A

COMPREHENSIVE PROJECT REPORT

ON
“FINANCIAL INCLUSION”
Submitted to
PARUL INSTITUTE OF ENGINEERING AND TECHNOLOGY- MBA

INSTITUTE CODE 742

IN PARTIAL FULFILLMENT OF THE

REQUIREMENT OF THE AWARD FOR THE DEGREE OF
MASTER OF BUSINESS ASMINISTRATION
Under

Gujarat Technological University

UNDER THE GUIDANCE OF
Submitted by
Enrollment No.:____
M.B.A – SEMESTER IV
PARUL INSTITUTE OF ENGINEERING AND TECHNOLOGY- MBA

M.B.A PROGRAMME

Affiliated to Gujarat Technological University

Ahmedabad

April 2011
PROJECT REPORT ON FINANCIAL INCLUSION
 CONTENT

No. Title
1 FINANCIAL EXCLUSION
I. INTRODUCTION
II. DEFINITION
III. THE INDIAN SCENARIO

2 FINANCIAL INCLUSION

3 CAUSES OF FINANCIAL EXCLUSIO

I. DEMAND SIDE BARRIERS
II. SUPPLY SIDE BARRIERS

4 CONSEQUENCES OF FINANCIAL EXCLUSION

5 POLICY DEVELOPMENTS
I. FIRST PHASE DEVELOPMENTS (1969-1981)
II. SECOND PHASE – ANNUAL POLICY (2005-2006)
III. RANGRAJAN COMMITTEE

6 HOW GOVERNMENT AND RBI CAN BUILD ON EXISTING BANKING

STRUCTURE TO PROVIDE FINANCIAL SERVICES TO ALL

7 PRESENT STATUS OF FINANCIAL INCLUSION IN THE COUNTRY

8 STUDY RESULT
I. HOUSEHOLD PROFILE
II. FINANCIAL POSITION
III. BANKING HABITS
IV. THOSE WHO DO NOT HAVE BANK ACCOUNT
V. CREDIT PATTERN
VI. SUGGESTIONS

9 CONCLUSION

BIBLIOGRAPHY
QUESTIONNAIRE

Chapter -1
FINANCIAL EXCLUSION

INTRODUCTION

The World is moving at an amazing pace. Thanks to the advances in technologies, distances have
become meaningless. Globalization has enabled the rise of global trade leading to wealth
generation in developed as well as developing countries. Wealth can be created in any part of the
world with a single click of the mouse. Developing nations, like India have immensely benefited
from the globalizing economy. Wealth has been pouring into the country as investments (both
direct and institutional). Indian companies are acquiring companies all over the world, hence
benefitting from expansion. This has directly affected the lives of many citizens in our country.
For many, there has been a dramatic increase in the disposable income. The savings,
consumption and investment patterns have changed in the past few years. This has meant that
there has been an increase in demand for many financial services from different financial firms.

The market has responded to this soaring demand with making attractive offers and services for
the customers at affordable rates. The liberalization of the economy in the 1990s has brought in
new players into the field which has not only brought in some much needed fresh air to the
stagnant financial sector but also competition for the same market space which was relatively
unknown in the financial sector till then. Since then, there have been progressive reforms in the
financial sector allowing for better and easier facilities and options to the consumer. An
increasing financially aware middle class have realized the importance of financial services.
Banks have streamlined and rationalized themselves to meet with the changing demands of the
people. Banks have become partners in growth for many offering them a safer and secure future.

However, not all the reforms in the financial services sector have still been able to bring in the
other half of India’s population who are un-banked. There are many reasons that are obvious for
this kind of financial exclusion. The new surge in the economy has not yet percolated into the
lower strata of the society. It is easy to blame the capitalist growth for this sort of income
disparities. Even after 60 years of Indian independence, 1/3 of our population is still illiterate (let
alone financially literate) and at least 26% of the population still lives under the poverty line.
There are many statistics, which goes on to prove that for even a developing nation India has a
long way to go.

Most of the un-banked or financially excluded population of India lives in rural areas;
nevertheless, there is also a significant amount of the urban population of India who face the
same situation even with easy access to banks. Many of the financially excluded in these areas
are illiterates earning a meager income just enough to sustain their daily needs. For such people,
banking still remains an unknown phenomena or an elitist affair. It is easier for them to keep
their money at their house or with some moneylenders and easily make immediate purchases
(which make up most of their expenditure) rather than to follow the cumbersome process at
banks. A lot of the financially excluded populations are at the mercy of moneylenders or pawn
shop owners. They should be made a part of the formal banking structure so that they could also
have the benefits that the others enjoy. By making them financially inclusive, we are making
their financial position less volatile. At the same time, we are treating them on an equal par with
other members of the population so that they would not be denied of access to a basic service
such as banking.

FINANCIAL EXCLUSION

Financial Exclusion is the process by which a certain section of the population or a certain group
of individuals is denied the access to basic financial services. The term came to prominence in
the early 1990’s in Europe where the geographers found that a certain pockets or regions of a
particular country were behind the others in utilizing financial services. It was also found that
these pockets or regions were poorer compared to regions which utilized more of financial
services.

DEFINITION

The definition of financial exclusion will range upon several dimensions, but the most important
dimension are the breadth & focus of financial exclusion and the concept of relativity or
degree i.e. Financial Exclusion is defined in relation to some predefined standard(i.e. inclusion).
Breadth means the scope of definition; the broadest definitions of financial exclusion recognize
that there are many factors interacting between financial exclusion and social exclusion and
disadvantage. The type of such a broad definition is found in the seminal work of Leyshon and
Thrift, who define financial exclusion as “processes that prevent poor and disadvantaged social
groups from gaining access to the financial system”.

The other end of extreme definitions are narrowed its scope, for example, while Rogaly has a
broad view of social exclusion, his working definition of financial exclusion is narrow which he
stated as

“Exclusion from particular sources of credit and other financial services (including insurance,
bill-payment services, and accessible and appropriate deposit accounts)”

Extreme definition may be seen as a somewhat sweeping definition, with its apparent reference
to access to the financial system as a whole, rather than access to specific financial services or
products and access to specific channels of distribution. The other extreme of definitions of
financial exclusion are those that take a very narrow perspective based on a lack of ownership of,
or access to, particular types of financial services or products, including forms of credit and
insurance.

A person transacting regularly with his saving fund bank account and availing very basic of
services i.e. payment and remittances or for saving some of part of his income to meet future
contingencies/future requirement is said to be financially included despite the fact that he is not
availing all/majority of other financial services such as Insurance, investment schemes etc.
In other words, an individual having access to mainstream-necessary financially services is
considered to be financially included as opposed to the first extreme definition stated above.

The focus here refers to the group of people (communities) to household, a region to the
specific type of business; this is more often implicitly rather than explicitly acknowledged in the
literature
Further study of literature suggest that the operational definitions have also evolved from the
underlying public policy concerns that many people, particularly those living on low income,
cannot access mainstream financial products such as bank accounts and low cost loans, which, in
turn, imposes real costs on them -often the most vulnerable people.

Operational definitions are context-specific, originating from country-specific problems of

financial exclusion and socio-economic conditions. Thus, the contexts specific dimensions of
financial exclusion assume importance from the public policy perspective. In recent development
definitions have witnessed a shift in emphasis from the earlier ones, which defined financial
inclusion and exclusion largely in terms of physical access, to a wider definition covering access
to and use and understanding of products and services. This also underscores the role of financial
institutions or service providers involved in the process.

