Index

CONTENTS

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

Acknowledgement Executive summary Introduction Objectives Financial exclusion The need for financial inclusion The benefits of financial inclusion The tools of financial inclusion and the methods to achieve them. 9. Cross country experience 10. Indian scenario 11. The extent of financial inclusion in India 12. Survey : financial inclusion – then and now 13. The significance of financial inclusion in the current financial crisis 14.Bibliography

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ACKNOWLEDGEMENT Goal achievement is very difficult for any person, but there are motivations, which make this task very easier. It is our humble duty to acknowledge all of them, which made our task easier during my project.

Before proceeding further, we would like to express our thanks to all those who have helped us in one way or any other way for successful completion of this project.

We would like to thank Globsyn Business School, Ahemadabad for having provided us with a great opportunity to work and learn.

We are deeply indebted to and express our sincere appreciation & gratitude to Prof. Kalika Bansal for providing her valuable guidance & encouragement throughout the project for keeping our morale up & making it possible to complete and submit this project on time.

We are really thankful to the people of the village named “ Sukhjora,a village in Jharkhand” from where we have conducted our survey. Due to their support & valuable thoughts, we have successfully completed our survey.

Most of all, we thank to our colleagues for their help& coordination without which the work could never have been completed. They made us realize the importance of teamwork. We are grateful to all of them for standing with us & supporting us in this project.

Last but not the least we thank almighty God & our parents for everything.

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EXECUTIVE SUMMARY Financial services actively contribute to the humane & economic development of the society. These lead to social safety net & protect the people from economic shocks. Hence, each & every individual should be provided with affordable institutional financial products/services popularly called “Financial Inclusion”. Despite witnessing substantial progress in financial sector reforms in India, it is disheartening to note that nearly half of the rural households even today do not have any access to any source of funds- institutional or otherwise. Hardly one-fourth of the rural households are assisted by banks. Hence the major task before banks is to bring most of those excluded, i.e. 75% of the rural households, under banking fold. There is a need for the formal financial system to look at increasing financial literacy and financial counseling to focus on financial inclusion and distress amongst farmers. Indian banks and financial market players should actively look at promoting such programs as a part of their corporate social responsibility. Banks should conduct full day programs for their clientele including farmers for counseling small borrowers for making aware on the implications of the loan, how interest is calculated, and so on, so that they are totally aware of its features. There is a clearly a lot requires to be done in this area. This enables the customer to remit funds at low cost. The government can utilize such bank accounts for social security services like health and calamity insurance under various schemes for disadvantaged. From the bank’s point of view, having such social security cover makes the financing of such persons less risky. Reduced risk means more flow of funds at better rates. Access to appropriate financial services can significantly improve the day-today management of finances. For example, bills for daily utilities (municipality, water, electricity, telephone) can be more easily paid by using cheques or through internet banking, rather than standing in the queue in the offices of the service.

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such as insurance and pension products. Further. etc 4|P a g e . Employment Guarantee Scheme of the Government which is being rolled out in 200 districts in the country would bring in large number of people through their savings accounts into the banking system. overdraft facilities and credit card. consumption.A bank account also provides a passport to a range of other financial products and services such as short term credit facilities. necessarily require the access to a bank account. It paves the way for establishment of an account relationship which helps the poor to avail a variety of savings products and loan products for housing . a number of other financial products.

4. each & every individual should be provided with affordable institutional financial products/services popularly called “Financial Inclusion”. These lead to social safety net & protect the people from economic shocks. remittance facilities & also life & non life insurance services. “growth with equity” clearly envisages that the growth spree of the globe in the 21st century has left some people behind the time. of India as well as the banking industry has recognized this imperative and has undergone certain 5|P a g e . This is because of the fact that poverty any where is a grave threat to prosperity everywhere. The govt. Financial services actively contribute to the humane & economic development of the society. 5. 3. For sustenance/better growth of the world. i. the deprived sections should be dragged into the mainstream of growth. Financial products & services are identified as basic banking services like deposits accounts. access to payment. An all-inclusive financial system enhances efficiency and welfare by providing avenues for secure and safe saving practices and by facilitating a whole range of efficient financial services like easy dayto-day management of finances. 6. safe money transfer etc. 1. institutional loans. Handful of the global populace are still languishing in the vicious circle of poverty & are cast aside by those who are economically stronger & swifter in the sway of globalization & liberalization. 2. 7.e.N. Financial inclusion may be defined as the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost.INTRODUCTION he prophecy of Millennium Development goals of U. Hence. Affordable credit Savings bank account Payments & Remittance Financial advice Credit/debit cards Insurance facility Empowering SHGs(self help groups) T An inclusive financial system facilitates efficient allocation of productive resources and thus can potentially reduce the cost of capital. The following are the denotation & connotation of financial inclusion in India.

but financial inclusion has become an issue of worldwide concern. 6|P a g e . Rangarajan. Not only in India. in order to address the issues of financial inclusion.fundamental changes over the last two decades. C. Building an inclusive financial sector has gained growing global recognition bringing to the fore the need for development strategies that touch all lives instead of a select few. In fact. relevant equally in economies of the underdeveloped. developing and developed nations. the Government of India constituted a “Committee on Financial Inclusion” under the Chairmanship of Dr.

