Financial Inclusion is the delivery of banking services at an affordable cost to the vast sections of disadvantaged and low income group. As banking services are in the nature of public good, it is essential that availability of banking and payment services to the entire population without discrimination is the prime objective of the public policy. It means not only to extending banking facilities to rural people but also to provide at their convenient time and location. Availability of banking services means to provide Basic Savings Bank Deposit Account (formerly known as No-Frills account) with Overdraft facility; Remittance product for Electronic Benefit Transfer (EBT) and other remittances; Variable Recurring Deposit and General Credit Card or Kisan Credit Card etc.
Evolution of Financial Inclusion: Social Banking is an instrument for Financial Inclusion. Though, social banking initiatives were introduced in India long back through measures such as co-operative banking movement, nationalization of banks (in 1969 & 1980), creation of Regional Rural Banks etc., their success was largely constrained by the size and population of the country (1.21 billion) and nonavailability of banking services. In the above backdrop financial inclusion has received a big boost and greater efforts have been laid on inclusive banking. The following are the steps initiated for enhancing financial inclusion in India.
- Introduction of Basic Saving Bank Deposit account (known as No-Frill account) for all individuals with simplified KYC norms.
- Information and Communication Technology (ICT) based Business Correspondent model for delivery of low cost door step banking services in remote villages is being implemented.
- All villages with population above 2000 are already covered under FIP. Process of covering the remaining villages with population below 2000 is underway.
- Opening of 25% of new branches by banks in unbanked rural centers is made as mandatory.
- Mobile and network companies have been allowed to partner with banks in offering services collaboratively.
- Government has encouraged a multi-channel approach including mobiles, handheld devices, smart cards, micro ATMs, kiosks etc., for providing financial services to the target group.
- A village is considered to be covered by banking service if either a Brick & Mortar Branch or Ultra Small Branch or Business Correspondent.
Opening a Basic Savings Bank Deposit account is only the first step in building the relationship which would require sustained efforts on the part of Banks as well as Customers to achieve the objective of Financial Inclusion. However, in rural areas customers cannot be expected to come to branches in view of opportunity cost and Time and hence banks will have to reach out through a variety of technology driven delivery channels such as ATMs, Bio-metric ATMs, Mobile ATMs, Smart Cards and use of Post offices.
i)Low Cost ATMs: The presence of ATMs mostly found in Metro/Urban centers and banks are not keen to install at Rural/Semi Urban centers in view of high investment and low transaction volume. Deployment of low cost ATMs at Rural/SU centers with basic features (cash withdrawal, balance enquiry etc.,) enables the customers to have access to cost effective convenient banking.
ii) Biometric ATMs: The penetration of ATMs into Rural / Semi-urban areas may not serve the purpose unless it is put to use by both Literate and Illiterates. The existing ATMs are not being used optimally by rural folk on account of PIN and Password related issues. Introduction of Biometric ATMs enables the illiterate and semi-literate customers to avail ATM facilities on par with literate customers. Under this, Thumb impression of the cardholder will be scanned and transfer the same to central server as one time measure. While swapping the card customer is required to keep thumb on the slot, system verifies the finger print and allows access to his account/s.
iii) Mobile ATMs are designed for providing ATM facility to the rural folk as well as other customers. The Van would move at the pre-determined places and also accessible to Biometric card holders. It can also be used for opening of accounts during the visits to the rural areas. All the above initiatives warrant the banks to invest substantial amount on infrastructure besides recurring expenditure. There is an urgent need to bank on alternatives to overcome the said constraints and to extend branch less banking to achieve desired goal.
Business Correspondent (BC): The BC model allows the bank to use third parties (Individuals/associations/institutions/26ttest26ed) to extend the basic banking services. Normally the operations of BC should be within 30 KMs of base branch located in Rural/Semi-Urban/Urban areas and it is 5 KMs in case of Metro areas. However, the distance criteria may be relaxed with prior approval from DCC/SLBC. BCs are provided with laptop with connectivity to have seamless operations with the respective bank’s central server. BCs use biometric smart cards, in which customer data including finger prints are stored and works on PoS machines with key management.
Business Facilitators (BF) Model envisages the use of intermediaries by the banks to provide Non Financial Services to the public such as creating awareness about banks’ products/services, identification of borrowers/processing of applications, post sanction monitoring and follow-up etc.
Ultra Small Branches: Recently, the Government has directed banks to set up “Ultra Small” branches in all villages under financial inclusion scheme by March 2012, typically in a premises spread 100 to 200 sft. It aims to provide a wide range of banking services, including credit transactions, in villages where only cash transactions are being provided by BCs. A designated officer will visit the village on a prefixed date and time every week with laptop and will be connected to Bank’s central server (CBS).
Grama Kranthi General Credit Card (GK-GCC) Scheme: It is an Entrepreneurial credit scheme for covering the general credit needs of the Bank’s customers in FI villages. The nature of the loan is by way of overdraft/ cash credit with no end use stipulation. All Savings Bank Account holders having active Smart card with satisfactory transactions at least for a period of 3 to 6 months are eligible to avail General Credit Card. Account is in the nature of cash credit. Quantum of limit will be based on the assessment of income and cash flow of the entire household. The maximum limit per household shall be Rs.25,000/-. No collateral security should be insisted upon. The card holder is entitled to draw cash from the Point of Sale Terminals deployed at the custody of the CSP stationed at the particular village through authentication of fingerprints using smart card. Account will be reviewed every year and renewed after 3 years.
Financial Inclusion – Progress: Government/RBI has adopted a structured and planned approach towards FI by not just focusing on improving access to financial services but also encouraging demand for financial services through financial literacy initiatives. Adopted a bank-led model for FI, but have permitted non-bank entities to partner banks in their FI initiatives. Banks are advised to adopt innovative business models and delivery channels to expand FI efforts. There is a need for banks to develop new products and design new delivery models that are customized to the unique needs of the financially excluded population, both in the rural and urban areas. The progress made so far in quantitative terms is as under: