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Dr. K C Chakrabarty
Chairman and Managing Director Indian Bank,Chennai
At Institute for Development and Research in Banking Technology Hyderabad 02.09.2006
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.
3. Transaction accounts Time Deposits Financial Advice Appropriate small credit Insurance Mortgage Loans Superannuation Enterprise based loan . 5. 7. 6. 8. 2. 4.Main types of Financial Exclusion 1.
6. 7. 5. Poor Socially under-privileged Disabled Old as well as children Women Uneducated Ethnic Minorities Un-employed . 3.Who are Financially Excluded 1. 2. 4. 8.
Geographical coverage 3. Farmers coverage- . 125 million poor are covered of which 113 million are women Tenant farmers/share croppers/oral lessees Small and marginal farmers Out of 89.65% Entrepreneurial credit -2. 34. SF/MF. (46.66% Small Overdrafts -3.70 mill.20% Credit Card -3% Debit Card -5.30%) are covered.(House holds) 2. SHG coverage • • • 4.35 mill.53% Health Insurance -0. Coverage of • • • • • • • • • • • Extent of Financial Exclusion Check in accounts -70% Insurance -10% Financial Assets -2% Assets Insurance -2.06% 5% villages are having a bank branch Out of around 400 million poor.1.
9. 3. 6. 4. 2.Most needed Services for Financially Excluded 1. 5. 8. 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 . 7.
marketing Which do not address needs Unemployment Financial illiteracy Poor education Poor financial habits Macro -environment Personal characteristics Commercial & regulatory environment .Model for Financial Exclusion Do without High Cost alternatives Poor Social. Penalties.bundling.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.
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 .
Penalties.Model for Financial Inclusion Less constrained spending Low cost services Good Social.marketing Which suit those with higher income/assets Employment Financial lliteracy Good education Good financial habits Macro -environment Personal characteristics Commercial & regulatory environment .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.bundling.
Pre conditions for the Success I. IV. Regulatory and Policy Interventions Involvement of all • especially Development/Administration at District/Block/Village level . Attitude and Will power Technology Delivery Mechanism Support Services • • • Infrastructure Community Development Support Product Innovation V. III. VI. II.
Coverage Access to Diversified Financial Products and Services III. Delivery Model. II.Basic Challenges of Financial Inclusion I.Day to day transactions .
05 which became the first village in India.NGOs. Govt.Depts. Indian Bank spearheaded the project and involved all the 144 bank branches of 37 Banks operating in UT of Pondicherry.. where all the households in the village were provided Banking facilities.Facilitators etc. III. Participants of the project are: All Banks. Insurance Cos. IB implemented the concept first in Mangalam Village of Pondicherry on 30. IV.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. Financial Inclusion.Initiative by Indian Bank I.12. .
States and finally the Nation.The Objective • Financial Inclusion is delivering Banking facilities/ financial services to all the people in a transparent and equitable manner at affordable cost. Villages. . Hon’ble 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.
BANKS 74605 26537 23351 SBI GROUP 31906 8511 3064 CO OP BANKS 30603 9531 12088 PRIVATE BANKS 36461 9381 3926 .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.
Kerala Other states where each of our circle has taken up implementation in three villages.Replication of the success 1. • 3. 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. where again IB is the Lead Bank involving all the banks covering 877 villages. the project was launched in TN in Cuddalore Dist. RBI in the 2006-07 Annual Policy Statement highlighted about Financial inclusion project implemented by the bank in UT of Pondicherry. Launched on 11. As a follow up. The Bank also extended the project to All the other 12 Lead Districts in TN.07. .AP.06 and expected to be completed by July 2007. – – 2.
16706 women have been linked through SHGs. • 372 • 120198* • 13227 • 660 .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.
Life and disability cover • Health Insurance Cover • Mutual Funds (proposed) .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.
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