Anshu Bansal Gupta
Anshu Bansal Gupta
Anshu Bansal Gupta
Abstract
India is a country of continental proportions, and poverty is a multidimensional phenomenon,
around 28% of the Indian population suffers from chronic poverty and hunger. In the last
twenty years, India has undergone a transformation of its economic and regulatory structures.
Policy reforms in this period have led to the increasing maturity of our markets, as well as
healthy regulation and have led our country from a restrictive, limited access society to a
more empowered, open access economy, where people are able to access resources and
services more easily and effectively. But despite these efforts, access to finance has remained
scarce in rural India, and for the poorest residents in the country. Today, the proportion of
rural residents who lack access to bank accounts remains at around 40% only. The rest 60 %
are still deprived of bare minimum banking services for which they are totally dependent on
informal banking sources like private money lenders. Unrestrained access to public goods and
services is an essential condition of an open and efficient society. It is essential that the
availability of banking services to the entire population without discrimination should be the
prime objective of public policy. This exclusion is devastating. Economic opportunity is after
all, entangled with financial access. Such financial access is especially valuable for the poor.
While the need to solve this mammoth problem is great, financial inclusion has become one
Page 1 of 32
of the most critical aspects in the context of inclusive growth and development. Initiatives for
financial inclusion have come from financial regulators, governments and the banking
industry. The banking sector has taken a lead role in promoting financial inclusion.
Key Words
Financial Inclusion, Financial Exclusion, Financial Services, Reserve Bank of India (RBI),
Inclusive Growth, Business Correspondents (BC), No-Frill Accounts (NFAs), Kisan Credit
Card (KCC), General Credit Card (GCC), Financial Inclusion Plans (FIP)
Introduction
Financial Exclusion is the lack of access by certain consumers to appropriate, low cost, fair
and safe financial products and services from main stream providers. In countries with a
large rural population like India, Financial Exclusion has a geographic dimension as well.
Inaccessibility, distance and lack of proper infrastructure hinder financial inclusion. Financial
Inclusion is the delivery of banking services at affordable costs to vast sections of vulnerable
and low income groups including households, enterprises, traders etc. Amartya Sen (2000)
persuasively reiterated that poverty is not merely insufficient income, but rather the absence
of wide range of capabilities, including security and ability to participate in economic and
political systems. Consequently, the poor and deprived are required to be provided with much
needed financial assistance in order to cruise them out of their conditions of poverty.
Accordingly, there should be an appropriate policy support in channeling the financial
resources towards the economic upliftment in any developing economy. Financial inclusion is
intended to connect people to banks with consequential benefits, ensuring that the financial
system plays its due role in promoting inclusive growth. However, it is one of the biggest
Page 2 of 32
challenges also which the emerging economies are facing. On the other hand, financial
development creates enabling conditions for growth when access to safe, easy and affordable
credit and other financial services by the poor and weaker groups, disadvantaged areas and
lagging sectors and helps in accelerating growth and reducing income disparities and poverty.
Access to a well-functioning financial system, by creating equal opportunities, enables
economically and socially excluded people to integrate better into the economy and actively
contribute to development and protects themselves against economic shocks.
The major steps towards achieving of financial inclusion in India comprises of three phases,
namely:
Phase I (1960-1980): Social control of Banks (1960), Nationalisation of Banks (1969),
Lead Bank Scheme (1969), Setting up of Regional Rural Banks (RRBs) (1975) and
Priority Sector lending stipulation by RBI (1972);
Phase II (1980-2005): Integrated Rural Development programme promoted by
Government of India, Microfinance programme and Bank linkage facilitated by
NABARD; and
Phase III (2005 onwards): Development of Micro Finance Institutions (MFIs) and
including Financial Inclusion in a MISSION mode.
Mostly low income, unemployed and illiterate people, women and disabled are excluded from
the formal financial services. Lack of Banking habits, high transaction cost, lack of banking
knowledge and insufficiency of knowledge on banking products prevents the unbanked
people from knocking the door steps of banks. Thus, Financial Exclusion means No Savings,
No Insurance, No access to money advice, No affordable credit, No Bank account and No
Page 3 of 32
assets. There are people who desire the use of financial services, but are denied access to the
same. Consequently, there are three types of Financial Exclusions, namely:
People who do not have any access to a regulated financial system;
People who have limited access to banks and other financial services; and
Individuals who have inappropriate products.
