Bank of Baroda
Bank of Baroda
Bank of Baroda
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Certificate of Originality
This is to certify that the project report entitled “FINANCIAL INCLUSION OF BANK OF BARODA” Submitted
to Bharati Vidyapeeth (Deemed to be University), Pune in partial fulfilment of the requirement for the award of the
degree of BBA is an original work carried out by Mr. Aryan Srivastava under the guidance of Mr. Swapnil Thorat.
The matter embodied in this project is a genuine work done by Aryan Srivastava to the best of my knowledge and
belief and has not been submitted before, neither to this University for the fulfilment of the requirement of any course
of study
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Certificate
This is to certify that Project titled “FINANCIAL INCLUSION of BANK OF BARODA” is an academic
work done by Aryan Srivastava submitted in the partial fulfilment of the requirement for the award of the
Degree of BBA from Bharati Vidyapeeth (Deemed to be University), Pune. It has been completed under the
guidance of Mr. Swapnil Thorat. We are thankful to Bank Of Baroda for having allowed our student to
undergo project work training. The authenticity of the project work will be examined by the viva examiner
which includes data verification, checking duplicity of information etc. and it may be rejected due to non-
fulfilment of quality standards set by the Institute.
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Acknowledgement
Apart from my efforts, the success of my project depends largely on the encouragement and
guideline of many others. I take this opportunity to express my gratitude to the people who
have been instrumental in the successful completion of this project.
I am gratefully indebted to our esteemed guide Mr. Deepak Navalgund for his sincere guidance and
priceless support which would have been impossible for us to complete this project.
Finally, I thank Institute of Management and entrepreneurship Development (IMED) for giving me
this golden opportunity to do my summer internship in Stompit Audio.
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Preface
In this era of fast changing world, mere class room teaching is not sufficient to attain maturity and
perfection for application of theory into practice. The dynamic economy, political and technological
environment in which we live continually place demand on us to change, improve and learn more
about jobs, superiors and subordinates. Two years of continuous classroom teaching is sufficient for
students to implement directly their knowledge in the market. A practical approach is needed.
The knowledge through project report is an essential requirement for BBA students. The
purpose of this project report is to study the MEASURING THE PERFORMANCE OF EMPLOYEES
with
special reference to STOMPIT AUDIO.
I have tried my level best to do justice to the project. And I hope the study which was conducted will
help not only the organization but also me and the society too.
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Index
S.No Topics Page No
1. Executive Summary
a) About Bank of Baroda
b) Vision & Mission Statement
c) Bank of Baroda‘s initiative toward Financial Inclusion
d) About Reserve Bank of India 09-17
e) Measure Undertaken by RBI toward Financial Inclusion
f) RBI guidelines on Financial Inclusion by Extension of
Banking Services – Use of BFs & BCs
g) Measure of Financial Inclusion/Exclusion
2. Chapter 1 – Introduction
a) 11th Five Year Plan & Indian Growth
b) Vision of 11th Five Plan
c) Disparity & Divide
d) Financing Development
e) Introduction to Financial Inclusion 18-32
f) What does Financial Inclusion Means?
g) Who are Financially Excluded?
h) What are the Problems & Difficulties?
i) Understanding the Key Stakeholder
j) RBI Initiative for Greater Financial Inclusion
3. Chapter 2 - IT Solution for Financial Inclusion
a) Financial Inclusion through IT
b) Role of ICT in Financial Inclusion
c) ICT for Financial Inclusion – RBI Initiative
d) Electronic Benefit Payment
e) Regulatory Framework 33-40
f) Role of Technology
g) Technology & Financial Inclusion
4. Chapter 3 - Financial Inclusion through SHGs &
Micro Finance
a) SHG Model
b) Understanding SHG – Banking Linkage Program and their
Role in Financial Inclusion 41-52
c) Impact of Bank Linked – SHG Program
d) Issues in Bank Linked SHG Program
e) Recent Initiative by NABARD
f) Micro Finance Initiative by SIDBI
5. Chapter 4 - Live Study – Launching of Pilot Project in
Raebareily District
a) Research Methodology (Part A) 53-73
- Aim & Objective
- Research Question
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- Research Approach
- Research Method
- Data Collection
b) Field Study Report (Part B)
- Introduction
- Pre-requirement of a Financial Inclusion System
- Launching of Pilot Project in Raebareily District
- Integra‘s iMFAST
- About iMFAST
- Technical feature of the Product, Integra – iMFAST
- Business Correspondent Model
- Modus Operandi
- Meeting with Shashi Bhavan Chandra (BC)
- Financial Literacy & Credit Counselling
- In conversation with Mr. S.N.Lal Srivastav, Counselor
at FLCC, Raebareily
- Rendezvous with Mr. Shiv Ram
- In conversation with Bank of Baroda Branch Manager –
Dalmau
6. Chapter 5 - Data Analysis
a) Some Glaring Facts About Financial Exclusion 74-83
b) Role of Financial Inclusion in Achieving Inclusive Growth
c) RBI to Evaluate Progress of Financial Inclusion
7. Chapter 6 – Findings
a) State Level Banker‘s Committee (SLBC)
b) SLBC Uttar Pradesh Profile 84-88
c) Strategy & Approach
d) Huge Increase in No-Frill Account
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EXECUTIVE SUMMARY
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ABOUT BANK OF BARODA
A saga of vision and enterprise
It has been a long and eventful journey of more than a century across 25 countries. Starting in
1908 from a small building in Baroda to its new hi-rise and hi-tech Baroda Corporate Centre in
Mumbai is a saga of vision, enterprise, financial prudence and corporate governance.
It is a story scripted in corporate wisdom and social pride. It is a story crafted in private capital,
princely patronage and state ownership. It is a story of ordinary bankers and their extraordinary
contribution in the ascent of Bank of Baroda to the formidable heights of corporate glory. It is a
story that needs to be shared with all those millions of people - customers, stakeholders,
employees & the public at large - who in ample measure, have contributed to the making of an
institution.
Mission statement
To be a top ranking National Bank of International Standards committed to augmenting stake
holders' value through concern, care and competence.
Bank of Baroda has adopted the ‗whole village approach‟ as part of its mandate for enabling for
financial inclusion by extending banking services to the country‘s rural population. To give rural
India access to finance and to enable economic independence, Bank of Baroda has introduced a slew
of services that extend credit facilities to small and marginal farmers, agricultural laborers and
cottage industry entrepreneurs. Villages in Dungarpur district of Rajasthan were among the first
500 villages to benefit from the Bank‘s financial inclusion and total integrated village development
programme.
In the past too, the Bank has taken a number of initiatives such as opening of specialised outlets
of Gram Vikas Kendras (GVKs) and Multi Service Agencies (MSAs). The Baroda
Swarojgar Vikas Sansthan (BSVS) was another initiative for capacity building and provided
appropriate training for skill up-gradation to unemployed youth and women for employment.
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The Baroda Kisan Credit Card (BKCC) is yet another facility offered by the Bank to empower the
farmer. The credit card designed exclusively for the benefit of the farmers aims to provide them
the opportunity to manage and utilize their funds in the manner they deem fit. The Kisan Credit
Card provides adequate and timely support to farmers for their production needs, which include
among others, purchase of quality inputs, investment requirements like purchase of agriculture
implements/tractor etc, farming expenses towards farm maintenance, unforeseen family expenses
and maintenance of non-farm activities.
As part of the Bank‘s commitment to Corporate Social Responsibility in its centenary year, i.e.,
2007-08, BoB launched the Baroda Grameen Paramarsh Kendra (BGPK) – a centre for
knowledge sharing, problem solving and credit counselling for the rural communities. The BGPK is
an effort to narrow the “knowledge gap” in financial literacy, better farming practices and
technology adoption. It offers rural communities a diversity of opportunities including market linked
prices, value addition services offered by various institutions, women empowerment and
employment opportunities for rural youth. The BGPK centre helps in spreading financial awareness
among rural masses through village level meetings and helps them to choose suitable banking
products. As part of information sharing and problem solving process, it holds interface sessions
with the specialists from institutions like agriculture universities, Kisan Vikas Kendras and
NGOs working in the rural development sector. The centre also provides extension services to
the farmers by encouraging their participation in Grameen melas, and organising television and radio
talks. Each of the BGVK centre also maintains a small library containing books, journals and audio-
visual aids. Information on the prices of agriculture commodities in various mandis across the
country is also provided, enabling the farmers to sell their products at the best prices. The farmers are
also provided credit counselling on repayment pattern and rescheduling of loans and fresh credit
during situations of rural distress. Another important initiative is the Baroda Kisan Group Loan –
a joint liability scheme – for purchase of heavy agricultural machinery like tractors, power-tillers,
etc. either by farmers having larger holdings with irrigation facilities or group of farmers with
irrigation facilities. The Bank also provides credit for purchase of second hand tractors to farmers
interested in dry-land farming or having a small land holding. Production credit is also provided
for raising various crops from the point of preparatory tillage till harvesting, for landowners or
permanent tenants or leaseholders or sharecroppers. It encourages the development of irrigation
facilities; this covers sinking of wells/bore wells, lifting of water by installation of pump sets,
transporting of water
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through field channels, water saving systems like drip irrigation/sprinkler irrigation etc. for farmers.
It also extends working capital to dealers/ distributors/traders of agricultural inputs like
seeds, fertilisers, livestock inputs like cattle feed, medicine etc. and supply of agriculture
machinery/ irrigation systems.
Employment is provided to the unemployed technical personnel through the Agro Service
Centre. The Bank also facilitates the setting up of agri-clinics and agribusiness centres by
agriculture graduates. To address the needs of rural infrastructure the Bank provides credit for the
construction of farm building/structures like cattle sheds, thrashing yards, fencing etc. to the
individual farmer or firms engaged in agricultural activity and are of long term nature. Credit is
also provided for construction/expansion/ modernisation/renovation of rural godowns and cold
storages.
Other services provided by the Bank include, development of horticulture including production,
processing and marketing of various fruit, vegetables, plantations and flowers, from the nursery
to the point of market, by individual farmers, firms, organisations like co-operative societies. A
number of allied activities, like dairy, poultry, fisheries, sericulture, mushrooms and apiculture
are also encouraged by the Bank. To ensure financial inclusion for the Scheduled Caste and
Scheduled Tribes who have been provided/allotted land by the State government, the Bank
finances their purchase of farm implements, irrigation systems and bullocks etc.
