Professional Documents
Culture Documents
Financial Literacy Material-English
Financial Literacy Material-English
NGOs
M.Kalyanasundaram
Chief Executive, INAFI India
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Contents
2. Savings
3. Investment
4. Credit
5. Insurance
6. Pension
7. Remittances
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Financial Literacy to SHG Leaders and NGOs
Module 1: Introduction
The SHG Bank linkage programme has connected many poor women with
the Banking system and has been promoting financial inclusion in a big way.
The Women members of SHG, however, are found to have inadequate
knowledge and holistic understanding of all financial services. Therefore,
there is a need to educate and to improve the literacy levels of SHG leaders,
Women members of SHG and what is more the field staff, animators of
NGOs promoting SHGs. This would help the process of sustaining the linkage
and relationship with Banks.
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Money being a scarce commodity for poor, making, executing a financial
plan is important for them. Such a planning and execution needs decision
making in every stage. Every one of us are doing such plans and make
decisions although not very explicitly. But now in the context of various
needs of poor and various sources of saving and borrowing money, it is
important for the poor household to take appropriate decision on what
should I do with my money and where should I get money for my needs. For
taking such decisions they need information related to various choices/
alternatives, how to evaluate these alternatives and how to make a choice
finally. This is the concern of financial literacy programme.
All these consequences mentioned above may further lead the family deep
into poverty. So helping them to consider and weigh all those critical
parameters would help them to take better decisions which would prevent
them from falling further into poverty. Besides when they know how to
handle their money in a way that gives them the maximum benefits and
help them to improve the current situation of poverty.
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Needs refer to those most important things needed for the survival of the
human beings. Food, water, shelter are examples of needs. Want refers to
things that are needed to live life in a better way; it can be seen as a luxury
in the context of poverty, which should be fulfilled only after satisfying the
‘needs’. Motor bike, television are examples of ‘Wants’. As the households
progress economically it happens that some of the wants transform to
‘needs’ gradually. Example: Television.
Disasters: such as fires, floods, cyclones and man-made events like war or
eviction of dwellings and displacement.
The basic problem the poor people as money managers face is to gather a
‘usefully large’ amount of money. Building a new home may involve saving
and protecting diverse building materials for years until enough are available
to proceed with construction. Children’s schooling may be funded by buying
chickens and raising them for sale as needed for expenses, uniforms, etc.
Because all the value is accumulated before it is needed, this money
management strategy is referred to as ‘saving up’.
Often people don’t have enough money when they face a need, so they
borrow. A poor family might borrow from relatives to buy land, from a
moneylender to buy rice, or from a microfinance institution to buy a sewing
machine. Since these loans must be repaid by saving after the cost is
incurred, it is called as ‘saving down’.
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However, savings, credit and combination of both could offer solutions only
for expected, planned needs. They would not be enough in addressing risks
and vulnerabilities of the poor. Hence a mechanism of ‘saving through’ is
needed to safeguard the families from uncertainties. So that, a family sets
aside money regularly and contributes to a common pool from which it is
supported at the time of loss in such a way to bring back to its original
financial position.
Savings Diwali
Jewel
Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
Note: The graph shows ‘savings up’ strategy used to meet the expenditures
for festivals & jewel
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Credit
Agri
Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
Note: This shows the ‘savings down’ after availing the loan for education and
agriculture
Insurance
Claim
Death
of
cattle
Note: This graph shows the ‘saving through’ to need meet the financial
losses arising out of occurrence of risk.
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The following table further explains the differences.
Saving Credit Insurance
Putting aside money Making the expenditure Setting aside money
in small amounts at upfront and then paying for premium payment
intervals to fulfill a money in small amounts later to meet the risk
future need with interest consequences and
thereby compensating
the uncertain loss
Best solution for Best solution for productive Best solution for health
unproductive expenses; Credit should not expenses, loss of
expenses; spending be taken for unproductive assets, loss of life.
on ‘wants’ expenses because credit
comes with a cost (i.e.
interest). Unless and
otherwise the expenditure
promises to generate enough
revenue to cover the cost,
credit should not be sought
out as a solution.
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Module 2: Savings
Savings is the first and foremost of all financial services and access to
financial services starts with “savings first” approach. The SHG programme
has demonstrated that poor can save and wants to save. In this module on
savings the facilities and products available for the poor to save has been
elaborated.