· The perception of people regarding financial inclusion services and its benefits. 7|P a g e . · How it is one of important factor for the equitable growth of the world economy. · The future of financial inclusion process in India · The extent of financial inclusion India. · The victims of the financial exclusion and how they are the victims of this financial exclusion. · How financial inclusion is the need of the hour for the sustainability and maintenance of the growth process. · How financial inclusion can improve the day-to-day management of finances.OBJECTIVES The research aims to cover the following objectives.

conditions. exclusion due to ignorance & also self exclusion.FINANCIAL EXCLUSION he concept of financial inclusion and its implementation has come a long way since the last two decades and the results are also quite fair. There has been much technological advances that has transformed the banking industry from traditional brick –and-mortar infrastructure like staffed branches to a system supplemented by other channels like automated teller machines. T 8|P a g e . According to Sinclair (2001). Exclusion can come about as a result of problems with access. debit and credit cards. with an increased range of personal finance options for a segment of high and upper middle income population and a significantly large section of the population who lack access to even the most basic banking services. This is termed as “Financial exclusion”. The moot point. One of the oldest definitions by Leyshon and Thrift (1995) define financial exclusion as referring to those processes that serve to prevent certain social groups and individuals from gaining access to the financial system. exclusion on the grounds of charges. marketing or self-exclusion in response to negative experiences or perceptions. prices. internet banking. online money transfer etc. (2005) have defined financial exclusion as broadly the inability (however occasioned) of some societal groups to access the financial system. is that access to such technology and services are restricted to only certain segments of the society. financial exclusion means the inability to access necessary financial services in an appropriate form. There is a growing divide. Carbo et al. however. Financial exclusion can be geographical exclusion.

Some of the important factors responsible for financial exclusion are given as under 1. accounts overdrawn (even if inadvertently) is harmful under Islamic law. 3. Primary requisite of opening bank account is identity proof & witness. Psychological & cultural barriers. which make them illegible as proof. Sometimes they think that services offered by the banks are not meant for them. wrong information are given in their ration cards & voter I-cards. 4. Sometimes these people are distracted by difficult financial terms used by the bankers & sometime by the apathetic attitude of the bankers. Identity Requirements. Terms & conditions. This problem is rife with the refugees & slum dwellers. because. In England the Pakistani & Bangladeshi communities face religious barriers to banking. 9|P a g e . Rural people & low income people think transacting through banks is a cumbersome affair & banks charge highly. USA. People mostly from rural areas don’t have driving license or passport. Such type of “Self exclusion” is far more important than direct exclusion by banks refusing to opening accounts. accounts have been closed by banks because customers either use them too little or withdraw money too often. Bankers’ approach. Another area of obstacle is the conditions relating to the use of accounts. This often goes beyond the budget of the low income people.Causes of Financial exclusion. France & India strict regulation is imposed on Opening balance & Minimum balance required for an account. In Belgium for instance. 2. In Canada. In many cases. Bankers’ attitude towards the rural folk & the marginalized mass is also not conducive. Absence of banks in the vicinity of rural area is also one of the causes of exclusion. Different types of terms & conditions imposed by the bankers often deter people with low income & rural areas from opening bank account.

10 | P a g e .NO SAVINGS NO ASSETS NO BANK ACCOUNT FINANCIAL EXCLUSION NO ACCESS TO MONEY ADVICE NO INSURANCE NO AFFORDABLE CREDIT Effects of financial exclusion: Living without financial service & products is disadvantageous when the contemporary world is moving on cashless system depending on credit cards. ATMs &Core Banking Solution (CBS systems). They pay higher charges in the absence of financial transactions like money transfer & cheque cashing etc. debit cards. The implication of the financial exclusion is much greater when the excluded mass is entrapped in the hydra headed cycles of poverty. This causes further social exclusion which is very much detrimental for the equitable growth of the world community. Exclusion imposes real cost on the excluded lot. The following points describe disadvantages to the financially excluded mass: a. b.institutional creditors at exorbitantly higher rate which exacerbate the harm already caused due to poverty. They take credit from non.

