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Financial Inclusion / Financial Literacy

in select districts of Jharkhand

A Project Report by

Prakash Agarwal
RBI Young Scholar 2009

Reserve Bank of India, Ranchi


Over the last decade, there has been expansion, competition and
diversification of ownership of banks leading to both enhanced efficiency and
systemic resilience. However, there are legitimate concerns in regard to the
banking practices that tend to exclude rather than attract vast sections of
population, in particular, pensioners, self-employed and those employed in
unorganized sector. This culminated into the Reserve Bank emphasizing in its
Annual Policy Statement for 2005-06, that bankers should empower the
depositors by providing wider access and better quality of banking services.
With the objective of ensuring greater inclusive growth, Reserve Bank has
undertaken a number of initiatives to continuously widen the scope and
extent of financial Inclusion.

In order to explore the potential for integrating financial education and

literacy into the Reserve Bank’s overall endeavour for financial inclusion, the
Bank launched the ‘Reserve Bank of India Young Scholars Scheme’ for
students between 18 and 23 years of age and studying in undergraduate
classes at various institutions across the country. In this context, we consider
ourselves fortunate enough to be allotted the project ‘Financial
Inclusion/Financial Literacy’ of which the Young Scholar Scheme is an
inseparable part.

This report is not just the work done by two of us, it is also the result of our
interactions with the staff at RBI, Ranchi office, which moulded and shaped
over views on financial inclusion, which can be seen, reflected in the report
itself. The continued guidance from Shri R.N. Mishra, GM & O-In-C and mentor
Shri Chandan Kumar, AGM helped us focus on financial inclusion and not get
distracted away from our core topic. Our visit to the SHG meeting at Ramgarh
with Smt Bimla Bhagat, Manager and Shri S.T. Punnoose, AGM was our first
foray outside Ranchi, which helped us understand the working of SHGs and
Farmer Clubs. The number of surveys and visits we undertook would not have
been possible without them being facilitated beforehand by our mentor, who
took every pain so as to smoothen our project work, which sometimes used to
get off track too. We are also thankful to Shri S. Das who guided us in the early
days of our project and gave a macro view on the topic of financial inclusion.

The entire staff at office made it a point that we learn something each day we
attended office. We are indebted to all of them, who helped us in one or the
other manner.

[Prakash Agarwal]

July 15, 2009.

List of Abbreviations [v]

Chapter Page
No. No.
1 Introduction 1
2 Initiatives for Promoting Financial Inclusion – Pre 2005 7
3 International Experiences in Financial Inclusion 14
4 Initiatives for Promoting Financial Inclusion – 2005 Onwards 19
5 Role of ICT in Enabling Financial Inclusion 26
6 Survey on the Extent of Financial Inclusion 32
7 Field Visits 47
8 Recommendations 58

Annexures 70 – 85

References 86 – 87

List of Annexures

Annexure I RBI Young Scholar Survey on Financial Inclusion (Questionnaire)

Annexure II Performance Report of ‘Abhay’ Credit Counselling Centre
Annexure III Working Hours of ‘Abhay’ FLCC (as displayed on the centre’s website)
Annexure IV Leaflet of Programmes Offered by BMIED, Hazaribag
Annexure V Annual Training Calendar of BMIED for the year 2009-10
Annexure VI Helpline for Farmers – A Self-Sustaining Model
Annexure VII Disha Financial Counselling Centre (Website Homepage)
Annexure VIII Detailed Working of The ‘Kiva’ Model

Annexure IX Homepages of Various Financial Education Websites – A Comaprision

List of Abbreviations

ADWRS Agriculture Debt Waiver and Debt Relief Scheme

AML Anti Money Laundering
ATM Automated Teller Machine
BC Business Correspondent
BF Business Facilitator
BMIED Birsa Munda Institute for Entrepreneurship Development
BPL Below Poverty Level
CCC Credit Counselling Centre
CDFI Community Development Financial Institution
CDMA Code Division Multiple Access
CFT Centralised Funds Transfer
CGM Chief General Manager
CRA Community Reinvestment Act
CRC Commission for Rural Communities
CSOS Civil Society Organisations
CSP Customer Service Point
CTF Child Trust Fund
DCC District Consultative Committee
DRDA District Rural Development Authority
DRI Differential Rate of Interest
FIF Financial Inclusion Fund
FITF Financial Inclusion Technology Fund
FLCC Financial Literacy and Credit Counselling Centre

