Financial Inclusion

RURAL PLANNING & CREDIT DEPARTMENT
RESERVE BANK OF INDIA, NEW DELHI
PROJECT REPORT ON FINANCIAL

INCLUSION
SHAHEED SUKHDEV COLLEGE OF BUSINESS STUDIES

(UNIVERSITY OF DELHI)
VIVEK VIHAR, NEW DELHI-110095
Financial Inclusion P age |1
ACKNOWLEDGEMENT
I wish to express my gratitude to Reserve bank of India, New Delhi, for giving me an
opportunity to be a part of it and enhance my knowledge by granting permission to do my
summer project under RBI Young Scholar Award Scheme.
I’m grateful to my Mentor Dr. Dileep Singh (AGM,RPCD),Mr. S.Chaudhri (GM, RPCD), Mrs.
Usha Jain, Mrs. Harmesh Khanna (GM, HRDD), Mr. Rajul Naithani,Manager (HRDD), Mr.
Kulwant Singh (AM,HRDD),& Mr. Sandeep Kohli(AM, HRDD) for their invaluable guidance
and cooperation during the course of the project. They provided me with their assistance
and support whenever needed that has been instrumental in completion of this project.
The learning during the project was immense & invaluable. My work includes study of
Financial Inclusion, reason behind a large number of resident has no access to the banking
services, and how could we deliver Financial Services to excluded section of society, various
initiatives taken by Government of India and Reserve Bank Of India, strategical drivers for
enabling financial inclusion viz. Banks, Regional Rural Banks, Urban Co-Operative Banks
(UCBs), Microfinance Institutions, Design & Delivery Issues in Microfinance etc., I also
conducted survey to assess the impact of various policy initiative in Hari Nagar(west Delhi).
RAMAN KUMAR
RBI YOUNG SCHOLAR 2009
BFIA,
SHAHEED SUKHDEV COLLEGE OF BUSINESS STUDIES,DU
RURAL PLANNING AND CREDIT DEPARTMENT, RESERVE BANK OF INDIA, NEW DELHI
CONTENT
CHAPTER TITLE PAGE NO.
1 FINANCIAL EXCLUSION 3-8
I. INTRODUCTION
II. DEFINITION
III. THE INDIAN SCENARIO
2 FINANCIAL INCLUSION 9-12
3 CAUSES OF FINANCIAL EXCLUSIO 13-16
I. DEMAND SIDE BARRIERS

II. SUPPLY SIDE BARRIERS
4 CONSEQUENCES OF FINANCIAL EXCLUSION 17-20
5 POLICY DEVELOPMENTS 21-29
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 30-33
STRUCTURE TO PROVIDE FINANCIAL SERVICES TO ALL
7 PRESENT STATUS OF FINANCIAL INCLUSION IN THE COUNTRY 34-36
8 STUDY RESULT 37
I. HOUSEHOLD PROFILE
II. FINANCIAL POSITION
III. BANKING HABITS
IV. THOSE WHO DO NOT HAVE BANK ACCOUNT
V. CREDIT PATTERN
VI. SUGGESTIONS
9 CONCLUSION 54
BIBLIOGRAPHY 55
GLOSSARY 56
QUESTIONNAIRE
MASTER CHART
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 live 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 meagre 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” 1.
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)”2
1
Leyshon & Thrift 1995
2
Rogaly 1999
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.3
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 4.
3
H.M. Treasury,2004
4
Kempson et al., 2000
Figure 1: Anatomy of Various Financial Products or Services and the Institutional Structure
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 for 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 neighbourhoods 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
 The 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
Financial Inclusion P a g e | 10
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 counselling centres – to guide them which product suits
them better, where to go credit needs, what are various services available to better
their personal financial planning.
BASIC SAVING BANK ACCOUNT
IMMEDIATE CREDIT
ENTREPRENEURIAL CREDIT
HOUSING FINANCE
PAYMENT & REMITTANCES SERVICES
INSURANCE – LIFE/HEALTHCARE
FINANCIAL EDUCATION/CREDIT
COUNSELING
Figure 2: Mainstream Financial Services
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 Daily cash income
REQUIRED FOR THIS TYPE OF CUSTOMER 5??
POSSIBLY Frequently purchases