Finally, definitions of financial exclusion vary considerably according to the dimensions such as
the concept of relativity, i.e., financial exclusion defined relative to some standard (i.e.,
inclusion). This line of thinking defines the problem of financial exclusion as that emanating
from increased inclusion, leaving a minority of individuals and households behind.
Thus, there exists duality of hyper inclusion with some having access to a range of financial
products and at the same time a minority lacking even the basic banking services. This
phenomenon is observed mostly in developed countries with high degree of financial
development.
THE INDIAN SCENARIO :-

In India the focus of the financial inclusion at present is confined to ensuring a bare minimum
access to a savings bank account without frills, to all. There could be multiple levels of financial
inclusion and exclusion. At one extreme, it is possible to identify the ‘super-included’, i.e., those
customers who are actively and persistently courted by the financial services industry, and who
have at their disposal a wide range of financial services and products. At the other extreme, we
may have the financially excluded, who are denied access to even the most basic of financial
products.

In between are those who use the banking services only for deposits and withdrawals of money.
But these persons may have only restricted access to the financial system, and may not enjoy the
flexibility of access offered to more affluent customers.

Further, Financial exclusion may not definitely mean a social exclusion in India as it does in the
developed countries, but it is a problem that needs to be addressed. The large presence of
informal credit, could avoid social exclusion but the legal validity of such financial services
pose an obstacle for creating a modern globalizing economy.

Without a formal and a legally recognized financial system in which all sections of the
population are a part of, it would be impossible even for the most efficient of the governments to
reach out to all sections of the people. A stable and healthy financial service sector creates trust
among the people about the economy and only with this trust (which has legal validity) could a
strong, stable and an inclusive economy be created.
Financial exclusion could be looked at in two ways:
Lack of access to financial services mainly payment system, which could be due to several
reasons such as:

 Lack of sources of financial services in our rural areas, which are popular for the
ubiquitous moneylenders but do not have (safe) saving deposit and insurance services.
 High information barriers and low awareness especially in women and in rural areas.

 Inadequate access to formal financial institutions that exist to the extent that the banks
could not extend their outreach to the poor due to various reasons like high cost of
operations, less volume and more number of clients, etc. among many others.

 Poor functioning and financial history of some beleaguered financial institutions such as
financial cooperatives in many states, which limit the effectiveness of their outreach
figures.

 Primary Agricultural Cooperative Societies (PACS), which number around one lakh are
also often exclusionary, as their membership is restricted to persons with land ownership.
Even to their members, not many PACS offer saving services.
Lack of access to formal financial services in of both rural and urban areas, but is a larger issue
in cities and small towns. The distinction between access to formal and informal services is
crucial to understand, as informal financial markets suffer from several imperfections, which the
poor pay for in many ways.
Some attributes of informal financial services, due to which there is exclusion are:

A. High risks to saving: loss of savings is an easily discernible phenomenon in low-income

neighborhoods in urban areas.
B. High cost of credit and exploitative terms: credit against collateral such as gold is even
more expensive than the effective interest rates, similarly, rates paid by hawkers and vendors
who repay on daily basis are very high.

C. High cost and leakages in money transfers: the delays in sending money home through all
informal channels add to these.
D. Near absence of insurance and pension services: life, asset, and health insurance needs.

Another key aspect of financial exclusion is the lack of “financial education and advice”. In
India, as the basic literacy rate is low supporting basic financial capability is indeed not just
necessary, but also equally difficult.
Financial exclusion is often related to more complex social exclusion issues, which makes
financial literacy and access to basic financial services even more complex.
Chapter -2

FINANCIAL INCLUSION:-

The word Financial Inclusion could be described as being the opposite of financial exclusion.
However, financial inclusion is more of a process rather than a phenomenon.
It is a process by which financial services are made accessible to all sections of the population. It
is a conscious attempt to bring the un-banked people into banking.

“The process of ensuring access to financial services and timely and adequate credit where
needed by vulnerable groups such as weaker sections and low income groups at an affordable
cost”
(The Committee on Financial Inclusion (Chairman: Dr. C. Rangarajan, 2008)

Financial Inclusion does not merely mean access to credit for the poor, but also other financial
services such as Insurance. Financial Inclusion allows the state to have an easier access to its
citizens, with an inclusive population, for e.g.: the government could reduce the transaction cost
of payments like pensions, or unemployment benefits.
It could prove to be a boon in a situation like a natural disaster, a financially included population
means the government will have much less headaches in ensuring that all the people get the
benefits. It allows for more transparency leading to curtailing corruption and bureaucratic
barriers in reaching out to the poor and weaker sections. An intelligent banking population could
go a long way by effectively securing themselves a safer future.

The objective of Financial Inclusion

 Access to various mainstream financial services e.g. saving bank account, credit,
insurance, payments and remittance and financial and credit advisory services.

 The main objective is to provide the benefit of vast formal financial market, & protect
them from exploitation of informal credit market, so that they can be brought into the
mainstream
WHAT IS CONSIDERED AS MAINSTREAM FINANCIAL SERVICES NECESSARY
FOR FINANCIAL INCLUSION OF HOUSEHOLD?

• Basic saving bank account- an account with all basic feature of saving account.

• Payment and remittances services –

• Immediate credit – in case of contingencies like accidents, medical treatment etc, they
should be provided immediate credit.
• Entrepreneurial credit – this means, to run/expand small scale business/shop or any
economic activity, easy credit should be provided, so that financial dependence can be
created amongst households.

• Housing finance- funding for purchasing new residential or reconstruction

• Insurance – life\healthcare- to plan future better

• Financial education\credit counseling centers – to guide them which product suits them
better, where to go credit needs, what are various services available to better their
personal financial planning.
Financial Inclusion therefore, is delivery of not only banking, but also other financial services
like insurance, pension, remittance, mutual funds, etc. delivered at affordable, though market
driven costs. Opening a no-frills account is just a beginning to a continuous process of providing
banking and financial services. Once the first step of safety of savings is achieved, the poor
require access to schemes and products which allow their savings to grow at rates which provide
them growth beyond mere inflation protection.

To understand it better, let’s take life of migrant street vender living in almost every part
of Delhi, and his financial life will look like this-->
WHAT TYPE OF PRODUCT OR SERVICES IS REQUIRED FOR THIS TYPE OF
CUSTOMER5??
POSSIBLY
1. A bank account, where he/she can save small
amounts at regular intervals ideally with
savings being collected at their place of work or
a specified point of transaction (SPOT) in the
locality
2. Micro-Credit for working capital to increase
stock and business. This credit can be short
term and repayment to be configured at
regular intervals. Savings history and credibility
checks to be used as a proxy for collateral.
3. Insurance for life
4. Health Insurance for minor illnesses and
hospitalization
5. Investment plan for child's education
6. Pension for old age

Working or operational definitions of financial exclusion generally focus on ownership or access

to particular financial products and services. The focus narrows down mainly to the products and
services provided by the mainstream financial service providers (Meadows et al., 2004). Such
financial products may include money transmission, home insurance, short and long-term credit
and savings6. Furthermore, the operational definitions have also evolved from the underlying
public policy concerns that many people, particularly those living on low income, cannot access
mainstream financial products such as bank accounts and low cost loans, which, in turn, imposes
real costs on them - often the most vulnerable people7 More importantly, Financial Inclusion is
imperative for creating an inclusive economy at all fronts. This attains special importance at this
stage of rising food and oil prices, without an inclusive economy the country’s development will
suffer. In the recently concluded G8 meeting in Hokkaido, Japan, the World Bank chief Robert
Zoellick reiterated the importance of creating an inclusive economy in an increasingly globalized
World.

