Financial Inclusion and Responsible Micro-Finance In Focus : Credit Infrastructure A Presentation By A K Srivastava, CGM, NABARD

Degree of Exclusion & Required Services

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  Smart KCC/ GCC/ SCC to all eligible One Citizen One Card.

 Cash flow in no- frill a/c thru’  Innovative Credit products  Micro Insurance  Thrift/ Saving by Vulnerable population Increased awareness & Financial Literacy interventions  Micro Insurance/ Pension  Emi based loan Products  Loans to dependents of wage earners  Getting income from business thru’ banks  Empowerment thru saving  Power of compounding  Risk mitigation  Opportunities for dependents  Break the poverty chain  Support economic growth of country Innovation – An Approach to Inclusive Growth

Inclusion Process through KCC, SCC & MFIs - Status Sl. No. Category 31 March March March No. of Savings Linked SHGs No. of SHGs with O/s Loans Loan O/s with SHGs Kisan Credit Cards Issued Swarozgar Credit Cards Issued MFIs Covered Loans O/s to MFIs in lakh

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 (19.2) (21.1) Semi Urban (22.2) (17.8) Total (17.8) (10.6) * In Rs. Thousand as on Mar 2008, Outreach of Banks including RRBs

Other Infrastructure –Coop. & MFI  DCCBs / PACS : 12500/  MFIs - > 800  Sa Dhan affiliated 233  MFIs - Client outreach >2 Cr  NB SHG/MFI Client outreach > 8.60 Cr  MFI loan portfolio Cr  Large – MFIs ( O/S portfolio>50 Cr) 28

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

Inclusion through 'No frills' A/c by Banks CategoryMarch 31, 2006 March 31, 2007 March 31, 2008* March 31, 2009* Public Sector Banks 3,32,87858,65,4191,39,09,9352,98,59,178 Private Sector Banks 1,56,3888,60,99718,45,86931,24,101 Foreign Banks2315,91933,11541,482 Total4,89,49767,32,3351,57,88,9193,30,24,761 * Provisional

YearFundGoIRBINABARD Interest Credited Total (as on date) FIF10.00* FITF10.00* * * * RBI Contribution to be received on reimbursement GoI has been requested to release the amount $ Amount sanctioned under FIF – Rs crore and under FITF – Rs crore Contribution : GoI : RBI : NB in the ratio 40 : 40 : 20 FIF and FITF - Funding Status Rs Crore

NABARD-UNDP Collaboration for FI Rajasthan MP Chattisgarh Jharkhand Bihar UP Orissa

NABARD support for Financial Inclusion  As per the recommendations of Committee on Financial Inclusion, two funds viz., o Financial Inclusion Fund (FIF) o Financial Inclusion Technology Fund (FITF) created with NABARD with corpus of Rs. 500 crores each, to be contributed 40:40:20 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.

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

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.

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;

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.

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

Approaches under FIF  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 Literacy Financial Prudence Understanding Financial Market Financial Product Financial Decision Making Financial Empowerment Financial Analysis Financial Well being

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

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

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

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

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

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

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