stock, mainly in cash
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 Irregular income due to
a specified point of transaction (SPOT) in the seasonality of occupation
locality
2. Micro-Credit for working capital to increase
stock and business. This credit can be short No income, If he misses a day
term and repayment to be configured at due ill health
regular intervals. Savings history and credibility
checks to be used as a proxy for collateral.
3. Insurance for life To send money regularly to his
family living in village
4. Health Insurance for minor illnesses and
hospitalization
5. Investment plan for child's education
To make small, regular payment
6. Pension for old age for fee for child’s education
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
5
As discussed in paper titled Universal Financial Inclusion in India: The Way Forward by S.Ramesh and Preeti
Sahai of BASIX
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.
6
Bridgeman, 1999
7
H.M. Treasury, 2004
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 identify 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 favourably 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.
Poor market linkage or say penetration of service providers also constitutes the major
factors of financial exclusion.
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:
Firstly, 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.
Secondly, 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.
These consequences are affecting individuals’ patterns of consumption, the way they
participate to economic activities or access to social welfare and the distribution of incomes
and wealth. They impact the way in which people behave both in terms of purchase
decisions and the way in which they choose to spend their time, as well as their overall
quality of life.
Finally, 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
I. Barriers to employment as employers may require wages to be paid into a bank

account;
II. Opportunities to save and borrow can be difficult to access;
III. Owning or obtaining assets can be difficult;
IV. Difficulty in smoothening income to cope with shocks; and
V. 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) 8 . 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.
8
Invest India Incomes and Savings Survey undertaken by Invest India Market Solutions (IIMS).
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 Developments
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
Annual Policy •determining new model for

effective reach
•Nationalisation of banks 2005-2006 •leveraging on technology
•presecription of priority based solutions
sector targets •No Fril bank account •improvements in
•lead bank scheme •simple KYC norms •Credit absorption capcaility
•NGOs, SHGs, MFIs etc were •exisiting formal credit
allowed delivery system
•easier credit facilities
Rangrajan
1969-1991
Committee Report
I. FIRST PHASE DEVELOPMENTS (1969-1981)
In 1969, the banks were nationalised in order to spread bank’s branch network in order
to develop strong banking system which can mobilise res ources/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 specialised 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 nationalisation of major Indian banks in 1969. The immediate tasks set
for the nationalised banks were mobilisation 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 mobilisation on an extensive scale and stepping up of lending
to weaker sections of the economy. Realising 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 programmes, 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 unorganised 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. RBI has realized that a push is needed to kick start the financial inclusion
process. Some of the steps taken by RBI include the directive to banks to offer No-frills
account, easier KYC norms, offering GCC cards to the poor, better customer services,
promoting the use of IT and intermediaries, and asking SLBCs and UTLBCs to start a
campaign to promote financial inclusion on a pilot basis.
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 programme-
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
A. 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.
B. 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, defence 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 counselling 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
9
“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”
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 customised savings, credit and insurance products; incentivising 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 programme. The ongoing efforts of NABARD to upscale the
programme 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 microcredit 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
 Low recovery
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. It is hoped that recent regulatory changes
and fresh impetus provided by the regulator will help in making RRBs front institution in
achieving the target of reaching out to financially excluded people.
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.
ROLE OF TECHNOLOGY IN FINANCIAL INCLUSION
According to recent Boston Consulting Group report, with cost of funds today at 9%,
provision for bad debts at 10% and cost of operation and transaction at 13% for poor
customers in far flung areas, banking for the poor by formal sector becomes unviable. The
key role the technology is expected to play is to reduce the last two components drastically.
Unfortunately, public sector banks (PSBs), which account for 70% of assets, have been slow
in making use of modern technology to bring down transaction costs.
How technology can lower operating costs as well as lending rates?
 In rural areas, different villages are separated by large distances and poor
connectivity. Consequently, communication technology could play an important role
in bridging the last miles between the customer and the provider thus facilitating
faster transactions.
 The telecom network in India is expanding rapidly as more and more private
operators are entering in the telecom sector. Banks could leverage the network for
expanding operations, reducing costs and increase reliability of their operations.
 As more than one million new mobile users are being added every month in India,
Mobile Banking can become the most promising front end technology for facilitating
financial inclusion in India. As mobile phones have reached out to segments and
geographies but not yet penetrated by banking sector, this may be one of the most
preferred choices for banks for spreading their network in unbanked areas.
However, banks need to consider certain facts before leveraging technology to bring more
and more population under the net of financial inclusion
 Cost effectiveness of technology

