulnerability and disadvantage (see ‘challenges section’ p.6). To a large degree,

access to (especially low cost) credit is at the crossroads of contracts and consumer

laws. Thus, it has many directions which may interact with the concept of

vulnerability.

8

CHAPTER 2: FINANCIAL INCLUSION IN INDIA

Contents: Necessity, benefits of financial inclusion, steps taken by the government and financial sector

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.

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, remittance and overdraft facilities for the rural poor.

So, 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, at an affordable cost, as per their choice.

2.2 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.1. As per NSSO survey data (2003),

out of 893.50 lakh farmer households in India, 48% households were indebted which

include 27% from formal sources, 21% from informal sources (like money lenders, friends

and relatives) and remaining 52% households were not covered by credit from any source.

Thus about 73% farm households did not have access to formal source of credit.

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11

Shakti. Reliance is purchasing farm produce directly from the farmers for selling through its

outlets. In fact many agro-based industries like fertilizer, tractor, pesticides and irrigation

equipment, etc. have most of their consumer base in rural areas.

2.3 Opportunities for Banks:

Bringing the vast population of weaker section under banking umbrella, will open up many

opportunities for business as under:

2.3.1. 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. Second, 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.

2.3.2. Credit with widespread risk:

Credit facilities to the low income group and disadvantaged section of people will be in

small amounts. Thus small ticket size will spread the asset quality risk of Banks. Low

value coupled with high volume will ensure scalability and profit margin.

2.3.3. Remittance:

Remittance transactions provide float funds to the Banks. Addition of new customers as

well as transfer of government funds to the accounts of poor people will increase the

volume of these transactions. Moreover, they will add to the income of Banks through

commission / exchange.

2.3.4. Cross selling opportunities:

Since many Banks are offering Insurance and mutual fund products, financial inclusion will

give opportunities to cross sell these products and earn fee based income.

2.4. Social and political benefits

2.4.1. Empowerment:

Connecting the poor and disadvantaged people into the organized system will bring them

into the mainstream of economy. Financial inclusion will provide access to safe and

12

secure facilities of deposit. It will offer credit facilities at reasonable rate of interest and thus

bring out the poor from the clutches of the usurious money lenders. Availability of

insurance cover will protect these low income people from disasters or loss of income. This

will remove the psychological barriers of negligence, backwardness from the society and

empower them as an active partner of the economy.

2.4.2. Reduction in transaction cost and Income leakage in Govt. cash transfer

activity:

National and State Governments in India has plethora of cash schemes targeted at various

category of beneficiaries. Central government currently has 32 schemes like Employment

Guarantee payments scheme (MNREGS a Rs 400 billion per annum), Old age Pension,

Mid day meals etc. where cash is paid out to target group. 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.

2.4.3. Demand enhancement of FI and Economic Growth:

Mobilisation of deposit, offer of credit and remittance facilities will foster investment and

capital formation in rural areas. Other recent Bank driven initiatives of the National 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, enabling exercise of informed choice with full understanding

of risks and rewards. 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. Investment and employment opportunities in rural geography

will arrest large scale migration to cities.

2.4.4. 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. Thus, there exists

enormous opportunities in rural areas and ample scope for banking business.

13

Table 2.1: Benefits of financial inclusion to various segments

Product Poor people Banks/Financial

Institutions

Corporates Governments

Deposit Safety & Security Harness

untapped, low

cost deposit,

better liquidity

management

Generate

demand and

supply

opportunties

for

consumer

goods

Investment and

capital

formation.

Generate

employment

opportunities,

check migration

to cities

Credit Credit facilities at

reasonable rate of

interest and thus bring

out the poor from the

clutches of the usurious

money lenders.

Credit facilities

will be in small

amounts. Thus

small ticket size

will spread the

asset quality risk

of Banks

Remittances Better management of

funds

Remittance

provide float

funds to the

Banks. It will add

to the income of

Banks through

commission /

exchange

Better cash

flow will

result

increase in

purchasing

power of

poor people

Payment of

social security

benefits and

Employment

Programme

through the

bank is direct and

fast. Plug the

leakages

Insurance and

other products

Protect low income

people from disasters or

loss of income

Income from

cross selling

Social and economic stability

2.5 Progress of FI in India

In India, a multitude of financial institutions like Commercial Banks (rural branches),

Regional Rural Banks, Micro Finance Institutions and other Cooperatives as well as some

14

not-for-profit societies/organizations are engaged in financial inclusion. 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. 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.

Banking system is encouraged to innovate and discover ideal and most appropriate

delivery models taking into consideration of the best suited technological interventions.

To speed up the process of financial inclusion the steps taken up by the Government of

India, Central Bank and Financial institutions have helped the Banks in India to mobilise

the resources.

2.5.1. The Government

The Government initiated steps for FI in 2004 by setting a commission headed by Shri

H.R.Khan. Major initiatives were chalked out after the Rangarajan Committee Report in

2008.

i. Financial Inclusion Fund was set up with initial corpus of Rs. 500 crores for meeting

the cost of developmental and promotional interventions.

ii. Financial Inclusion Technology Fund was created with the same amount of Rs. 500

crores to meet the costs of technology adoption. Thus the technology is considered as the

important aspect of financial inclusion.

iii. 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.

iv. Facilitation: Government support may be needed to create facilitating environment

including support for capacity building, training and incentives during stabilisation period to

the operating agencies.

Recent instructions issued by Department of Financial Service, GOI for greater financial

inclusion is as under:

• Monetary Policy Statement 2012-13 announced on April 17, 2012, it would be

necessary to have an intermediate brick and mortar structure (Ultra Small Branch)

15

between the present base branch and BC locations to provide support to a cluster

of BC units at a reasonable distance.

• Each non-defaulter farmer living in the village falling in the service area of the

branch has got a Kisan Credit Card (KCC).

• Banks to implement revised ATM enabled KCC scheme. SLBC convener to identify

pilot districts (2-4) in each state and the entire state is to be covered by Sept

2012.Each non-defaulter farmer living in the village falling in the service area of the

branch to get a Kisan Credit Card (KCC).

• Each non-farmer family living in rural area falling in the service area of the bank has

got a Savings-cum-OD Account.

• In rural and semi-urban branches to see that each village of 2000 more population

is visited once a week on a fixed date, time and place and supports BCs for

undertaking requests for account pending, loan and recovery.

• Branch Manager has to visit each of the service area village on a notified day every

week.

• Banks must try to open as many brick and mortar branches in all habitations with

population of 10,000 and above without any bank branches at present with in a

radial distance of 5 kms. The process is to be completed by September 2012.

• Accounts are being opened as per guidelines on KYC issued by DFS.

• All households without account within 500 M of semi urban/ urban/metro branch to

be covered.

• Ministry has issued Guidelines for:

a-Opening of accounts by close relatives,

b- Full operational facilities in joint account with spouse,

c- Account portability / opening of new bank accounts

d- Opening of accounts of migratory workers.

• Service area approach would be adopted for the coverage of entire country for

financial inclusion. Service area of bank branches is to be defined by LDMs, 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.

16

• Transfer of subsidies into the accounts of the beneficiary under Electronic Benefit

Transfer to enhance the efficiency of delivery of services. Benefits in the areas

covered under Financial Inclusion must be transferred electronically into the

accounts of the beneficiaries. Presently 32 schemes are in operation, funded by the

Government of India, under which benefits are to be given directly to the

beneficiaries.

• 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.

• List of villages having connectivity problem (block, name, census code of village-

2001 census) is to be identified and broadband connectivity to be ensured in all FI

villages.

• Setting up of Ultra Small Branches (USB) in each FI village, considering the need

for close supervision and mentoring by the respective bank branch taken up/being

taken up under Financial Inclusion Plan, and to ensure that a range of banking

services are made available to the residents of such villages, USBs are to be set up

in all villages covered under financial inclusion. 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.

• 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, so

that various other services such as account balance, etc. could be offered. The

officer shall also undertake various verification, field inspections, etc., for allowing

undertaking of banking functions by the person concerned.

• Urban Financial Inclusion - Launch of campaign to ensure at least one bank

Account for each family & capturing of Biometrics while opening accounts.

• 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.

• Financial Inclusion drive to open bank accounts of migrant laborers and street

vendors / hawkers in urban areas.

17

• Preparation of Comprehensive District Financial Services plan in each district with

the coordination of banks, insurance companies & Govt. Departments.

• RFP is to be floated by Public Sector Banks for “Outsourcing of Installation and

Managed Services of Cash Dispensers (CDs)”.on a geographical cluster basis.

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.

• Data entry module for GIS for Financial Inclusion through web site of DFS for

Periodical updating of data about bank branches, ATMs, clearing houses and

currency chests of Scheduled Commercial Banks and branches of Insurance

Companies at village level. This would enable the DFS to easily identify the areas

where expansion of branch/ATM/network needs to be carried out, set the targets for

Banks/Insurance Companies and monitor the progress of such expansion.

• Availability of web-based Desktop Video Conferencing and confirmation of opening

of account & connectivity with DFS.

• Automation of State government Treasuries and Interface with banks.

• Establishment of Clearing house at centre’s with three or more branches.

