By Dr.

Amrit Patel, Microfinance Focus, August 22, 2011: Financial inclusion [FI] refers to the poli cy goal of providing a full range of formal financial services [savings, credit, insurance, remittance] to all financially excluded households without discrimin ation. Affordable price, delivery with dignity, convenience, reliability, flexib ility and continuity determine the quality of financial access. Of the 6.9 billi on people on the planet, just 30.43% [2.1 billion] have bank accounts while 75.3 6% [5.2 billion] people have mobile phones. In India, for a population of 1.21 b illion people only 200 million people [16.52%] have access to a bank account wh ile 811 million [67%] have a mobile phone. This suggests how best mobile phone p otential can be harnessed to connect un-banked population and achieve FI. Acknow ledging these facts Government & RBI initiated policy for FI which banks have be en implementing successfully. This paper examines the implementation of FI by ba nks through harnessing potential of technology and suggests banks to look FI as business opportunity to achieve FI goals by 2015, not a compulsion. Banks Response: Acknowledging the importance of FI public sector banks in particu lar have significantly responded with regard to [i]opening 50.6 million no-fril ls accounts [now 75 million] with overdrafts of Rs.27.54 crore as on March 2010. [ii] appointing and training Business Correspondents [BCs] [iii] using Financial Inclusion Fund & Financial Inclusion Technology Fund to extend benefit to 50,25 5 villages as on March 2010 [iv] Identifying 431 districts in 18 States and five UTs for 100% FI coverage of which 204 districts already covered by March 2009.[ v]reaching 29,569 unbanked villages [against allotted 27,425] above 2000 populat ion each and preparing roadmap to provide banking services under Financial Inclu sion Plan [FIP]. Planned to cover additional 43,381in 2012 and also cover adjoin ing villages with population between 1000 and 2000 to optimally utilize FI infra structure created by investing in technology, manpower, and BCs. FIPs include st rategy adopted for enrolling and training BCs and branch managers, technology pl ans, awareness generation plans and monitoring mechanism. [vi] 160 remote unbank ed villages for 100% FI under RBI s outreach program of financial inclusion & finan cial literacy . Banks have also initiated following measures to promote FI in rura l areas. 1. SBI based on successful pilot projects in Mizoram, Meghalaya, Andhra Prade sh and Uttrakhand developed a mobile banking kit[ bank in a box ] that comprises a cell phone acting as a Point -Of-Sale machine, a figure print reader and a ti ny printer. This is used for opening no-frills accounts that are on smart cards is sued to clients. [ii] SBI introduced Tiny Smart Card which is biometrically enab led Contact-less/Contact Cards/Chip/chipless operable at PoT/PoS device machine. Chipless Cards cut down the operation costs. The operations through PoT/PoS dev ice support both offline & online/real time transactions in customers account. Ti ny Cards support Savings Bank, Recurring Deposit, SB-Cum-Overdraft and Remittanc e products. [iii] It has also introduced Tiny Cards for SHG customers with autho rized signatures & finger print validation operable at BC/CSP PoS near to their place of residence. [iv] Kiosk banking, a Bank s own Technology initiative operate d at internet enabled PC [Kiosk] with bio-metric validation, supports online/rea l-time transactions. Besides individuals, Companies and Common Service Centers s et-up under e-governance project are also working as BC/CSP using this channel.[ v] Cell Phone Messaging Channel is a cost effective model that works on low-cost simple mobile phones. Transactions are well secured through PIN/signature based security [v] SBI, since August 2010, introduced SBI Tatkal, an instant money t ransfer service that allows customers to deposit cash into any regular SBI branc h based account at all existing Eko-SBI customer service providers [CSPs] in Del hi, Bihar and Jharkhand. The customer is charged a flat Rs.25 fee per transactio n with a limit of Rs.10,000 per account per day. It is a two steps simple proces s. Once the transaction is completed the sender and the recipient receive a conf irmation SMS on the mobile numbers registered. The target segment for this produ ct includes migrant laborers, daily wage workers, self-employed and small entrep

