Financial Inclusion

FINANCIAL INCLUSION

Entire national financial system benefits by greater inclusion

1.       when promoted in the wider context of economic inclusion

2.       multiplier effect on the economy through enhanced savings & credit to the people at the bottom of the pyramid

3.       banks benefit by stable deposit base contributed by retail customers

4.       promotes financial stability and discourages informal sectors

5.       facilitates transfer of government benefits without leakages

   Greater participation in the formal financial system makes monetary policy more effective

1.       enhances the prospects of non-inflationary growth

2.       facilitates move towards less cash society

3.       What is financial inclusion? growth and equity; Inequalities exist in socio-economic conditions, literacy, income level, urbanization, infrastructure

4.       Financial inclusion is about ensuring 5A’s:Adequacy, Availability, Accessibility, Awareness, Affordability

5.       Adoption of multi-pronged strategy

a.       network of bank branches ,

b.      tapping SHGs, MFIs, etc.

c.       enhancing network through BCs/BFs & TSPs

d.      wide range of banking products.

6.       Policy approach

a.       Minimalist – a bouquet of basic banking products & services

b.      Expanded - ancillary financial products like insurance, pension, deeper customer engagement, consumer protection and enhanced financial literacy

7.       Need to focus on Policies, Partnership, Processes & Products relating to

a.       SHGs:- SHG Bank Linkage Programme;

b.      MFIs

c.       Business Correspondents

d.      Technology:- Experimentation with mobile based remittance services; use point-of-sale devices in conjunction with magnetic stripe cards

8.       SHG Bank Linkage Programme

a.       ‘Savings-first, credit later’ model; credit discipline ‘social collateral’ made SHGs bankable

b.      For banks dealing with groups of people meant

                                                               i.       reducing in transaction costs,

                                                             ii.      reducing the credit risks through ‘peer pressure’ and

                                                            iii.      making people save

c.       Challenges:-  inadequate outreach in many regions, delays in opening of SHG accounts and disbursement of loans, impounding of savings by banks as collateral

9.       SHG-2

a.       More focus on voluntary savings

b.      Cash credit system of lending over 3 to 5 years cycle to minimize the problem of inadequate finance and non-availability of repeat loans

c.       Enabling creation of Joint Liability Groups (JLGs) within SHGs to scale up economic activities by more entrepreneurial members

d.      Improving risk mitigation systems by bringing in third party audit

e.      Building second tier institutions

f.        Strengthening the monitoring mechanism

g.       Addressing training requirements