• Implementation of Scheme for Promotion of Women SHGs in Backward Districts of

India- leveraging NGOs as Business Facilitators. The scheme envisages

identification of an anchor NGO in each of the selected backward districts of the

country, which will work as promoting and nurturing agency for SHGs as facilitator

bank linkages and recovery of loans from SHGs for a due consideration. This

approach is expected to facilitate sustained financial inclusion through bank loan,

promote livelihood development of women and deliver social development

programmes for Women through SHGs linkage.

2.5.2. The Reserve Bank of India (RBI)

Being the Central Bank, the RBI has initiated various measures like guidelines, regulatory

incentives and policy stance to streamline the process. Notable among those are as

under:

18

i. All the lead Banks were asked to ensure coverage of all the unbanked villages with

population above 2000 by the year 2012.

ii. In January 2010, all the commercial Banks including private and foreign banks were

asked to prepare Financial Inclusion Plan (FIP) to be implemented in 3 years. As per the

FIP of Banks about 3.48 lakhs villages will be covered by March 2013.

iii. RBI has permitted the banks to collect reasonable service charges from the customer in

a transparent manner.

iv. Steps for enlarging the scope of various models for financial inclusion including BC/BF,

MFIs, Rural Based institutions like NGOs, PACs, Post offices, etc.

v. Expansion of Branch network: To use the existing network, commercial banks were

asked to add at least 250 rural household accounts every year at each of their rural and

semi-urban branches. Banks can also use rural ATMs, mobile vans, extension counter to

reach remote areas. Now commercial Banks are not required to seek RBI permission to

open new branch at the rural centres with population below 50,000. Recently, 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. This will speed up

the process of reaching to the excluded people. 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.

vi. Opening of branches in villages having population more than 5000 in under bank

districts and 10,000 in other districts: As per the strategy and guidelines of financial

inclusion issued by Department of Financial Services(DFS), Govt. of India, banks shall

within their service areas in the under banked districts , open a regular brick and mortar

branch in habitation with population of 5000 and above by September, 2012 and in other

districts , the banks must try to open as many bricks and mortar branches, in their service

area, in habitations having population of 10,000 and above by September,2012.It was also

decided that in unbanked districts with population < 5000 but more than 2000 bank may

set up Ultra Small Branch(USBs), banks may establish outlets in rural centers from which

BCs may operate.

19

vii. Ultra Small Branch (USBs): USBs will provide support to about 8-10 BC Units at a

reasonable distance of 3-4 kilometers. 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. This arrangement will increase legitimacy and

credibility of BCs in the area and give people increased confidence to use their services

.For villages having population 5000 or above in unbanked district and 10,000 for other

districts, where opening conventional brick and mortar branch is presently not viable, 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. Officer of USBs will act as

maker and will be supported by Officer of link branch as Checker for all transaction made

at USB. BCA shall be present on all working days and shall deal with all cash transactions

(up to 10,000/- per customer) and other services assigned to BCA. The Satellite Office

(USB) should have a pass book printer and a safe for cash retention.

2.6 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). These contained self-set targets in respect of opening of rural brick

and mortar branches; deployment of business correspondents (BCs); coverage of

unbanked villages with population above 2,000 as also other unbanked villages with

population below 2,000 through branches/BCs/other modes; opening of no-frills accounts;

kisan credit cards (KCCs) and general credit cards (GCCs) issued; and other specific

products designed by them to cater to the financially excluded segments.

A brief analysis of the progress made under FIPs of banks shows that penetration of banks

in rural areas has increased manifold. As against 21,475 brick and mortar branches of

these banks in rural areas as in early March 2010, banks are now as on 31.03.2012

,providing banking services in rural areas through 1,47,534 outlets comprising 24,701 rural

branches, 1,20,355 BC outlets and 2,478 outlets through other modes. No-frills accounts

20

have increased to around 105.5 million with an outstanding balance of above Rs.99.30

billion with the addition of about 50.2 million new no-frills accounts since April 2010.

Going forward, 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. For the purpose, banks have been advised that FIPs prepared by their

head offices are disaggregated at respective controlling offices and further at branch

levels. They were also advised to put in place a mechanism to monitor the progress at

these levels periodically.

2.6.1. Roadmap to cover Villages with Population above 2,000. “Swabhimaan” the

Financial Inclusion Campaign: In pursuance of the announcement made in the Monetary

Policy Statement of April 2010, the roadmap to provide banking services in every village

with a population above 2,000 was finalised by State Level Bankers’ Committees (SLBCs),

provincial (state) level committee of stakeholders from Govt, Banks, banking regulator and

other related institutions primarily engaged in monitoring resource flows in local

geography. In order to extend the reach of banking to the rural hinterland, 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, 2012 under “Swabhimaan”

campaign Smt. Sonia Gandhi, Chairperson UPA, formally launched “Swabhimaan” – the

Financial Inclusion Campaign in February, 2011. “Swabhimaan” aims at providing

branchless banking through use of technology. Under the roadmap, 74,414 villages with

population above 2,000 were identified as unbanked, which were allocated to various

banks, including regional rural banks (RRBs) for providing banking services by March

2012. Banks provide basic services like deposits, withdrawals and remittances using the

services of Business Correspondents. 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.

Banks have covered 74,199 (99.7 per cent) of these unbanked villages. Now the challenge

is to cover all the unbanked villages of the country.

21

Status of Financial Inclusion (31.03.2012)

S. No. Type of outlets No. of outlets

1 Rural Banches 37,471

2 BC Outlets 1,41,136

3 Other Outlets 3,146

Total Rural outlets 1,81,753

4 No frills accounts 139 million

5. Amount in No frills accounts Rs.120 billion

5 No. of KCC accounts 30 million

6 Amount of KCC outstanding Rs.2068 billion

7 Number of Accounts 2.1 million

8 Amount of GCC outstanding Rs. 42 billion

Source: RBI

2.6.2. Extension of the”swabhiman campaign” for covering the villages with

population less than 2000:

To increase the penetration and FI, the “Swabhimaan” campaign was launched in

pursuance of Budget Announcement (2010-11). To build on the momentum and success

achieved, 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 2,000 as per Census

2011. About 45,000 such habitations have been identified to be covered under the

extended “Swabhimaan” campaign.

2.6.3. 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. For better administration of subsidy extended by government through 32 schemes to

reach the household through electronic benefit transfer scheme in the society, it is

imperative to have at least one bank account per family among the financially excluded

people. For transfer of subsidy benefits directly to the accounts of these underprivileged

people through EBT , so that the beneficiaries can draw the money through bank

branches, ATM, Micro ATM and CSPs.

22

Keeping in view of the above , 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. of India.

2.6.4. Opening of accounts of hawkers, labourers, migrant labourers etc.: Lot of poor

people lives in urban areas to cater the need and integral part of urban development. Most

of them are linked to their family staying in villages. They also require financial services

like savings, remittance, insurance, pension products and small loans to start their small

business. 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, Department of Financial Services (DFS), Ministry of Finance, GOI, has advised

banks to launch a drive for opening of their account. 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. Later on, the process to be extended beyond 500

meters so as to all these persons financially included. Branches are advised to give top

priority to this agenda.

2.6.5. 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, so that proper and timely choice can

be made for enhancing the economic security of oneself, his family business. Primarily

financial literacy is relevant to the people who are resource poor. With financial literacy,

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. Establishing FLC, reaching the resource poor personally, and providing adequate

information about use of technology, products and process etc., for end user can be

beneficial to improve literacy aiming the target group. This can also be done through

innovative medium like films, documentaries, pamphlets and road shows. Awareness

programme about technology at villages/ branches can be conducted to improve financial

literacy. Customer calls centres to improve and facilitation of awareness along with

adequate training of staff as well as BC/BF. Covering basic financial service like savings,

credit products, use of credit cards, investments, grievance redressal mechanism,

23

awareness about electronic banking and the safeguards to be followed is necessary as a

nationwide strategy. For scaling up Financial Literacy efforts manifold, it has now been

decided by RBI to modify the existing FLCC Scheme. While the existing FLCCs (60 nos)

would continue to function with a renewed focus on financial literacy, 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 .Financial literacy

activities will also be undertaken by all the rural branches of Scheduled Commercial Banks

including RRBs.

The Financial Literacy Centres (FLCs) will impart financial literacy in the form of simple

messages like Why Save, Why Save early in your Life, Why Save with banks, Why borrow

from Banks, Why borrow as far as possible for income generating activities, Why repay in

time, Why insure yourself, Why Save for your retirement etc. 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. For the purpose, the help of experienced NGOs

may also be taken. 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.

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. 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.e. (i) savings cum overdraft account, (ii) pure savings product ideally a recurring deposit

scheme, (iii) remittance product for electronic benefits transfer and other remittances, and

(iv) entrepreneurial credit in the form of General-purpose Credit Card (GCC) or Kisan

Credit Card (KCC).

FLCs and rural branches of banks should maintain record in the form of a register

containing details such as name, gender, age, profession, contact details, whether banked

or unbanked, details of services availed etc. The Head/ Controlling Offices of the

concerned banks would monitor the financial literacy efforts undertaken by their

24

FLCs/Branches through periodic reporting and also by resorting to random on-site visits.

They would periodically (at least once in a year) undertake impact evaluation of their

literacy efforts so as to make way for continuous improvement.

