CHAPTER 1: FINANCIAL INCLUSION GLOBAL

PERSPECTIVE
Contents: Global Scenario & Extent of exclusion. Practices adopted in European / African
nations, Brazil and other countries for Financial inclusion
Financial Inclusion aims to extend hassle free savings and loan facilities and other banking
and non-banking services at an affordable cost, to the underprivileged, socially
disadvantaged, low income group people who constitute the unbanked population. Access
to finance, (especially by the rural or urban poor whether daily wage earners, small and
marginal farmers, agriculture labourers and other vulnerable groups) - is predominantly
required for employment, livelihood, alleviation of distress, economic growth, poverty
reduction and healthy social cohesion. Further, easy and unrestrained access to finance
empowers the vulnerable groups by giving them an opportunity to have a bank account
(including a basic no frills banking account for low value small transactions) and overdrafts,
insurance and remittance facilities, savings and investment opportunities as well as easy
access to timely and adequate credit etc., thereby facilitating them to make their way out of
poverty i.e. ultimately to break the chain of poverty and improve their living conditions.
On 29 December 2003, Former UN Secretary-General Kofi Annan said:The stark reality is that
most poor people in the world still lack access to sustainable financial services, whether it is
savings, credit or insurance. The great challenge before us is to address the constraints that
exclude people from full participation in the financial sector. Together, we can and must build
inclusive financial sectors that help people improve their lives.
In recent years Financial Inclusion (FI) has gained prominence in public consciousness.
After observing 2005 as Year of Microfinance by UN and adoption of Millennium goal to
reduce by half world poverty by 2015, efforts have been stepped up towards inclusive
economic growth. Enormous resources are being committed by various stakeholders like
Government, Banks, NGOs and Private sector for pulling out more than 2 billion people
from abysmal poverty across the world through FI. Objective of FI is to extend choice and
access to all financial services like banking, remittance, pension, insurance etc, we, as
bankers, limit our concern to extension of banking services.
1

A lack of access to these tools and services and/or the absence of use of these represents
a serious obstacle to a persons economic and social integration into society.

Access to transaction services has become fundamental in todays societies:

people without any bank account are referred to as unbanked, while those who
make little or no use of the services they could have access to, are generally
described as marginally banked.

Similarly important, access to credit has become necessary for various aspects. A
distinction has to be made between people who are refused any access to credit by
lenders, that is credit excluded people, and those who can only access credit
through loan sharks at unaffordable rates.

Access to insurance services has increasingly come under scrutiny. Though it is,
in some cases, compulsory to have insurance (as for example for a car), it has not
yet been defined what kind of insurances are considered essential when talking
about financial exclusion.

Finally, access to savings services is a problem for some people who either lack
the necessary documents to open a deposit account or who do not see the point in
opening one and have thus to be taken into consideration.

The study of the Rseau Financement Alternatif establishes a list of basic financial
services considered essential for ones day-to-day life:

Holding an account to receive ones income

Having a transaction bank account as a means of making payments
Owning a savings account in order to be able to store money
Enjoying unsecured credit to manage temporary cash shortages or unexpected
expenses

Source: http://www.european-microfinance.org

Financial Exclusion Who are these People?

 Underprivileged section in rural and urban areas like, Farmers, small
vendors, etc.
 Agricultural and Industrial Labourers
 People engaged in un-organised sectors
 Unemployed
 Women
 Children
 Old people
 Physically challenged people
 Illiterate people
2

Reasons of Financial Exclusion

 Absence of Technology
 Absence of reach and coverage
 Delivery Mechanism
 Not having a Business model
 Rich have no compassion for poor
 Poor financial literacy/Knowledge gap
 Lack of identity in a new place(migrant population)
Why the discussion on Financial Exclusion
 Focus on Inclusive Growth
 Banking Technology has arrived
 Realisation that Poor is bankable
Exclusion promotes poverty: Inclusion opens opportunities
FI is considered necessary for all round growth of the economy. Honohan P. (2007)
conducted a study on access to finance in 160 countries. The study revealed that
economies having higher financial access, are the developed / advanced economies and
financial inclusion is an important factor for the growth of these nations. Following chart
indicates composite index of inclusion across the select nations. The study indicates that
the higher the poverty ratio lowers the inclusion and vice-versa. Most of the developed
countries in Europe and USA are having higher index of inclusion due to low precedence
of poverty.

120
100
80
60
40
20
0

Composite Index of Inclusion (% population

with access to financial services)
Poverty(% population below poverty line)

50 40
43
27
32
22

48
29

59
25

60

59
13

16

91

96

96

99

Key Statistics on Financial Inclusion in India is given in Table. A financial inclusion survey
was conducted by World Bank team in India between April-June,2011 which included face
to face interviews of 3,518 respondents. The sample excluded the northeastern states and
remote islands representing approximately 10 per cent of the total adult population. The
results of the survey suggest that India lags behind developing countries in opening bank
accounts, but is much closer to the global average when it comes to borrowing from formal
institutions. In India, 35 per cent of people had formal accounts versus the global average
of 50 per cent and the average of 41 per cent in developing economies The survey also
points to the slow growth of mobile money in India, where only 4 per cent of adults in the
Global Findex sample report having used a mobile phone in the past 12 months to pay bills
or send or receive money.
Table : Key Statistics on Financial Inclusion in India: A Survey
(Per cent)
Share with an account Adults saving in the Adults originating Adults Adults
Adults Adults
past year
a new loan in the with a with an
at a formal financial
paying using
credit outstanding personally mobile
past year
institution
All Poorest Women Using a Using a
From a From card mortgage for health money
insurance in the
adults income
formal community- formal family
past
based
financial
account
quintile
or
year
method institution friends
1
2
3
4
5
6
7
8
9
10
11
12
India
35
21
26
12
3
8
20
2
2
7
4
World
50
38
47
22
5
9
23
15
7
17
7
Source: Asli Demirguc - Kunt and Klapper, L. (2012): Measuring Financial Inclusion, Policy Research
Working Paper, 6025, World Bank, April.

GLOBAL SITUATION
In India, about 60% of population is still considered out of ambit of formal banking system.
The problem of financial exclusion is prevalent not only in India but in many other
developed countries including United States (US) of America and United Kingdom (UK).
The fact was acknowledged by the then UN Secretary-General Kofi Annan in the year 2003.
He said that most of the poor people in the world are not getting access to financial
services like savings, credit and insurance.

In US about 30% households are either

unbanked or under-banked, according to the survey in 2009. The UK government initiated

action on Financial Inclusion by preparing strategy paper in the year 2004. Financial
4

inclusion is now a common objective for many central banks among the nations, both
developed and underdeveloped. It is not required that everyone who is eligible uses each
of these services, but one should be able to have his/her own way to use them, if so
desired. To this end, strategies for building inclusive financial sectors have to be creative,
flexible, and appropriate to the national situation and preferably be owed by all the
stakeholders.

Inclusive Financial System

An inclusive financial system facilitates efficient allocation of productive resources and
thus can potentially reduce the cost of capital.
Access to appropriate financial services can significantly improve the dayto- day
management of finances (bill payment, money transfer...)
Unbanked people are exposed to informal sources of credit, are charged higher (often
exorbitant) interest rates and they often face unethical/harsh recovery practices.
Access to a bank account provides avenues for secure and safe saving practices.
A bank account can also provide a passport to wide ranging financial services such as
overdraft facilities, debit card and credit cards.
A number of financial services, such as insurance and pension, necessarily require
access to a bank account.
Thus, an inclusive financial system enhances efficiency and welfare of a society.
Financial Inclusion Policy Initiatives
 Financial inclusion is seen as a policy priority in many countries in recent
periods.
 In Sweden and France, banks are legally bound by to open an account
for anybody who approach them
 Financial Inclusion Task Force (2005) in UK
 Community Reinvestment Act (1997) in US
 No frills accounts in India (2006) and SHG led bank linkage programme
 Everyman account in Germany (1996)
 Mzansi account in South Africa (2004)
5

 Emphasis on right to have a bank account by Law on exclusion (1998) in France.

 In 2009, the Financial Inclusion Project at the Central Bank was created with the
objective of integrating various stakeholders to develop effective policies for
financial inclusion in Brazil.
 In November 2011, the National Partnership for Financial Inclusion was launched in
Brazil.
 In the United Kingdom, the Financial Inclusion Taskforce was launched on February
2005 and was composed of members drawn from the private, public, and non profit
sectors, who served in a personal capacity, and on a voluntary basis. The taskforce
in March 2011, made final recommendations for government and the private sector.
 In Mexico, 2011, to provide an institutional mechanism to facilitate coordination
among these agencies, the National Council on Financial Inclusion was created.
The objective of this council is to organize the different entities working on financial
inclusion in the country, from regulatory agencies to social development and
consumer protection agencies.
BRAZIL
 Active role of Government in creation of low income financial services market
 Simplified Current Accounts offered through agent network.
 Government (G) to Public (P) benefits through e-payment channels.
 Payroll and Pension linked Credit facilities.
INDONESIA
 Bank Rakyat Indonesia has driven the Financial Inclusion
 Strategic shift from Govt aided programme to Commercial Orientation in 1986
 Savings used as the lead product
 50 million Savings Accounts and 25mn active loans (2004)
CHILE
 Government driven programme.
 Subsidies (based on bidding) to banks for giving loans.
 Value of subsidy for an average loan of $1,200 fell from $240 (1993) to $80 (2000)
6

KENYA
 Telco led, remittance based model of M-PESA
 Customer accounts outside banking regulation
 Combined value of customer money stored in pool account with a bank.
 In 2009, a European study on Financial Inclusion Indicators allowed the collection of
information concerning financial inclusion in eleven Member States of the European
Union(Belgium, Bulgaria, Germany, Greece, Spain, France, Ireland, Italy,
Netherlands, Poland, Slovakia) and Norway measured the level of exclusion on the
basis of the following definition: Financial exclusion refers to a process whereby
people encounter difficulties accessing and/or using financial services and products
in the mainstream market that are appropriate to their needs and enable them to
lead a normal social life in the society in which they belong. As such, it will be
understood that financial exclusion is not reduced solely to non-access to a bank
account, but also that it is possible that the access is not accompanied by a
satisfactory usage.
BRAZIL:
On 16th December 2010, the EU Commission has adopted the European Platform against
Poverty and Social Exclusion to reach the social objective of EU 2020 Strategy.
Consequently, fight against poverty is at the heart of goals for jobs and growth.
 This approach endeavors to integrate financial exclusion, as a particular factor of
vulnerability and disadvantage (see challenges section p.6). To a large degree,
access to (especially low cost) credit is at the crossroads of contracts and consumer
laws. Thus, it has many directions which may interact with the concept of
vulnerability.

CHAPTER 2: FINANCIAL INCLUSION IN INDIA

Contents: Necessity, benefits of financial inclusion, steps taken by the government and
financial sector
Objective of FI is to extend choice and access to all financial services like banking,
remittance, pension, insurance etc, we, as bankers, limit our concern to extension of
banking services.

RBI definition of Financial Inclusion

The Reserve Bank of India (RBI) in December 2009 changed the definition of financial
inclusion for Banks by stating that Financial inclusion is not restricted merely to
opening of bank accounts but must also include the provision of all financial services
like credit, remittance and overdraft facilities for the rural poor.

So, the one line statement is that financial inclusion should be an endeavor to ensure that
a range of appropriate financial services is available to every individual and enabling them
to understand and access these services, at an affordable cost, as per their choice.
2.2

FI a National Imperative:

Financial inclusion is providing banking and other financial services to those persons who
have not availed it before or used these services on rare occasions. The extent of financial
exclusion and indebtedness in India is given in Fig.1. As per NSSO survey data (2003),
out of 893.50 lakh farmer households in India, 48% households were indebted which
include 27% from formal sources, 21% from informal sources (like money lenders, friends
and relatives) and remaining 52% households were not covered by credit from any source.
Thus about 73% farm households did not have access to formal source of credit.

24
43.9
96, 27%
%
459.2
26, 52%
%
19
90.2
28, 21%
%

Ind
deb
bteed to fo
orm
mal so
ourcees
Ind
deb
bteed to in
nform
mal so
ourrcees
Non ind
No
i deb
bteed ho
ousseh
holdss

Fig. 1
Fig.
1: Lev
Level
el of inde
ind
debte
bted
edne
ness
ss an
and
d finan
fina
ancia
ciall e
exc
exclu
clusio
sion
n in India
India
(No. of hous
(No.
house
eh
hold
oldss in llak
akh)

Souce:
Souc
e: Base
Based
d on the
the d
dat
data
ta ad
adap
apted
ted
d fr
from
rom Rang
Ra
R ngar
araja
ajan
n Co
C
Comm
mmit
mittee
ttee
eo
on
n Fin
Finan
nanci
ncial
ial Inclu
Incclusio
sion
n
(2008)
(2008
8)

To bring
brring
g tthese
these disa
disadv
dvan
anta
tage
ged
d secti
section
ons
s of socie
society
ety in
into
to the
the fo
form
rmal
al ba
bank
nkin
ing
g ssyste
system
m is the
the
majorr ccha
major
halle
lleng
nge
e befo
before
re th
the
e Gove
Govern
rnm
men
entt of
of Ind
India
ia,, the
the R
Res
eser
erve
ve Ban
Bankk and
and alll th
the
e majo
majorr
fina
financ
ancia
ciall in
inst
stitu
itutio
tions
ns in the
the count
ccountry.
try.
To
o th
his en
nd, th
he fol
f low
win
ng Ste
S epss wer
w re tak
t ken
n in
n th
he Pa
ast::
 Co
Co-op
oper
erati
ative
ive M
Mov
ovem
emen
ent
 Set
Settin
ting
gu
up of State
State
eB
Ban
ankk of Ind
India
dia
 Nat
Nation
tional
nalisa
lisatio
tion
n of Bank
Banks
 Lea
Lead
d Ba
Bank
nk S
Sch
chem
eme
e
 Ope
Open
ening
ing of
of RRB
RRBs
Bs
 Ser
Servic
vice
e Area
Area App
Ap
pproa
roach
ch
 Sel
Selff Hel
Help
pG
Gro
roup
ups,
s, et
etc..
The G
The
Gov
overn
ernm
nmen
entt ini
initia
itiated
ted
d ma
majo
ajorr ste
step
ps ffor fina
fiinanc
ncial
iall iinc
nclus
lusion
ion
n in 20
200
004
4 by set
settin
ting
g a
com
comm
mmis
issio
sion
n hea
he
eade
ded
d by Shr
Shrii H.R
H.R.K
H .Kha
han
an..

Majo
Majorr in
initia
itiativ
tives
es wer
were
re chal
chalke
ked
d out
out aft
after
a er the
the

Rangar
Rang
araja
ajan
n Co
Com
mmi
mitte
ttee
eR
Re
epo
port
rt in
i 2
200
2008
08.