2. Saving to meet the cash flow needs- Lifecycle needs that can be planned/
predicted.
The period of saving is another factor that one should consider. The period
of savings should be planned in such a way that the savings accumulated in
those points of time coincide with satisfying the planned needs. A portion of
savings must be meant for meeting unexpected needs/ losses or
emergencies. Savings can also be used for paying insurance products.
Food - 30%
Rent/Housing - 20%
Education - 10%
Health - 5%
Festivals - 10%
Savings - 25%
Nationalised Commercial banks are the best and safe option for
savings and the convenience of the savings operations in the
Commercial Banks has been enhanced by technology and last mile
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connectivity initiative like BCs and BFs. Savings of the SHGs in the
Bank besides safety and convenience, they help them to leverage their
savings, in availing loan facilities from Commercial Banks.
SHGs have provided the last mile connectivity with Commercial Banks
besides, being an alternative platform virtually at the doorsteps to save tiny
amounts within the group itself in the initial stages and thereafter linking
with the Commercial Banks.
Savings deposit account is meant for individuals who wish to deposit small
amounts out of their current income. It helps in safeguarding their future
and also earning interest on the savings. A saving account can be opened
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with or without cheque book facility. There are restrictions on the
withdrawals from this account. Savings account holders are also allowed to
deposit cheques, drafts, dividend warrants, etc. drawn in their favour for
collection by the bank. To open a savings account, it is necessary for the
depositor to be introduced by a person having a current or savings account
with the same bank.
Accounts of individuals
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7. ATM-cum-debit card: Will be issued, without charges
8. Number of Accounts: a customer will not be allowed to open more
than one basic banking account.
9. Statement of Accounts: Will be provided.
10. While there will be no limit on the number of deposits that can
be made in a month, account holders will be allowed a
maximum of four withdrawals in a month, including ATM
withdrawals.
11. Nomination Facility: Available
12. Product available at : Both the branches of our Bank
Basic Savings Deposit account of the commercial banks are primarily meant
for initiating familiarity with banking services and also to undertake
transactions with respect to the Government schemes. In a long run the
account holders might get to know about and gain confidence in using other
services of the bank which would inculcate more financial discipline in them.
Recurring Deposits are gaining wide popularity these days. Under this type
of deposit, the depositor is required to deposit a fixed amount of money
every month for a specific period of time. Each installment may vary from
Rs.5/- to Rs.500/- or more per month and the period of account may vary
from 12 months to 10 years. The minimum installment amount, period and
the interest rate vary with various commercial banks. After the completion of
the specified period, the customer gets back all his deposits along with the
cumulative interest accrued on the deposits.
The term ‘Fixed deposit’ means deposit repayable after the expiry of a
specified period. Since it is repayable only after a fixed period of time, which
is to be determined at the time of opening of the account, it is also known as
time deposit. The period usually ranges from 15 days to 5 years. The rate of
interest on fixed deposits depends upon the period of deposits.
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Cooperative banks offer similar services as that of commercial banks.
However the interest rate on savings would be slightly higher than
commercial banks (on par with Post office savings schemes); interest rate
on loan would be slightly less than the commercial banks.
Each member of the SHG should have a regular savings account in their
SHGs. This is equivalent to Post Office Savings Account or Savings Bank
Account of Commercial Banks. Members can save any amount as small as
Rs.5 and there is no upper limit for this. Unlike Bank SB Accounts, the
amount saved in Regular savings can not be withdrawn frequently. It should
be accumulated for a specified period of time or volume after which
withdrawals are permitted. The period of savings or the permissible volume
would be decided by the SHGs in consultation with their respective
Federations.
Regular savings accrue interest based on the interest rates fixed by the
SHGs. This interest rate would be revised from time to time considering the
financial position of the SHG, its liabilities, interest rates in the market and
so on. Interest accrued in an account would be added to the savings
accumulated in that account at the end of every financial year.
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h.iii. Current savings
All the transactions with regard to regular, diversified and current savings
are recorded in a single member Passbook (under the Savings section) that
is available with the members.
Besides members would also receive a receipt for the payments they made
in SHGs in which the money saved by them under different Savings accounts
would be recorded.
There are following savings schemes suitable for the poor households.
Why savings?
Why save regularly and continuously?
Why save with Banks?
What are the savings products?
