INTRODUCTION TO FINANCIAL INCLUSION

1. FINANCIAL INCLUSION The timely delivery of banking services to the vulnerable groups such as weaker sections and low income groups at an affordable cost in a fair and transparent manner by mainstream Institutional players. The essence is to ensure a holistic set of services to every individual and enable them to understand and access the financial services. 2. REASONS FOR EXCLUSION (i) Geographical Location remoteness of residence hilly & sparsely populated areas with poor infrastructure & difficult physical access distance from bank branch branch timings (ii) Economic Factorslow income low assets (iii) Social Factorsease of availability of informal credit culture Gender (iv) Financial illiteracyilliteracy lack of awareness (v) Documentation ProcessCumbersome KYC documentary proof of identity/ address (vi) Inefficiency of the financial Institutionshigh cost of operations less volume & more number of clients unsuitable products language staff attitude poor functioning and financial health of some financial institutions (such as financial cooperatives) which limit the effectiveness of their outreach figures. Primary Agricultural Cooperative Societies (PACS), which restrict their membership to persons with land ownership are also not effective in offering savings services. 3. CONSEQUENCES OF EXCLUSION Affects individuals and economy alike The households, micro and small enterprises dealing entirely in cash are susceptible to irregular cash flows would be affected Limits options for providing for old age security Recourse to informal lenders Exposed to higher interest rates charged by informal lender Highest risk as loans are often secured against the borrowers property Banking with informal sources does not provide interest benefit and tax advantages and are far less secure

In the most severe forms, it could ultimately lead to social exclusion. 4. BENEFITS OF INCLUSION For the customer can avail a variety of financial products provided by institutions regulated and supervised by credible regulators. The regulator benefits from the audit trail which is available as transactions are conducted transparently in supervised environment. The economy benefits, as greater financial resources become transparently available for efficient intermediation and allocation, for uses that have the highest returns. It strengthens the financial deepening and leads to financial development in a country, which would in-turn accelerate economic growth of the country. 5. INITIATIVES BY THE GOVERNMENT AND THE REGULATOR Post 1960s: Nationalization of banks Prescription of priority sector targets Lending to weaker sections at concessional rates Initiation of the lead bank scheme. Post 1990s: Establishment of a wide network of financial institutions. Commercial Banks Regional Rural Banks (RRBs), Urban Co-operative Banks (UCBs) Primary Agricultural Credit Societies (PACS) Post Offices MFIs Self-Help Groups (SHGs) Recent Initiatives: The National Rural Financial Inclusion Plan The Financial Inclusion Fund (FIF) The Financial Inclusion Technology Fund (FITF) Other initiatives currently under way: Setting up of financial literacy centers and credit counselling Launching a national financial literacy campaigns Forging linkages with informal sources with suitable safeguards through appropriate legislations Evolving industry-wide standards for IT solutions Facilitating low cost remittance products The biggest surprise to rock the political economy domain was the waiver of farm loans for about 40 million farmers amounting to an estimated Rs 720 billion Formation of 1 lac Customer Service Centres (CSCs) in 6 lac villages 6. RBI POLICY MEASURES Extension of Banking Services Use of Business Facilitators and Correspondents Simplification of the KYC Norms Pilot Project of SLBC for 100% Financial Inclusion Opening of 250 `No Frill` Accounts per branch during the year 2008-2009

Use of appropriate technology viz., smart card / mobile technology to extend banking services Formulation of an Incentive Scheme for quicker adoption of Electronic Benefit Transfer for Government Schemes Bank Branch and ATM Expansion Liberalized Project Financial Literacy Financial Literacy and Credit Counselling Targeting of villages where population is more than 2000 people for 100% Financial Inclusion 1. ECOSYSTEM OF FINANCIAL INCLUSION

Ecosystem of Financial Inclusion Bank ---- Manpower--- Monitoring Mechanism ---Training Business Correspondents (BC) Eligibility
Vendor Selection

Technology

Products
Govt. Benefit Transfer No Frills Account CKCC

Selection Process
FI Application Network

Cent Janta Credit card Limited Overdraft (OD) Micro Insurance Micro Pension Micro MF/Investment 11 Remittance

Monitoring Mechanism Training Hand Holding

HHD

Delivery Channels

8. VARIOUS ICT BASED CHANNELS FOR EXTENDING SERVICES (a) The options are: - Smart Card (Biometric) - Mobile Based (Biometric) - Mobile -2- Mobile (non-Biometric) - Micro ATM - Mobile ATM Bank will try out all delivery channels

(b)

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(c) What is the process flow for enrolments? On pre-decided date and time, BC organizes an enrollment camp Potential Customers and BC Operator shall be present at the enrolment camp for the enrollment process Details are captured in system by face to face interaction Photograph and biometrics are captured simultaneously Data submitted to DC for account opening and card personalisation Cards alongwith forms are sent to CSP/BM for introduction and authentication respectively CSPs distribute the cards against biometric authentication and cards/accounts are activated. (d)

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(e)

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(f)

Micro ATM Components

Speaker & Microphone

Printer

Keypad and Computing Device

Fingerprint Scanner

Communication And Computing Device

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9. APPROACHES AND PROCESSES ICT BASED APPROACH Smart Card (Biometric) Solution:

