Financial Inclusion and Responsible Micro-Finance

In Focus : Credit Infrastructure

A Presentation By

A K Srivastava, CGM, NABARD

Degree of Exclusion & Required Services

VISION 2012Financial Inclusion of all RHH (11.15 cr) –

2015(50% by 2012).Financial Inclusion to precede Poverty

Alleviation.Financial Services within 15 minutes walk of

RHH - Last mile client should be able to use POS/ Smart Card/ Mobile

RBI Working Group recommendation - A banking outlet in each village with population of 2000 and above, before March 2011.

Smart KCC/ GCC/ SCC to all eligible

One

Citizen

One

Card.

Cash flow in no- frill a/c thru’Innovative Credit productsMicro Insurance

Thrift/ Saving by Vulnerable population

Increased awareness &Financial Literacyinterventions

Micro Insurance/ PensionEmi based loan ProductsLoans to dependents of wage earnersGetting income from business thru’ banks

Empowerment thru savingPower of compoundingRisk mitigationOpportunities for dependentsBreak the poverty chainSupport economic growth of country

Innovation – An Approach to Inclusive Growth

Inclusion Process through KCC, SCC & MFIs - Status

Sl. No.

Category31 March

200731 March

200831 March

2009

1 No. of Savings Linked SHGs 41.60 50.09 61.21

2 No. of SHGs with O/s Loans 29.25 36.26 42.24

3 Loan O/s with SHGs 1236649 1699991 2267984

4 Kisan Credit Cards Issued 676.05 760.75 828.70

5 Swarozgar Credit Cards Issued 6.79 8.34 9.85

6 MFIs Covered 550 1109 1915

7 Loans O/s to MFIs 158448 274884 500909

in lakh

AreaNo. of

Branches

Dep. ( Rs. Cr.)

(Growth %)

Dep. Per

A/c*

Cr. ( Rs. Cr..)

(Growth %)

Cr. O/s per

A/c*

CD Ratio

Rural 31829384181(19.2)

18222372(21.1)

56 57.9

Semi Urban

19418560327 (22.2)

29278866 (17.8)

55 49.8

Total 810904101518

(17.8)56

2881898 (10.6)

226 70.3

* In Rs. Thousand as on Mar 2008,

Outreach of Banks including RRBs

Other Infrastructure –Coop. & MFI DCCBs / PACS : 12500/ 97000MFIs - > 800 Sa Dhan affiliated 233MFIs - Client outreach >2 CrNB SHG/MFI Client outreach > 8.60 CrMFI loan portfolio 11700 CrLarge – MFIs ( O/S portfolio>50 Cr) 28

General Perceptions - USPs of micro-Finance by MFIs and Concerns

USPsSmall size loans without collateralNo insistence on specific purposeOn occasion, combined with hand holding & capacity

buildingHassle free (ease of access) and usually door delivery model

(local touch)ConcernsHigh rate of interest/high cost of delivery of micro-creditLack of prudential norms in accounting Lack of transparency/uniformity/supervision issuesIndiscriminate lending without past record scrutinyRecovery not linked to cash flow from asset

Inclusion through 'No frills' A/c by Banks

Category March 31, 2006

March 31, 2007

March 31, 2008*

March 31, 2009*

Public Sector Banks

3,32,878 58,65,419 1,39,09,935 2,98,59,178

Private Sector Banks

1,56,388 8,60,997 18,45,869 31,24,101

Foreign Banks 231 5,919 33,115 41,482

Total 4,89,497 67,32,335 1,57,88,919 3,30,24,761

* Provisional

Year Fund GoI RBI NABARDInterest Credited

Total (as on date)

31.03.08

FIF 10.00 * 5.00 - 15.00

FITF 10.00 * 5.00 - 15.00

31.03.09

FIF 37.00@ * 18.50 0.95 19.45

FITF 65.00@ * 32.50 0.96 33.46

* RBI Contribution to be received on reimbursement basis.@ GoI has been requested to release the amount$ Amount sanctioned under FIF – Rs. 17.98 crore and under FITF – Rs. 7.48 crore

Contribution : GoI : RBI : NB in the ratio 40 : 40 : 20

FIF and FITF - Funding Status Rs Crore

NABARD-UNDP Collaboration for FI

Rajasthan

MP

Chattisgarh

Jharkhand

Bihar

UP

Orissa

NABARD support for Financial Inclusion As per the recommendations of Committee on Financial

Inclusion, two funds viz., o Financial Inclusion Fund (FIF)o Financial Inclusion Technology Fund (FITF)

created with NABARD with corpus of Rs. 500 crores each, to be contributed 40:40:20 by GoI, RBI &NB

Guidelines for FIF and FITF are issued to banks. Advisory Board for FIF and FITF has been constituted. Sub-Committee has been constituted under FITF. State / District level workshops on Financial inclusion

conducted for Stakeholders. National Conference on Financial Inclusion

One

Citizen

One

Card.