Hypothesis
It has been assumed that samples so collected will result in a valid and reliable conclusion.
It has been assumed that all Scheduled Commercial Banks (SCBs) in India function within
a similar non-controllable external environment.
All the banks have followed the uniform principle of appointing Business Correspondents
(BCs) as per extant RBI guidelines.
All the banks have followed same Business Correspondents (BC) model.
Research Methodology
The research work consists of Theoretical; Historical and Analytical Study, based on the
collection of data from primary and secondary sources. It is an attempt to understand and
differentiate the significance of Financial Inclusion in the context of our country wherein a
large population is deprived of the financial services which are very much essential for overall
economic and inclusive growth of India.
Data Collection
The study is based on both, primary and secondary data. The Primary data has been collected
with the aid of survey/questionnaire containing relevant information through discussions and
Page 4 of 32
Page 5 of 32
In advanced economies, Financial Inclusion is more about the knowledge of fair and
transparent financial products and a focus on financial literacy, whereas in emerging
Page 6 of 32
economies, it is a question of both access to financial products and knowledge about their
fairness and transparency. Financial Inclusion has assumed paramount importance in today
scenario, as the major focus is on an overall inclusive growth; as it has been realised and
accepted that the poor is bankable and that the unbanked villages and poor provide
remarkable business opportunity for banks and other financial intermediaries viz., Business
Facilitators (BF) or Business Correspondents (BC).
Twin Aspects of Financial Inclusion: Financial Literacy and Financial Inclusion are twin
pillars. While Financial Literacy stimulates the demand side, making people aware of what
they can demand, Financial Inclusion acts from supply side providing the financial
market/services what people demand.
Scope of Financial Inclusion: It includes access to financial products and services like, Bank
accounts, Immediate Loans/Credit, Savings products, Remittances/ Transfer of Funds &
Payment services, Micro Insurance Services (Life and Non- Life), Mortgage, Financial
advisory services, Mutual Funds/ Annuity Products, Pension Products etc.
The broad strategy for financial inclusion in India in recent years comprises the following
elements:
Encouraging penetration into unbanked and backward areas and encouraging agents and
intermediaries such as Non Government Organisations (NGOs), MFIs, Civil Society
Organisations and BCs;
Focusing on a decentralised strategy by using existing arrangements such as State Level
Bankers Committee (SLBC) and District Consultative Committee and strengthening local
Page 7 of 32
Banking Coverage: A village is covered by banking service if either a bank branch is present
or a BC is physically present or visiting that village. Further, as per the guidelines issued by
RBI, availability of banking services means availability of a Minimum of Four Products:
A basic No-Frills banking account with Overdraft Facility (A No Frills Account (NFA) is
one for which no minimum balance is insisted upon and for which there are no service
charges for not maintaining the minimum balance);
A Remittance Product for Electronic Benefit Transfer and other remittances;
A Pure Savings Product ideally a recurring or a variable recurring deposit; and
Entrepreneurial Credit such as General Credit Card (GCC) and Kisan Credit Card (KCC).
Reasons of Financial Exclusion (Past & Present): The major reasons were/are Absence of
Technology; Absence of reach and coverage; Absence of Viable Delivery Mechanism; not
having an appropriate Business model and Rich have no compassion for poor.
Financial Exclusion (Who are these People): Underprivileged section in rural and urban
areas like, Farmers, small vendors, etc., Agricultural and Industrial Labourers, People
Page 8 of 32
engaged in un-organised sectors, Unemployed Women, Children, Old people and physically
challenged people.
Total
% of Rural Branches
Branches (a)
Branches (b)
(a)/(b)
1990
34,791
59,752
58.23%
1995
33,004
62,367
52.92%
2000
32,734
65,412
50.04%
2005
32,082
68,355
46.93%
2010
32,494
84,604
38.41%
2012
34,671
93,659
37.02%
Year
Fig. 1
Percentage of Rural Bank Branches over Total
Bank Branches
Percentage (Rural/Total)
70
60
50
40
30
20
10
0
1990
1995
2000
2005
2010
2012
Observation: Share of rural branches vis--vis total branches has been showing a declining
trend.