reneurs working in the cities. Most customers use this service for remittance pu rposes by depositing cash in the recipient s bank account, while others use it to make deposits in their own account. The CSPs reported daily deposits over Rs.80 million in Delhi area alone. Till March 2011 around 1.6 million transactions of more than Rs.8.7 billion were made. Eko s system with over 800 CSPs can now reach any part of the country where SBI has a branch. Additional products like small s ize loans can be offered based on transaction history of customer. This will bro aden the revenue stream of Eko as BC and bank can leverage the platform to widen the product range for customers. With the successful implementation of IMPS fro m NPCI already introduced, SBI Tatkal can accelerate FI process. 2.SBI has 300 Financial Inclusion Centers ,to be raised to 600 by March 2012, to provide back-end support to over 14000 BCs for opening no-frills accounts, proces sing micro-credit applications [up to Rs.25,000] sourced by them and cash manage ment. It will also monitor the performance of BCs under FIP. 3.HDFC Bank s Anywhere Bank Terminal at locations of BCs, besides Bank on Wheels launc hed in 13 States [including Bihar, M.P. Rajasthan and U.P] exclusively for the r ural market to facilitate low-income unbanked & underprivileged households to ac cess financial services at affordable cost at their door steps using biometric A TMs. Bank reached more than six lakh customers beyond 200 km from its branches u sing the technology platform. 4.Grameen Financial Services piloted m-banking in Bangalore with 100 borrowers i n partnership with mChek [Bangalore based technology provider] and after two yea rs it served more than 3,30,000 rural clients and planned to reach over two mill ion by 2012. GFS incorporated technology, using Mifos, an open source software d eveloped by Aditi Technologies specifically for MFIs. 5.Integra offers iMFAST [integra Mobile Financial Applications Secure Terminal], a portable teller machine that performs simple banking functions in rural areas . Operated by BCs in villages, the iMFAST solution, a hand-held terminal handlin g transactions concerning deposit, RD, withdrawal, loans, insurance, bill paymen ts and booking train/bus tickets in rural areas, is currently used in over 500 l ocations by 15 banks [including Indian Bank, Bank of Baroda, Canara Bank, Centra l Bank of India, Vijaya Bank]. Integra has issued ATM cards to 3,00,000 customer s in Karnataka, M.P. Tamil Nadu, Kerala, Andhra Pradesh, Maharashtra, U.P. Sikki m and Jharkhand. 6.Union Bank of India serves thousands of customers in remote villages through i ts BCs, such as Infrastructure Leasing and Financial Services, Drishti and Basix . 7. Under NREGS, banks in Andhra Pradesh conducted pilot projects to test leakage proof routing payments to beneficiaries accounts and transfer payments to the labor ers through smart card-based savings accounts. Now this mode of payments by Gove rnment under its various schemes is extended to beneficiaries in other States. 8.Zero-M.A.S.S. Foundation in Karnataka launched a new generation biometric fing erprint authentication-based solution, which has reached five million customers including beneficiaries of social security, pension scheme, NREGS and SHG member s in 18 States. The product suite ZERO is an end-to-end payment system to serve cu stomers with small-value transactions including cash-in/cash-out, cashless trans actions and remittances leveraging the security and connectivity of new generati on mobile phones. 9.mChek provides services mostly to women, which include bank deposits, withdraw al, loan repayments, account balance and grocery payments. mChek has a vision t o bring the entire ecosystem of partners across the banking sector, banking serv ice providers, as well as telecom operators to serve the base users.