2.3

Rural
Rur
ral M
Mar
arke
kett pot
poten
entia
tial

The tas
The
taskk of fina
fiinanc
ncial
ial in
incl
clus
usion
ion iis
s ch
challe
allen
engin
ging
g in vview
iew of th
the geog
geogra
raph
phic
ic spre
spread
ad,, vast
vast
unccover
uncov
vered
red popu
popula
latio
tion,
n, ilillite
llitera
racy
cy,, la
lang
ngua
uage
ge barrie
barriers
ers and
and stru
struct
ctura
urall con
co
onstr
strain
aints
ts of
o
Comme
Comm
merc
rcial
ial Ban
Ba
anks.
ks.. Sim
Simult
ultan
taneo
eous
usly
ly it op
open
enss up vvas
astt o
opp
ppor
portu
rtunit
nities
ies for
fo
or Bank
Bankin
ing
g ssecto
secctorr tto
create
creat
e p
produ
product
ctss to
t servi
service
ice this
this sect
sector
or whic
which
h is char
charac
acter
terize
ized
d b
by h
high
igh
h vvolum
vollumes
ess but
but sma
smallll
margins
marg
ins that
that FII clien
clliente
ntele
le can
can afford
afford. C.K.
C.K. Pra
Pralh
alhad
ad (200
(2004)
04)) arg
argu
gued
ed th
that
at if we
w stop
stop think
thinkin
king
go
of
poo
poor
or as a burd
burden
en a
and
nd ccon
onsid
side
derr th
the
hem
m as a valu
va
alue
e cons
conscio
cious
us con
consu
sum
mer,
er, then
then w
who
hole
ole lo
lott o
of
opp
oppo
portu
rtunit
nity
y wil
will
w l ope
open
nu
up an
and
d inno
inn
nova
vatio
tions
ns will
will ha
happ
ppen
en.. Ac
Acco
cordi
rding
ing to stud
studie
dies,
s, Ru
Rura
urall m
ma
arke
rket
et
acccount
accou
unts
ts for 5
55
5 p
pe
perr cen
centt of
of LIC p
pol
polici
licies
es,, 7
70
0 pe
perr ccen
entt of toilet
toilett ssoa
oaps
ps,, 5
50
0 pe
perr ccent
cen
nt of TV
TV,,
Fans,, Bicy
Fans
Bicycl
ycles
es,, Tea
Tea , Wris
Wristt Wa
Watch
tches
hes,
s, Wa
Wash
ashin
hing
g soap
soap,, Bla
Blade
des,
s, Sa
Salt,
lt, Too
Tooth
th Po
Pow
wde
derr and
and 3
38
8
perr ccen
entt of
o alll Two
Two-W
Wh
hee
eeler
lers
rs pu
purch
rcha
hase
sed.
d. Mar
Market
et re
rese
esear
earch
rch ffirm
irm,, The
The Niels
Nielsen
en C
Com
omp
mpan
anyy
esttimate
estim
ated
ed that
that Ru
Rura
rall mar
marke
rkett p
pot
oten
entia
tiall w
will
ill tou
touch
uch
hU
US
S $ 10
100
0 billion
billlion in th
the
he ne
next
xt 15 yyea
ears.
rs.. In his
his
blog, Sh
blog,
Shin
iny
y Vik
Vikas
as (w
(ww
ww.
w.blo
blogo
gofs
fshin
hinyv
yvika
ikas)
as)) repo
reporte
rted
ed hu
huge
ge the
th
he po
pote
tenti
ntial
al in rural
rural mark
ma
arket
et whic
which
h

Amount in Billion Rupees

is giv
given
en in Fi
Fig.
ig. 2.

800
8000
00

6500
0

600
6000
00

45
500
0

400
4000
00
50
00

200
2000
00

800

0
FMCG
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G

Agrii Inpu
Agri
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ts

Con
C
onsu
sum
mer
er
Durable
Durab
bles

Auto
Au
tomo
mob
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(2&4
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wh
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Fig.. 2:: M
Fig
Mar
arke
ketin
ting
g po
poten
p tentia
ntial
al iin rura
rural
al Areas
Are
A as

Many of
Many
of the cor
corpo
c rpora
rate
te gr
grou
roups
ps are
are con
consid
sider
derin
ring
g the rrur
rural
al ar
area
eass as the
the m
mos
ost
st po
pote
tenti
ntial
al
opp
oppo
portu
rtunit
nities
ies o
off bus
busine
iness
esss due
due to grow
growin
wing
g inc
incom
come
me le
leve
vels,
ls,, aw
awa
ware
rene
ness
ss an
and
d impro
improve
oved
ed life
e ssty
tyle
le
in hinte
hinterla
rland
nd.. Co
Corp
rpora
orate
ate ssuc
uch
ha
as ITC,
ITC, Mar
Maruti
uti S
Suz
uzuk
uki,i, Go
Godre
drej,
ej, R
Relia
elianc
ance,
ce,, e
etc.
tc. ha
have
ave
e ssta
tarte
rted
d
bui
uildi
ilding
ing th
their
eirr ccap
apab
abilit
ilities
ies to cap
captur
ture
re the vas
vastt o
opp
ppor
ortun
tuniti
nities
ies av
avai
vailab
ilable
le in the
the rural
rurral ar
area
eas.
s. IT
ITC
C
started
starte
d e--ch
chou
oupa
pall to
t pr
prov
ovide
ide e
ext
xten
ensio
sion
n serv
service
icess to the
the farm
farmer
ers.
s. Hind
Hindus
usta
tan
n Unile
Unileve
verr is
sellling
sellin
g iits pr
prod
oduc
ucts
ts th
throu
rough
gh
h tthe
he n
netw
etwo
ork
rk of wom
wo
omen
ens
s Self
Self H
Help
elp G
Gro
roup
upss (S
(SHG
HGs)
s) kno
known
wn a
ass
10

Shakti. Reliance is purchasing farm produce directly from the farmers for selling through its
outlets. In fact many agro-based industries like fertilizer, tractor, pesticides and irrigation
equipment, etc. have most of their consumer base in rural areas.
2.3 Opportunities for Banks:
Bringing the vast population of weaker section under banking umbrella, will open up many
opportunities for business as under:
2.3.1. Low cost deposits:
Financial services to the excluded population will bring the untapped savings into the
formal financial intermediation system and channel it into investment. Second, the large
number of low cost deposits will offer banks an opportunity to reduce their dependence on
bulk deposits and help them to better manage both liquidity risks and asset-liability
mismatches.
2.3.2. Credit with widespread risk:
Credit facilities to the low income group and disadvantaged section of people will be in
small amounts. Thus small ticket size will spread the asset quality risk of Banks. Low
value coupled with high volume will ensure scalability and profit margin.
2.3.3. Remittance:
Remittance transactions provide float funds to the Banks. Addition of new customers as
well as transfer of government funds to the accounts of poor people will increase the
volume of these transactions. Moreover, they will add to the income of Banks through
commission / exchange.
2.3.4. Cross selling opportunities:
Since many Banks are offering Insurance and mutual fund products, financial inclusion will
give opportunities to cross sell these products and earn fee based income.
2.4.

Social and political benefits

2.4.1. Empowerment:
Connecting the poor and disadvantaged people into the organized system will bring them
into the mainstream of economy.

Financial inclusion will provide access to safe and

11

secure facilities of deposit. It will offer credit facilities at reasonable rate of interest and thus
bring out the poor from the clutches of the usurious money lenders. Availability of
insurance cover will protect these low income people from disasters or loss of income. This
will remove the psychological barriers of negligence, backwardness from the society and
empower them as an active partner of the economy.
2.4.2. Reduction in transaction cost and Income leakage in Govt. cash transfer
activity:
National and State Governments in India has plethora of cash schemes targeted at various
category of beneficiaries. Central government currently has 32 schemes like Employment
Guarantee payments scheme (MNREGS a Rs 400 billion per annum), Old age Pension,
Mid day meals etc. where cash is paid out to target group. FI is being selectively used
currently and Universal FI will ensure payment to the intended beneficiary ensuring speedy
delivery with reduced transaction cost and plugging the leakages.
2.4.3. Demand enhancement of FI and Economic Growth:
Mobilisation of deposit, offer of credit and

remittance facilities will foster investment and

capital formation in rural areas. Other recent Bank driven initiatives of the National Govt.
like Financial Literacy and Credit Counseling Centres (FLCC) and Rural Self Employment
Training Institute (RSETI) is expected to generate steady demand and proper use of
Financial services offered on FI platform. FLCC create awareness of financial services
amongst financially excluded, enabling exercise of informed choice with full understanding
of risks and rewards. RSETIs run by banks in every district impart entrepreneurial training
to rural youth below poverty line to generate self employment opportunities and increase
credit absorptive capacity. Investment and employment opportunities in rural geography
will arrest large scale migration to cities.
2.4.4. Social and political stability:
Financial inclusion will ensure equitable growth of the country which is necessary for social
harmony and political stability for economic development of the nation. Thus, there exists
enormous opportunities in rural areas and ample scope for banking business.

12

Table 2.1: Benefits of financial inclusion to various segments

Product

Poor people

Banks/Financial

Corporates

Governments

Institutions
Deposit

Safety & Security

Harness

Generate

untapped,

low demand and capital

cost

deposit, supply

formation.

better

liquidity opportunties

Generate

management
Credit

Credit

facilities

reasonable

rate

Investment and

for

employment

facilities consumer

at Credit

opportunities,

of will be in small goods

interest and thus bring amounts.

check migration
to cities

Thus

out the poor from the small ticket size

clutches of the usurious will
money lenders.

spread

the

asset quality risk

of Banks

Remittances

Better management of Remittance

funds

provide
funds

Better cash Payment

float flow

to

will social

the result

Banks. It will add increase

through power

commission
exchange

security

benefits

and

in Employment

to the income of purchasing

Banks

of

Programme

of through

/ poor people

the

bank is direct and

fast.

Plug

the

leakages
Insurance

and Protect

other products

low

income Income

from Social and economic stability

people from disasters or cross selling

loss of income

2.5 Progress of FI in India

In India, a multitude of financial institutions like Commercial Banks (rural branches),
Regional Rural Banks, Micro Finance Institutions and other Cooperatives as well as some
13

not-for-profit societies/organizations are engaged in financial inclusion. Government plays

an important role by setting up roadmaps for accelerated action along with grants both for
technology acquisition as well as for capacity building for people engaged at all levels in
FI. Banking-linked programmes are preferably important ones in as much as Banks have
legitimate and adequate resources to address the related issues in Financial inclusion.
Banking system is encouraged to innovate and discover ideal and most appropriate
delivery models taking into consideration of the best suited technological interventions.
To speed up the process of financial inclusion the steps taken up by the Government of
India, Central Bank and Financial institutions have helped the Banks in India to mobilise
the resources.
2.5.1. The Government
The Government initiated steps for FI in 2004 by setting a commission headed by Shri
H.R.Khan. Major initiatives were chalked out after the Rangarajan Committee Report in
2008.
i. Financial Inclusion Fund was set up with initial corpus of Rs. 500 crores for meeting
the cost of developmental and promotional interventions.
ii. Financial Inclusion Technology Fund was created with the same amount of Rs. 500
crores to meet the costs of technology adoption. Thus the technology is considered as the
important aspect of financial inclusion.
iii. Aadhaar Card: The Government initiative of providing Unique Identification Number
through Aadhaar card will go a long way to support financial institutes for meeting KYC
norms and smoothen the business processes.
iv. Facilitation: Government support may be needed to create facilitating environment
including support for capacity building, training and incentives during stabilisation period to
the operating agencies.
Recent instructions issued by Department of Financial Service, GOI for greater financial
inclusion is as under:
Monetary Policy Statement 2012-13 announced on April 17, 2012, it would be
necessary to have an intermediate brick and mortar structure (Ultra Small Branch)
14

between the present base branch and BC locations to provide support to a cluster
of BC units at a reasonable distance.
Each non-defaulter farmer living in the village falling in the service area of the
branch has got a Kisan Credit Card (KCC).
Banks to implement revised ATM enabled KCC scheme. SLBC convener to identify
pilot districts (2-4) in each state and the entire state is to be covered by Sept
2012.Each non-defaulter farmer living in the village falling in the service area of the
branch to get a Kisan Credit Card (KCC).
Each non-farmer family living in rural area falling in the service area of the bank has
got a Savings-cum-OD Account.
In rural and semi-urban branches to see that each village of 2000 more population
is visited once a week on a fixed date, time and place and supports BCs for
undertaking requests for account pending, loan and recovery.
Branch Manager has to visit each of the service area village on a notified day every
week.
Banks must try to open as many brick and mortar branches in all habitations with
population of 10,000 and above without any bank branches at present with in a
radial distance of 5 kms. The process is to be completed by September 2012.
Accounts are being opened as per guidelines on KYC issued by DFS.
All households without account within 500 M of semi urban/ urban/metro branch to
be covered.
Ministry has issued Guidelines for:
a-Opening of accounts by close relatives,
b- Full operational facilities in joint account with spouse,
c- Account portability / opening of new bank accounts
d- Opening of accounts of migratory workers.
Service area approach would be adopted for the coverage of entire country for
financial inclusion. Service area of bank branches is to be defined by LDMs, both for
existing and new branches and the service area plan for the entire district is to be
prepared and uploaded in the District website.

15

 Transfer of subsidies into the accounts of the beneficiary under Electronic Benefit
Transfer to enhance the efficiency of delivery of services. Benefits in the areas
covered under Financial Inclusion must be transferred electronically into the
accounts of the beneficiaries. Presently 32 schemes are in operation, funded by the
Government of India, under which benefits are to be given directly to the
beneficiaries.
Each non defaulter non farmer living in the Service Area without any land holdings
is to be granted a credit facility in the form of GCC.
List of villages having connectivity problem (block, name, census code of village2001 census) is to be identified and broadband connectivity to be ensured in all FI
villages.
Setting up of Ultra Small Branches (USB) in each FI village, considering the need
for close supervision and mentoring by the respective bank branch taken up/being
taken up under Financial Inclusion Plan, and to ensure that a range of banking
services are made available to the residents of such villages, USBs are to be set up
in all villages covered under financial inclusion. The bank branch responsible for
financial inclusion of the village in its Service Area would designate a specific officer
to visit such villages on pre-notified fixed day and time every week.
The bank branch responsible for financial inclusion of the village in its Service Area
would designate a specific officer to visit such villages on pre-notified fixed day and
time every week with a laptop which should have VPN connectivity to the CBS, so
that various other services such as account balance, etc. could be offered. The
officer shall also undertake various verification, field inspections, etc., for allowing
undertaking of banking functions by the person concerned.
Urban Financial Inclusion - Launch of campaign to ensure at least one bank
Account for each family & capturing of Biometrics while opening accounts.
Opening of one bank account per family which is to be used for EBT/DTKS by
making use of data from Census directorate (2011 census) / District Supply Officer.
Financial Inclusion drive to open bank accounts of migrant laborers and street
vendors / hawkers in urban areas.

