Declaration

I hereby declare that the project report on the topic “Financial Inclusion: Policy Initiatives and Assessment of ICT based Initiatives for NREGA Beneficiaries in District Amritsar” is submitted to the Reserve Bank of India for the partial fulfillment of summer internship as a part of the curriculum of MBA, UIAMS. This report is record of the original work done by me, Aarti Katoch between 18, June 2010 to 30, July 2010 during the period of this internship at Chandigarh regional office of Reserve Bank of India under the guidelines of Mrs. Anitha Srinivasan, DGM and Mr. Susheel Raina, AGM, Rural Planning and Credit Department.

Aarti Katioch

This is to certify that Ms. Aarti Katoch has successfully completed the project on the topic “Financial Inclusion: Policy Initiatives and Assessment of ICT based Initiatives for NREGA Beneficiaries in District Amritsar” under my guidelines. Her conduct throughout the accomplishment of the task was excellent and I wish her all the best for her future endeavours.

Place: Chandigarh Date:

Mrs. Anitha Srinivasan, (DGM, RPCD)

Mr.Susheel Raina, AGM, (AGM, RPCD)

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Acknowledgement
I would like to express my gratitude to the Reserve Bank of India that they provided me with the opportunity to accomplish my goal particularly the Rural Planning and Credit Department. I express my heartfelt gratitude to Sh. Jasbir Singh, present Regional Director. RBI, Chandigarh who gave me an opportunity to work on the project titled financial inclusion. I owe enormous intellectual debt towards my guide Smt. Anitha Srinavasan, DGM & Mr. Susheel Raina, AGM, RPCD for giving me valuable insight into my field of study. I would like to thank and sincerely appreciate my mentors for their encouragement and continuous guidance in a friendly atmosphere. I extend my sincere thanks and gratitude to all the staff members specially Mrs. Peeyoosh Nag, AGM, DAPM for providing me the support. Also during this project I had frequent interaction with officers and staff of other departments at RBI Chandigarh, I appreciate their willingness to co-operate and share information with me. I am extremely indebted to my institution for infusing in me a spirit of dedication and capabilities to accomplish this project. I would like to thank my pal Ankita Rapa and colleagues for their cooperation and help during my work. I would also like to thank staff of Oriental Bank of Commerce, Regional Office, Amritsar for the cooperation they provides me during my field visits. Last but not the least, I would like to acknowledge the invaluable contribution of my beloved parents for their good wishes and for being my side all the time and encouraging me to fulfill my duty with determination.

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Background
I, Aarti Katoch, student of University Institute of Applied Management and Sciences, Panjab University, Chandigarh joined The Reserve Bank of India as summer trainee in partial fulfillment of the requirements for the degree of Masters of Management Studies. The report is a record of original project done by me between June 18, 2010 to July 30, 2010 during the period of my summer internship at Reserve Bank of India, Chandigarh under the guidance of Smt. Anitha Srinivasan (DGM) and Mr. Susheel Raina (AGM, RPCD).

Approach adopted
For the present work, I studied the basics of the topic and previous work done on it. My first goal was to have in depth knowledge of the theoretical part of the subject than to have first hand experience of it in the field. For this purpose, I visited Regional office of Oriental Bank of Commerce in Amritsar. I also visited some of the villages like Chogawan & Kirlgarh of district Amritsar for the field study and survey. I conducted a survey among the rural people of these villages to know the level of penetration of banking in these interior rural areas and what are the perspectives of the people regarding banking services.

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Executive Summary
Access to safe, easy and affordable credit and other financial services by the poor and vulnerable groups, disadvantaged areas and lagging sectors is recognized as a pre-condition for accelerating growth and reducing income disparities and poverty. An open and efficient society is always characterized by the unstrained access to public goods and services. In this concern both the government and the Reserve Bank of India have been pursuing the goal of financial inclusion over the last several decades through various initiatives for example- opening of no frill accounts, lead bank scheme, easier credit facility, simplified KYC norms, use of ICT solutions, building FLCC & EBT through banks etc. Now-a-days ICTs {Information and Communication Technologies} are being used in many fields specially in banking to improve the efficiency, reliability and ease of operation. They are widely used in the form of mobiles ATMs, biometric smart cards, mobile banking and so on. Branchless banking in the form of Business Correspondents and Business Facilitators is one of the major initiatives of RBI in this direction through which they are able to reach the unbanked population. The project report includes the understanding of the Business Correspondent model and its working i.e. the enrollment process and the transactions through biometric smart cards. The survey was also conducted among rural people to know the penetration of banking in the interior areas of district Amritsar. Project also focuses on the problems of the BCs and the rural people and includes the suggestions on the basis of research conducted. Microfinance and Information and Communication Technology (ICT), in their own right, can be argued to have a lasting impact on the social and economic order. However, to have an even more profound impact, these different approaches to orchestrating change- social and economicwill have to integrate and collaborate, in a way that ensures actualizing of a more holistic development framework that beat leverages the respective strengths of both microfinance and ICT.

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Table of Contents
Chapter I. Title Page(s) 7-12

Introduction
Why Financial Inclusion? Who are Excluded? Causes of Financial Inclusion Consequences of Financial Inclusion

II.

Financial Inclusion – Defined
Indian Scenario

13-15

III.

Some Indian Initiatives
Initiatives of Reserve Bank of India Initiatives of NABARD Other Institutions

16-22

IV.

IT enabled Financial Inclusion
Branchless Banking Business Correspondents/Facilitator Model ICT and Financial Inclusion

23-31

V. VI.

Progress in ICT based FI in Punjab Survey
Overview of the Model Enrollment Process Transaction Process Achievement so far Field issues Methodology

32-36 37-51

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Findings from the Survey Problems of BCs and Rural Population VII. VIII. IX. Some suggestions Questionnaire Abbreviations 52-54 55 56-57 6 .

both formal and semi-formal. appropriately designed loans for poor and lowincome households and for micro. The situation is worse in least developed countries (LDCs). a large segment of society. has very little access to financial services. In most developing countries. disadvantaged areas and lagging sectors is recognized as a precondition for accelerating growth and reducing income disparities and poverty. and appropriate insurance and payments services can help people to enhance incomes. acquire capital. credit and insurance – serves as a measure of crisis mitigation. including safe savings. 7 . attracted less attention despite the emphasis it has received in the theory. as the financial sector – through stored savings. enables economically and socially excluded people to integrate better into the economy and actively contribute to development and protects themselves against economic shocks. however. and come out of poverty. where more than 90 per cent of the population is excluded from access to the formal financial system. small and medium-sized enterprises. As a consequence. manage risk.Chapter I Introduction Access to safe. It has been well recognized that access to financial services facilitates making and receiving financial payments and reduces transaction costs. particularly low-income people. Access to a well-functioning financial system. Broader access to financial services has. Inclusive finance. Furthermore. easy and affordable credit and other financial services by the poor and vulnerable groups. access to financial services contributes to higher production and social protection. by creating equal opportunities. many of them have to necessarily depend either on their own or informal sources of finance and generally at an unreasonably high cost.