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Module 3: Investment
Households who are graduating from their poor economic conditions, those
who are involved in self employment should be aware of the importance and
method of investing their money. This module gives a brief overview about
investing in the context of poverty
Poor households tend to save money for some time and invest them in
income generating activities/ enterprises like buying land, digging well,
setting drip irrigation, establishing an orchard, buying a petty shop, setting
up a mechanic shed, buying machineries, tools, equipments for renting out,
buying gold etc.
The following table explains the difference between saving and investing.
Saving Investing
Putting aside money for Using the savings to buy property, share, stock
current consumption and or bond in the hope of getting long term higher
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emergency needs returns in the future
Any specific purpose in life that will require a large amount of cash in five
years or less should be savings-driven, not investment-driven. Among
various types of investments, the decision about which investment to choose
is influenced by factors such as return or yield, risk, and liquidity.
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What is the difference between savings and investment?
How savings helps investment?
What are the purposes for which investments are made?
Module 4: Credit
1. Money lenders
2. Friends and relatives
3. Associations, societies
4. Commercial banks/ Cooperative banks
i. Short term loan
ii. Term loan- Agriculture
iii. Cash credit
iv. Over draft
5. SHGs
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Out of all these borrowing money from formal institutions like commercial
banks, cooperative banks and semi formal structures like SHGs are advisable
because of affordability and not being exploitative coupled with good,
healthy lending and recovery practices. Hence we would discuss about these
sources elaborately.
d.ii. Long term loan: Agriculture, purchase of animals, SSI like food
processing, Education, Housing, Business, Vehicle
Medium and long term loans are called ‘Term loans’. Term loans are granted
for more than one year and repayment of such loans is spread over a longer
period. The repayment is generally made in suitable installments of fixed
amount. These loans are repayable over a period of 5 years and maximum
upto 15 years. Term loan is required for the purpose of setting up of new
business activity, renovation, modernization, expansion/extension of existing
units, purchase of plant and machinery, vehicles, land for setting up a
factory, construction of factory building or purchase of other immovable
assets. These loans are generally secured against the mortgage of land,
plant and machinery, building and other securities. The normal rate of
interest charged for such loans is generally quite high.
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d.iii. Cash credit
A cash credit is an arrangement whereby the bank agrees to lend money to
the borrower upto a certain limit. The bank allocates/ earmarks the limit to
the borrower and the borrower draws the money as and when he needs.
Interest is charged only on the amount actually drawn and not on the
amount placed to the credit of borrower’s account. This is a very popular
method of lending in our country.
Traditionally, money lenders are the informal sources for providing credit
and they not only charge higher rate of interest than Commercial Banks but
also flat. The rates will be doubly higher because of flat method. And also
being high rate, these rates charged by money lenders are usurious as they
are exploitative and one of the main reason for poor losing their hard earned
money and thereby remain in poverty.
We all know that interest on loan is the primary factor contributing to the
cost of credit. There are primarily two ways of charging interest on loan.
They are flat rate and diminishing balance. Although flat rate of interest is
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easy to understand for the poor people, often it is costlier than the interest
on diminishing balance. In the flat rate method, interest is charged on the
principal borrowed by the person throughout the loan period.
SHGs offer credit services to the members at their doorstep. Members can
take short term or term loans for any purpose starting from emergencies
(health, food, etc) to redeeming high cost debts, construction of houses and
starting a small scale business etc. Loan is offered based on the lending
policies of the SHGs. Lending policies are largely governed by the
development mission of the SHGs. The salient features of lending policies of
SHGs include,
d. Loan graduation
f. Loan ceiling
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j. Portfolio at risk (PAR)
g. What are the benefits for the members in availing credit from
SHGs?
The members get credit on a nominal/ optimal interest rate
The credit procedures are simple and easy
Repayment schedule and frequency could be fixed according to the
pattern of cash flow of the member
No transaction cost involved as the credit is provided at the doorsteps
In a long run it builds the confidence among the bankers about the
member which may result in the member getting a loan directly from
bank
h. What are the criteria to be considered for choosing a particular
institution/source of credit?
d. Distance from their living place and the place where they can get credit
e. Flexibility in fixing repayment schedule (in accordance with the cash flow
of the families)
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the loan is being given for a specific purpose for which we have asked for
the loan. It is, therefore, our duty to use the loan received from the Banks
absolutely for the same purpose for which the loan has been asked for. This
is the proper utilization of loan. And proper utilization would enhance our
image and standing with the Banks and paves way for long term
relationship.
