Financial Inclusion Concept,Issues and Roadmap

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Financial InclusionConcept,Issues and Roadmap

• Presentation by
• Dr. K C Chakrabarty
• Chairman and Managing Director
• Indian Bank,Chennai

At Institute for Development and Research in
Banking Technology Hyderabad 02.09.2006
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Financial Exclusion
What is Financial Exclusion ?

• Financial exclusion is the lack of access by
  certain consumers to appropriate, low cost,fair
  and safe financial products and services from
  mainstream providers.
• Financial exclusion becomes of more concern in
  the community when it applies to lower income
  consumers and/or those in financial hardship.

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Poverty and Financial Exclusion

• There is a large overlap between poverty and
  permanent financial exclusion. Both poverty and
  financial exclusion result in a reduction of
  choices which affects social interaction and
  leads to reduced participation in society

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Financial Exclusion and Allied Phenomena
Financial Exclusion
Financial Discrimination
Financial Illiteracy
Financial Exploitation
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Gradations of Financial Exclusion

• Core Exclusion Who operate their financial
  affairs completely outside the regulated
  financial system
• Limited Access May have a basic bank account but
  poor financial habits and little advice
• Included but using inappropriate products
  Victims of inappropriate products.

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Main types of Financial Exclusion

• Transaction accounts
• Time Deposits
• Financial Advice
• Appropriate small credit
• Insurance
• Mortgage Loans
• Superannuation
• Enterprise based loan

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Who are Financially Excluded

• Poor
• Socially under-privileged
• Disabled
• Old as well as children
• Women
• Uneducated
• Ethnic Minorities
• Un-employed

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Extent of Financial Exclusion

• Coverage of
• Check in accounts -70
• Insurance -10
• Financial Assets -2
• Assets Insurance -2.53
• Health Insurance -0.20
• Credit Card -3
• Debit Card -5.66
• Small Overdrafts -3.65
• Entrepreneurial credit -2.06
• Geographical coverage
• 5 villages are having a bank branch
• SHG coverage
• Out of around 400 million poor, 125 million poor
  are covered of which 113 million are women
• Farmers coverage-
• Tenant farmers/share croppers/oral lessees
• Small and marginal farmers
• Out of 89.35 mill. SF/MF, 34.70 mill. (46.30)
  are covered.(House holds)

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Most needed Services for Financially Excluded

• Access to Small loans or overdrafts
• Check in Accounts
• Small Savings Products
• Health Insurance
• Life Insurance
• Insurance against the failure of activity
• Financial Asset
• Credit Card
• Entrepreneurship credit

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Model for Financial Exclusion
Do without
Social/wider exclusion
High Cost alternatives
Financial exclusion
Inefficient Use of Money
Poor Social,economic Health outcomes
Low standard of living and poverty
Delayed pathway out of poverty
Mainstream product Attributes fees Penalties,bun
dling,marketing Which do not address needs
Debt(often informal)
Low/No assets
Low Income
Financial illiteracy
Poor financial habits
Unemployment
Poor education
Commercial regulatory environment
Macro -environment
Personal characteristics
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Main Drivers of Financial Exclusion

• Most frequent
• Low income
• Nil or low savings
• Lack of assets
• Unemployment
• Under employment
• Use of inappropriate
• products
• Financial illiteracy
• Poor financial habits

• Less frequent
• Psychological/disability issues
• Feeling of being excluded
• Indigenous/ethnic issues
• Geographical remoteness
• Lack of time
• Lack of PC/Internet Access
• Availability of alternative products and
  suppliers
• Youth

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Problems of Financial Exclusion in India

• Coverage
• Cost of Small Value transaction
• Infrastructure
• Suitable products
• Flexibility
• Weak Delivery model
• Community Enterprise and Financial Management
  support

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Model for Financial Inclusion
Less constrained spending
Social/wider inclusion
Low cost services
Free Use of Money
Financial inclusion
Good Social,economic Health outcomes
High standard of living
Easy pathway out of poverty
Mainstream product Attributes fees Penalties,bun
dling,marketing Which suit those with higher
income/assets
Low or controlled debt
Asset ownership
High Income
Financial lliteracy
Good financial habits
Employment
Good education
Commercial regulatory environment
Macro -environment
Personal characteristics
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Pre conditions for the Success

• Attitude and Will power
• Technology
• Delivery Mechanism
• Support Services
• Infrastructure
• Community Development Support
• Product Innovation
• Regulatory and Policy Interventions
• Involvement of all
• especially Development/Administration at
  District/Block/Village level

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Basic Challenges of Financial Inclusion

• Coverage
• Access to Diversified Financial Products and
  Services
• Delivery Model- Day to day transactions

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Financial Inclusion- Indian Experiment
Initiative by Indian Bank

• Indian Bank was the first Bank to implement the
  Financial Inclusion Project on a pilot basis in
  UT of Pondicherry where the Bank has lead
  responsibility.
• IB implemented the concept first in Mangalam
  Village of Pondicherry on 30.12.05 which became
  the first village in India, where all the
  households in the village were provided Banking
  facilities.
• Indian Bank spearheaded the project and involved
  all the 144 bank branches of 37 Banks operating
  in UT of Pondicherry.
• Participants of the project are All Banks,
  Govt.Depts, Insurance Cos,NGOs,Facilitators etc.,

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The Objective

• Financial Inclusion is delivering Banking
  facilities/ financial services to all the people
  in a transparent and equitable manner at
  affordable cost.
• Honble Union Minister of Finance budget speech
  2005-06
• The financial inclusion provides business
  opportunity for the financial institutions at the
  bottom of the pyramid to expand the volume of
  business. Profitability can be increased only by
  finding newer avenues for deployment of funds
• RBI Governor in Annual Policy Statement 2005-06
  urged the banks to align themselves with the
  objectives of Financial Inclusion.
• Economically and socially empower poor and
  low-income people leading to overall development
  of the Households, Villages, States and finally
  the Nation.

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Achievements in Pondicherry
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Replication of the success

• RBI in the 2006-07 Annual Policy Statement
  highlighted about Financial inclusion project
  implemented by the bank in UT of Pondicherry, and
  advised SLBC convenors in all State / UTs to
  identify at least one district in their area for
  achieving 100 percent financial inclusion on the
  lines of the initiative taken in Pondicherry.
• As a follow up, the project was launched in TN
  in Cuddalore Dist, where again IB is the Lead
  Bank involving all the banks covering 877
  villages.
• Launched on 11.07.06 and expected to be completed
  by July 2007.
• The Bank also extended the project to
• All the other 12 Lead Districts in TN,AP,Kerala
• Other states where each of our circle has taken
  up implementation in three villages.

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Overview of the achievement of IB across the
country

• Total number of villages covered so far
• Total number of No frills SB a/cs opened
• OD accounts opened
• GCC accounts opened
• In addition, 16706 women have been linked
  through SHGs.

• 372
• 120198
• 13227
• 660

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The process

• Allocation of villages to the Banks
• Village/House hold survey
• Assessment of the need for Financial Inclusion
  Products
• Financial Inclusion Products Offered
• No Frills SB account
• Small Over Draft facility-for general consumption
• General Credit Card-for income based activity
• Micro Insurance- Life and disability cover
• Health Insurance Cover
• Mutual Funds (proposed)

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Thank You