16

 Preparation of Comprehensive District Financial Services plan in each district with

the coordination of banks, insurance companies & Govt. Departments.
RFP is to be floated by Public Sector Banks for Outsourcing of Installation and
Managed Services of Cash Dispensers (CDs).on a geographical cluster basis.
Banks to prepare District-Month wise Rollout Plan which will be used by the lead
bank for the preparation of the District-Month wise and Bank-Month wise Rollout
Plan for the State/UT.
Data entry module for GIS for Financial Inclusion through web site of DFS for
Periodical updating of data about bank branches, ATMs, clearing houses and
currency chests of Scheduled Commercial Banks and branches of Insurance
Companies at village level. This would enable the DFS to easily identify the areas
where expansion of branch/ATM/network needs to be carried out, set the targets for
Banks/Insurance Companies and monitor the progress of such expansion.
Availability of web-based Desktop Video Conferencing and confirmation of opening
of account & connectivity with DFS.
Automation of State government Treasuries and Interface with banks.
Establishment of Clearing house at centres with three or more branches.
Implementation of Scheme for Promotion of Women SHGs in Backward Districts of
India- leveraging NGOs as Business Facilitators. The scheme envisages
identification of an anchor NGO in each of the selected backward districts of the
country, which will work as promoting and nurturing agency for SHGs as facilitator
bank linkages and recovery of loans from SHGs for a due consideration. This
approach is expected to facilitate sustained financial inclusion through bank loan,
promote livelihood development of women and deliver social development
programmes for Women through SHGs linkage.
2.5.2. The Reserve Bank of India (RBI)
Being the Central Bank, the RBI has initiated various measures like guidelines, regulatory
incentives and policy stance to streamline the process. Notable among those are
under:

17

as

i. All the lead Banks were asked to ensure coverage of all the unbanked villages with
population above 2000 by the year 2012.
ii. In January 2010, all the commercial Banks including private and foreign banks were
asked to prepare Financial Inclusion Plan (FIP) to be implemented in 3 years. As per the
FIP of Banks about 3.48 lakhs villages will be covered by March 2013.
iii. RBI has permitted the banks to collect reasonable service charges from the customer in
a transparent manner.
iv. Steps for enlarging the scope of various models for financial inclusion including BC/BF,
MFIs, Rural Based institutions like NGOs, PACs, Post offices, etc.
v. Expansion of Branch network: To use the existing network, commercial banks were
asked to add at least 250 rural household accounts every year at each of their rural and
semi-urban branches. Banks can also use rural ATMs, mobile vans, extension counter to
reach remote areas. Now commercial Banks are not required to seek RBI permission to
open new branch at the rural centres with population below 50,000. Recently, the RBI
asked the Commercial Banks to open at-least 25% of the new branches in unbanked
centres and Private sector Banks are required to ensure that minimum 25% of their total
branch network is in semi-urban and rural centres on an ongoing basis. This will speed up
the process of reaching to the excluded people. USB opened in form of a satellite office
will qualify for RBI instructions regarding opening of 25% branches in unbanked rural areas
under Annual Branch Expansion Plan of the bank.
vi. Opening of branches in villages having population more than 5000 in under bank
districts and 10,000 in other districts: As per the strategy and guidelines of financial
inclusion issued by Department of Financial Services(DFS), Govt. of India, banks shall
within their service areas in the under banked districts , open a regular brick and mortar
branch in habitation with population of 5000 and above by September, 2012 and in other
districts , the banks must try to open as many bricks and mortar branches, in their service
area, in habitations having population of 10,000 and above by September,2012.It was also
decided that in unbanked districts with population < 5000 but more than 2000 bank may
set up Ultra Small Branch(USBs), banks may establish outlets in rural centers from which
BCs may operate.
18

vii. Ultra Small Branch (USBs): USBs will provide support to about 8-10 BC Units at a
reasonable distance of 3-4 kilometers. Such USBs should have minimum infrastructure
such as a Core Banking Solution (CBS) terminal linked to a pass book printer and a safe
for cash retention for operating large customer transaction and would have to be managed
full time by bank officers/ employees. This arrangement will increase legitimacy and
credibility of BCs in the area and give people increased confidence to use their services
.For villages having population 5000 or above in unbanked district and 10,000 for other
districts, where opening conventional brick and mortar branch is presently not viable, the
bank may set up USBs in the shape of a Satellite Office of the link branch managed full
time by at least one bank officer with laptop having VPN connectivity supported by BCA
having normal business hours as the base branch initially for three days in a week which
can be scaled up with increase business volume if required. Officer of USBs will act as
maker and will be supported by Officer of link branch as Checker for all transaction made
at USB. BCA shall be present on all working days and shall deal with all cash transactions
(up to 10,000/- per customer) and other services assigned to BCA. The Satellite Office
(USB) should have a pass book printer and a safe for cash retention.
2.6

Financial Inclusion Plan for Banks

It was indicated in the Monetary Policy Statement of May 2011 that all public and private
sector banks had prepared and submitted their board approved three-year financial
inclusion plans (FIPs). These contained self-set targets in respect of opening of rural brick
and mortar branches; deployment of business correspondents (BCs); coverage of
unbanked villages with population above 2,000 as also other unbanked villages with
population below 2,000 through branches/BCs/other modes; opening of no-frills accounts;
kisan credit cards (KCCs) and general credit cards (GCCs) issued; and other specific
products designed by them to cater to the financially excluded segments.
A brief analysis of the progress made under FIPs of banks shows that penetration of banks
in rural areas has increased manifold. As against 21,475 brick and mortar branches of
these banks in rural areas as in early March 2010, banks are now as on 31.03.2012
,providing banking services in rural areas through 1,47,534 outlets comprising 24,701 rural
branches, 1,20,355 BC outlets and 2,478 outlets through other modes. No-frills accounts
19

have increased to around 105.5 million with an outstanding balance of above Rs.99.30
billion with the addition of about 50.2 million new no-frills accounts since April 2010.
Going forward, the focus will be more on the number and value of transactions in no-frills
accounts and credit disbursed through information and communication technology (ICT)
based BC outlets. For the purpose, banks have been advised that FIPs prepared by their
head offices are disaggregated at respective controlling offices and further at branch
levels. They were also advised to put in place a mechanism to monitor the progress at
these levels periodically.
2.6.1. Roadmap to cover Villages with Population above 2,000. Swabhimaan the
Financial Inclusion Campaign: In pursuance of the announcement made in the Monetary
Policy Statement of April 2010, the roadmap to provide banking services in every village
with a population above 2,000 was finalised by State Level Bankers Committees (SLBCs),
provincial (state) level committee of stakeholders from Govt, Banks, banking regulator and
other related institutions primarily engaged in monitoring resource flows in local
geography. In order to extend the reach of banking to the rural hinterland, Banks were
advised in 2010-11 to provide appropriate banking facilities to habitations having a
population in excess of 2000 (as per 2001 census) by March, 2012 under Swabhimaan
campaign Smt. Sonia Gandhi, Chairperson UPA, formally launched Swabhimaan the
Financial Inclusion Campaign in February, 2011. Swabhimaan aims at providing
branchless banking through use of technology. Under the roadmap, 74,414 villages with
population above 2,000 were identified as unbanked, which were allocated to various
banks, including regional rural banks (RRBs) for providing banking services by March
2012. Banks provide basic services like deposits, withdrawals and remittances using the
services of Business Correspondents. The initiative enables Government subsidies and
social security benefits to be directly credited to the accounts of the beneficiaries and who
would be able to draw the money from the Business Correspondents in their village itself.
Banks have covered 74,199 (99.7 per cent) of these unbanked villages. Now the challenge
is to cover all the unbanked villages of the country.

20

Status of Financial Inclusion (31.03.2012)

S. No.

Type of outlets

Rural Banches

BC Outlets

Other Outlets

No. of outlets
37,471
1,41,136
3,146

Total Rural outlets

1,81,753

No frills accounts

139 million

5.

Amount in No frills accounts

No. of KCC accounts

Amount of KCC outstanding

Number of Accounts

Amount of GCC outstanding

Rs.120 billion
30 million
Rs.2068 billion
2.1 million
Rs. 42 billion

Source: RBI
2.6.2. Extension of theswabhiman campaign for covering the villages with
population less than 2000:
To increase the penetration and FI, the Swabhimaan campaign was launched in
pursuance of Budget Announcement (2010-11). To build on the momentum and success
achieved, the Swabhimaan campaign was extended as per Budget Announcement
(2012-13) to habitations with population of more than 1000 in North Eastern and hilly
States and to other habitations which have crossed population of 2,000 as per Census
2011. About 45,000 such habitations have been identified to be covered under the
extended Swabhimaan campaign.
2.6.3. Opening of at least one bank account per family in rural and urban areas:
Concept of social banking aims at providing financial services subsidised by the rich to the
poor where banking business is oriented towards serving the masses instead of exploiting
them. For better administration of subsidy extended by government through 32 schemes to
reach the household through electronic benefit transfer scheme in the society, it is
imperative to have at least one bank account per family among the financially excluded
people. For transfer of subsidy benefits directly to the accounts of these underprivileged
people through EBT , so that the beneficiaries can draw
branches, ATM, Micro ATM and CSPs.
21

the money through bank

Keeping in view of the above , DFS directed all banks to launch campaign to ensure that
each family living in the service area of a branch having rural villages attached to it has at
least an a/c with the branch to transfer all the benefits administered through various
schemes of Govt. of India.
2.6.4. Opening of accounts of hawkers, labourers, migrant labourers etc.: Lot of poor
people lives in urban areas to cater the need and integral part of urban development. Most
of them are linked to their family staying in villages. They also require financial services
like savings, remittance, insurance, pension products and small loans to start their small
business. To give boost to the urban financial inclusion to inculcate saving habits and to
extend banking facilities to the migrant labourers and street vendors/hawkers in urban
areas, Department of Financial Services (DFS), Ministry of Finance, GOI, has advised
banks to launch a drive for opening of their account. Branch officials are directed to contact
migrant labourers/street vendors/hawkers who are working within 500 meters of the
branches in urban and metro areas. Later on, the process to be extended beyond 500
meters so as to all these persons financially included. Branches are advised to give top
priority to this agenda.
2.6.5. Financial Literacy: Educating the financially excluded people and familiarising them
to understand the various products and process available in the financial system especially
the benefits and other risk factors associated with it, so that proper and timely choice can
be made for enhancing the economic security of oneself, his family business. Primarily
financial literacy is relevant to the people who are resource poor. With financial literacy,
target group can prepare ahead of time to take up economic financial activity for
maintenance of their livelihood and to deal with emergencies without taking unnecessary
debt. Establishing FLC, reaching the resource poor personally, and providing adequate
information about use of technology, products and process etc., for end user can be
beneficial to improve literacy aiming the target group. This can also be done through
innovative medium like films, documentaries, pamphlets and road shows. Awareness
programme about technology at villages/ branches can be conducted to improve financial
literacy. Customer calls centres to improve and facilitation of awareness along with
adequate training of staff as well as BC/BF. Covering basic financial service like savings,
credit products, use of credit cards, investments, grievance redressal mechanism,
22

awareness about electronic banking and the safeguards to be followed is necessary as a

nationwide strategy. For scaling up Financial Literacy efforts manifold, it has now been
decided by RBI to modify the existing FLCC Scheme. While the existing FLCCs (60 nos)
would continue to function with a renewed focus on financial literacy, Lead banks are to set
up Financial Literacy Centres (FLCs) in their Lead District in a time bound manner for
opening of 630 plus FLCs in all the districts throughout the country .Financial literacy
activities will also be undertaken by all the rural branches of Scheduled Commercial Banks
including RRBs.
The Financial Literacy Centres (FLCs) will impart financial literacy in the form of simple
messages like Why Save, Why Save early in your Life, Why Save with banks, Why borrow
from Banks, Why borrow as far as possible for income generating activities, Why repay in
time, Why insure yourself, Why Save for your retirement etc. The FLCs and rural branches
of the banks would also conduct outdoor Financial Literacy Camps with focus on financially
excluded people at least once a month. For the purpose, the help of experienced NGOs
may also be taken. The officials working at FLCs should be provided training in behaviour
orientation so as to enable them to work as effective trainers along with periodic
knowledge up gradation on various banking products and services.
In order to facilitate effective implementation of the above guidelines Standard financial
literacy material/ training modules are to be distributed to branches for providing
awareness and knowledge of basic banking throughout the country. If necessary, banks
may also prepare material on above illustrative topics in vernacular language using stories
and pictorial representations to disseminate information on the four basic banking products
i.e. (i) savings cum overdraft account, (ii) pure savings product ideally a recurring deposit
scheme, (iii) remittance product for electronic benefits transfer and other remittances, and
(iv) entrepreneurial credit in the form of General-purpose Credit Card (GCC) or Kisan
Credit Card (KCC).
FLCs and rural branches of banks should maintain record in the form of a register
containing details such as name, gender, age, profession, contact details, whether banked
or unbanked, details of services availed etc. The Head/ Controlling Offices of the
concerned banks would monitor the financial literacy efforts undertaken by their
23

FLCs/Branches through periodic reporting and also by resorting to random on-site visits.
They would periodically (at least once in a year) undertake impact evaluation of their
literacy efforts so as to make way for continuous improvement.
2.6.6. Electronic Benefit Transfer
Electronic benefit Transfer (EBT) is one of the products offered under Financial Inclusion in
which benefits are directly credited into the account of beneficiary who can then withdraw it
from the bank branch or the ATM or the Micro ATMs. Government in its strategy and
guidelines on financial inclusion has advised banks that benefits in the areas covered
under Financial Inclusion must be transferred electronically into the accounts of the
beneficiaries. The Convener Banks of SLBC have been advised to take up this matter in
the SLBC meeting and the roadmap for Electronic Benefit Transfer in respect of each of
the 32 scheme under which subsidies are provided by Central Government must be
finalized.
Gains from Financial Inclusion for SBI:
Initiatives taken up by the Bank so far helped to achieve following quantifiable business.

Table : Business performance through BC model in SBI

Particulars
No. of No Frills

March 10

March 11

March 12

Sept12

76

97

13.56 (8.8

16.12

Accounts

lakh thr

(in million)

BC)

Balances in no frills

3360

6150

6220

6820

491

636

516

639

27870

54460

accounts
(in Rs millions)
Average Balance per
Account (Rs.) (opened by
BC only)
Loans (in Rs millions)(BC
ch)

24

The initiatives of Financial Inclusion helped the bank to accrue following benefits:
 Net Income from Aadhaar enrollments Rs. 14.6 crores.
 Transactions worth Rs. 26850 million routed through BC outlets
 Decongestion of branches: 16.9 million transactions through BC Channel
 Increase in customer base- 16.12 million No Frills A/cs opened.
 Rs. 6820 million of CASA deposit mobilised in No Frills accounts.
 EBT disbursement:1129.2 million in 3.56 million a/c(Sept2012)
 Establishment of USB as on 30.09.2012:3681nos.

Thus, there exists enormous opportunities in rural areas and ample scope for banking
business.

25

CHAPTER 3: MODELS OF FINANCIAL INCLUSION

Contents: Branch Network (No frills, Banking on wheels, SHG Bank linkage &JLGs),
BC/BF, MFIs, Co-operatives & RRBs, Aadhar, etc.
Backed by the government support and policy initiatives of the RBI, the task of financial
inclusion has been taken up by the Commercial Banks with a passion. Apart from meeting
the regulatory requirements, several banks have taken proactive steps. Modification in
existing processes and systems were done based on the experience and the
requirements. Various models adopted by the Indian banks and

innovative steps taken

for achieving financial inclusion described in following paragraphs.

Concerted efforts are being made since last 3-4 years, to achieve the financial inclusion.
Banks have taken various steps and adopted following models like Branch network,
Business Correspondent/Business Facilitator model, Micro Finance Institutions (MFIs) /
Non-Government Organisations (NGOs). In their pursuit for achieving FI, novel initiatives
like Banking on wheels and tools of technology like mobile, internet kiosk, etc were tried
out and refined to suit processes and requirements.
3.1. Branch network:
The existing network branches were put to use for by the scheduled commercial banks for
achieving FI by undertaking following activities:
3.1.1 No frills account: To make the beginning, the efforts were made to open No-frills
accounts of the households of uncovered villages under relaxed Know your customer
(KYC) norms. RBI data indicates that 139 million No-frills accounts were opened By the
Banks at the end of March 2012 with outstanding balance of Rs. 120 billion.