Why credit?
Why borrow within limits?
Why borrow from Banks?
Why borrow for income generating purposes?
Why repay loan?
Why replay loans in time?
What is interest? How money lenders charge very exorbitant
interest rate?
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What is the difference of availing credit from money lenders
and Commercial Banks?
What is the difference between flat rate of interest and interest
charged by Commercial Banks on diminishing balance
principle?
What are the credit products?
Role of SHGs in providing/facilitating access to credit
Module 5: Insurance
a. What is insurance?
It is a form of risk management used to protect oneself against an uncertain
loss.
For all those needs that can be predicted we can find solutions through
either savings or credit. For those needs that arise due to sudden occurrence
of risk resulting in a financial loss, the solution could be obtained only
through insurance. So insurance is for providing a security against the risks
and vulnerabilities of people. Although we can save money for emergencies,
it may not give a complete solution. For example we can use our emergency
savings for illness. But the money needed for treatment may exceed a lot
more than what we have in our Savings. So we are forced to take loan which
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is not a planned one. Instead, if we have got a medical insurance policy we
would have got full cover under the policy.
Usually there are two models of insurance services to poor are available.
c.ii.Mutual solutions
Social security mechanism through mutual solutions is possible with a
close knit group of people who know each other very well. When such a
group with large number of members, possessing common risks exists,
then they may devise a mutuality based solution by which the risk is
shared by everyone in the group. In this approach the risk is retained
within the group and is not transferred to outside group. This solution can
be sought out only when suitable solutions are either not available in the
market or not accessible to poor households.
1. Life insurance
2. Health insurance
3. Livestock insurance
4. Crop insurance
There are many Government and private insurance companies operating in
the sector. The members have to choose the appropriate company based on
their credibility and past performance and the solution offered by their plans.
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Life insurance is a financial solution that helps the family members to meet
out the losses associated with the loss of life of a person.
Life insurance is a contract between the policy owner and the insurer,
where the insurer agrees to pay a designated beneficiary a sum of money
upon the occurrence of the insured individual's or individuals' death or
terminal illness or critical illness. In return, the policy owner agrees to pay a
stipulated amount (at regular intervals or in lump sums).
There are many insurance policies available in the market. However, very
few policies suit the needs of poor households. Janashree Bhima Yojana is
one policy that is offered by LIC in collaboration with the Central
Government.
Other than these the insurance companies also have savings linked
insurance schemes and Market linked savings schemes. Savings linked
insurance schemes offer twin benefits of savings and risk coverage. Market
linked savings schemes are also known as unit linked insurance plans.
Example: Wealth plus, market plus of LIC. For the money deposited in the
schemes units will be allotted which will vary according to the market
performance.
Eligibility:
a) All male and female members who are
i) aged not less than 18 years and not more than 60 years;
ii) below the poverty line or marginally above the poverty line, and
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Out of the annual premium of Rs.200/- mentioned above for every member,
each member shall contribute 50% of premium, i.e. a sum of Rs.100/-,
unless revised. This contribution shall be payable on the Entry Date and each
subsequent Annual Renewal Date. The balance of 50% of the premium per
member payable on the Entry Date and each Subsequent Annual Renewal
Date shall be adjusted out of the Social Security Fund set up by the
Corporation.
The conditions of assurance and rates of premium may be revised upward or
downward by the Corporation based on claim experience on Annual Renewal
Date subject to 3 months’ notice being given to the Nodal Agency.
The Nodal Agency shall arrange to remit the amount of Members’ Share of
Premium (i.e. 50% of the total premium) to the designated office of the
Corporation, as may be intimated.
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What is health insurance?
Health insurance is a financial solution against the risks of illness. Most of
the health insurance policies provide compensation for hospitalization. Pre
existing illness is not covered under health insurance schemes. Among
others, the Universal Health Insurance Scheme is a scheme meant for poor.
This scheme offered by National Insurance Company with the support of
Central Government. The details of the scheme are given below.
Sum Insured
Under Section I
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Under Section II
Hospital
Any disease during the First 30 days from the commencement date of policy.
(Injury due to accident covered from the first day of the policy)
Cost of spectacles, contact lenses and hearing aids not payable. Any Dental
Treatment or Surgery, internal self injury and use of intoxicating drugs /
alcohol, sterility, Venereal Disease not covered. Vitamin and tonics unless
forming part of treatment of injury / illness are not covered. Treatments
arising from or traceable to pregnancy, child birth, miscarriage, abortion or
complication of any of these including caesarean section are not covered.