g.c. e. Saving potential remains unexploited & unproductive from social point of view. Lack of security in holding & storing money. General decline in investments. and central regions of India. Who are the excluded? The financially excluded sections largely comprise of: · · · · · · · · Marginal farmers Landless labourers Self employed and unorganized sector enterprises Urban slum dwellers Migrants Ethnic minorities and socially excluded groups Senior citizens and women. The small business may suffer due to loss of access to middle class and higher-income consumers. d. Increase in unemployment. etc. f. Large pockets of population in North East. Eastern. higher cash handling costs and delays in remittances of money. 11 | P a g e .

their perception about the bank and its services needs to be understood. But the task is not so easy since they are illiterate. so that they are totally aware of its features. There is a clearly a lot requires to be done in this area. So there is a need for the formal financial system to look at increasing financial literacy and financial counseling to focus on financial inclusion and distress amongst farmers. What is needed is to improve their living standards by initiating new/increased economic activities with the help of banks. Indian banks and financial market players should actively look at promoting such programs as a part of their corporate social responsibility. Banks should conduct full day programs for their clientele including farmers for counseling small borrowers for making aware on the implications of the loan. To start with. In addition.e. and so on. i. it is disheartening to note that nearly half of the rural households even today do not have any access to any source of funds. Hence the major task before banks is to bring most of those excluded. how interest is calculated. NGO’s and local developmental agencies. 12 | P a g e . it is necessary to develop a fair understanding of their profile.institutional or otherwise.THE NEED FOR FINANCIAL INCLUSION D espite witnessing substantial progress in financial sector reforms in India. Hardly one-fourth of the rural households are assisted by banks. 75% of the rural households. under banking fold. They are also spread far and wide. poor and unorganized.

BENEFITS OF FINANCIAL INCLUSION. a number of other financial products. For example. Reduced risk means more flow of funds at better rates. demand draft or through internet banking. water. · This also enables the customer to remit funds at low cost. Further. 13 | P a g e . bills for daily utilities (municipality. · An inclusive financial system facilitates efficient allocation of productive resources and thus can potentially reduce the cost of capital. overdraft facilities and credit card. consumption. rather than standing in the queue in the offices of the service. having such social security cover makes the financing of such persons less risky. the Employment Guarantee Scheme of the Government which is being rolled out in200 districts in the country would bring in large number of people through their savings accounts into the banking system. From the bank’s point of view. necessarily require the access to a bank account. telephone) can be more easily paid by using cheques or through internet banking. Financial inclusion has many benefits. · A bank account also provides a passport to a range of other financial products and services such as short term credit facilities. · Transfer of money can be done more safely and easily by using the cheque. Following are some of the benefits summed up. electricity. · Access to appropriate financial services can significantly improve the day-today management of finances. The government can utilize such bank accounts for social security services like health and calamity insurance under various schemes for disadvantaged. such as insurance and pension products. etc. · Lastly. · It paves the way for establishment of an account relationship which helps the poor to avail a variety of savings products and loan products for housing .

TOOLS OF FINANCIAL INCLUSION AND THE METHODS TO ACHIEVE THEM To address the issue of financial exclusion in a holistic manner. & (v) micro-insurance (life and non-life) 14 | P a g e . These services are: ` (i) a no-frills banking account for making and receiving payments. (iii) money transfer facilities. personal and other purposes. (ii) a savings product suited to the pattern of cash flows of a poor household. it is essential to ensure that a range of financial services is available to every individual. (iv) small loans and overdrafts for productive.

are likely to reinforce financial exclusion as many excluded households lack these facilities. Product design The requirements of people without financial products are not unrealistic. They should be based on regular and automatic saving. To reduce the likelihood of people cashing in long-term savings plans because of short-term needs for cash. flexible. however. Reducing barriers to access Widening access requires overcoming the barriers presented by risk assessment as well as improving physical access. Following are some of the major points that are required to achieve success of the financial products. Products offering longer-term financial security should be simple and transparent so that users 'know where they are' and the costs associated with regulation compliance are low. it is highly necessary that the current financial products are appropriate to the needs of low-income households. Telephone and computer-based services. one-off. and give restricted access to the money saved. The key issue for home contents insurance is affordability and. It should offer basic money transfer facilities. For dayto-day money management they require a simple account which would allow them to retain tight control over their money. automatic repayments. in particular. including a facility for spreading the cost of bills. long-term savings products could be used as collateral for small loans. cheaper products such as indemnity insurance (second-hand replacement value rather than new-for-old).Meeting the needs: To bring about a highly inclusive financial system. fixed. Moreover short-term credit facilities should also be offered: small. and the use of technology in the distribution of loans and collection of repayments. options for spreading the cost of premiums across the year. which could reduce costs and therefore allow lower interest rates than are currently available from moneylenders. 15 | P a g e . Using intermediaries to deliver financial products can overcome the problems of physical access. so that products can be retained even during times of hardship. or catastrophe-only policies could also widen access. Wider availability of simpler. fixedterm loans rather than ongoing credit commitments such as credit cards or overdrafts.