Yet the extent of financial exclusion is staggering. prices. and this 8 . ‘focus’ and ‘degree’ of exclusion. the social contract with banks in the 1960s and the expansion of bank branch networks in the 1970s and 1980s. The definitions laying emphasis on the ‘focus’ also vary significantly to include various segments of population such as individuals. bill-payment services and accessible and appropriate deposit accounts (Rogaly. i.. 2004). These initiatives have paid off in terms of a network of branches across the country. It defines financial exclusion as the potential difficulties faced by some segments of population in accessing mainstream financial services such as bank accounts/home insurance (Meadows et al. Both the Government and the Reserve Bank have been pursuing the goal of financial inclusion over the last several decades through building the rural cooperative structure in the 1950s. The ‘degree’ dimension. financial exclusion defined relative to some standard (i.e. which is the narrowest of all definitions of financial exclusion. financial exclusion is construed as the inability to access necessary financial services in an appropriate form due to problems associated with access. The ‘focus’ dimension is in the middle of the spectrum that links financial exclusion to other dimensions of exclusion. The ‘breadth’ dimension is the broadest of all definitions linking financial exclusion to social exclusion which defines financial exclusion as the processes that prevent poor and disadvantaged social groups from gaining access to the financial system (Layton and Thrift... defines financial exclusion as exclusion from particular sources of credit and other financial services including insurance. leaving a minority of individuals and households behind (Kempton et al. communities. inclusion). 1999).000 habitations in the country. 2000). This line of thinking defines the problem of financial exclusion as that emanating from increased inclusion. Out of the 600.000 have a commercial bank branch. definitions of financial exclusion vary considerably according to the dimensions such as the concept of relativity. Just about 40 per cent of the population across the country has bank accounts. marketing or self-exclusion in response to discouraging experiences or perceptions of individuals/entities.Why Financial exclusion? Broadly. Finally. 1995). conditions. and businesses. Definitions of financial exclusion in the literature vary depending on the dimensions such as ‘breadth’.e. households. only about 30..

People having debit cards comprise only 13 per cent and those having credit cards only a marginal 2 per cent.ratio is much lower in the north-east of the country. verification has shown that these account are dormant. staggering as they are. in 2003. 51 percent did not seek credit from either institutional or noninstitutional sources of any kind. Few conduct any banking transactions and even fewer receive any credit.6 per cent. The proportion of people having any kind of life insurance cover is as low as 10 per cent and proportion having non-life insurance is an abysmally low 0. Even where bank accounts are claimed to have been opened. These statistics. Millions of people across the country are thereby denied the opportunity to harness their earning capacity and entrepreneurial talent. Who are excluded? Landless Labourer Migrants Senior citizens Ethnic Minorities Self Employed Women Marginal Farmers Financiall y excluded Socially Excluded Groups Urban Slum Dwellers Unorganized Sector Enterprises 9 . out of the 89. The National Sample Survey data reveals that. do not convey the true extent of financial exclusion. and are condemned to marginalization and poverty.3 million farmer households in the country.

From the demand side. The person is bankable on a credit appraisal approach but distances are too long for servicing and supporting the accounts and expanding branch network is not feasible and viable. such as: • • • Persons are unbankable in the evaluation/perception of bankers. From the supply side. social exclusion.Poor infrastructure and physical access act as deterrent. illiteracy act as barriers. 10 . cumbersome documentation and procedures. The loan amount is too small to invite attention of the bankers. Causes of financial exclusion: The exclusion of large numbers of the rural population from the formal banking sector may be for several reasons from the supply side. The requirements of independent documentary proof of identity and address can be a very important barrier in having a bank account especially for migrants and slum dwellers. lack of awareness. language are common reasons for exclusion. distance from branch. low incomes / assets. Why this Financial Exclusion? branch timings.

Inadequacy of extension services which is crucial to improve the production efficiency of the farmers leading to better loan repayments. such as: • High transaction costs at the client level due to expenses such as travel costs. . From the demand side. incidental expenses. • • Adverse security situation prevailing in some parts of rural India. Inability to evaluate and monitor cash flow cycles and repayment capacities due to information asymmetry. Lack of social capital. • • Lack of collateral security. there are several reasons for the rural poor remaining excluded from the formal banking sector.• High transaction costs particularly in dealing with a large number of small accounts. no availability of ideal products. Lack of awareness. lack of data base and absence of credit history of people with small means. • Human resources related constraints both in terms of inadequacy of manpower and lack of proper orientation/expertise. wage losses. • • • • • Documentation. Very small volumes / size of transactions which are not encouraged by formal banking institutions. • 11 Hassles related to documentation and procedures in the formal system.

exclusion may lead to aggregate loss of output or welfare and the country may not realize its growth potential. poverty as well as all the other associated economic and social 12 . • Second. contributes to a much wider problem of social exclusion. financial exclusion leads to social exclusion. • Individuals/families could get trapped into a cycle of poverty and exclusion and turn to high cost credit from moneylenders. • It exposes the individual to the inherent risk in holding and storing money – operating solely on a cash basis increases vulnerability to loss or theft. which are intertwined.• Easy availability of timely and doorstep services from money lenders/informal sources and • Prior experience of rejection by/indifference of the formal banking system. the issue of cost of financial exclusion may be conceived from two angles. resulting in greater financial strain and unmanageable debt. Consequences of financial exclusion: Financial exclusion is not evenly distributed throughout society. as a result. • It could also lead to denial of access to better products or services that may require a bank account. from the societal or the national perspective. • First. besides all round impediments in basic/ minimum transactions involved in earning livelihood and day to day living. it is concentrated among the most disadvantaged groups and communities and. the exclusion may have cost for individuals/entities in terms of loss of opportunities to grow in the absence of access to finance or credit. financial exclusion leads to higher charges for basic financial transactions like money transfer and expensive credit. Broadly. • At the wider level of the society and the nation. • Also.

13 . and long-term or extended dependence on welfare as opposed to savings (Chant Link and Associates. compromised standard of living resulting from lack of access to short-term credit. • The more tangible outcomes of financial exclusion include cost and security issues in managing cash flow and payments.problems. • Financial exclusion is not evenly distributed throughout society. financial exclusion is often a symptom as well as a cause of poverty. higher costs associated with using informal credit. increased exposure to unethical. predatory and unregulated providers. vulnerability to uninsured risks. as a result. it is concentrated among the most disadvantaged groups and communities and. 2004). Thus. contributes to a much wider problem of social exclusion.

e. 14 . As banking services are in the nature of public goods. The scope of financial inclusion: It can be expanded in two ways • • Through state-driven intervention by way of statutory enactments Through voluntary effort by the banking community itself for evolving various strategies to bring within the ambit of the banking sector the large strata of society.Chapter II Financial Inclusion – Defined Chapter III By financial inclusion. to all. An open and efficient society is always characterized by the unrestrained access to public goods and services. is not regarded as an accurate indicator of financial inclusion. the financial exclusion has been viewed in a much wider perspective. The various financial services include savings. At one extreme. and may not enjoy the flexibility of access offered to more affluent customers. Internationally. But these persons may have only restricted access to the financial system. those customers who are actively and persistently courted by the financial services industry and who have at their disposal a wide range of financial services and products. we may have the financially excluded. There could be multiple levels of financial inclusion and exclusion. insurance. i. loans. Having a current account/savings account on its own. it is possible to identify the ‘super-included’.. In India the focus of the financial inclusion at present is confined to ensure a bare minimum access to a savings bank account without frills. who are denied access to services only for deposits and withdrawals of money. payments. we mean delivery of banking services and credit at an affordable cost to the vast sections of disadvantaged and low income groups. remittance facilities and financial counseling / advisory services by the formal financial system. financial inclusion should therefore be viewed as availability of banking and payment services to the entire population without discrimination of any type. At the other extreme.

