Concept,Issues and Roadmap

Financial Inclusion

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

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.

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

Financial Exclusion and Allied Phenomena

Financial Exclusion

Financial Discrimination

Financial Illiteracy

Financial Exploitation

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.

Main types of Financial Exclusion

1. 2. 3. 4. 5. 6. 7. 8. Transaction accounts Time Deposits Financial Advice Appropriate small credit Insurance Mortgage Loans Superannuation Enterprise based loan

Who are Financially Excluded

1. 2. 3. 4. 5. 6. 7. 8. Poor Socially under-privileged Disabled Old as well as children Women Uneducated Ethnic Minorities Un-employed

1. Coverage of

Extent of Financial Exclusion

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% 5% villages are having a bank branch Out of around 400 million poor, 125 million poor are covered of which 113 million are women 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)

2. Geographical coverage 3. SHG coverage

4. Farmers coverage-

Most needed Services for Financially Excluded

1. 2. 3. 4. 5. 6. 7. 8. 9. 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

Model for Financial Exclusion

Do without High Cost alternatives
Poor Social,economic & Health outcomes Low standard of living and poverty Inefficient Use of Money
Social/wider exclusion

Financial exclusion

Delayed pathway out of poverty

Low/No assets Low Income

Debt(often informal)

Mainstream product Attributes: fees; Penalties,bundling,marketing Which do not address needs

Unemployment

Financial illiteracy Poor education

Poor financial habits

Macro -environment

Personal characteristics

Commercial & regulatory environment

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

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

Model for Financial Inclusion

Less constrained spending Low cost services
Good Social,economic & Health outcomes High standard of living Free Use of Money
Social/wider inclusion

Financial inclusion

Easy pathway out of poverty

Asset ownership High Income

Low or controlled debt

Mainstream product Attributes: fees; Penalties,bundling,marketing Which suit those with higher income/assets

Employment

Financial lliteracy Good education

Good financial habits

Macro -environment

Personal characteristics

Commercial & regulatory environment

Pre conditions for the Success

I. II. III. IV. Attitude and Will power Technology Delivery Mechanism Support Services
Infrastructure Community Development Support Product Innovation

V. VI.

Regulatory and Policy Interventions Involvement of all

especially Development/Administration at District/Block/Village level

Basic Challenges of Financial Inclusion

I. II. Coverage Access to Diversified Financial Products and Services III. Delivery Model- Day to day transactions

Initiative by Indian Bank

I.

Financial Inclusion- Indian Experiment

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

II.

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.,

III.

IV.

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 200506:
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 lowincome people leading to overall development of the Households, Villages, States and finally the Nation.

Achievements in Pondicherry
80000 70000 60000 50000 40000 30000 20000 10000 0
INDIAN BANK HOUSEHOLD TAR HOUSEHOLD ACH SB A/Cs OPENED 41963 40557 67822 OTHER NAT.BANKS 74605 26537 23351 SBI GROUP 31906 8511 3064 CO OP BANKS 30603 9531 12088 PRIVATE BANKS 36461 9381 3926

Replication of the success

1. 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.

2.

3.

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.

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

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)

Thank You