The Bank has also allied itself with NGOs to encourage the formation of credit linked SHGs in
the villages. Under the Dungarpur Project, the Bank works through the People‘s Education and
Development Organisation (PEDO), a NGO working in rural development.
This initiative of the Bank has already brought about a change in the lives of people. Bank of Baroda
has also announced plans of adopting more villages across the country. It plans to disburse credit
worth Rs 1 billion, over the next three years in these villages.
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ABOUT THE RBI
The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the
Reserve Bank of India Act, 1934.
The Central Office of the Reserve Bank was initially established in Calcutta but was permanently
moved to Mumbai in 1937. The Central Office is where the Governor sits and where policies are
formulated.
Though originally privately owned, since nationalisation in 1949, the Reserve Bank is fully owned by
the Government of India.
Preamble
The Preamble of the Reserve Bank of India describes the basic functions of the Reserve Bank as:
"...to regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary
stability in India and generally to operate the currency and credit system of the country to its
advantage‖
In order to ensure that persons belonging to low income group, both in urban and rural areas do
not encounter difficulties in opening bank accounts owing to procedural hassles, the know your
customer (KYC) procedures for opening accounts has been simplified. The Reserve Bank has
directed banks to make available all printed material used by retail customers in English, Hindi
and the concerned regional language. More recently, in January 2006, banks were permitted to
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utilise the
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services of non-governmental organisations (NGOs/SHGs), micro-finance institutions and other
civil society organisations as intermediaries in providing financial and banking services through the
use of business facilitator and business correspondent models.
To extend hassle-free credit to bank customers in rural areas, the guidelines on general credit
card (GCC) schemes were simplified to enable customer‘s access credit on simplified terms and
conditions, without insistence on security, purpose or end-use of credit. With a view of providing
hassle free credit to customers, banks were allowed to issue general credit cards akin to Kisan credit
cards. A simplified mechanism for one-time settlement of loans with principal amount up to
Rs.25,000 which have become doubtful and loss assets as on September 30, 2005 was suggested for
adoption. In case of loans granted under Government-sponsored schemes, banks were advised to
frame separate guidelines following a state-specific approach to be evolved by the State-Level
Bankers Committee (SLBC). Banks have been specifically advised that borrowers with loans settled
under the one time settlement scheme will be eligible to re-access the formal financial system for
fresh credit. Banks were advised to give effect to these measures at all branches for achieving greater
financial inclusion. Initiatives have also been undertaken towards achieving greater financial
inclusion in the North-Eastern region, which had perennially remained under-banked.
The Reserve Bank considers that IT-enabled services can meet the challenges which need to be
addressed for increasing the scope and coverage of financial inclusion such as lack of adequate
infrastructure, higher transaction costs and low volumes of transactions. The Reserve Bank has
already initiated action in the North-Eastern region.
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RBI Guidelines on Financial Inclusion by Extension of Banking Services –
Use of Business Facilitators (BFs) and Business Correspondents (BCs)
Based on queries received from certain banks, we had clarified that there is no objection to banks
engaging individuals as Business Facilitators (BFs) depending on the comfort level of banks, subject
to their taking adequate precautions and conducting proper due diligence before engaging
individuals as BFs.
In the light of the announcement made in paragraph 92 of the Budget Speech 2008-2009 by the
Honorable Finance Minister, Govt. of India, it has been decided to permit banks to engage retired
bank employees, ex-servicemen and retired government employees as Business Correspondents
(BCs) with immediate effect, in addition to the entities already permitted, subject to appropriate due
diligence. While appointing such individuals as BCs, banks may ensure that these individuals are
permanent residents of the area in which they propose to operate as BCs and also institute additional
safeguards as may be considered appropriate to minimise agency risk.
Further, with a view to ensuring adequate supervision over the operations and activities of the
BCs by banks, it has been decided that every BC will be attached to and be under the oversight
of a specific bank branch to be designated as the base branch. The distance between the place of
business of a BC and the base branch, ordinarily, should not exceed 15 Kms in rural, semi-urban
and urban areas. In metropolitan centres, the distance could be upto 5 kms. However, in case a
need is felt to relax the distance criterion, the matter can be referred to the District Consultative
Committee (DCC) of the district concerned for approval. Where such relaxations cover adjoining
districts, the matter may be cleared by the State Level Bankers' Committee (SLBC), which shall also
be the concerned forum for metropolitan areas. Such requests may be considered by the
DCC/SLBC on merits in respect of under-banked areas or where the population is scattered over
large area and where the need to provide banking services is imperative but having a branch may not
be viable, keeping in view the ability of the base branch of the bank making the request to
exercise sufficient oversight on the BC.
Where currently BCs are operating beyond the distance limits specified above, DCC/SLBC may
be kept informed and steps may be taken to conform to the stipulated limits within six months
time, unless specific approval is accorded by the DCC/SLBC on the grounds indicated in
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paragraph 4
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above. Needless to add, in the context of scaling up of BF/BC model which is a huge challenge
given the size of the country, banks should bring to the notice of RBI any important issues to
facilitate taking prompt corrective steps. The implementation of the BF/BC model should be
monitored closely by controlling authorities of banks, who should specifically look into the
functioning of BFs/BCs during the course of their periodical visits to the branches. Further,
banks should also put in place an institutionalized system for periodically reviewing the
implementation of the BF/BC model at the Board level.
It is often observed that people may have access to financial services, but may not wish to use
them. Such voluntarily excluded persons, it is argued, should be included in measures of access even
if they do not use financial services. However, even among the voluntarily excluded, this may in
reality be because such services are unaffordable, unsuited to their needs, or because the potential
users fear that they will be declined upon request. Among the involuntarily excluded from
services such as credit, some represent high credit risk that lenders are discouraged to prudently
serve them.
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There are various measures of access to finance. For instance, access to finance can be measured
in terms of access to certain institutions (such as banks, insurance companies, and MFIs or in
terms of access to the functions that such institutions perform, or the services that they provide
(such as payments services, savings or loans and credits). Yet another approach is to look at
details on the uses of specific financial products such as debit cards, credit cards, life insurance
and home mortgages, among others. However, these are highly country-specific. The core access
indicators often used are generally based on institutional distinctions concerning specifically the
degree of formality of the financial institutions.
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CHAPTER 1
INTRODUCTION
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Eleventh Five Year Plan and Inclusive Growth
Despite having an impressive growth of GDP at 8.7% during the 10th plan period, making India
one of the fastest growing economies in the world, large sections of the Indian population still
remain poor and do not have access to basic services.
The Eleventh Five Year Plan stresses the importance of inclusive growth and the plan is
developed keeping this as the main theme. Some of the major findings of the Planning
Commission placed in the public domain include:
Growth being not perceived as being sufficiently inclusive for many groups, specially
Scheduled Castes (SCs), Scheduled Tribes (STs), and minorities.
The percentage of population below the official poverty line is still at 28% (302 million)
in 2020-21 based on the 2007-08 per capita incomes which were much lower.
National Family Health Survey – 3 shows that almost 46% of the children in 0 to 3 years‘
age group suffered from malnutrition in 2020-21.
The number of illiterate persons still exceeds 304 million, making India the country with the
highest number of illiterate persons in the world.
A person is poor because the endowments of capital, land, labour and skills are meager
and access to these is limited. The poor is trapped in the vicious circle of illiteracy, disease
and ill- health preventing them from getting the most out of the one asset that they have
the labour. The plan thus lays stress that access to basic facilities such as health,
education, clean drinking water, etc. impacts directly on welfare, in the longer run and
determines economic opportunities for the future.
Vision of Eleventh Five Year Plan
The 11th Plan provides an opportunity to restructure policies to achieve a new vision
based on faster, more broad-based and inclusive growth. It is designed to reduce poverty and
focus on bridging the various divides that continue to fragment our society. The 11th Plan
must aim at putting the economy on a sustainable growth trajectory with a growth rate of
approximately 10 per cent by the end of the Plan period. It will create productive
employment at a faster pace than before, and target robust agriculture growth at 4% per
year. It must seek to reduce disparities across regions and communities by ensuring access to
basic physical infrastructure as well as health and education services to all. It must recognize
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gender as a cross-cutting theme across all sectors and commit to respect and promote the
rights of the common person. The first steps in this direction were initiated in the middle
of the 10th Plan based on the National Common Minimum Programme adopted by the
government. These steps must be further strengthened and consolidated into a strategy for
the 11th Plan.
A key element of the strategy for inclusive growth must be an all out effort to provide the
mass of our people the access to basic facilities such as health, education, clean drinking
water etc. While in the short run these essential public services impact directly on welfare, in
the longer run they determine economic opportunities for the future. It is important to
recognize that access to these basic services is not necessarily assured simply by a rise in per
capita income. Governments at different levels have to ensure the provision of these services
and this must be an essential part of our strategy for inclusive growth. At the same time it
is important to recognize that better health and education are the necessary pre-conditions
for sustained long-term growth.
Even if we succeed in achieving broad-based and inclusive growth, there are many
groups that may still remain marginalized. These include primitive tribal groups, adolescent
girls, the elderly and the disabled who lack family support, children below the age of three and
others who do not have strong lobbies to ensure that their rights are guaranteed. The 11th
Plan must pay special attention to the needs of these groups.
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The private sector, including farming, micro, small and medium enterprises (MSMEs),
and the corporate sector, has a critical role to play in achieving the objective of faster and
more inclusive growth. This sector accounts for 76% of the total investment in the
economy and an even larger share in employment and output. MSMEs, in particular, have
a vital role in expanding production in a regionally balanced manner and generating widely
dispersed off- farm employment. Our policies must aim at creating an environment in
which entrepreneurship can flourish at all levels, not just at the top.
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All this is feasible but it is by no means an easy task. Converting potential into reality is a
formidable endeavor and will not be achieved if we simply continue on a business-as-
usual basis. There is need for both the Centre and the States to be self critical and
evaluate programmes and policies to see what is working and what is not. Programmes
designed to achieve specific objectives often fail to do so even though substantial expenditure
is incurred on them. It is therefore necessary to focus on outcomes rather than outlays,
including a disaggregated level to examine their impact on different groups and genders. The
practice of gender budgeting already begun by the central government should extend to
the states, so that performance is judged on the basis of gender disaggregated data.
Particular attention must also be paid to SCP/TSP guidelines for expenditure and
monitoring of outcomes.
