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  • AUGUST 16, 2011

Bringing the bank to the poor

India takes pride in being among the fast growing, developing nations. But did you know that approximately 600 m people out of a population of one bn do not have bank accounts. Prime reason being- absence of banks in their locality. Since only 5% of the residents have access to a bank, the poor in particular have no choice but to borrow from unreliable moneylenders at high and random rates. Even the government's financial aid is usurped by corrupt middle men. So only a tiny fraction of the actual money ends up reaching the poor.

Source: Invest India Market Solutions (IIMS 2007)


Financial inclusion (FI), is all about providing affordable banking to the poor and eliminating middle man from the distribution chain. The idea is to make a bank or bank-like facilities available to the poor at their doorstep itself.

A rural farmer living in a village in Chaapra cannot travel all the way to Patna to withdraw money from his account. Neither is it profitable for the bank to set up a branch in every village. This gap is filled in by the 'Business Correspondent' (BC) who is the bank representative in the village. Non-government organizations, micro-finance institutions, civil society setups or even local entities such as the neighborhood kirana shops can act as BC and connect the bank to customers in remote & backward rural areas. BCs use the handheld devices powered by internet to authenticate & authorize transactions.

To bring the poor under mainstream banking, the government along with the Indian Banking Association has launched a nationwide Financial inclusion programme 'Swabhiman'. This will enable marginal farmers, landless labourers & rural artisans to transact in a bank like you and me. Under Swabhiman, banking facilities have to be provided to areas with population of over 2,000 by March 2012.

RBI is also taking up measures to aid banks in implementing the FI programme. These include priority-sector lending, 'no-frills' account & general purpose credit card. RBI is reimbursing accounts opened through biometric access. The National Unique Identification program is expected to aid the 'Know Your Customer' norm for FI.

Micro-finance is an important means of financial inclusion as it provides small-scale financial services both credit and savings to the poor. Micro-finance institutions (MFI) are the main players offering microcredit. Other players include banks and insurance companies, agricultural & dairy co-operatives, fertilizer companies and handloom houses and the postal network. MFI's, either follow the joint liability group model where credit is directly extended and recovered from each member of the group or the self help group (SHG) model in which the credit is extended to the group as a whole. Under the SHG-bank model, an NGO promotes the group and gets banks to extend loans to the group.

Farmers & artisans in remote villages are not the only ones without banking facilities. Even the vegetable vendor, milkman or the house maid working in cities do not have access to any formal credit source. The migrant population living in slums need to be provided banking services. Axis Bank has tied up with microfinance company Janalakshmi to deliver savings, credit & remittance facilities to the unbanked and under-banked population in urban centres which includes the migrant labourers & slum dwellers.

Even the omnipresent mobile technology which has a huge reach & offers secure, cost-effective & real time transactions is being increasingly used to achieve FI in cities. Axis Bank has joined hands with Idea Cellular to provide money- transfer facility to the migrant population. Under the scheme, a customer opens a no-frills bank account at the Idea outlet by submitting minimum documents. The customer can deposit or withdraw for a charge or free of cost. The scheme known as "Idea MyCash" charges Rs 15 per such money- transfer up to a maximum of Rs 1,000. SBI and ICICI banks have partnered with Eko, a mobile banking technology company, to provide banking services in local Kirana shops.

The FI initiatives have started bearing fruits as reflected in the following statistics. During FY11, the total number of villages covered by banking services increased by 82% to 99,840, out of which the number of villages covered by BC's rose by 132% to 76,801. The number of no-frills accounts increased by 200% to 74.4 m over the same period. RBI has projected 348,000 villages to be brought under the ambit of banking services by FY13.

With FI, the poor at least now have a bank to bank upon.

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