Taking Finance to the Masses:
Banking in India: Current Scenario
Rural sector provides employment to around 60% of the employable population .Yet, it is still credit starved. There are about 32 crore account holders in India where the adult population is 54 crore. The rural sector accounts for 30% of the total bank credit in 1990s and declined below it in 2005.
Around 69% of the population has no access to banking sector. The banking activity is again not uniform in India as it is high in Tamil Nadu, Andhra Pradesh, Karnataka and Kerala compared with the northern states. In states like Bihar, Manipur, Nagaland, Chattisgarh and Mizoram. Manipur stands at the bottom of the list where only 9% of the population has bank accounts .
According to a World Bank- NCAER Rural Financial Access survey(RFAS-2003) that around 44% of population borrows money from unorganised sector atleast once in a year at an average interest rate of 48%. Around 87% of rural population have no access to the formal credit sector. It has also been revealed that it takes on an average 33 months in Uttar Pradesh and 26 months in Andhra Pradesh to pass a loan. Bribe amount was anywhere between 8% and 42% of a loan amount.
Informal credit (both agricultural and professional money lenders) accounts for 56% of cash dues. Informal credit is mainly spent for emergencies (29%)which makes repayment difficult for the poor.
In the context of globalisation, liberalisation and privatisation the banking sector has been forced to assume a new role. The Indian banking sector is not is no longer an isolated entity. It is now affected by the dynamic and highly competitive global banking environment.
1. Technological Barrier:
a. Multiple product on non uniform platform and tools
b. Lack of innovations and proper technological back up
2. High Physical Infrastructural cost:
Setting up a branch of a bank with core banking solution can cost around 20 lakhs but business from these branches usually don’t meet expectations so private sector is not willing to invest in these branches.
3. Lack of banking knowledge among masses:
As we know literacy rate in India is around 65% and the criterion on which a person is adjudged as literate is again dubious even we consider this figure to be true then around 35% are illiterate and more than half of them live in villages who don’t rely on banks for deposits and prefer to keep their savings in almirah. So, it is also hampering the growth of Indian banking sector especially in rural areas.
4. Presence of unorganised sector in banking industry:
Around53% of banking sector still comes from unorganised sector comprising of mahajans, moneylenders and others who provide loan at a very high rate of interest which is proving to be a hurdle to bring banking to the masses.
5. Lack of political will:
Politician might take votes from rural uneducated people but when it comes to fulfil their promises, they don’t even turn up. In the same way taking finance to the masses requires a phenomenal political support and will to include poor in purview of financial services.
INNOVATIVE WAYS TO REACH MASSES:
1. Using Technology as a way to reach masses:
Case in consideration: FINO (Financial Information Network & Operations)
Mission: Take financial services to the doorstep of those who don’t have access to it.
Driving Philosophy:“To create the Rs. 2 ice-cream of banking”. Ice creams don’t cost much to make but storage and delivering charges cost heavily. However, A Rs. 2 ice cream sold by an ice-candy man with a pushcart costs less because it’s frozen at the point of sale.
Target customer Group: People (urban or rural) who don’t have any access to any bank or banks aren’t interested in them.
Concept: It is a technology and service provider that serves as a conduit between banks, insurers, state governments and their customers. It has tie up with 13 banks, 20 MFIs, 3 insurers and 6 state governments. Customers have to apply through a simple process and to submit their Photograph and Proof of residence, than they would be handed over a ‘Smart card’ after getting their fingerprint using a biometric scanner. Fino appointed around 6000 agents-Bandhus who visits customers on daily basis and customers can either deposit, withdraw as well as can get credit from them or they can get it processed it from 5,750 Fino transaction centers.
Products: Fino Saral (Micro credit)
Fino Tatkal (Remittance)
Fino Sure (Insurance)
Fino Parichay (National Identity Card)
Fino Plus (Recurring deposit)
Fino Sayana Ravi (Financial Advisors)
Numbers of customer: 6 million in 25 towns & 30,000 villages in 16 states.
Target 2011: 25 million customers
Technology used by ‘BANDHUS’ at field.
2. Micro Finance- Future weapon to make organised finance sector accessible to the Poor
Micro finance as clear from its name ‘micro’ + ‘finance’ it means lending amount in small sum. Micro credit has been defined by the micro credit summit held in 1997 as “Programmes that provide credit for self employment and other financial and business services to very poor persons”.
It has been realised that easy access to credit is the need of the hour rather than just subsidised credit which involves lengthy bureaucratic procedures. Micro finance has generated considerable amount of enthusiasm-not just in development community but also in political circles.
Micro finance includes: credit, savings, insurance, and other financial services to the poor. Micro finance increases the productivity of self employment in the informal sector of economy.
Basically in India three models work:
1. Model I- SHGs formed and financed by banks
2. Model II- SHGs formed by NGOs and formal agencies but directly financed by banks
3. Model III-SHGs financed by banks using NGOs and other agencies as financial intermediaries
Based on study findings, there is an annual demand from the 75 million poor households in the country. But, the supply may be around 5000 crore only. Union government launched a Micro finance development fund with a start up contribution of Rs 100 crore from the RBI. The number Of SHGs linked with banks has increased from just 500 in 1990s to over 8 lakh by 2004.