Credit

facilities in small amounts are also being offered to these accounts to inspire the account
holders for doing regular transactions.
Basic Savings Bank Deposit Account: Banks to make available a basic banking 'nofrills' account either with 'nil' or very low minimum balance as well as charges that would
make such accounts accessible to vast sections of population. Banks are to offer a Basic
Savings Bank Deposit Account with following features:

26

i. Not have the requirement of any minimum balance.

ii. Deposit and withdrawal of cash at bank branch as well as ATMs; receipt/credit of money
through electronic payment channels or by means of deposit/collection of cheques drawn
by Central/State Government agencies and departments;
iii. No limit on the number of deposits in a month, allowed a maximum of four withdrawals
in a month, including ATM withdrawals; and
v. Facility of ATM card or ATM-cum-Debit Card.
3. Above facilities are provided without any charges and no charge will be levied for nonoperation/activation of in-operative Basic Savings Bank Deposit Account.
3.1.2. SHG Bank linkage programme: The credit linkage of Self Help Groups (SHG) and
Joint Liability Groups (JLG) by Commercial Banks is one of the major initiatives to bring
low income people into the banking stream. The poor people come together and pool the
savings of group and dispense small loans for meeting the individual requirements of
member. Credit facilities by banks to these vulnerable sections of society under group
mechanism benefitted more than 7.96 million SHGs as on 31st March 2012. Commercial
Banks need to maintain focus on this issue and further strengthen SHGs to engage in
micro enterprises or income generating activities.
Women SHGs Schemes in Backward Districts: For greater financial inclusion and
empowerment of women, role of SHGs is very vital. It is observed that the progress of
women SHGs is very slow and there

are imbalances and disparities in the SHG bank

linkages in backward region across the states.150 backward districts have been identified
by Ministry of Rural Development, Govt. of India (list available in annexure-1) out of which
SBI has lead bank responsibilities in 72 districts. To assist women SHGs in these areas
Women SHG Development Fund has been created with corpus of 500 crores to
empower women and promote their SHGs. The project is being implemented by NABARD.
80 % of the allocated fund is earmarked for refinance on soft interest terms to eligible
agencies for financing new SHGs and to existing women SHGs which has opened SB
a/cs but have never availed any loan or cash credit facilities in the project areas. Refinance
is also available to banks for financing women SHGs for income generating activities with
fixed assets at soft rate interest for a period more than one year and less than three years.
27

Further, 20% of the fund is allocated for supporting promotion by NGOs of Women SHGs
in project areas at the rate of Rs, 10, 000/- per SHG.
3.2. Business Correspondent (BC)/Business Facilitator (BF) model:
This model is widely accepted by the Commercial Banks and the RBI. Under the BC
model, agents are appointed for offering banking services to excluded people of the
society both in rural and urban areas by the banks. These agents or intermediaries
generally work on commission basis. The BCs are either individual, proprietors of Kirana
shop, NGOs, MFIs, SHGs, Government Agencies like post offices, Corporates with large
and widespread retail outlets, etc. Many banks have fostered tie up with India Post and
Corporates like Bharti, HUL, etc. to build synergy for using mutual networks and services.
The activities permitted to be performed by the BCs include: Collection of small deposits,
disbursement of tiny loans under General Credit Card / Kisan Credit Card, receipt and
delivery of small value remittances, recovery of bad loans, selling of micro insurance and
pension products, etc. The Government of India also decided to adopt BC model for
payment of wages under Mahatma Gandhi National Rural Employment Guarantee Act
(MGNREGA) through the Electronic Benefit Transfer (EBT) method, payment of social
security benefits /direct subsidies, etc.
Business Facilitator (BF) model accelerate the process of banking by creating awareness
/facilitating the process among the poor and unbanked/under banked people. The BC/BF
model has been rolled out by many Banks and some Banks are in the process of upscaling the coverage. So far 1,41,136 BCs are employed by Commercial Banks as on
March 31, 2012. The model is in evolution stage and more fine tuning in terms of tools,
technologies, security, risk mitigation measures and cost factors need to be build up
through the experience and experiments.
3.2.1. Interoperability of BCs:-All financial Inclusion villages are covered either by
opening Bank branches or appointing Business Correspondents which provides banking
facility to customers in the village. The BCs have opened no frill accounts in all FI villages
and these accounts are operational. Transactions are being done by the villagers through
these BCs with the help of hand held machine of the BCs. All these hand held machines
are connected with CBS system of Bank .Different BCs use technology of different
28

Vendors which was causing problems of interoperability of transactions between one BC

and another BC and between a/cs of one bank and other banks BC. The Department of
Financial services, GOI, had taken up with RBI and NPCI the issue of interoperability at
the level of BCAs. Two Pilot Projects in Mewat District of Haryana and Bulandshahar
District of UP were implemented. RBI has issued guidelines relating to interoperability vide
its letter dated 02.03.2012. Based on these guidelines NPCI has also formulated the
Standard Operating Procedures for all member banks. Interoperability will enable a
customer of a bank to conduct transactions though BCA of not only his own bank but also
BCA of any other bank also. It will also ensure standardization of PoS devices and
procedures in transactions though the BC channel. This would also greatly benefit the
common man as he/ she would be able to transact through any BCA of any bank. Efforts
are on to convert Pilot into Production.
3.2.2. RFP FOR APPOINTING COMMON BC IN STATE: The Finance Ministry's
Department of Financial Services (DFS) triggered a sweeping reorganization of the BankBusiness Correspondent (BC) model in April; 2012.It suggested that India be divided into
20 clusters, each one of the cluster headed by one leader bank for appointment of
common BC in the cluster. A common BC is to be appointed for all public sector banks
operating in that geography (cluster). The DFS, GOI, said such a move would improve the
economics of the BC model .In the first RFP for Maharashtra, Vakrangee Finserve bid
0.48%.The second RFP, for Jharkhand and parts of Bihar, went to FINO, which bid 0.35%.
A couple of days later, FINO bid 0.19% for Chhattisgarh (excluding the districts of Jashpur,
Raigarh and Mahasamund).Bangalore-based Strategic Outsourcing Services has won
the tender to become the common BC for all public sector banks working in Orissa.In line
with the previous auctions, the bid amount for cash management costs was surprisingly
low -- the company won with its 0.11% bid. . Right now, almost all the BC companies in
India are in the red and viability of BC/CSP model is of major concern. The move,
however, has triggered fears that monopolies will be created in each cluster jeopardizing
the interest of financially excluded people. The news was received by bankers with tired
cynicism.

29

3.3. MFI Model: Micro finance Institutions are playing an important role in financial
inclusion by providing credit facilities to poor people through the network of SHGs / JLGs.
Non-Banking Finance Companies (NBFC) led MFI model is more aggressive in deepening
their products and expanding the reach. Within a short span of 5-7 years, the share of
NBFC led MFI is about 34% of the outstanding loan portfolio as against 58% of SHG-Bank
linkage model which is more than 18 years old. Proper regulatory mechanisms and risk
management tools are necessary for sustainable growth of these agencies. Microfinance
institutions offer financial services to underprivileged and impoverished communities. An
Increasing number of microfinance institutions (MFIs) are seeking non-banking finance
company (NBFC) status from RBI to get wide access to funding, including bank finance
due to exemptions granted to NBFCs licensed under Section 25 of the Companies Act,
1956, and which do not accept public deposits, from the purview of Sections 45-IA
(registration), 45-IB (maintenance of liquid assets) and 45-IC (transfer of profits to the
Reserve Fund) of the RBI Act, 1934 010 and engaged in microfinance activities.
In a joint fact-finding study on microfinance conducted by the Reserve Bank of India and a
few major banks, the following observations were made on MFIs & SHG-Bank linkage
programme: Some of the microfinance institutions (MFIs) financed by banks or acting as
their intermediaries or partners appear to be focusing on relatively better banked areas,
including areas covered by the SHG-Bank linkage programme. Competing MFIs were
operating in the same area, and trying to reach out to the same set of poor, resulting in
multiple lending and overburdening of rural households.
Many MFIs supported by banks were not engaging themselves in capacity building and
empowerment of the groups to the desired extent. The MFIs were disbursing loans to the
newly formed groups within 1015 days of their formation, in contrast to the practice
obtaining in the SHG Bank linkage programme, which takes about six to seven months
for group formation and nurturing. As a result, cohesiveness and a sense of purpose were
not being built up in the groups formed by these MFIs.
Banks, as principal financiers of MFIs, do not appear to be engaging them with regard to
their systems, practices and lending policies with a view to ensuring better transparency
and adherence to best practices. In many cases, no review of MFI operations was
undertaken after sanctioning the credit facility. Recently, microfinance has come under fire
30

in the state of Andhra Pradesh due to allegations of MFIs using coercive recollection
practices and charging usurious interest rates. These charges resulted in the state
government's passing of the Andhra Pradesh Microfinance Ordinance on October 15,
2010. The Ordinance requires MFIs to register with the state government and gives the
state government the power, suo moto, to shut down MFI activity. A number of NBFCs
have been affected by the ordinance, including sector heavyweight SKS Microfinance.
Other grass root organizations like NGOs and Primary Agricultural Co-operative Societies
(PACs), can play the vital role in offering microfinance services. These agencies can
supplement and expedite the work of financial inclusion.
3.4. Primary Agricultural Credit Societies (PACS):
There are nearly one lac Primary Agricultural Credit Societies (PACS) with membership of
over 14.50 crore, located in the rural hinterlands of the country. PACS are ideally suited to
provide a comprehensive range of services like savings, credit, insurance and remittances
to their clients, provided there is a workable tie up with the higher tier cooperative banks.
Thus, their role in financial inclusion cannot be underestimated. Consequent upon
implementation of the recommendations of Vaidyanathan Committee, many PACS are well
poised to take up viable business activities. On realizing their importance, a few States
have started utilizing their services for all activities related to agriculture. In a few states,
PACS have started extending remittances, insurance, etc. NABARD has started
supporting PACS for computerization. It would be, therefore, feasible to have CBS for
integration of technology based inclusion models for PACS as well. The model would also
improve the viability of these institutions.
3.5 Post OfficesEmerging Institutions for Financial Inclusion:
The Expert Committee on harnessing the India Post Network on Financial Inclusion came
up with a wide range of recommendations on the role of post offices in financial inclusion
by entering into partnership with Banks, upgrading the technological infrastructure,
modernising transaction platforms, developing low cost small ticket remittance
mechanisms and facilitating electronic fund transfers. The Committee also recommended
for are view of the role of post office as an agent of GOI and to enable the institution to act
as its own account in the financial inclusion space. India Post, with a network of more than
1.55 lac post offices mostly in rural areas is in the process of getting Cabinet approval for
31

Bank linkage. Since post offices already accept deposits, converting into a full-fledged
bank branch may be quite feasible. The department proposes to acquire ATMs in a bid to
modernize its operations. India Post is reportedly finalising tie up with various banks. Some
banks have already forged partnerships with post offices for expanding their outreach. SBI
and India Post have entered into a partnership in which, postmen will act as BCs for SBI in
more than 12,000 villages. Progress made so far is not up to the mark.
3.6. Information, Communication and Technology (ICT)
Recent

innovations

and

development,

happened

in

the

fields

of

Information,

Communication and Technology (ICT), can be harnessed to speed up the process of

financial inclusion and achieve higher levels of scalability for operation.
The Information and Communication Technology (ICT) on which the Financial Inclusion is
riding today are:
Short Message Service (SMS), Unstructured Supplementary Services Delivery (USSD),
Wireless Application Protocol (WAP), General Packet Radio Service (GPRS), phonebased
applications such as Java (J2ME)/Binary Runtime Environment for Wireless (BREW),
Subscriber Identity Module (SIM) - based application, and Near Field Communication
(NFC).
All these technologies are basically distributed systems which can be seamlessly
onnected to the Core Banking Database of the banks for on-line, real-time, remote
transactions and generate flawless MIS for the end users.
Some of the technology platforms used by the Banks are as under:
i. PoS (Point of Sales) based biometrically enabled Smart Card
ii. Kiosk Banking: Kiosk Banking consists a computer connected to the banking system
through the internet, a camera and scanner cum printer. Customer transactions like
opening of accounts, cash deposit and withdrawl are permitted through biometrics
validation.
iii. Bank Link to hand hold devices, mobile phones, internet based solutions, etc.
iv. Cell phone based messaging system or any other technology platform accepted to the
appointing Bank.
32

Financial institutions need to build up ties with the technology solution providers, mobile
operators, vendors, NGOs, etc. to integrate the tools of technology with the Banking
system to leverage on its capabilities. While adopting the technology, it is needed to verify
that it should conform to the security, audit and accepted standards.
3.7 Unique identification (UIDAI) project: Aadhaar
In its vision document for financial inclusion, the Unique Identification Authority of India
(UIDAI) has proposed a bank account for everyone in the country. The Thirteenth Finance
Commission has proposed a budget of Rs.3,000 crores to be used for delivering an
incentive of Rs.100 into the bank account of each BPL resident who enrolls for a UID. This
creates a pan India demand for lightweight bank accounts. Bank should actively position
itself to offer a low cost No Frill bank account to anyone enrolling for a UID. The 12 digit
Aadhaar number which has been provided by UID project is a very cost effective way in
reaching to vast group of so far financially excluded society.

33

CHAPTER 4: TECHNOLOGICAL INTERVENTION UNDER

FINANCIAL INCLUSION BY SBI
Contents: Various ICT tools like ATM, Mobile Banking, PoS & Smart card model, Kiosk
Banking, etc.

4.1

Leveraging Technology For Financial Inclusion

With an objective of providing a viable and cost effective banking service at the door step
of the financially excluded group, banks in India have adopted a branchless banking model
called Customer Service Points (CSPs) which are manned by Business Correspondents
(BCs). The CSPs are low cost and technology enabled alternate delivery channel that
facilitate basic banking services to the rural communities at their doorstep at an affordable
cost. It facilitates customers to transact from their villages and at their convenience
depending upon their need.
4.2

Technology and Financial inclusion in SBI

Basically there are three different technology enabled financial inclusion models adopted
across the banking system and also in State Bank of India. These are Point of Sale
terminals (POS), Internet enabled PC Kiosks and Mobile messaging system. The front end
in all these cases is manned by Business Correspondents (BCs). The front end system is

POS & SMART CARD

CELL PHONE MESSAGING

INTERNET KIOSK

VENDOR-

VENDORS
SERVER

CBS
GATEWAY

SBI KIOSK
BANKING
SERVER

34

CORE BANKING SYSTEM

TECHNOLOGY ENABLERS

CUSTOMER SERVICE POINTS

integrated with the 24x7 CBS system through certain intermediate server.

