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