For example. necessary for the same organization to both provide the product and deliver it to the customer. Targeted marketing and delivery of new products as they become available would also increase take-up. particularly those which are geographically remote. therefore. which they are able to offer at a substantial saving on similar policies bought direct or through a broker. trustworthy and understand their needs. however. Indeed. many local authorities run insure with rent schemes for tenants wanting home contents policies. Measures to encourage take-up must. experience shows that the use of intermediaries offers many advantages. tackle the widespread mistrust which such households have of many financial providers. as are a small number of credit unions and housing associations. The Post Office is also exploring a similar role as financial service intermediary. Use of trusted intermediaries could overcome these barriers. It is not. 16 | P a g e . as well as deterring them from taking up financial services.Delivery systems People on the margins of financial services want to deal with organizations which are financially secure. the language and cultural barriers faced by some potential users need to be taken into account. Equally. Encouraging take-up Knowledge of and about financial products is remarkably low among households that are without them. Lack of knowledge and experience of financial products renders some households especially vulnerable to mis-selling. Electronic cards and electronic money transmissions are likely to be the most acceptable. New technology offers some opportunities for product delivery at the end of the market. There is also a need for an independent information and advice service. This is compounded by marketing policies which reinforce the belief that financial services are 'not for the poor'.

The govt has set up a Financial Inclusion fund of 120 mn pounds to support initiatives to tackle financial exclusion. This offers those on low-income employments £1 from the state for every £1 they invest. Nearly 12 percent of England’s households are unbanked.excluded. So.CROSS COUNTRY EXPERIENCE I t has been estimated by Consultative Group to Assist the Poor (CGAP) that about 2. A Post Office Card Account (POCA) has been created for those who are unable or unwilling to access a basic bank account. Community Reinvestment act & Home Mortgage Disclosure act binds the banks there to provide banking services to all the needy. The concept of a Savings Gateway has been piloted. USA In USA 10%-15% of total households & 22% of the low income households go without bank accounts.K. The situation is particularly dire in the Least Developed countries. 17 | P a g e . Some states like New York made it mandatory for the banks to provide accounts to all citizens. up to a maximum of £25 per month. The following analysis describes the extent & measures taken by different countries to mitigate financial exclusion. Free face to face money advice to targeted groups in the areas of high exclusion is in vogue. In most of the developing countries like India & China the extent of exclusion is in the range of 25%-65%. accompanied by tighter regulations to ensure greater protection for investors. the international community has taken a number of measures to mitigate the hiatus between the financially excluded & non. U. . An enhanced legislative environment for credit unions has been established. taking into cognizance the importance of financial inclusion. In addition the Community Finance Learning Initiatives (CFLIs) were also introduced with a view to promoting basic financial literacy among housing association tenants.5 to 3billion people around the world are still excluded from basic financial services.

South Africa. U. Struggling Members programmed. It has successfully posted a recovery rate of 98.N. & World Bank have extended very good support for building an inclusive society in the world. Only 4% of total populace has bank accounts & 1% only avail credit from formal sources. UNDP & UNCDF jointly lunched a program called Building Financial Security in Africa.N. Grameen bank of Bangladesh under the stalwartship of Md. ICRIER (Indian Council for Research on International Economic Relations). IMF. U. Yunus has revolutionized the movement of financial inclusion. has framed ‘Blue Book’ in consultation with the developed & underdeveloped countries as a tool & guide for policy makers who seek to build inclusive financial growth. In 1992 the banking industry in France signed a charter to provide bank account to all. to find out the extent of the reach of banking services in 100 countries worldwide pointed out that Spain has occupied the top position in IFI. It targeted low income people especially the women (97% of total borrowers) who were denied credit by other com. It has also recently included the beggars within its credit network under a special program i. This has been the result of continuous joint efforts by government & the banks in educating the people about the benefits of financial products. In 2004. which is 18 | P a g e . Approximately 81000 beggars have already been benefited by the programme. Bangladesh. In the first-ever Index of Financial Inclusion (IFI) prepared by a New Delhi-based organization. To deal with the situation Dakar Conference ha been organized under the banner of U.N. More than half of the population here are below poverty line. Banks.e.Australia Only 3% of adults lacked bank account in Australia till 2002-03.85%. France In 1984 the bank of France through “Banking Act” made access to bank accounts a legal right in France.

the UK 17th. even below African countries such as Kenya and Morocco. India has been ranked poorly at 50th position. USA 21st and Japan 22nd. Among the important countries.9 per cent in Malaysia 19 | P a g e . Zimbabwe and Botswana are at the bottom of the list. the report pointed out that domestic deposit as percentage of GDP was 54. followed by Canada and Portugal. Similarly. against 123.based on data from 2004. Germany has been placed at 4th position.9 per cent in India. much above Russia but below China. while countries including Nepal.