25. with a revolving credit limit up to Rs. total number of GCCs issued by banks as at end-March. These accounts have ‘nil’ or low minimum balances and charges. where it was found that regulation could be a challenge in achieving greater financial inclusion is in regard to Know Your Customer (KYC) norms. 2009 was only 0. In a country where most of the low income and poor people do not have any document of identity or proof of address it is very difficult to have KYC norms that insist on such documents. However. • KYC regulations for small value clients and transactions: One significant area.000. over 39 million no frills accounts have been opened. since then initiated several policies aiming at promoting financial inclusion. In rural areas. branchless banking has been allowed to ensure that these accounts are more accessible to their holders. this is addressed by asking for identification by local officials and requiring a photograph of 15 . in 2005. Hence. • Easier Credit facility: Banks were asked to introduce a General Purpose Credit Card (GCC) facility to be issued by banks without insistence on collateral or purpose. Some of the major initiatives aimed at promotion of financial inclusion include: • No Frills Accounts: Taking the view that access to a bank account can be considered a public good. At the same time. to ensure integrity of financial transactions. it is necessary that each customer is properly identified before accounts are opened.15 million. there are certain barriers that inhibit the active operation of such accounts like the time and cost involved in reaching the nearest branch where the accounts have been opened. Since 2005. and have limited facilities. However.Policy initiatives Initiatives of the Reserve Bank of India Reserve Bank of India in its annual policy statement of April 2005 recognized the problem of financial exclusion and has. RBI directed all banks to offer at all branches the facility of ‘no frills’ account to any person desirous of opening such an account.

this is expected to give a boost to the financial inclusion while ensuring the integrity of financial transactions. Government is also looking into the possibility of converting food and fertilizer subsidies into cash payments which will flow through bank accounts. In a country with deep penetration of mobile phones.000. This project is a unique opportunity to leverage UID. • Recently. the Government of India constituted the Unique Identification Authority of India (UIDAI) to issue a Unique Identification Number (UID) with biometric recognition to every resident of the country. Banks could benefit by synchronizing opening of bank accounts for those who will be enrolled through this exercise. In the light of the experience gained. In big towns and cities where there are a large number of migrants who do not have any documents. Drives for financial inclusion locally have been achieved through active involvement of government in the identification process. the UIDAI will begin issuing UIDs and roll out 600 million UIDs in a phased manner by 2014.000. UID enrolment would be done with the help of State Government machinery and other Registrars. There are similar dispensations for walk-in clients for small remittances and payments not exceeding Rs 50. fulfilling KYC norms and opening a bank account continue to be a challenge.000 and where the annual credits in the account do not exceed about Rs 2. • In order to improve provision of financial inclusion services in the north-eastern region and prepare an appropriate State-specific monitorable action plan RBI has set up a Committee on financial sector plan for the North-eastern region headed by 16 . RBI has simpler KYC norms for small value accounts where the balances in the account do not exceed about Rs 50. As a proportional regulatory dispensation having regard to the degree of risk. Using UID for fulfilling KYC for small value accounts will facilitate financial inclusion.00. external evaluation of the quality of 100% financial inclusion reported by banks was carried out.the account holder. coverage has been extended to other areas/districts. bank accounts and mobile telephony services. For the purpose. It is expected that by latter part of this year. • 100% Financial Inclusion Drive: The Reserve Bank launched a financial inclusion drive targeting one district in each state for 100% financial inclusion.

• EBT through Banks: The Reserve Bank is in consultation with state governments to encourage them to adopt Electronic Benefit Transfer (EBT) by banks. micro and small enterprises. urban poor. with members from financial institutions and banks. Mobile phones have also been developed to serve as card readers. which are essentially smart card readers. A Centre for Financial Education & Excellence is proposed to be set up in RBI's College of Agricultural Banking at Pune. defense personnel. • Mandated priority sector lending: Priority sectors broadly include agriculture and allied activities. These devices are used for making payments to rural customers and receiving cash from them at their doorsteps. women and small entrepreneurs. All 17 . Similar books are being prepared for different target groups such as rural households. Pilot studies have also been carried out in Mizoram and Uttarakhand. education. The information captured is transmitted to a central server where the accounts are maintained. • Financial Literacy and Credit Counseling: Recognizing that lack of awareness is a major factor for financial exclusion. which have their photographs and finger impressions. Account holders are issued smart cards. The BCs carry hand-held devices. Reserve Bank is taking a number of measures for increasing financial literacy and credit counseling. Comic type books introducing banking to schoolchildren have already been put on the website.Deputy Governor of Reserve Bank of India. Certain banks have been using this technology in Andhra Pradesh. Financial literacy programs are being launched in each State with the active involvement of the State government and the SLBC. State Government from the North-Eastern states and academics. • Use of ICT Solutions for Enhancing Outreach of Banks: The Reserve Bank has been encouraging the use of ICT solutions by banks for enhancing their outreach with the help of their Business Correspondents (BCs). housing and micro-credit. A multilingual website in 13 Indian languages on all matters concerning banking and the common person has been launched by the Reserve Bank on 18 June 2007. Karnataka and Maharashtra. Each SLBC convener has been asked to set up a credit-counseling centre in one district as a pilot and extend it to all other districts in due course.

and to regional rural banks for agriculture and allied activities has been included in the definition of priority sector. are also included in priority sector. micro finance institutions. every bank requires a license from RBI for opening a branch. Any shortfall in priority sector lending is required to be deposited in special funds maintained by NABARD/SIBDI/NHB. 2009. as also standard risk weights are applicable.domestic commercial banks are required to allocate 40 per cent of their lending to the priority sectors. brick & mortar or ICT mode to the unbanked villages having population more than 2000. • Linking branch licensing approvals to penetration in under-banked areas: Under the current laws in India. For foreign banks. Statutory approvals for branch licenses in more lucrative centres are linked to the number of branches opened in under -banked districts and States. which ensures that such loans do not add undue risk to the bank’s balance sheet. offering no frills accounts and other parameters to gauge achievements in financial inclusion and in customer service.e. to NBFCs for on-lending to priority sector. as also other factors such as fulfilling priority sector obligations. I would like to emphasise that no subvention is involved as interest rates are deregulated and all the usual prudential norms for income recognition. which are used for funding rural infrastructure/micro-enterprises/housing sectors. As on March 31. representing loans to various categories of priority sector which are originated by banks and financial institutions. • Unbanked villages having population more than 2000: In order to push up the inclusion process Reserve Bank has set the time limit of March 2012 for the banks to reach out in any mode i. A bank can also purchase priority sector lending from another bank though participatory notes. the coverage under priority sector was to the tune of 51 million loan accounts. Investments made by banks in securitized assets. This legal requirement has been used as a regulatory tool for furthering financial inclusion. The sub-committees at District level have 18 . the requirement is 32 per cent and export credit is also included in their case. asset classification and provisioning. Credit extended by banks to SHGs. While it could be argued that mandated credit distorts allocative efficiency of the banking system.