Page 10 of 32
31.03.2010
31.03.2011 31.03.2012
54,258
100,183
147,534
21,475
22,662
24,701
32,684
77,138
120,355
99
383
2,478
27,353
54,246
82,300
Villages
3
covered
through
Business
Correspondents BCs
Other modes like Rural ATMs, Mobile
Vans etc.
Number of villages > 2,000 population
covered
Number of villages < 2,000 population
covered
26,905
45,937
65,234
33,042
57,329
95,767
50.3
75.4
105.5
42.6
57.0
93.3
0.1
0.5
1.5
0.1
0.2
0.6
15.90
18.20
20.30
11
billion)
Number of Kisan Credit Cards (KCCs)
12
Page 11 of 32
billion)
Number
14
of
General
Credit
940.1
1,237.4
1,651.5
0.9
1.0
1.3
25.8
21.9
27.3
12.6
29.6
52.1
18.7
64.6
119.3
Cards
15
billion)
Number
of
Communication
Information
and
Technology
(ICT)
16
based
accounts
through
BCs
(in
million)
Number of transactions during the year
17
(in million)
Fig. 2
Villages Covered (Population Wise)
160,000
140,000
Number
120,000
65,234
100,000
80,000
45,937
Villages Co vered > 2000
60,000
40,000
20,000
82,300
26,905
54,246
27,353
0
2010
2011
Page 12 of 32
2012
Fig. 3
Villages Covered (Mode Wise)
160,000
147534
140,000
120,355
120,000
Number
100183
100,000
77,138
80,000
Other M o des
54258
60,000
To tal Villages
32,684
40,000
24,701
22,662
21,475
20,000
99
2,478
383
0
2010
2011
2012
Fig. 4
Number
100,000
80,000
60,000
95,767
40,000
57,329
20,000
33,042
0
2010
2011
Page 13 of 32
2012
Fig. 5
No-Frill Accounts
120
105.5
100
80
75.4
No . o f NFA s
60
50.3
No . o f NFA s with OD
40
20
1.5
0.5
0.1
0
2010
2011
2012
Fig. 6
Amounts Outstanding in No-Frill Accounts
100
93.3
90
80
70
57
60
A mo unt o f NFA s
50
42.6
40
30
20
10
0.6
0.2
0.1
0
2010
2011
Page 14 of 32
2012
Fig. 7
Kisan and General Credit Cards
25.00
20.30
20.00
18.20
15.90
15.00
No . o f KCCs
No . o f GCCs
10.00
5.00
1.3
0.9
0.00
2010
2011
2012
Fig. 8
Amounts Outstanding in KCCs & GCCs
1800
1651.5
1600
1400
1237.4
1200
A mo unt o f KCCs
1000
940.1
800
A mo unt o f GCCs
600
400
200
25.8
27.3
21.9
0
2010
2011
Page 15 of 32
2012
Fig. 9
ICT based accounts through BCs
60.00
52.10
50.00
40.00
29.60
30.00
20.00
12.60
10.00
0.00
2010
2011
2012
Fig. 10
Transactions during the year
140.00
119.30
120.00
100.00
80.00
64.60
60.00
40.00
20.00
18.70
0.00
2010
2011
Page 16 of 32
2012
Total No.
Total No.