Financial Inclusion Fundi. Funding support for capacity building inputs to BF/BCii. Providing promotional support to institutions such as

Resource Centres, Farmers’ Service Centres and Rural Development and Self Employment Training Institutes to enable them to provide improved tech.& financial services

iii. Providing funding support for promotion, nurturing and credit linking of SHGs;

iv. Capacity building of personnel of NABARD, Banks, Post Offices, State Government Departments, MFIs/ NGOs/ Local Level Associations, members of SHGs / JLG etc.

v. Defraying expenses of approved institutions for undertaking interventions for financial inclusion in high excluded Regions/ States

Financial Inclusion Fund (cont)vi. Funding support for setting up of Rural Credit Bureaus and

Credit Rating of Rural Customers;

vii. Supporting initiatives of local level associations/ federations

viii. Supporting pilot projects for development of innovative products, processes and prototypes for financial inclusion;

ix. Any other developmental and promotional interventions recommended by the Advisory Board for the FIF.

Financial Inclusion Technology Fund1. Encouraging user friendly technology solutions;

2. Providing financial support to technological solutions aimed at providing affordable financial services to the disadvantaged ;

3. Creating a common technology infrastructure with comprehensive credit information;

4. Funding support to technologies facilitating the documentation for processing of loans;

5. Providing viability gap / pilot project funding for unproven but potential technological interventions;

6. Conduct of studies, consultancies, research, evaluation studies relating to technological interventions for financial inclusion;

FITF (cont)7. Promoting seminars, conferences and other mechanisms for

discussions, dissemination relating to financial inclusion technological interventions;

8. Publication of financial inclusion technology literature, publicity material, etc.;

9. Capacity building of personnel of banks, Post Offices, State Government Departments,MFIs, NGOs, VAs and other stakeholders; and

10. Any other activity as may be approved by the Advisory Board.

Approaches under FITF

Viability Gap FundingIntegrate with proposed Unique

Identification Card of GoIIntegrated approach of Financial Inclusion

- Projects involving micro insurance schemes- life/asset/accident/ health

etc.Proposed support mechanism for Card

based project

Approaches under FIF

Financial Literacy DriveExposure visits/ workshop of

stakeholdersCertification Program for BC/ BFProposed support mechanism for

Farmers’ Club as BFSensitization programme through

training establishment

Financial Literacy

Financial Prudence

Understanding

Financial Market

Financial Product

Financial Decision Making

Financial Empowerment

Financial Analysis

Financial Well being

Approaches under UNDP

Exposure visits/ workshop of stakeholdersOn the Spot loan appraisal/ sanction/ rating

evaluation through Mobile van systemPartnership with reputed and experienced NGOsFinancial LiteracyResource CentreCommunity Radio ServiceAudio/ Visual display

New Dimensions of Credit Infrastructure

Need for Information sharing-necessary to avoid over indebtedness-control client delinquency-financial services to non resident migrantsHow ?- Formal Credit Bureau- Informal information sharing on regional basis- Motivational issues for information sharing

Way Forward and Emerging Challenges

Need for Credit Bureau –Yes , possibly thro’ Resource Centres at Local level (Block /Panchayat) Integration with Common Services Centre State level Federation (initially in select States) Risks - Collateral coming into play, - Exclusion thro’ black listing, - Poaching among MFIs

Way Forward and Emerging Challenges (cont) Credit Guarantee – Is it needed ? - Requirement- Registration, Supervision of loan

portfolio of MFIs - Application of prudential Norms - Loss of informal character “If Yes, to be linked to Rating of MFI and compliance

with Credit Bureau Requirements” Issues - Policy formulation / funding-sharing arrangement /

management / operation / regulatory framework / viability of scheme

Issues of Effective OutreachViability / Cost of delivery

- BC/ BF (door delivery model)

- MFI- - Bank / BranchesInvolvement of MFI sector for FIIncreased participation of Coop. - issue

taken up with RBISupport and linkage of financial services

to Govt payments- NREGA/ SS PensionsProjects/ proposals through Bank – RBIOpen Standards for TechnologyInnovative Financial Literacy Drive

FI - Road map for Institutions

Financial Inclusion

Banks/ Co-ops/ RRBs

Loan/ Credit A/c

Saving A/c

Payment & Remittances

MFIs/ NGOs

Financial Counselling/

LiteracyMicro Credit/

Saving

Insurance Cos Post Offices

Postal SavingsRemittancesStand Alone Insurance

BC/ BF

BC/ BF

THANK YOU