irrespective of whether they were satisfied with the services provided by the designated bank branches or not. These villages have been allotted to the banks and banks have already got them Board approved Financial Inclusion planes for the roll outs in those villages. • Lead bank scheme: One of the major initiatives taken by Reserve Bank of India to fulfill the credit needs of rural sector of the economy. the activities of the ‘service area branches’ were restricted to the allotted villages and they were unable to provide financial assistance outside their service areas. ICT is considered the key and driven for reaching out into these villages. borrowers belonging to these villages were required to approach the ‘designated bank branches’ for their credit needs and were not in a position to avail of services of any other bank branches. The study group which was presided over by Prof. • In 1989. This is the reason why the Reserve bank Of India is placing a lot of emphasis on Financial Inclusion. the Service Area Approach (SAA) was adopted wherein service area villages were identified and assigned to bank branches based on their proximity and contiguity and by adopting a cluster approach. When bankers do not give the desired attention to certain areas. Similarly. despite being in a position to do so. particularly agriculture. Due to allotment of villages to designated bank branches. smallscale industry and services sectors remained virtually neglected. in concert with other banks and credit agencies. identifying credit gaps and evolving a co-ordinate approach to credit deployment in each district. The Scheme emphasized making specific banks in each district the key instruments of local development by entrusting them with the responsibility of locating growth centers. 19 . the regulators have to step in to remedy the situation.’69 the adoption of an “Area approach” for the development of credit and banking in the country on the basis of local conditions.identified such villages and in the State of Punjab 1581 such villages have been identified. DR Gadgil recommended in Oct. Credit plans were prepared on an annual basis for the service area of each branch which involved co-ordination between the various developmental agencies and credit institutions. assessing deposit potential.

• Reserve Bank has created the funds i. about 86 million poor households are covered under the SHG-Bank Linkage program with over 6. NABARD offers grant assistance to NGOs that promote SHGs and link them to banks.2 million credit-linked SHGs as on March 31. The penetration achieved through SHGs has been very significant. Interest earned from group members is retained in the group.1 million saving-linked SHGs and 4. 2009. usually women.e. The initial phase of SHG movement saw concentration of SHGs in the southern parts of the country. with the interest rates on deposits and loans being determined entirely by members. National Bank for Agriculture and Rural Development (NABARD) launched the SHG–Bank Linkage Program in 1992 to forge the synergies between formal financial system and informal sectors. An SHG is a group of 15 to 20 members from very low income families. 20 . but now the SHGs have spread more to the eastern and north eastern regions where the extent of financial exclusion is greater. As per NABARD’s report on status of microfinance (2008-09). which mobilises savings from members and uses the pooled funds to give loans to those members who need them. Financial Inclusion Fund (FIF) and Financial Inclusion Technology Funds (FITF) with NABARD with the purpose of helping the banks of adoption/implementation of Technology in the inclusion process. banks provide loans to the SHGs against group guarantee and the quantum of loan could be several times the deposits placed by such SHGs with the banks. which were neither registered nor regulated. when banks were allowed to open savings accounts for Self Help Groups (SHGs). The recovery rates of such loans have been good and banks have found that the transaction cost of reaching the poor through SHGs is considerably lower as such cost is borne by the SHG rather than the bank. The Government of India has also been using the SHGs for subsidy linked credit schemes for the poor. Under this programme. Initiatives of NABARD • Allowing banks to open accounts for Self Help Groups An important regulatory dispensation that facilitated financial inclusion was given in the early 90s.

1949 or  a cooperative society engaged in agricultural operations or industrial activity or purchase or sale of any goods and services.1880 or public trust registered under any State enactment governing trust or public. It is roughly estimated that there are about 1.” • MFIs could play a significant role in facilitating inclusion.Other institutions • Micro Finance Institutions (MFIs) MFI is an organization or association of individuals including the following if it is established for the purpose of carrying on the business of extending microfinance services: • • A society registered under the Societies Registration Act. many of the NGOs engaged in social intervention have 21 . have a greater understanding of the issues specific to the rural poor. However. religious or charitable purposes. • A cooperative society / mutual benefit society / mutually aided society registered under any State enactment relating to such societies or any multistate cooperative society registered under the Multi State Cooperative Societies Act. as they are uniquely positioned in reaching out to the rural poor. firm data regarding the number of MFIs operating under different forms is not available. • Followed by the success of SHG-bank linkage programme as also Bangladesh Gramin Bank model.000 NGO-MFIs and more than 20 Company MFIs. Many of them operate in a limited geographical area. 1860. A trust created under the Indian Trust Act. 2002 but not including:  a cooperative bank as defined in clause (cci) of section 5 of the Banking Regulation Act. enjoy greater acceptability amongst the rural poor and have flexibility in operations providing a level of comfort to their clientele. • There are several legal forms of MFIs.

insurance. multiple definitions of Financial Inclusion have been given including the one given by Rangarajan Committee on Financial Inclusion (2008). offer multiple financial products (banking. at an affordable cost to the vast section of disadvantaged and low-income groups. develop comprehensive and reliable credit information system so essential for efficient credit delivery and credit pricing. one could extrapolate the above and state as innovative applications of ICT for delivery of financial & payment services and adequate credit where needed. there is no alternative to adoption of ICT solutions on a very large scale and range. who currently are unbanked. develop 22 . Chapter IV IT enabled Financial Inclusion Financial inclusion is the key driver of an inclusive society and an inclusive economy. To be able to ensure that the challenges of banking the unbanked are met effectively and converted into growing and sustainable business for banks. ensure reliable and uninterrupted connectivity to remote areas and across multiple channels of delivery. Over the years.taken to finance intermediation for providing financial services to their target clients adopting innovative delivery approaches. capital market) through same delivery channel while ensuring consumer protection. ICT solutions are required to capture customer details. facilitate unique identification. To define e-Financial Inclusion.

defence personnel as also “for profit” local “mom and pop” shops. it was also felt that local community based organisations and NGOs had the trust and confidence of the local population. enable use of multimedia and multi -language for dissemination of information and advice.000 villages in the country. who were allowed to undertake banking transactions. Banks were advised as part of risk management to adopt ICT solutions including biometric identification of the customer. the regulations restricted the entities that could act as business correspondents to “not for profit” entities such as NGOs/ cooperatives / post offices etc. a forum for bankers and government officials that meets each quarter. Initially there was a restriction on the bank in recovering any charge from the customer 23 . provide customer education and counseling . Branchless banking With 600. The guidelines allowed. Over the last few years. RBI issued the business correspondent guidelines in 2006. commercial banks to offer simple savings loan and remittance products through agents. Initially. it was impossible to provide access to a bank account for every household through branch banking. At the same time. Keeping in view these ground realities. electronic banking for such a populace where cash forms the dominant payment mechanism. The distance criteria can be increased in consultation with the district consultative committee. Another regulatory requirement was that the business correspondents appointed for direct contact with the customers should be within 30 km from a designated base branch of the bank to ensure proper oversight of such agents and minimise agency risk.appropriate products tailored to local needs and segments. the list of persons who can be appointed as business correspondents has been relaxed to include individuals such as retired government officials . The agents are required to deposit bank’s cash balances beyond certain limits with the bank’s branches by end of day or the next day. school teachers. This was because we were concerned about the risk of reckless pushing of products by agents whose sole incentive was earning commission. which paved the way for branchless banking through agents. petrol pump/public call office operators etc entities that usually deal in cash in the villages. including ‘cash in cash out’ transactions at locations close to the customer. for the first time. is unlikely to become a reality for quite some time.