 Security of accounts
 Financial viability of technology in rural areas
 Ability of potential beneficiaries to use the technology
Chapter- 7
PRESENT STATUS OF FINANCIAL
INCLUSION IN THE COUNTRY
A GLIMPSE OF EXTENT OF FINANCIAL INCLUSION IN THE COUNTRY
 Number of No-Frill Accounts –28.23 million (as on Dec. 31, 2008)

 Number of rural bank branches –31,727 constituting 39.7% of total bank branches (as
of June. 31, 2009)
 Number of ATMs –44,857 (as on May 31, 2009)
 Number of POS –4,70,237 (as on May 31, 2009)
 Number of Cards –167.09 million (as on May 31, 2009)
 Number of Kisan Credit cards –76 million (Source: CMIE publication 2007-08)
 Number of Mobile phones–403 million (as on Apr.30, 2009) out of which 187 million
(46%) do not have a bank account (Source: Cellular Operators Association of India)
Measure of access to banking services in India
PRESENT LEVEL OF ACCESS TO VARIOUS FIANANCIAL

SERVICES
50.00%
40.00%
40.00%
30.00%
20.00% 13.00%
10.00%
10.00% 2.00%
0.60%
0.00%
Check in Life Insurance Non-Life Credit Card ATM + Debit
accounts Insurance Card
SOURCE: PRESENT STATUS OF VARIOUS FINANCIAL SERVICES AS DISCUSSED BY DR.

K.C.CHAKRABARTY, DY GOVERNOR, RBI AT 20TH SKOCH SUMMIT 2009, MUMBAI ON JULY 17,
2009
POPULATION PER BANK BRANCH (SCHEDULED COMMERCIAL BANKS)
90
80
70
POPULATION (IN THOUSAND)
60
50 Rural
40 Urban
30 Total
20
10
0
1969 1981 1991 2001 2007
YEARS (ENDING MARCH)
End March Rural Urban Total
1969 82 33 63
1981 20 17 19
1991 14 16 14
2001 16 15 16
2007 17 13 16
Note: figures are in thousands
OBSERVATIONS
 Less penetration of banks in rural areas is resulted in very high population per branch.
 Even though it has come down significantly but population per bank branch is still very
high especially in rural areas.
NUMBER OF SAVINGS ACCOUNTS
INSTITUTION 1993 2002 2007

SCBs 246.00 246.50 320.90
RRBs 30.50 36.70 52.70
PACS 89.00 102.10 125.80
UCBs 41.60 42.00 50.00
Post Offices 47.50 60.20 60.80
Total 454.60 454.60 610.30
Total A/C per 100 persons 51.00 46.00 54.00
700.00
No. of saving Account (in millions)
600.00
500.00 Total Account

SCBs
400.00
RRBs
300.00 PACs
UCBs
200.00 Post offices
Per 100 persons
100.00
0.00
1993 2002 2007
Years
Growth in bank accounts

