Financial Inclusion and Responsible Micro-Finance

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Financial Inclusion and Responsible Micro-Finance
In Focus Credit Infrastructure A
Presentation By A K Srivastava, CGM, NABARD
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Degree of Exclusion Required Services
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VISION 2012

• Financial Inclusion of all RHH (11.15 cr)
  2015(50 by 2012).
• Financial Inclusion to precede Poverty
  Alleviation.
• Financial Services within 15 minutes walk of RHH
  - Last mile client should be able to use POS/
  Smart Card/ Mobile
• RBI Working Group recommendation - A banking
  outlet in each village with population of 2000
  and above, before March 2011.
• Smart KCC/ GCC/ SCC to all eligible

One Citizen One Card.
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Innovation An Approach to Inclusive Growth

• Cash flow in no- frill a/c thru
• Innovative Credit products
• Micro Insurance

• Micro Insurance/
• Pension
• Emi based loan Products
• Loans to dependents of
• wage earners
• Getting income from
• business thru banks

• Thrift/ Saving by Vulnerable population
• Increased awareness
• Financial Literacy
• interventions

• Empowerment thru saving
• Power of compounding
• Risk mitigation
• Opportunities for
• dependents
• Break the poverty chain
• Support economic growth
• of country

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Inclusion Process through KCC, SCC MFIs - Status
in lakh
Sl. No. Category 31 March 2007 31 March 2008 31 March 2009
1 No. of Savings Linked SHGs 41.60 50.09 61.21
2 No. of SHGs with O/s Loans 29.25 36.26 42.24
3 Loan O/s with SHGs 1236649 1699991 2267984
4 Kisan Credit Cards Issued 676.05 760.75 828.70
5 Swarozgar Credit Cards Issued 6.79 8.34 9.85
6 MFIs Covered 550 1109 1915
7 Loans O/s to MFIs 158448 274884 500909
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Outreach of Banks including RRBs
Area No. of Branches Dep. ( Rs. Cr.) (Growth ) Dep. Per A/c Cr. ( Rs. Cr..) (Growth ) Cr. O/s per A/c CD Ratio
Rural 31829 384181 (19.2) 18 222372 (21.1) 56 57.9
Semi Urban 19418 560327 (22.2) 29 278866 (17.8) 55 49.8
Total 81090 4101518 (17.8) 56 2881898 (10.6) 226 70.3
In Rs. Thousand as on
Mar 2008,
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Other Infrastructure Coop. MFI

• DCCBs / PACS
  12500/ 97000
• MFIs -
  gt 800
• Sa Dhan affiliated
  233
• MFIs - Client outreach
  gt2 Cr
• NB SHG/MFI Client outreach gt 8.60
  Cr
• MFI loan portfolio
  11700 Cr
• Large MFIs ( O/S portfoliogt50 Cr) 28

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General Perceptions - USPs of micro-Finance by
MFIs and Concerns

• USPs
• Small size loans without collateral
• No insistence on specific purpose
• On occasion, combined with hand holding
  capacity building
• Hassle free (ease of access) and usually door
  delivery model (local touch)
• Concerns
• High rate of interest/high cost of delivery of
  micro-credit
• Lack of prudential norms in accounting
• Lack of transparency/uniformity/supervision
  issues
• Indiscriminate lending without past record
  scrutiny
• Recovery not linked to cash flow from asset

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Inclusion through 'No frills' A/c by Banks
Provisional
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FIF and FITF - Funding Status
Rs Crore
Year Fund GoI RBI NABARD Interest Credited Total (as on date)
31.03.08 FIF 10.00 5.00 - 15.00
31.03.08 FITF 10.00 5.00 - 15.00
31.03.09 FIF 37.00_at_ 18.50 0.95 19.45
31.03.09 FITF 65.00_at_ 32.50 0.96 33.46
Contribution GoI RBI NB in the ratio 40
40 20
RBI Contribution to be received on
reimbursement basis. _at_ GoI has been requested to
release the amount Amount sanctioned under FIF
Rs. 17.98 crore and under FITF Rs. 7.48 crore
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NABARD-UNDP Collaboration for FI
Rajasthan
UP
Bihar
MP
Jharkhand
Chattisgarh
Orissa
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NABARD support for Financial Inclusion

• As per the recommendations of Committee on
  Financial Inclusion, two funds viz.,
• Financial Inclusion Fund (FIF)
• Financial Inclusion Technology Fund (FITF)
• created with NABARD with corpus of Rs. 500
  crores each, to be contributed 404020 by GoI,
  RBI NB
• Guidelines for FIF and FITF are issued to banks.
• Advisory Board for FIF and FITF has been
  constituted.
• Sub-Committee has been constituted under FITF.
• State / District level workshops on Financial
  inclusion conducted for Stakeholders.
• National Conference on Financial Inclusion

One Citizen One Card.
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Financial Inclusion Fund