• • Identification of borrowers and fitment of activities Creating awareness about savings and other products and e3ducation and advice on managing money and debt counseling • • • • Processing and submission of applications to banks Promotion and nurturing Self help groups/Joint Liability Groups Post-sanction monitoring Monitoring and handholding of Self help groups/Joint Liability Groups/ credit groups and others 24 . MFIs. These intermediaries can be NGOs. post offices. community based organizations.Business Correspondents (BCs) and Business facilitators (BFs) .to expand their outreach. krishi vigyan kendras and other Civil Society Organizations that provides financial and banking services through the use of business facilitator and correspondent models. agri clinics/agri business centers. Banking Correspondent/ Facilitator model In January 2006. Village knowledge centers. the Reserve Bank of India issued a new set of guidelines allowing banks to employ two categories of intermediaries. BCs are permitted to carry out transactions on behalf of the bank as agents. Branchless banking illustrates an area where there have been progressive relaxations of the regulations for furthering penetration while ensuring consumer protection.for such doorstep service as it was expected that the savings in cost of setting up a branch would be sufficient incentive. The BFs can refer clients. pursue the clients’ proposal and facilitate the bank to carry out its transactions. SHGs. well functioning panchayats. but do not transact on behalf of the bank. insurance agents. Services provided by these intermediaries are: • Collection and preliminary processing of loan applications including verification of primary information/ data. IT enabled rural outlets of corporate entities.

ATMs. ICT and financial inclusion Now-a-days ICTs {Information and Communication Technologies} are being used in many fields to improve the efficiency. They are widely used in the form of mobiles.• Follow-up for recover It’s a big challenge to provide banking facilities closer to the customer. And the cash transfer takes place personally by hand to hand. and follow widely-accepted open standards to ensure eventual inter-operability among the different systems. 25 . One of the sectors where ICTs are being used extensively is banking. while keeping transaction costs low. Accordingly banks are urged to scale up IT initiatives for financial inclusion speedily while ensuring that solutions are highly secure. IT enabled services are introduced and pilot projects are initiated utilizing smart cards/mobile technology to increase their outreach. intelligent core banking systems and so on. Before going into those details let us look at the Indian scenario. reliability and ease of operation. especially in remote and unbanked areas. And for the purpose. amenable to audit. So there is a need for proper banking facilities to manage the money and make cash transactions at affordable price. In most cases they use to save the money in their house itself. India has a large section of society which is very traditional and people have the habit of saving money.

which help in the betterment of our citizens.social and economic. The objective of leveraging ICT for microfinance delivery geared towards actualizing specific projects that are cost effective. can be argued to have a lasting impact on the social and economic order. in their own right.such as modular IT architecture design. in a way that ensures actualizing of a more holistic development framework that beat leverages the respective strengths of both microfinance and ICT. Establish the fact that skill-sets and approaches required by the IT industry to service other sectors are 26 . Known ICT concepts and approaches. costly and time Customer who need financial services Uses technology to access data from the banks Low cost and easy to access ICTs which enable the financial inclusion Microfinance has proven to be a key economic development approach intended to benefit low-income population. Specific technology concepts that have been proven to have tremendous impact in other industries. to have an even more profound impact.given the significant market opportunity at the base of the pyramid.therefore need to be evaluated in the microfinance context. this sector has also caught the attention of commercially oriented businesses. However. In recent years. Microfinance and Information and Communication Technology (ICT). when applied in the manner outlined above.Banks which provide financial services Very difficult to access. these different approaches to orchestrating change. productive enhancing and sustainability sensitive.will have to integrate and collaborate. standardization approach and outsourcing.

to working through the cost constraints in making technology investments that make a tangible difference to operational and profitability paradigms. relevancy. it will encourage IT firms to provide impactful solutions geared towards meeting challenges and opportunities of the microfinance sector. like challenges of awareness. sustainability and coordination. ICT adoption has to grapple with many softer issues. when coupled with the sizing of the microfinance opportunity. Apart from more technical aspects (such as choosing an ideal and standardized technology solution. From handholding of employees at various levels. will make a compelling business case for the IT industry. Delivery Channels 27 . All of this makes the subject of microfinance and ICT application quite central to the poverty reduction and financial inclusion agenda. ensuring proper maintenance and servicing. access. meaningful in use. that MFIs will have to struggle with other issues that are more people oriented and less related to technology per say. it is not surprising that ICT is being looked upon as an extremely viable option to circumvent the all too evident problems that have traditionally inhibited meaningful intervention in the area of microfinance. irrespective of whether one is microfinance or an ICT.). etc. politics. handling new technology devices. to developing a mindset of embracing changes that it may bring out in processes and 14 day to day working. Key Challenges in ICT Adoption Introducing ICT however comes with its own set of challenges. The ICT Paradigm With renewed interest in reaching out to financially excluded market segments and the role that technology is proven to be capable of playing in addressing business productivity.equally applicable and relevant to the social sector in general and microfinance in particular. cost efficiency and risk management issues. developing an awareness about technology usage. This. Further.

Mobile Banking can actually be one key element in addressing this challenge. and as pointed out earlier as well. It can play an important role in payment products. secure and user-friendly mobile telecommunication technologies are critical towards realizing commercial viability goals. fast. investing in relevant field technologies will have to go in tandem with the larger business considerations. and when coupled with prepaid cards. because they transact in small amounts of money. be relevant from the beginning. The reasons for its growth can be traced back to technological and demographical developments that have influenced many aspects of the socio-cultural behaviour in today’s world. Further. and rarely have documented credit histories. Not all interventions will. channel can be further leveraged to reach out to the relevant set of people. Challenges in the Smart Card Based Solution for Financial Inclusion Smart card solution for Financial Institutions is limited in reliability because: • There is lack of standardization of the solution across the industry A central agency that ensures that standards are complied with. and operational issues that these technologies aim to resolve. through the use of this alternative delivery channel for microfinance.The most important aspect of inclusiveness is the delivery channel. So it is essential to develop multiple delivery channels that leverage locational presence as well as direct and indirect modes of outreach. When coupled with other parallel developmental schemes catering to the same population. • 28 . in part. can also facilitate in making microcredit disbursements and repayments efficient and cost effective. Mobile Banking and Commerce has actually gained increasing acceptance amongst various sections of the society in previous years. however. Providing financial services to less privileged is costly. Specifically talking about the use of mobile phones as a financial services delivery channel. often live in sparsely populated areas. especially in the rather unique paradigm that most developing economies face in dealing with a “cash-only transaction”.

while in store and in transit. 29 . Training and hand holding the banks in financial inclusion implementation. during manufacture. bank terminals and the intermediate or backend servers. • • Create a test environment and R & D labs for smart cards Aggregate banking industry demand for all technology components of the financial inclusion solution such as bank cards. • Develop an industry wide security management framework (the key management system) and maintain the necessary infrastructure for its operation.o Test and certify the smart cards and bank o Assure data security of cards and terminals. Normal debit/credit cards use the card number to route the cardholder server. To overcome these issues following remedial actions has been taken: Standardization The IBA-IDRBT Committee on Open Standards for Financial Inclusion is addressing the following aspects relating to standards: • • • • • The card numbering scheme The smart card data architecture The business correspondent card data architecture The terminal functionality Key management scheme Card numbering scheme There is necessity for a uniform card number for financial inclusion bank cards across the industry.