2.6.6. 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. 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.

Gains from Financial Inclusion for SBI:

Initiatives taken up by the Bank so far helped to achieve following quantifiable business.

Table : Business performance through BC model in SBI

Particulars March ’10 March ’11 March’ 12 Sept’12

No. of “No Frills”

Accounts

(in million)

76 97 13.56 (8.8

lakh thr

BC)

16.12

Balances in no frills

accounts

(in Rs millions)

3360 6150 6220 6820

Average Balance per

Account (Rs.) (opened by

BC only)

491 636 516 639

Loans (in Rs millions)(BC

ch)

27870 54460

25

The initiatives of Financial Inclusion helped the bank to accrue following benefits:

� Net Income from Aadhaar enrollments – Rs. 14.6 crores.

� Transactions worth Rs. 26850 million routed through BC outlets

� Decongestion of branches: 16.9 million transactions through BC Channel

� Increase in customer base- 16.12 million “No Frills” A/cs opened.

� Rs. 6820 million of CASA deposit mobilised in “No Frills” accounts.

� EBT disbursement:1129.2 million in 3.56 million a/c(Sept’2012)

� Establishment of USB as on 30.09.2012:3681nos.

Thus, there exists enormous opportunities in rural areas and ample scope for banking business.

26

CHAPTER 3: MODELS OF FINANCIAL INCLUSION

Contents: Branch Network (No frills, Banking on wheels, SHG Bank linkage &JLGs), BC/BF, MFIs, Co-operatives & RRBs, Aadhar, etc.

Backed by the government support and policy initiatives of the RBI, the task of financial

inclusion has been taken up by the Commercial Banks with a passion. Apart from meeting

the regulatory requirements, several banks have taken proactive steps. Modification in

existing processes and systems were done based on the experience and the

requirements. Various models adopted by the Indian banks and innovative steps taken

for achieving financial inclusion described in following paragraphs.

Concerted efforts are being made since last 3-4 years, to achieve the financial inclusion.

Banks have taken various steps and adopted following models like Branch network,

Business Correspondent/Business Facilitator model, Micro Finance Institutions (MFIs) /

Non-Government Organisations (NGOs). In their pursuit for achieving FI, novel initiatives

like Banking on wheels and tools of technology like mobile, internet kiosk, etc were tried

out and refined to suit processes and requirements.

3.1. 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, the efforts were made to open “No-frills”

accounts of the households of uncovered villages under relaxed “Know your customer

(KYC)” norms. 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. 120 billion. Credit

facilities in small amounts are also being offered to these accounts to inspire the account

holders for doing regular transactions.

Basic Savings Bank Deposit Account: Banks to make available a basic banking 'no-

frills' 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 are to offer a ‘Basic

Savings Bank Deposit Account’ with following features:

27

i. Not have the requirement of any minimum balance.

ii. Deposit and withdrawal of cash at bank branch as well as ATMs; receipt/credit of money

through electronic payment channels or by means of deposit/collection of cheques drawn

by Central/State Government agencies and departments;

iii. No limit on the number of deposits in a month, allowed a maximum of four withdrawals

in a month, including ATM withdrawals; and

v. Facility of ATM card or ATM-cum-Debit Card.

3. Above facilities are provided without any charges and no charge will be levied for non-

operation/activation of in-operative ‘Basic Savings Bank Deposit Account’.

3.1.2. 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 poor people come together and pool the

savings of group and dispense small loans for meeting the individual requirements of

member. Credit facilities by banks to these vulnerable sections of society under group

mechanism benefitted more than 7.96 million SHGs as on 31st March 2012. Commercial

Banks need to maintain focus on this issue and further strengthen SHGs to engage in

micro enterprises or income generating activities.

Women SHGs Schemes in Backward Districts: For greater financial inclusion and

empowerment of women, role of SHGs is very vital. 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.150 backward districts have been identified

by Ministry of Rural Development, Govt. of India (list available in annexure-1) out of which

SBI has lead bank responsibilities in 72 districts. 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. The project is being implemented by NABARD.

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. 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.

28

Further, 20% of the fund is allocated for supporting promotion by NGOs of Women SHGs

in project areas at the rate of Rs, 10, 000/- per SHG.

3.2. Business Correspondent (BC)/Business Facilitator (BF) model:

This model is widely accepted by the Commercial Banks and the RBI. Under the BC

model, agents are appointed for offering banking services to excluded people of the

society both in rural and urban areas by the banks. These agents or intermediaries

generally work on commission basis. The BCs are either individual, proprietors of Kirana

shop, NGOs, MFIs, SHGs, Government Agencies like post offices, Corporates with large

and widespread retail outlets, etc. Many banks have fostered tie up with India Post and

Corporates like Bharti, HUL, etc. to build synergy for using mutual networks and services.

The activities permitted to be performed by the BCs include: Collection of small deposits,

disbursement of tiny loans under General Credit Card / Kisan Credit Card, receipt and

delivery of small value remittances, recovery of bad loans, selling of micro insurance and

pension products, etc. 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, payment of social

security benefits /direct subsidies, etc.

Business Facilitator (BF) model accelerate the process of banking by creating awareness

/facilitating the process among the poor and unbanked/under banked people. The BC/BF

model has been rolled out by many Banks and some Banks are in the process of up-

scaling the coverage. So far 1,41,136 BCs are employed by Commercial Banks as on

March 31, 2012. The model is in evolution stage and more fine tuning in terms of tools,

technologies, security, risk mitigation measures and cost factors need to be build up

through the experience and experiments.

3.2.1. 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. The BCs have opened no frill accounts in all FI villages

and these accounts are operational. Transactions are being done by the villagers through

these BCs with the help of hand held machine of the BCs. All these hand held machines

are connected with CBS system of Bank .Different BCs use technology of different

29

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 Department of

Financial services, GOI, had taken up with RBI and NPCI the issue of interoperability at

the level of BCAs. Two Pilot Projects in Mewat District of Haryana and Bulandshahar

District of UP were implemented. RBI has issued guidelines relating to interoperability vide

its letter dated 02.03.2012. Based on these guidelines NPCI has also formulated the

Standard Operating Procedures for all member banks. 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. It will also ensure standardization of PoS devices and

procedures in transactions though the BC channel. This would also greatly benefit the

common man as he/ she would be able to transact through any BCA of any bank. Efforts

are on to convert Pilot into Production.

3.2.2. RFP FOR APPOINTING COMMON BC IN STATE: The Finance Ministry's

Department of Financial Services (DFS) triggered a sweeping reorganization of the Bank-

Business Correspondent (BC) model in April; 2012.It suggested that India be divided into

20 clusters, each one of the cluster headed by one leader bank for appointment of

common BC in the cluster. A common BC is to be appointed for all public sector banks

operating in that geography (cluster). The DFS, GOI, said such a move would improve the

economics of the BC model .In the first RFP for Maharashtra, Vakrangee Finserve bid

0.48%.The second RFP, for Jharkhand and parts of Bihar, went to FINO, which bid 0.35%.

A couple of days later, FINO bid 0.19% for Chhattisgarh (excluding the districts of Jashpur,

Raigarh and Mahasamund).Bangalore-based Strategic Outsourcing Services has won

the tender to become the common BC for all public sector banks working in Orissa.In line

with the previous auctions, the bid amount for cash management costs was surprisingly

low -- the company won with its 0.11% bid. . Right now, almost all the BC companies in

India are in the red and viability of BC/CSP model is of major concern. The move,

however, has triggered fears that monopolies will be created in each cluster jeopardizing

the interest of financially excluded people. The news was received by bankers with tired

cynicism.

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3.3. 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.

Non-Banking Finance Companies (NBFC) led MFI model is more aggressive in deepening

their products and expanding the reach. Within a short span of 5-7 years, 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. Microfinance

institutions offer financial services to underprivileged and impoverished communities. An

Increasing number of microfinance institutions (MFIs) are seeking non-banking finance

company (NBFC) status from RBI to get wide access to funding, including bank finance

due to exemptions granted to NBFCs licensed under Section 25 of the Companies Act,

1956, and which do not accept public deposits, from the purview of Sections 45-IA

(registration), 45-IB (maintenance of liquid assets) and 45-IC (transfer of profits to the

Reserve Fund) of the RBI Act, 1934 010 and engaged in microfinance activities.

In a joint fact-finding study on microfinance conducted by the Reserve Bank of India and a

few major banks, 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,

including areas covered by the SHG-Bank linkage programme. Competing MFIs were

operating in the same area, and trying to reach out to the same set of poor, resulting in

multiple lending and overburdening of rural households.

Many MFIs supported by banks were not engaging themselves in capacity building and

empowerment of the groups to the desired extent. The MFIs were disbursing loans to the

newly formed groups within 10–15 days of their formation, in contrast to the practice

obtaining in the SHG – Bank linkage programme, which takes about six to seven months

for group formation and nurturing. As a result, cohesiveness and a sense of purpose were

not being built up in the groups formed by these MFIs.