Chapter -3

CAUSES OF FINANCIAL EXCLUSION:-

Financial Exclusion may also have resulted from a variety of structural factors such as
unavailability of products suiting their requirements, stringent documentation and collateral
requirements and increased competition in financial services. The Causes of financial exclusion
can be identifying broadly in two categories, first the demand side and the second supply side.

A. DEMAND SIDE BARRIERS :-

The people who have the requirement\need but still not demanding\availing the financial
services\products which can be due to the following reasons:

i. Low Income:
A higher share of population below the poverty line results in lower demand for
financial services as the poor may not have savings to place as deposit in savings banks; hence
the market lacks incentives in providing financial service/products.
Most the people belonging to financially excluded group are having irregular/seasonal income.
Hence opening of a bank account and operating it i.e. deposit and withdrawal in very small
denominations with high frequency will increase the cost of transaction, adding to that they also
anticipate that bank will refuse if they transact with so small amount.
Further provided that, as they have low earning they cannot maintain minimum balance
requirements of a normal saving bank account which ranges from Rs. 500 to Rs 5000(Rs. 500 in
case of PSB and Rs. 5000 for Pvt. Sector Banks) and various annual maintenance charges(AMC)
levied by banks.

ii. Transaction cost:

Vast number of rural population resides in small villages which are often
located in remote areas devoid of financial services. Consequently, the overall transaction cost to
the customer in terms of both time and money proves to be a major deterrent for visiting
financial institutions. The excluded section of the society find informal sector more reachable
due to proximity and ease of transaction.

iii. Financial Services Being Very Complex In Nature: excluded sections of the society find
dealing with organized financial sector cumbersome.
iv. Easy access to alternative credit: For a good amount of low income people, the alternative
credit provided by the money lenders and pawn shop owners are far more attractive and hassle
free compared to getting a loan from a commercial bank.
Some of the poor that do not have property find it impossible to get credit without the collateral.
The uneducated poor would rather put their trust in moneylenders who provide easy non-
collateral credit than on the well established commercial banks. There might also be cultural
reasons for trusting a moneylender rather than a bank.
Distance from bank branch, branch timings, cumbersome documentation/procedures, unsuitable
products, language, staff attitude are common reasons – Higher transaction cost.

v. Low literacy level: The lack of financial awareness about the benefits of the banking and also
illiteracy act as stumbling blocks to financial inclusion. The lack of financial awareness maybe
the single most risk in financial inclusion as those who are newly included in the financial sector
have to maintained within the formal financial sector.

vi. Legal identity: Lack of legal identities like identity cards, birth certificates or written records
often exclude women, ethnic minorities, economic and political refugees and migrant workers
from accessing financial services.

vii. Sophisticated Financial Terminologies: Bankers often use complex financial

terminologies, which the masses are unable to comprehend and hence do not approach for
financial services voluntarily.

viii. Terms and conditions: Terms and conditions attached to products such as minimum
balance requirements and conditions relating to the use of accounts as in the case of saving bank
account often dissuade people from using such products/services
Further, term and conditions and its framework is generally so tedious and detailed that
understanding it is not possible for those who cannot even write their name or are less literate
and do not understand English or Hindi(in case of some regional rural areas).
ix. Psychological and cultural barriers: The feeling that banks are not interested to look into
their cause has led to self-exclusion for many of the low income groups. However, cultural and
religious barriers to banking have also been observed in some of the countries.

x. Disincentives for the consumer: The cost of maintaining an account (non-zero balance
accounts) and procedural problems in accessing formal credit act as disincentives for consumers
with weaker financial background.

The bank would rather give smaller number of large credits to middle and upper class individuals
and institutions, due to the lower cost involved in banking with them. The banks and other
financial service firms have fewer financial products which are attractive to the poor and the
socially disadvantaged. All these act against the interest of a consumer from a poor background.
B. Supply side barriers

Some of the important causes of relatively low extension of institutional credit in the rural areas
are risk perception, cost of its assessment and management, lack of rural infrastructure, and vast
geographical spread of the rural areas with more than half a million villages, some sparsely
populated

i. Perception among banks about rural population:

Generally, there exists a perception among
banks that large number of rural population is un-bankable as their capacity to save is limited.
Therefore, they do not look favorably at small loans often required by marginalized section. Such
loans are considered to be non-productive.

ii. Miniscule margin in handling small transactions:

As the majority of rural population resides
in small villages that too in remote areas, banks find small transactions cost ineffective.

iii. KYC requirements:

The KYC requirements of independent documentary proof of identity
and address can be a very important barrier in having a bank account especially for migrants and
slum dwellers.

iv. Unsuitable products:

One of the most important reasons for the majority of rural population
not approaching the formal sector for financial services is the unsuitability of products and
services being offered to them. For example, most of their credit needs are in form of small lump
sums and banks are reluctant to give small amounts of loan at frequent intervals. Consequently,
they have to resort to borrowing money from moneylenders at uxorious rates.

v. Staff attitude:
As public sector banks (PSBs) cater to more than 70% of banked population
and about 90% of rural banked population, a majority of staffs in these PSBs remain insensitive
to needs of customer and shirk away from duty. The situation is even worst in rural branches
where they behave with rural poor in a condescending manner.

vi. Poor market linkage:

It is often argued that we may have been growing second fastest in
the world, but still our 40-55% of people living in rural and semi-urban areas do not have access
to basic necessities of life. 75% of villages in rural areas have no electricity arrangement, so it
can be imagined that how much penetration market would be having especially when it comes to
providing financial services/products, this may be that they are reluctant or there is no
institutional as well as physical. Therefore there is no institutional infrastructure available in the
rural area.
vii. Lack of interest from Commercial Banks:
There is a lot of criticism on the commercial
banks because of their inherent tendency to think that poor people are not worthy of being
banked on. Banks are in business to make profit and would like to only indulge in activities that
give them profit. Due to high transaction costs on smaller transactions and the speculated high
risk in lending credit to the lower strata of the society, they see banking with poor as unviable.
Even if banks are concerned at the poor, they do it in a manner of corporate social responsibility
or social service and treat them differently instead of trying to bring them into the mainstream.
Unless banks see any incentive in banking with the weaker sections of the society, they would
not be willing to do so.

xi. Poor credit record:

Areas with poor credit record, bad past experience, socially unstable and
poor recovery of previous loan/credit given are observed to be highly financially excluded, as
banks blacklist such areas as the part of their risk management strategy.
Chapter -4

CONSEQUENCES OF FINANCIAL EXCLUSION :-

There are three dimensions of consequences that financial exclusion has on the people affected:

• financial exclusion can generate financial consequences by affecting directly or

indirectly the way in which the individuals can raise, allocate, and use their monetary
resources.
• A wider dimension of financial exclusion can be identified as socio-economical
consequences i.e. groups which are socially excluded are mostly also found financially
excluded.
• A last dimension can be identified as the social consequences generated by financial
exclusion. These are the consequences affecting the various links that are binding the
individuals: link to corresponding to self esteem, links binding to the society and links
binding to community and/or relationships with other individual or groups.