Another step in this direction was taken in 1969 when 14 major commercial banks were nationalized followed by six more in 1980. NABARD established in 1982 regulated institutional credit for agriculture & rural development. 20 | P a g e . Bhumuheen’ credit card facility has been arranged apart from Kisan credit cards for the rural & semi urban tenant farmers.INDIAN SCENARIO growth in extending reach. Special Agricultural branches have been opened by the PSBs to meet the financial needs fore agricultural & allied activities. Indian banking systemofhas exhibited tremendous mass ever since 1881. The idea was that provision of such overdraft facilities provides a ready source of funding to the account holders who are thereby inducted to open such accounts. SBI was established in 1955. Following are some of the steps undertaken by RBI: The RRBs have been advised to allow limited overdraft facilities in no-frill accounts without any collateral. Banks also have been advised to provide a General Purpose Credit Card (GCC) at their rural & semi urban branches. Accordingly.itsThe All coverage & delivery financial products to the India Rural Survey committee in 1954 recommended the creation of a state sponsored bank to promote rural penetration. landless labourers whereby they can be allowed hassle free credit limit up to 0. Talwar committee & Goiporia committee in the early eighties have made many recommendations to improve the customer services in India. Lead bank scheme was launched in 1970 to increase banking penetration with special focus on the districts.25 lac per person. SHG & bank linkage programme has been initiated which has been a major micro finance programme in the country. On the behest of the RBI. The emergence of RRBs in 1976 blended the skills of commercial banks with the grass root presence of the co-operative banks helped the mass to access to institutional credit. From this revolving card system the customer can withdraw money to a limited amount from the concerned branch. This strengthened the concept of socialistic & welfare state stature of the country.

SIDBI and Units. Looking at the profitability side of providing newer financial products the private sector organization is also entering into the market.org hosts a ‘Small to Medium Enterprise Investment Company’ with an initial corpus of $17 million targeted at “Missing Middle” between microfinance and commercial capital markets in India. among others . Hyderabad-based SKS Microfinance has attracted investors like Vinod Khosla. the financial services arm of Anil Dhirubhai Ambani Group. The Soros Economic Development Fund (SEDF). Sequoia Capital India. has funded two microfinance institutions in Gujarat . and Google.MAS Financial Services and Vardan Trust. 21 | P a g e . Reliance Capital.The micro finance and self help groups are also playing great role in proving financial services to a large mass of people in the rural and semi urban areas. Omidyar Network.

of accounts per 100 population region-wise No. of accounts per 100 population region-wise The following table gives information about accounts per 100 population in six different regions of the country. No. of Accounts per 100 population 2001 38 20 21 25 32 36 29 2005 42 19 21 25 35 40 31 N.Eastern 7536 Eastern Central Western Southern All India 47838 63498 48120 79531 297467 337721 1027015 22 | P a g e .THE EXTENT OF FINANCIAL INCLUSION IN INDIA T he extent of financial inclusion in India can be well studied from the analysis of the following points. A. Table-1 Region No. of Acounts (current+saving) (in ’000) 2001 Northern 50944 2005 58777 7729 51888 69424 55178 94725 2001 132679 34495 227617 255714 149073 223437 2005 141599 411083 242920 272906 159095 238459 1096063 Population (in ’000) No.

38 Southern . 35 Central. Northern region has highest no. 25 2001 2005 Pie chart representation of the data in the table It can be seen from the table that in All-India level there was only 29 account holders per 100 in 2001 which inched up to 31 in 2005. 19 Eastern. 21 Western. 36 NORTHE RN.e. 32 CENTRA L. North Eastern region recorded lowest figure of only 19 42 per 100 in 2005 which is paradoxically lower than 20 in 2001. 42 per 100 population in 2005. 25 N. of accounts i.EASTE RN. 20 EASTER N. Table—2 Number of Savings Accounts to Adult Population-2005 Region Northern N. 21 WESTER N.Easter n.Eastern Eastern Central Western Southern Percentage of savings account 80 37 34 52 60 66 23 | P a g e .SOUTHE RN. 40 N.

Going by the available data on the number of savings bank accounts and assuming that one person has only one account. (which assumption may not be correct as many persons could have more than one bank account) we find that on an all India basis 59 per cent of adult population in the country have bank accounts – in other 24 | P a g e .Eastern Eastern Central Western Southern 37 34 52 60 66 precentage of savings account Percentage of savings account Southern 20% Northern 24% Western 18% Central 16% N.Eastern 11% Eastern 11% Pie chart representation of the percentage of savings account.80 80 70 60 50 40 30 20 10 0 Northern N.