Disparity and Divide
There are many divides. Foremost among these is the divide between the Rich and the
Poor. Poverty is declining, but only at a pace which is no longer acceptable given the
minimalist level at which the poverty line is fixed. There is also a divide between those
who have access to essential services such as health, education, drinking water, sanitation etc.,
and those who do not. Groups which have hitherto been excluded from our society such
as SCs, STs and some minorities and OBCs, continue to lag behind the rest.
Another important divide relates to Gender. It begins with the declining sex ratio, goes
on to literacy differential between girls and boys and culminates in the high rate of
maternal mortality. Differentials in educational status and economic empowerment are
heavily biased against women. Special, focused efforts should be made to purge society of
this malaise by creating an enabling environment for women to become economically,
politically, and socially empowered. Measures to ensure that society recognizes a
woman‘s economic and social worth, and accounts for the worth of women‘s unpaid
work, will be a concomitant of this.
The divide between Urban and Rural India has become a truism of our times. The
central government has already adopted a multi-pronged strategy to reduce this divide in its
various dimensions. For example, the Bharat Nirman programme addresses gaps in rural
infrastructure and covers irrigation, road connectivity, housing, water supply, electrification,
and telephony; the National Rural Employment Guarantee Act (NREGA) attempts to
ensures a social safety net as it provides guaranteed employment in rural areas and at the
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same time has the capacity to build rural infrastructure especially if resources from other
programmes are pooled in; the Sarva Shiksha Abhiyan and National Rural Health
Mission are ambitious programmes for providing elementary education and primary
health services respectively. All these programmes indicate the priority being given by
the Government to Rural Development and are meant to give a new hope to rural India.
While making these provisions for rural India, the 11th Plan must also provide basic
amenities to the growing number of poor in urban areas.
Special efforts must be made to give the people a sense of fairness, dignity and hope. The
Backward Regions Grant Fund is meant to address the problem of regional imbalance so
that the growth momentum is maintained.
Financing Development
One of India‘s strengths is that it has a financial system comprising commercial and
cooperative banks, various types of non-bank financing organizations, capital market
institutions, and insurance and pension funds. Indian skills are evident in financial
markets and institutions all over the world and the Indian financial system has evolved to
meet many specific needs, improving considerably over the years with an expansion in
depth and variety.
There are several problems in areas of cooperative banking and in reaching finance to small-
scale industry. Solving these problems expeditiously is critical for ensuring inclusiveness of
growth. The Vaidyanathan Committee has laid out a road-map to revitalize rural credit
cooperatives but the situation regarding finance for micro and small non-agricultural
enterprises (MSE) is even worse than for farm credit. Unlike agriculture, MSEs have to face
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direct competition from the corporate sector which not only has access to equity markets
but also appears able to preempt bank credit when it is tight. This lack of a level playing field
can have serious consequences for employment if thereby the corporate sector is able to
wrest markets from those MSEs which are otherwise competitive. A continuing
commitment to priority lending for both agriculture and MSEs remains therefore an
essential feature of the development banking required for growth. Nonetheless, the
overall financial system needs to be strengthened and developed through improved
regulatory mechanisms in line with international best practices and by liberalizing to
encourage competition.
There is an urgent need for financial innovation so to incorporate inclusive growth in the
economy. The insurance and pensions sectors are major sources for long-term finance for
infrastructure, and policies need to evolve to encourage the development of a healthy and
well-regulated industry. The need to manage risks of various types calls for new
insurance products. As Indian corporates acquire positions abroad, they will need to hedge
themselves against various risks. The need to encourage innovation and new
entrepreneurship will require encouragement of venture capital funds which are as yet in
their infancy. A comprehensive review of policy in the area is necessary and should be
undertaken in the 11th Plan.
Micro-finance is another new development in which Indian institutions have acquired
considerable expertise and where up scaling holds great promise to expand the nature of
financial services offered to micro enterprises and also to make these the springboard for
entrepreneurial development. The 11th Plan must ensure that our policies are sufficiently
flexible to support the development of micro-finance. Interest rates in the micro-finance
sector have to be significantly higher than in the banking sector reflecting the much
higher cost of doing business. This sometimes attracts criticism but they still remain
much lower than rates charged by money lender and therefore provide competition to
money lenders. There have been incidents of state governments imposing restrictions on
microfinance institutions in a manner which does not appreciate the ground realities.
Such excessive regulation can prevent the development of a healthy and competitive
micro-finance sector which could compete with usurious money lenders.
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Introduction to Financial Inclusion
Before elaborating on what exactly Financial Inclusion is we must comprehend the concept of
Inclusive growth. To explain the concept of Inclusion we need to understand the meaning of
INDIA and BHARAT. These are known as two names for the same country and ironically they
are extreme contrasts to each other. India is said to be the Land of Opportunity, Land of Fashion
Designer, Land of Information Technologies, Land of Automobile and Jet planes etc. Bharat on another
hand depicts a picture which is a Land of Scarcity, Land of Snakes Charmers, Land of Traditional Crafts and
Land of Bullock Carts etc. The crux is there is an India that is Global and there is a Bharat that is
Local. The aim of Inclusive growth is to make “India and Bharat make One, Connected and
Integrated”. To achieve this aim, following are some main objectives of Inclusive growth:-
Financial inclusion is not only the process of ensuring access to financial services or making
available timely and adequate credit when needed by vulnerable groups, such as weaker sections and
low income groups, at an affordable cost but the definition of financial inclusion is much wider. It is
not only providing accessibility of the entire range of financial products and services, it must also be
appropriate, it must also be fair and it must be transparent. In that sense, we can say that 95 per
cent of the population is financially excluded, with most of us not knowing what an appropriate
financial product is suitable for us. Today, what we are seeking to do is first improving access to
various financial products and services for the entire population and ensuring that such access is
provided by mainstream institutional players. Enabling people to get credit from small
institutions, money- lenders and the like is not financial inclusion.
Financial Gaps according to me represents the lack of financing opportunity and improper
financial infrastructure for vulnerable group who need formal system of finance at an affordable
cost. Apart from this other factor which contributes in widening the gap between the financial
institution and investors are lack of awareness about the financial products, unaffordable products,
high transaction costs, and products which are not convenient, inflexible, not customized and of
low quality.
According to Mr. C. Rangarajan, the Chairman of the Committee on Financial Inclusion defines
financial inclusion as “Process of ensuring access to financial services and timely and adequate credit where needed
by vulnerable groups such as weaker sections and low income groups at an affordable cost”.
It is said Financial Inclusion will promote thrift and develops culture of saving and also enables
efficient payment mechanism strengthening the resource base of the financial institution which
benefits the economy as resources become available for efficient payment mechanism and
allocation.
In Financial Inclusion two terminologies are used very commonly, the first thing is a check-in
account, what we in the system call a No-Frills Account. And the next stage is immediate credit.
Today, what the poor wants is accessibility to immediate credit. As most of the data shows that
80 per cent of the credit requirement of the poor is not for business or entrepreneurship but, it is
for meeting a financial emergency, like health, or urgent domestic needs. While the Reserve
Bank of India in 2005 facilitated that every no-frills account can be opened with a readymade
overdraft, the question that arises is how many banks have opened a no-frills account with a
readymade overdraft facility. This immediate credit stage is followed by introduction of various
savings products, i.e. other types of savings, followed by remittances and payments services.
This is followed by insurance, especially health insurance, mortgage, life insurance, housing loans,
and then by financial advisory services. Entrepreneurship credit comes at the last.
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Who are Financially Excluded?
They are basically the underprivileged sections of the society, i.e., farmers, small vendors, agricultural
or industrial labourers, people engaged in unorganized sectors, unemployed people, women,
children, old people, and the physically challenged. The extent of financial exclusion become clear
from these figures: only 40 per cent of the people have a check-in account, 20 per cent have taken life
insurance products, 0.6 per cent has taken non-life insurance products; only 2 per cent have access to
credit cards. This gives us the scope of business opportunities that are there if we can reach out to
all the people. Today, geographically, only 5.2 per cent of the country‘s villages have a bank branch.
It is not that efforts have not been made earlier to promote financial inclusion. One of the prime
aims of the cooperative movement was bringing financial inclusion. The setting up of State Bank of
India in 1956, the nationalization of banks, the introduction of the Lead Bank Scheme,
establishing Regional Rural Banks, evaluation of the Service Area Approach, and formation of Self-
Help Groups were all steps taken to take banking services to the general masses. But, despite such
measures only 10 per cent of the population has access to the institutional credit system. A major
reason for our failure to promote financial inclusion has been Technology. Without technology
we cannot reach out to the people. Banking technology is only of recent origin and business
delivery model is yet to evolve. Today, it is clear that we will not be able to promote financial
inclusion with a branch-based delivery mechanism. We have to experiment with new types of
delivery mechanisms, what we can call the ICT-Based Delivery Mechanism.
Here, the problem is that we do not have a business model as to how such a mechanism will be
viable. One must remember here that giving a subsidy does not necessarily lead to a better
delivery mechanism. So, it is important that any service that seeks to cover the poor and the
excluded must be at an affordable cost but never at a loss. We must not exploit the poor, but he
must pay the full cost otherwise there will be leakages. Any such delivery mechanism will be
ineffective and the system will be doing greatest disservice to the poor. When we say that we
must give the credit to poor at a cheaper rate, we have to realize that if the formal system fails to
give credit to the excluded, the alternative is a far costlier option.
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The 11th Five Year Plan also talks about inclusive growth. Inclusive growth cannot come
without financial inclusion. Today, globally, the mainstream financial institutions have realized that
the poor are bankable. And the technology to make this possible is also there. The Banking
Correspondent Model is one of the most revolutionary reforms which have taken place in our
banking system. However, it is one that we are not taking the full advantage of. Under the
KYC/GCC guidelines, the poor need not go every time for a transaction to a bank branch. For
opening branches in unbanked rural centers, the rules have also been liberalized. Similarly, we have
a liberalized policy for ATMs. Today, no license is needed for setting up ATMs. But the ATMs
will work only if bank have customers. We have opened lots of no-frills accounts, but not even 1 per
cent of such accounts have been extended overdrafts despite the rules allowing this. Simply
opening a no-frills account is not financial inclusion. It is just the beginning. The available statistics
and this Study reveal that we have opened over 28.23 million no-frills accounts, but less than 11
per cent of them are active. Opening no-frills accounts will not give any help to the poor if they
do not conduct any transactions. Today, the number of rural bank branches is only 31,727 as
against more than 600,000 villages in the country. Similarly, the number of ATMs is 44,857 with
a majority of them being in metros and urban centres. Again, there are 470,237 points of sale
(POS) but these are of little use to the rural poor as they cannot deliver cash, which is what they
need. Today, a bank branch covers a population of 16,000. So, it is clear that bank branch-based
delivery model will not work. We have to go for a different delivery mechanism.