Access to a bank account, credit and insurance are now widely regarded as essential supports for
personal financial management and for undertaking transactions in modern societies (Speak and
Graham, 1999). According to the Treasury Committee, UK (2006), financial exclusion can
impose significant costs on individuals, families and society as a whole.

These include:

 Barriers to employment as employers may require wages to be paid into a bank account;
 Opportunities to save and borrow can be difficult to access;
 Owning or obtaining assets can be difficult;
 Difficulty in smoothening income to cope with shocks; and
 Exclusion from mainstream society.
In terms of cost to the individuals, financial exclusion leads to higher charges for basic financial
transactions like money transfer and expensive credit, besides all round impediments in basic/
minimum transactions involved in earning livelihood and day to day living. It could also lead to
denial of access to better products or services that may require a bank account. It exposes the
individual to the inherent risk in holding and storing money – operating solely on a cash basis
increases vulnerability to loss or theft. Individuals/families could get sucked into a cycle of
poverty and exclusion and turn to high cost credit from moneylenders, resulting in greater
financial strain and unmanageable debt.

At the wider level of the society and the nation, financial exclusion leads to social exclusion,
poverty as well as all the other associated economic and social problems. Thus, financial
exclusion is often a symptom as well as a cause of poverty. Financial exclusion is not evenly
distributed throughout society; it is concentrated among the most disadvantaged groups and
communities and, as a result, contributes to a much wider problem of social exclusion.

A significant portion of demand for credit by rural households arises in order to ease the
financial burden of crop failures, illness or death, and health care. In the case of
microenterprises, credit may be needed to achieve a reasonable and viable scale of activities. The
rising entrepreneurship spanning rural, semi-urban and urban areas, particularly in the
unorganized and informal sectors may give rise to large potential demand for credit. The
evidence on the demand for credit in India suggests that medical and financial emergencies are
the major reasons for household borrowings. Medical emergencies were particularly high for the
lowest income quartile (IIMS, 2007). Thus, the difficulty in obtaining finance from formal
sources has major social implications.

Another cost of financial exclusion is the loss of business opportunity for banks, particularly in
the medium-term. Banks often avoid extending their services to lower income groups because of
initial cost of expanding the coverage may sometimes exceed the revenue generated from such
operations. These business related concerns of banks were, however, meaningful when
technology development was at a nascent stage and expanding the coverage of financial services
required substantial initial investment. The strides in technology have now reduced the required
initial investment in a significant manner. What is required is to explore the appropriate
technology which is suitable to socio-economic conditions of the region under consideration.
Moreover, availability and usage of financial services by the otherwise excluded population
groups would lead to increase in their income levels and savings. This, in turn, would have the
potential to increase savings deposits as well as credit demand, implying profitable business for
banks in the medium-term.

Two other factors have often been cited as the consequences of financial exclusion. First, it
complicates day-to-day cash flow management - being financially excluded means households,
and micro and small enterprises deal entirely in cash and are susceptible to irregular cash flows.
Second, lack of financial planning and security in the absence of access to bank accounts and
other saving opportunities for people in the unorganized sector limits their options to make
provisions for their old age. From the macroeconomic standpoint, absence of formal savings can
be problematic in two respects. First, people who save by informal means rarely benefit from the
interest rate and tax advantages that people using formal methods of savings enjoy. Second,
informal saving channels are much less secure than formal saving facilities. The resultant lack of
savings and saving avenues means recourse to non-formal lenders such as moneylenders. This, in
turn, could lead to two adverse consequences –

a. Exposure to higher interest rates charged by informal lenders; and

b. The inability of customers to service the loans or to repay them

As loans from non-formal lenders are often secured against the borrower’s property, this raises
the problem of inter-linkage between two apparently separate markets. Judged in this specific
context, financial exclusion is a serious concern among low-income households, mainly located
in rural areas.

To sum up, the nature and forms of exclusion and the factors responsible for it are varied and,
thus, no single factor could explain the phenomenon. The principal barriers in the expansion of
financial services are often identified as physical access, high charges and penalties, conditions
attached to products which make them inappropriate or complicated and perceptions of financial
service institutions which are thought to be unwelcoming to low income people.

There has also been particular emphasis on socio-cultural factors that matter for an individual to
access financial services. The most conspicuous dimension of exclusion is that a majority of the
low-income population do not have access to the very basic financial services. Even amongst
those who have access to finance, most of them are underserved in terms of quality and quantity
of products and services.

The critical dimensions of financial exclusion include access exclusion, condition exclusion
(conditions attached to financial products), price exclusion, and self exclusion because of the fear
of refusal to access by the service providers. The financial exclusion process becomes self-
reinforcing and can often be an important factor in social exclusion, especially for communities
with limited access to financial products, particularly in rural areas. Apart from the above
mentioned supply side factors, demand side factors may also significantly affect the extent of
financial inclusion. For instance, low level of income and hence low savings would result in
lower deposits. Similarly, at low level of income, the ability to borrow is affected because of low
repayment capacity and inability to provide collateral. In the Indian context, both demand and
supply side factors have an important bearing on the usage of financial/banking services.
Chapter – 5

POLICY DEVELOPMENT

We have seen in the previous chapter that in our country the financial services has been\being
used by a very limited group of people\individuals. To enlarge the area and service sector,
certain policy measures have been taken by government.

Policy development in India for financial inclusion can be seen in three stages
 I. FIRST PHASE DEVELOPMENTS (1969-1981)

In 1969, the banks were nationalized in order to spread bank’s branch network in order to
develop strong banking system which can mobilize resources/deposits and channel them into
productive/needy sections of society and also government wanted to use it as an important agent
of change. So, the planning strategy recognized the critical role of the availability of credit and
financial services to the public at large in the holistic development of the country with the
benefits of economic growth being distributed in a democratic manner. In recognition of this
role, the authorities modified the policy framework from time to time to ensure that the financial
services needs of various segments of the society were met satisfactorily
Before 1990, several initiatives were undertaken for enhancing the use of the banking system for
sustainable and equitable growth. These included

I. Nationalization of private sector banks,

II. Introduction of priority sector lending norms,
III. The Lead Bank Scheme,
IV. Branch licensing norms with focus on rural/semi-urban branches,
V. Interest rate ceilings for credit to the weaker sections and
VI. Creation of specialized financial institutions to cater to the requirement of the agriculture and
the rural sectors having bulk of the poor population.