of
of
Villages yet
Villages
Villages
to be
of FI
of BCs
Accounts
appointed
Allotted
Covered
Covered
opened
720
6,640
6,639
6,262
2,985,903
11
11
45,686
Islands
Andhra Pradesh
Arunachal Pradesh
Assam
2,319
2,319
629
428,695
Bihar
9,213
9,177
36
7,097
2,944,040
Chandigarh
Chhattisgarh
1,050
1,050
802
241,613
30
30
23
30,615
5,486
Dadra
&
Nagar
Haveli
10
Delhi
110
107
84
35,810
11
Goa
41
41
36
6,817
12
Gujarat
3,502
3,502
2,712
998,903
13
Haryana
1,838
1,838
1,727
737,641
14
Himachal Pradesh
48
48
41
36,184
15
795
726
69
618
254,749
Page 17 of 32
16
Jharkhand
1,541
1,541
1,487
1,554,596
17
Karnataka
3,395
3,395
3,035
1,704,723
18
Kerala
120
120
104
162,421
19
Lakshadeep
20
Madhya Pradesh
2,736
2,736
2,439
1,355,462
21
Maharashatra
4,292
4,292
3,988
2,212,227
22
Manipur
186
186
95
48,968
23
Meghalaya
39
39
12
62,381
24
Mizoram
14
14
11
4,886
25
Nagaland
196
196
73
181,782
26
Orrisa
1,877
1,875
1,738
614,090
27
Puducherry
42
42
34
33,428
28
Punjab
1,576
1,576
1,355
561,948
29
Rajasthan
3,883
3,879
2,779
1,078,613
30
Sikkim
43
43
41
18,327
31
Tamil Nadu
4,445
4,445
4,051
1,888,419
32
Tripura
419
419
414
442,872
33
Uttar Pradesh
16,270
16,269
13,452
7,849,863
34
Uttarakhand
226
226
202
63,161
35
West Bengal
7,486
7,398
88
7,108
3,046,524
74,398
74,194
204
62,468
31,637,553
Total
Source: SLBC Conveners
Page 18 of 32
East
Total No. of
Total No.
Total No. of
Villages
of BCs
FI Accounts
Allotted
Covered
be Covered appointed
opened
20,863
20,790
73
17,479
9,539,356
3,227
3,227
1,279
1,233,597
20,117
19,991
126
17,430
8,159,250
3,786
3,786
3,241
1,597,075
Zone
(NEZ)
11,754
11,750
9,544
4,332,661
14,651
14,650
13,495
6,775,614
Total
74,398
74,194
204
62,468
31,637,553
20,000
In Numbers
15,000
To tal No . o f Villages Co vered
10,000
To tal No . o f Villages yet to be
Co vered
5,000
0
NZ
NEZ
EZ
CZ
Zones
Page 19 of 32
WZ
SZ
Fig. 12
Status of FIP as on 31.03.2012
100%
90%
80%
To tal No . o f Villages yet to be
Co vered
70%
60%
To tal No . o f Villages
Co vered
50%
40%
30%
20%
10%
0%
NZ
NEZ
EZ
CZ
WZ
SZ
Zones
Fig. 13
In Numbers
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
NZ
NEZ
EZ
CZ
Zones
Page 20 of 32
WZ
SZ
Fig. 14
Total No. of FI Accounts Opened (31.03.2012)
12,000,000
In Numbers
10,000,000
8,000,000
6,000,000
4,000,000
2,000,000
0
NZ
NEZ
EZ
CZ
WZ
SZ
Zones
Analysis of Consolidated FIP Progress for the half year ended 31st March 2012
Table 5
Total No. of
Total No. of
Total No. of
Total No.
Total No. of
Villages yet
S.No. Month
Villages
Villages
of FI
BCs
to be
Allotted
Covered
Accounts
appointed
Covered
opened
September 2011
74,359
41,695
32,664
35,482 16,418,035
October 2011
74,358
45,546
28,812
39,440 19,393,454
November 2011
74,404
49,437
24,967
43,546 20,997,553
December 2011
74,411
55,465
18,946
46,963 22,829,958
January 2012
74,404
62,629
11,775
49,871 25,512,452
February 2012
74,401
69,078
5,323
59,952 27,989,324
March 2012
74,398
74,194
204
62,468 31,637,553
Page 21 of 32
Fig. 15
Analysis for half year ended 31.03.2012
8,000
7,000
In Numbers
6,000
5,000
4,000
Increase in Village
Coverage
3,000
2,000
1,000
0
October 2011 November
2011
February
2012
M arch 2012
Month
Observation: As compared to the third quarter, there has been an increase of around 36% in
the coverage of villages, which illustrates that it has been done just to achieve the planned
figures.
