Financial Inclusion

Concept,Issues and Roadmap

Presentation by

Dr. K C Chakrabarty
Chairman and Managing Director
Indian Bank,Chennai

At

Institute for Development and Research in Banking Technology

Hyderabad
02.09.2006
Financial Exclusion
What is Financial Exclusion ?

• Financial exclusion is the lack of

access by certain consumers to
appropriate, low cost,fair and
safe financial products and
services from mainstream
providers.
• Financial exclusion becomes of more concern in
the community when it applies to lower income
consumers and/or those in financial hardship.
Poverty and Financial
Exclusion
• There is a large overlap
between poverty and permanent
financial exclusion. Both poverty
and financial exclusion result in
a reduction of choices which
affects social interaction and
leads to reduced participation in
society
Financial Exclusion and
Allied Phenomena

Financial
Exclusion

Financial Financial
Discrimination Illiteracy

Financial
Exploitation
Gradations of Financial
Exclusion

• Core Exclusion: Who operate their financial

affairs completely outside the regulated
financial system

• Limited Access: May have a basic bank

account but poor financial habits and little
advice

• Included but using inappropriate products:

Victims of inappropriate products.
Main types of Financial
Exclusion
1. Transaction accounts
2. Time Deposits
3. Financial Advice
4. Appropriate small credit
5. Insurance
6. Mortgage Loans
7. Superannuation
8. Enterprise based loan
Who are Financially
Excluded
1. Poor
2. Socially under-privileged
3. Disabled
4. Old as well as children
5. Women
6. Uneducated
7. Ethnic Minorities
8. Un-employed
Extent of Financial
Exclusion
1. Coverage of
• Check in accounts -70%
• Insurance -10%
• Financial Assets -2%
• Assets Insurance -2.53%
• Health Insurance -0.20%
• Credit Card -3%
• Debit Card -5.66%
• Small Overdrafts -3.65%
• Entrepreneurial credit -2.06%

2. Geographical coverage
• 5% villages are having a bank branch
3. SHG coverage
• Out of around 400 million poor, 125 million poor are
covered of which 113 million are women
4. Farmers coverage-
• Tenant farmers/share croppers/oral lessees
• Small and marginal farmers
• Out of 89.35 mill. SF/MF, 34.70 mill. (46.30%) are
covered.(House holds)
 Most needed Services
for Financially Excluded
1. Access to Small loans or overdrafts
2. Check in Accounts
3. Small Savings Products
4. Health Insurance
5. Life Insurance
6. Insurance against the failure of activity
7. Financial Asset
8. Credit Card
9. Entrepreneurship credit
 Model for Financial Exclusion
Do without
High Cost alternatives Social/wider exclusion

Poor Social,economic & Health outcomes Inefficient Use of Money

Financial
exclusion
Low standard of living and poverty Delayed pathway out of poverty

Low/No assets Debt(often informal) Mainstream product

Attributes: fees;
Low Income Penalties,bundling,marketing
Which do not address needs

Unemployment Financial illiteracy Poor financial habits

Poor education

Macro -environment Personal characteristics Commercial & regulatory environment

Main Drivers of Financial
Exclusion
Most frequent Less frequent
• Low income • Psychological/disability
issues
• Nil or low savings
• Feeling of being excluded
• Lack of assets
• Indigenous/ethnic issues
• Unemployment
• Geographical remoteness
• Under employment • Lack of time
• Use of inappropriate • Lack of PC/Internet
products Access
• Financial illiteracy • Availability of alternative
products and suppliers
• Poor financial habits
• Youth
Problems of Financial
Exclusion in India
• Coverage
• Cost of Small Value transaction
• Infrastructure
• Suitable products
• Flexibility
• Weak Delivery model
• Community Enterprise and Financial
Management support
 Model for Financial Inclusion
Less constrained spending
Low cost services Social/wider inclusion

Good Social,economic & Health outcomes Free Use of Money

Financial
inclusion
High standard of living Easy pathway out of poverty

Asset ownership Low or controlled debt Mainstream product

Attributes: fees;
High Income Penalties,bundling,marketing
Which suit those with higher
income/assets
Employment Financial lliteracy Good financial habits

Good education

Macro -environment Personal characteristics Commercial & regulatory environment

Pre conditions for the
Success
I. Attitude and Will power
II. Technology
III. Delivery Mechanism
IV. Support Services
• Infrastructure
• Community Development Support
• Product Innovation
V. Regulatory and Policy Interventions
VI. Involvement of all
• especially Development/Administration at
District/Block/Village level
Basic Challenges of
Financial Inclusion

I. Coverage
II. Access to Diversified Financial
Products and Services
III. Delivery Model- Day to day
transactions
Financial Inclusion- Indian
Experiment
Initiative by Indian Bank
I. Indian Bank was the first Bank to implement the
Financial Inclusion Project on a pilot basis in UT of
Pondicherry where the Bank has lead responsibility
II. IB implemented the concept first in Mangalam
Village of Pondicherry on 30.12.05 which became
the first village in India, where all the households in
the village were provided Banking facilities.
III. Indian Bank spearheaded the project and involved
all the 144 bank branches of 37 Banks operating in
UT of Pondicherry.
IV. Participants of the project are: All Banks,
Govt.Depts, Insurance Cos,NGOs,Facilitators etc.,
The Objective

• Financial Inclusion is delivering Banking facilities/

financial services to all the people in a transparent and
equitable manner at affordable cost.
• Hon’ble Union Minister of Finance budget speech 2005-
06:
“The financial inclusion provides business opportunity for the
financial institutions at the bottom of the pyramid to expand
the volume of business. Profitability can be increased only
by finding newer avenues for deployment of funds”
RBI Governor in Annual Policy Statement 2005-06 urged the
banks to align themselves with the objectives of Financial
Inclusion.
• Economically and socially empower poor and low-
income people leading to overall development of the
Households, Villages, States and finally the Nation.
Achievements in Pondicherry

80000
70000
60000
50000
40000
30000
20000
10000
0
OTHER CO OP PRIVATE
INDIAN BANK SBI GROUP
NAT.BANKS BANKS BANKS
HOUSEHOLD TAR 41963 74605 31906 30603 36461
HOUSEHOLD ACH 40557 26537 8511 9531 9381
SB A/Cs OPENED 67822 23351 3064 12088 3926
Replication of the
success
1. RBI in the 2006-07 Annual Policy Statement highlighted
about Financial inclusion project implemented by the
bank in UT of Pondicherry, and advised SLBC convenors
in all State / UTs to identify at least one district in their
area for achieving 100 percent financial inclusion on the
lines of the initiative taken in Pondicherry.
2. As a follow up, the project was launched in TN in
Cuddalore Dist, where again IB is the Lead Bank involving
all the banks covering 877 villages.
• Launched on 11.07.06 and expected to be completed by
July 2007.

3. The Bank also extended the project to

– All the other 12 Lead Districts in TN,AP,Kerala
– Other states where each of our circle has taken up
implementation in three villages.
Overview of the achievement
of IB across the country

• Total number of villages

covered so far • 372
• Total number of No frills SB a/cs
opened • 120198*
• OD accounts opened • 13227
• GCC accounts opened • 660

• *In addition, 16706 women have been linked

through SHGs.
The process

• Allocation of villages to the Banks

• Village/House hold survey
• Assessment of the need for Financial Inclusion
Products
• Financial Inclusion Products Offered
• No Frills SB account
• Small Over Draft facility-for general consumption
• General Credit Card-for income based activity
• Micro Insurance- Life and disability cover
• Health Insurance Cover
• Mutual Funds (proposed)
Thank You