4.2.1 POS and SMART CARD Model

A POS and smart card model is a branchless banking model which facilitates opening of
accounts and financial transactions. A smart card is a wallet sized card with an electronic
chip designed to store information relating to the customer. A POS (Point of sale) is a
device with the CSP, capable of reading a smart card. National level BCs like FINO
(Financial Inclusion Network and Operations), and ZMF(ZERO Microfinance and Savings
Support Foundation) are leading service providers of this integrated technology platform
to enable sourcing and servicing of customers under financial inclusion. The working of
ZMF model is explained below:
4.2.2

The Service Provider

ZMF is a Company incorporated under Section-25 of Companies Act 1956. It acts as a BC

of State Bank of India and many other banks in India for extending their outreach in
villages where there is no bank branch. ZMF recruits and trains village based operators to
work at the CSPs.
A Little World (ALW) manages front-end technology and back-end systems with 24x7
centralized data Centre operations. It provides a variety of services including opening
accounts, capturing fingerprint and photo with the help of mobile phones, end-to-end
security and key management, biometric de-duplication, end-to-end account management
system with the option of connectivity to any Core Banking system, multi-mode
communications gateway and switch, card Issuance and card management (photo-ID /
smart cards), a variety of transaction options at front end, reporting and predictive Cash
Management System.
4.2.3 Hardware requirements
1. Mobile phone with Public Key Infrastructure (PKI) security.
2. POS with fingerprint scanner and printer (integrated or as separate units).
3. Smart card with magnetic strip (contact card) or smart card with Radio Frequency
Identification (RFID) also called as a contact less card.
4. Alternatively a plain plastic card without any magnetic strip or RFID.

35

The mobile phone

acts as a core bank branch and capable of storing up to 50000

customer account details like complete customer ID, photograph, 4 or 6 Fingerprints each,
multiple account types and 5 years of transaction history for multiple transaction types. The
system can work both online and offline and synchronization with their data

server

happens using GPRS. The system has up to 2 GB local memory to store offline
transactions. There is provision of voice Prompts and local language voice overs during
transactions or enrollment.
4.2.4 Transactions supported
The system supports multiple applications which include Identification or authentication
through biometrics, cash deposit, cash withdrawals, NREGA or pension disbursals, EBT
payments, micro savings (no frills a/c), micro credit, micro insurance, cashless payments,
utility payments, SHG utilities, loan disbursals, loan repayment etc.
4.2.5

Enrollment process- Government beneficiaries

1. The Government makes available the list of target areas and beneficiaries for
disbursement of Wages or EBT payments. The names of the areas are entered in
the enrolment system for Standardization. Generally the standard is the name of the
location as per the Census data or as provided by the Government. The data is
imported into the enrolment system after due validations for the various mandatory
fields like NREGA ID, Location name etc.
2. Pre-Printed Account Opening Forms are generated by the enrolment System of
ALW from the above data containing name, address, Pin Code, fathers name, age,
date of birth, Sex etc which are mandatory for opening of an account in the Bank,
unique government ID or NREGA ID , a unique Zero Serial Number ( ZSN) / Form
ID. The ZSN -form ID combination is paired with an algorithm to ensure uniqueness
of the combination across the platform. The application form is accompanied with a
detachable laminated non-photo card bearing the personal details of the beneficiary
along with the ZSN.
3. These Forms are sent to the CSPs for the target beneficiaries in their areas. The
CSP carries out the enrolment, captures the bio-metric profile, the photograph and
any other additional information provided by the customer which might not have
appeared in the Government Data.
36

CSP uploads the securely encrypted enrolment data to their back end server
through GPRS. The ZSN or Form ID remains the common reference between the
front end and the back end.
4. The uploaded data is processed in the enrolment system with validation for the
mandatory requirements of the bank. Electronic data files in the pre-defined and
mutually agreed formats are created and sent to the bank through a secured
protocol as decided by the bank. In case of SBI these files are sent to the Dedicated
Accounting Unit (DAU) of the Bank through Secured File Transfer Protocol
(SFTP).The physical account opening forms are sent to Link branches (LBs) or
Financial Inclusion Centers (FICs). Accounts are opened by the bank in CBS using
file upload utility. File upload is done by the respective LBs or FICs after verifying
the data with physical account opening forms for compliance to KYC norms. The
bank sends to ALW the account number and customer ID of each of the accounts
opened in CBS. ALW imports the account number and customer ID into the
enrolment system against each ZSN for which account creation files were sent to
facilitate card production.
4.2.6 Enrollment process- Other Customers
1. Blank Account Opening Forms are sent to CSPs. On the basis of the information
from the customer, CSP fills up the forms. CSP also captures the biometric profile
and the photograph of the customer on the mobile. CSP uploads the mobile
enrolment data on their back end server through GPRS. The physical account
opening forms are handed over to the field executives of the business
correspondent (BC). The BC arranges for data entry in a data entry software user
interface provided by ALW. The data is uploaded securely to the ALW enrolment
system. The GPRS uploaded data for the ZSN/Form ID combination is also
imported into the enrolment system to form a complete enrolment record for each
customer.
2. The uploaded data is processed in the enrolment system with validation for the
mandatory requirements of the bank. Electronic data files in the pre-defined and
mutually agreed formats are created and sent to the bank through a secured
protocol as decided by the bank. In case of SBI these files are sent to the Dedicated
37

Accounting Unit (DAU) of the Bank through SFTP (Secured File Transfer
Protocol).The physical account opening forms are sent to LBs or FICs. Accounts
are opened by the bank in CBS using file upload utility. File upload is done by the
respective LBs or FICs after verifying the data with physical account opening forms
for compliance to KYC norms. The bank sends to ALW the account number and
customer ID of each of the accounts opened in CBS. ALW imports the account
number and customer ID into the enrolment system against each ZSN for which
account creation files were sent to facilitate card production.
4.2.7 Card Production system
All accounts that have been opened are processed for card issuance in the card
production system. All eligible records are extracted from the enrolment system and sent
for printing of cards. In case of Smart Card, after printing these are individually
personalized electronically. After printing and electronic Personalization, the cards are
dispatched. Once the Card is dispatched the details of the account and the card are
imported into the transaction system to facilitate transactions.
4.2.8 Transactions through smart cards
1. At the beginning of the day the CSP downloads the customer details of the new
customers and the balances from their server where there have been transactions.
2. At CSP, the customer touches or swipes the smart card at POS terminal and the
transaction menu is displayed.
3. CSP enters the type (deposit or withdrawal) and amount in the Transaction menu.
4. Finger print validation is done through the finger print reader if it is a withdrawal
transaction. No validation is required for a deposit transaction.
5. On successful validation, CSP gives cash to Customer.
6. After the cash is handed over (withdrawal) or taken (deposit), CSP prints 2 receiptsone for the customer and the other for transaction records.
4.2.9 Transactions through plain plastic card
1. At the beginning of the day the CSP downloads the customer details of the new
customers and the balances from their server where there have been transactions.

38

2. When a customer approaches the CSP and provides the ZSN, CSP retrieves the
customer photo and account details and navigates to the transaction Menu.
3. CSP enters the type (deposit or withdrawal) and amount in the Transaction menu.
4. Finger Print validation is done through the finger print reader if it is a withdrawal
transaction. No validation is required for a deposit transaction.
5. On successful validation, CSP gives cash to Customer.
6. After the cash is handed over (withdrawal) or taken (deposit), CSP prints 2 receiptsone for the customer and the other for transaction records.

The special features of the channel are Biometric authentication and functioning both
online and offline.
4.3

Kiosk Banking:

Under Kiosk Banking model stationary locations at remote places enroll and service
customer through internet accessing the customer accounts on core banking platform of
the bank.
4.3.1 The Service Provider
A social enterprise - Geosansar, Oxigen Services India Pvt Ltd., and other Individual
BCs who do not have their own technology or technology partners are the front end
service providers called Kiosk Operators (KOs) at the CSPs. There is no outside
technology vendor for Kiosk banking channel. The technology has been developed in
house. The front end kiosk operation is integrated with 24x7 CBS data Centre.

39

4.3.2 Required Components

1. A simple PC with web camera / digital camera and speakers.
2. Internet connectivity.
3. Finger print scanner.
4. Printer.
4.3.3 Transactions supported
The Kiosks provide a variety of services including Customer Creation, opening accounts,
capturing fingerprint and photo with the help of webcam, issuing identity card etc. They
also support transactions like cash deposit, cash withdrawal, balance Enquiry, statement
of account and fund transfers. The KO can also capture the signature of the customer
during offline customer creation. The transactions are voice prompted which explains or
confirms transactions to customers in local language.
4.3.4

Enrollment Process

1. The KO uses a simplified account opening form from the customer. The KO enters
the customer details captures the finger print (using scanner) and photo (using the
web camera) in the system. Documents as per the liberalized KYC norms are also
collected during this process. On successful uploading of customer information, the
system generates a reference number and acknowledgement receipt.
2. KO submits physical account opening form to the LB or FIC for verification. The
data captured at the KO is also sent to them for verification with the particulars in
the physical account opening forms. The file is uploaded in CBS by the LB or FIC
for creation of CIF and opening of savings bank account with zero balance making
the LB as the home branch.
3. The KO, using the reference number already generated for the customer, logs into
the Kiosk application and prints Identity Card for the customer.

40

Transaction process
1. For conducting any transaction, the customer needs to visit the kiosk along with the
identity card.
2. The kiosk operator logs into the system using his own ID which is password protected
and biometrically verified.
3. The transactions take place only after successful validation of the customers fingerprint.
4. The transactions are supported by voice prompt which explains it to the customers in
local language.
4.3.6 Special features
The special features of the channel are Biometric authentication, KO validation for Media
Access Control (MAC) ID which is unique for a network adapter, online-real time
transactions, Cost effective and no dependency on technology vendor. It also supports
transactions in non-kiosk accounts.

4.4 STATE BANK MOBICASH MOBILE WALLET

State Bank Mobi Cash is a pre-paid Mobile Banking based Application for consumers who
would like to have facilities like money transfer, cash payments, mobile top ups etc on their
Mobile.
Usable Anytime, Anywhere! These services are available at your finger tips, beyond
regular banking hours, along extra ability to make other bill payments.This application has
been developed by Oxigen, for the State Bank Of India.Oxigen Services(India) Private
41

Limited has signed up with State bank of India to provide the State Bank Mobi-Cash
service and customer enrolment for virtual/mobile prepaid accounts to enable consumers,
for make payments for goods and services, remittances via the State Bank Mobi-Cash
application, and cash in/ out at Oxigen customer service point.
As Oxigen, Sahyog Microfinance and SBI have already tied up for providing SBIs Kiosk
Banking solutions through Oxigens CSPs and Oxigen has appointed 2,000 CSPs across
India, this network will also be available for State Bank MobiCash services.
A State Bank Customer can visit any of the Oxigen CSPs and can get the following
facilities

Opening of State Bank Mobi-cash wallet (With KYC),

Cash Withdrawal/ Cash out from wallet

Cash Deposit/Cash in to wallet

What Services will State Bank Mobi-Cash provide?

Cash Deposit

Cash Withdrawal

Transfer from wallet to wallet

Transfer from wallet to SBI bank account

Transfer from wallet to another bank account

Mobile/Utility Payments

Prepaid Mobile/ DTH Recharges

What Benefits does the CSP get?

Earning on New Account Activation

Earning on Cash Withdrawal

Earning on Cash Deposit

42

What Benefits does the Customer get ?

Now the Mobi Cash user has a unique mobile pre paid bank account, with which they can
make Banking transactions at their fingertips from whatever location they are. A MobiCash user need not visit the retailer for any service other than Cash in and cash out .No
standing in long Queues, No wastage of time, Quick & Real time transactions, fully secure,
Anytime, Anywhere Banking, and the ease of making payments on the go, which really
means they have the benefit of Extended banking hours too.
Facilities to Customer :

Easy Cash deposit into MobiCash Account

Cash Out ability at all appointed CSP Oxigen Outlets

MPIN Change Facility

OTP (One Time Password) Generation for Cash Out

Peer to Peer Money Transfer (Mobile wallet to Mobile wallet)

Domestic Fund Transfer (Mobile wallet to SBI/ Other Bank Account)

Facility of Instant Mobile Top-Up / DTH Payments and Bill Payments

Easy Balance Enquiry / Mini Statement

Easy Blocking / Unblocking of Mobile Wallet

Now the Mobi Cash user has a unique mobile pre paid bank account, with which they can
make Banking transactions at their fingertips from whatever location they are located. A
Mobi-Cash user need not visit the retailer for any service other than Cash in and cash out
.No standing in long Queues, No wastage of time, Quick & Real time transactions, fully
secure, Anytime, Anywhere Banking, and the ease of making payments on the go, which
really means they have the benefit of Extended banking hours too.
How to enroll as Retailer for this service?
Individuals need to enroll with Oxigen as an Customer Service Point(CSP) by submitting
the application form along with acceptable KYC documents.

43

What is the CSP responsibility?

CSP will open customer account :

By providing customer the AOF(Account Opening Form)

Collecting, Checking & Completing the AOF filled in by customer

Collecting KYC and Processing Fee

Completing Documentation in the Banking system (information is uploaded on O2

portal)

Allocating a Tracking number to Customer

Once KYC is accepted by SBI, CSP will assist Customers for the following services
through web vending and POS on behalf of customer

4.5

Cash withdrawal

Cash deposit
CELL PHONE BASED MESSAGING:

4.5.1 The Service Provider

The CSP in this case is EKO which has a cloud based Core banking system with a mobile
phone front end to facilitate transaction. The system is based on MIFOs open source and
the implementation partner is WIPRO.
4.5.2 Required Components
1. Ordinary mobile handset capable of sending simple SMS text messages.
2. OkeKey which is a numeric key attached to the account for secure transaction
4.5.3 Transactions supported
Cash deposits, Cash withdrawals, balance check and transfer transaction from personal
account to another persons account (P2P) transfer. Since the deposit and withdrawal
transactions involve cash, they require the intervention of the CSP. Balance check and
P2P transfer do not require such interventions. The other transactions supported on the
customers mobile are mini account statement, money transfer retrieval list, PIN Change,
registration of new Okekey Booklet etc.
44

4.5.4 Enrollment Process

1. Customer walks to the EKO Counter to enquire about the service. CSP explains the

service with the help of a comic and leaflet.

2. Customer provides one photograph, an ID proof and an address proof.
3. CSP fills a Mini account opening form and attests the form, customers documents

& photograph and dials from his phone to open customers account.
4. A confirmation Message is received both on the mobile of CSP and customer with a

request to the customer to register the okekey booklet which is given at the time of
account opening request.
5. After preliminary scrutiny, the application forms are segregated, LB-wise the data is

captured. The data reaches the LB as well as the physical account opening forms.
6. The file is uploaded in CBS by the LB for creation of CIF and opening of savings

bank account with zero balance making the LB as the home branch.
4.5.5 Transaction process
1. The customer can only conduct deposit and withdrawal transactions till such time
that the account opening form is verified and reaches the LB.
2. The customer receives a message once his KYC has been completed and on
receipt of a confirmation that P2P money transfer services are enabled.
3. For any transaction happens in an account, both the sender and the receiver get a
confirmatory SMS.