Fig. 16
Analysis of % of Villages yet to be covered for half
year ended 31.03.2012
50%
45%
40%
Percentage
35%
30%
25%
20%
15%
10%
5%
0%
October
2011
November
2011
December
2011
January
2012
Month
Page 22 of 32
February
2012
March 2012
Observation: As compared to the third quarter decline from 44% to 34%r, there has been an
steep decline from 34% to just 7% of the percentage of total villages to be covered vis--vis
the total allotted villages, which in turn again reflects that it has been done just to achieve the
planned figures.
Fig. 17
Analysis for half year ended 31.03.2012
12,000
10,000
In Numbers
8,000
6,000
Increase in BCs
Appointed
4,000
2,000
0
Octo ber 2011
November
2011
December
2011
January 2012
February
2012
M arch 2012
Month
Observation: As compared to the third quarter, there has been an increase of around 35% in
the appointment of BCs, which reflects higher emphasis of the banks only in the last quarter
of the fiscal year.
Page 23 of 32
Fig. 18
Analysis for half year ended 31.03.2012
4,000,000
3,500,000
In Numbers
3,000,000
2,500,000
2,000,000
Increase in FI
Accounts Opened
1,500,000
1,000,000
500,000
0
Octo ber 2011 November
2011
December
2011
January 2012
February
2012
M arch 2012
Month
Observation: As compared to the third quarter, there has been an increase of around 37% in
the number of FI accounts opened, which reflects higher emphasis of the banks only in the
last quarter of the fiscal year.
2.
3.
In case of deficit, do you borrow money from private money lenders or otherwise?
4.
5.
6.
7.
8.
Do you know about different types of saving accounts? (Savings, FD, RD, No Frill)
9.
Do you know about different types of loan products available to you by FIs? (Personal
Loan, Vehicle Loan, KCC, GCC, Educational Loan, Non Farm Loan viz., Shop Loan,
etc, Agricultural Loan, Agricultural Allied Activity Loan viz., Dairy, Poultry etc)
10
Yes (%)
27 32 47 49 31 18 23 31 29
No (%)
73 68 53 51 69 82 77 69 71 91
Fig. 19
CATEGORY I : RESPONSES
100
90
80
Percentage (%)
70
60
Yes
50
No
40
30
20
10
0
1
Question Number
Page 25 of 32
10
Are you satisfied with the banks payment and incentive scheme/mechanism? Are you
satisfied with the revenue model of your bank?
2.
Are regular training courses imparted by the bank? Further, are you aware of the Finance
Ministry/RBI and other regulatory bodies decisions taken for you from time to time?
3.
Are your concerned base branch official and higher authorities of the bank helpful and
provide necessary assistance?
4.
5.
Do you undertake any other economic activity apart from being BC?
6.
7.
8.
Do you try to cross sell other financial products viz., insurance/mutual funds etc.?
9.
Are KYC norms being followed strictly? Are the details of KYC still pending in respect
of accounts already opened so far?
10
Yes (%)
16
11
15
34
28
38
21
No (%)
96
93
84
89
85
66
72
94
62
79
Page 26 of 32
Fig. 20
CATEGORY II : RESPONSES
120
Percentage (%)
100
80
Yes
60
No
40
20
0
1
10
Question Number
Page 27 of 32
Key Findings
On analysis of six months data for FIP, it can easily be stated that the banks are just
perceiving Financial Inclusion as a compulsion;
Further, on detailed analysis it can easily be stated that more perseverance is being placed
in the fourth quarter only, for achieving the budgeted figures as envisaged by the higher
authorities, for that particular fiscal year, which in turn again shows the sign of compulsion
rather than persuasion;
Based on the survey and interactions with the end beneficiaries and the business
correspondents (BCs), the following elucidation can be made:
That the main motivational factor for BCs is entirely missing viz., financial stability;
That there is a great need of organising regular financial literacy programmes for
creating awareness among the villagers and end beneficiaries;
That the base branch manager and the higher official of the banks should visit the
Page 28 of 32
That there is a great need of organising regular training programmes for Business
Correspondents (BCs) in order to update them about the ever changing environment,
system and technology(s);
That there exist a great need towards attaining proper coordination and
communication between the end beneficiaries and the bank through the aid of the
main intermediary viz., Business Correspondents (BCs);
Recommendations
The BC Model needs to be liberalised, for ensuring their financial viability and motivation;
Banks should providing adequate training to BCs with respect to emerging new
technologies, new products and systems;
Both digital and physical connectivity needs to be improved immediately so as to reduce
the difficulties of reach and coverage;
There is a strong need to restructure the financial system particularly the rural financial
system for achieving inclusive growth;
The use of IT solutions for providing banking facilities at doorstep holds the potential for
scalability of the Financial Inclusion initiatives;
There needs to be proper systematic coordination with UIDAI (multi-purpose Unique
Identity Cards, an initiative of the Government of India) in order to make the best use of it
for the purpose for financial inclusion;
It is recommended that National Financial Inclusion Mission on the lines of National
Literacy Mission be formed to carry out systematic and coordinated drive for financial
Page 29 of 32
inclusion;
Involving educational institutions, both at high school and higher education level is
necessary to make them understand the importance of financial inclusion for inclusive
growth in the economy which in turn would motivate them to automatically participate in
the financial system.