10.In 2009 MYRADA with the support of NABARD developed NABYUKTI, a software to g enerate simplified MIS for promoting and linking SHGs with banks 11.Ekgaon technologies offer software for accounting and MIS in case of SHG-base d financial intermediation. 12.BASIX in collaboration with banks has set up physical infrastructure in the f orm of Kiosks, which provide financial services and help rural households secure essentials and maintain contact with external world through internet connectivi ty. 13.PNB has set up 30 Banking Kiosks in Bihar, Haryana and UP providing banking s ervices through ICT based BC models. Bank provides smart cards/KCC/GCC, no-frill s account with overdraft facility to at least one member of the household in vil lages under Outreach Program of RBI. It has trained BCs through IIB&F and a pool of trainers has been created with the IIB&F to train bank staff. 14.Indian Bank launched Mobile branch [van] with ATM facility and coin vending m achine at Jangipur [West Bengal] & Vellore [Tamil Nadu] to provide banking serv ices to six & five villages respectively. Customers in BC-engaged villages, unde r100% coverage conduct transactions through smart cards. 15.To accelerate FI process Canara Bank has taken technology initiatives viz. mu lti-lingual biometric ATMs, Voice-enabled mobile biometric ATM and Smart Cards. Bank opened FLCC centers and has registered a new Trust Canara Financial Advisory Trust to manage FLCC centers. To create awareness about banking facilities and B ank s products among rural households, the Bank has deployed Gramin Vikas Vahini in 35 districts. 16.Syndicate bank has adopted Mobile technology as well as Smart Card technology . IDRBT, Hyderabad recommended security standards are adopted. Bank issued 32K [IDBRT specified] Smart Cards to1,23,243 customers. Bank s micro-ATMs are as per I DBRT specified standards. Bank has set up three Financial Inclusion Resource Cen ters in Karnataka. It has designed Micro-insurance product with Tata-AIG providi ng risk cover of Rs.25,000 @ premium of Rs.30 plus tax per annum and sold to 581 4 customers. 17.Corporation Bank initiated pilot projects on branchless banking in Karnataka, Andhra Pradesh, Tamil Nadu and Goa, surveyed 1200 villages during 2009-10, assi sted rural households to open bank accounts and issued Smart Cards to 5.47 lakh customers 18. Indian Bank, Andhra Bank, SBI, State Bank of Hyderabad, Union Bank, Canar a Bank, Axis Bank, HDFC Bank and other banks are using Smart Card-based technolo gy solutions. The Financial Information Network & Operations [FINO] set up in 2006 uses techno logy to promote FI, as a BC to 21 banks, insurance companies and Government. It provides financial services such as recurring deposits, remittances, withdrawal of money, micro-loans.. It has 10,000 BCs and 18.5 million clients of which over 90% are in rural areas. It operates in 80 districts of 23 States. FINO has open ed bank accounts of all farmers who supply milk to the NDDB. Along with a saving s bank account they get bank loans and cattle insurance policy, all coupled in a single product in Gujarat and UP Business Opportunity: Banks among them should share the experiences of pilot pro jects and those proved successful need to be replicated. Banks need to relook an d redesign their area based specific business strategies to incorporate specific plans for promoting access of services to low income group treating it a busine ss opportunity as well as a corporate social responsibility to promote FI.

FI calls for significant investment in technology applications and research & de velopment efforts and devising comprehensive MIS, monitoring and evaluation syst em. Public sector banks in particular have significant financial resources, prof essionals and field experience of having operated since 1969 that can be fruitfu lly utilized to achieve FI in next four years. Their rural, semi-urban & urban b ranches have been allotted 5 to 10 villages under Service Area Approach since 19 89 and they have gained better understanding of rural socio-economic environment that can facilitate them to systematically bring all financially excluded adult s progressively within banking fold through technology and BC based business mod els. They can on their own build organic relationship with thousands of MFIs, 96 RRBs, millions of SHGs and 95,633 PACS covering six lakh villages with a total membership of 13.2 million that can act as catalyst for pursuing the objective o f 100% FI. They have established commercial business nationally and internationa lly that generates significant amount of revenue to motivate expanding business in rural areas initially with some loss which can in longer term be wiped out. T hey can collaborate with World Bank, ADB, IFC and country s business houses to exp eriment different kinds of business models to reach to remote unbanked and under served households through public-private-partnership mode. Government may consid er allowing commercial banks to deploy full amount available under RIDF for tech nology applications and R & D effort to develop new products & services through pilot projects and experimenting for viable BC-based business models. Banks can create profitable or break-even operations under the regulations governing the B C model and no-frills accounts when scope for appointing BCs is sufficiently exp anded. Minimum infrastructure support, viz. road, rail, power, digital connectivity etc . are prerequisites for operation of a banking outlet. Government sponsored prog rams need to be effectively implemented to substantially increase income that ca n improve cash flow of poor and low income households and motivate them to opera te their bank accounts on continuing basis.