4.5.6 Special features

The special features of the channel are 3 level security checks Mobile number, okekey &
PIN. Besides, there is no additional cost of acquiring POS, internet connectivity, PC-kiosk
and fingerprint scanner.
45

4.5.7 Products and coverage

The range of products made available through technology channels in SBI are Savings
Bank, Recurring Deposit, Remittance, Saving-cum-Overdraft and, SB Tiny Cards to SHGs.
All these channels put together have enrolled approximately 60 lacs customers.
4.6

ATM-BASED SOLUTION

ATMs are limited in the scope of transactions that they can handle, especially in rural
areas. The issues around deployment of ATMs are:
Cost of maintenance of the ATM such as refilling cash, ATM maintenance and ATM
security is high, given the distribution.
ATMs solve the problem of time of access, but the cost of the ATM installations works
against a large scale deployment.
The customer segment is not very digitally savvy, and remembering PIN numbers for
ATM access is a hassle. This has a negative impact on customer experience and also
increases the cost of customer maintenance with the additional load on PIN management.
Banks have sampled the use of biometric ATMs which are installed in vehicles. These
mobile biometric ATMs were successful in solving issues of reach and security but the cost
of maintenance remained quite high and hence the model was not very successful.
Several new-technology ATM devices have been designed to improve financial services
in rural and remote areas so that even the illiterate customers in unbanked areas can avail
ATM facilities. They include biometric, mobile and micro-ATMs.
Financial viability is the key to success for any business model. It is believed that the
technology enabled models adopted by Indian banks are neither viable for the CSPs nor
for the Banks as of date. Sustenance of this model in Indian Financial inclusion will depend
on the volume of transactions and profitability on the long run. Generation of a good
business ground by the beneficiaries will decide the winners and losers.
=====================================*********================================

46

CHAPTER 5: FINANCIAL INCLUSION- PRODUCTS &

SERVICES IN SBI
Contents: Small accounts, SBI TINY, Savings cum OD, RD, SBI Tatkal, Financing to
SHG/JLGs, GCC, Krishak Uthan Yojana, etc.
5.1 STATE BANK SARAL MONEY
Objective:
Tap the unbanked/ un-carded consumer & provide a superior/alternative to receive and
make payment vis--vis cash. Enabling Aadhaar authenticated payments with open loop
Visa prepaid cards.
General Purpose Reloadable prepaid card to be used at any of the Interoperable BC
outlets besides being accepted at all Visa accepting ATMs and merchants.
Description
Eligibility
Card Type
Currency of Issue
Minimum amount of Issue
Cards per person
Maximum amount.

Loading / top up options

features
Any individual with an Aadhaar Card can avail
the Card.
Visa powered Prepaid Cards.
Indian Rupee only.
Rs. 100/One
Rs. 50,000/I. the aggregate of all loads in a financial year
should not exceed Rs. 1,00,000/-.
II. the aggregate of all withdrawals and transfers
in a month should not exceed Rs.10,000/-.
III. the value of the card should not exceed Rs.
50,000/- at any point of time.
The card can be loaded/ reloaded at:
a) Selected State Bank branches.
b) Other Bank Branches/ Business
correspondents, which are members of Aadhaar
Saral Money programme.
(subject to balance not exceeding Rs. 50,000).

47

Card
Acceptability

a) Can be used at selected State Bank branches

having the Micro
ATMs & other participating Bank BC/ branch
having Aadhaar logo, for fund deposit, cash
withdrawal, etc,
b) Can be used (free of cost) for purchases at
any merchant location accepting Visa /
MasterCard Cards (both in stores and online)
c) for cash withdrawals at any State Bank Group
ATMs (free of Cost) and other Banks ATMs (at a
charge).

Balance enquiry

Cardholder can view the balance free of cost at

any State Bank Group ATM in India and also
online at www.prepaid.onlinesbi.com
Alternatively he can go to selected State Bank
branches having the Micro ATMs & other
participating Bank BC/ branch having Aadhaar
logo for Balance enquiry.

Daily Cash withdrawal limit.

Minimum: Rs. 100/- and

Maximum: Rs. 10,000/-.

Daily Point of Sale/ Online

Transaction Limit

Rs. 10,000/-

Domestic / International
Card Validity
Refund / Cancellation.

Domestic use only

5 years
Once card is expired or surrendered the unspent
/ unutilised amount will be refunded only to the
Cardholder.

5.2 Opening of "Small Account"

The definition of small account as communicated by RBI/GOI is applicable to the
accounts enrolled by Business Correspondents/CSPs and need to be conducted and
monitored as per para (b) of the GOIs notification No. 14/2010/F.No.6/2/2007-ES.
As per the revised definition, apart from the threshold fixed for aggregate credits in a year
and maximum balance that is permissible in such accounts, the aggregate of all
withdrawals and transfers in a month should not exceed Rs.10000/- in such accounts.

48

Further the revised procedure to be followed in opening such accounts inter alia includes
the following conditions:
I)

Foreign remittances shall not be allowed to be credited into a small account

unless the identity of the client is fully established through the production of
officially valid documents.

II)

A small account shall remain operational initially for a period of twelve months,
and thereafter for a further period of 12 months if the holder of such an account
provides evidence before the banking company of having applied for any of the
officially valid documents within 12 months of the opening of the said account,
with the entire relaxation provisions to be reviewed in respect of the said account
after twenty four months.

5.3 SBI TINY SAVINGS BANK ACCOUNT

 Customer visits Customer Service Point (CSP) outlet of Bank appointed Business
Correspondent ( BC )
 Completes the account opening form with the assistance of the CSP
 Customer provides required KYC details
 For amounts less than Rs.50,000, the KYC details are verified in line with RBI
guidelines laid down for No Frills accounts and the CSP authenticates these
details on the account opening form.
 With the help of enrollment software, the CSP captures fingerprints (as required),
photograph and copy of account opening form.
 These details are saved in a CD/DVD depending on the number of accounts which
have to be opened. The CD/DVD contains in addition to biometric data, the
personal bio data of the customer and the type of account to be opened. The
CD/DVD is sent to the Back Office of the Front End vendor on the same day. The
hard copy of the account opening forms is sent by the CSP to the Link branch of the
Bank.
 The Back Office of the Front end Vendor converts the data received from the CSP
into the bulk upload format given by CBS after attaching a unique identifier to each
account and sends the file to the Dedicated Accounting Unit ( DAU ).
 DAU routes the bulk uploads to the Link Branch.
49

 The Link Branch verifies the particulars in the upload file received from DAU with
the physical account opening forms and uploads these files ( after editing if
required) by using the interface provided by CBS. The Financial Inclusion account
namely the SBI Tiny SB A/c gets opened in CBS.
 An electronic extract of all accounts thus opened containing the account numbers,
is sent to DAU which forwards the particulars to the Front End vendor.
 The front end vendor after personalization despatches the smart cards to the CSPs
for handing over to the customer after verification of finger prints. A list of all the
new smart card numbers issued along with name of the customer, account number ,
fathers/ husbands name , address and CBS account number is sent to the CSP( 2
copies). A copy of this list is also sent to the DAU for maintaining the master at their
end as well as to the Link Branch for its record.
 The CSP, on receiving the personalized cards, enters the details in a register and
hands over the cards to the customers after finger print verification . He will also get
the acknowledgement of the customer in the register maintained for this purpose.
5.4 SB- CUM- OD PRODUCT ON KIOSK BANKING CHANNEL
Kiosk Banking, an internet based technology initiative rolled out by the Bank for financial
inclusion, provides the facility of SB and RD account opening, cash in, cash out and
remittance product to customers.
With a view to provide the facility of micro credit to FI customers, a product has been
developed where customers enrolled in the channel can avail of overdraft in their saving
Bank account on meeting a few eligibility criteria. The facility is sanctioned at the Branches
and serviced at BC/ CSP outlets engaged by the Bank.
The salient features of the product for Kiosk Banking channel are as under:
i.

Purpose: General purpose loan to provide hassle free credit to low income
group/ underprivileged customers to meet their exigencies without insistence on
security, purpose or end use of the credit.

ii.

Eligibility: Individuals having SBI tiny a/c (Savings Bank a/c) for the last 6
months and have not availed KCC from any branch.

50

iii.

Loan amount: 4 times of monthly average balance (15th day of the month) of
preceding 6 months in SB account or equal to 4 months net income assessed by
link branch, whichever is higher with a minimum of 1000/- and maximum of
25000/-.

iv.

Interest: 6.25% over base rate per annum at monthly rests on debit balance in
the account.

v.

Repayment: Repayable in 24 equated monthly installments with auto reduction

in DP.

vi.

Sanctioning authority: Loan amount is sanctioned by the respective link branch.

vii.

Security documents: DP note (COS-229) and DP note delivery letter,

Arrangement letter.

viii.

Other features:
It is a clean OD and no security is insisted on.
Auto reduction in drawing power every month.

The process flow for the product in Kiosk Banking channel will be as under.
I.

Customer visits kiosk outlet and submits the loan application form (as per the
standard format) along with KYC documents.

II.

Kiosk operator (KO) after verification of customer finger prints, checks the
particulars of the SB account through the OD enquiry menu. He/ she forwards
the completed application to the link branch for processing and advises the
customer to visit the kiosk after 7 days from the date of submission of completed
application.

III.

The link branch will dispose the loan application within 5 working days of receipt
of the application and advises the KO about sanction / rejection of the loan
application by sending sanction / rejection letter in duplicate. The branch will
assess OD limit as per the laid down norms i.e. 4 times of average balance of
last 6 months in the account and 4 times of net monthly income assessed by the
branch, whichever is higher.

IV.

On sanction, the branch will send sanction letter indicating the date of execution
of documents to the KO. The KO will deliver one copy of the sanction letter to
the customer under acknowledgement and advises the customer to visit the link
51

branch on the date as advised by the link branch for execution of documents.
The KO forwards the acknowledged copy to the link branch for keeping it with
the documents.
V.

On execution of the documents, OD limit will be set up in the SB account in

CBS. The customer can operate his account within the available drawing power
at CSP.

5.5 SBI TINY RECURRING DEPOSIT

The Bank has rolled out Kiosk Banking channel which is operable through BC CSP model
on internet platform with biometric authentication. The channel was introduced with
savings bank and remittance products. Now, a new product- SBI Tiny Recurring Deposit
has been launched on the Kiosk Banking channel. The features of the product are as
under:
Eligibility: The existing SBI Tiny Savings bank account holder is eligible to open SBI Tiny
Recurring Deposit a/c.
Mode of operation: single Initial deposit amount: Minimum .10/- (Initial deposit and
subsequent deposits to RD account are by way of transfer from customers SB account
only.
Monthly instalment: No fixed instalment. Any amount can be credited to the account.
Multiple deposits can also be made in the account during a month.
Tenure: Fixed period of 36 months
Rate of Interest: As applicable to a three year time deposit as on the date of opening of
account. Interest is calculated on month end balances and compounded every calendar
quarter.
Pre-mature payment: Interest will be paid @ 1% less than the interest applicable on the
deposit for the period for which the it has run.
Nomination: Nomination is compulsory
Other features: No penalty is imposed for non-payment of any amount in the account. No
passbook is issued. Mini statement with the last ten transactions is issued at the request of
customer.
52

The RD accounts are opened instantly based on the existing demographic details available
in CBS, at the request of customers submitted at BC / CSP. No action is required at the
link branch level. However, the link branches will keep custody of account opening
requests for RD accounts received from BC / CSP.
5.6

SBI TINY SPECIAL TERM DEPOSIT

SBI Tiny special Term Deposit has been introduced for financial inclusion customers in
BC channel.
Salient Features:
1
Eligibility

Single Individual holding Savings Bank Tiny FI

account

Mode of Operation

Single operation only

Available at

BC / CSP / KO outlets of the Bank

Rs 1000/- thereafter in multiple of Rs 500/-

Minimum Deposit
amount
Maximum Deposit
amount
Tenure of Deposit

Rate of interest

As applicable to STDR accounts in CBS from time to

time for normal as well as senior Citizen customers.

Mode of transaction

Single through BC channel only. However on the

request of the customer for converting into joint
account the branch may create new CIF and link to
existing account.

Facility of premature
withdrawal

Available. Penalty as applicable in branch channel for

normal branch customer. Payment before maturity
request will be sent to the link branch.

10

Number of accounts

Multiple accounts may be allowed subject to the

ceiling of max balance of Rs 50,000/- in all the liability
accounts of the customer.

11

Operation of the
account and applicable
charges

STDR acknowledgement will be printed and issued by

the Link Branch. CSP will issue the printed receipt
generated from technology device after successful
transaction / receiving deposit amount form the
customers.

12

KYC Norm

s As laid down by RBI for No Frills Account

Rs 10,000/6,12, 24 & 36 months only

53

5.7. SBI TATKAL:

Tatkal is an instant money transfer service that allows customers to deposit cash into any
regular SBI branch based account at all existing Eko-SBI customer service providers2
(CSPs) in Delhi, Bihar and Jharkh and the recipient only needs to have a SBI account for
Tatkal to work. The customer is charged a flat Rs. 25 fee per transaction with a limit of
Rs.10,000 per account per day.
It is a simple two step process.
Step 1: A customer visits the CSP with the cash to be deposited. The CSP dials a USSD
(Unstructured Supplementary Service Data) numeric string from his mobile phone to
register the 11 digit account number - *543*11 Digit SBI A/c Number*Depositor Mobile
Number*Receivers Mobile Number (optional)#.
Step 2: The CSP dials another USSD string to deposit money into the SBI A/c registered *543*11 Digit SBI A/c Number*Amount*CSP OkeKey with PIN#.
Once the transaction is completed the sender and the recipient receive a confirmation
SMS on the mobile number(s) registered. Customers have to pay the service charge of Rs.
25 upfront.
User Profile
The target segment for this product includes migrant labourers, daily wage workers, selfemployed and small entrepreneurs working in the cities. Most customers use this service
for remittance purposes (by depositing cash in the recipients bank account), while others
use it to make deposits in their own account. Remittances are mostly for personal use, but
a small fraction also uses it to remit business payments. The average transaction size
ranges from Rs.2,000-5,500. Typically the services are used by customers on a fortnightly
or monthly basis.
5.8 Financing of Joint Liability Groups of Tenant Farmers
The scheme aims at the following objectives:
(i)

To augment flow of credit to tenant farmers cultivating land either as oral lessees
or sharecroppers and small farmers who do not have proper title of their land
holding through formation and financing of JLGs.
54

(ii)

To extend collateral free loans to target clients through JLG mechanism.

(iii)

To build mutual trust and confidence between bank and tenant farmers.