Number of Loan Accounts to Adult Population 2005 Region Northern N. In rural areas the coverage is 39per cent against 60 per cent in urban areas. The unbanked population is higher in the North Eastern and Eastern regions. Table –3 .words 41 per cent of the population is unbanked.Eastern Eastern Central Western Southern India Percentage of loan accounts 12 7 8 9 13 25 14 25 25 20 15 10 5 0 Northern N.Eastern Eastern Central Western Southern 12 7 8 9 13 Percentage of loan accounts 25 | P a g e .

5 % in 1991 to 29. Eastern and Central Regions. Looking at the different sources of credit. Similar data are not available for non farm and urban households. the coverage is 9.8% in 1971 to 42. specifically. In urban areas the share of non institutional sources has come down significantly from 40% in 1981 to around 25 % in 2002. Out of 203 million households in the country. 51. However after 1991. The extent of exclusion from credit markets is much more. 26 | P a g e . **The extent of exclusion from credit markets can be observed from a different view point also.9% in 2002. Regional differences are significant with the credit coverage at 25 per cent for the Southern Region and as low as 7.Percentage of loan accounts Southern 34% Northern 16% N.4per cent of farm households have no access to formal or informal sources of credit while 73 per cent have no access to formal sources of credit.6% in 2002.5 per cent against 14 per cenin urban areas. 8 and 9 per cent respectively in North Eastern. as number of loan accounts constituted only14 per cent of adult population (table-3) In rural areas. the share of non institutional sources has increased. 147 million are in rural areas – 89 million are farmer households.Eastern 9% Eastern 11% Western 18% Central 12% Pie chart representation of the percentage of loan accounts. the share of moneylenders in the debt of rural households increased from 17. it is observed that the share of non institutional sources reduced from 70.

Banks 284 4 Non-scheduled Banks Total 288 4 (20%) 32091 (48%) 9 (45%) 15151 (23%) 7 (35%) 11070 (16%) Nil 20 (100%) 67313 (100%) 4 (17%) 32095 (47%) 9001 (13%) 2158 (15% ) 1538 7 (23% ) 9 (39% ) 1539 6 (23% ) 6121 (100% ) 249 (100% ) 401 14501 (3%) (100% ) 11494 9344 68316 (17%) (14 (100% %) ) 10 (44%) 23 (100% ) 11504 9344 68339 (17%) (14 (100% %) ) Nil 27 | P a g e . Sector Foreign Banks RRBs 11922 (82%) 32087 (48%) 2134 (15%) 15142 (23%) 396 (3%) 11063 (16%) 20 (0%) 9001 (13%) 14472 (100%) 67293 (100%) 11922 (82%) 32091 (47%) Scheduled Co m. of Branches of As on June 30. of Banks’ branches in population groups Table-4 Banks No & %age of Branches in Population Groups No No.a) No. 2005 Ba Rural Semi Urban Metro Total Rural Semi Urban nk Urban Urba s n 1 4068 2462 1499 1010 8989 4068 2475 1470 (45%) (27%) (16%) (11%) (100%) (45%) (27% (16%) ) 7 1409 1588 849 732 4578 1412 1605 864 (30%) (35%) (19%) (16%) (100%) (31%) (35% (19%) ) 19 13582 7190 6801 5668 33241 13587 7291 6935 (41%) (22%) (21%) (17%) (100%) (40%) (22% (21%) ) 1 NA NA NA NA NA 5 26 68 (3%) (16% (43%) ) 28 19059 11240 9099 7410 46808 19072 1139 9337 (41%) (24%) (19%) (16%) (100%) (40%) 7 (20%) (24% ) 29 1106 1768 1537 1383 5794 1097 1831 1714 (19%) (31%) (27%) (24%) (100%) (18%) (30% (28%) ) 31 Nil Nil 31 188 219 Nil 1 42 (14%) (86%) (100%) (0%) (17%) 196 Metr o 1023 (11 %) 744 (16) Total SBI Associates Of SBI Nationalized Other PSUs PSBs 9036 (100% ) 4625 (100% ) 5812 33625 (17 (100% %) ) 60 159 (38 (100% %) ) 7639 47445 (16 (100% %) ) 1479 (24 %) 206 (83 %) 20 (0%) Pvt. 2004 As on June 30.