State wise growth in bank accounts suggests that during post reform period, Andhra
Pradesh achieved the highest growth rate of 5.69% in rural areas, followed by Kerala and
Gujarat, constituting top three states in India. States where negative growth in bank
accounts is observed are Chandigarh (-.96%), Delhi (-.94%), Andaman and Nicobar island (-
.69%) and West Bengal (-.01%).
The growth in bank outreach in urban areas in various states during the post reform period
is much better as compared to rural areas. The highest growth is observed in Jammu and
Kashmir (6.61%), followed by Pondicherry (6.07%) and Andhra Pradesh (5.93%). Among all
urban areas, only West Bengal witnessed a negative growth rate in bank accounts of -0.01%
Chapter 8
Study result
Population of Delhi consist a big group of migrants, labour coming from other part of
country in search of employment, education and other purposes. This groups being
financially weak due to low literacy, low income; generally do not have access to financial
services.
In order to assess the level of financial inclusion in New Delhi, a survey was conducted in
area of Hari Nagar (West Delhi) through a questionnaire.
Target group were labourers, small shopkeepers migrant, i.e. people employed in
unorganized sector who are unbanked
Objective
To assess the impact of policy initiatives on financial inclusion in Delhi
Survey brief
Survey Sample size: 40 Households
Area: MS Block, Mayapuri Phase-II, Hari Nagar B Block (west Delhi)
Methodology
40 household were randomly surveyed regarding financial inclusion/financial literacy

through a well constructed questionnaire (annexure I) in surrounding area of Hari Nagar
(Slums nearby MS Block, B-Block & Mayapuri Phase-II) in West Delhi.
Of the total sample, 34 were males and 6 were females (the low numbers of females was
due to reluctance in answering questions).
PART I - HOUSEHOLD PROFILE
I. Size
FZ=7 FZ=3 When asked about their how

10% 7%
many members they have in
their family?
FZ=6
The Response Was As Follows
18% FZ=3
FZ=4 Majority of them were having
FZ=5 family size of 4 were 17(42%)
FZ=6 and family size of 3 was the
FZ=4
42% FZ=7 lowest 3(7%)
Family size of 5,6 and 7 were
9(23%),7(18%) ,4(10%)
FZ=5 respectively
23%
Figure 1: Family Size of Sample surveyed
II. How many of them are earning?

Earning members Nos. 8%
17%
Families having 1 Earning members 30
Families having 2 Earning members 7 75%
Families having 3 Earning members 3
30 (75%) families were having Sole earning

member, family having 2 earning member
Earning members 1 Earning members=2
were 7(17%) and only 3 families (8%) were
Earning members=3
having earning members more than 2 earning
members (as shown in the figure)
Figure 2: Earning members in the Family
III. Literacy level
Of the total sample, Majority were school dropout (20 i.e. 50%), High school (5 i.e. 12.5%)
and Sr. Secondary (8 i.e. 20%) (As Shown In Figure 3) which implies that their literacy level
was not enough to understand a financial product, or the complications attached with
opening a saving bank account or operating it conveniently.
It also means that as they are not very educated they won’t be having fixed income as most
of them are working daily wages and are underpaid, hence they cannot afford high charges
and penalties.
25
20
15
10
0
School Dropout High School Sr. Secondary Graduate PG or Above NA
Figure 3: Literacy level
Graduates consisted 6(15%) People who were the main constituents of Cat II and Cat. IV of
earning group (Figure 5), & 1 respondent didn’t answer this question.
IV. Employment
1(3%)
2(7%)
Organised Sector
Un-organised
NA
38(90%)
Figure 4: Employment
Of the total 40 people surveyed 2 were found working in organized sector and 38 were
found working in unorganized sector (Figure 4).
To understand the financial position of household they were further asked further about
their employability or the nature of employment, out of the 40 respondent 16 were
labourers working in Factories in nearby areas; 10 were self employed i.e. shopkeepers and
running small scale business activities; 6 were engaged in service in unorganized sector(as
depicted in Figure 5)
16
16
14
12 10
10
8 6
6 3 3
4
2
0
Self Labour Service Student NA
Employed
Figure 5: Unorganized Sector
PART II - FINANCIAL POSITION
I. Earnings
In figure 6, Cat. I consist of respondent whose earning is in the range of Rs 0-4000, similarly
Cat. II=Rs. 4000-8000, Cat III = Rs. 8000-12000, Cat IV =Rs. 12000-16000 & Cat V = Rs. 16000
& above
The observation indicates that Cat. I consist mainly the labors and household working on
daily wages (32.5%), and Cat. II & Cat III (42.5% &12.5% respectively) consist mainly those
who are self employed i.e. shopkeepers, Students (3) etc.
Cat. IV and Cat. V people engaged in organized sector and those who are having business
which is stable in nature.
20
Earnings(in thousands)
15
10
0
Cat.I Cat.II Cat. III Cat.IV Cat. V
Figure 3: Earnings
It may be seen from the above that nearly 75% (cat. I & cat. II) of the respondent pertains to
low income group.
II. Earning pattern 10%