SOCIAL NETWORKING APPROACH

The announcement of the policy of social control over banks was made in December 1967 with a
view to securing a better alignment of the banking system with the needs of economic policy.
The National Credit Council was set up in February 1968 mainly to assess periodically the
demand for bank credit from various sectors of the economy and to determine the priorities for
grant of loans and advances. Social control of banking policy was soon followed by the
nationalization of major Indian banks in 1969. The immediate tasks set for the nationalised banks
were mobilization of deposits on a massive scale and lending of funds for all productive
activities. A special emphasis was laid on providing credit facilities to the weaker sections of the
economy.
THE PRIORITY SECTOR APPROACH

The administrative framework for rural lending in India was provided by the Lead Bank Scheme
introduced in 1969, which was an important step towards implementation of the two-fold
objectives of deposit mobilization on an extensive scale and stepping up of lending to weaker
sections of the economy. Realizing that the flow of credit to employment oriented sectors was
inadequate; the priority sector guidelines were issued to the banks by the Reserve Bank in the
late 1960s to step up the flow of bank credit to agriculture, small-scale industry, self-employed,
small business and the weaker sections within these sectors.
The target for priority sector lending was gradually increased to 40 per cent of advances in the
case of domestic banks (32 per cent, inclusive of export credit, in the case of foreign banks) for
specified priority sectors. Sub targets under the priority sector, along with other guidelines
including those relating to Government sponsored programmed, were used to encourage the flow
of credit to the identified vulnerable sections of the population such as scheduled castes,
religious minorities and scheduled tribes. The Differential Rate of Interest (DRI) Scheme was
instituted in 1972 to provide credit at concessional rate to low income groups in the country.

LEAD BANK SCHEME APPROACH

But all these measure were focused towards inclusion of a sector, regional areas etc., there was a
very less or no emphasis was on financial inclusion of Individual/household level. The
promotional aspects of banking policy have come into greater prominence. The major emphasis
of the branch licensing policy during the 1970s and the 1980s was on expansion of commercial
bank branches in rural areas, resulting in a significant expansion of bank branches and decline in
population per branch. The branch expansion policy was designed, inter alia, as a tool for
reducing inter-regional disparities in banking development, deployment of credit and urban-rural
pattern of credit distribution. In order to encourage commercial banks and other institutions to
grant loans to various categories of small borrowers, the Reserve Bank promoted the
establishment of the Credit Guarantee Corporation of India in 1971 for providing guarantees
against the risk of default in repayment. The scheme, however, was subsequently discontinued.
 II. SECOND PHASE – ANNUAL POLICY (2005-2006)

As the central bank of the country, the Reserve bank of India has taken steps to ensure financial
inclusion in the country. It has tried to make banking more attractive to citizens by allowing for
easier transactions with banks. In 2004 RBI appointed an internal group to look into ways to
improve Financial Inclusion in the country.
With a view to enhancing the financial inclusion, as a proactive measure, the RBI in its Annual
Policy Statement for the year 2005-06, while recognizing the concerns in regard to the banking
practices that tend to exclude rather than attract vast sections of population, urged banks to
review their existing practices to align them with the objective of financial inclusion. In the Mid
Term Review of the Policy (2005-06),
It is observed that there were legitimate concerns in regard to the banking practices that tended to
exclude rather than attract vast sections of population, in particular pensioners, self-employed
and those employed in the unorganized sector. It also indicated that the Reserve Bank would

1. Implement policies to encourage banks which provide extensive services, while dis-
incentivising those which were not responsive to the banking needs of the community, including
the underprivileged;

2. The nature, scope and cost of services would be monitored to assess whether there was any
denial, implicit or explicit, of basic banking services to the common person; and

3. Banks urged to review their existing practices to align them with the objective of financial
inclusion.

RBI exhorted the banks, with a view to achieving greater financial inclusion, to make available a
basic banking ‘no frills’ account either with nil or very minimum balances as well as charges that
would make such accounts accessible to vast sections of the population. The nature and number
of transactions in such accounts would be restricted and made known to customers in advance in
a transparent manner. All banks are urged to give wide publicity to the facility of such no frills
account so as to ensure greater financial inclusion.

RBI came out with a report in 2005 (Khan Committee) and subsequently RBI issued a circular in
2006 allowing the use of intermediaries for providing banking and financial services. Through
such policies the RBI has tried to improve Financial Inclusion. Financial Inclusion offers
immense potential not only for banks but for other businesses. Through an integrated approach
the businesses, the NGOs, the government agencies as well as the banks can be partners in
growth.
Brief glimpses of main initiative are followings:-

a) No-Frill Accounts:

It is a basic saving fund account having all the features of a normal saving fund account which it
differs in the following aspects
1. The holder is not required to maintain any minimum balance requirement and also nothing is
charged for opening this type of account
2. KYC norms have been simplified so that everyone can have this account
3. Transaction are limited to 5-10 free transactions per month
4. ATM facility is provided free of cost
5. There is no account maintenance cost

Similar types of accounts, though with different names, have also been extended by banks in
various other countries with a view to make financial services accessible to the common man
either at the behest of banks themselves or the respective Governments.

b) Overdraft in Saving Bank Accounts:

Bank were advised to give credit in form of overdraft on saving bank account to its customer so
that in case of small credit need like medical bill, any accidental charges etc. can be met in.

c) KYC norms:

The Know Your Customer (KYC) norms were revised in order to make it easy for people to
avail financial services on February 18, 2008. These guidelines include

1. In case of close relatives who find it difficult to furnish documents relating to place of
residence while opening accounts, banks can obtain an identity document and a utility bill
of the relative with whom the prospective customer is living, along with a declaration
from the relative that the said person (prospective customer) wanting to open an account
is a relative and is staying with him/her. Banks can also use any supplementary evidence
such as a letter received through post for further verification of the address;

2. banks have been advised to keep in mind the spirit of the instructions and avoid undue
hardships to individuals who are otherwise classified as low risk customers;
 3. Banks should review the risk categorization of customers at a periodicity of not less than
once in six months.

4. Further, in order to ensure that persons belonging to low income group both in urban and
rural areas do not face difficulty in opening the bank accounts due to the procedural hassles, the
KYC procedure for opening accounts has been simplified for those persons who intend to keep
balances not exceeding rupees fifty thousand (Rs. 50,000/-) in all their accounts taken together
and the total credit in all the accounts taken together is not expected to exceed rupees one lakh
(Rs.1,00,000/-) in a year.

d) SHG Model:

A Self Help Group (SHG) is a group of about 15 to 20 people from a homogenous class who join
together to address common issues. They involve voluntary thrift activities on a regular basis,
and use of the pooled resource to make interest-bearing loans to the members of the group. In the
course of this process, they imbibe the essentials of financial intermediation and also the basics
of account keeping. The members also learn to handle resources of size, much beyond their
individual capacities. They begin to appreciate the fact that the resources are limited and have a
cost.

Once the group is stabilized, and shows mature financial behavior, which generally takes up to
six months to 1 year, it is considered for linking to banks. Banks are encouraged to provide loans
to SHGs in certain multiples of the accumulated savings of the SHGs. Loans are given without
any collateral and at interest rates as decided by banks. Banks find it comfortable to lend money
to the groups as the members have already achieved some financial discipline through their thrift
and internal lending activities. The groups decide the terms and conditions of loan to their own
members. The peer pressure in the group ensures timely repayment and becomes social collateral
for the bank loans.

Generally, the SHGs need self-help promoting institutions (SHPIs) to promote and nurture them.
These SHPIs include various NGOs, banks, farmers’ clubs, government agencies, self-employed
individuals and federations of SHGs. However, some SHGs have also been formed without any
assistance from such SHPIs. There are three different models that have emerged under the
linkage program-

I. Model I: This involves lending by banks directly to SHGs without intervention/facilitation by

any NGO.
II. Model II: This envisages lending by banks directly to SHGs with facilitation by NGOs and
other agencies.
III. Model III: This involves lending, with an NGO acting as a facilitator and financing agency.