If the earning Head of the family / spouse shall sustain any bodily injury and
also that injury lead to death with in six calendar months of its occurrence,
the company will pay Rs.25000.
Conditions:
Age Limit:
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This insurance is available to persons between the age of 5 to 70 years.
Children between the age of 3 months and 5 years of age can be covered
provided one or both parents are covered concurrently.
Varsha Bhima
Period of Insurance:-
The insurance operates during June to September for short duration crops;
June to October for medium duration crops; and June to November for
longer duration crops. Further, these periods are State-specific. In case of
Sowing Failure option, the risk period is usually from 15 th June to 15th
August.
How to Buy Varsha Bima:-
Proposal forms are available at all the loan disbursing outlets viz PAC
branches of all Cooperative/ Commercial/ Rural banks.The coverage under
Varsh Bima at the grass-root level shall be made mostly through the existing
network of Rural Finance Institutions (RFIs) as in NAIS, particularly
Cooperative Sector Institutions. AIC shall also directly market / provide
insurance subject to the availability of its network. The network of formal
and informal institutions working in the rural areas, such as NGOs, Self Help
Groups (SHGs), Farmers Groups could also be utilized for delivery of Varsha
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Bima. The cultivators proposed for insurance under Varsha Bima is required
to have a Bank Account at the RFI Branch, which will facilitate his / her
insurance transactions.
g. What are the roles of NGOs with regard to insurance for poor?
Insurance for poor is an emerging field. Most of the insurance services are
provided through safety net mechanisms of the State. Although these
schemes are intended to benefit the poor households, many poor are
excluded due to various reasons. NGOs have to perform their roles in such a
way that
All the eligible members receive the benefits of social security welfare
programmes of the State
Enrolling the members in the contributory schemes designed for poor.
Ex: JBY
At the end of the module important learning points will be
recapitulated for better registration in the minds of the participants.
Module 6: Pension
Financial needs and the type of financial services needed vary with our
lifecycle stage. The services seen so far including, savings, investment,
credit and insurance are important during productive years of the human
beings whereas pension is a preferred solution in the evening years of their
life. However, planning and saving money for the golden age are activities
that we should start when we are young. This module will elaborate about
the need for pension and the pension options available for poor.
a. What is pension?
Pension is also a type of insurance. In fact it is the opposite of life insurance.
While life insurance covers the risks of losses arising out of death, pension
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covers the risk of loss/ expenditure arising out of living longer. Thus pension
is a mechanism of providing income security to people in their old age.
Pension includes a periodical payment of a certain amount to the pensioner
till her/his death.
b. Why pension?
Demographic studies and surveys tell us that population ageing is becoming
a progressively serious concern for the world today. In 1950, there were 205
million people aged over 60 years in the world, which increased to 606
million in 2000. The number of aged people has tripled in the last 50 years,
and is projected to do the same in the next 50 years and is projected to 2
billion in 2050. And two-thirds of the world’s elderly population lives in the
developing countries. In these countries, the proportion of older persons'
population is expected to rise to over 19% by 2050, while that of children is
to fall from 33% to 22%.
Rapid declining fertility and rising longevity rates since the 1960s, has
ensured that India is following similar trends. India is set to become the
world’s most populous country by 2030 according to current projections.
Currently the elderly in India constitute about 7.2% of the total population
and is growing. Today we have nearly 76.6 million aged persons, and this is
expected to rise to 198 million by 2030. Around 90% of the elderly
workforce are from the unorganized sector and almost 80% from the rural
areas, with nearly 40% constituting the below poverty population, and 50%
aged women. About 64% of elderly women are widowed. Today India is
home to one out of every ten senior citizens of the world. Both the absolute
and relative size of the population of the elderly in India will gain in strength
in future. There is a progressively increasing pressure on the already
deficient public infrastructure and systems. The holders of knowledge,
cultural and social heritage of a society - the aged persons, increasingly face
mammoth struggles in our country to merely maintain a comfortable living,
leave alone matters of quality of life and harmony. The major challenges for
the elderly today are emotional, health and economic stability.
Most of the aged populations who are poor do not have an access to any
social security schemes in India. A negligible proportion of the people are
covered under government’s old age pension programme and the benefits
are not available to all. In this context an initiative of micro pension is
warranted to ensure social security to the poor and unorganized aged
people.