22%
On the further question about earning pattern, 68% of 0%

the respondent were earning monthly whereas 22%
had earning on daily basis and 10 i.e. 4 respondent
did not answered on this. 68%
Daily Weekly Monthly NA
Figure 7: Earning pattern
III. Saving
NA Q. Do you save?
5%
50 %( 20) of respondent said that
they are saving some part of their
income, 45 %( 18) of respondent are
Yes
No 50% not saving anything and 5% (2)
45% didn’t responded to this question
It was interesting to see that all

those who were earning on daily
basis were saving on regular basis
Figure 8: Saving
Out of the 20 respondent who have saving habit, 14 were saving on monthly basis, this can
be contributed to the fact that 70% of them were earning on monthly basis; 3 respondent
are saving weekly and there was no one saving on quarterly basis, 2 didn’t replied to this.
16
14
14
12
10
4 3
2
2 1
0
0
Weekly Monthly Quarterly Semi-annually NA
Figure 9: Saving Frequency
Q. How much?
Out of 20 respondent 12(60%) said that

they save 0-5% of their income which
20%
means they generally have very small
amount of savings which implies that
they will be transacting on regular basis
but with very little amount which
15%
Commercial banks generally found to
60%
be reluctant.
5%
3(15%) and 4(20%) were saving 10-15%
and 15% and above respectively of
their earnings.
0-5% 5-10% 10-15% 15% & Above
Figure 10: How much?
Q. Where do you keep your savings?
WHERE DO YOU KEEP YOUR SAVING

Bank Insurance Scheme In cash at Home PO/NSC/FD
5%
45%
45%
5%
Figure 11: Where do you keep your saving?
Majority of the respondent were either keeping their saving in saving bank account or cash
at home (45% each) and only 5% were putting it in investment alternatives.
PART III - BANKING HABITS
Q. Do you have bank account?
Of the 40 respondent, 19(47%) are having

DO YOU HAVE BANK ACCOUNT? saving bank account and 21(53%) are not
Yes No having bank account.
Out of 19 respondent, 11(74%) were

having only 1 bank account & 2(11%) were
having 2 and 4 bank account.
47%
53% Provided further, Out of 19 respondent,
17 were having saving bank account and 2
among them also having fixed deposit
account, 1 recurring deposit account.
Figure 12: Do you have bank Account
Q. Did you face any problem while opening account?

Out of the 19 respondent, who have
bank account 74% of the respondent
didn’t faced any problem while
Yes opening bank account, while 26%
26% said they faced.
The general problems faced were

No
74% Not finding an introductory
to open a normal saving
bank account
Not having document
regarding proof of address
those who were putting up
on rent.
Figure 13: Did you face any problem while opening bank account
Q. How far is the bank branch from your residence?
0-2KM 2-5KM 10-12KM

The majority of respondents have no
problem of distance of bank branch
from their residence as 79% 7%
respondent have bank branch within
range of 0-5 Km and 14% within 2-5 14%
Km.
79%
Figure 14: Distance of Bank Branch
Q. What are the services\product you avail along with your bank account?
15
10
2
1 1 1
Payment & Mobile ATM/DEBIT Loan & Credit Card Net banking
remittances banking CARD Advances
Figure 15: Product and Services Availed
19(47%) respondent were having bank account (figure 12), among them 5 respondent were
using 1 service/product, 11 respondent were using 2 services, 1 respondent were using 3
services\product on his two bank accounts and 2 respondent skipped this question.
Q. For what purposes you use your account
Depositing and withdrawing money so that cash flow is managed