Each customer is provided with Smart Card, which works as electronic pass book. Contains details of the account holder Used to authenticate the account holder through biometrics BCs are provided with PoS (Point of Service) terminal which are equipped with wireless connectivity, printer, biometric scanner and voice enunciation in local language. Mobile Based (Biometric) Solution: This model also works similarly as smart card based The only difference is biometric of the customers are stored on the NFC enabled Mobile phone provided toBC Customers are issued a plastic photo identity card which carries a unique number, which is linked to the account of the customer When this number is dialed on mobile, it prompts for biometric authentication A customer biometric is verified with one stored on Mobile phone and the one scanned at the time of transaction at PoS terminal with BC

Mobile -2- Mobile Based (non-Biometric) Solution: The customers should have an account and must posses a mobile with SMS facility available. Customer would call a toll free no. of the bank and would get routed to an Interactive Voice Response system (IVR) in the language preferred. A call would originate to the registered mobile no. and the customer would ask to choose a PIN, which is a secure PIN for carrying out financial transaction and the PIN would be a interactive PIN and would not stored in the handset. Once PIN is obtained, the customer can call the toll free number and provide his/ her PIN and choose the financial services. In case of cash withdrawal, the customer would be prompt to enter the amount of withdrawal. The customer would get an SMS with the Transaction ID and the One Time Password (OTP). With this, the customer can approach the BC. On entering the Transaction ID, the system verifies whether it is a valid transaction and then prompts for the OTP, on entering the OTP the system display the complete transaction to the BC and the BC pays the requisite money to the customer. A pilot is being initiated using Mobile as delivery channel in Anand district of Gujarat state. Micro ATM solution Bank plans to introduce micro-payment platform in order to facilitate banking in Urban and Semi- Urban areas. The platform will enable Business Correspondents (who could be a local kirana shop owner and will act as micro ATM) to conduct instant transactions. The Micro ATM is an emerging concept, in which it constitute mobile phone, scanner, smart card reader, printer, voice enunciation capability etc. A customer who is having Mobile phone enabled, or smart card enable, or Biometric ID card can transmit at micro ATMs deployed with BC.

The micro platform will enable function through low cost devices (micro ATMs) that will be connected to banks across the country. This would enable a person to instantly deposit or withdraw funds regardless of the bank associated with a particular BC. This device will be based on a mobile phone connection and would be made available at every BC. Essentially, BCs will act as bank for the customers and all they need to do is verify the authenticity of customer using customers UID or finger prints.

Mobile ATM Solution: Mobile ATM Solution is one of the means to cover financially excluded people. A mobile ATM machine will be moving from one place to another in order to provide basic banking services like cash withdrawal, cash deposit, fund transfer, balance enquiry, mini statement etc. It is a most suitable model in urban inclusion. Bank is also planning to deploy few Mobile ATMs in urban area. 10. BUSINESS CORRESPONDENTS (BCS) MODEL (a)Eligible Entities for BCs Societies registered under Mutually Aided Cooperative Societies (MACS) Act or the Cooperative Societies Acts of States. Section 25 Companies. NGOs / MFIs set up under the Indian Societies / Trust Act Registered NBFCs not accepting Public Deposits. Post Offices Individual kirana/medical/fair price shop owners/ Public Call Office (PCO) operators/Agents of Small Savings Schemes and Insurance Companies/ Petrol Pumps owners/Retired Teachers Authorized Functionaries of well run Self-Help Groups (SHGs) linked to Banks. PACs and CSCs (b)Due Diligence of Field BCs Should be well established, enjoy good reputation and stature and have the confidence of the local people. Should have a satisfactory track record and should be able to generate the funds required for this service. Should be a permanent resident of the area Age should not be exceeding 65 at the time of selection, continuation subject to annual review of the performance, till the age of 75 years Police verification to be completed before appointing Complete KYC norms to be followed before appointment (c) Monitoring of FBCs/CSP Daily records of End of Day (EoD) and Beginning of Day (BoD) transactions

Cash Box how he handles the cash No. of visits/ presence of CSP/FBC in villages Feedback from villagers, Panchayats Set up tie ups with few villages to get regular feedback etc Daily settlement with the branch (d) Dos and Donts for BC DOs Treat every customer with due respect Maintain friendly relations with the Banks Branch Manager Protect yourself well while traveling to and from Bank with cash Perform Day End and Settlement as per the terms Maintain the cash registers and transaction receipts carefully Read the manuals carefully and clarify doubts If you have any problem with the terminal or branch, report to Field Supervisor immediately Keep the terminal clean, safe and well charged DOs FOR DISBURSAL Complete the disbursals effectively and efficiently Before the disbursal period starts, ensure the terminal is ready for disbursals Take measures to protect the cash meant for disbursal Disburse the amount to all the intended recipients. If required, take the terminal to the customers or keep late hours DONTs Do not discriminate the customers based on religion, caste, creed, political party, family feuds, social status, personal friendship Do not charge the customers for any transactions or providing any help Do not exploit customers do not solicit or extract any favours in return of services you provide in cash or kind Do not give an impression that you are a benefactor of a customer, you are doing your duty Do not encourage informal borrowing or lending Do not reveal transaction details of the customers to any body else Do not complete a cash transaction in the terminal until cash actually changes Do not mix up personal money with Bnaks or customers Do not keep large amounts of cash for long time Do not leave the cash or terminals in unsafe places for long Do not keep customers card or customers copy of transactions with you.