Micro finance has become an attractive proposition for private banks also. This also helps them achieve the priority sector lending. True micro finance primary targeted at the rural population. But, the urban poor too are receiving due attention. Under the expansive plans of the government backed by the SIDBI micro finance is fast spreading its roots into urban locals.
Indian Microfinance in figures:
Client Outreach- 14,068,645
Portfolio Outstanding- 61,241,156,410
No. Of districts served- 398
Out of which no. of poorest districts- 207
Case in consideration: Sa-Dhan
Guiding statement: Strengthening the microfinance provisions in India
Members: Sha-Dhan’s mission is to build the field of community development finance in India to help its member and associate institutions to better serve low income households, particularly women, in both rural and urban India, in their quest for establishing stable livelihoods and improving quality of life.
Founded: As the association of community Development Finance Institutions by SEWA Bank, BASIX, Dhan Foundation, FWWB, MYRADA, RGVN, SHARE and PRADAN in 1999
Target customer group: Persons without an access to formal banking sector
Total Loan Disbursal: Around 1500 crores
Total customer base: 7 million poors
3. Indian Postal Service – A Prospective Tool for Mass Finance Reach
Driving Philosophy of organisation:
1. Total dedication to understand and fulfil customers’ needs.
2. Total devotion to provide efficient and reliable services, which customers consider to be value for money.
3. Total commitment to providing challenging and rewarding career for every employee.
Network: India has the largest postal network in the world with 1,55,618 post offices including 1,39,081 post offices in rural areas.
Concept: Now with such a huge rural presence post office can be used as a tool for taking finance to the masses as financial facilities like:
a. Banking(in collaboration with SBI)
b. Postal life insurance
c. Mutual funds
d. International Money Transfer
Above mentioned services being already provided by Post Office but scale at which these services are operating is very low. So, post office employees should be trained in providing financial services like banking, loan disbursal, mutual funds, insurance etc.
4. Using government schemes (NREGS, NRHM, JNNURM etc) as a bullet to target masses
NREGS (National Rural Employment Guarantee Act) one of the flagship schemes of union government in which government allocated around 30,000 crores which guarantees employment to every individual for 100 days. Under this scheme a job card is being issued to every individual with his/her information and photo on it. So, this job card can be used for bringing them under purview of finance or banks by making it mandatory to open an a/c with a bank where payment of salary can be credited and if a person wants loan then it can be approved up to a certain limit.
NRHM (National Rural Health Mission)one of the key schemes of union government which ensures a health insurance of every individual up to an amount of 30,000. So, in this scheme govt. can introduce steps to include the poor financially by making payment for health expenses through an individual bank account and people should be motivated to keep their money in it.
5. Using network of LIC agents as a novel way to reach the poor:
Around 20 lakh LIC agents are currently working for LIFE INSURANCE CORPORATION of India in rural, urban, metro areas trying to sell LIC policies. So, why they can’t be encouraged to sell the bank accounts and loans to clients especially in rural areas? They can be used and with their selling domain coming under financial services it would be easier for customer to relate them with other financial services.
6. Repeating the success story of ITC e-choupal and HUL shakti program in the banking sector
Hindustan Unilever's Project Shakti is a rural initiative that targets small villages populated by less than 2000 individuals. It is a unique win-win initiative that catalyses rural affluence even as it benefits business. Project Shakti impacts society in two ways – the Shakti Entrepreneur program creates livelihood opportunities for underprivileged rural women and the Shakti Vani program improves quality of life by spreading health and hygiene awareness.
Project Shakti benefits business by significantly enhancing HUL’s direct rural reach, and by enabling HUL’s brands to communicate effectively in media-dark regions. In the same way finance can be sold through such direct marketing route like vanis and other such agents to the needy people.
7. UNIQUE IDENTIFICATION PROJECT:
Government under the leadership of Nandan Nilekany started a project to provide a biometric card to each and every citizen of India which will include his/her personal information, finger prints, photo. This card can be extended to provide banking information too in that card and in this way millions new accounts can be opened which is first step in this direction of ensuring balanced development in the country.
Rural areas which constitutes around 67% of India’s population has not been preferred customer segment of banking industry from years but now there is a need of will power among RBI, banks, financial companies, politicians and government to include the unprivileged sections of the society financially to bring them in the mainstream of the development.
‘Where there is a will, there is a way”
There are hundred more ways for balance development but there is a need of determination among financial and political circles to do justice with them. Certain measures as mentioned in the article which can be implemented with not much high additional cost. In rural areas money is still saved at homes so a huge amount of money can’t be brought into the economy once they would be linked with the banking that can be brought into the economy. Measures suggested above are:
1. Using technology
2. Micro finance
3. Utilising government schemes
4. India post network
5. LIC agents network
6. Marketing strategy of HUL’s Shakti
7. Unique Identification Project
These measures can be utilised to reach the masses which is the need of hour for the balanced economic development of the country.