Today, when we are in the midst of a global meltdown it is the right time to focus on financial
inclusion. The meltdown globally has brought more focus on inclusive growth. Today, everybody‘s
attention has shifted from the West to the East, from the US/Europe to India, China, and Asia,
and this is an opportunity. Focus on domestic consumption and investment - This will not come
without linking the people with the banking system. Focus on increased social sector spending -
If we want to make spending more productive and more efficient, its delivery has to be through a
bank account.
Today, everybody is saying that we must give subsidies directly to the poor. In fact, Dr Meghnad
Desai, the noted economist said that everything should be given to the poor in cash and put
directly into their bank accounts. This is because this is much more beneficial to the poor.
Financial inclusion is necessary not only for the poor; it is a must for ensuring the sustainability of
our society.
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Understanding Key Stakeholders in Financial Inclusion
One has to first define who the stakeholders are: viz., banks, NBFCs, insurance companies,
market players, pension funds, postal system. Then define the regulators such as Reserve Bank of
India (RBI), Insurance Regulatory and Development Authority (IRDA), Telecom Regulatory
Authority of India (TRAI), and Securities and Exchange Board of India (SEBI); institutions and
think-tanks and certainly the government. Unless all these stakeholders come together and there
is some kind of a broad consensus on what needs to be done, the purpose of the study would not
be adequately served.
1. Government
Planning Commission
Ministry of Communications &
Information (MoCIT) 5. Institutions & Think Tanks
Ministry of Rural Development NABARD
(MoRD) Banking Codes and Standards
Ministry of Finance (MoF) Board of India
Economic Advisory Council IDRBT
NIPFP
2. Players IGIDR
Banks ICRIER, NCAER, CMIE, IDF, BCG
NBFCs etc.
Insurance Companies
Market Players 6. Civil Society
Pension Funds NGOs
Postal System MPFI
E-Communities
3. Regulators
RBI 7. Industry
IRDA Technology Providers, (FINO,
TRAI Integra, A Little World, Atom, Nokia,
SEBI Intel, etc)
BCs & BFs
4. Academia ICT industry
IIT Telco‘s
IISc
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RBI‟s Recent Initiative for Greater Financial Inclusion
Reserve Bank of India initiative aim to ―connect people‖ with banking system and not just opening
account has given impetus to greater financial inclusion. This includes meeting the small credit needs
of the people, giving them access to the payments system and providing remittance facilities.
This has led to some notable developments:
No Frills Accounts: In November 2005, RBI asked banks to offer a basic banking
‗no- frills‘ account with low or zero minimum balances and minimum charges to expand
the outreach of such accounts to the low income groups.
Easier Credit facility: Banks were asked to introduce a General Purpose Credit Card
(GCC) facility up to Rs. 25,000. However, total number of GCCs issued by banks as at
end- March, 2009 was only 0.15 million.
Simpler KYC Norms: In order to ensure that people belonging to the low income
groups, both in urban and rural areas, do not encounter difficulties in opening bank
accounts, the 'Know Your Customer' (KYC) procedure for opening accounts was
simplified for those accounts with balances not exceeding Rs 50,000 and credits thereto
not exceeding Rs.100,000 in a year.
Use of Information Technology: Banks have been urged to scale up IT initiatives for
financial inclusion speedily while ensuring that solutions are highly secure, amenable to audit,
and follow widely-accepted open standards to ensure eventual inter-operability among the
different systems. Two of the important initiatives are:
o Smart cards for opening bank accounts with biometric identification. These help
the customers get banking services near their doorstep.
o Link to mobile hand held electronic devices for banking transactions. In October
2008, the RBI advised banks on issues relating to technology, security standards, and
customer protection.
EBT through Banks: The Reserve Bank is in consultation with state governments to
encourage them to adopt Electronic Benefit Transfer (EBT) by banks.
100% Financial Inclusion Drive: The Reserve Bank launched a financial inclusion drive
targeting one district in each state for 100% financial inclusion. To make it viable RBI
advised banks to:
o Ensure provision of banking services nearer to the location of the no-frills account
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holders through a variety of channels.
o Provide GCC/small overdrafts along with no-frills accounts to encourage the
account holders to actively operate the accounts.
o Conduct awareness drives of the facilities offered to the no-frills account holders.
o Review the extent of coverage in districts declared as 100 per cent financially
included.
o Efficiently leverage on the available technology enabled financial inclusion solutions.
SWOT Analysis
Strengths Weaknesses
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1. Bank Of Baroda is one of 1. Limited market share growth due
branches.
Opportunities Threats
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1. International branches of Bank 1. New banking licenses by RBI
Of Baroda gives scope to can affect operations.
informations.
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CHAPTER 2
LITERATURE REVIEW
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LITERATURE REVIEWS.
The use of IT solutions for providing banking facilities at doorstep holds the potential for scalability
of the FI initiatives. Pilot projects have been initiated using smart cards for opening bank
accounts with bio metric identification. Link to mobile or hand held connectivity devices ensure
that the transactions are recorded in the bank‘s books on real time basis. Some State
Governments are routing social security payments as also payments under the National Rural
Employment Guarantee Scheme through such smart cards (see pictures below). The same delivery
channel can be used to provide other financial services like low cost remittances and insurance.
The use of IT also enables banks to handle the enormous increase in the volume of transactions
for millions of households for processing, credit scoring, credit record and follow up.
Point of Transaction Machine
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Pensioners with Bio-metric cards line-up to receive
payments
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Role of ICT in FI
To be able to ensure that the challenges of banking the unbanked are met effectively and
converted into growing and sustainable business for banks, there is no alternative to adoption of
ICT solutions on a very large scale and range. ICT solutions are required to capture customer
details, facilitate unique identification, ensure reliable and uninterrupted connectivity to remote
areas and across multiple channels of delivery, offer multiple financial products (banking, insurance,
capital market) through same delivery channel while ensuring consumer protection, develop
comprehensive and reliable credit information system so essential for efficient credit delivery and
credit pricing, develop appropriate products tailored to local needs and segments, provide
customer education and counseling , enable use of multi media and multi -language for
dissemination of information and advice.
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Electronic Benefit Payments
Recognizing the several advantages of using bank accounts for disbursal of government benefits,
many State Governments have decided to disburse NREGA payments social security benefits
electronically through no frills bank accounts and in some States with such accounts operated
through smart cards with bio–metric identification. A Committee set up by RBI examined the
various models through which such payments can be made and has recommended a bank led
model with sharing of costs between Government and banks. Appropriate support from the RBI
or the Financial Inclusion Technology Fund could also be thought of in the initial stages. Such
accounts that have been opened to receive government benefits/payments can become the base
for a host of other financial services and facilitate the objective of financial inclusion.
Regulatory framework
The regulations relating to IT solutions for banking services in general and financial inclusion in
particular relate to ensuring integrity of banking system and ensuring customer protection. These
cover customer identification/authentication, customer confidentiality/ privacy, KYC/AML issues,
outsourcing, bank‘s responsibility for their agents, ensuring inter–operability and open standards,
imaging standards and adherence to payments system regulations.
Role of Technology
Technology can play an important role in reducing operating cost of providing banking services,
particularly in the rural and low income groups segments. The technology, if blended
appropriately with the right business model and policy, holds the key to extending affordable,
viable and sustainable access to finance for the population at large. There are three broad types of
technologies that have been identified to drive the growth of financial services. These are
Pro-Poor New Information and Communication Technology, primarily low-cost cell
phones.
ATMs and other Point of Sales Devices.
Smart plastic card.
The centralized data processing system and the non-conventional methods based on computer
systems, which do not require uninterrupted electric supply and radio frequency network, can
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significantly reduce the cost of extending financial services. There are a number of cases where
banks have expanded the coverage of banking services to remote and un-banked areas with
affordable infrastructure, while keeping operating costs low with the use of appropriate
technology. Technology has the potential to lead to new delivery mechanisms and business models.
For instance, technology will allow branchless banking and establishment of new partnerships
between financial service providers and a range of other service providers that was not feasible
before to provide services to clients in remote areas and low-population density areas.
Mobile banking enabling users to perform banking transactions using mobile phone like,
balance checks, fund transfers, bill payments
Remote purchase
Point of sale, i.e., using phones to pay for goods at merchant location.
These services can be provided using various available connectivity technologies, each one of which
has its own pros and cons (Table 1(7.37)). However, the extent to which technology will be
integrated into the financial service industry at the low end will depend on supportive
government policies and the quality of the infrastructure, particularly in rural areas.
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Different technologies have been successfully adopted in many countries to promote financial
inclusion. Banks in India have initiated pilot projects utilizing smart cards/mobile technology to
increase their outreach. Biometric methods for uniquely identifying customers are also being
increasingly adopted. Banks are also increasingly adopting technological solutions for delivery of
credit at affordable price and to a wider section of the population. State Bank of India (SBI) initiated
a project called the SBI Tiny Card Accounts (SBITCAs) recently in Aizwal. The project is a
combination of ―no-frills‖account and BCs/BFs model. The SBITCAs are operated through
new generation mobile phones based on near-field communication (NFC) technology, enhanced
with fingerprint recognition software and attached to receipt printer. The card allows activation
of transaction of funds for the purpose of micro-savings (SBI-tiny no-frills pre-paid account),
cash
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deposits and withdrawal, micro-credit (including KCCs, GCCs), money transfer (account-to-account
within the system), micro-insurance, cashless payments to merchants, SHG savings-cum-credit
accounts and attendance systems, disbursements of Government benefits like the national rural
employment guarantee scheme, for equated monthly installments (EMIs), utility payments, coupons,
vouchers and tickets, loyalty points, automatic fare collection systems, portable and fixed
positions for front-end devices (fully inter-operable).
In South Africa, banking institutions, together with mobile phone companies, have begun to expand
access to financial services targeting low-income customers with an interest-bearing bank account
accessible through mobile phones, and debit card with which they can make purchases at retail
outlets and deposit or withdraw money at ATMs. Customers can use their mobile phones to
make person-to-person payments and transfer money.