GCC General Credit Card
GDP Gross Domestic Product
GIPSA General Insurer’s Public Sector Association
GoI Government of India
GPRS General Packet Radio Service
GSM Global System for Mobile Communications
GUI Graphical User Interface
ICT Information and Communication Technologies
IDRBT Institute for Development and Research in Banking Technology
IVRS Interactive Voice Response Service
KCC Kisan Credit Card
KVIC Khadi Village Industry Corporation
KYC Know Your Customer
LBS Lead Bank Scheme
LDM Lead District Manager
LDO Lead District Officer
MFIS Micro Finance Institutions
MSMED Micro Small and Medium Enterprises Development
MoRD Ministry of Rural Development
NABARD National Bank for Agriculture and Rural Development
NBFC Non Banking Financial Company
NCC National Credit Council
NFC Near Field Communication
NGO Non Government Organisation
NPA Non Performing Asset

NREGES National Rural Employment Guarantee Scheme
PACS Primary Agriculture Credit Society
PAIS Personal Accident Insurance scheme
PIN Personal Identification Number
PMEGP Prime Minister’s Employment Generation Programme
PMRY Prime Minister’s Rozgar Yojana
POCA Post Office Card Account
PoS Point of Sale
PPP Purchasing Power Parity
RCB Rural Credit Bureau
RFID Radio Frequency Identification Device
RPCD Rural Planning and Credit Development
RRB Regional Rural Bank
RUDSETI Rural Development and Self Employment Training Institute
SAA Service Area Approach
SGSY Swarnajayanti Gram Swarozgar Yojana
SHG Self-Help Group
SHPI Self-Help Promoting Institution
SIDBI Small Industries Development Bank of India
SIM Subscriber Identity Module
SJSRY Swarna Jayanti Shahari Rozgar Yojana
SLBC State Level Banker’s Committee
SLRS Scheme of Liberation and Rehabilitation of Scavengers
SME Small and Medium Enterprise
SMS Short Message Service

SSI Small Scale Industries
SSP Society Security Pension
UCBS Urban Co-operative Banks
UI User Interface
UIN Unique Identification Number
UTLBC Union Territory Level Banker’s Committee


1. Introduction

India is the fourth largest economy in the world on a purchasing power parity
(PPP) basis and twelfth on a nominal basis. With the real GDP forecasted to
grow by 5.7% in the year 2009-10, the Indian economy is marching ahead.
This rapid expansion is expected to continue as growth in the services and
high technology manufacturing sector accelerates. Agriculture, which
continues to support around 60% of the population, has grown by a mere
2.7% in the second quarter of 2008-09. In addition, the organized sector
employment presently comprises less than 10% of the workforce, leaving the
vast majority of the working population with irregular income streams.

Notwithstanding the rapid increase in overall GDP and per capita income in
recent years, a significant proportion of the population in both rural and
urban areas still experiences difficulties in accessing the formal financial
system. There is currently a perception that there are a large number of
people, potential entrepreneurs, small enterprises and others, who may not
have adequate access to the financial sector, which could lead to their
marginalization and denial of opportunity to grow and prosper.

1.1 Financial Exclusion

Broadly defined, financial exclusion signifies the lack of access by certain
segments of the society to appropriate, low-cost, fair and safe financial
products and services from mainstream providers. Financial exclusion is thus
a key policy concern, because the options for operating a household budget,
or a micro/small enterprise, without mainstream financial services can often
be expensive. This process becomes self-reinforcing and can often be an
important factor in social exclusion.

Reserve Bank of India data shows that as many as 139 districts suffer from
massive financial exclusion, with the adult population per branch in these
districts being above 20,000 and only 3% with borrowings from banks. On
the assumption that each adult has only one bank account (which does not
hold good in practice, so that actual coverage is likely to be worse) on an all
India basis, 59 percent of the adult population in the country has bank
accounts. 41 percent of the population is, therefore, unbanked. In rural areas
the coverage is 39 percent against 60 percent in urban areas. The unbanked

population is higher in the poorer regions of the country, and is the worst in
the North-Eastern and Eastern regions.

Causes of Financial Exclusion

Demand-side Barriers: On demand constraints and opportunities, the
following issues have a significant bearing on the extent of financial

1. Cultural factors - Women are often disadvantaged by credit requirements

such as collateral since in most of the cases property is registered under their
husband’s name and they are to seek male guarantees to borrow.

