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July-September, 2007

Financial Inclusion
& Financial Literacy:
SBI Initiatives
V.Ramkumar*

Scope of Financial Inclusion in

Commercial Banks
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. Internationally,
the financial inclusion has been viewed in a much wider
perspective. Having a current account / savings account
on its own, is not regarded as an accurate indicator of
financial inclusion. 'Financial Inclusion' efforts should
offer at a minimum, access to a range of financial
services including savings, long and short term credit,
insurance, pensions, mortgages, money transfers, etc.
and all this at a reasonable cost.

Role of Commercial Banks and the

Way Forward
The Family Resources Survey indicated that in 2002/03
there were 1.9 million households without a bank account
of any kind, containing around 2.8 million adults. The
Indian households can be broadly divided in to two main
groups, rural and urban. To have effective financial
inclusion, the banks have to always keep in mind these
target-groups and bring them to banking fold in such a

way that it is a win- win situation for both. Commercial

banks can step in to augment financial inclusion in two
ways (i) providing banking and other related services and
(ii) providing non-banking services and support

Banking and Other Related Services

To ensure banking services are attractive to those with low
incomes, banking products must have features that meet
the needs of this group of consumers. For this, the banks
have to develop:
Basic Banking Account
Low cost bill payment systems
Technology driven products
Bio-metric ATMs
Pre-paid Cards
Internet Kiosks
Deposit accounts, which offer an overdraft and an
easy route to debt.
Affordable insurance products
For individuals
For business enterprise

*Deputy General Manager, Micro Credit & Financial Inclusion, State Bank of India, Corporate Centre. Mumbai

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July-September, 2007

For Agri activities such as, weather/ cattle/

poultry
Retail Loans at all centres with simplified
documentation and procedures through:
Self Help Groups
Micro Finance Institutions
Loans to Small Medium Enterprise
Giving advisory services
Once the banks have broadly decided on the range of
products, they must customise it to suit the customer as
per geographical area, method, and approach to be
adopted.

Rural Areas
India has a rural population of about 780 million with
limited or no access to financial services. The branch
banking route apparently is not very practical due to the
huge cost of opening the branches vis-a-vis volumes
expected, high costs of operations, limited banking
hours, illiteracy, non-availability of alternate channels in
rural centres, etc. Further, financial inclusion through
branch network may adversely affect customer service at
branches due to increased traffic and larger numbers of
people to be attended to within the limited hours of
banking.
Therefore, the banks will have to provide technology
driven products such as, ATMs, internet kiosks for
successfully implementing financial inclusion. The
involvement of Self Help Groups and Micro Finance
Institutions is also must for development of effective
financial inclusion models by commercial banks.
In the context of India becoming one of the largest micro
finance markets in the world, especially in the area of
women's savings and credit groups (SHGs) and the
sustaining success of such institutions as demonstrated
by the success of SEWA bank in Gujarat, low cost
banking is not necessarily an unviable proposition. SBI
alone, as on date, has credit linked over 850,000 Self
Help Groups, lending approx. Rs.4, 000 crore to these
groups. The NPA in this segment which is below 1 per
cent is proof of the viability of such projects.

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Urban Area
Contrary to popular concepts of a predominantly rural
India, an increasing percentage of Indian population lives
in the urban areas. Over the last fifty years, while the
country's population has grown by 2.5 times, in the urban
areas it has grown by five times. High incidence marginal
employment and urban poverty as reflected in 43rdof NSS
revealed that 41.8 million urban people lived below the
poverty line.
Inspite of its prominent role in Indian economy, urban India
faces serious problems due to population pressure.
According to an estimate, nearly one third of the urban
India lives below poverty line. About 15 percent of the
urbanites do not have access to safe drinking water and
about 50 percent are not covered by sanitary facilities.
In this context, banks need to provide financial services
which have to include savings, credit, insurance, leasing,
money transfer, equity transaction, etc. to
financial
needs, life cycle, economic opportunities and emergency
with the only qualification that (i) transaction value is small
and (ii) customers are poor. For this, banks can offer the
same product range as in rural areas and can also provide
smart cards such as pre paid cards or reloadable cards.
These cards can be used by employers towards wage
payment of contracted labour or other utility service
providers.