accumulating funds/interest earning for future requirement
making and receiving payment
to become eligible for other services
5%
19%
57%
19%
Figure 16: Usage of bank account
The majority of sample population,57% uses bank account for managing their cash
flow as they get their salary or earning in beginning of month but expenditure is over
the month,
19% uses bank account for accumulating funds and interest thereon for meeting
future contingencies, and other 19% uses bank account for making and receiving
payment
And rest 5% uses bank account as means of becoming eligible for other financial
services.
PART IV -THOSE WHO DO NOT HAVE BANK ACCOUNT
(21 RESPONDENT, 52.5%)

There was no respondent having anticipated rejection from bank or those who have
voluntarily excluded himself from banking system.
Further when asked about whether they have been approached by anyone to open a saving
bank account, 7(33.33%) said yes they have been approached by various people like friends,
family and specifically by their employer; 16(76.19%) respondent said that they have never
been approached by anyone to open saving bank account in Hari Nagar area.
REASONS FOR NOT HAVING BANK ACCOUNT

tried but refused
6%
not aware of
benefits a bank
account
29%
cannot meet
MBR* and
service charges
26%
tedious
procedure/paper
work lack of
7% low level of awareness and
literacy guidance
13% 19%
Figure17: Reasons for not having bank account
Q. Perception towards banking

time and cost PERCEPTION TOWARDS BANKING
contraint
6%
only for HNI* and trust

priveledged group 35%
27%
need
32%
Figure 18: Perception towards banking
35% of the respondent felt that banking means trust, 32% felt that the banking is their need
whereas on the contrary 27% said that banking is only meant for High Net worth Individuals
(HNI) and privileged group of society, 6% said they are connected to banking system due to
time and cost constraints (figure 18).
Those who were not having bank account were further asked whether they are know
anything about “No Frills Account” or “zero balance bank account” 6 respondent said yes,
They know about this sort of bank account offered by banks as they came to know about it
from newspapers, bank officials, friends & relatives; but majority of the respondent (29)
were not aware about this kind of bank account.
PART V - CREDIT PATTERN

This part of questionnaire was to evaluate the credit and advance pattern of the sample,
people were not willing to reveal their information regarding how much debt they have,
what the last occasion they borrowed, and other questions related to their indebtness and
credit as they consider it personal and many of them were afraid that this can be used to
evaluate their creditworthiness when they visit banks for loan and advance.
The first question was the last three occasions they borrowed but no one replied to this
question. On further asking about the purpose of borrowing and other related things, the
responded were conservative.
Q. Purpose of borrowing
Total of 17 who responded to this question 65% said that they have borrowed money for personal
purpose, 17% said they have borrowed money for education of children, 12% for residential house
purchase, 6% for funding business.
ON ASKING FURTHER IF PERSONAL, THEN
Food and clothing 12%
Celebrations or social obligations 12%
Day to day living expenses or bills 18%
To repay older debts 23%
for funding
PURPOSE OF BORROWING
business
6%
residential house
purchase
12%
Personal
65%
Education of
children
17%
Figure 19: Purpose of borrowings
Q. Source of borrowing
Majority of respondent, borrowed from their friends and relatives and whereas only 36%
borrowed from bank and moneylender in both categories.
12
10
8
No. of respondent
0
moneylenders NGOs Friends/relatives Bank
Figure 4: Source of Borrowings
If they borrowed from money lender then further they were asked why they preferred
moneylender over banks for credit needs, response was that from money lender they get
instant cash without any mortgage.
Q. Total amount outstanding

14 respondent who filled this question, the average debt was Rs. 37571 with avg. rate of interest of
10.05%,the debt was ranging from Rs. 6000 to the highest 0f Rs. 300000, interest rate ranged from
lowest of 8.00% to 20.00%.
TOTAL AMOUNT OUTSTANDING & RATE OF INTEREST