2. Mistrust of financial institutions - The feeling that there is no point in

applying for financial products because he/she expects to be refused as banks
are not interested to look into their cause has led to self-exclusion for many of
the low income groups.

3. Level of income - A higher share of population below the poverty line

results in lower demand for financial services as the poor may not have
savings to place as deposit in savings banks.

4. Financial literacy and skills capacity – High information barriers, low

awareness and limited literacy, particularly financial literacy, i.e., basic
mathematics, business finance skills as well as lack of understanding often
constrain demand for financial services.

Supply-side Barriers: The following issues on the supply side are major
obstacles in providing an adequate supply of financial services to the
currently unbanked:

1. Locational constraints – Absence of physical infrastructure in interior-most

parts of the country leads to difficulties in accessing financial institutions (like
banks, etc) resulting in a substantial proportion of households in rural and
remote areas being kept outside the ambit of the formal financial system.

2. Real and perceived risk in lending - The perceived risk of lending to the
poor is higher than the real risk, creating a supply barrier by triggering higher
than necessary transactions costs due to stricter than needed prudential

3. Approaches and products - Generally, financial services tend to be

concentrated in urban areas, allowing rural clients little access to services and
information for making well grounded decisions.

4. Financial viability of MFIs - MFI practitioners encounter difficulties in

having a “double bottom line”: at the same time aiming to be profitable and
stimulating local economic development.

Costs and Consequences of Financial Exclusion

Broadly, the issue of cost of financial exclusion may be conceived from two
angles, which are intertwined. First, the exclusion may have cost for
individuals/entities in terms of loss of opportunities to grow in the absence of
access to finance or credit. Second, from the societal or the national
perspective, exclusion may lead to aggregate loss of output or welfare and the
country may not realize its growth potential.

In terms of cost to the individuals, financial exclusion leads to higher charges

for basic financial transactions like money transfer and expensive credit,
besides all round impediments in basic/minimum transactions involved in
earning livelihood and day to day living. Individuals/families could get sucked
into a cycle of poverty and exclusion and turn to high cost credit from
moneylenders, resulting in greater financial strain and unmanageable debt. At
the wider level of the society and the nation, financial exclusion leads to social
exclusion, poverty as well as all the other associated economic and social

Another cost of financial exclusion is the loss of business opportunity for

banks, particularly in the medium-term. Banks often avoid extending their
services to lower income groups because of initial cost of expanding the
coverage which may sometimes exceed the revenue generated from such

1.2 Financial Inclusion

The definitional emphasis of financial inclusion varies across countries and
geographies, depending on the level of social, economic and financial
development; the structure of stake holding in the financial sector; socio-
economic characteristics of the financially excluded segments; and also the
extent of the recognition of the problem by authorities or governments.

The Report of the Committee on Financial Inclusion in India (Chairman: C

Rangarajan) (2008) defines financial inclusion as the “process of ensuring
access to financial services and timely and adequate credit where needed by
vulnerable groups such as weaker sections and low income groups at an
affordable cost.”

Measurement of Financial Inclusion/Exclusion

While the importance of financial inclusion has been widely accepted, much
less is known about how inclusive the financial systems are and who has
access to which financial services. Individual indicators, viz. number of bank
accounts and number of bank branches that are generally used as measures
of financial inclusion, can provide only partial information on the level of
financial inclusion in an economy. Financial services or products rendered by
banks, postal savings banks, credit unions, finance companies, micro-finance
institutions (MFIs), and other formal and quasi-formal non-bank institutions
generally form the basis for measuring the financial inclusion.

Core and headline indicators place a given population along a continuum of

access, depending on its usage of formal, semi-formal, and informal financial
services, and those excluded from the use of financial services. The access to
finance could be divided into five segments: (i) The proportion of the
population that uses a bank or bank like institution; (ii) The population which
uses service from non-bank ‘other formal’ financial institutions, but does not
use bank services; (iii) The population which only uses services from informal
financial service providers; (iv) The proportion of the population transacting
regularly through formal financial instruments; and (v) The population which
uses no financial services.

There exists no single comprehensive measure that can be used to indicate

the extent of financial inclusion across economies. Specific indicators such as
number of bank accounts, number of bank branches, that are generally used
as measures of financial inclusion, can provide only partial information on the
level of financial inclusion in an economy.