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Pension products of LIC
There are four pension plans available from LIC. They are, Jeevan Nidhi,
Jeevan Akshay, New Jeevan Dhara-I, New Jeevan Suraksha-I. Among these
Jeevan akshay is the immediate annuity plan, whereas all the other are
deferred annuity plans with minimum vesting period ranging from10 to 15
years.
c.iii. NPS-Lite
Pension Fund Regulatory and Development Authority (PFRDA) has been
established by the Government of India, Ministry of Finance vide Notification
F.No.5/7/2003-ECB & PR dated 10th October, 2003 to promote old age
income security.
NPS Lite model broadly has similar functionalities as the regular NPS model.
However, some of the services would not be available at individual
subscriber level; instead these services would be provided at Aggregator
level and the individual can avail of those features through aggregators.
d. What are the roles of NGOs with regard to Pension for poor?
Like in other financial services, NGOs’ primary role is to identify the social
security programmes (welfare programmes to provide safety net) for poor
and ensuring their participation in them.
In the case of contributory programmes like NPS- Lite, the NGOs can act as
agents thus ensuring the enrollment, collection and payment of pension
contribution, ensuring payment of pension to members in their pension age,
etc. NGOs can get their share of programme management fees from PFRDA/
insurance company according to the terms and conditions of the chosen
pension scheme.
Why you will need regular stream of income post working life-
pension?
Why should keep money aside regularly and consistently
during your earning life for pension in old age?
How do we participate in pension scheme?
What is the role of NGos in enabling pension for the poor?
Module : 7 Remittance
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a. What is remittance?
Remittance refers to transfer of money from one person to another. There
are two types of remittances based on the purpose of money transfer
But remittances are important, not only to meet the consumption needs of a
household, but also for investment in agriculture. Research has shown that
remittances “provide scope for accumulation of wealth and asset creation for
households in addition to providing basic consumption needs.
” But to send money back to their villages, migrants have few options: a)
carrying it back themselves or sending it through friends and relatives
visiting home b) sending it through the post office by a money order c)
sending it through a bank by bank draft or d) sending it through an informal
remitter.
Among these options the first and the last involve the informal market; the
second is seen as expensive and sometimes difficult by remitters (a form
has to be filled out in the language of the destination). Finally, sending
money through a bank is rarely feasible since most migrants don’t have a
bank account, either at origin or destination or both. Because of this lack of
options for money transfer, migrants cannot send
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Pradesh has shown that only 15 per cent of remittances are sent to families
on a regular monthly basis. Instead, 35 per cent are irregular and 44 per
cent are sent only every three to four months.
2. Postal remittance
The Indian Posts enjoys a good reputation and benefits from its high rural
penetration and customer proximity. With its 155,204 post offices it can
reach out to almost every address. About 130,000 branch post offices are on
the ground level in villages, close to 20,000 are sub post offices on a block
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level, and 838 head offices are either on the district level or general post
offices (on average 1-2 in every state) in metropolitan areas. Clients of the
India Post can chose from three money transfer services:
Generally, reliability of the system is high, even though clients have reported
cases of misuse of remittances. In Uttar Pradesh, for instance, a post man
has admitted to having lent the remittance amount at an interest rate and
then delivered it many weeks late. Of more concern than safety is the length
of time taken for transfer. While iMO is safer and faster, it is accessible to
few. One thousand seven hundred post offices are providing the service but
only 54,000 iMOs were executed last year. The number of post offices
providing iMO is planned to grow by 10,000 in the next years to cover 4,000
post offices. The traditional money order, on the other hand, is slower but
easy to handle.
Currently they service around 2,500 customers in the NCR region. At each
customer service point, e.g. a pharmacy, the designated and carefully
selected CSP has a mobile phone which is connected to an account at
simplibank, Eko’s banking platform. A customer can, through a number
combination/numeric password now open a bank account, deposit savings
and withdraw savings at the CSP. For example: a customer deposits Rs 200;
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he/she physically hands over Rs 200 to the shop keeper, then through a
number combination credits his or her own account, through another
number combination/use of password the CSP debits his/her own account for
the cash received, and the transaction is completed at the banking platform
of the BC ie Simple bank. These transactions are merged with the CBS of the
bank at the end of the day. Confirmations are sent through sms and the
number combinations are safely noted in a booklet, carried by the customer.
