Champions of Financial Inclusion

Saturday, February 11, 2012

  Financial Literacy : An Idea whose time has come

Time has come when financial literacy has rightly occupied the centre-stage among the supply side institutions --  banks, insurance institutions, MFIs, policy makers, national governments, financial regulators, civil society organisations, and end users, that is bottom & middle of the pyramid populations
Although the concept is defined usually at convenience by stakeholders, but its broad contours remain same, that is the ability to take informed deisions, make choices leading to empowerment. A few in industry view it as a corporate social responsibility, marketing strategy or a compliance requirement. However, this shall not arrest our intellect to the cliched statements and the GOOD part is: there is atleast running thread across different players.
While the concept may still be far from a universally accepted definition unlike financial inclusion, the OECD defines it as 'the process by which financial consumers/investors improve their understanding of financial products, concepts and risks, and through information, instruction and/or objective advice, develop the skills and confidence to become more aware of financial risks and opportunities, to make informed choices, to know where to go for help, and to take other effective actions to improve their financial well-being'.
There are good intentions & genuine concerns about vast groups of population still unaware of institutional banking concepts and the know-how to make informed decisions. This makes them vulnerable to exclusion from mainstream socio-economic framework.
Measures are being adopted across the world to systematically reduce financial exclusion; Indian policymakers brought a policy change in the way banking services were delivered particularly in rural India. In 2006 the RBI eased up the delivery model and made it possible for banking and financial service providers in India to reach out to end customer through business correspondents.
Business correspondent guidelines encouraged banks & other formal fnancial institutions to engage with entities like FINO which is a pioneer in agent led banking platform designed to propel benefits of financial inclusion to the bottom of the pyramid. FINO has a completely different expression on financial literacy.

In addition to delivery of financial services, FINO realised the gap in the system and came up with its strategically aligned Financial Inclusion Education Academy (FIEA) to bring behavioral changes amongst the target group, which in turn, has enabled people to seek for right products and services.
For FINO, financial literacy is an engine that will aid achieving comprehensive financial inclusion and hence financial freedom. Viewed from this standpoint, FINO has significantly established a positive correlation between financial literacy and the ability to make informed decisions. This is a boon to the inclusive growth agenda.
                                                                                              more in next post..........
P:S : This is the first part of three blogs series on Financial literacy 

- By Shilpi Yadav and Sarthak Luthra.

Monday, January 10, 2011

Telecom and Organized Retail as Business Correspondent: An analysis of BC Model

Increasing the outreach of financial services has been on the mind of Reserve Bank of India for several years. Serious efforts are being taken to ensure financial inclusion to the unbanked and the under-banked. In Jan 2006, RBI introduced the strategically low-cost business correspondent model which had specific guidelines on who are eligible for being hired as BCs by banks. Business Correspondent model is no doubt an innovative medium of achieving some significant results in the field of inclusion.

Business correspondents are agents who can be hired by banks to provide a subset of banking services in places where it is not commercially or physically viable to set up branches in the present condition. Due to low margins in the proposed structure, for banks as well as BC, a lot of revisions to eligibility criteria have been made over the years where technology in the form of ICT has played a lot of role in bending the minds of review committees to bring these changes.

Earlier, only NGOs, Microfinance Institutions set up under Society or Trust act, Societies registered under Mutually aided Co-operative Societies Acts or the co-operative Societies Acts of States; Section 25 companies and post offices. Later in April 2008, specific details like holding pattern in the Section 25 companies by profit making companies was appended.

It was also observed (Rangarajan Committee) that for achieving sufficient numbers in the financial inclusion meter, BCs have to be placed in many villages which will be almost impossible if locally settled retired Government servants like postmasters, school teachers, ex-servicemen etc are not deputed/hired as BCs. Further it was suggested that NBFCs may be allowed to act as BCs providing limited services like savings and remittance on behalf of bank.

BCs are required to play a role from creating awareness, to selling the product to being the point of service for those customers throughout shoulder the responsibility.  However looking forward, the question outstanding is whether organized service providers like telecoms a better option than hiring individual BCs. Choosing an organized retail and telecom  over hiring individual BCs has its upside and downside, which needs to be analyzed carefully before selecting any option. The major advantages of a using telecom sector and organized reatils as BCs are: 

  • Large and widespread network already setup
  • Ease of policy compliance with the hiring Bank
  • Established processes to easily monitor and evaluate and implement cash management system
  • Likely to continue as an agent for longer period than independent individuals

But there are certain disadvantages that need to be taken care of while hiring these organized retails
  • Adoption of Double Selling practice: because of thin margin, only if they buy their products, only will they provide banking service
  •  Information Security of Customers: The data can be used by the company for its own benefit
  • Volatility of the industry (telecom) can shut down operation of entire area/reason which can affect continuity of BC service
  • Less attention to business: since it is not the main business, they can tend to ignore the business opportunities handling double pressure

However, it is to be kept in mind that setting up a BC network not only requires conquering geographical challenges which the Telcos and organized retails have achieved, but a dedicated human resource that keeps financial inclusion as priority. Additional backend, training et al would mean additional initial and continuous investments that these new entrants have to make to play BC to any bank or Govt.