Partnering with trustworthy and acclaimed peoples organisations for accelerating the
process of financial inclusion especially in the rural areas.
The BCs should operate under proper supervision to avoid the risk of fraud and
misappropriation;
The banks have to start a rigorous drive to open branches in the unbanked areas;
End beneficiaries need to be financially literate to make apt use of banking services and
services need to be more specifically designed to meet demand;
The documentation part for opening of bank accounts and availing loans needs to be
simplified, as the present guidelines are more tedious and result in huge costs for the poor
in accessing the banks for any kind of services.
State Governments and Local Administration should play a pro-active role in facilitating
Financial Inclusion viz., creating awareness and involving district and block level
functionaries in the entire process, undertaking financial literacy drives etc.
Political will is an all important aspect in any developmental effort. Political leadership
should accord adequate importance for financial inclusion in order to motivate and
mobilise all the weaker sections of the society in favour of financial inclusion for their
economic upbringing.
In a huge country like India, there needs to be huge publicity for popularising the concept
of Financial Inclusion and its benefits to the common man. Consequently, a comprehensive
Page 30 of 32
Conclusion
Financial Inclusion has far reaching consequences, which can help many people come out of
abject poverty conditions. Financial inclusion provides formal identity, access to payments
system & deposit insurance. The objective of financial inclusion is to extend the scope of
activities of the organized financial system to include within its ambit people with low
incomes. Through graduated credit, the attempt must be to lift the poor from one level to
another so that they come out of poverty. There is a need for coordinated action between the
banks, the Government and others to facilitate access to bank accounts amongst the
financially excluded.
References
[1] Excerpts from presentation by Dr. K.C.Chakrabarty, Deputy Governor, Reserve Bank of
India in various SKOCH Summits.
[2] Economic Times
[3] ADB, (2007): Low-Income Households' Access to Financial Services, International
Page 31 of 32
Experience, Measures for Improvement and the Future; Asian Development Bank
[4] Mohan, R. (2006): 'Agricultural Credit in India: Status, Issues and Future Agenda',
Economic and Political Weekly (March), pp.1013-23.
[5] Peachy, S. and A. Roe, (2004): Access to Finance - What Does it Mean and How Do
Savings Bank Foster Access?, Brussels: World Savings Bank Institute.
[6] Sen, Amartya, (2000): Development as Freedom, Anchor Books, New York, 2000.
[7] H.M. Treasury, (2007): Financial Inclusion: the Way Forward, HM Treasury, UK,
March 2007.
[8] Kempson, E. (2006): Policy Level Response to Financial Exclusion in Developed
Economies: Lessons for Developing Countries, Paper for Access to Finance: Building
Inclusive Financial Systems, World Bank, Washington, May 2006.
[9] http://financialservices.gov.in/index.asp
[10] http://www.rbi.org.in/home.aspx
[11] RBI Bulletins
[12] http://planningcommission.nic.in/
[13] http://uidai.gov.in/
[14] http://en.wikipedia.org/wiki/Financial_inclusion
[15] http://indiamicrofinance.com/
[16] http://www.mapsofindia.com/
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