Financial Inclusion

- Dr. Saibal Paul

saibalpaul5@gmail.com
Inability of individuals, households or groups to access
necessary financial services in an appropriate form

Accessible

Appropriate Useful/Need
products based

Inclusion

Sustainable Affordable

Responsible
 Impact of Financial Inclusion
Economic Empowerment Education and Self Dependant
Larger say on financial decision Development of self and confidence
a.Access to credit; support to enhance building
family income a.Financial Literacy
b.Help in employment generation b.Management of finance
c.Information of sources and process to c.IGP training
access credit d.Non formal education
d.Improved access and control over e.Information and skill to access govt.
resources schemes though local govt. and other
Social Empowerment bodies
Participation and acceptance in family
community and society Political Empowerment
a.Improved ability to communicate and Independent decision making and participation
interaction within group and communicate a.Strengthen political decision making
b.Improved mobility b.Voting by will and self decision
c. Transcending secessionist feelings c.Organizing campaigns
d.Collective decision making d.Contesting in vote in different bodies
e.Family and social audience
 Historical evidences of Microfinance
-Informal beginning documented history of two centuries
“tandas”
“susus” in Mexico
of Ghana “cheetu”
in Sri Lanka “hui” in
“chit funds” China
in India

Microfinance in Europe can be

traced in 16th Century -Poverty Savings and Credit

Ireland (1720) –
- Started with charity money then financial
intermediation
- Small loans with weekly repayment/peer
pressure for repayment
- Capped rate of Interest by regulation by
insistence of Commercial Banks
 Financial Inclusion Drives of India – Historical
Perspectives
Bank of Hindustan, which was established General Bank of India, established
in 1770 and liquidated in 1829–32 in 1786 but failed in 1791

The largest bank, and the oldest still in existence, is the SBI. It originated and
started working as the Bank of Calcutta in 1806. In 1809, it was renamed as the
Bank of Bengal.
70% rural population (RRB On 31
Act 1976) RRBs- Cen Govt – March 2016,
50%, St Gov– 15% Sponsor -56 RRBs
Banks – 35% (post-
Special drives for merger)
Financial covering
Inclusion 525
Urban Cooperative Banks,
districts/
Rural Cooperative Banks,
14,494
Multi State Cooperative
branches.
Banks
 Financial Inclusion Schemes in India
– Historical Perspectives
The government of India had launched various poverty alleviation programs like Small
Farmers Development Scheme (SFDS) 1974-75, Twenty Point Programme(TPP) 1975,
National Rural Development Programme (NRDP)1980, Integrated Rural Development
Programme(IRDP)1980,Rural Landless Employment Guarantee Programme(RLEGP)1983,
Jawhar Rozgar Yojna(JRY)1989, Swarna Jayanti Gram Swarojgar Yojana(SGSY)1999 and
many other programs.

Integrated Rural Development Programme (IRDP) in 1980. But these supply side
program (ignoring demand side of economy) achieved little. It involved the
commercial banks in giving loan of less than Rs 15000/-to socially weaker section. In a
period of nearly 20 years the total investment was around Rs 250 billion to roughly 55
million families. But it was far from realizing its desired goal. The problem with IRDP
was that its design incorporated a substantial element of subsidies (25-50% of each
family‟s project cost) and this resulted in extensive malpractice and mis-utilisation of
funds. The net result is that estimates of repayment rates in IRDP ranged from 25-
33%.The two decades of IRDP experience in the 1980s and 1990s affected the
credibility of micro borrowers in the view of bankers and ultimately, hindered access
of the less literate poor to banking services.
 Cont………
On 1st April 1999 a new programme called Swarnajayanti Gram Swarojgar Yojana(SGSY)
was launched by amalgamating programmes like IRDP(Integrated Rural Development
Programme) and a number of allied programmes such as TRYSEM(Training of Rural
Youth for Self Employment), DWCRA(Development of Women and Children in Rural
Areas),SITRA(Supply of Improved Toolkits to Rural Artisans), GKY(Ganga Kalyan Yojana)
and MWS(Million Wells Schemes). This is a holistic programme covering all aspects of
self -employment such as formation of Self Help Groups(SHGs),training, credit,
technology, infrastructure and marketing. The programme aims at establishing a large
number of micro-enterprises in rural areas. SGSY is a credit-cum-subsidy programme.
 History of Microfinance
NABRD (SBLP )-The SHG-Bank Linkage Programme began in 1992.