Banks, as principal financiers of MFIs, do not appear to be engaging them with regard to

their systems, practices and lending policies with a view to ensuring better transparency

and adherence to best practices. In many cases, no review of MFI operations was

undertaken after sanctioning the credit facility. Recently, microfinance has come under fire

31

in the state of Andhra Pradesh due to allegations of MFIs using coercive recollection

practices and charging usurious interest rates. These charges resulted in the state

government's passing of the Andhra Pradesh Microfinance Ordinance on October 15,

2010. The Ordinance requires MFIs to register with the state government and gives the

state government the power, suo moto, to shut down MFI activity. A number of NBFCs

have been affected by the ordinance, including sector heavyweight SKS Microfinance.

Other grass root organizations like NGOs and Primary Agricultural Co-operative Societies

(PACs), can play the vital role in offering microfinance services. These agencies can

supplement and expedite the work of financial inclusion.

3.4. Primary Agricultural Credit Societies (PACS):

There are nearly one lac Primary Agricultural Credit Societies (PACS) with membership of

over 14.50 crore, located in the rural hinterlands of the country. PACS are ideally suited to

provide a comprehensive range of services like savings, credit, insurance and remittances

to their clients, provided there is a workable tie up with the higher tier cooperative banks.

Thus, their role in financial inclusion cannot be underestimated. Consequent upon

implementation of the recommendations of Vaidyanathan Committee, many PACS are well

poised to take up viable business activities. On realizing their importance, a few States

have started utilizing their services for all activities related to agriculture. In a few states,

PACS have started extending remittances, insurance, etc. NABARD has started

supporting PACS for computerization. It would be, therefore, feasible to have CBS for

integration of technology based inclusion models for PACS as well. The model would also

improve the viability of these institutions.

3.5 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, upgrading the technological infrastructure,

modernising transaction platforms, developing low cost small ticket remittance

mechanisms and facilitating electronic fund transfers. 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. India Post, with a network of more than

1.55 lac post offices – mostly in rural areas is in the process of getting Cabinet approval for

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Bank linkage. Since post offices already accept deposits, converting into a full-fledged

bank branch may be quite feasible. The department proposes to acquire ATMs in a bid to

modernize its operations. India Post is reportedly finalising tie up with various banks. Some

banks have already forged partnerships with post offices for expanding their outreach. SBI

and India Post have entered into a partnership in which, postmen will act as BCs for SBI in

more than 12,000 villages. Progress made so far is not up to the mark.

3.6. Information, Communication and Technology (ICT)

Recent innovations and development, happened in the fields of Information,

Communication and Technology (ICT), can be harnessed to speed up the process of

financial inclusion and achieve higher levels of scalability for operation.

The Information and Communication Technology (ICT) on which the Financial Inclusion is

riding today are:

Short Message Service (SMS), Unstructured Supplementary Services Delivery (USSD),

Wireless Application Protocol (WAP), General Packet Radio Service (GPRS), phonebased

applications such as Java (J2ME)/Binary Runtime Environment for Wireless (BREW),

Subscriber Identity Module (SIM) - based application, and Near Field Communication

(NFC).

All these technologies are basically distributed systems which can be seamlessly

onnected to the Core Banking Database of the banks for on-line, real-time, remote

transactions and generate flawless MIS for the end users.

Some of the technology platforms used by the Banks are as under:

i. PoS (Point of Sales) based biometrically enabled Smart Card

ii. Kiosk Banking: Kiosk Banking consists a computer connected to the banking system

through the internet, a camera and scanner cum printer. Customer transactions like

opening of accounts, cash deposit and withdrawl are permitted through biometrics

validation.

iii. Bank Link to hand hold devices, mobile phones, internet based solutions, etc.

iv. Cell phone based messaging system or any other technology platform accepted to the

appointing Bank.

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Financial institutions need to build up ties with the technology solution providers, mobile

operators, vendors, NGOs, etc. to integrate the tools of technology with the Banking

system to leverage on its capabilities. While adopting the technology, it is needed to verify

that it should conform to the security, audit and accepted standards.

3.7 Unique identification (UIDAI) project: Aadhaar

In its vision document for financial inclusion, the Unique Identification Authority of India

(UIDAI) has proposed a bank account for everyone in the country. The Thirteenth Finance

Commission has proposed a budget of Rs.3,000 crores to be used for delivering an

incentive of Rs.100 into the bank account of each BPL resident who enrolls for a UID. This

creates a pan India demand for lightweight bank accounts. Bank should actively position

itself to offer a low cost No Frill bank account to anyone enrolling for a UID. 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.

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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

integrated with the 24x7 CBS system through certain intermediate server.

CUST

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POS & SMART CARD

CELL PHONE MESSAGING

INTERNET KIOSK

VENDORS

SERVER

SBI KIOSK

BANKING

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VENDOR-

CBS

GATEWAY

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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.

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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.

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CSP uploads the securely encrypted enrolment data to their back end server

through GPRS. The ZSN or Form ID remains the common reference between the

front end and the back end.

4. 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. In case of SBI these files are sent to the Dedicated

Accounting Unit (DAU) of the Bank through Secured File Transfer Protocol

(SFTP).The physical account opening forms are sent to Link branches (LBs) or

Financial Inclusion Centers (FICs). Accounts are opened by the bank in CBS using

file upload utility. 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

bank sends to ALW the account number and customer ID of each of the accounts

opened in CBS. 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.

4.2.6 Enrollment process- Other Customers

1. Blank Account Opening Forms are sent to CSPs. On the basis of the information

from the customer, CSP fills up the forms. CSP also captures the biometric profile

and the photograph of the customer on the mobile. CSP uploads the mobile

enrolment data on their back end server through GPRS. The physical account

opening forms are handed over to the field executives of the business

correspondent (BC). The BC arranges for data entry in a data entry software user

interface provided by ALW. The data is uploaded securely to the ALW enrolment

system. 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.

2. 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. In case of SBI these files are sent to the Dedicated

38

Accounting Unit (DAU) of the Bank through SFTP (Secured File Transfer

Protocol).The physical account opening forms are sent to LBs or FICs. Accounts

are opened by the bank in CBS using file upload utility. 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 bank sends to ALW the account number and

customer ID of each of the accounts opened in CBS. 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.

4.2.7 Card Production system

All accounts that have been opened are processed for card issuance in the card

production system. All eligible records are extracted from the enrolment system and sent

for printing of cards. In case of Smart Card, after printing these are individually

personalized electronically. After printing and electronic Personalization, the cards are

dispatched. Once the Card is dispatched the details of the account and the card are

imported into the transaction system to facilitate transactions.

4.2.8 Transactions through smart cards

1. 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.

2. At CSP, the customer touches or swipes the smart card at POS terminal and the

transaction menu is displayed.

3. CSP enters the type (deposit or withdrawal) and amount in the Transaction menu.

4. Finger print validation is done through the finger print reader if it is a withdrawal

transaction. No validation is required for a deposit transaction.

5. On successful validation, CSP gives cash to Customer.

6. After the cash is handed over (withdrawal) or taken (deposit), CSP prints 2 receipts-

one for the customer and the other for transaction records.

4.2.9 Transactions through plain plastic card

1. 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.

39

2. When a customer approaches the CSP and provides the ZSN, CSP retrieves the

customer photo and account details and navigates to the transaction Menu.

3. CSP enters the type (deposit or withdrawal) and amount in the Transaction menu.

4. Finger Print validation is done through the finger print reader if it is a withdrawal

transaction. No validation is required for a deposit transaction.

5. On successful validation, CSP gives cash to Customer.

6. After the cash is handed over (withdrawal) or taken (deposit), CSP prints 2 receipts-

one for the customer and the other for transaction records.

The special features of the channel are Biometric authentication and functioning both

online and offline.

4.3 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.

4.3.1 The Service Provider

A social enterprise - ‘Geosansar’, Oxigen Services India Pvt Ltd., 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. There is no outside

technology vendor for Kiosk banking channel. The technology has been developed in

house. The front end kiosk operation is integrated with 24x7 CBS data Centre.

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4.3.2 Required Components

1. A simple PC with web camera / digital camera and speakers.

2. Internet connectivity.

3. Finger print scanner.

4. Printer.

4.3.3 Transactions supported

The Kiosks provide a variety of services including Customer Creation, opening accounts,

capturing fingerprint and photo with the help of webcam, issuing identity card etc. They

also support transactions like cash deposit, cash withdrawal, balance Enquiry, statement

of account and fund transfers. The KO can also capture the signature of the customer

during offline customer creation. The transactions are voice prompted which explains or

confirms transactions to customers in local language.

4.3.4 Enrollment Process

1. The KO uses a simplified account opening form from the customer. The KO enters

the customer details captures the finger print (using scanner) and photo (using the

web camera) in the system. Documents as per the liberalized KYC norms are also

collected during this process. On successful uploading of customer information, the

system generates a reference number and acknowledgement receipt.

2. KO submits physical account opening form to the LB or FIC for verification. The

data captured at the KO is also sent to them for verification with the particulars in

the physical account opening forms. 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.

3. The KO, using the reference number already generated for the customer, logs into

the Kiosk application and prints Identity Card for the customer.

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Transaction process

1. For conducting any transaction, the customer needs to visit the kiosk along with the

identity card.

2. The kiosk operator logs into the system using his own ID which is password protected

and biometrically verified.

3. The transactions take place only after successful validation of the customer’s fingerprint.

4. The transactions are supported by voice prompt which explains it to the customers in

local language.