350000
Amount outstanding\Interest charges
300000 8.50%
250000
200000
150000 20%
100000
8.00% 14% 8.00%
50000
10.50% 0
11.50% 10% 10% 0 0 0
0 0
1 2 3 4 5 6 7 8 9 10 11 12 13 14
No. of respondent
AWARENESS ASPECT
Q. Do you know about banking credit?
Yes No
54% of the respondents do not
know what is banking credit,
whereas 46% knows what is
banking credit.
46%
54%
Figure 5: Awareness of banking credit
Q. Have you ever approached any bank for credit need?
Yes
5%
No
95%
Figure 6: Approached for banking credit needs
It is revealed from the above that only 5% of the respondents have approached banks for credit
needs.
Q.Have you purchased any insurance scheme?
Out of 37, only 3 people have purchased some insurance scheme, where 34 people have not
purchased any insurance scheme as they are not aware about what is insurance.
Q .Over the past couple of years, have you been anywhere for advice
about money matters?
Majority with 33 respondent said no they never been to anyone for financial advice, whereas 3
responded that they have been to financial advisor for their credit guidance and financial planning.
Further they were asked, is there any credit counselling centre in their area? Only one respondent
said yes and rest 30 said no.
PART VI - SUGGESTIONS
Q. Do you think that every bank should have the following things in
place to enable financial inclusion?
Customer care/reception/may I help you counter
Credit counseling centers
Compulsory No Frill Account offering from every bank
Any suggestion
(specify)____________________________________________________
Majority with 53% of respondent felt that establishing customer care counter/may I help
you counter should be made compulsory, When told about what is “no frills account, 24%
felt that every bank should be made to offer “No Frill account” and 23% said there should be
atleast one credit counselling centre/financial education centre in their area.
compulsory no
frill account Suggestions
offering from compulsory
every bank customer care
24% counter
53%
credit counseling
center
23%
Figure 7: suggestions
Chapter - 9
Conclusion
Steps taken towards bringing lower income groups to the banking system has been
successful to a significant extent, as the main causes observed earlier like distance of bank
branch, unawareness about banking services has improved.
While doing survey it was found that people are not voluntarily excluding themselves from
banking system, most of them have faith in banking and feels that they need banking
services. The need varies from managing cash flow as they earn on daily basis or irregular
basis.
The reasons behind not approaching banks are mainly the minimum balance requirements
which have been taken care by No Frills Bank Account but most of the respondent was not
aware about this type of account. Hence it needs to be advertised; literacy level and
awareness about various other products/services.
It was also found that people prefer to borrow from personal/informal sources when the
purpose is personal or consumption. Where the amount to be borrowed is generally small,
the people found to be reluctant to approach banks, whereas for other productive purposes
they borrow from banks.
In other words, it may be said as per the study conducted in Hari Nagar Area. Despite the
thrust given to financial inclusion, the desired results have not come up.
Suggestions
Every bank should be forced to establish a customer care /May I help you Counter at
every branch so that new customer should be guided and relevant information is
provided.
To increase the awareness, there is a good scope of having financial literacy cell or
credit counselling centres in each district so that it can take care of
uneducated/illiterate individuals.
Every bank should be made to offer No frill saving account with basic services
without terms & conditions which are class/group specific but are applicable to all.
Private sector should be involved in process of financial inclusion and they should be
made realise that it is not only a business opportunity for them but corporate social
responsibility too.
BIBLIOGRAPHY
Annual Policy report 2005-2006
Report on currency and Finance 2006-08
Ranjrajan Committee report on Financial Inclusion(2008)
Universal Financial Inclusion in India: The Way Forward by S.Ramesh and

Preeti Sahai
The need for financial inclusion with an Indian perspective by Amol

Aggarwal, IDBI
Pushing Financial Inclusion – Issues, Challenges and Way Forward - A

Presentation by Dr. K.C.Chakrabarty Deputy Governor, RBI
Presentation on Financial Inclusion & Banking System by S K Kale, General