Table-4 shows number & percentage of branches of different banks present in different areas/population groups. (b) Region-wise : Exclusion is most acute in Central. Only 45% of these households are indebted to either formal or non formal sources of finance. only 27% access formal sources of credit. Summary of the financial inclusion statistics in India(2005) (a) General : 51. 73% of farmer households have no access to formal sources of credit. Eastern and North-Eastern regions . one third of this group also borrow from non-formal sources. The presence of private sector banks in rural areas has declined from 19% in 2004 to 18% in June 2005. Among non-cultivator households nearly 80% do not access credit from any source. The rural presence of the nationalized banks (40%) & RRBs (82%) helped India positively in the direction of financial inclusion.66% in these three regions. Overall. 28 | P a g e . About 20% of indebted marginal farmer households have access to formal sources of credit. The spread of private banks (18%) & foreign banks (0%) in rural areas is not very encouraging.Of the total farmer households. Table-4 indicates that 47% of total scheduled commercial bank branches are present in rural area where as 17% in Urban &14% in metropolitan areas as on June 2005. Overall indebtedness to formal sources of finance alone is only 19. (c) Occupational Groups: Marginal farmer households constitute 66% of total farm households.4% of farmer households are financially excluded from both formal / informal sources.having a concentration of 64% of all financially excluded farmer households in the country.

Vol.. with a credit gap of 95% and above. there are different estimates of the extent of inclusion thru' formal sources. Ministry of Statistics and Programme Implementation.I. 5. Further data with NABARD on the doubling of agricultural credit indicates that agricultural loan disbursements during 2006-07 covered 3. This is in respect of commercial banks and RRBs. Consequently. 3.97 crore accounts. New Delhi. this has had an impact on quantifying the extent of levels of exclusion.91 crore KCCs have been issued as at the end of March 2006. Thus.. 29 | P a g e . Government of India. Ministry of Statistics and Programme Implementation. which translated into a credit coverage of more than 51% of land holdings by formal sources. NSSO.51%) mostly to informal sources. New Delhi. National Sample Survey Organisation (NSSO). Government of India. “Informal Sector in India.(d) Social Groups : Only 36% of ST farmer households are indebted (SCs and Other Backward Classes OBC .56 crore land holdings. II . New Delhi. Analysis of the data provided by RBI thru' its Basic Statistical Returns reveal that critical exclusion (in terms of credit) is manifest in 256 districts. 2. spread across 17 States and 1 UT. there are 11. Government of India. National Statistical Commission Report of the National Statistical Commission. Central Statistical Organisation National Accounts Statistics. As per CMIE (March 2006).. REFERENCES FOR THIS SECTION 1. as the reference period of the data is not uniform. Salient Features”.

The details of the survey are as follows.(this age group was chosen so as to know the condition of financial inclusion 40 years back) The survey was conducted through a questionnaire containing five questions. 1. No of people surveyed: 50 Age group of people surveyed: Above 65. How did you attain credit or avail money at the time of need? 3. a rural village in Jharkhand. How do you rate the financial inclusion services now? The answers to the questions received and the percentage of people that answered the various answers are as follows: 30 | P a g e . Where do keep or invest your money now? 4.SURVEY : FINANCIAL INCLUSION – THEN AND NOW T o understand the extent of financial inclusion in a general context and the perception of people regarding financial inclusion a survey was conducted. The questions are as follows. How do you avail credit now? 5. Place of survey: Sukhjora. Where did you keep your earnings then OR what did you do with your earnings after fulfilling the basic needs? 2. rather we made it a point to note down their answers. There were no fixed answers to the questions.

2.ANS TO Q –1 1. 1. 2. 2. 6. 5. 3. 3. 3. In the post-office Saved in provident fund Invested in land and gold Lend money to others at high interest PERCENTAGE OF PEOPLE 36% 20% 12% 64% 21% ANS TO Q –2 1. 5. People did not have access to banks . People expressed their sorrows and woes which they had to face particularly during their daughters marriage and in times of sickness. Unlawful money lenders also had a good time. Thus financial inclusion services were still a dream in those days.The only profitable investment people thought in those days were of investing in land and gold and the only official method of saving in the area was the village post-office. At home. 7. PERCENTAGE OF PEOPLE 35% 27% 40% 38% From the above answers to Q—1&2 it is clear that the concept of financial inclusion was very low in those days. Mortgage loans from zamindars were common phenomena. In the case of taking credit and managing finance in times of emergency we see the people had to take pains. 4. 4. From family members From money lenders at high interest Through mortgage of land to zamindars By selling land or gold or household items. 4. ANS TO Q –3 Post offices At homes In co-operative banks and local banks In private sector banks In equity shares In gold and land In kishan bikas patra &alike PERCENTAGE OF PEOPLE 16% 12% 70% 11% 2% 24% 18% 31 | P a g e .