4.3.6 Special features

The special features of the channel are Biometric authentication, KO validation for Media

Access Control (MAC) ID which is unique for a network adapter, online-real time

transactions, Cost effective and no dependency on technology vendor. It also supports

transactions in non-kiosk accounts.

4.4 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, cash payments, mobile top ups etc on their

Mobile.

Usable Anytime, Anywhere! These services are available at your finger tips, beyond

regular banking hours, along extra ability to make other bill payments.This application has

been developed by Oxigen, for the State Bank Of India.Oxigen Services(India) Private

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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,

for make payments for goods and services, remittances via the State Bank Mobi-Cash

application, and cash in/ out at Oxigen customer service point.

As Oxigen, Sahyog Microfinance and SBI have already tied up for providing SBI’s Kiosk

Banking solutions through Oxigen’s CSP’s and Oxigen has appointed 2,000 CSP’s across

India, this network will also be available for State Bank MobiCash services.

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),

• 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

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What Benefits does the Customer get ?

Now the Mobi Cash user has a unique mobile pre paid bank account, with which they can

make Banking transactions at their fingertips from whatever location they are. A Mobi-

Cash user need not visit the retailer for any service other than Cash in and cash out .No

standing in long Queues, No wastage of time, Quick & Real time transactions, fully secure,

Anytime, Anywhere Banking, and the ease of making payments on the go, which really

means they have the benefit of Extended banking hours too.

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, with which they can

make Banking transactions at their fingertips from whatever location they are located. A

Mobi-Cash user need not visit the retailer for any service other than Cash in and cash out

.No standing in long Queues, No wastage of time, Quick & Real time transactions, fully

secure, Anytime, Anywhere Banking, and the ease of making payments on the go, 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.

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What is the CSP responsibility?

CSP will open customer account :

• By providing customer the AOF(Account Opening Form)

• Collecting, 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, CSP will assist Customers for the following services

through web vending and POS on behalf of customer

• Cash withdrawal

• Cash deposit

4.5 CELL PHONE BASED MESSAGING:

4.5.1 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. The system is based on MIFOs open source and

the implementation partner is WIPRO.

4.5.2 Required Components

1. Ordinary mobile handset capable of sending simple SMS text messages.

2. OkeKey which is a numeric key attached to the account for secure transaction

4.5.3 Transactions supported

Cash deposits, Cash withdrawals, balance check and transfer transaction from personal

account to another persons’ account (P2P) transfer. Since the deposit and withdrawal

transactions involve cash, they require the intervention of the CSP. Balance check and

P2P transfer do not require such interventions. The other transactions supported on the

customers mobile are mini account statement, money transfer retrieval list, PIN Change,

registration of new Okekey Booklet etc.

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4.5.4 Enrollment Process

1. Customer walks to the EKO Counter to enquire about the service. CSP explains the

service with the help of a comic and leaflet.

2. Customer provides one photograph, an ID proof and an address proof.

3. 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.

4. 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.

5. After preliminary scrutiny, the application forms are segregated, LB-wise the data is

captured. The data reaches the LB as well as the physical account opening forms.

6. 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.

4.5.5 Transaction process

1. The customer can only conduct deposit and withdrawal transactions till such time

that the account opening form is verified and reaches the LB.

2. The customer receives a message once his KYC has been completed and on

receipt of a confirmation that P2P money transfer services are enabled.

3. For any transaction happens in an account, both the sender and the receiver get a

confirmatory SMS.

4.5.6 Special features

The special features of the channel are 3 level security checks – Mobile number, okekey &

PIN. Besides, there is no additional cost of acquiring POS, internet connectivity, PC-kiosk

and fingerprint scanner.

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4.5.7 Products and coverage

The range of products made available through technology channels in SBI are Savings

Bank, Recurring Deposit, Remittance, Saving-cum-Overdraft and, SB Tiny Cards to SHGs.

All these channels put together have enrolled approximately 60 lacs customers.

4.6 ATM-BASED SOLUTION

ATMs are limited in the scope of transactions that they can handle, especially in rural

areas. The issues around deployment of ATMs are:

• Cost of maintenance of the ATM such as refilling cash, ATM maintenance and ATM

security is high, given the distribution.

• ATMs solve the problem of time of access, but the cost of the ATM installations works

against a large scale deployment.

• The customer segment is not very digitally savvy, and remembering PIN numbers for

ATM access is a hassle. This has a negative impact on customer experience and also

increases the cost of customer maintenance with the additional load on PIN management.

• Banks have sampled the use of biometric ATMs which are installed in vehicles. 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.

• 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. They include biometric, mobile and micro-ATMs.

Financial viability is the key to success for any business model. 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. Sustenance of this model in Indian Financial inclusion will depend

on the volume of transactions and profitability on the long run. Generation of a good

business ground by the beneficiaries will decide the winners and losers.

=====================================*********================================

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CHAPTER 5: FINANCIAL INCLUSION- PRODUCTS &

SERVICES IN SBI

Contents: Small accounts, SBI TINY, Savings cum OD, RD, SBI Tatkal, Financing to SHG/JLGs, GCC, Krishak Uthan Yojana, etc.

5.1 STATE BANK SARAL MONEY

Objective:

Tap the unbanked/ un-carded consumer & provide a superior/alternative to receive and

make payment vis-à-vis cash. Enabling Aadhaar authenticated payments with open loop

Visa prepaid cards.

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.

Description features Eligibility Any individual with an Aadhaar Card can avail

the Card. Card Type Visa powered Prepaid Cards. Currency of Issue Indian Rupee only. Minimum amount of Issue Rs. 100/- Cards per person One Maximum amount. Rs. 50,000/-

I. the aggregate of all loads in a financial year should not exceed Rs. 1,00,000/-. II. the aggregate of all withdrawals and transfers in a month should not exceed Rs.10,000/-. III. the value of the card should not exceed Rs. 50,000/- at any point of time.

Loading / top up options The card can be loaded/ reloaded at: a) Selected State Bank branches. b) Other Bank Branches/ Business correspondents, which are members of Aadhaar Saral Money programme. (subject to balance not exceeding Rs. 50,000).

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Card Acceptability

a) Can be used at selected State Bank branches having the Micro ATMs & other participating Bank BC/ branch having Aadhaar logo, for fund deposit, cash withdrawal, etc, 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).

Balance enquiry

Cardholder can view the balance free of cost at any State Bank Group ATM in India and also online at www.prepaid.onlinesbi.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.

Daily Cash withdrawal limit. Minimum: Rs. 100/- and Maximum: Rs. 10,000/-.

Daily Point of Sale/ Online Transaction Limit

Rs. 10,000/-

Domestic / International Domestic use only Card Validity 5 years Refund / Cancellation. Once card is expired or surrendered the unspent

/ unutilised amount will be refunded only to the Cardholder.

5.2 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. 14/2010/F.No.6/2/2007-ES.

As per the revised definition, apart from the threshold fixed for aggregate credits in a year

and maximum balance that is permissible in such accounts, the aggregate of all

withdrawals and transfers in a month should not exceed Rs.10000/- in such accounts.

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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.

II) A small account shall remain operational initially for a period of twelve months,

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,

with the entire relaxation provisions to be reviewed in respect of the said account

after twenty four months.

5.3 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.50,000, 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.

� With the help of enrollment software, the CSP captures fingerprints (as required),

photograph and copy of account opening form.

� These details are saved in a CD/DVD depending on the number of accounts which

have to be opened. The CD/DVD contains in addition to biometric data, the

personal bio data of the customer and the type of account to be opened. The

CD/DVD is sent to the Back Office of the Front End vendor on the same day. The

hard copy of the account opening forms is sent by the CSP to the Link branch of the

Bank.

� 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 ).

� DAU routes the bulk uploads to the Link Branch.

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� 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. The Financial Inclusion account

namely the SBI Tiny SB A/c gets opened in CBS.

� An electronic extract of all accounts thus opened containing the account numbers,

is sent to DAU which forwards the particulars to the Front End vendor.

� The front end vendor after personalization despatches the smart cards to the CSPs

for handing over to the customer after verification of finger prints. A list of all the

new smart card numbers issued along with name of the customer, account number ,

father’s/ husband’s name , address and CBS account number is sent to the CSP( 2

copies). 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.

� The CSP, on receiving the personalized cards, enters the details in a register and

hands over the cards to the customers after finger print verification . He will also get

the acknowledgement of the customer in the register maintained for this purpose.

5.4 ‘SB- CUM- OD’ PRODUCT ON KIOSK BANKING CHANNEL

Kiosk Banking, an internet based technology initiative rolled out by the Bank for financial

inclusion, provides the facility of SB and RD account opening, cash in, cash out and

remittance product to customers.

With a view to provide the facility of micro credit to FI customers, 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.

The salient features of the product for Kiosk Banking channel are as under:

i. Purpose: General purpose loan to provide hassle free credit to low income

group/ underprivileged customers to meet their exigencies without insistence on

security, purpose or end use of the credit.

ii. Eligibility: Individuals having SBI tiny a/c (Savings Bank a/c) for the last 6

months and have not availed KCC from any branch.

