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FINANCIAL EXCLUSION
Lack of access by certain consumers to appropriate,
low cost, fair and safe financial products and services from main stream providers More of concern in the community when it applies to lower income consumers and or those in financial hardship
Landless labour
Unorganized sector Urban slum dwellers Migrants Ethnic minorities Socially excluded groups
Check in accounts - 56% Life Insurance - 18.0% Credit Card - 21% ATM + Debit Card - 69%
2.
Geographical coverage
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37.4% villages are having a bank branch 25.2% semi urban are having bank branch 19.8%urban are having bank branch 17.6%metro cities are having bank branch
Definition
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
Financial inclusion-objectives
The development of rural India is an imperative for inclusive and equitable growth and to unlock huge potential of the population that is presently trapped in poverty with its associated deprivations by : GOI (2007)
at an affordable cost
to the vast sections of disadvantaged and low income
groups Focuses on the poor who do not have formal financial institutional support and getting them out of the clutches of local money lenders
FI Includes
Financial Inclusion should include access to financial
products and services like, Bank accounts -check in account Immediate Credit Savings products Remittances & Payment services Insurance & Healthcare Mortgage Financial advisory services Entrepreneurial credit
Approach Towards FI
Focus of the financial inclusion at present was
confined to ensuring a bare minimum access to a savings bank account without frills, to all Having a current account / savings account on its own, is not regarded as an accurate indicator of financial inclusion.
inclusion must be taken up in a mission mode as a financial inclusion plan at the national level The Mission should be responsible for suggesting the overall policy changes required for achieving the desired level of financial inclusion, and for supporting a range of stakeholders in the domain of public, private and NGO sectors
In 2006
GOI constituted committee on financial inclusion
In 2008
The committee submitted its report in Jan 2008
Financial Inclusion Promotion & Development Fund(FIPF) and the Financial Inclusion Technology Fund(FITF)
initial corpus of Rs. 500 crore each to be contributed by GOI / RBI / NABARD
Reserve Bank of India has permitted domestic Scheduled Commercial Banks to freely open branches in Tier 3 to Tier 6 centres with population of less than 50,000 under general permission, subject to reporting.
The Know Your Customer (KYC) requirements for opening bank accounts have been relaxed and simplified for accounts with balances not exceeding Rs. 50,000/- and aggregate credits in the accounts not exceeding Rs. one lakh a year.
Reserve Bank of India, advised all Scheduled Commercial Banks to make available a basic 'nofrills account with 'nil' or very low minimum balances that would make such accounts accessible to vast sections of the population. RBI has reported that banks have opened 7.43 crore such accounts as on March 31, 2011. Banks have also been advised to provide small overdrafts in such accounts.
A General Purpose Credit Card (GCC) facility up to Rs. 25,000/- has been provided by the banks at their rural and semi-urban braches. The credit facility is in the nature of revolving credit entitling the holder to withdraw up to the limit sanctioned. Interest rate on the facility is completely deregulated.
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. With a view to ensuring the viability of the BC model, banks have been permitted to collect reasonable service charges from the customer, in a transparent manner under a Board-approved policy.
The Reserve Bank of India has directed their sponsor banks of Regional Rural Banks (RRBs) to speedily, and fully, implement Core Banking Solution (CBS) in all RRBs and commit to firm timeline, by September 2011, by which all RRBs will become fully CBS- compliant this is expected to give a further fillip to financial Inclusion efforts given the penetrative outreach of the RRBs in the rural areas.
The Reserve Bank of India issued the guidelines for Mobile Banking transactions in October 2008. The guidelines permit banks to provide mobile banking transactions and mandates that all transactions have to originate from one bank account and terminate in another bank account. The guidelines also permit banks to extend this facility through their business correspondents.
To improve banking penetration in the North-East, the Reserve Bank asked the State Governments in the region and banks to identify centres where there is a need for setting up either full fledged branches or those offering Forex facilities, handling government business or for meeting currency requirements.
Financial Inclusion Fund (FIF) 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 has been set up at NABARD with an overall corpus of Rs. 500 crore each
Barriers
From the demand side, the big barriers are the lack
of awareness about financial services and products, limited literacy, especially financial literacy of the populace, and social exclusion. Many of the generic financial products are unsuitable for the poor and there is not much of an effort to design products suitable to their needs The unfriendly and unempathetic attitude of the banks to the customers also plays an important role in undermining the demand for financial services On top of that, exorbitant and often times nontransparent fees, combined with burdensome terms and conditions attached to the financial products, also dampens the demand
Barriers
From the supply side, the main barrier is the
transaction costs that the bankers perceive. Because of current low volumes , banks find that extending financial services is not cost effective Furthermore, lack of communication, lack of infrastructure , language barriers and low literacy levels all raise the cost of providing services and inhibit bankers from taking initiative from the supply side
conclusion
There is a need to identify and support institutional business correspondents who can provide the right scale and efficiency that is essential to deliver financial services in urban areas. It is important to tailor the financial products to the needs of various market subsegments than adopt a one size-fits-all approach. Finally, it is important to co-opt the delivery ecosystem to ensure the full circle execution by making the solutions financially viable and attractive to them as well.
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