One of the prime causes of this reason is that people have become educated about the financial services in the urban areas. they feel that less development has taken place in their area. of customers have exceeded their limits. Though the spread of the public sector banks are more but the spread of private sector banks are also happening. 4. Thus. From banks (PSBs) From relatives and friends From money lenders From private sector banks By selling land or gold From self saved money PERCENTAGE OF PEOPLE 63% 22% 12% 10% 21% 37% ANS TO Q –5 1. 3.2. But the rating of financial services by the people are still average. 4.ANS TO Q –4 1. 2. 1. 3. it is found that what was a nil bank area has now five banks and in each of the banks the no. Good Average Below average Needs a lot of improvement PERCENTAGE OF PEOPLE 36% 42% 14% 8% From the answers of Q—3&4 it is clear that financial inclusion services are in services now. 2. (For question no. 6. In case of credit taking banks have become the priority. We see people have bank accounts now.3&4 the total of the percentage of people giving the answers is not 100 because more than one option of answer has been given as a response ) 32 | P a g e . On surveying the area . 5.

the pace of deposit 33 | P a g e . Russia India. The role of the banking sector will be vital for India if it were to stay as one of the fastest growing economies. government-owned banks channel about 70 per cent of the net savings of the economy into government. banking sectors will grow much faster than the GDP of these countries.THE SIGNIFICANCE OF FINANCIAL INCLUSION IN THE CURRENT FINANCIAL CRISIS T he current ‘tsunami’ in the financial sector triggered by the subprime crisis has had a telling impact on the global economy from which it will take some time to recover. Some estimates indicate that the lack of financial inclusion from the banking system reduces potential GDP by nearly 1.and state-owned enterprises. and could even grow faster than China. Currently. In India. 92 regional rural banks (RRBs). local banks have a long way to go in bringing the unbanked areas within the banking fold. As per the Planning Commission’s India ‘Vision 2020’ document. the growth of banking is likely to be more qualitative than quantitative. income or education. As competitive intensity hots up and ripples from international competition touch the Indian shores in search of ‘virgin’ markets. · Over the next 25 years. Reducing the government’s dependence on these funds would require a change in the way the banking sector thinks and looks at itself. four local area banks (LABs). While reliance on borrowed funds has increased for many of the global banks. · India is likely to emerge as the third-largest domestic banking market by 2040. · Total domestic product in the E7 will exceed those of G7 countries in the next 40 years. and finance a huge budget deficit of about 9 per cent of GDP. China. Mexico and Turkey ) driving growth. The multilayered Indian banking system— compromising 82 scheduled commercial banks (SCBs) . According to a study ‘Banking in 2050’ shows that the structure of global ranking will undergo a complete realignment with the E7 (Brazil.5 per cent. Indonesia. moving towards participating more formally in financial inclusion. banks will have to revisit their cost models. irrespective of geography . 1813 urban cooperative banks (UCBs) and 109497 rural co-operative credit institutions has the ability to convert what was largely perceived as a social responsibility into a viable growth : providing access to finance to all .

ATMs and phones. The present trend shows a strong shift among younger consumers from traditional branch-banking to alternate channels. The Next Billion Banking Customers — the most effective marketing campaigns will have to include equal parts of education and sales pitch. and be accessible.growth among local banks over the last couple of years has been encouraging. To include their next customers. But it needs to be sustained with constant monitoring of quality of the deposit base. According to the Boston Consulting Group’s 2007 report. have emerged as effective channels for distribution of products and services. it can be summed up that financial inclusion is one of the viable routes through which banks can maintain their development and also survive the current financial crisis. The business challenge would be to ensure continuous compliance with cyber laws and other regulatory directives. But in order to do that there should be extensive efforts both from the government’s side as well as the banks themselves. Branches though will continue to be used more for crossselling products and managing client relationship. Thus. bank will have to access them. such as the internet. (The entire information on this particular section has been extracted from Businessworld Issue 18-24 Nov 2008) 34 | P a g e . Electronic delivery channels.

5.co in www.rbi. 7. 4.nssoresults .org www.indian-bank. 5. The need for financial inclusion with an Indian perspective .bbcnews.com www. 2. 8. IDBI Gilts ltd.com www. C Rangarajan. chairman of the National Statistical Commission 3. Dr.com www. report on financial inclusion by Boston Consulting group.innoviti.nabard.com www. 4. 2.egovonline. 3.org.nationalcentrefordiversity. www.BIBLIOGRAPHY WEBSITES 1. 3.net NEWSPAPERS 1. 2. 35 | P a g e . Report of the committee on informal financial sector statistics.uk www. The Economic Times The Hindu The Telegraph The Times of India The Hindu Business Line SPEECHES AND REPORTS 1. 6.npi. The Next Billion Consumers. 9.org.in www.

of India . Leeladhar. Taking Banking Services to the Common Man – Financial Inclusion. governer. Index of Financial Inclusion . Treating bank customers fairly. Mandira Sharma. RBI organized by the Financial Standards Planning Board . Commemorative Lecture by Shri V. Press Information Bureau.2008 36 | P a g e . Indian Council for Research on International Economic Relations 7. India. Govt. 2005 6. 5. National Conference on Financial Inclusion.4.Friday 14th November. speech by Usha Throat. Deputy Governor Reserve bank of India at the Fedbank Hormis Memorial Foundation at Ernakulam on December 2.

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