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iii. 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, whichever is higher with a minimum of 1000/- and maximum of

25000/-.

iv. Interest: 6.25% over base rate per annum at monthly rests on debit balance in

the account.

v. Repayment: Repayable in 24 equated monthly installments with auto reduction

in DP.

vi. Sanctioning authority: Loan amount is sanctioned by the respective link branch.

vii. Security documents: DP note (COS-229) and DP note delivery letter,

Arrangement letter.

viii. Other features:

• It is a clean OD and no security is insisted on.

• Auto reduction in drawing power every month.

The process flow for the product in Kiosk Banking channel will be as under.

I. Customer visits kiosk outlet and submits the loan application form (as per the

standard format) along with KYC documents.

II. Kiosk operator (KO) after verification of customer finger prints, checks the

particulars of the SB account through the OD enquiry menu. 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.

III. 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. The branch will

assess OD limit as per the laid down norms i.e. 4 times of average balance of

last 6 months in the account and 4 times of net monthly income assessed by the

branch, whichever is higher.

IV. On sanction, the branch will send sanction letter indicating the date of execution

of documents to the KO. The KO will deliver one copy of the sanction letter to

the customer under acknowledgement and advises the customer to visit the link

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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.

V. On execution of the documents, OD limit will be set up in the SB account in

CBS. The customer can operate his account within the available drawing power

at CSP.

5.5 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. The channel was introduced with

savings bank and remittance products. Now, a new product- ‘SBI Tiny Recurring Deposit’

has been launched on the Kiosk Banking channel. 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.

Mode of operation: single Initial deposit amount: Minimum .10/- (Initial deposit and

subsequent deposits to RD account are by way of transfer from customer’s SB account

only.

Monthly instalment: No fixed instalment. Any amount can be credited to the account.

Multiple deposits can also be made in the account during a month.

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. Interest is calculated on month end balances and compounded every calendar

quarter.

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.

Nomination: Nomination is compulsory

Other features: No penalty is imposed for non-payment of any amount in the account. No

passbook is issued. Mini statement with the last ten transactions is issued at the request of

customer.

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The RD accounts are opened instantly based on the existing demographic details available

in CBS, at the request of customers submitted at BC / CSP. No action is required at the

link branch level. However, the ‘link’ branches will keep custody of account opening

requests for RD accounts received from BC / CSP.

5.6 SBI TINY SPECIAL TERM DEPOSIT

“SBI Tiny special Term Deposit” has been introduced for financial inclusion customers in

BC channel. 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 Minimum Deposit amount

Rs 1000/- thereafter in multiple of Rs 500/-

5 Maximum Deposit amount

Rs 10,000/-

6 Tenure of Deposit 6,12, 24 & 36 months only

7 Rate of interest As applicable to STDR accounts in CBS from time to time for normal as well as senior Citizen customers.

8 Mode of transaction Single through BC channel only. However on the request of the customer for converting into joint account the branch may create new CIF and link to existing account.

9 Facility of premature withdrawal

Available. Penalty as applicable in branch channel for normal branch customer. Payment before maturity request will be sent to the link branch.

10 Number of accounts Multiple accounts may be allowed subject to the ceiling of max balance of Rs 50,000/- in all the liability accounts of the customer.

11 Operation of the account and applicable charges

STDR acknowledgement will be printed and issued by the Link Branch. CSP will issue the printed receipt generated from technology device after successful transaction / receiving deposit amount form the customers.

12 KYC Norm s As laid down by RBI for “ No Frills Account “

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5.7. 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, Bihar and Jharkh and the recipient only needs to have a SBI account for

Tatkal to work. The customer is charged a flat Rs. 25 fee per transaction with a limit of

Rs.10,000 per account per day.

It is a simple two step process.

Step 1: A customer visits the CSP with the cash to be deposited. The CSP dials a USSD

(Unstructured Supplementary Service Data) numeric string from his mobile phone to

register the 11 digit account number - *543*11 Digit SBI A/c Number*Depositor Mobile

Number*Receiver’s Mobile Number (optional)#.

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#.

Once the transaction is completed the sender and the recipient receive a confirmation

SMS on the mobile number(s) registered. Customers have to pay the service charge of Rs.

25 upfront.

User Profile

The target segment for this product includes migrant labourers, daily wage workers, self-

employed and small entrepreneurs working in the cities. Most customers use this service

for remittance purposes (by depositing cash in the recipient’s bank account), while others

use it to make deposits in their own account. Remittances are mostly for personal use, but

a small fraction also uses it to remit business payments. The average transaction size

ranges from Rs.2,000-5,500. Typically the services are used by customers on a fortnightly

or monthly basis.

5.8 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.

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(ii) To extend collateral free loans to target clients through JLG mechanism.

(iii) To build mutual trust and confidence between bank and tenant farmers.

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. The JLG members would offer a joint

undertaking to the bank that enables them to avail loans. The JLG members are expected

to engage in similar type of economic activities like crop production. The management of

the JLG is to be kept simple with little or no financial administration within the group.

JLG Models

Model A – Financing Individuals in the Group: The JLG would normally consist of 4 to 10

individuals. The group would be eligible for accessing separate individual loans. 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). Bank will

assess the credit requirement, depending on the crops to be cultivated, available cultivable

land and credit absorption capacity of the individual. However, there has to be mutual

agreement and consensus among all members about the amount of individual debt liability

that will be created.

Model B - Financing the Group: The JLG would consist preferably of 4 to 10 individuals

and function as one borrowing unit. The group would be eligible for accessing one loan,

which could be combined credit requirement of all its members. The credit assessment of

the group could be based on the available cultivable area by each member of the JLG. All

members would jointly execute the document and own the debt liability jointly and

severally. JLG is mainly a credit product. But if the members want to save through the

group, 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 individual members of JLG would be eligible for the loan after

the branch verifies the individual members’ credentials.

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Model B:

JLGs that undertake savings apart from credit are required to maintain books of accounts.

They may also be graded by banks on the basis of performance parameters. However, the

quantum of credit need not be linked to groups' savings as in the case of SHGs. The credit

requirements for the group may be worked out based on combined credit plan needs of

individual members.

5.9 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.

� 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.

� Enhance coverage of rural populace under financial inclusion.

Salient features:

� Enrolment and A/c opening for Group (with full KYC) & Individual members at CSP.

� Linking of individual member to group account for relationship with group.

� Accounts are to be operated with biometric validation of two authorized signatories

as per the resolution of SHG.

� Cheque book for SHG, if required, will be issued by Link Branch.

� Signature of authorized signatories will be scanned and uploaded in the link branch.

� 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.

� Maximum Transaction limit at CSP in a day – Rs 2.00 lac

5.10 GENERAL CREDIT CARD

ELIGIBILITY

� All existing customers with the branch having satisfactorily conducted deposit

accounts including no frills deposit accounts in our books; say, for the last 6 months,

or so;

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� 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.25,000/- whichever is less

SECURITY

� No collateral security / end use / purpose should be insisted upon.

5.11 SBI KRISHAK UTHAAN YOJNA

Objective:

To provide easy access to short term production and consumption credit to meet genuine

requirements of tenant farmers, 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. It will help

increase their income from agriculture production activities.

Purpose: � To provide credit for purchase of various inputs for crop cultivation including irrigation

charges, electricity charges etc,.

� For meeting part of consumption needs and

� An additional support loan to tide over the adverse market conditions, if any, which

normally prevail during the harvest season can also be considered.

Eligibility:

� Landless labourers, share croppers, tenant farmers, oral lessees, (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, subject to production of

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an Affidavit for cultivation of crops.

� Should have a permanent residential address proof & have been residing at the place

for at least past 2 years.

� Migratory tillers are not eligible under the scheme.

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,

ii) Voters’ list/Identity card Or

iii) any other local document prescribed by the LHO concerned.

Limit: Upto Rs 1,00,000/- (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.

� 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. . This will help the farmer to

avoid distress sale of their produce.

Margin: Nil

Application & Terms and Conditions: As applicable to KCC/ACC accounts

Documents:

I. DP Note (COS229)

II. DP Note take delivery letter

III. Arrangement letter

IV. Affidavit (as per annexure)

[Affidavit: Specimen of Affidavit drafted by the law Dept. Corporate Centre is enclosed as

annexure. 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. The specimen

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may be suitably modified considering the requirements of the State, in consultations with

LHO’s Law Dept., if need be.]

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.

Disbursement: 20% of loan amount on sanction. 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, by gathering information from

the borrowers of the same village.

Repayment: The sale proceeds should be routed through the cash credit account.

Sanctioning Authority: As per extant delegation of powers under agri segment for crop

loans / KCC loans.

Operation in the account:

i) Disbursements will be made in phases as per the requirements of the borrower for

raising crops.

ii) Withdrawal from the account will be through withdrawal slip as used for KCC.

iii) At the time of withdrawal and deposit, the beneficiary should present the passbook for

recording the transaction.

iv) Though drawls in the account are expected as per seasonality of the crops/sub limits,

yet, some flexibility may be allowed to enable the farmer to purchase inputs at

convenient times when availability/prices are favourable.

v) Submission of invoices/quotations should not be insisted upon, as borrowers use

limit/sub-limits on the basis of scale of finance.

Supervision and follow-up etc.: As applicable to KCC facility.

Accident Insurance: The account will be covered under Personal accident insurance

scheme (PAIS) as applicable to Kisan Credit Card.