Prodem, the first micro-finance organization to create a chartered bank, BancoSol, in Bolivia started
Prodem Smart ATM, a smart card cum ATM recently. The smart card stores customer‘s account
balance every time the transaction is made using the card. This enables Prodem Smart ATM to
operate even in the absence of internet connectivity, thereby, making it an ideal instrument to extend
financial services in many rural parts of Bolivia that lack the technological infrastructure for a wide-
reaching, online network.
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CHAPTER 3
FINANCIAL INCLUSION
THROUGH SHGs AND
MICRO FINANCE
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SHG Models
Generally, the SHGs need self-help promoting institutions (SHPIs) to promote and nurture them.
These SHPIs include various NGOs, banks, farmers‘ clubs, government agencies, self-employed
individuals and federations of SHGs. However, some SHGs have also been formed without any
assistance from such SHPIs.
There are three different models that have emerged under the linkage programme:
Model II: This envisages lending by banks directly to SHGs with facilitation by NGOs
and other agencies.
Model III: This involves lending, with an NGO acting as a facilitator and financing agency.
Model II accounted for around 74 per cent of the total linkage at end-March 2022, while Models
I and III accounted for around 20 per cent and 6 per cent, respectively.
Provide collateral free loans on term decided by the group at the market driven rates.
SHG a form of Microfinance has been long recognized and practiced in India as a tool for extending
banking services to the poor to enable them to save and invest or partake of credit thereby
facilitating them to break the chain of poverty. Several micro-credit schemes have brought rich
rewards to the beneficiaries. With hardly any non-performing asset (NPAs) in micro-credit, more
and more banks are looking at increasing their operations in this area in a big way.
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The Self Help Group (SHG) which provides a good Bank Linkage programme is a major plank
of the strategy for delivering financial services to the poor in a sustainable manner. As at the end
of March 2007, as many as 2.92 million SHGs have been credit linked with banks, benefitting
more than 40 million poor families; 80 per cent of members of Self Help Groups constitute
women.
Initially there was a slow progress in the programme up to 1999 as only 32,995 groups were
credit linked during the period 1992 to 1999. Since then the programme has been growing
rapidly and the number of SHGs financed increased from 81,780 in 2017-2018 to more than 6.20
lakh in 2018- 19and 6.87 lakhs in 2020- 21
Reduced the incidence of poverty through increase in income, and also enabled the poor
to build assets and thereby reduce their vulnerability.
Enabled households that have access to it to spend more on education than non-client
households. Families participating in the programme have reported better school attendance
and lower drop out rates.
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Reduced child mortality, improved maternal health and the ability of the poor to combat
disease through better nutrition, housing and health - especially among women and children.
Facilitated significant research into the provision of financial services for the poor and
helped in building ―capacity‖ at the SHG level.
Finally, it has offered space for different stakeholders to innovate, learn and replicate. As
a result, some NGOs have added micro-insurance products to their portfolios, a couple of
SHG federations have experimented with undertaking livelihood activities and grain
banks have been successfully built into the SHG model in the Eastern Region. SHGs in some
areas have employed local accountants for keeping their books, and IT applications are now
being explored by almost all for better management information systems (MIS),
accounting and internal controls.
Quality of SHGs - With fast all-round spread of the SHG-bank linkage programme
having credit linkages with a huge number of SHGs, the quality of SHGs has come under
stress and is reportedly getting impaired, in certain areas. This is reflected in poor
maintenance of books and accounts at SHG level and diminishing skill sets on part of
SHG members in managing their groups. Significant financial investment, capacity-
building and technical support is required for meeting this challenge. NABARD has taken up
various measures like barefoot account, computer ‗munshi‘, smart card, IRV programmes
to combat this challenge. The IRV scheme is taken up with a view to finding solutions for
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the NGO deficit
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areas where motivated and suitably oriented individuals can assume the NGO‘s role as
well as hand holding the SHGs.
NABARD has been playing a crucial developmental role for the micro finance sector in India.
NABARD has been organising/ sponsoring training programmes and exposure visits for the
benefit of bank officials, NGOs, SHGs and Government agencies to enhance their effectiveness in
the field of micro finance. The best practices and innovations with respect to the sector are widely
circulated among Government agencies, banks and NGOs. NABARD also provides support for
capacity building, exposure and awareness building of the SHGs and NGOs.
In 2005-06, a pilot project for ―promotion of micro-enterprises” was launched among members of
matured SHGs. This is being implemented by 14 NGOs acting as ―micro-enterprise
promotion
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agency” (MEPA) in nine districts, viz., Ajmer (Rajasthan), Chandrapur (Maharashtra),
Kangra (Himachal Pradesh), Madurai (Tamil Nadu), Mysore (Karnataka), Panchmahal (Gujarat), 24
north Pargana (West Bengal), Puri (Orissa) and Rae Bareli (Uttar Pradesh). The project is being
implemented by each NGO in two blocks in each of the selected district. As on March 31, 2008,
2,759 micro-enterprises were established under the project involving bank credit of Rs.238 lakh.
NABARD also provides marketing support to the SHGs for exhibiting their products. During the
year 2007-08, NABARD supported three exhibitions of products prepared by various SHGs at
Bhopal, Chennai and Navi Mumbai involving grant of Rs.3.8 lakh. In addition, NABARD also
provides promotional grant support to NGOs, RRBs, DCCBs, farmer’s clubs and
individual volunteers and assists in developing capacity building of various partner agencies.
NABARD has been making efforts to increase the number of partner institutions as self-help
promoting institutions (SHPIs). NABARD launched a pilot project in December 2003 to link
post-offices with the SHGs with the objective of examining the feasibility of utilizing the vast
network of post offices in rural areas for disbursement of credit to rural poor on an agency basis.
The SHG Federations are emerging as important players in nurturing SHG, increasing the
bargaining power of group members and livelihood promotion. The features and functions of
SHG federation models promoted in the country vary, depending on the promoting agencies.
Recognizing the growing role of the SHG Federations and their value addition to SHG
functioning, NABARD, during the year 2017-18 decided to support the Federations on a model
neutral basis. Support is extended to the Federation by way of grant assistance for training,
capacity building and exposure visits of SHG members. NABARD has also formulated the broad
norms for deciding the grant of financial assistance to SHG Federations. During the year 2017-
18, grant assistance amounting to Rs 10 lakhs was sanctioned to two federations.
Recognizing the role played by MFIs, in extending micro finance services in the unbanked areas,
NABARD extends support to these institutions through grant and loan based assistance.
NABARD has been selectively supporting MFIs for experimenting with various micro finance
models such as replication of Grameen Model, NGO networking (bigger NGOs supporting
smaller NGOs), credit unions and SHGs federations, among others, to meet credit requirements
of the unreached poor. NABARD provides loan funds in the form of revolving fund assistance
(RFA) on a selective basis to MFIs to be used by them for on-lending to SHGs or individuals.
This loan has to be repaid along
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with service charge, within a period of 5 to 6 years. During the year 2007-08, RFA amounting to
Rs.8 crore was sanctioned to six agencies taking the cumulative credit sanctioned to Rs.36 crore
covering 35 agencies.
In order to identify, classify and rate MFIs, NABARD introduced a scheme for commercial
banks and RRBs to enable them to avail the services of accredited rating agencies for rating of
MFIs. Banks can avail the services of credit rating agencies like CRISIL, M-CRIL, ICRA, CARE and
Planet Finance for rating of MFIs and avail financial assistance by way of grant to the extent of
100 per cent of the total professional fees of the credit rating agency, subject to a maximum of Rs.
one lakh. The assistance is available for the first rating of MFIs with a minimum loan outstanding
of Rs.50 lakh and maximum loan outstanding of Rs.500 lakh. During the year 2017-18, rating
support amounting to Rs 3 lakh to four agencies was provided. Recognizing the need for up
scaling the micro finance intervention in the country, the Union Finance Minister, in the budget
for the year 2000-01, announced creation of a Micro Finance Development Fund (MFDF). The
objective of the MFDF is to facilitate and support the orderly growth of the micro finance sector
through diverse modalities for enlarging the flow of financial services to the poor, particularly
for women and vulnerable sections of society, consistent with sustainability. Consequently MFDF
with a corpus of Rs.100 crore was established in NABARD. The Reserve Bank and NABARD
contributed Rs.40
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crore each to the fund, while the balance was contributed by eleven select public sector banks.
As per the Union Budget announcement for the year 2016-17, the MFDF was re-designated as
Micro Finance Development and Equity Fund (MFDEF) with an increased corpus of Rs.200
crore. The fund is being managed by a board consisting of representatives of NABARD, commercial
banks and professionals with domain knowledge. The Reserve Bank is a member of the Advisory
Committee of the MFDEF. The MFDEF maintained by NABARD is used for promotion of
micro finance through scaling-up of the SHG-bank linkage programme; extending RFA and
capital support to MFIs and undertake various promotional initiatives. During 2017-18, Rs.27
crore was utilized from the fund towards micro finance related activities.
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The North-Eastern Council (NEC), Shillong parked a fund of Rs.50 lakh with NABARD during the
year 2017-18 for facilitating miscellaneous training programmes involving Government/bank
officials, NGOs, SHGs from States in the NER and Sikkim. During the year 2017-18, 73
programmes were sanctioned out of the fund involving a total grant assistance of Rs.45 lakh.
With a view to reducing the procedural bottlenecks, expanding the outreach, meeting the huge
unmet demand of the sector and striving towards its formalization, SIDBI reoriented its policy
and approach to create a sustainable micro finance model that would significantly increase the
flow of credit to the sector. To take the agenda forward, the SIDBI Foundation for Micro Credit
(SFMC) was created in January 1999. SFMC‘s mission is ―to create a national network of strong,
viable and sustainable Micro Finance Institutions from the informal and formal financial sector to
provide micro finance services to the poor, especially women‖. SIDBI was one of the first
institutions that identified and recognised NGO/MFI route as an effective delivery channel for
reaching financial services to those segments of the population not reached by the formal banking
network. As a result of bulk lending funds provided, coupled with intensive capacity building support
to the entire micro finance sector, it has come to occupy a significant position in the Indian micro
finance sector. Today, SIDBI is one of the largest providers of micro finance through the MFIs.