Model II accounted for around 74 per cent of the total linkage at end-March 2007, while Models
I and III accounted for around 20 per cent and 6 per cent, respectively.
 e) KCC / GCC Guidelines:

GCC Scheme

With a view to providing credit card like facilities in the rural areas, with limited point-of-sale
(POS) and limited ATM facilities, the Reserve Bank advised all scheduled commercial banks,
including RRBs, in December 2005 to introduce a General Credit Card (GCC) Scheme for
issuing GCC to their constituents in rural and semi-urban areas, based on the assessment of
income and cash flow of the household similar to that prevailing under a normal credit card.
The Reserve Bank also advised banks to classify fifty per cent of the credit outstanding under
loans for general purposes under General Credit Cards (GCC), as indirect finance to agriculture
under priority sector. The Reserve Bank further advised banks in May 2008 to classify 100 per
cent of the credit outstanding under GCCs as indirect finance to agriculture sector under the
priority sector with immediate effect.

KCC Scheme

 Eligible farmer will be provided a Kishan Credit Card and a Pass Book or a Card-cum-
Passbook.

 Revolving cash credit facility allowing any number of withdrawals and repayments
within the limit.

 Entire production credit needs for full year plus ancillary activities related to crop
production to be considered while fixing limit. In due course, allied activities and non-
farm short term credit needs may also be covered.

 Limit to be fixed on the basis of operational land holding, cropping pattern and scales of
finance.

 Seasonal sub limits may be fixed at the discretion of banks.

 Limit of valid for 3 years subject to annual review.
 Conversion /re- schedulement of loans also permissible in case of damage to crops due to
natural calamities.
 As incentive for good performance, credit limits could be enhanced to take cares of
increase in costs, changing in cropping pattern etc.
 Security, margin and rate of interest as per RBI norms.
 Operations may be through issuing branch / PACS or through other designated branches
at the discretion of bank.
 Withdrawals through slips /cheques accompanies by card and passbook.
  Personal Accident Insurance of Rs. 50,000 for death and permanent disability and Rs.
25,000/- for partial disability available to Kishan Credit Card holder at an annual premia
of Rs. 15/- per annum

f) Financial Literacy Program:

Recognizing that lack of awareness is a major factor for financial exclusion, the Reserve Bank
has taken a number of measures towards imparting financial literacy and promotion of credit
counseling services. The Reserve Bank has undertaken a project titled “Project Financial
Literacy”.
The objective of the project is to disseminate information regarding the central bank and general
banking concepts to various target groups, including, school and college going children, women,
rural and urban poor, defense personnel and senior citizens. The banking information would be
disseminated to the target audience with the help of, among others, banks, local government
machinery, schools/colleges using pamphlets, brochures, films, as also, the Reserve Bank’s
website.
Various initiatives taken by the Reserve Bank in order to promulgate Financial Literacy:

 A multilingual website in 13 Indian languages on all matters concerning banking and the
common person has been launched by the Reserve Bank on June 18, 2007.
 Comic type books introducing banking to schoolchildren have already been put on the
website. Similar books will be prepared for different target groups such as rural
households, urban poor, defense personnel, women and small entrepreneurs.
 Financial literacy programs are being launched in each state with the active involvement
of the state government and the SLBC. Each SLBC convener has been asked to set up a
credit counseling centre in one district as a pilot project and extend it to all other districts
in due course.
 The ‘Financial Inclusion and Financial Literacy Cell’ has been established the college of
Agricultural Banking, which would act as a resource centre in this field.
 III.THIRD PHASE - RANGRAJAN COMMITEE

The Government of India (Chairman Dr. C. Rangarajan) constituted the Committee on Financial
Inclusion on June 26, 2006 to prepare a strategy of financial inclusion. The Committee submitted
its final Report on January 4, 2008. The Report viewed financial inclusion as a comprehensive
and holistic process of ensuring access to financial services and timely and adequate credit,
particularly by vulnerable groups such as weaker sections and low-income groups at an
affordable cost9. Financial inclusion, therefore, according to the Committee, should include
access to mainstream financial products such as bank accounts, credit, remittances and payment
services, financial advisory services and insurance facilities.
The Report observed that in India 51.4 per cent of farmer households are financially excluded
from both formal/informal sources and 73 per cent of farmer households do not access formal
sources of credit. Exclusion is most acute in Central, Eastern and North-eastern regions with 64
per cent of all financially excluded farmer households.

According to the Report, the overall strategy for building an inclusive financial sector should be
based on

• Effecting improvements within the existing formal credit delivery mechanism;

• Suggesting measures for improving credit absorption capacity especially amongst
marginal and sub-marginal farmers and poor non-cultivator households;
• Evolving new models for effective outreach; and
• Leveraging on technology-based solutions.

Keeping in view the enormity of the task involved, the Committee recommended the setting up
of a mission mode National Rural Financial Inclusion Plan (NRFIP) with a target of providing
access to comprehensive financial services to at least 50 per cent (55.77 million) of the excluded
rural households by 2012 and the remaining by 2015. This would require semi-urban and rural
branches of commercial banks and RRBs to cover a minimum of 250 new cultivator and non-
cultivator households per branch per annum. The Report of the Committee on Financial
Inclusion Committee has also recommended that the Government should constitute a National
Mission on Financial Inclusion (NaMFI) comprising representatives of all stakeholders for
suggesting the overall policy changes required, and supporting stakeholders in the domain of
public, private and NGO sectors in undertaking promotional initiatives.
The major recommendations relating to commercial banks included target for providing access to
credit to at least 250 excluded rural households per annum in each rural/semi urban branches;
targeted branch expansion in identified districts in the next three years; provision of customized
savings, credit and insurance products; incentivizing human resources for providing inclusive
financial services and simplification of procedures for agricultural loans. The major
recommendations relating to RRBs are extending their services to unbanked areas and increasing
their credit-deposit ratios; no further merger of RRBs; widening of network and expanding
coverage in a time bound manner; separate credit plans for excluded regions to be drawn up by
RRBs and strengthening of their boards.

In the case of co-operative banks, the major recommendations were early implementation of
Vaidyanathan Committee Revival Package; use of PACS and other primary co-operatives as BCs
and co-operatives to adopt group approach for financing excluded groups. Other important
recommendations of the Committee are encouraging SHGs in excluded regions; legal status for
SHGs; measures for urban micro-finance and separate category of MFIs.

CREATION OF SPECIAL FUNDS

The “Committee on Financial Inclusion” set up by the Government of India (Chairman: Dr. C.
Rangarajan) in its Interim Report recommended the establishment of two Funds, namely the
“Financial Inclusion Promotion and Development Fund” for meeting the cost of developmental
and promotional interventions for ensuring financial inclusion, and the “Financial Inclusion
Technology Fund (FITF)” to meet the cost of technology adoption.
The Union Finance Minister, in his Budget Speech for 2007-08 announced the constitution of the
Financial Inclusion Fund (FIF) and the FITF, with an overall corpus of Rs.500 Crore each at
NABARD.
The Government advised that for the year 2007-08 it was decided to initially contribute Rs.25
Crore each in the two funds by the Central Government, RBI and NABARD in the ratio
40:40:20. The final report of the Committee has been submitted to the Government in January
2008.
Chapter - 6

HOW GOVERNMENT AND RBI CAN BUILD ON EXISTING BANKING STRUCTURE

TO PROVIDE FINANCIAL SERVICES TO ALL

Banking system is like a team, which constitutes from various entities which are different in
nature, form, structure and its working but together they makes system in which they efficiently
work for a common motive.