For safety reasons the numbers can be used only once and include a pin
code, that is shown as **** and only known to the customer. Within the
Delhi region customers under this arrangement can even remit money to
each other without approaching the CSP. Even though the procedures are
simple and the amounts small, the Know Your Customer norms (KYC), i.e.
due diligence and customer identification, as followed by Commercial Banks
still apply. The client needs a proof of address (POA) in the Delhi region as
well as a Delhi mobile phone number. While the approach works for some it
does not for others, especially migrant workers. They have no POA of their
destination, and often hold an election card for their home village.
The strategy is still limited to one region and while the technology is easily
extendible, the institutional set-up is not because to remit an amount to UP,
Orissa or Bihar, for example, a CSP would have to be there to walk the last
mile.
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Banks can offer this facility to the customers subject to a daily cap of
50,000 per customer for both fund transfer and transactions
involving purchase of goods and services.
A bank account holder will have to get his Mobile Money ID (MMID)
from the bank which will be his ID mobile commerce transactions. The
bank installs special applications on his mobile phones from where the
remitting will be done. Once the process is complete, the bank account
holder can remit money to anyone, provided he has the receiver’s
MMID and mobile phone numbers.
To start with, the entire service comes free for the account holder of
the bank with banks bearing the cost of 25 paisa per transaction.
This service is expected to give fillip to financial inclusion and also the
retail payment would become much easier because of the dense
mobile telephony. All the 3 stake holders banks, merchants and mobile
telephone companies are expected to work to work together for grated
integration which will help address the twin challenge of reducing the
use of cash.
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demands of the rural sector. As a result, the outreach of Indian banking
system has seen rapid growth in rural areas.
From the demand side, there are several reasons for the rural poor
remaining excluded from the formal banking sector, such as : (a) high
transaction costs at the client level due to expenses such as travel costs,
wage losses, incidental expenses, (b) documentation, (c) lack of awareness,
(d) lack of social capital, (e) non availability of ideal products, (f) very small
volumes / size of transactions which are not encouraged by formal banking
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institutions, (g) hassles related to documentation and procedures in the
formal system, (h) easy availability of timely and doorstep services from
money lenders/informal sources and (i) prior experience of rejection
by/indifference of the formal banking system.
The situation described above has been responded to in some ways by banks
with the involvement of Non-Government Organisations (NGOs) and other
Civil Society Organisations (CSOs)/voluntary agencies in facilitating the flow
of financial services to the poor. The most significant in this context is the
SHG-Bank linkage programme. Another attempt in this approach is the
delivery of credit through Joint Liability Groups. Further, in the recent times,
several new generation banks who came into existence with a heavy reliance
on technology but with a very limited branch network, have taken innovative
steps, such as, bulk lending to microfinance institutions (MFIs), using them
as "pass through" agencies, to tap the rural credit market.
This was followed by the announcement in the budget session for the year
2005-06 requesting RBI to allow banks to follow an agency model. Followed
by this announcement, RBI had constituted a committee that reviewed and
finally recommended to set up the banking facilitators and banking
correspondents.
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viii. Follow-up for recovery.
In addition to activities listed under the Business Facilitator Model, the scope
of activities to be undertaken by the Business Correspondents will include
SHG members are the primary clients for the Financial literacy initiatives.
SHG meetings are effective platforms where general awareness on financial
planning could be imparted to SHG members. However, there should be
some form of assistance available to them at the time of financial crisis or at
times when they need guidance for taking important financial decisions.
Counseling to individuals and family would be the best solution for such
needs.
2. Financial counseling
Although members may know the general rules of managing their money
and needs, they may often face with unforeseen situations or they may plan
something that is complex. Under such circumstances taking a right decision
is a crucial one. In the pressure of finding solution to the problem or in an
anxiety to take up a new intervention, they may take a poor decision which
might complicate the situation of the members. Sometimes complexity of
the issue may lead them towards indecision. Both are not good for the
development of the household.
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In such situations the households need counseling wherein which they
discuss with experts who would suggest them various alternatives after
careful analysis of their current and future situation, current and future
needs etc. In our case the Cluster associates are expected to play the role of
these ‘experts’ who should be able to counsel them on smaller issues.
However for decisions relating to larger investments or borrowings the
community accountant at Federation office should be able to provide such
financial counseling to our members.