Micro Enterprises
At the bottom of the SME pyramid, we have the micro
enterprise segment. Financial inclusion of this segment
has been the key concern of the Government and the
regulators in most of the developing economies, including
India.
In India, we have had several efforts to cover micro
enterprises with bankable schemes. Some of them have
been Government directed like, the efforts to grow Khadi
& Village Industries, schemes like the IRDP, SEEUY, SUME,
SEPUP. But the success story in this segment has been the
voluntary development of the SHGs. The SHG movement
has been gaining momentum in the country. In other
developing economies like Bangladesh, Indonesia,
Bolivia, etc. too, SHG movement has taken strong roots
and has been a key to the financial inclusion of micro
enterprises.

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In India, the SHG funding or micro-finance, is directed
towards the micro enterprise of the members of the
group. It is the integrity of the members of the group that
is essential for the commercial banks to support them.
The funding to the SHGs in the form of micro-finance has
to evolve into proper funding for the micro enterprises.
The process that can hasten this is the stabilisation of the
credit bureau(s), voluntary development of groups
based upon socio communal forces and support to the
commercial banks from the regulators to have differential
treatment for such banking coverage from the usual
provisioning and regulatory norms. Success of financial
inclusion depends upon the sustainability and not on
subsidies and incentives.

Advisory Services
The banks have to take on the role of an advisor for poor
and disadvantaged as the right advice at a difficult time
can go a long way. This approach recognises the close
two-way links between poverty and deprivation on the
one hand and being unable to find and use appropriate
financial products and services on the other.
The banks must advise on:
Reducing the vulnerability of low income families to
financial exclusion and multiple debts in order to
prevent them from becoming over-indebted and/or
to lift them out of poverty.
Improving access to high quality services for the
most disadvantaged groups and individuals in rural
communities.
Managing problem debt and the other interlinked
difficulties that people often face.
Protection from loan sharks.
Information about where to go to get expert help
when people are in difficulty.
Business related issues such as. best insurance
deals, availability of raw material, plant and
machinery, agri inputs, helping in forming forward
and backward linkages, providing information on
various markets local as well as abroad and
providing marketing inputs

July-September, 2007

To provide above mentioned services, banks will have to

restructure and look for IT enabled service providers such
as, interactive internet kiosks, help desk at strategic
locations, wherever needed manned Kiosk, and telephone
help lines / call centres.

Non Banking Activities

It is essential that an institution which uses resource of the
society must contribute to society through its core
business activities, its social investment and philanthropy
programmes, and its engagement in public policy. The
banks need to involve more actively in community service
and voluntarily create funds to:
support social and philanthropic activities such as,
education programmes for under privileged,
environmental projects related to, water harvesting,
aforestation, pollution control, and sanitation
Support projects which may provide (i) sustained
employment for vulnerable and disadvantaged
groups, (ii) improving the confidence and skills of the
most disadvantaged children and young people by
conducting work shops or providing vocational
training, (iii) health improvement programmes for
people living in the most deprived communities, (iv)
for upliftment of weaker sections of society, (v)
creating jobs and enlightening women, and (vi) to
remove superstition and ignorance
Support organisations which provide (i) for improving
access to high quality services for the most
disadvantaged groups and individuals in rural
communities by supporting small infrastructure
projects and IT enabled services, (ii) support to
particular client groups such as old, minority ethnic
communities, lone parents, disabled people, carers,
families with young children, people with mental
health problems or learning disabilities, and (iii)
services that may help solve problems of financial
exclusion, such as, post offices, registered social
landlords, housing, welfare rights and legal advice
services, homelessness units and hostels, family
learning projects, enterprise networks and local
economic development companies, development
trusts, GPs, community health services, hospitals,
health voluntary organisations.

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July-September, 2007

Business Model
The banking needs of these financially excluded people
are mostly of limited transactions with low value in nature.
Running a full fledged rural outfit is not a viable
proposition considering the involvement of huge
operational cost. Business Correspondents (BCs) model
is ideally the alternate viable business model in order to
have a greater coverage of these people in rural and
other area. Under the set-up, the bank is permitted by
RBI to outsource selected banking services through
Business Correspondents (BCs) and their authorized
agents. The customers shall have the freedom to use
branch banking facilities even though the business
correspondents are available in their locality or they were
initially sponsored by the business correspondents.