General features of JLG

A Joint Liability Group (JLG) is an informal group comprising preferably of 4 to10
individuals coming together for the purposes of availing bank loan either singly or through
the group mechanism against mutual guarantee. The JLG members would offer a joint
undertaking to the bank that enables them to avail loans. The JLG members are expected
to engage in similar type of economic activities like crop production. The management of
the JLG is to be kept simple with little or no financial administration within the group.
JLG Models
Model A Financing Individuals in the Group: The JLG would normally consist of 4 to 10
individuals. The group would be eligible for accessing separate individual loans. All
members would jointly execute one inter-se document (making each one jointly and
severally liable for repayment of all loans taken by all individuals in the group). Bank will
assess the credit requirement, depending on the crops to be cultivated, available cultivable
land and credit absorption capacity of the individual. However, there has to be mutual
agreement and consensus among all members about the amount of individual debt liability
that will be created.
Model B - Financing the Group: The JLG would consist preferably of 4 to 10 individuals
and function as one borrowing unit. The group would be eligible for accessing one loan,
which could be combined credit requirement of all its members. The credit assessment of
the group could be based on the available cultivable area by each member of the JLG. All
members would jointly execute the document and own the debt liability jointly and
severally. JLG is mainly a credit product. But if the members want to save through the
group, Bank can open saving account in the name of the JLG to
Credit Assessment
Model A:
The JLG would prepare a credit plan for its individual members and an aggregate of that is
submitted to the branch. The individual members of JLG would be eligible for the loan after
the branch verifies the individual members credentials.
55

Model B:
JLGs that undertake savings apart from credit are required to maintain books of accounts.
They may also be graded by banks on the basis of performance parameters. However, the
quantum of credit need not be linked to groups' savings as in the case of SHGs. The credit
requirements for the group may be worked out based on combined credit plan needs of
individual members.
5.9 KIOSK BANKING CHANNEL FOR SELF HELP GROUP
This product has been launched to provide facility to SHG groups to avail banking services
at kiosk-based CSPs which will facilitate the following:
 Service to the groups in the villages.
 Decongestion in link branches
 Inculcate the habit of thrift among SHG groups as well as their members as the
services will be offered at their places.
 Enhance coverage of rural populace under financial inclusion.
Salient features:
 Enrolment and A/c opening for Group (with full KYC) & Individual members at CSP.
 Linking of individual member to group account for relationship with group.
 Accounts are to be operated with biometric validation of two authorized signatories
as per the resolution of SHG.
 Cheque book for SHG, if required, will be issued by Link Branch.
 Signature of authorized signatories will be scanned and uploaded in the link branch.
 Loans in the form of CC/OD or Term loan to be sanctioned by the Link Branch as
per eligibility norms and disbursement at the BC/ CSP from saving bank account of
group.
 Maximum Transaction limit at CSP in a day Rs 2.00 lac
5.10 GENERAL CREDIT CARD
ELIGIBILITY
 All existing customers with the branch having satisfactorily conducted deposit
accounts including no frills deposit accounts in our books; say, for the last 6 months,
or so;
56

 All existing loan account holders where accounts are classified as standard assets
NATURE OF FACILITY
 Revolving credit
 GCC holder will be entitled to draw cash from the specified branch up to the limit
sanctioned
QUANTUM OF LIMIT
 Based on the assessment of income and cash flow of the entire household
 Total GCC credit not to exceed 20% of the eligible production limit for cultivators
and/ or 20% of Annual Income from known sources or Rs.25,000/- whichever is less
SECURITY
 No collateral security / end use / purpose should be insisted upon.
5.11 SBI KRISHAK UTHAAN YOJNA
Objective:
To provide easy access to short term production and consumption credit to meet genuine
requirements of tenant farmers, share croppers and oral lessees who do not have
recorded land records and where there is no written undertaking/ document available to
substantiate raising of crops by the tenant farmer/ share cropper/oral lessee. It will help
increase their income from agriculture production activities.
Purpose:
 To provide credit for purchase of various inputs for crop cultivation including irrigation
charges, electricity charges etc,.
 For meeting part of consumption needs and
 An additional support loan to tide over the adverse market conditions, if any, which
normally prevail during the harvest season can also be considered.
Eligibility:
 Landless labourers, share croppers, tenant farmers, oral lessees, (also covering oral
tenants & small farmers) having no recorded land records are eligible if the sanctioning
authority is sanguine of the applicant carrying on the activity, subject to production of
57

an Affidavit for cultivation of crops.

 Should have a permanent residential address proof & have been residing at the place
for at least past 2 years.
 Migratory tillers are not eligible under the scheme.
Identification:
The applicant must be from the area of operation of the branch and his/her identity should
be verified through one or more of the following sources:
i) Documents related to house of the applicant,
ii) Voters list/Identity card Or
iii) any other local document prescribed by the LHO concerned.
Limit: Upto Rs 1,00,000/- (maximum)
Limit will be calculated on the basis of:
 Land area to be cultivated and Scale of Finance applicable to the crops cultivated
inclusive of amount required for consumption needs, which should be capped at 20% of
the production limit.
 Another 20% of the production limit would be added for purpose of immediate needs of
the borrower after harvest of the crop by the borrower. . This will help the farmer to
avoid distress sale of their produce.
Margin: Nil
Application & Terms and Conditions: As applicable to KCC/ACC accounts
Documents:
I. DP Note (COS229)
II. DP Note take delivery letter
III. Arrangement letter
IV. Affidavit (as per annexure)
[Affidavit: Specimen of Affidavit drafted by the law Dept. Corporate Centre is enclosed as
annexure. This should be stamped as per stamp duty applicable in the State and should
be attested either before Oath Commissioner or before a Notary Public. The specimen
58

may be suitably modified considering the requirements of the State, in consultations with
LHOs Law Dept., if need be.]
Security: Clean Loan
Interest: As applicable to agriculture Cash Credit loan
Type of facility: Revolving cash credit Annual Review and renewal once in 3 yr.
Disbursement: 20% of loan amount on sanction. Remaining 80% amount will be
disbursed in phases only after satisfying that already released amount has been used for
the purpose for which it was disbursed. This can be done, by gathering information from
the borrowers of the same village.
Repayment: The sale proceeds should be routed through the cash credit account.
Sanctioning Authority: As per extant delegation of powers under agri segment for crop
loans / KCC loans.
Operation in the account:
i) Disbursements will be made in phases as per the requirements of the borrower for
raising crops.
ii) Withdrawal from the account will be through withdrawal slip as used for KCC.
iii) At the time of withdrawal and deposit, the beneficiary should present the passbook for
recording the transaction.
iv) Though drawls in the account are expected as per seasonality of the crops/sub limits,
yet, some flexibility may be allowed to enable the farmer to purchase inputs at
convenient times when availability/prices are favourable.
v) Submission of invoices/quotations should not be insisted upon, as borrowers use
limit/sub-limits on the basis of scale of finance.
Supervision and follow-up etc.: As applicable to KCC facility.
Accident Insurance: The account will be covered under Personal accident insurance
scheme (PAIS) as applicable to Kisan Credit Card.
Application of prudential norms: The prudential norms as applicable to crop loans would
apply to these accounts also.

59

CHAPTER 6: ISSUES AND CONCERNS

Structural and systemic issues, Volume of transactions, commission, technology issues,
etc relating to alternate Business Models.
There are various structural issues and operational aspects in implementation of FI. The
major aspects and issues are briefed in following paragraphs:
6.1

Lack of Commitment of the operating staff:

FI program of the commercial banks in India is in a stage of infancy and faces numerous
risks. Cassandras in the system are predicting its doom owing to deep fault lines which
currently exists. The biggest risk is that the field staffs of the commercial banks dont
share the values and belief that FI is the way forward towards rural prosperity and hence
greater volume of business and profitability for rural branches. Rangarajan Committee
Report (2008) also bemoans the fact that staff posted in rural areas nurse a negative
attitude towards the work they are involved in. FI objectives are reluctantly accepted as a
top down forced program. The success, therefore, depends on the ability of the system to
train its human resources and change their attitudes towards FI.
6.2

Long term financial viability

Banking system is required to commit large doses of financial resources without

compensating revenue streams in the short run. In the absence of any historical
precedence of such business model, system needs to pump in resources for technology,
capacity building and organizational structure in a fond hope that in the long term the
efforts will be rewarded as in business with long term gestation e.g. life insurance, power
projects etc. The situation is further complicated because FI program has multiple players
with complex relationships like policy makers, IT vendors, Bank branches, Institutions
providing BCs or individual BCs each searching for its own financial viability. To sustain
the momentum till volumes grow with suitable intervention on both demand and supply
side is a major risk.
6.3

Customer protection:

Dy Governor of RBI, Shri K C Chakrabarty in a recent speech (April 2012) emphasized

that the success of FI initiative rests on two pillars of Financial Literacy and customer
protection. Rural areas are widely spread and scattered. Most of the people in rural areas
60

are illiterate or neo-literate and are unaware of their rights as compared to their
counterparts in urban areas. These people are superstitious, gullible and vulnerable to
exploitation. Protecting their rights in their dealing with BCs providing financial services
requires strong customer protection policies and monitoring by the Banks.
6.4

Infrastructure and manpower:

Regional Rural Banks and Co-operative Banks which have local roots suffer from low
capital base and lack of professional management. In Commercial Banks, the number of
rural branches decreased from 1991 to 2007 and it started increasing afterwards. In 1991
rural branches were 35206 which went down to 30551 by 2007 and increased to 32494 by
2010. Up to 2007 the rural branches could not expand the reach or connect to the rural
masses with the banking system. Rural presence of commercial bank branches is
miniscule considering that there are over 6.00 lakh villages in the country. They have
limited manpower and resources at the rural centres.
6.5

Ticket size:

Ticket size of bank business to the poor and low income group people will be small and
scattered. Since agriculture is the major occupation and most of the people are small /
marginal farmers and land less laborers, their earning and credit absorption capacity are
limited. Thus the business per transaction is much less as compared to their counterparts
in urban areas.
6.6

Basic Amenities for staff at rural centres:

Due to unavailability of the basic amenities most of the bank staff try to avoid posting at the
rural centres or if posted due to compulsion, they commute from the urban centres. Stay in
rural area is not considered attractive. Commutation takes about 2 to 4 hours and also
causes fatigue, these employees somehow try to complete the business hours. Majority of
the bank or government employees try to complete their tenure without much interest or
with indifferent attitude. They do not add human touch to the transaction which is utmost
important for dealing with rural people. Thus these employees do not understand the
problems/difficulties and empathise with the rural masses. The RBI Governor, D. Subbarao
(2010) stated that the unfriendly and un-empathetic attitude of the banks to the customers
also plays an important role in undermining the demand for financial services.
61

6.7

Structural issues:

Another major problem is that of the unsatisfactory broadband/mobile connectivity as also

inadequate connectivity (road and rail) to un-banked villages. Of course, transaction cost is
also one of the remarkable problems to banks in dealing with the rural masses who
primarily and predominantly need most basic services like deposits, withdrawals,
remittances, micro-credit etc. whereas banks are required to make substantial
arrangements and incur expenditure on account of different delivery channels with most
advanced technology.
6.8

Risk of agency engagement and risk mitigation efforts:

The engagement of BCs by banks for delivery of banking services exposes banks to the
multiple types of risks : (i) credit risk (ii) operational risk (iii) legal risk (iv) liquidity risk and
(v) reputational risk, to mitigate which banks need to take appropriate action.
Besides the basic impediments (roadblocks to Financial Inclusion) viz., poverty, ignorance
(low level of financial literacy), environment as well as cultural and psychological barriers;
the problem being encountered by banks in their outreach efforts and implementing the
FIP are: (a) difficulty in engaging and retaining Business Correspondents (b) attrition, i.e. a
gradual diminution in

the number or strength of BC within a few months of starting

operations due to low compensation/absence of adequate compensation (c) Improper

recognition of their (BC/BF) candidature (d) Accounts becoming inoperative , thereby
resulting in low levels of business and consequently meager or inadequate remuneration
to BCs (e) Unsatisfactory service delivery etc. Additionally, Banks are also bound to face
huge reputational risk in relying of the network of BCs who are presently not adequately
trained and groomed to take up the challenges of acquisition of new customers as well
retaining the existing customers with them profitably.
6.8.1 Steps taken by SBI
Following measure are taken by the SBI to mitigate the risks associated in dealing with
BC model:
1. Due diligence to be exercised at the time of selection of BC.
2. Creating a bank structure to develop and monitor BC network. At present Financial
Inclusion Centre (FIC) structure has been created with middle Manager to look after a set
62

of BCs in a district. It is also proposed to create a position at the Regional level called
Manager(FIC) who will assist the Regional Head in FI initiative.
3. Displaying Dos and Donts for customers while dealing with BCs outlet.
4. Displaying the structure of fess/charges to be borne by the customers at BC outlet.
5. Close monitoring of the activities of BCs by Bank staff including periodical visits
6. Obtention of feedback from customers at periodic interval.
7. Audit of the BC outlet by Circle Auditors while conducting the audit of the Link Branch.
8. Imparting training to BCs and handholding at the time of recruitment.
9. Customer education and financial literacy- Awareness campaign in the villages
where BCs are functioning.
10. Identifying opinion leaders in the villages and keeping contacts with them for
knowing the functioning of BCs.
11. Encouraging customers to approach Managers over phone for grievance redressal by
displaying their cell phone numbers at BC outlets.
6.9 Other Concerns
For inclusive growth process as well as sustainable development of society/state/nation,
financial inclusion has predominantly become an integral part. We, therefore, need to
introspect and analyze the related issues/concerns and factors for smooth roll out of
financial inclusion plan. Let us consider the undernoted issues/concerns in this context:
1. How

to

ensure

greater

and

close

collaboration

between

banking

and

telecommunication regulators to facilitate deposits, withdrawals, remittances and

other conventional banking services through mobiles technologies and services
keeping in view of the fact that now there is an explosive growth of mobile phone
usage around the world. The point is that any endeavor relating to financial
inclusion may be possible only on the wheels of technology.

So, designing

innovative/appropriate products and services as well as adoption of modern and

innovative technologies have become necessary where technology and financial
63

players are required to work on the same platform to facilitate achievement of

financial inclusion goal.
2. Regulatory reforms relating to financial identification, also requires attention. Many
poor people in rural areas and remote hinterlands lack personal identity like date of
birth certificate/record, address-proof etc which are major impediments in their
accessing to formal financial services. Of course, Governments interventions and
initiatives like UID project will definitely ease the KYC concerns of bankers.
3. More importantly, consumer protection is again a vital point. There is absolute lack
of financial literacy. Financial education is a must. To make a holistic financial
inclusion, removing demand constraints (financial literacy etc) will play a very
important role. So, providing financial literacy to the low income group people is
absolutely desired in order to enable them to use the financial services from the
formal financial sectors. Therefore, can we think of counseling centres at different
vulnerable places where there is highest level of financial-illiteracy? Special projects
may also be run by the Governement or non-Governement organizations for
imparting financial literacy, training, developmental programmes etc. Financially
excluded people need to be educated about banking and need for relationship with
the Banks. Financial literacy programmes need to go hand-in-hand with financial
inclusion initiatives to create the pull for accessing formal channels of finance, and
only then, fair recovery practices may also be introduced.
4. Tighter credit norms need to be relaxed to include financially excluded people
where role and intervention of all stake holders (viz. RBI, Government, community
based organizations, civil society, development institutions etc.) will be required.
5. Capacity building of the financially excluded people helping them to generate
income, however, overrides all the preconditions of financial inclusion concept
because only then, any of the efforts of any stake holder will be viable &
sustainable. Otherwise the present status of No-frills accounts being opened and
remaining dormant, as well attrition of Business Correspondents due to meager
volume of transaction and thereby meager income will continue with ultimately no
fruitful result.