Application of prudential norms: The prudential norms as applicable to crop loans would

apply to these accounts also.

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CHAPTER 6: ISSUES AND CONCERNS

Structural and systemic issues, Volume of transactions, commission, technology issues, etc relating to alternate Business Models.

There are various structural issues and operational aspects in implementation of FI. The

major aspects and issues are briefed in following paragraphs:

6.1 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. Cassandra’s in the system are predicting its doom owing to deep fault lines which

currently exists. 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. 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. FI objectives are reluctantly accepted as a

top down forced program. The success, therefore, depends on the ability of the system to

train its human resources and change their attitudes towards FI.

6.2 Long term financial viability

Banking system is required to commit large doses of financial resources without

compensating revenue streams in the short run. In the absence of any historical

precedence of such business model, system needs to pump in resources for technology,

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.g. life insurance, power

projects etc. The situation is further complicated because FI program has multiple players

with complex relationships like policy makers, IT vendors, Bank branches, Institutions

providing BCs or individual BCs each searching for its own financial viability. To sustain

the momentum till volumes grow with suitable intervention on both demand and supply

side is a major risk.

6.3 Customer protection:

Dy Governor of RBI, 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. Rural areas are widely spread and scattered. Most of the people in rural areas

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are illiterate or neo-literate and are unaware of their rights as compared to their

counterparts in urban areas. These people are superstitious, gullible and vulnerable to

exploitation. Protecting their rights in their dealing with BCs providing financial services

requires strong customer protection policies and monitoring by the Banks.

6.4 Infrastructure and manpower:

Regional Rural Banks and Co-operative Banks which have local roots suffer from low

capital base and lack of professional management. In Commercial Banks, the number of

rural branches decreased from 1991 to 2007 and it started increasing afterwards. In 1991

rural branches were 35206 which went down to 30551 by 2007 and increased to 32494 by

2010. Up to 2007 the rural branches could not expand the reach or connect to the rural

masses with the banking system. Rural presence of commercial bank branches is

miniscule considering that there are over 6.00 lakh villages in the country. They have

limited manpower and resources at the rural centres.

6.5 Ticket size:

Ticket size of bank business to the poor and low income group people will be small and

scattered. Since agriculture is the major occupation and most of the people are small /

marginal farmers and land less laborers, their earning and credit absorption capacity are

limited. Thus the business per transaction is much less as compared to their counterparts

in urban areas.

6.6 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, they commute from the urban centres. Stay in

rural area is not considered attractive. Commutation takes about 2 to 4 hours and also

causes fatigue, these employees somehow try to complete the business hours. Majority of

the bank or government employees try to complete their tenure without much interest or

with indifferent attitude. They do not add human touch to the transaction which is utmost

important for dealing with rural people. Thus these employees do not understand the

problems/difficulties and empathise with the rural masses. The RBI Governor, D. 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.

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6.7 Structural issues:

Another major problem is that of the unsatisfactory broadband/mobile connectivity as also

inadequate connectivity (road and rail) to un-banked villages. Of course, 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, withdrawals,

remittances, micro-credit etc. whereas banks are required to make substantial

arrangements and incur expenditure on account of different delivery channels with most

advanced technology.

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, to mitigate which banks need to take appropriate action.

Besides the basic impediments (roadblocks to Financial Inclusion) viz., poverty, ignorance

(low level of financial literacy), environment as well as cultural and psychological barriers;

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, i.e. 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 , thereby

resulting in low levels of business and consequently meager or inadequate remuneration

to BCs (e) Unsatisfactory service delivery etc. Additionally, 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.

6.8.1 Steps taken by SBI

Following measure are taken by the SBI to mitigate the risks associated in dealing with

BC model:

1. Due diligence to be exercised at the time of selection of BC.

2. Creating a bank structure to develop and monitor BC network. At present Financial

Inclusion Centre (FIC) structure has been created with middle Manager to look after a set

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of BCs in a district. It is also proposed to create a position at the Regional level called

Manager(FIC) who will assist the Regional Head in FI initiative.

3. Displaying Do’s and Don’t’s for customers while dealing with BCs outlet.

4. Displaying the structure of fess/charges to be borne by the customers at BC outlet.

5. Close monitoring of the activities of BCs by Bank staff including periodical visits

6. Obtention of feedback from customers at periodic interval.

7. Audit of the BC outlet by Circle Auditors while conducting the audit of the Link Branch.

8. Imparting training to BCs and handholding at the time of recruitment.

9. Customer education and financial literacy- Awareness campaign in the villages

where BCs are functioning.

10. Identifying opinion leaders in the villages and keeping contacts with them for

knowing the functioning of BCs.

11. Encouraging customers to approach Managers over phone for grievance redressal by

displaying their cell phone numbers at BC outlets.

6.9 Other Concerns

For inclusive growth process as well as sustainable development of society/state/nation,

financial inclusion has predominantly become an integral part. We, therefore, need to

introspect and analyze the related issues/concerns and factors for smooth roll out of

financial inclusion plan. Let us consider the undernoted issues/concerns in this context:

1. How to ensure greater and close collaboration between banking and

telecommunication regulators to facilitate deposits, withdrawals, 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. The point is that any endeavor relating to financial

inclusion may be possible only on the wheels of technology. So, designing

innovative/appropriate products and services as well as adoption of modern and

innovative technologies have become necessary where technology and financial

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players are required to work on the same platform to facilitate achievement of

financial inclusion goal.

2. Regulatory reforms relating to financial identification, also requires attention. Many

poor people in rural areas and remote hinterlands lack personal identity like date of

birth certificate/record, address-proof etc which are major impediments in their

accessing to formal financial services. Of course, Government’s interventions and

initiatives like UID project will definitely ease the KYC concerns of bankers.

3. More importantly, consumer protection is again a vital point. There is absolute lack

of financial literacy. Financial education is a must. To make a holistic financial

inclusion, removing demand constraints (financial literacy etc) will play a very

important role. So, 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. Therefore, 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, developmental programmes etc. Financially

excluded people need to be educated about banking and need for relationship with

the Banks. Financial literacy programmes need to go hand-in-hand with financial

inclusion initiatives to create the pull for accessing formal channels of finance, and

only then, fair recovery practices may also be introduced.

4. Tighter credit norms need to be relaxed to include financially excluded people

where role and intervention of all stake holders (viz. RBI, Government, community

based organizations, civil society, development institutions etc.) will be required.

5. Capacity building of the financially excluded people helping them to generate

income, however, overrides all the preconditions of financial inclusion concept

because only then, any of the efforts of any stake holder will be viable &

sustainable. Otherwise the present status of No-frills accounts being opened and

remaining dormant, as well attrition of Business Correspondents due to meager

volume of transaction and thereby meager income will continue with ultimately no

fruitful result.

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6. Importantly, 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. A peer-to-peer learning and knowledge sharing platform, on a regular basis, for

bringing out innovative ideas is very much required.

8. 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), it is also

believed that our country’s growth is not generating enough jobs or livelihood

opportunities. However, many sectors also face manpower shortages. So, can we

create efficient and accessible labour markets for all categories by improving our

education and training systems which need to be multi-dimensional. A faster growth

of small and micro enterprises is also required.

9. Resource centres for promoting entrepreneurship (viz. RSETIs etc) will yield

sustainable financial inclusion. Millions of micro-entrepreneurs need to be created

across the country for fulfillment of our dream of “Inclusive Growth”.

10. While financial inclusion is a great step to alleviate poverty in India but to achieve

this, 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.

11. Financial service providers need to learn more about the consumers and new

business. How to deliver financial services to unbanked customers at lower cost,

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.

12. Technological and organizational innovations can accelerate the efforts of financial

inclusion. Telephone/Mobile/Internet connection and network of paved roadways

are definitely to play important roles in enhancing financial inclusion. 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.

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13. Government’s ownership needs to have a significant association with financial

inclusion. 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, State Level Financial Inclusion Plan will be formulated

and rolled out with the help of SLBC and NABARD. 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. 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. 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.

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CHAPTER 7: FUTURE PROSPECTS

Contents: Focus on inclusive growth, Development of profitable and acceptable model,

Financial resources, Human resources, Aadhar project, G2P payments

7.1 Inclusive Growth: While all the efforts made for financial inclusion have expanded

the access to banking services, it is also important that quality services are provided

through newly set up ICT based BC delivery model. It is, therefore, 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. 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. This will lead to

efficiency in cash management, documentation, redressal of customer grievances and

close supervision of BC operations. These BC outlets will be treated as bank branches

only when managed by full time authorised employees of banks, in which case they will be

subject to regulatory reporting.

Let us accept that Financial inclusion is not only a compulsion (in as much as Financial

Exclusion directly means Social Exclusion; consequences of which are social/political

unstability etc.) but also an opportunity for the banks to increase their outreach to rural

hinterlands and thereby substantially increasing their market share, too. 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). So, leveraging technology to provide access to banking facilities

requires holistic attention besides the above mentioned issues. Technology innovation is a

key ingredient in overall success of financial inclusion.