SIDBI‘s pilot programme of 1994 brought out one of the major shortcomings in micro finance
lending programme. It showed that collateral-based lending does not work insofar as micro
finance is concerned. NGOs/ MFIs acting as financial intermediaries do not have tangible
collateral to offer as security for the loans. Doing away with collateral-based lending in MF
necessitated that a mechanism be developed which would minimise the risks associated with
lending. With a view to catering to this objective, SIDBI pioneered the concept of capacity
assessment rating (CAR) for the MFIs. As part of its developmental agenda, SIDBI
encouraged a private sector development
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consulting firm to develop a rating tool for the MFIs which was rolled out in 1999. Today, rating is a
widely accepted tool in this sector. SIDBI has also succeeded in developing a market for rating
services. Two mainstream rating agencies, viz., CRISIL and CARE have also started undertaking
micro finance ratings, besides M-CRIL. SIDBI has also adopted the institutional capacity assessment
tool (I-CAT) of access development services (ADS), a private sector consulting organisation, for
rating of start-up/small and mid-sized MFIs.
SIDBI introduced a product called ―transformation loan‖ in 2015 to enable the MFIs to transform
themselves from an informal set up to more formal entities. This loan is a quasi-equity product with
longer repayment period and features for conversion into equity at a later date, when the MFI
decides to convert itself into a corporate entity. Consequently, a number of MFIs went ahead
with the transformation and some of them have now grown significantly and are serving millions
of clients across several states. Recognizing the need to offer the MFIs equity capital so as to
adequately capitalise them, SIDBI set up a fund of Rs. 50 crore which was christened as SIDBI
Growth Fund for MFIs. The fund takes care of equity investment in large corporate MFIs, as also
equity capital in start-up/smaller institutions, along with quasi-equity support for MFIs on the
verge of transformation.
SIDBI also supports incubation of potential local community based organisations through two-
tier/umbrella NGOs/MFIs. The approach not only helps SIDBI to increase its outreach through
double intermediation but also enables it to channelise finance to smaller NGOs that otherwise
may not meet the criteria for availing direct assistance from SIDBI. SIDBI has also been able to
nurture and develop a few new intermediaries set up by experienced professionals. Another approach
in this direction involves incubation of new start-up MFIs promoted by first-generation
development/micro finance professionals. The incubation support is either given through well-
reputed management institutes or through institutions specialising in capacity building and technical
support services.
As at March 31, 2018, the SIDBI had 58 partners in the underserved States, out of its total
partner base of 104. The increased thrust on development of underserved States has also resulted
in the share of these States going up from 19 per cent (Rs.38 crore) in the total outstanding micro
finance
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portfolio of SIDBI in the financial year 2015 to over 31 per cent (Rs.299 crore) in the financial
year 2017-18.
Substantial growth of the micro finance sector would be possible only if the capacities of all
stakeholders are built up adequately. SIDBI has taken some initiatives in this direction. One such
initiative has been in the area of human resources where SIDBI has tried to address the issue both
from the demand and supply side factors. On the demand side, MFIs are encouraged to hire
young management/accounting graduates from reputed institutes through campus placement and
SIDBI provides partial salary support for these young professionals (YPs) for a period of two
years. Additionally, MFIs are also provided grant funds for hiring trained and experienced
professionals as second line managers. This helps in bringing and retaining the talent in the micro
finance sector. On the supply side, some of the management training institutes have been
provided support in the form of training and exposure visit of their faculty members to reputed
national and international training programmes and other MFIs across the world. Besides, SIDBI
was instrumental in bringing international experts to lend support to these institutes for
developing a course on micro finance that has been incorporated as an elective in their rural
management courses.
Other major initiatives towards capacity building of the sector comprised developing the
capacities of consultants and technical service providers (TSPs), developing a common chart of
accounts for the sector, creating gender and environment awareness, promoting innovations and
action research on emerging concepts.
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CHAPTER 4
RESEARCH
METHODOLOGY
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PART A
RESEARCH METHODOLOGY
Research methodology that is used here was purely exploratory because we know it is used when
one is seeking insight into the general nature of the problem possible decision alternative and
relevant variables that need to be considered.
The Research methodology is highly flexible, unstructured and qualitative. Exploratory research
hypothesis are either vague or ill defined, or they don‘t exit at all.
RESEARCH QUESTIONS
What are the efforts of Government of India to make Financial Inclusion more effective?
Whether various modes of channelizing credit like Micro-Finance, Bank Linked Self Help
Groups etc are effective in Inclusive growth?
RESEARCH APPROACH
The method of Inductive research focuses on the inductive interpretation of thought, reasoning
which can change any specific forms of observations into a general theory. Although by this method
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researchers can view things in a general way. If the researchers analyze any forms of observation
in the society, then they have to make an assumption on it, for that they have to conduct a
experimental based survey to check his assumption to reach towards a certain conclusion. In
addition to that the deductive research is a process by which deductive thought can change the
ordinary theory into new hypothesis.
In relation to this, researchers thought goes from one point to the other i.e. from general to the
specific. He may form perception regarding the human behavior or some observable fact and
after that he may go further to collect the data to come to a certain conclusion. While working on
a certain piece of thought his primary objective may be to form a new thinking to test the
hypothesis. If the data helps this thinking then we can assume that his theory is correct.
The Inductive method helps in building a generalized approach about specific events. It opens
with the singular thought and proceeds for the universal implication.
It makes an explanation about the workings of the thought in a pure, dispassionate and neutral
way, rather than on pre assumed notions.
RESEARCH METHOD
Quantitative research deals with the calculating things, and to find an estimated difference
between various groups. Qualitative research has its origin in social science and is more
apprehensive with understanding approach of how people behave in regards to their knowledge,
beliefs, fear and attitude etc.
Qualitative research impasses on giving much attention on the dynamics of research pattern to
give the researcher, valuable insights which might have been missed by any other method. This
method not only provides a valuable insight of the information to certain questions but also
increases the area of quantitative research methods.
Focus groups
For this method the researcher brings out some of the interesting features. The group size is kept
precisely small, so that its members can express their views freely on any topic. A solution guide
is
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always prepared before the actual implementation of thought into action to ensure that a range of
aspects of the topic can be explained in a convenient way. The discussion can be frequently
tape- recorded for further use and analysis.
Direct observation
The collected information in the form of Data can be stored by an external observer, transferred
to the non-participant observer or it can be collected by a participant observer, who has the exact
knowledge of working in the process. In this type of study the researcher‘s motto is to become a
part of the population study so that he finds out a detailed approach in the understanding, values
and beliefs.
In-depth interviews
Interviews have the same perception on focus group, but subjects are studied separately for an
interview. Interviews in qualitative research have a wide range of inquiry. They generally ask the
same set of predetermined questions, which would help in conducting a quantitative survey.
Withstanding the view they encourage subjects to express their views and feelings at certain
length. One particular technique in the critical incident study is in which subjects are asked to
give their views on real events that giving a generalized view. This study also helps in focusing
more on the beliefs, behaviors and attitudes. Then the researcher may be able to find more
exhaustive information about the subject but he may lose the essence which can raise debate
among various groups.
DATA COLLECTION
It is important that how and by which method you are going to check results of your research,
and how effectively you are going to implement that in making your decision. The person in the
research will know how the data collection, planning, and its implementation will help in
analyzing the potentiality of a method for decision making.
Secondary form of data collection incorporates collecting material level problem, but does not
collect the information for the existing data. This can be produced internally or externally to do a
better research.
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Primary information is gathered mainly to help the users whom you are addressing. It is collected on
the basis of observation. There may become more rigid form of data collection but these trends
are flexible w.r.t. its desired group of audiences. Suppose you want to invest in commercial market
then choose the research consultants to do research for you.
Observation is the method by which you can examine the methods and information for
reference materials, or the amount of time it would take in the process to complete a certain
phase of work because if a person knows that he is being observed then his behavior may
change.
Surveys Interviewing is another method by which a survey is conducted. Written questionnaires are
more widely used for information gathering. There are various methods by which we can gather
information and response from audience.
If we have to collect a huge amount of information where the target audience is too large then
by choosing a small number of people to represent mass population is the most suitable method
for it or you can also try to remove the biasness approach by using: (i) Random sampling; (ii)
Stratified sampling; and (iii) Quota sampling .
The Population to be covered in the financial inclusion must feel confident of the banking
transaction.
The system should work effectively in the conditions prevailing in the rural environment.
Some major problems faced by rural folk include uncertain power supply, connectivity,
weather, dust etc.
The system should provide secure identification and authentication of the customer, in ways
other than signature and PIN numbers.
Should be able to work in online and offline modes, to address issues relating to
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connectivity.
The system should address issues relating to loss, theft and breakage etc., of any
hardware, and adequate redundancy should be built into the system for continuity of
business.
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Integra facilitated banking services to ―financially excluded‖ rural India, overcoming the challenges
of power and connectivity. It identifies and authenticates the user, facilitates voice-guided
transactions and prints receipt for each transaction, this help the rural folk who are mostly illiterate.
It represents the evolution of newer systems for rural environments capable of lowering the cost per
transaction.
Till date Integra facilitate transaction of NAREGA, Pension Fund and general banking like
accepting and lending money like function. Even though deposits are as small as Rs. 10 per
person, but this is creating a habit of saving and thrift in rural people.
Integra has made Brick & Mortar less banking possible which as a result helps in cutting
exorbitant cost of providing banking facility in Rural Area. Rural banking is said to be High
Volume and Low Quantity business which make it less lucrative than urban & city banking. But
with the advent of ICT it‘s a blessing in disguise for banker and now turning out to be a big
untapped market for them.
About iMFAST
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Integra designed iMFAST to address the specific pains of rural banking: a semi-literate
population, harsh rural environments, and issues of security and authentication. It is designed to
be transported to the villages by an agent (who may work for the bank or a postal service) and
who can visit multiple villages in a day.
The small portable compact electronic device as can be seen in the picture above brings in cash
into the banking system through cashless transactions. This machine is capable of working in both
online and offline mode, it record transaction when working in offline mode. It has a secure
identification and authentication system through a live biometric fingerprint sensor. Voice guide
system to assist the customers instructs them in various languages. Apart from English this
device is programmed with different local languages which include Hindi, Tamil, Kannad, Marathi,
Telgu, Malayalam etc. and offers both, wired and wireless connectivity. On the spot transaction slips
are issued so to verify the details of transaction.
Smart Card – It is a chip enabled contact less card. This chip is not seen from outside and is
personalized with data pertaining to the customer. The card is manufactured by GEMALTO.
Every transaction is directly stored in the field BC‘s Smart Card as well as in the customer‘s
Smart Card but not in the device.