• i. Funding support for capacity building inputs
  to BF/BC
• ii. Providing promotional support to institutions
  such as Resource Centres, Farmers Service
  Centres and Rural Development and Self Employment
  Training Institutes to enable them to provide
  improved tech. financial services
• iii. Providing funding support for promotion,
  nurturing and credit linking of SHGs
• iv. Capacity building of personnel of NABARD,
  Banks, Post Offices, State Government
  Departments, MFIs/ NGOs/ Local Level
  Associations, members of SHGs / JLG etc.
• v. Defraying expenses of approved institutions
  for undertaking interventions for financial
  inclusion in high excluded Regions/ States

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Financial Inclusion Fund (cont)

• vi. Funding support for setting up of Rural
  Credit Bureaus and Credit Rating of Rural
  Customers
• vii. Supporting initiatives of local level
  associations/ federations
• viii. Supporting pilot projects for development
  of innovative products, processes and prototypes
  for financial inclusion
• ix. Any other developmental and promotional
  interventions recommended by the Advisory Board
  for the FIF.

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Financial Inclusion Technology Fund

• 1. Encouraging user friendly technology
  solutions
• 2. Providing financial support to technological
  solutions aimed at providing affordable financial
  services to the disadvantaged
• 3. Creating a common technology infrastructure
  with comprehensive credit information
• 4. Funding support to technologies facilitating
  the documentation for processing of loans
• 5. Providing viability gap / pilot project
  funding for unproven but potential technological
  interventions
• 6. Conduct of studies, consultancies, research,
  evaluation studies relating to technological
  interventions for financial inclusion

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FITF (cont)

• 7. Promoting seminars, conferences and other
  mechanisms for discussions, dissemination
  relating to financial inclusion technological
  interventions
• 8. Publication of financial inclusion technology
  literature, publicity material, etc.
• 9. Capacity building of personnel of banks, Post
  Offices, State Government Departments,MFIs, NGOs,
  VAs and other stakeholders and
• 10. Any other activity as may be approved by the
  Advisory Board.

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Approaches under FITF

• Viability Gap Funding
• Integrate with proposed Unique Identification
  Card of GoI
• Integrated approach of Financial Inclusion -
  Projects involving micro insurance
  schemes- life/asset/accident/ health etc.
• Proposed support mechanism for Card based project

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Approaches under FIF
Financial Literacy

• Financial Literacy Drive
• Exposure visits/ workshop of stakeholders
• Certification Program for BC/ BF
• Proposed support mechanism for Farmers Club as
  BF
• Sensitization programme through training
  establishment

Financial Prudence
Understanding
Financial Market
Financial Product
Financial Analysis
Financial Empowerment
Financial Decision Making
Financial Well being
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Approaches under UNDP

• Exposure visits/ workshop of stakeholders
• On the Spot loan appraisal/ sanction/ rating
  evaluation through Mobile van system
• Partnership with reputed and experienced NGOs
• Financial Literacy
• Resource Centre
• Community Radio Service
• Audio/ Visual display

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New Dimensions of Credit Infrastructure

• Need for Information sharing
• -necessary to avoid over indebtedness
• -control client delinquency
• -financial services to non resident migrants
• How ?
• - Formal Credit Bureau
• - Informal information sharing on regional basis
• - Motivational issues for information sharing

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Way Forward and Emerging Challenges

• Need for Credit Bureau Yes , possibly thro
• Resource Centres at Local level (Block
  /Panchayat)
• Integration with Common Services Centre
• State level Federation (initially in select
  States)
• Risks
• - Collateral coming into play,
• - Exclusion thro black listing,
• - Poaching among MFIs

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Way Forward and Emerging Challenges (cont)

• Credit Guarantee Is it needed ?
• - Requirement- Registration, Supervision of
  loan portfolio of MFIs
• - Application of prudential Norms
• - Loss of informal character
• If Yes, to be linked to Rating of MFI and
  compliance with Credit Bureau Requirements
• Issues
• - Policy formulation / funding-sharing
  arrangement / management / operation / regulatory
  framework / viability of scheme

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Issues of Effective Outreach

• Viability / Cost of delivery
• - BC/ BF (door delivery model)
• - MFI
• - Bank / Branches
• Involvement of MFI sector for FI
• Increased participation of Coop. - issue taken
  up with RBI
• Support and linkage of financial services to Govt
  payments- NREGA/ SS Pensions
• Projects/ proposals through Bank RBI
• Open Standards for Technology
• Innovative Financial Literacy Drive

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FI - Road map for Institutions
Banks/ Co-ops/ RRBs
MFIs/ NGOs
BC/ BF
Financial Counselling/ Literacy
Loan/ Credit A/c
Micro Credit/ Saving
Saving A/c
BC/ BF
Financial Inclusion
Payment Remittances
Postal Savings
Remittances
Stand Alone Insurance
Post Offices
Insurance Cos
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THANK YOU