30 . This will enable the industry to exploit economies of scale.account number X.country code XXXX.bank identification number XXXXX. In case a particular branch has more than a 1 lakh customer’s bank may opt for additional BIN. The central agency will aggregate demand for the banking industry for all technology components of the implementation including smart cards and handheld bank terminals.checksum The bank identification number (BIN) will be issued by a central agency. The other important aspects relating to standards of the financial inclusion are smart card hardware. terminal functionality specifications (hardware and software) and smart card securities. smart card data architecture.Hence the bank terminal/ATM and the backend switch need to identify the card presented using the card number to get authorization for the banking transaction from the host server.national scheme 356. Demand aggregation and economies of scale There is need for a central agency to assist banks in the technology and business aspects of the financial inclusion implementation. The agency will support the industry by drawing up and making available sample service level agreements that will assure quality of service as well as end-to-end securities. business correspondent card. The central agency will make available to banks sample request for proposal templates. The scheme to be followed as under: Length of the card number: 19 digits • • • • • • 9. acceptable maximum pricing of technology components and empanel equipment suppliers and solution providers.branch code XXXXX.

Ghost customers are those who operate more than one account to avail of government benefits several times. Regular audit needs to be undertaken to ensure data security standards are followed in storage and transport of bank cards and terminals. This reduces fraud considerably.Quality assurance Card manufacturing facilities need to be audited for assuring quality standards. De-duplicate services The central agency may provide de-duplication services to banks in order to remove ghost customers from the system. 31 . De-duplication is a method that goes through all the biometric fingerprints in the system systematically and identifies customers who get benefits from government scheme such as pension/wages several times.

no.Chapter V Progress in ICT based FI in Punjab Second phase of 100% financial inclusion After the completion of first phase of 100% financial inclusion by providing basic banking services to all rural households in the state of Punjab by either opening of deposit accounts including under general credit card scheme. 13311 Rs. Number covered 2. 32 (Fatehgarh PNB(Taran Tarn) 30 PNB(Muktsar) of villages 15 13 10358 7167 of accounts 5270 4495 4953 of deposit Rs. Number of households 4450 in these villages 3. Some of the banks like PNB. Amount collected 5. It has not attained this scale.Rural Sr. 22494 Number of Bio Metric 5018 1024 2257 . 1054871 Rs. OBC and SBI have initiated the process of providing Bio Metric cards in identified villages and the summary of the latest progress is given below: Punjab National Bank. Particulars PNB Sahib) 1. Number opened 4. only plots have been rolled out. banks have started rolling out their ICT driven Business Correspondent Model in the State.

cards issued 6. 4. Whether transaction in Bio Yes Metric Card started Yes 7. 33 Particulars SBI(Gurdaspur) SBI(Patiala) . Number of transactions held Debit Credit 6292 33816 Debit Credit 27 145 Debit Credit 352 610 Yes Yes State Bank of Patiala and Oriental Bank of Commerce.Rural Sr. Number of transactions held Debit Credit 577 1146 Debit Credit 3452 2321 State Bank of India Sr. Particulars Number of villages covered SBOP (Fatehgarh Sahib) 8 OBC(Ferozpur) 13 2117 Number of households in these 2500 villages 3. If yes to 6 above. 1. Number of accounts opened Amount of deposit collected 1333 Rs. If yes to 6 above. 128134 1431 Rs. 237000 1182 Number of Bio Metric cards 864 issued 6. 2. Whether transaction in Yes Bio Metric Card started 7. no. 5. no.

1. Number of Bio Metric 4600 cards issued 6557 6. Number of transactions held Debit Credit 47 96 Debit Credit 4784 5784 The SBI has also started implementation of IT enabled BC BF model in some other district of Punjab. Number opened of accounts 8167 16759 4. If yes to 6 above. Amount collected of deposit Rs. Whether transaction in Yes Bio Metric Card started Yes 7. Number of households 8159 in these villages 9719 3. The brief of the same is as follows: District Hoshiarpur Amritsar Taran tarn Kapurthala Fatehgarh Sahib Ferozpur Mohali Enrollment of accounts 3400 3200 3226 274 4678 7656 487 Number of biometric cards issued 1334 780 340 56 0 0 0 34 . Number covered of villages 155 40 2. 127474 Rs. 1096187 5.

Punjab) 35 . (source…SLBC. 2. 405024 Debit Credit 338 841 It is a non smart card based project where the account holders would be issued ID cards for identification and the bio metrics of the customer would be captured in the system.Urban (non smart card based project) Sr. 4. Particulars Number of kiosk established Number of accounts opened Number of ID cards issued Amount deposit collected Number of transactions (Ludhiana) Urban 2 5199 4384 Rs. no 1. 3.Ropar Jalandhar Moga 45 23 126 0 0 0 Oriental Bank of Commerce has also started implementing BC BF model for payments under NREGA in Amritsar district and the progress is summarized below: Number of villages covered Total number of beneficiaries Number of beneficiaries enrolled Accounts opened Cards issued 768 78935 76246 75425 56472 Punjab National Bank. 5.

36 . Another objective of the study was to conduct a survey among the people of rural area availing these services and their opinion regarding banking facilities provided to them.Chapter VI Survey Objective The main purpose of the survey was to get information about the business correspondent model.e how the various transactions are being done to provide door to door banking facility through biometric smart cards. The special focus of the study was on the field work of business correspondent i. it’s working and how the inclusive process is carried out and what makes it a favourite choice to reach out to the unbanked villages without going for brick and mortar structures.

It serves the unbanked sector and also services the technology requirements of entities engaged in servicing the bottom of pyramid customers.e 108 villages. The concept of FINO was germinated to overcome all the above mentioned hurdles and make financial services available to the unbanked. The National Rural Employment Guarantee Act (NREGA) that aims at enhancing the livelihood security of the people in rural areas by guaranteeing hundred days of wage employment in a financial year. infrastructure. I conducted the study in Chogawan block of district Amritsar. High costs coupled with low returns did not make microfinance viable beyond a certain threshold. illiterate populace & fool proof identity. FINO act as a business correspondent that covers various regions in blocks for the purpose of providing banking facilities to the rural population. Overview of the model FINO is the technology partner for OBC in district Amritsar.e. The daily wages of the NREGA beneficiaries in block Chowgawan is Rs. accessibility and reach. After enrollment of the 37 . to a rural household whose members volunteer to do unskilled manual work. banks and Non-Governmental Organisations (NGO) involved in serving low-income households in the urban and rural regions in India as business correspondents of large institutions. One of the biggest challenges in the micro banking industry is the huge amount of paperwork and human effort traditionally involved in supporting micro-transactions and credit scoring potential customers. Other hurdles include Information gap. thus hampering growth. FINO provides end-to-end core banking technology solutions including smart cards to microfinance partners. The branch of Oriental Bank of Commerce in association with FINO in block Chogawan covers around 113 gram panchayat i. They have enrolled around 8500 NREGA beneficiaries by issuing biometric smart cards for the payment of wages.I was asked to study the BC model of Oriental Bank of Commerce rolled out in district Amritsar with technical collaboration with FINO (financial information network and operation). 123 per day. The BC is actively engaged in making payments to NREGA beneficiaries i.

A customer can put through a transaction and get a receipt. One. photo.e. Thereafter. FINO gathers all ten fingerprints. After a worker-customer is found KYC compliant he is moved to the enrollment area. Agent has a mapping card and completes the login process through the handheld device. This process is known as “enrollment”. and has 10 pockets for various products. It stores customer ID. Then the machine downloads the customer database of the agent. digital camera and signature reader with full power backup facility. He can get history of transactions upto last 10 38 . BC card. customer card and two. transaction is authorized. On the enrollment day the Block Supervisor (FINO) organizes an area for verification of KYC. signature for verification. the main purpose of the BC is the disbursement of the funds to the beneficiaries at door step whenever required by them.beneficiaries. Enrollment is performed by the sub agents of FINO who gather client details using a laptop with fingerprint reader. The finger print reader authenticates the card holder and if biometric data matches. normal operations etc happen. Smart Cards There are two cards. signature and other details so that smart cards and bank accounts can be opened in the name of each beneficiary. Though the field staff of FINO is trained to complete the process whenever it is possible the branch manager from OBC also accompanies him. enrollment. This eliminates chance of fraud / skimming The customer card is a biometric card that works on the finger prints. the operations i. Enrollment of the beneficiary FINO ensures that announcements for enrollment were made in Gurudwara / panchayat well on time so that adequate numbers of persons gather on the day of enrollment.