Scope of Financial Inclusion

The scope of financial inclusion can be expanded in two ways:
(i) Through state-driven intervention by way of statutory enactments ( for
instance the US example, the Community Reinvestment Act and making it a
statutory right to have bank account in France).

(ii) Through voluntary effort by the banking community itself for evolving
various strategies to bring within the ambit of the banking sector the large
strata of society.

Internationally, financial exclusion has been viewed in a much wider

perspective. Merely having a bank account is not regarded as an accurate
indicator of financial inclusion. Rather, its scope is considered to be quite
large and ranges from empowerment of people through schemes of financial
literacy/education to ensuring their participation in institutional credit,
insurance cover and remittance services. The scope of financial inclusion is
much broader and hence, it is considered to be critical for achieving inclusive
and sustainable growth in the country.

Benefits of Financial Inclusion

Improvements in access to financial institutions accrue several benefits to the
consumer, regulator and the economy alike. Establishment of an account
relationship can pave the way for the customer to avail the benefits of a
variety of financial products. The bank accounts can also be used for multiple
purposes, such as, making small value remittances at low cost and making
purchases on credit.

Furthermore, the regulator benefits, as the audit trail is available and

transactions are conducted transparently in a medium that can be monitored.
The economy benefits, as greater financial resources become transparently
available for efficient intermediation and allocation, for uses that have the
highest returns. Promoting financial inclusion can also help in the
regeneration of local areas if money saved by increased access to financial
services can be re-invested in the community.

Inclusive finance - safe savings, appropriately designed loans for poor and
low income households and for micro, small and medium sized enterprises,
and appropriate insurance and payments services - can help people help
themselves to increase incomes, acquire capital, manage risk, and work their
way out of poverty. Increasing the inclusiveness of financial sectors, fuelled
by domestic savings to the greatest extent possible, will, over time, bolster the
poorer segments of the population as well as those segments of the economy
that most affect the lives of poor people.

Holding a bank account itself confers a sense of identity, status and

empowerment and provides access to the national payment system.
Therefore, having a bank account becomes a very important aspect of

financial inclusion. While financial inclusion, in the narrow sense, may be

achieved to some extent by offering a single financial service/product, the
objective of “comprehensive financial inclusion” would be to provide a
holistic set of services encompassing all of the above.

1.3 Financial Education/Financial Literacy

Financial literacy allows people to increase and better manage their earnings
- and therefore better manage their life events like education, illness, job loss
or retirement. It also promotes understanding and acceptance of important
political reforms, such as health care or pension reforms. While the
significance of financial literacy has not yet been fully articulated and
recognized by the international development community - or by policy
makers and practitioners in developing countries - measures to promote and
improve financial education are becoming more frequent.

It has been noted that low financial literacy significantly contributes to

financial exclusion in general and self-exclusion in particular. It accounts for
many low-income households not using insurance and deposit services, for
instance, or keeping their savings under the mattress. It prevents people from
understanding how inflation affects the real value of money and what options
they have to protect against erosion. Many poor people opt out of formal
financial systems due to misconceptions about price of credit. Many are
unaware of the best utilization of credit facilities and become over-indebted,
including micro credit facilities where markets have become more
competitive in recent years.

Improved financial education can bridge these gaps. It can also strengthen
accountability and competitiveness across financial sectors, and reduce the
elite capture of community level institutions, such as cooperatives, that
provide financial services to low-income people. And it can also contribute
towards efficient use of public resources that are targeted to assist the poor in
various ways. Thus, benefits of financial education can be enormous not only
to individuals, but to society as a whole. With increased financial literacy,
there will also be an increased demand for financial services from the poor,
which will further assist in percolating the benefits of inclusive finance
throughout every strata of the society.

2. Initiatives for Promoting Financial

Inclusion – Pre 2005

India has a long history of banking development. After Independence, the

major focus of the Government and the Reserve Bank was to develop a sound
banking system which could support planned economic development through
mobilization of resources/deposits and channel them into productive sectors.
Accordingly, the Government’s desire to use the banking system as an
important agent of change was at the core of most policies that were
formulated after Independence.