64

6. Importantly, how commercial banks can be more effective in addressing the issues
relating to Microfinance sector? Is it not a matter of bringing good attitude towards
financial inclusion?
7. A peer-to-peer learning and knowledge sharing platform, on a regular basis, for
bringing out innovative ideas is very much required.
8. While our country believes in a sustainable GDP growth of 8% (which may be
increased to 9 or 10% with more mobilization of investment resources), it is also
believed that our countrys growth is not generating enough jobs or livelihood
opportunities. However, many sectors also face manpower shortages. So, can we
create efficient and accessible labour markets for all categories by improving our
education and training systems which need to be multi-dimensional. A faster growth
of small and micro enterprises is also required.
9. Resource centres for promoting entrepreneurship (viz. RSETIs etc) will yield
sustainable financial inclusion. Millions of micro-entrepreneurs need to be created
across the country for fulfillment of our dream of Inclusive Growth.
10. While financial inclusion is a great step to alleviate poverty in India but to achieve
this, the government should provide a less perspective environment in which banks
are free to pursue the innovations necessary to reach low income consumers and
still make a profit.
11. Financial service providers need to learn more about the consumers and new
business. How to deliver financial services to unbanked customers at lower cost,
and with great convenience needs to be discussed on a continuous basis for
innovative ways/ideas to come out in order to help all those who are engaged in
achieving financial inclusion goals.
12. Technological and organizational innovations can accelerate the efforts of financial
inclusion. Telephone/Mobile/Internet connection and network of paved roadways
are definitely to play important roles in enhancing financial inclusion. Physical and
electronic connectivity as well as availability of required information by the customer
and all concerned needs great attention to address the issues relating to challenges
and concerns of financial inclusion.

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13. Governments ownership needs to have a significant association with financial

inclusion. Our Government has already since started National Rural Financial
Inclusion Plan on national level and it is perceived that once the targets fixed under
NRFIP have been achieved, State Level Financial Inclusion Plan will be formulated
and rolled out with the help of SLBC and NABARD. Can we think of roll out of both
national level and state level financial inclusion plans to be judiciously prepared and
holistically rolled out?
14. Financial inclusion through Business Correspondent model and Self help Groups

requires more attention to be paid because Indian banking industry has now some
specific sort of experience with BCs and SHGs which may be used for designing
new steps in this regard. It goes without saying that SHGs have proved themselves
to be the most popular vehicle of taking at-least microfinance to remote rural
hinterlands and SHG-Bank linkage programme is considered as the largest
microfinance programme in terms of outreach in the world.

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CHAPTER 7: FUTURE PROSPECTS

Contents: Focus on inclusive growth, Development of profitable and acceptable model,
Financial resources, Human resources, Aadhar project, G2P payments
7.1 Inclusive Growth: While all the efforts made for financial inclusion have expanded
the access to banking services, it is also important that quality services are provided
through newly set up ICT based BC delivery model. It is, therefore, necessary to have an
intermediate brick and mortar structure between the present base branch and BC locations
so as to provide support to about 8-10 BC units at a reasonable distance of 3-4 kms. This
could be in the form of a low cost simple brick and mortar structure consisting of minimum
infrastructure such as a core banking solution (CBS) terminal linked to a pass book printer
and a safe for cash retention for operating larger customer transactions. This will lead to
efficiency in cash management, documentation, redressal of customer grievances and
close supervision of BC operations. These BC outlets will be treated as bank branches
only when managed by full time authorised employees of banks, in which case they will be
subject to regulatory reporting.
Let us accept that Financial inclusion is not only a compulsion (in as much as Financial
Exclusion directly means Social Exclusion; consequences of which are social/political
unstability etc.) but also an opportunity for the banks to increase their outreach to rural
hinterlands and thereby substantially increasing their market share, too. The important
proviso is to improve process efficiencies and reduce transaction costs by adopting
technology based finest and successful solutions (which definitely is possible only after
trail-runs and pilots). So, leveraging technology to provide access to banking facilities
requires holistic attention besides the above mentioned issues. Technology innovation is a
key ingredient in overall success of financial inclusion.
Moreover, so far as technology and delivery models are concerned, ultimately it is the man
power to deliver the baking services to financially excluded people at their door step which
itself means that unless trained man power is available, full scale financial inclusion may
not be achieved. Presently, knowledge gap about banking and banking products
(particularly that of innovative products under financial inclusion) is the major impediment
in making bankers endeavours a grand success. At the grass root level, staff of the banks
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does not have enough time to spend with the Business facilitators/Business
correspondents to clarify their doubts/issues, as also to improve acceptability of BC/BF by
the populace. BC/BF lack in creating awareness about the USP or user friendly
propositions of the products which they are expected to market for increasing volume of
business and thereby ensuring their sustainability, too. The possibility of lessselling/incorrect selling/mis-selling cannot, also, be ignored/ ruled out. Ultimately the
important point is that some sort of structured training is a must for the BC/BF for desired
success which needs to be taken care of seriously because the strength of banks lies in
the vast network of Business Correspondents. In India, Banks and banking have since
been changing substantially and at least after introduction of BC/BF Models, appropriate
man-power as well as personnel development now matters a lot for success of the
strategies. Human resource function cannot be ignored, rather needs top attention.
Further, development of eco-system and perfection of delivery models are definitely the
key issues and concerns to be addressed to - where Government, Banks, technology
providers/vendors are lagging behind.
By far, Bankers need to have focus on inclusive growth with emphasis on giving
legitimate benefits to poor. They need to increase their willingness to serve upto the lowest
end of the market and reach the significant scale by virtue of alternate channels/alternate
business models. Appropriate technology and efficient delivery models with banks
determination and involvement may help the government to win all the matches in financial
inclusion. State administration at grass-root level and state driven interventions, as and
when required, along with integrated participation of financial institutions and community
based organizations, may surely go a long way in achieving the related targets.
Inclusive growth has become one of the biggest challenges that our nation is facing today.
We are using different construct of words like pro-poor-growth or broad-based-growth or
shared-growth but the end result is simply inclusive growth. Because financial sector is
the only sector which can provide financial services to the underprivileged, socially
disadvantaged, low- income downtrodden people i.e., to financially excluded people, the
concept of financial inclusion comes into picture.

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But, despite rapid expansion of the banking network over the last four decades, there is a
vast majority of people, in our country, which do not have access to basic banking services
resulting in financial exclusion.
7.2 Development of profitable model
No model is full proof or not any single model can meet all the requirements of all the
banks. One size cannot fit all. One or the other model may be adopted based on the
local conditions, demographic situations, geographic profile, etc.. Even adopted model
may be integrated with the other one or new technology to bring out synergy. Banks and
financial institutions need to work out strategies and modalities to evolve commercially
viable delivery model to provide access to the disadvantaged strata of society.

The

products for low income people should also withstand the marketing aspects of 4Ps called
as Product, Price, Place and Process (Table 2).
Shri Subbarao, RBI Governor (2010) pointed out that many of the generic financial
products are unsuitable for the poor and there is not much of an effort to design products
suitable to their needs. Financial inclusion also necessitates tailor made products for
proper delivery of services. The products for low income people should also withstand the
marketing aspects of 5Ps called as Product, Price, Place, Process and Promotion.
i. Product Suitability:
FMCG companies have adapted to the needs of consumers and started developing
products as per the requirement. They have started packaging in small pouches at an
affordable cost to rural masses. Recharge vouchers of Mobile companies in denomination
of Rs. 10/- has become popular even in rural centres. Banks need to evolve products and
technologies to match the psyche and needs of the rural masses. Innovations will come
through the necessities, experience and experiments.
Outlet of bank / BC should offer variety of products and range of financial services so that
customers have wider options. Pool of multiple products will trigger the mindset of
customer to avail / select one or more products from the basket. Such measures will
enable these units to sell more products per customer. This will help to ensure optimum
volume to generate sufficient margin for viability of these units.

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ii. Price: Any product or service offered to the customer should be self sustainable. There
may not be necessity of subsidy or government support except in some cases during the
stabilisation period. Most of the consumer durables and household items used in rural
areas are sold out at the same rates of prices as in the urban/metro areas.

Mobile

services does not have subsidy element in it for the rural areas and still it has become
popular in every nook and corner of the country.

The banking services to rural and

disadvantaged sections of society need to be priced at the same rate to that charged for
services in urban and metropolitan areas. In fact those indebted households to informal
sources are paying much more than what is charged by the formal source of banking. The
additional cost of providing services at far flung areas may also be added to make these
initiatives viable. However, it needs proper balancing of the cost of providing the service
and affordability by the consumer.
At the initial level, since the volume would be lower, the Government support may be
considered necessary. The funds for capacity building may be provided by the
Government for training, creating infrastructure like bandwidth or telephone, purchase of
equipment or stabilisation fund for 1 to 2 years to be worked out depending on the
geographical and demographic profile of the area of operation.
iii. Place or Availability: Financial Services / product have to be made available at the
place of convenience and should be easily accessible to the rural masses. Even in a
village with population of 2000 availability of 2 to 3 outlets (including BCs) of different
banks may be considered to provide wider choice for the customers. This arrangement
may ensure fair competition among the service providers and checking unscrupulous
practices. Mehrotra & Others (2009) expressed that intervention through public policy is
necessary so as to increase competition among providers and build relevant institutional
and physical infrastructures, leading to a shift in the supply curve to the right, reducing
prices, and making financial services affordable to a larger section of the population.
United Nations (UN) while outlining the goal of financial inclusion, desired that Multiple
providers of financial services, wherever feasible, so as to bring cost-effective and a wide
variety of alternatives to customers.

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iv. Process: Process of operation should be simple, less bureaucratic and affordable to
majority of the customers. Process should be in tune with the psyche and feel of the
people of the region. Agrawal (2008) pointed out that poor people are reluctant to go to
banks as they are not clear of the directions, processes etc. Another important finding is
that poor people avoid banks because of complicated forms, procedures etc.
Simple forms and procedures are to be devised to suit the requirement of product and
people (Customer, Bank and Regulator). Rangarajan Committee (2008) suggested
simplified processes for Account opening, loan documentation, mortgage requirements /
charge creation, Identifying Nodal Branches to address the issue of exclusion.etc.
v. Promotion: Promotion through the proper medium is essential for successful launch of
the product or service. If requirements for using the financial services are explained to the
customers in their language, in a friendly manner they will respond positively. The post
office staff in that respect is worth to emulate. They are easily accessible and less
bureaucratic. Rural masses do not feel any hindrance in communication with the postal
staff. Co-operative Societies (PACs), Micro Finance Institutions, Self Help Group (SHGs)
which have local roots can be the best bet to supplement the efforts of formal banking
channels. These agencies will be used as platform to promote the banking products.
Being financial services, there should be mechanism of resolution of complaints which is
similar to the service centre in case of consumer goods. Grievance redressal mechanism
is already in place at the commercial banks, however awareness among the public
especially people from disadvantaged and low income segments is very low. Convenient
access through the Call centres / phones, and prompt responsiveness are the key for
gaining the confidence of rural masses in the system.
7.3 Financial Resources:
To promote FI, financial support is provided in select activities like capacity building of BCs
and also in technology investment in select geographies like North East India. However,
significant financial resources of Banks have also been invested in various capex needs as
well as continue to be expended in current operations. Looking at the low returns on this
investment/ expenditure for the present cautious commitments are being made and also
relief is sought in the form of tax reliefs in FI investment from the Govt.
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Since significant existing branch network and human resources are being utilised for the FI
separate assessment of cost is difficult. Also financial resources of other players in the
program like BCs (both individual and institutional), technology providers and Govt
(through NABARD) will continue to be invested till the activity turns remunerative for all.
7.4 Human resources:
In the FI program Bank is using three categories of people viz.
a) Banks own employees in staff roles largely in policy formulation, roll out and
monitoring functions.
b) People with banking knowledge (largely recently retired employees) for channel
management functions.
c) Field agents in form of people either directly selected by the Bank (individual BCs)
or provided by institutions with contractual arrangement (institutional BCs)
With the growth of network more people will be required for all functions particularly for
development and monitoring of field staff as the business growth and success of FI relies
on foot soldiers on the ground.
7.5 The Unique Identification (Aadhar) project:

The Government of India is

emphasizing on issuing Unique Identification numbers with a view to improve service

delivery, accountability and transparency in governance of various schemes. This will play
a vital role in government initiated payment schemes and other financial inclusion
programmes. State Bank of India is both a registrar and a partner in the project. To support
the project there is a need for a scalable model to maximize reach and inclusion and also a
robust technology backbone for control and consistency.
7.6 G2P payments: Indian government has decided to shift to direct cash transfer
program instead of subsidy. A number of schemes like Public Distribution Schemes (PDS)
that provides grains, food items, fuel and fertilizers meant for poor families operated
inefficiently. To overcome the inefficiencies in the current system and provide more
structural distribution, government has decided to transfer cash instead of subsidy to the
beneficiaries. This is certainly a greater task for the banks and business correspondents to
efficiently handle such transaction.

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7.7 Conclusions:
As against the initial target of 73,000 villages, banks have been asked to prepare plans to
cover six lakh-odd villages in the country where all the banks, involved in the FI project,
have to furnish the details of the villages to be covered by them. The Ministry of Finance
has also asked the IBA (Indian Banks Association) and RBI to prepare an action point for
this during the forthcoming meetings.
In the scaling up financial inclusion programme, the government has also asked them to
include those villages with a population to 1,000 that are located in the periphery of those
villages that are having population above 2000 and which are already being covered under
the programme. As a whole, there are nearly 1 lakh such villages in the country with a
population of 1000 and above.
IBA is expected to write to the SLBCs in the country to get the details from their respective
district level coordination committees so as to prepare a roadmap. Also, the government
has asked the banks to take the Swabhiman project (a nationwide awareness programme
on financial inclusion).
So the Government is keen that banks cover all rural habitations in the next phase of their
financial inclusion plan, as it wants to route all benefits under its social security schemes
through electronic benefit transfer (EBT).
Technology is the final element of financial inclusion strategy and an enabler of all the
others. The choice of technology driven models is therefore a crucial decision, which
could make or mar the inclusion plan. Since these services have to be provided at zero or
minimal charge to the customer, banks need to lower their own cost of customer
acquisition and maintenance to make this a profitable proposition. In this backdrop,
financial inclusion calls for intelligent selection of a mix of business models and their
successful implementation.
Incidentally, it would not be out of place to mention that on account of corporate coming in
as Business Correspondents; new viable models may be worked out by banks and
technology providers for desired success in financial inclusion. A paradigm shift in
methods of payment through Inter Bank Mobile Payment Service may also be expected in
future that would simply revolutionise the happenings on the financial inclusion front.
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REFERENCES
1.

Agrawal A (2008), The need for Financial Inclusion with an Indian perspective
Economic Research: March, 3.

2.

Chakrabarty K.C. (2011) Financial Inclusion - Achievements So Far and Road

Ahead Presentation made at 26th Skoch summit MUMBAI, June 2.

3.

Honohan P. (2007), Cross-Country Variation In Household Access To Financial

Services, paper presented at World Bank conference on Access to Finance, March
15-16.

4.

Government of India (2008), The Committee on Financial Inclusion, (Chairman: C.

Rangarajan

5.

Pralhad C.K ( 2004). The fortune at the bottom of the pyramid, Wharton School
Publishing.

6.

Puhazhendi V.(2012).Microfinance India State of the Sector Report 2012

7.

National Bank for Agriculture and Rural Development (2009), Financial Inclusion
An overview, Occasional Paper , (Mehrotra N & others)

8.

NSSO (2003) Survey on Indebtedness of Farmer Households

9.

Reserve Bank of India (2010): Annual Report

10.

Reserve Bank of India (2011): Report of the Subcommittee to Study Issues and
Concerns in the MFI Sector, January, 2011 (Chairman: Y.H.Malegam)

11.

Subbarao, D. (2010), Financial Inclusion: Challenges and Opportunities

RBI monthly Bulletin, January.

12.

www.Blog of Shinyvikas: Indias Rural Market - The fortune at the bottom of the pyramid

13.

www://en.wikipedia.org

14.

www.ibef.org

15.

Information available across Newspapers/Internet.

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