But the card is activated only after approval of the bank. 39 . The machine stops working if the accounts are not squared up at the end of the day.transactions. on verification of the Job Cards.as a security deposit to FINO. he is required to give a Fixed Deposit on his name for Rs 5. The other controls are through machine. when required he can request for normal transaction.000/.e. The cash in transit is secured through the cover of ICICI Lombard. In order to have some sort of control over the subagents. Not more than 200 transactions and 4 transactions per customer per day can be put through. teachers. d. e. Kirana shopkeepers etc. The Business Correspondent (BC) receives list of beneficiaries to enroll for the benefit scheme from the Block Development Office. c. The soft copy of the information and the enrollment ID is sent to the head office of the FINO in Mumbai.e smart card with specially designed chip containing beneficiary’s information and 10 fingerprints. Sub-agents The sub-agents employed by FINO were ex-servicemen. local graduates. Since Fax roll is used and the print does not last. The head office sends this account number and soft copy of the information to the concerned bank and hard copy to the FINO i. Enrolment activity happens on location in presence of the Block Development Officer and/or the Village Panchayat Sarpanch. f. photograph and other details of the beneficiaries are captured. Steps in enrollment process: a. The account opening form is filled and in addition to it fingerprints. From the base-branch of OBC he can get a pass book also. Beneficiaries are enrolled based on KYC norms i. They verify the various details and give account number to each ID. ExOBC staff. b. Ration card or voter ID. BC plans the enrolment activity by organizing visits to the enrolment locations.

BC receives list of beneficiary from the BDO BC organizes visit to the enrollment location Enrollment process starts in the presence of BDO or sarpanch Fingerprint acceptability passes Head quarter checks the completeness of the application and fingerprint acceptability Send softcopy of filled enrollment applications to BC head quarter Personalization of smart card Card packaged and dispatched by head quarter Send beneficiary data to bank for account opening or smart card activation Enrollment process is completed Card handed to beneficiary by BC official 40 .g. This whole process takes around 3 weeks and smart card is physically handed over to the beneficiaries by the village coordinator of the business correspondent. Bank matches the job card number and other information for the validity and activates the smart card only in case if it completes the KYC norms. h.

Further steps involved in transaction are: a. If any of the above fails. b.Enrollment process Transaction process The account of the beneficiary is uploaded with the amount on daily basis. and the beneficiary will be provided with a transaction advice including the reasons for transaction failure. This is done by uploading the credit transaction file of concerned bank i. Agents insert the smart card in the device which further asks for any of the 10 fingerprint for authentication. 41 . They need to visit the village ones in a week but more than one visit is also possible in case of beneficiary’s demand.e OBC to the FINO server which then further uploads the beneficiary’s account with money. If authentication fails. no further transactions can be permitted. agents of the business correspondent visit the locations for the disbursement of the funds. the transaction is rejected. Authentication is done by using their smart card containing their personal information and 10 fingerprints in the chip. Once the agent’s smart card is authenticated. The authentication consists of a photo match as well as finger-print match using the biometric fingerprint scanner. Agent of the business correspondent after reaching the location initiates begin of day (BOD) by authenticating himself. When there is need of any transaction. All the agents have their port of transaction device through which all the transactions are done. There are around 70 such devices in rural Amritsar out of which 11 are in Chogawan block. the beneficiary will be asked to provide his/ her smart card for authentication purposes.

e.e OBC. one for customer and another for FINO. d. the settlement of the port is done. This means no further transaction can be permitted for the day. The withdrawal entry to the account holder is done by the bank. On authentication of the customer. After the transactions get over.c. Agent also prints 2 copies of receipt. 42 . The data is uploaded on the FINO server and transferred to the concerned bank i. the amount is deducted from the account of the beneficiary and paid to him.

Money is credited to beneficiary’s account Start of transacti on Authentication of the agent’s smart card (begin of day) Ok Authentication of the beneficiary’s smart card Authenticati on succeeded Fingerprint verification Fingerprint verification succeeded Agent completes transaction Agent prints 2 copy of transaction receipt Agent disburses cash to beneficiary End of transaction Settlement of port 43 Authenticatio n failed Transaction stops Authenticatio n failed Print 2 copies of transaction receipts including transaction failure Fingerprint verification failed Print 2 copies of transaction receipts including transaction failure Transaction process .

So. The number of accounts opened of the beneficiaries is 75. 44 .425 and the cards issued till now are 56. Also the sub agent carries enough of backup battery power for enrollment so that process is not halted due to erratic power supply. and then keying in of the beneficiary details resulted in slow enrollment process. The other details like name etc are digitized / keyed in by the backup office in the evening or next day at some other location which is fully equipped to complete the enrollment process.472. in consultation with OBC they have devised new simplified application form wherein details are filled up and during the enrollment process only biometric data is captured and photos taken. This has helped in speeding up the process for enrollment. taking photographs. • Electricity is a big issue.Achievement so far • OBC have covered 768 villages in district Amritsar to cover NREGA beneficiaries. The retail agent (sub-agent) has to cover vast areas and the transport cost is prohibitive. Field issues • In rural areas the density of population is low. • Punjab govt gives details of beneficiaries in handwritten hard copy. • Maximum attendance for enrolment is ensured by making announcements in Gurudwaras and Panchayat meetings. The machines are replaced within 2 hours of reported breakdown/ malfunctioning. • BC observed that creating biometric database. So the backend operations are more. • The BC has put in place fine backup policy. Village Sarpanch also helps in ensuring full attendance by sending his staff / field functionaries / office bearers to beneficiary’s houses. So their field staff has to move with generator kits / batteries in a few places.

e villages under Chogawan block. any loan taken from the bank and reason for the same etc. Survey was conducted among people of these villages. Methodology Data was collected from same location i. • Villagers who are tied up with BC sometimes want to visit the base branch for transactions. • Finding sub-agent for BC is very difficult.e information regarding number of accounts. The questionnaire consisted of 15 questions. Definitely it makes a big positive difference when he comes. This operational restriction should not be there. transaction is possible from POT terminal only which is with BC. But his operation is not allowed because under BC setup. type of accounts. They have special staff that is exclusively on the job of finding sub-agents. When he doesn’t it is very difficult to solicit customers for general financial inclusion. Account holder should be able to access his account from POS terminal and base branch also to which he is attached with.• Bank manager accompanies them only on some occasions. • The BCs are required to surrender the cash after 24 hours in the branch and for this they need to travel long distances thus increasing the cost of operations. Sample size: 60 45 . The main purpose of the survey was to look into various aspect of financial inclusion i.

37% < 2000 2000-4000 32. Saving Practices 46 . 40% > 4000 Figure 1. 23% 30.Results: population 18. Monthly Income Figure 2.

Figure 3. Number of Accounts Figure 4. Number of persons who availed loans out of the persons having bank accounts 47 .