Self-help groups (SHGs) were piloted by NGOs, notably MYRADA in India in the
mid-1980s, in order to provide financial services to poor people. What started as a pilot
programme has now become a movement for social empowerment – particularly for
rural poor women. The number of SHGs linked to banks has increased from about 500 in
the early 1990s to more than 1.6 million in 2006.

In 1987 NABARD first put funds into the SHG movement (in response to a proposal from
MYRADA submitted in 1986). In 1987 it provided MYRADA with a grant of 1 million INR
to enable it to invest resources to identify affinity groups, build their capacity and match
their savings after a period of 3-6 months.
As a result of the feedback from this initiative, in 1989 NABARD launched an
action research project in which similar grants were provided to other NGOs. After an
analysis of this action research, and owing to the efforts of successive
NABARD chairpersons and senior management, in 1990 RBI accepted the SHG strategy as
an alternative credit model. NABARD (1992) issued guidelines to pro
vide the framework for a strategy that would allow banks to lend directly to SHGs
.Based on these initial experiences, the SHG-Bank Linkage Programme was launched in
1992
 Major Models of Microfinance

Group Models

SHG Model (SBLP) JLG Model Grameen Model

a.The group of upto 20; if more a.The group of average 10 a.Group of five; one
than 20 it has to be registered b.Credit based model; no centre on every ten to
with Society Registration Act. savings twenty groups
b.The members develops their c.Group collateral; b.The leader of the group
own rules and regulation repayment liability represents the group in
c.Savings and interloaning d. MFIs (both NBFC-MFIs the centre meetings
d.Opening bank account and and NFP –MFIs) adhere this c.The MFI representative
rating by banks after six months model reaches to centre level
of operation e.The rules and regulations d. The rules and
d.Formal access to credit and CCL are designed by MFIs regulations are designed
e.NGOs(SHPI) form the groups, by MFIs
build up the capacity and link e. Credit Based Model
them with bank
f.Its a savings based model

There is also individual lending

MFIs currently operate in 29 States, 5 Union Territories and 591
districts in India. The reported 200 MFIs with a branch network of
14,026 and 1,10,914 employees have reached out to over 35 million
clients with an outstanding loan portfolio of `68,789 crore. This
includes a managed portfolio of `21,080 crore. Out of managed
portfolio, BC portfolio accounts for `14,524 crore. The average loan
outstanding per borrower stood at `14,700 and 93% of loans were
used for income generation purposes
Predominant Products in India
1. Loans
2. Savings
3. Insurance
4. Remittance
Major Challenges-
a. Products mostly made by MFIs – Time and
Quantum
b. Dilution of group mechanism
c. Targets given to the loan officers ( mis selling)
d. Low awareness levels for insurance
Policy Framework- No Comprehensive Policy for
Microfinance sector
• Players in the
sector
• Banks-
Commercial, Regulated by RBI but not for Mf
RRBs, Cooperative, sector
SFBs
For
• NBFC Regulated by RBI for MF sector
Profit
• NBFC MFIs

• Society, Trust, Registered with diff Acts so not

regulated by RBI Not
Cooperative For
Financial companies wt spl Profit
• U/S 8 Companies dispensation
 Priority Sector Lending
Banks credit to MFIs for on-lending to individual/SHGs/JLGs will eligible for categorization as
priority sector advance under respective categories viz., Agriculture, Micro, Small and Medium
Enterprises and others as indirect finance, provided not less than 85 percent of total assets of
MFI (other than cash, balances with banks and financial institutions, government securities and
money market instruments) are in the nature of “qualifying assets”. In addition, aggregate
amount of loan given for income generation should constitute at least 50 per cent of the total
loans, and the remaining 50 per cent can be for non-income generating activities.

Qualifying Asset is the loan disbursed by MFIs, which satisfies the following criteria:
i) The loan is to be extended to a borrower whose household annual income in rural areas
does not exceed ` 1,00,000/- while for non-rural areas it should not exceed 1,60,000/-.
ii) Loan does not exceed ` 60,000/- in the first cycle and ` 100,000/- in the subsequent cycles.
iii) Total indebtedness of the borrower does not exceed ` 1,00,000/-.
iv) Tenure of loan is not less than 24 months when loan amount exceeds ` 15,000/- with right
to borrower of prepayment without penalty.
v) The loan is without collateral.
vi) Loan is repayable by weekly, fortnightly or monthly installments at the choice of the
borrower.
 You are Wonderful
- Think, explore and ask questions