Data Loading at the Back End – The POT device is connected to the line at the end of the
day and push the transaction to the back end server through iMAFAST software which works as
switch. The iMFAST terminal talks to the back end over internet, communication with back end
happens through secure socket layer (SSL) and encrypted data communication.
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Connectivity – This system has the portability and ability to connect to the back end server
using both wire and wireless connectivity like PSTN/GPRS/CDMA/LAN/WIMAX networks.
Reports – On successful completion of the transaction, POT would print 2 receipts. On one
receipt field BC would sign and would hand over the same to the customer. On the second
receipt customer would put his signature/thumb impression and the same would be kept with
the field BC for record purpose. Reconciliation reports are generated through back end database.
The device can handle multiple applications requiring identification and authentication. The device
currently has 256 MB of memory, which can be scaled up to 8 GB. Smart card is of 4 K memory
currently and can be extended up to 144 K. iMFAST was initially deployed in a pilot site with a
leading bank in South India. It is now successfully running in over 50 locations of this bank. In
addition, the solution has been deployed in multiple locations by five other leading banks.
Future development plan addresses both technology and services. Technology options include mini-
ATM with minimum maintenance cost, enumeration devices for e-governance, support for
various smart cards, NFC-based point of service/payments and information kiosks. Future
services would include doorstep banking for urban regions and value added services for
microfinance, microinsurance, etc.
Impact – The solution provides benefit to both the bank and the rural population.
Customer need not come to the branch for carrying out basic banking transaction such as,
cash deposit, cash withdrawals, balance enquiry, mini statement etc.
Most of the rural populations are daily wage earner; this branchless banking helped them to save
their opportunity loss of daily wage which they have to forgo before. Alternately they can
use this saved time for his occupation or his income generation.
No constraints on time as the Business Correspondents can be accessed practically any time
of the day.
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Advantage to the Bank
Viable business model to tap the rural saving and deploy credit. This as a result has increased
banking scope for Bank of Baroda as now they can reach far flung areas.
Banking remittance of social payment schemes to villagers like NAREGA, Pension funds etc
were on one hand adding cost of transaction to bank and on another side it increased work
pressure at the counter. Integra with its iMFAST has helped bank to reduce the high
maintenance cost by converting these accounts into Integra Account. So in place of managing
2500 saving accounts of rural population now bank have to maintain only one account of
Business Correspondent who is responsible for managing maximum of 2500 accounts of
rural people. These have drastically reduced the cost for bank and reduce work pressure at
the counter.
Reduced frauds as the transaction are handled in secure manner. Transactions are handled by
devices and hence it insures greater accuracy and increased security.
The business correspondent would be able to identify the borrowers and assist in borrower
identification, loan recovery, etc.
The bank is aiming to extend the reach of the new structure both geographically and functionally
to incorporate gradually, a host of service akin to those generally available in a small rural branch.
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Even as the BC model has taken off, it needs to be fine tuned and monitored appropriately to
improve its efficacy, including by better training BCs. Recently, the scope of the BC model is further
enlarged by permitting banks to appoint individual kirana/medical/fair price shop owners,
individual Public Call Office (PCO) operators, agents of Small Savings schemes and insurance
companies, individuals who own petrol pumps, retired teachers and self-help groups linked to banks
as BCs. With a view to ensuring the viability of the BC model, banks have also been permitted to
collect reasonable service charges from the customer in a transparent manner. Going forward, the
Reserve Bank will endeavor to give complete flexibility to banks to appoint BCs with only a negative
list of entities that would not be eligible.
Bank will identify and appoint its Business Correspondents (BC) at remote areas and
associate them with the nearest branch of the Bank.
BCs will be provided one unit of Point of Transaction (POT) Machine to carry out banking
transactions like accepting deposit, allowing withdrawal.
Remittance from abroad can also be credited to these accounts and can be withdrawn through
BCs Location.
BCs will be provided their Agent card to operate the machine. Agent card is only for the
operation of POT machine.
BCs will source the Customer and collect the filled application form from the villagers along
with the photograph and all the required documents and submit them to the designated
branches.
After opening their account, a smart card bearing the photograph and the demographic details
of the account holder will be given to the customer.
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BC will obtain the card and to activate the card, the fingerprint of the customer is grabbed
and the card is handed.
As the card is biometric, it can be operated only after recognition of the fingerprints.
After completion of each transaction, customer will be provided a signed receipt as a proof of
the transaction. Besides, machine will also prompt various voice messages regarding the
transaction and inform the current deposit or withdrawal.
BCs, on daily basis, transfers data to the Bank through various means like Telephone Line,
GPRS or through Internet and the transaction occurs in Banks Software.
Most important point for the customer is to obtain the signed receipt of each transaction and also
to listen the voice prompts after the transactions.
This product is the most secure product; the concerned account holder himself has to be present
along with Smart card at the Business Correspondent‘s location for the withdrawal and deposit.
Random selection of Fingerprint impression is made during the transaction.
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Suggestions
There should be some formal training from Banks to Business Correspondents. Bank should
insure that BCs are aware of various financial schemes for rural people so they can inform
them better. This as a result will benefit both Bank as well as the rural people.
An integration of FLCC with BCs should be established. FLCC must ensure up to date
information to BCs in their respective districts. This can be done through organizing weekly
or monthly camps for BCs in villages.
The RBI India has asked both the private as well as public sector banks to set up more Financial
Literacy and Credit Counselling Centre (FLCC) in every district and has suggested the lead banks to
hold a public meeting every quarter in each district to address grievances of the bank customers.
These centres should provide both pre and post credit counseling. Post credit counselling should
be on management of finances and debt servicing in times of unexpected losses and natural
disasters (like drought, flood, etc). Lead banks are expected to open a Financial Literacy and
Credit Counselling Centre (FLCC) in every district where they have lead responsibility.
While credit counselling services may be provided by banks both in rural and urban areas, it is
observed that a large segment of the Indian population is resident in rural areas with literacy
levels lower than in urban areas. The rural population is also more dependent on the informal
sector for its financing needs. It is necessary that a segmented approach, rather than broad-based
generalized approach to counselling for all types of borrowers, is adopted. The centres in rural
areas could concentrate on financial literacy and counselling for farming communities and those
engaged in allied activities. The centres in metro/urban areas could focus on individuals with
overdue in credit cards, personal loans, housing loans, etc.
All forms of publicity--press conferences, workshops, publications, websites, road shows, mobile
units, village fairs—should be actively explored. A suitable budget needs to be provided by all banks
for the purpose. In order to go ahead in a planned manner, a committee on financial literacy and
counselling may be set up by the Reserve Bank with members from the Reserve Bank,
NABARD, IBA, BCSBI, CIBIL, NGOs working in the area and consumer organisations; this will
foster greater collaboration in areas relating to consumer education and protection of consumers‘
interest.
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The scheme of FLCCs needs to be linked up with BC/BF model as the mobility and reach of
BC/BF up to the doorsteps of poor will be an important factor of success of this scheme. Besides
promoting awareness and giving counselling for credit and savings it would be good to link
FLCCs with insurance companies so that the poor can get information and counselling services
from a single door.
Urgent need is required to dovetail financial literacy into school curricula at all levels. A pilot
programme has been launched recently on financial literacy in Karnataka. The programme, launched
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by RBI in collaboration with the state government, will involve introduction of financial and related
material in the curriculum of schools and colleges. Significant steps would also be taken to make
financial literacy a part of non-formal education.
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Suggestions
Promotion of FLCC should be done at city and village level, so that maximum people can
take advantage of this. Main motive of FLCC is to provide free counselling to rural people
and in my observation this objective has not been met so far.
Regular rural camp should be organized, so that the rural population can be covered. These
camps should be consistent in operation with respect to frequency and timing and other such
issues.
Special preference should be given to the FLCC referred clients. This will give FLCC a
distinct image in the eyes of the non-banking customers and they will prefer to approach
FLCC prior to banks.
Financial literacy should target school children also. Small workshops and seminar could be
organized at school level so to broader their financial ken.
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CHAPTER 5
DATA ANALYSIS
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Some Glaring Facts about Financial Exclusion
45.9 million Farmer households out of a total of 89.3 million households do not have access
to credit either from the institutional or non-institutional sources (NSSO, 2008).
One branch is catering to the banking needs of 16,000 populations (June, 2007).
Only 17 credit accounts and 54 saving accounts are there per 100 persons with all the
institutions (June 2007).
Only 13 per cent are availing loans from the banks in the income bracket of less than Rs.50,000.
53 per cent people are still taking loans from the institutional and non-institutional sources
only
for emergency purposes.
These figures do tell us something – the ‗urgent need‘ for extending the banking and financial
services to every part of the country for achieving the objective of inclusive growth.
The Indian economy, though achieved a high growth momentum during 2003-04 to 2007-08,
could not bring down unemployment and poverty to tolerable levels. Further, a vast majority of
the population remained outside the ambit of basic health and education facilities during this
high growth phase. In recent decades, economic and social inequalities have increased alongside
high growth rates which have exacerbated regional inequalities. The latest seventh quinquennial
survey by the National Sample Survey Organisation (NSSO) (61st Round) reveals that growth
rate of employment increased from an annual 0.98 per cent in the period 1993-94 to 1999-00 to
2.89 per cent in the period 1999-2000 to 2004-05, while the acceleration in the rate of growth of
labour force from 1.03 per cent to 2.93 per cent during same period had negative impact on
employment rate (Table 1). Similarly, poverty ratio has been declining during the recent period,
but it continues to remain at a very high level of 27.5 per cent (Uniform Recall Period) in 2004-05
from 36.0 per cent in 1993-94. The most disturbing fact is that the income inequality as
commonly measured by consumption expenditure (Gini coefficient) has increased in India from 32.9
in 1993 to 36.2 in 2004 (Ali, I. and J. Zhuang: 2007).