It is important to shield the burning candle from winds outside, the risks for using telcos and organized retails needs to be carefully identified, their impact quantified and to put into place proper mitigation plans before they are hired as BCs.

-Chitra Nayak

Monday, January 3, 2011

Swabhiman: The Grand Financial Inclusion plan

Swabhiman (pronounced as  swaa-bhi-maan) meaning self-respect comes from Swa-(meaning Self) and -abhiman (meaning Respect or Pride) in Sanskrit language.

Swabhinman is the new Financial Inclusion Program that Government of India is planning to roll in the year 2011. The program targets opening of 5 crores no-frills accounts by March 2012 spanning over select 73,000 villages. The plan is not just to open accounts, but to keep them active by regular transactions. The basic idea here is to spread financial literacy while achieving financial inclusion. Government plans to use handheld computers and banking correspondent model to achieve scale and efficiency in the program. 

In an interview about Swabhiman, Shri K.V. Eapen, the joint finance secretary of India told media that banks are expected to popularize the electronics benefit transfer (EBT) scheme for efficiency of the program. EBT is mode through which the government currently makes payments to the workers involved in various public welfare schemes. Thus, Swabhiman will provide a platform for banks to launch their products and services like small overdraft facility, remittance, small loans and small deposits to the rural poor.

Swabhiman, though is in planning stage, has some assured benefits for the common man. A common man can now be included in the organized financial sector without the tedious paperwork.  It will not only ensure availing of a variety of financial services at doorstep but also easy enrolment to all public welfare schemes.

 Reaching out at such a grand scale can face a number of challenges that are meticulous in nature. Ranging from connectivity of handheld devices, geographical connectivity to literacy rate of the population can raise issues in smooth implementation of the program.  But, tackling these challenges and bottlenecks is now expected from Indian Government.

Government has surely come a long way since the days of implementing public welfare schemes without proper consideration of ground level realities. This means, the earlier top down approach of govt. towards development is now becoming more and more area specific approach. Increase in variety of work in MG-NREGA, implementation of SGSY- Special plan, launch of  RIDF from NABARD et al are examples of the recent changes that can be seen regarding change in approach of the govt.. These kind of changes are a proof to Governments increased concern and involvement in solving the individual ground level problems which were earlier oblivious at the centre level.

Thus, with a fool proof plan, GoI is all set to launch Swabhiman that will ensure smiles on the faces of those who are still unbanked.

By Chitra Nayak

Tuesday, December 21, 2010

AP MFI Bill: A Regulation?

In the state of unrest, the MFI bill recently passed in the state of Andhra Pradesh has proved to be a relief for the customers of MF industry.  The bill which clearly defines the collection period and registration rules for MFI branches was passed in December second week in response to complaints over high interest rates, aggressive loan recovery practices and overextended borrowers. So, while the customers rejoice the result, the microfinance institutions are relieved over the state Governments silence on putting a cap on interest rates till now.

It has been pointed out that since the issue of the ordinance two months ago, collections of microfinance institutions in Andhra Pradesh have dropped.  Also, microfinance institutions are also struggling with liquidity crunch due to reduced bank lending and lessened equity infusion in the sector.( Follow the article at:  As quoted in Business Standard- Spandana’s CEO Ms. Padmaja Reddy said that many MFIs will close down their businesses. Operating costs would increase and profits margins would spread thin, she added. The company's recoveries have fallen to 30-50 per cent in the last two months and no fresh group loans have been given. (follow the news at:

While the bill is seen as disturbing to microfinance institutions, it is anticipated by the stakeholders that reduction in the number of repayment collection meetings per month to 1 will reduce a lot of overhead charges of travelling to the client centers which in-turn can either be seen as profit for the institution or, a factor for reducing the overall interest rate. It is also believed that this bill is, in a way, empowering the clients- especially the rural women.

But the basic questions here go unanswered. Is the bill of transitory nature as was the MFI ordinance that had come out in October this year? Is this bill achieving a win-win situation for both customers and service providers? And the answers here are not so simple. There are a lot of elements at play while we ponder over the state of things.

A lot of discussions are taking place at state and centre over the scope of bill and its outcomes. Even slightest gestures of customers to political parties are changing the fate of microfinance without knowing. 

I believe, in a move to revolutionize the microfinance industry, a lot of bills and amendments have to be passed before a true balance between social good and profit making is achieved.
-By Chitra Nayak