Moreover, so far as technology and delivery models are concerned, 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, full scale financial inclusion may

not be achieved. Presently, 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. At the grass root level, staff of the banks

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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. 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, too. The possibility of less-

selling/incorrect selling/mis-selling cannot, also, be ignored/ ruled out. 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. In India, Banks and banking have since

been changing substantially and at least after introduction of BC/BF Models, appropriate

man-power as well as personnel development now matters a lot for success of the

strategies. Human resource function cannot be ignored, rather needs top attention.

Further, development of eco-system and perfection of delivery models are definitely the

key issues and concerns to be addressed to - where Government, Banks, technology

providers/vendors are lagging behind.

By far, Bankers need to have focus on inclusive growth with emphasis on giving

legitimate benefits to poor. 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. Appropriate technology and efficient delivery models with bank’s

determination and involvement may help the government to win all the matches in financial

inclusion. State administration at grass-root level and state driven interventions, as and

when required, along with integrated participation of financial institutions and community

based organizations, may surely go a long way in achieving the related targets.

Inclusive growth has become one of the biggest challenges that our nation is facing today.

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”. Because financial sector is

the only sector which can provide financial services to the underprivileged, socially

disadvantaged, low- income downtrodden people i.e., to financially excluded people, the

concept of financial inclusion comes into picture.

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But, despite rapid expansion of the banking network over the last four decades, there is a

vast majority of people, in our country, which do not have access to basic banking services

resulting in financial exclusion.

7.2 Development of profitable model

No model is full proof or not any single model can meet all the requirements of all the

banks. “One size cannot fit all”. One or the other model may be adopted based on the

local conditions, demographic situations, geographic profile, etc.. Even adopted model

may be integrated with the other one or new technology to bring out synergy. 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. The

products for low income people should also withstand the marketing aspects of 4Ps called

as Product, Price, Place and Process (Table 2).

Shri Subbarao, 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. Financial inclusion also necessitates tailor made products for

proper delivery of services. The products for low income people should also withstand the

marketing aspects of 5Ps called as Product, Price, Place, Process and Promotion.

i. Product – Suitability:

FMCG companies have adapted to the needs of consumers and started developing

products as per the requirement. They have started packaging in small pouches at an

affordable cost to rural masses. Recharge vouchers of Mobile companies in denomination

of Rs. 10/- has become popular even in rural centres. Banks need to evolve products and

technologies to match the psyche and needs of the rural masses. Innovations will come

through the necessities, experience and experiments.

Outlet of bank / BC should offer variety of products and range of financial services so that

customers have wider options. 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. This will help to ensure optimum

volume to generate sufficient margin for viability of these units.

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ii. Price: Any product or service offered to the customer should be self sustainable. There

may not be necessity of subsidy or government support except in some cases during the

stabilisation period. 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. 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. 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. In fact those indebted households to informal

sources are paying much more than what is charged by the formal source of banking. The

additional cost of providing services at far flung areas may also be added to make these

initiatives viable. However, it needs proper balancing of the cost of providing the service

and affordability by the consumer.

At the initial level, since the volume would be lower, the Government support may be

considered necessary. The funds for capacity building may be provided by the

Government for training, creating infrastructure like bandwidth or telephone, 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.

iii. 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. 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. This arrangement

may ensure fair competition among the service providers and checking unscrupulous

practices. 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, leading to a shift in the supply curve to the right, reducing

prices, and making financial services affordable to a larger section of the population.

United Nations (UN) while outlining the goal of financial inclusion, desired that “Multiple

providers of financial services, wherever feasible, so as to bring cost-effective and a wide

variety of alternatives to customers”.

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iv. Process: Process of operation should be simple, less bureaucratic and affordable to

majority of the customers. Process should be in tune with the psyche and feel of the

people of the region. Agrawal (2008) pointed out that poor people are reluctant to go to

banks as they are not clear of the directions, processes etc. Another important finding is

that poor people avoid banks because of complicated forms, procedures etc.

Simple forms and procedures are to be devised to suit the requirement of product and

people (Customer, Bank and Regulator). Rangarajan Committee (2008) suggested

simplified processes for Account opening, loan documentation, mortgage requirements /

charge creation, Identifying Nodal Branches to address the issue of exclusion.etc.

v. Promotion: Promotion through the proper medium is essential for successful launch of

the product or service. If requirements for using the financial services are explained to the

customers in their language, in a friendly manner they will respond positively. The post

office staff in that respect is worth to emulate. They are easily accessible and less

bureaucratic. Rural masses do not feel any hindrance in communication with the postal

staff. Co-operative Societies (PACs), Micro Finance Institutions, Self Help Group (SHGs)

which have local roots can be the best bet to supplement the efforts of formal banking

channels. These agencies will be used as platform to promote the banking products.

Being financial services, there should be mechanism of resolution of complaints which is

similar to the service centre in case of consumer goods. Grievance redressal mechanism

is already in place at the commercial banks, however awareness among the public

especially people from disadvantaged and low income segments is very low. Convenient

access through the Call centres / phones, and prompt responsiveness are the key for

gaining the confidence of rural masses in the system.

7.3 Financial Resources:

To promote FI, financial support is provided in select activities like capacity building of BCs

and also in technology investment in select geographies like North East India. However,

significant financial resources of Banks have also been invested in various capex needs as

well as continue to be expended in current operations. 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.

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Since significant existing branch network and human resources are being utilised for the FI

separate assessment of cost is difficult. Also financial resources of other players in the

program like BCs (both individual and institutional), technology providers and Govt

(through NABARD) will continue to be invested till the activity turns remunerative for all.

7.4 Human resources:

In the FI program Bank is using three categories of people viz.

a) Banks own employees in staff roles largely in policy formulation, roll out and

monitoring functions.

b) People with banking knowledge (largely recently retired employees) for channel

management functions.

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.

7.5 The Unique Identification (Aadhar) project: The Government of India is

emphasizing on issuing Unique Identification numbers with a view to improve service

delivery, accountability and transparency in governance of various schemes. This will play

a vital role in government initiated payment schemes and other financial inclusion

programmes. State Bank of India is both a registrar and a partner in the project. 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.

7.6 G2P payments: Indian government has decided to shift to direct cash transfer

program instead of subsidy. A number of schemes like Public Distribution Schemes (PDS)

that provides grains, food items, fuel and fertilizers meant for poor families operated

inefficiently. To overcome the inefficiencies in the current system and provide more

structural distribution, government has decided to transfer cash instead of subsidy to the

beneficiaries. This is certainly a greater task for the banks and business correspondents to

efficiently handle such transaction.

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7.7 Conclusions:

As against the initial target of 73,000 villages, banks have been asked to prepare plans to

cover six lakh-odd villages in the country where all the banks, involved in the FI project,

have to furnish the details of the villages to be covered by them. 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.

In the scaling up financial inclusion programme, the government has also asked them to

include those villages with a population to 1,000 that are located in the periphery of those

villages that are having population above 2000 and which are already being covered under

the programme. As a whole, there are nearly 1 lakh such villages in the country with a

population of 1000 and above.

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. Also, the government

has asked the banks to take the Swabhiman project (a nationwide awareness programme

on financial inclusion).

So the Government is keen that banks cover all rural habitations in the next phase of their

financial inclusion plan, as it wants to route all benefits under its social security schemes

through electronic benefit transfer (EBT).

Technology is the final element of financial inclusion strategy and an enabler of all the

others. The choice of technology driven models is therefore a crucial decision, which

could make or mar the inclusion plan. Since these services have to be provided at zero or

minimal charge to the customer, banks need to lower their own cost of customer

acquisition and maintenance to make this a profitable proposition. In this backdrop,

financial inclusion calls for intelligent selection of a mix of business models and their

successful implementation.

Incidentally, it would not be out of place to mention that on account of corporate coming in

as Business Correspondents; new viable models may be worked out by banks and

technology providers for desired success in financial inclusion. 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.

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REFERENCES

1. Agrawal A (2008), “The need for Financial Inclusion with an Indian perspective” Economic Research: March, 3.

2. Chakrabarty K.C. (2011) “Financial Inclusion - Achievements So Far and Road

Ahead” Presentation made at 26th Skoch summit MUMBAI, June 2. 3. Honohan P. (2007), “Cross-Country Variation In Household Access To Financial

Services, paper presented at World Bank conference on Access to Finance, March 15-16.

4. Government of India (2008), The Committee on Financial Inclusion, (Chairman: C.

Rangarajan 5. Pralhad C.K ( 2004). “The fortune at the bottom of the pyramid”, Wharton School

Publishing. 6. Puhazhendi V.(2012).”Microfinance India – State of the Sector Report 2012 7. National Bank for Agriculture and Rural Development (2009), “Financial Inclusion –

An overview”, Occasional Paper , (Mehrotra N & others) 8. NSSO (2003) Survey on “Indebtedness of Farmer Households”

9. Reserve Bank of India (2010): Annual Report

10. Reserve Bank of India (2011): Report of the Subcommittee to Study Issues and

Concerns in the MFI Sector, January, 2011 (Chairman: Y.H.Malegam) 11. Subbarao, D. (2010), “Financial Inclusion: Challenges and Opportunities”

RBI monthly Bulletin, January. 12. www.Blog of Shinyvikas: India’s Rural Market - “The fortune at the bottom of the pyramid

13. www://en.wikipedia.org

14. www.ibef.org

15. Information available across Newspapers/Internet.