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Table 3. Employment and Unemployment (UPSS) (Source: RBI, DEAP work paper, 2009)
1999-00 to 2004-05
1993-94 1999-00 2004-05 1993-94 to 1999-00
Point to Point Annualized
In million
Growth Rate (CAGR)
2.93
Labour Force 381.94 406.05 469.06 1.03
2.89
Workforce 374.45 397.00 457.82 0.98
Number of
7.49 9.05 11.24
Unemployed
As a Proportion of labour force in per
cent
Unemployment Rate 1.96 2.23 2.39
469.06 457.82
381.94 406.05 397
374.45
7.499.05 11.25
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Role of Financial Inclusion in Achieving Inclusive Growth
It has been the endeavour of both the Government and the Reserve Bank to expand banking
sector across the length and breadth of the country to ensure reasonably priced credit in a timely
manner to all the deserving borrowers. Notwithstanding the significant expansion in bank network in
unbanked areas after bank nationalisation in India, there are still large segments of the society
that remain outside the financial system. A quick look at the data on the sources of loans and also
percentage of persons having annual income less than Rs. 50,000 show that 28.3 per cent had
bank accounts and only 13 per cent had availed of bank finance and even in higher income
bracket exclusion existed (Tables 3 and 4). Hence, the recent focus has been on providing access
to affordable banking services to every person.
Table 4: Earners Having a Bank Account – 2007 (Figures in per cent) Source: Report
on
Currency and Finance 2006-08 (IIMS, 2007)
Annual Income (Rs) Urban Rural Total
Table 5: Sources of Loans (Per cent of Indebted Earners) Source: Report on Currency and
Finance 2006-07 (IIMS Survey, 2007)
Annual Income (Rs) Banks Money Lenders Other Institutional & Non Institutional Sources Total
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Earners Having a Bank Account – 2007
UrbanRuralTotal
75.571.2 73
61.7
43.1 44.9
38
26.828.3
62.8
52.1 51.6
49.3
45.9
38.7 36.6
34 34.5
31.7
19.6
13 12 11.8
5.5
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The process of financial inclusion in India can broadly be classified into three phases. During the
First Phase (1960-1990), the focus was on channeling of credit to the neglected sectors of the
economy. Special emphasis was also laid on weaker sections of the society. Second Phase (1990-
2005) focused mainly on strengthening the financial institutions as part of financial sector
reforms. Financial inclusion in this phase was encouraged mainly by the introduction of Self-
Help Group (SHG)-bank linkage programme in the early 1990s and Kisan Credit Cards (KCCs)
for providing credit to farmers. The SHG-bank linkage programme was launched by National
Bank for Agriculture and Rural Development (NABARD) in 1992, with policy support from the
Reserve Bank, to facilitate collective decision making by the poor and provide ‗door step‘
banking. During the Third Phase (2005 onwards), the ‗financial inclusion‘ was explicitly made as a
policy objective and thrust was on providing safe facility of savings deposits through ‗no frills‘
accounts. A Synoptic View of Financial Inclusion is as under:
Number of rural bank branches – 31, 727 constituting 39.7% of total bank branches (as on June,
31, 2009)
Number of Mobile phones – 403 million (as on Apr.30, 2009) - out of which 187 million
(46%) do not have a bank account.
(Source : Cellular Operators Association of India)
The number of ‗no frills‘ accounts increased from 4,89,497 at end-March 2006 to 3,30,24,761 at end-
March 2009. Notably, the public sector banks account for the majority of these ‗no frills‘ accounts as
at end-March 2009 (Table 6). Similarly, the number of credit as well as savings accounts per 100
adults has also shown increasing trend over the period 2002 to 2007.
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Since micro finance has been accepted as the main vehicle to address the issue of lending to
small borrowers dispersed over vast expenses of geographical areas involving high transaction
costs and also as a business opportunity. Following details will further accentuate SHGs role in
Financial Inclusion.
There are over 3 million SHGs in India, many of which are already undertaking individual group
micro-enterprises. A large number are also doing advocacy work and many especially in
south India have formed federations. For economic viability and greater effectiveness, however,
SHGs should be provided means to start group enterprises, especially in the rural areas, and
provided access to land and other means for this purpose.
All self-employment programmes integrated into Swarnajayanti Gram Swarojgar Yojana (SGSY)
in April 1999 has made rapid progress over time covering more than 31 lakh (Table 5).
However, only 22 per cent of the SHGs were provided with bank finance for undertaking
income generating activities including micro enterprises. The bank assistance was abysmally low
leading to low level of investment activity. This shortcoming has been attributed to failure of
public intervention to enhance the credit absorption capacity of SHGs as well as to the
failures of credit delivery systems to reach the poor. The poor credit absorption capacity of
poor can be illustrated by the prevalent credit-subsidy ratio under SGSY at about two, much
below the target ratio of 3:1, partly due to failure to strengthen the demand side of the credit
by improving the capacity of the poor to absorb credit for income generating activities (GoI,
2009).
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Even in the better performing State of Andhra Pradesh, the income gain to a swarojgari from
enterprise activities under SGSY was a mere Rs.1,228 per month (Purushotham, 2008). Government‘s
proposal for universalizing the SHG coverage of all poor households by 2013 and increasing the
proportion of assisted persons among swarojgaris to 50 per cent from the existing 22 per cent is a
welcome initiative in this direction. Trained groups in SGSY would be a severe handicap in moving
towards the Eleventh Five Year Plan goal of inclusive growth. The proposal to cover 1.7 crore BPL
households by 2015 under skill development and placement is to be seen as an encouraging step (GoI,
2008).
Well designed poverty alleviation programmes, if effectively implemented, not only supplement the
poverty reducing effects of growth but also could promote pro-poor growth. There is need to design
financial instruments that would help people to reduce their risk and vulnerability whether it is for
smoothening incomes or ensuring higher education for family members or reducing exposure to
health shocks.
To address the problem of high transaction cost and outreach, the banks can increasingly use
Information Technology based solutions, such as mobile phones and smart cards, create data base for
credit risk management and pricing. There are over 403 million mobile phone users today of which
around 187 million (46 per cent) do not have a bank account. The Financial Inclusion Fund (FIF) and
Financial Inclusion Technology Fund (FITF) can be used to
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(i) Fund support for capacity building of BCs and BFs and render promotional support
for SHGs and other grass root level institutions; and
(ii) Financial support for rural kiosks, IT and such other technological solutions for financial
services in rural India in general and excluded groups/regions in particular (GoI, 2009).
Page | 82
CHAPTER 6
FINDINGS
Page | 83
State Level Bankers' Committee (SLBC)
SLBC Profile
State Level Bankers' Committee is one of the highest bodies of bankers in the state and it is set-
up as per the Lead Bank Scheme of the Reserve Bank of India. The committee meets once a
quarter and discuss various issues concerning the economic development of the state, where
banks play a pivotal role. The meetings aim at finding solution to the various problems confronting
the state. The forum takes the lead in initiating, streamlining and accelerating the process of
development in close co-ordination with various government departments, Reserve Bank of India,
NABARD and other developmental agencies. The quarterly meetings are attended by top-level
functionaries of member institutions of SLBC, thereby enabling them for meaningful and
purposeful discussions on various matters aimed at solving the various issues.
The state economy is predominantly agrarian and more than 70% of the work force is engaged in
agriculture and allied activities. The importance of agriculture in the state economy can be
gauged from the fact that share of agriculture in State Domestic Product is 35% as against 22%
share in the National GDP.
The State has a wide network of banks. It is being served by 43 Commercial Banks, 12 RRBs
and 2 Cooperative Banks. Out of total 9123 branches of All Scheduled Commercial Banks
(including RRBs) operating in the state, 4866 branches are operating in the rural areas and 1594 in
Semi-urban areas.
Strategies and Approach
State Level Bankers Committee (SLBC) meets quarterly and reviews the banking developments in
the State. At the district level, the district level committee functions; it is headed by the District
Magistrate and is convened by a designated lead bank for the district. In early 2006, one district
in each State was identified by the SLBC for 100 per cent financial inclusion. So far, SLBCs
have reported having achieved 100 per cent financial inclusion in the Union Territory of Pondicherry
and in some districts in Haryana, Himachal Pradesh, Karnataka, Kerala and Punjab & Uttar
Pradesh. Reserve Bank proposes to undertake an evaluation of the progress made in these
districts by an independent external agency to draw lessons for further action in this regard.
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Huge increase in No Frills Accounts
Source: Speech by Mrs. Usha Tharot (Financial Inclusion – The Indian Experience) RBI Archive
The outcome of the efforts made is reflected in the increase of 6 million new ―no frills‖
bank accounts opened between March 2006 and 2007. In view of their vast branch network
(45000 rural and semi urban branches) public sector banks and the regional rural banks have
been able to scale up their efforts by merely leveraging on the existing capacity. FI is being viewed
by these banks as a huge business opportunity in an overall environment that facilitates
enterprise and growth. It provides them a competitive advantage and defines a clear niche for
their growth.
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Role of Government
State Governments can play a pro –active role in facilitating FI. Issuing official identity
documents for opening accounts , creating awareness and involving district and block level
functionaries in the entire process, meeting cost of cards and other devices for pilots,
undertaking financial literacy drives are some of the ways in which the State and district
administration have involved themselves. India Post is also looking to diversify its activities and
leverage on its huge network of post offices, the postman‘s intimate knowledge of the local
population and the enormous trust reposed in him. Banks are entering into agreements with India
Post for using post offices as agents for branchless banking.
From safety point of view this machine is very secure. To prove this point Mr. Vijay Kr.
Srivastava has actually demonstrated how POT machine rejects the request when customer card
(Biometric) does not authenticate and customer figure prints.
Apart from English this device is programmed with different local languages which include
Hindi, Tamil, Kannad, Marathi, Telgu, Malayalam etc. and offers both, wired and wireless
connectivity. On the spot transaction slips are issued so to verify the details of transaction.
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10 figure prints are recorded in it. This card is activated once it is entered the POT machine. All
authentications are done through this Biometric card.
Mr. Vijay Kr. Srivastava demonstrated how this Biometric card is very secure. In terms of making any
transaction one has to give a finger print impression as commanded by machine. This machine
will reject the request of transaction if it finds any discrepancy with biometrically stored finger
prints and actual finger print. This makes it safe and secure and even an illiterate person can‘t be
cheated with this system, as finger print is unique and comparatively it is much better than ATM
– PIN Code.
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4. Transaction Slips – A sample collected by me of various transactions is attached below.
Page | 89
Bibliography
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Minister,
Government of India
Rangarajan C. (2017). Financial Inclusion: Some Key Issues, Lecture delivered at Mangalore
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―Banks must promote financial literacy: RBI‖, The Financial Express, May 28, 2019.
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Page | 90
Promote No-frills Accounts‖. Hindu Business Line. September 26, 2016.
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Leeladhar, V (2015). ―Taking Banking Services to the Common Man Financial Inclusion‖
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www.bankofbaroda.com
www.rbi.org.in
www.nabard.org
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