SHG BANK LINKAGE PROGRAM

The SHG-Bank Linkage program can be regarded as the most powerful initiative since
independence for providing financial services to the poor in a sustainable manner. The program
has been growing rapidly YOY basis. Currently, 10 million SHG’s are working across the
country with a credit base of Rs. 100000 Crore. But this is not enough to reach the entire mass.
This number needs to be increased substantially.
However, the spread of the SHG- Bank linkage program in different regions has been uneven
with southern states accounting for the major chunk of credit linkage. Many states with high
incidence of poverty have shown poor performance under the program. NABARD has identified
13 states with large population of the poor, but exhibiting low performance in implementation of
the program. The ongoing efforts of NABARD to upscale the program need to be given a fresh
impetus. NGOs have played a commendable role in promoting SHGs and linking them with
banks.
As of now, SHGs are operating as thrift and credit groups. They may evolve to a higher level of
commercial enterprise in future. Hence, it becomes critical to examine the prospect of providing
a simplified legal status to the SHG.

MICRO FINANCE INSTITUTIONS (MFIs)

From the late 1980s, the emergence of the Grameen Bank in Bangladesh drew attention to the
role of micro- credit as a source of finance for micro-entrepreneurs. Lack of access to credit was
seen as a binding constraint on the economic activities of the poor.

Microfinance Institutions (MFIs) are those, which provide thrift, credit, and other financial
services and products of very small amounts mainly to the poor in rural, semi-urban or urban
areas for enabling them to raise their income level and improve living standards. Lately, the
potential of MFIs as promising institutions to meet the demands of the poor has been realized.
The closer proximity with the people at grassroots level and the mix of offering right products at
right price based on the actual needs of the masses makes their role very important in deepening
financial inclusion.

However, there is exigency to upscale their outreach. In India, out of some 400 million poor
workers, less than 20 per cent have been linked with financial services provided by MFIs.

Steps needed to promote MFIs

 One of the ways of expanding the successful operation of microfinance institutions in the
informal sector is through strengthened linkages with their formal sector counterparts.
 Efforts are needed to make MFIs an integral part of mainstream banking and to bring
down the rates of interest on microcredit to ensure the micro finance movement gets
further impetus
 A mutual beneficial partnership should be established between MFIs and Banks
contingent on comparative strength of each sector. For example, informal sector
microfinance institutions have comparative advantage in terms of small transaction cost
achieved through adaptability and flexibility of operations.

COOPERATIVE CREDIT INSTITUTIONS

Rural credit cooperatives in India were originally envisaged as a mechanism for pooling the
resources of people with small means and providing them with access to different financial
services. It has served as an effective institution for increasing productivity, providing food
security, generating employment opportunities in rural areas and ensuring social and economic
justice to the poor and vulnerable sections.
Despite the phenomenal outreach and volume of operations, the health of a very large proportion
of these credit cooperatives has deteriorated significantly. Various problems faced by these
institutions are:
 Low resource base
 High dependence on external source of funding
 Excessive government control
 Huge accumulated losses and imbalances
 Poor business diversification

Taking all these facts in mind, there is an urgent need to address the structural deficiencies of
these institutions in order to make them play an effective role in meeting the financial inclusion
goal.

RRBs
RRBs, post-merger, represent a powerful instrument for financial inclusion. RRBs account for
37% of total rural offices of all scheduled commercial banks and 91% of their workforce is
posted in rural and semi-urban areas. They account for 31% of deposit accounts and 37% of loan
accounts in rural areas. RRBs have a large presence in regions marked by financial exclusion of
high order.
RRBs are, thus, the best suited vehicles to widen and deepen the process of financial inclusion.
However, they need to be oriented suitably to serve the rural population with a specific mandate
to achieve financial inclusion.

THE BUSINESS CORRESPONDENT MODEL

In January 2006, the Reserve bank permitted banks to utilize the services of non-government
organizations (NGOs/SHGs), micro-finance institutions and other rural organizations as
intermediaries in providing financial and banking services through the use of business facilitator
(BF) and business correspondent models (BC). The BC model allows banks to do ‘cash in cash
out’ transactions at a location much closer to the rural population, thus addressing the last mile
problem.
Banks are also entering into agreement with Indian Postal Authority for using the enormous
network of post offices as business correspondents for increasing their outreach and leveraging
the postman’s intimate knowledge of the local population and trust reposed in him. The intention
behind the model is to promote the business of banking with low capital cost by enabling
outsourcing of rural business to agents on a commission basis.

Recent guidelines issued by RBI to ensure adequate supervision over operations of BCs:

 Every BC to be attached to a certain bank to be designated as the base branch

 The distance between the area of operation of a BC and the base branch should not
exceed 30 km in rural, semi-urban and urban areas.

Initiatives needed to be undertaken to promote BC model

 Allow more entry to private well governed small finance banks. The intent is to bring
local knowledge to financial products that are needed locally.
 Facilitate the use of existing networks like cell phone kiosks or kirana shops as business
correspondents to deliver products of large financial institutions.
 Liberalize the business correspondent regulation so that a wide range of local agents can
serve to extend financial services.
Chapter- 7

PRESENT STATUS OF FINANCIAL INCLUSION IN THE COUNTRY:-

Axis Bank to cover 12,000 villages under new financial

inclusion plan. Axis Bank, India’s third-largest private bank has begun implementing its rural
expansion plans and intends to cover 5,500 villages for financial inclusion by March 2011 and
scale it up to 12,000 villages in five years’ time.

Speaking to media, Mr. SK Chakrabarti, executive director

Axis bank’s retail banking division said that the bank is looking at several low cost delivery
models such as the use of smart card, mobile banking and point of transaction devices. Axis
Bank has also set up separate financial inclusion team to implement its financial inclusion
roadmap.
It may be recalled that Reserve Bank of India had asked all private and public sector banks to
chart a road map on financial inclusion. The plan was expected to cover issues like the number of
branches that banks would plan to open in rural India, the number of no-frill accounts they plan
and the number of business correspondents they would appoint to achieve their financial
inclusion target.
 SBI plans financial inclusion of 50,000 villages this fiscal. The bank under
financial inclusion initiative has planned to cover 50,000 unbanked villages during 2010-11
which will take total reach to 1, 50,000 villages," a senior official of SBI said.

SBI to set up 600 financial inclusion centers. The move to set up FICs is
aimed at powering the bank's drive to reach basic and affordable banking services to 12,421 out
of the 72,315 unbanked villages (identified according to 2001 census) having a population of
over 2,000 by March-end 2012. Under the financial inclusion plan, our bank is currently
providing basic banking services in 1,300 villages. This number will jump to 5,300 by March-
end 2011. We will complete the target of providing banking outreach in 12,421 villages by
March-end 2012,” said Mr. M.I. Dholakia, Deputy General Manager, SBI.

