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Beyond Hoopla : Simply Financial Inclusion

Beyond Hoopla : Simply Financial Inclusion

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Published by Jatinder Handoo
The article is published in the Journal of Indian Institute of Banking and Finance April-June 2012 issue. It discusses the extent of financial exclusion in India, role-play of the Indian banking institutions,Regulator and highlights work done by banking Business Correspondents across India.
The article is published in the Journal of Indian Institute of Banking and Finance April-June 2012 issue. It discusses the extent of financial exclusion in India, role-play of the Indian banking institutions,Regulator and highlights work done by banking Business Correspondents across India.

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Published by: Jatinder Handoo on Dec 20, 2012
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Jatinder Handoo *
Financial Inclusion : A Policy Priority or ChaoticConfluence?
What next of financial inclusion? This seems to bean obvious question when there is a decelerationin the momentum for engaging different segments ofun(der) banked customers at bottom of the pyramid,primarily because different stakeholders in financialinclusion value chain have different answers to thecommon question of financial exclusion. Public Policyvouches financial inclusion as a national priorityand the mainstream financial institutions in Indiacarry the baton (albeit with a caution). In-spite of theproclaimed priority of financial inclusion, financialexclusion in India seem to be widening and the ongoing efforts hurtling amid theatrical debates andconfabulations over multiple front end devices, ultra-lowcost delivery models, razor thin transaction costsand innovative pilots. If all this has helped anything,it is the confusion and chaos in attempt of reinventingthe wheel and therefore aided the 'inclusion hiatus'which a developing country like India can ill afford.A quick snapshot of status of financial exclusionexplains the story. (Table below)
Manager of Strategic Alliance, FINO.
Beyond Hoopla : SimplyFinancial Inclusion
Merely 35% of the Indian adults (above the age of 15years) have a bank account and the percentage is evenlow in the bottom 40% says recently released WorldBank FIndex 2012. According to the FIndex 2012 report,prominent barrier to use formal bank accounts (globally)is not the absence of ultra low cost technology orabsence of identification documents but having “notenough money” to save.This may be due to erratic cash-flows of poorhouseholds or simply the absence of financialliteracy among end customers. This has little todo with the innovative authentication systems,front end related debate and online-offline modeltalks which seem to be flavor of the inclusion parleysat the highest echelons of business and policy.If financial inclusion needs anything, it is directengagement with the last mile customer by offeringappropriate financial products and services includingfinancial literacy.
FI ParameterPercentage
Account at formal financial Institution35%Account at a formal financial institution,27%income, bottom 40%Accounts used to receive wages8%Accounts used to receive Govt. payments 4%Loans from a financial institution in past year8%Loans from family or friends in past one year20%
Source : The World Bank, FIndex 2012.
special feature
The Journal of Indian Institute of Banking & Finance
April - June 2012
Beacon of Financial Inclusion : Reserve Bank ofIndia - “The Liberal Regulator”
In the year 2005, the then RBI Governor Dr. YagaVenugopal Reddy coined the term financial inclusion andthe vision of social inclusion of un(der) banked poor andvulnerable masses gained momentum. The idea wasto handhold un(der) banked into mainstream bankingnetwork, link them with the grid of formal financial systemand offer them access to finance through a bouquetof multiple products and services including savings,insurance, Electronic Benefit Transfers (EBTs), creditand not just popular services like P2P remittances.In order to realise this goal, RBI in 2006 allowed banks toutilize services of Business Correspondents (BCs) andBusiness Facilitators (BFs) which was a watershed stepin accelerating financial inclusion agenda in India, as inhistory of the Indian banking system, financial institutionsnever went to the doorstep of customer (particularlyrural customers) to offer banking services; RBI made ithappen!RBI played the role of a proactive and liberal regulatorover the period of time. It facilitated and even expandedscope of BC guidelines from time to time. RBI's responsewas dynamic and accommodating, particularly in 2010when it permitted for-profit business entities to offer BCservices.All the good intentions of RBI along with policy push fromGovernment of India have yielded results and BC's haveput up an impressive show. However, ironically beforethe model (BC) could stabilize, a chaotic confluenceof devices, technology, usability and viability debatehas besieged the model and has created an inclusionvacuum in the system. Most of the mainstream financialinstitutions are being too cautious and follow compliancerelated objectives of financial inclusion which primarilyinvolves offering No Frills Savings Accounts (NFAs) toend customers.Interestingly a NFA in itself is not just a financial productbut a financial menu card with a purpose to connect endcustomers with customized financial products &services. Unfortunately, in the current scenario menu isavailable not products, making it uninteresting for end-customers which ultimately has resulted into increaseddormancy levels.
Last Mile Changemakers : Business Correspondentsin India
Business Correspondent model as an alternate bankingchannel has brought a conspicuous change in thefinancial inclusion landscape of India. For the last fiveyears, agent based BC model has played a pivotal role infurthering agenda of financial inclusion across nooks andcorners of the country. From just 30,000 banking outletsin about 600,000 villages in India (5% penetration), BCshave helped in increasing the banking penetration tomore than 1.07 lakh villages (around 20%). Out of around80 million No Frills Accounts (NFAs) opened by banks,BCs have opened 50 million (around 72% of total NFAs).The table below shows the status of financial inclusion innumbers.
No. of Villages in India (inhabited)600,000No. of villages covered by banks107000No. of BCs empannedled by banks58,361Total No. of villages served by BCs76,081Total no. of No frills accounts opened by Banks7.91 CroreNo. of No Frills accounts opened through BCs5.02 Crore(approx 72%)> 2000 population villages covered by banks59,640< 2000 population villages covered by banks47,964
Total Unbanked (approx)41 Crore
The Journal of Indian Institute of Banking & Finance
special feature
April - June 2012
Source : RBI, 2011.
1,00,00080,00060,00040,00020,0000No. of villagesBranchesBCs
Branches Vs Business CorrespondentsMarch 2011March 201076,80122,68433,15821,499

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