Transcript Financial Exclusion
Financial Inclusion
Concept,Issues and Roadmap
Presentation by Dr. K C Chakrabarty Chairman and Managing Director Indian Bank,Chennai At Institute for Development and Research in Banking Technology Hyderabad 02.09.2006
Financial Exclusion
What is Financial Exclusion ?
• • Financial exclusion is the lack of access by certain consumers to appropriate, low cost,fair and safe financial products and services from mainstream providers.
Financial exclusion becomes of more concern in the community when it applies to lower income consumers and/or those in financial hardship.
Poverty and Financial Exclusion
• There is a large overlap between poverty and permanent financial exclusion. Both poverty and financial exclusion result in a reduction of choices which affects social interaction and leads to reduced participation in society
Financial Exclusion and Allied Phenomena
Financial Exclusion Financial Discrimination Financial Illiteracy Financial Exploitation
Gradations of Financial Exclusion
• Core Exclusion: affairs completely outside the regulated financial system Who operate their financial • Limited Access: account but poor financial habits and little advice May have a basic bank • Included but using inappropriate products: Victims of inappropriate products.
Main types of Financial Exclusion
1. Transaction accounts 2. Time Deposits 3. Financial Advice 4. Appropriate small credit 5. Insurance 6. Mortgage Loans 7. Superannuation 8. Enterprise based loan
Who are Financially Excluded
1. Poor 2. Socially under-privileged 3. Disabled 4. Old as well as children 5. Women 6. Uneducated 7. Ethnic Minorities 8. Un-employed
Extent of Financial Exclusion
1. Coverage of • Check in accounts -70% • • • • • • • • Insurance -10% Financial Assets -2% Assets Insurance -2.53% Health Insurance -0.20% Credit Card -3% Debit Card -5.66% Small Overdrafts -3.65% Entrepreneurial credit -2.06% 2. Geographical coverage • • • 5% villages are having a bank branch 3. SHG coverage Out of around 400 million poor, 125 million poor are covered of which 113 million are women 4. Farmers coverage Tenant farmers/share croppers/oral lessees • • Small and marginal farmers Out of 89.35 mill. SF/MF, 34.70 mill. (46.30%) are covered.(House holds)
Most needed Services for Financially Excluded
1. Access to Small loans or overdrafts 2. Check in Accounts 3. Small Savings Products 4. Health Insurance 5. Life Insurance 6. Insurance against the failure of activity 7. Financial Asset 8. Credit Card 9. Entrepreneurship credit
Model for Financial Exclusion
Poor Social,economic & Health outcomes Do without High Cost alternatives Inefficient Use of Money Social/wider exclusion Financial exclusion Low standard of living and poverty Delayed pathway out of poverty Low/No assets Low Income Unemployment Macro -environment Debt(often informal) Mainstream product Attributes: fees; Penalties,bundling,marketing Which do not address needs Poor financial habits Financial illiteracy Poor education Personal characteristics Commercial & regulatory environment
Main Drivers of Financial Exclusion
Most frequent • Low income • Nil or low savings • Lack of assets • Unemployment • Under employment • Use of inappropriate products • Financial illiteracy • Poor financial habits Less frequent • Psychological/disability issues • Feeling of being excluded • Indigenous/ethnic issues • Geographical remoteness • Lack of time • Lack of PC/Internet Access • Availability of alternative products and suppliers • Youth
Problems of Financial Exclusion in India
• Coverage • Cost of Small Value transaction • Infrastructure • Suitable products • Flexibility • Weak Delivery model • Community Enterprise and Financial Management support
Model for Financial Inclusion
Good Social,economic & Health outcomes Less constrained spending Low cost services Free Use of Money
Social/wider inclusion
Financial inclusion High standard of living Easy pathway out of poverty Asset ownership High Income Employment Macro -environment Low or controlled debt Financial lliteracy Mainstream product Attributes: fees; Penalties,bundling,marketing Which suit those with higher income/assets Good financial habits Good education Personal characteristics Commercial & regulatory environment
Pre conditions for the Success
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Attitude and Will power Technology III. Delivery Mechanism IV. Support Services V.
• • • Infrastructure Community Development Support Product Innovation Regulatory and Policy Interventions VI. Involvement of all • especially Development/Administration at District/Block/Village level
Basic Challenges of Financial Inclusion
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Coverage II. Access to Diversified Financial Products and Services III. Delivery Model- Day to day transactions
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Financial Inclusion- Indian Experiment
Initiative by Indian Bank
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Indian Bank was the first Bank to implement the Financial Inclusion Project on a pilot basis in UT of Pondicherry where the Bank has lead responsibility. IB implemented the concept first in Mangalam Village of Pondicherry on 30.12.05 which became the first village in India, where all the households in the village were provided Banking facilities.
Indian Bank spearheaded the project and involved all the 144 bank branches of 37 Banks operating in UT of Pondicherry.
Participants of the project are: All Banks, Govt.Depts, Insurance Cos,NGOs,Facilitators etc.,
The Objective
• • • Financial Inclusion is delivering Banking facilities/ financial services to all the people in a transparent and equitable manner at affordable cost. Hon’ble Union Minister of Finance budget speech 2005 06: “The financial inclusion provides business opportunity for the financial institutions at the bottom of the pyramid to expand the volume of business. Profitability can be increased only by finding newer avenues for deployment of funds” RBI Governor in Annual Policy Statement 2005-06 urged the banks to align themselves with the objectives of Financial Inclusion.
Economically and socially empower poor and low income people leading to overall development of the Households, Villages, States and finally the Nation.
Achievements in Pondicherry
80000 70000 60000 50000 40000 30000 20000 10000 0 INDIAN BANK OTHER NAT.BANKS
HOUSEHOLD TAR HOUSEHOLD ACH SB A/Cs OPENED 41963 40557 67822 74605 26537 23351 SBI GROUP 31906 8511 3064 CO OP BANKS 30603 9531 12088 PRIVATE BANKS 36461 9381 3926
Replication of the success
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RBI in the 2006-07 Annual Policy Statement highlighted about Financial inclusion project implemented by the bank in UT of Pondicherry, and advised SLBC convenors in all State / UTs to identify at least one district in their area for achieving 100 percent financial inclusion on the lines of the initiative taken in Pondicherry.
As a follow up, the project was launched in TN in Cuddalore Dist, where again IB is the Lead Bank involving all the banks covering 877 villages. Launched on 11.07.06 and expected to be completed by July 2007.
– – The Bank also extended the project to All the other 12 Lead Districts in TN,AP,Kerala Other states where each of our circle has taken up implementation in three villages.
Overview of the achievement of IB across the country
• Total number of villages covered so far • Total number of No frills SB a/cs • 372 opened • 120198* • OD accounts opened • 13227 • GCC accounts opened • 660
• *In addition, 16706 women have been linked through SHGs.
The process
• Allocation of villages to the Banks • Village/House hold survey • Assessment of the need for Financial Inclusion Products • Financial Inclusion Products Offered • No Frills SB account • Small Over Draft facility-for general consumption • General Credit Card-for income based activity • Micro Insurance- Life and disability cover • Health Insurance Cover • Mutual Funds (proposed)