Requirements for the Business Model

A proven & tested software solution
Hardware & other equipments compatible to
software application
Financially sound, established, experienced &
reputed business correspondents with adequate
expertise and manpower
Uninterrupted tele-connectivity

Features of the IT Solution

Low operational cost
Scalable
User friendly
Secured
Inter-operable
Compliant to legal system
Standardized
Viable & Profitable
Sustainable

SBI's Initiatives for Financial Inclusion

The objective of State Bank of India in the present day

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context is to ensure financial inclusion of the whole

population irrespective of areas and sectors. The
'inclusion' phenomenon cannot be confined to few
pockets of area and people. The important question is
increasing outreach and deepening penetration. There
are two ways of doing it: i) through the brick and mortar
rural branches, ii) outsourcing all the functions to a
business correspondent in a particular area, viz., a state or
with the help of business facilitators at a local level. Large
scale roll out and rapid scaling up again is not possible
without suitable technology intervention which is easy to
use, robust, dependable and, at the same time, costefficient.
SBI's answer to financial inclusion is the 'SBI Tiny project',
which can in simple terms be defined as a Bank in a Box.
The entire set up consists of a cell phone which serves as
POS machine, a finger print reader and a tiny printer, all of
which can be packed into a 10 inch by 10 inch box. All
these work on rechargeable batteries. SBI Tiny accounts
(no frills accounts) are opened on the smart cards. The
smart card is akin to an e-purse and stores information
about the customer, the account number, finger prints as
well as the balance in the account. The smart card can
handle up to 16 accounts including loan accounts. This
card is highly secure as it works on the bio-metric
validation of the customer. The card works on the Radio

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Frequency Identification (RFID) technology. SBI is today
using this technology in our smart cards which work in
conjunction with a mobile or a hand held connectivity
device which works on Near Field Communication
Technology (NFC). Transactions are possible both in
online and off line mode. It also permits the real time
updation of balances in the card. By issuing a smart
card to the rural customer, the cost of the transaction is
reduced because we are dispensing with paper based
transactions and shifting the actual operation of
transacting on the account away from the branch to
Customer Service Point / Provider (CSP) at the outlet in
the location of the rural customer.
SBI is running pilots at several places like Aizawl
(Mizoram), Medak and Warangal (Andhra Pradesh),
Pithoragarh (Uttarakhand) and West Garo Hills
(Megalaya). Andhra Pradesh has been identified by our
bank for carrying out disbursements under National
Rural Employment Guarantee Programme (NREGP) and
other rural development schemes through SBI Tiny Card
accounts in Warangal and Medak districts. The scheme
is also being extended to areas like Chamoli and Pauri in
Uttrakhand and Titabar in North East.

July-September, 2007

Challenges
Financial inclusion in a large scale is possible only if the
banks join hands with like minded partners in their
initiative. While business correspondent model introduced
by RBI enables such partnerships to evolve, the major
concerns would be as under:
As there is no proven / tested model, the initial take off
may be slow till sufficient experience is gathered.
It is essential that the programme is viable for all the
partners. However, payment of fee / commission, etc.
to the business correspondent, has no precedence
and will evolve over time.
Risk management, operations, registration, credit, etc
are a major issues.
Cash management by the business correspondents
is also an issue which can affect the reputation of the
bank.
But these are not insurmountable. With experience and
over a period of time, these can be sorted out and
standards laid down.

Conclusion
Financial inclusion is not a one time effort; it is an ongoing process. It is a huge project which requires
concerted and team efforts from all the stake holders the Government, financial institutions, the
regulators, the private sector and the community at large. From the sporadic attempts of today dispersed
across the nation, it should gather momentum and grow in geometric proportions and develop into a
focused and effective movement. If this is to be achieved, it requires the passionate involvement,
dedication and commitment of all stake holders. It requires a major mindset change in the minds of every
individual involved banker, bureaucrat, regulator et al, and, therefore, creating awareness at all levels.
At the same time, the role of technology in the whole scenario cannot be undermined either. It has to be
admitted that today, more than even before, technology plays a vital role in bringing about integration in
society of all social and economic classes. Accessibility, affordability, appropriateness and benefits
determine how deep financial inclusion penetrates the social fabric of the village. Financial inclusion can
empower even the poorest person and bring about a dramatic change in his fate.
As observed by Dr. Yunus, .basic ingredient of overcoming poverty is packed inside each poor
person. All we need to do is to help this person to unleash this energy and creativity.... Only place in the
world where poverty will exist will be in the museums and no longer in human society. With combined
efforts of all the stake holders, viz., policy makers, regulators, banks, NGOs, MFIs and other similar
entities, this can be made possible.

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