IDBI Bank has a branch

network of 702+ branches out of which 142 braches are in Semi-urban
and 73 branches are in rural areas.
Inclusion through “No Frill Accounts” The account can be opened with
a minimum balance of Rs.250/-. As at end-March 2010, 4, 34,512 such
accounts have been opened.

REVISED_FINANCIAL_INCLUSION_PLAN.pdf
 ICICI Bank Ltd, India’s largest private sector Bank and
Vodafone today announced a joint initiative to drive financial inclusion in the country. Under
this tie-up, both entities will offer a bouquet of financial products such as savings accounts, pre-
paid instruments and credit products through a mobile phone based platform.

This partnership is expected to bring the un-banked and under-banked population into the
organized financial services framework and assist in furthering the electronic payments market in
India. ICICI Bank will leverage the distribution strength of Vodafone, which manages over 1.5
million retail points for acquiring customers and servicing them.

The Reserve Bank of India (RBI) has over the past few years come out with various measures to
facilitate banks to achieve the financial inclusion agenda. RBI has allowed banks to appoint for-
profit' companies as Business Correspondents (BCs). This tie-up between ICICI Bank and
Vodafone is a step in that direction.

List-of-villages.pdf
 STUDY RESULT:-

• CREDIT PATTERN

Q. Purpose of borrowing

Particulars No of Percentage of
Respondent Respondents
s
Daily Need of Business 9%
Repayment of Older Debts 28 %
Day to Day Living Expenses 19 %
Celebration of Social Obligation 15 %
Education of Children 13 %
Housing Need 16 %
Total

Daily Need Day to Day Celebration of

of Repayment of Living Social Education of Housing
Business Older Debts Expenses Obligation Children Need
9.00% 28.00% 19.00% 15.00% 13.00% 16.00%
 Purpose for Borrowing
9% Daily Need of Business
16%

Repayment of Older Debts

Day to Day Living Expences

13% 28%
Celebration of Social
Obligation
Education of Children

15% Housing Need

19%

Q. Source of borrowing

Particulars No of Respondents Percentage of Respondents

Money Lenders
Banks
Relatives/Friends
Other
Total

Money Lenders Banks Relatives/Friends Other

 13.00% 9.00% 78.00% 0.00%

Sources of Borrowing
90.00%
80.00%
70.00%
60.00%
50.00%
40.00% Series1

30.00%
20.00%
10.00%
0.00%
Money Lenders Banks Relatives/Friends Other

AWARENESS ASPECT

Q. Do you know about banking credit?

 Bank Credit

41%
YES
NO
59%

Figure : Awareness of banking credit

59% of the respondents do not know what is banking credit, whereas 41% knows what is
banking credit.

Q. Have you ever approached any bank for credit need?

 Credit Need
17%

YES
NO

83%

Figure : Approached for banking credit needs

It is revealed from the above that only 17% of the respondents have approached banks for credit
needs.

Do you think that every bank should have the following services in place to enable
financial inclusion?
 Customer care

Cumulative
Frequency Percent Valid Percent Percent

Valid Strongly satisfied 83 55.3 55.3 55.3

Satisfied 59 39.3 39.3 94.7

Dissatisfied 8 5.3 5.3 100.0

Total 150 100.0 100.0

Customer care

Cumulative
Frequency Percent Valid Percent Percent

Valid Strongly satisfied 83 55.3 55.3 55.3

Satisfied 59 39.3 39.3 94.7

Dissatisfied 8 5.3 5.3 100.0

Total 150 100.0 100.0

One-Sample Statistics

N Mean Std. Deviation Std. Error Mean

Customer care 150 1.5533 .75562 .06170

 One-Sample Test

Test Value = 1

95% Confidence Interval of the

Difference

t df Sig. (2-tailed) Mean Difference Lower Upper

Customer care 8.969 149 .000 .55333 .4314 .6752

Credit Counciling center

Cumulative
Frequency Percent Valid Percent Percent

Valid Strongly satisfied 90 60.0 60.0 60.0

Satisfied 31 20.7 20.7 80.7

Neutral 16 10.7 10.7 91.3

Dissatisfied 9 6.0 6.0 97.3

Strongly Dissatisfied 4 2.7 2.7 100.0

Total 150 100.0 100.0

One-Sample Statistics

N Mean Std. Deviation Std. Error Mean

Credit Counciling center 150 1.7067 1.05262 .08595

 One-Sample Test

Test Value = 1

95% Confidence Interval of the

Difference

t df Sig. (2-tailed) Mean Difference Lower Upper

Credit Counciling center 8.222 149 .000 .70667 .5368 .8765

Easy credit norms

Cumulative
Frequency Percent Valid Percent Percent

Valid Strongly satisfied 64 42.7 42.7 42.7

Satisfied 77 51.3 51.3 94.0

Neutral 7 4.7 4.7 98.7

Dissatisfied 2 1.3 1.3 100.0

Total 150 100.0 100.0

One-Sample Statistics

N Mean Std. Deviation Std. Error Mean

Easy credit norms 150 1.6467 .63602 .05193

One-Sample Test

Test Value = 1

95% Confidence Interval of the

Difference

t df Sig. (2-tailed) Mean Difference Lower Upper

Easy credit norms 12.453 149 .000 .64667 .5441 .7493

 No frill account

Cumulative
Frequency Percent Valid Percent Percent

Valid Strongly satisfied 92 61.3 61.3 61.3

Satisfied 53 35.3 35.3 96.7

Neutral 5 3.3 3.3 100.0

Total 150 100.0 100.0

T-Test

One-Sample Statistics

N Mean Std. Deviation Std. Error Mean

No frill account 150 1.4200 .55888 .04563

One-Sample Test

Test Value = 1

95% Confidence Interval of the

Difference

t df Sig. (2-tailed) Mean Difference Lower Upper

No frill account 9.204 149 .000 .42000 .3298 .5102

Banking Sector:-

Q. Reason for not having Bank a/c:-

Cant meet
minimum
Not aware Lack of Tried out Balance Tedious work Low level of
of benefits Guidance but refused requirement procedure Literacy
19.00% 29.00% 6.00% 26.00% 7.00% 13.00%

Reason for not having Bank A/c

13%
19% Not aware of benefits

7% Lack of Guidance

Tried out but refused

Cant meet minimum

Balance requirement
Tedious work procedure
26% 29%
Low level of Literacy

6%

Q. Perception towards Banking:-

 Time & Cost Only for Privileged
Constraint Group Trust Need
6.00% 35.00% 27.00% 32.00%

Perception towards Banking

6%

32% Time & Cost

Constrainta
Only for Priviledged
35% Group
Trust

Need

27%

Literacy Level & Saving Habit:-

 Literacy level * Saving habit Crosstabulation

Count

Saving habit

Yes No Total

Literacy level School dropout 31 41 72

Upto 12th 24 47 71

Graduate 4 2 6

Post Gratuate 1 0 1

Total 60 90 150

Chi-Square Tests

Asymp. Sig. (2-

Value df sided)

Pearson Chi-Square 4.694a 3 .196

Likelihood Ratio 5.005 3 .171

Linear-by-Linear Association .027 1 .869

N of Valid Cases 150

Symmetric Measures

Asymp. Std.
Value Errora Approx. Tb Approx. Sig.

Interval by Interval Pearson's R -.014 .085 -.165 .870c

Ordinal by Ordinal Spearman Correlation .025 .084 .305 .761c

N of Valid Cases 150