Figure 5. Sources of Loans Figure 6. Smart Card Holders 48 .

KCC/GCC/SCC holders Figure 8.Figure 7. Life Insurance Policy 49 .

22.73% of households availed loans from the local moneylenders. • Saving habits among population with earning more than 4000 per month is found to be more i. 50% of the population is earning less than 2000 per month.e. it was found that 27% of the population is not having bank account. However population with earning in between 2000-4000 per month. • Out of 60 households. Monthly bank visits Findings from the survey: • Out of surveyed population.e.e.Figure 9. 27% and out of these. 14% household has availed loan facilities from the banks. above Rs 500 per month. • From the survey conducted. 32% is earning in between 2000-4000 and only 23% is earning more than 4000. • The population without bank accounts is 16 i. they save less than 500 a month. 44 are having bank accounts and out of these only 6 i.e. However 10 i. 2 have availed loans from local moneylenders. 50 . 56% is having at least 1 bank account and 17% of population is having 2 and more than 2 bank accounts.

e. Problems of BCs and rural people: • Most of the business correspondents face problems during enrollment procedure. In such case sarpanch gets advantage as he can get the money of the individual beneficiary by taking their thumb impression. only visit the branch ones in a month.e. Also the transaction slips are in English language which cannot be understood by them. • Another major problem for BCs is that instead of using business correspondence sarpanch of the village enroll the beneficiaries through post office where there is no need of the presence of individual beneficiary. • Out of surveyed population.• The total number of population having biometric smart cards is 43% and rest of them i. So they are hesitant in using smart cards. • Rural population rarely trusts on the technological aspects when it comes to money. The data they get from the server about job card numbers and other details sometimes found to be different from the original data with beneficiaries.80% is without these credit cards. Others with bank accounts but with no savings rarely visit the branch. If the customer is not fulfilling KYC norms. card remains deactivated and loses are incurred by the bank. • The cost incurred by bank on each card is Rs125 which is personalized by the FINO main office but the card is activated only after approval of the bank. • It is also seen that the population with saving habits. • The agents of the business correspondents can exploit or cheat the rural population easily as most of the people are illiterate and they are not able to understand the transaction process. 51 . only 20% is having KCC/GCC/SCC and rest of them i. 57% is not having smart cards.

This will help in creating one more channel for spreading financial literacy in remote areas where it is needed the most. There is rare contact in between the bank and the population when transaction and the enrollment procedure is done. it was a difficult target to achieve the first phase of 100% financial inclusion by providing basic banking facilities. This can be additional source of income for the BC and as such will be more motivated to integrate. The sarpanch of the village should be taken into confidence so that he can motivate the people to attend these camps. Now new ICT based solutions are being rolled out for the purposes which are not easily understood by the rural population and they hesitate in accepting it. Chapter VII Some suggestions Changes are good but people resist change. • BC can be scaled up as financial literacy delivery route also as they have one to one interaction with the rural poor.• Sometimes bank is not able to understand the problems of the rural people as they are connected by the BCs only. Some structured training modules focusing on financial literacy aspects can be arranged for BCs for onward dissemination. They should also be informed about the ICT initiatives taken by the bank. Main reason behind this is illiteracy and no knowledge about the advantages of such initiatives. The responsibility of the whole block should be under the concerned branch. Earlier. So is needed to take some initiative to enhance the financial inclusion in rural areas like: • First of all it is very important to conduct awareness camps in the interior areas of the rural population so that they are well informed about the various banking services and policies made for them by the government. 52 .

We can test with speaking POS machines that speak in local language when the transactions are held. This will facilitate in speedy disposal of the job. beneficiary payments like old age pensions need to be mandatorily routed through these BCs. There should be visits of the bank officer to the areas where transaction and enrollment process is done so that he can look into the problems faced by the customer. • The smart card issued by the BC should be multipurpose financial inclusion card with GCC/KCC/debit cum credit card on the single card and it should be acceptable across all ATMs/ merchandise outlets. Gram Panchayats should not be allowed to disburse the physical cash to beneficiaries because of the skimming / leakage history. • The receipts printed by BC at Point of transaction should be in the regional language so that it is easily understood by the smart card holders. They are not 53 . the account balance can be stored on the card itself thus facilitating the BC to conduct transactions on the savings accounts even if the smart card reader is not connected to the back end server. • There must be some grievance handling system by the branch. • The beneficiaries are illiterate people and they can be exploited by the agents. • Commissions for BCs need to be high for the initial stages. • The details of wage employment/social security benefit payments should be handed over to BC in the soft copy. • Support of the state govt / district administration is the key to success of the BC setup.• In case of savings accounts. • More concern should be given to the population with bank accounts but not availing services out of it by providing them financial assistance on timely basis. The main reason behind it is that they do not visit branch as the saving habit is nil. In order to achieve the scale govt.

It is very important to provide knowledge to the rural people when they are at young age about the banking system and what best they can get by availing banking services. These should be taught at lower level of schooling when they can be influenced easily.aware of the other services like loans. 54 . micro insurance etc which can be informed through these camps. • Mobile Banking can play an important role in payment products. • The students who pass out of RSETIs can be trained for becoming BCS/BFS and initial capital required is made available through bank loan. When coupled with other parallel developmental schemes catering to the same population. can also facilitate in making micro credit disbursements and repayments efficient and cost effective. channel can be further leveraged to reach out to the relevant set of people. • Elder people are more reluctant in accepting changes as compare to younger ones. and when coupled with prepaid cards.

QUESTIONNAIRE o Name: o Age: o Sex: o Monthly income: o Number of family members: o Number of earning members: o Number of accounts: o 55 Type of accounts: Saving bank account/ Fixed deposit account/ both .

money lenders etc: Yes No o If yes. purpose for which loan was taken: o Medium of remittance of money back at home through bank/ post office/ relatives Yes No o Any life insurance: List of abbreviations used ATM BCs BDO BF 56 Automated Teller Machine Business Correspondents Block Development Office Banking Facilitator .o Savings per month in the account: o Any loan taken from the bank Yes No o If yes. what was the purpose o Any smart card and transaction done Yes No Yes No o Any debit/credit card/ GCC/ KCC/ SCC and any transaction done o How many times do you visit the branch in a month? o Any debt taken from relatives.

BIN BOD CDMA DLRC EBT FI FINO GCC GSM IBA ICT IDRBT IT KCC KYC LDCs MFIs NABARD NBFCs NGO NHB NREGA POS Bank Identification Number Begin of Day Code Division Multiple Access District Level Review Committee Electronic Benefit Transfer Financial Inclusion Financial Information Network and Operation General Credit Card Global System for Mobile Communication Indian Bankers Association Information and Communication Technology Institute for Development and Research in Banking Technology Information Technology Kissan Credit Card Know Your Customer Least developed countries Microfinance Institutions National Bank for Agriculture and Rural Development Non Banking Financial Companies Non Governmental Organization National Housing Bank National Rural Employment Guarantee Act Point of Sale 57 .

POT PSTN R&D RBI RRBs RSETI SAA SCC SHG SIDB SLBC UID UIDAI RSETI Port of Transaction Public Switched Telephone Network Research and Development Reserve Bank of India Regional Rural Banks Rural Self Employment Training Institute Service Area Approach Service Credit Card Special Help Group Small Industries Development Bank State Level Banker’s Committee Unique Identification Number Unique Identification Authority of India Rural Self Employment Training Institute 58 .

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