Manager, NABARD
Working paper on social, economical and financial Consequences of

financial exclusion by Bernard Bayot
Internet
o www.wikipedia.com
o www.rbi.org.in
o http://aryavart-rrb.com/
o www.grameen-info.org
o http://cab.org.in
GLOSSARY
MBR- Minimum balance requirement
AMC – Annual maintenances charges
HNI – High Net worth Individuals
KYC norms- Know Your Customer Norms
SLBC – State levels banker committee
GCC- General credit card
KCC-Kisan Credit Card
SHGs – Self Help groups
SHPIs – Self help Promoting Institutions
POS – Point of sale
RRB’s – Regional Rural Banks
UCB’s – Urban Cooperative banks
MFIs – Micro-finance Institutions
PACS – Primary Agricultural Cooperative Societies
No Frill Bank Account- a zero balance saving bank account with no annual maintenance charges

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RURAL PLANNING & CREDIT DEPARTMENT

RESERVE BANK OF INDIA, NEW DELHI

PROJECT REPORT ON FINANCIAL

SHAHEED SUKHDEV COLLEGE OF BUSINESS STUDIES

1 FINANCIAL EXCLUSION 3-8

3 CAUSES OF FINANCIAL EXCLUSIO 13-16

I. DEMAND SIDE BARRIERS

5 POLICY DEVELOPMENTS 21-29

I. FIRST PHASE DEVELOPMENTS (1969-1981)

7 PRESENT STATUS OF FINANCIAL INCLUSION IN THE COUNTRY 34-36

In other words, an individual having access to mainstream-necessary financially services is

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

THE INDIAN SCENARIO

Financial exclusion could be looked at in two ways:

(The Committee on Financial Inclusion (Chairman: Dr. C. Rangarajan, 2008))

It could prove to be a boon in a situation like a natural disaster, a financially included

The objective of Financial Inclusion

WHAT IS CONSIDERED AS MAINSTREAM FINANCIAL SERVICES

BASIC SAVING BANK ACCOUNT

PAYMENT & REMITTANCES SERVICES

Figure 2: Mainstream Financial Services

To understand it better, let’s take life of migrant street vender living

WHAT TYPE OF PRODUCT OR SERVICES IS Daily cash income

REQUIRED FOR THIS TYPE OF CUSTOMER 5??

POSSIBLY Frequently purchases

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

A. DEMAND SIDE BARRIERS

iii. Financial Services Being Very Complex In Nature: excluded sections of

Distance from bank branch, branch timings, cumbersome documentation/procedures,

vii. Sophisticated Financial Terminologies: Bankers often use complex financial

x. Disincentives for the consumer: The cost of maintaining an account (non-zero

B. Supply side barriers

i. Perception among banks about rural population: Generally, there exists a

ii. Miniscule margin in handling small transactions : As the majority of rural

iii. KYC requirements: The KYC requirements of independent documentary proof of

Firstly, financial exclusion can generate financial consequences by affecting directly or

Secondly, a wider dimension of financial exclusion can be identified as socio-economical

I. Barriers to employment as employers may require wages to be paid into a bank

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

Annual Policy •determining new model for

I. FIRST PHASE DEVELOPMENTS (1969-1981)

I. Nationalization of private sector banks,

SOCIAL NETWORKING APPROACH

THE PRIORITY SECTOR APPROACH

LEAD BANK SCHEME APPROACH

II. SECOND PHASE – ANNUAL POLICY (2005-2006)

Brief glimpses of main initiative are followings:-

b) Overdraft in Saving Bank Accounts

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

e) KCC / GCC Guidelines

f) Financial Literacy Program

 A multilingual website in 13 Indian languages on all matters concerning banking and

III. THIRD PHASE - RANGRAJAN COMMITEE

The Government of India (Chairman Dr. C. Rangarajan) constituted the Committee on

 Effecting improvements within the existing formal credit delivery mechanism;

CREATION OF SPECIAL FUNDS

SHG BANK LINKAGE PROGRAM

MICRO FINANCE INSTITUTIONS (MFIs)

Steps needed to promote MFIs

 One of the ways of expanding the successful operation of microfinance institutions in

COOPERATIVE CREDIT INSTITUTIONS

 Low resource base

THE BUSINESS CORRESPONDENT MODEL

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