In the current situation the seeking for financial counseling is very limited
among members. They discuss among the households or at the maximum
discuss with close relatives and friends for taking decisions. Hence what is
more important for us is to create an attitude of seeking financial advices
from SHG institutions- associates and community accountant or whoever is
designated for this purpose. Hence it becomes important that the associates
and community accountant should be competent enough to provide such
important services to member families.
a. Financial planning
Financial planning is one of the key elements for financial empowerment and
economic security of poor. Financial planning involves deciding the
expenditures, putting aside money, getting credit, and creating assets. Most
of the households including the poor have enough experience in this. But the
problem the poor face is that they plan based on the extent of their
knowledge and exposure which leads to exploitation. We can not plan about
something that we don’t know! Hence the poor households should be
counseled in order to help them understand the different options available,
consider their pros and cons and finally select the best one suitable for
them.
Counseling members for financial decision making starts with financial need
analysis. Goal setting is the prerequisite for financial need analysis. Need
analysis is followed by financial planning.
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Sources of income of the family from different occupations
S. Items Income
No
1 Occupation
1
2 Occupation
2
3 Occupation
3
4 Occupation
4
Total
1 Food, water
2 Clothing
3 Rent,
maintenance
4 Festivals
5 Travel, phone
6 Social obligations
7 Children marriage
8 Education
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9 Medical
10 Entertainment
11 Other expenses
12 Payment to debt
13 Savings for
education
14 Savings for
marriage
15 Payment for
pension plan
16 Payment for
insurance
17 Investments
18 Other savings
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d.i. Knowledge
d.ii. Skill
d.iii. Attitude
1. Be positive
2. Be open to learn
3. Be flexible
4. Willing to help
5. Practice before preach
6. Should be a balanced person – when conflict arises between her ideas
and the ideas of the SHG member
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Module 10 Leadership role of SHG Leaders in spreading financial
literacy
Since the piloting in early 1990s the SHG programme has come a long way.
It has assumed movement perspective with the self-help groups being
promoted by the SHGs themselves rather than NGO/civil
societies/Government led. Propelling growth of SHGs is in large part due to
the grass root SHG leaders who have taken the initiative to spread the
movement across the country. Many SHG leaders have also assumed larger
responsibilities taking over the governance role of federations and its
leadership. The level of awareness and knowledge about the mainstream
institutions including Banks and Governments have raised to a greater
extent. The SHG leaders have also been performing the role of guiding and
mentoring the SHG members and enhance the democratic processes in the
SHG meeting conducted monthly or fortnightly. They have been able to
establish good rapport with members with caring attitude and empathy.
In keeping with these responsibilities, the SHG leaders who have undergone
the financial literacy programme need to take effective steps to spread the
literacy among the members, which means SHG leaders will discuss about
the literacy aspects concerning all the financial services including pension in
the group meetings in a gradual manner and create good awareness and
enhance their knowledge levels about financial services. In this task of
spreading literacy, the SHG leaders would be supported by the staff
members of NGO who have also undergone financial literacy programme
along with the leaders. It would be a continuous education process in the
group meetings and the dissemination of the literacy need to be taken up by
the SHG members also to those excluded segments of population who are
also not a part of the SHG eco system. The SHG leaders have a greater role
and responsibilities in taking the financial literacy process as a mission for
not only among themselves but also for the user public in general, with
particular focus on the women who could not get the opportunity to go
through the formal education system. The leaders should talk about the
importance of financial inclusion in the literacy campaign and the advantages
of availing financial services from Banks rather than from individuals or
other institutions-focusing on how affordable the Banking system and how
safe their savings would be and how the Banks are not exploitative in
providing credit, remittance and other services. The SHG leaders should
spread the message that Bank branches and also the outreach arms such as
Business Facilitators and Correspondents are established for all segments of
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population rich or poor and each household and individual should be linked
with the banking system wherever they are – rural, urban or in tribal belt.
Another aspect that may be dealt with is the scale and the size of livelihoods
or business enterprises being undertaken by the SHG members. Here the
important aspect to be looked into is the capacity of the members and
guidance of the leaders in this aspect to run a particular business at a
particular scale. The SHG leaders should also educate the members about
the instances of business failures and lessons learnt from these failures
which need to be disseminated in the group meetings. Relying on their
experience the SHG leaders need to look at the livelihoods opportunities in
three distinct streams:
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