In order to expand the credit and financial services to the wider sections of
the population, a wide network of financial institutions has been established
over the years. The organized financial system comprising commercial banks,
regional rural banks (RRBs), urban co-operative banks (UCBs), primary
agricultural credit societies (PACS) and post offices caters to the needs of
financial services of the people. Besides, MFIs, self-help groups (SHGs) also
meet the financial service requirements of the poorer segments. Furthermore,
development of the institutional framework in recent years has focused on
new models of expanding financial services involving credit dispensation
using multiple channels such as Civil Society Organizations (CSOs), non
government organizations (NGOs), post offices, farmers’ clubs, and
panchayats. Specific financial instruments/products were also developed in
order to promote financial inclusion.

Overall Approach
Financial inclusion in the Indian context implies the provision of affordable
financial services, viz., access to payments and remittance facilities, savings,
loans and insurance services by the formal financial system to those who tend
to be excluded. Besides access, emphasis is also placed on affordability (low
cost) of financial services such as savings, loan, and remittance to the
underprivileged segments of the population. Although the term ‘financial
inclusion’ was not in vogue in India then, since the late 1960s both the
Government and the Reserve Bank have been concerned about the non
availability of banking facilities to the under-privileged and weaker sections
of the society. Accordingly, several initiatives have been taken over time.

The initiatives undertaken for the purpose of promoting financial inclusion in

India can be broadly categorized into the following four phases. In the first
phase during the early years of independent India from 1947 - 1967, the focus
was on channeling of credit to the neglected sectors of the economy,
especially agriculture and the spread of banking in the unbanked and rural
areas. Special emphasis was also laid on weaker sections of the society. In the
second phase beginning 1967 till the early 1990s, the focus was mainly on
nationalization of private sector banks, the spread of banking, institution of
directed credit through introduction of priority sector lending norms and
setting up of Regional Rural Banks. The third phase from 1991-92 onwards
till 2005 focused on improving the credit delivery system to the rural sector
and SMEs.

2.1 Developments during 1947-1967

The banking scenario that prevailed in the early independence phase had two
distinct disquieting features. Firstly, there was large concentration of
resources from deposits mobilization in a few hands of business families or
groups. Banks raised funds and on-lent them largely to their controlling
entities. Secondly, agriculture was neglected insofar as bank credit was
concerned. However, with the advent of planning for economic development
and the growing social awareness of the role of bank credit in the economy, it
was felt that the then commercial bank lending system had little social
content and that it aided concentration of economic power. It was felt that the
system was unresponsive to the needs of the weaker sections of the economy,
small industry and agriculture, as it concentrated on lending to large
customers. This period also witnessed several controls such as the credit
authorization scheme and selective credit controls to ensure that credit was
not concentrated in the hands of a few and that it was well disbursed.

Lending to Agriculture and Spread of Banking to Rural Areas

With independence, not only did the operating environment change but
policies were also geared towards planned objectives. Regulation was aligned
to the attainment of these objectives. Banks were considered unique among
financial institutions and were assigned a developmental role from the
beginning of the planned era. The Reserve Bank assumed a unique role in this
context that was occasioned by the predominantly agricultural base of the
Indian economy and the urgent need to expand and co-ordinate the
institutional credit structure for agriculture and rural development.

Emergence of Administered Structure of Interest Rates

This period was difficult for monetary policy as it had to accommodate fiscal
policy that was under pressure on account of two wars and a drought. The
rising deficit and the accompanying inflation led to an administered structure
of interest rates and several other micro controls. In early years, the Reserve
Bank relied on direct control over the lending rates of banks, rather than
indirect instruments such as the Bank Rate for influencing the cost of bank
credit. This was generally done by stipulating minimum rates of interest. The
period during 1961 to 1967 was particularly difficult for the nation. Inflation
was high and at times, shortages also developed.

2.2 Developments during 1967-1991

During this period, several initiatives were undertaken for enhancing the use
of the banking system for sustainable and equitable growth. These included
nationalization of private sector banks, introduction of priority sector lending
norms, the Lead Bank Scheme, branch licensing norms with focus on
rural/semi-urban branches, interest rate ceilings for credit to the weaker
sections and creation of specialized financial institutions to cater to the
requirement of the agriculture and the rural sectors having bulk of the poor
population. The National Credit Council was set up in February 1968 mainly
to assess periodically the demand for bank credit from various sectors of the
economy and to determine the priorities for grant of loans and advances.

The administrative framework for rural lending in India was provided by the
Lead Bank Scheme introduced in 1969, which was an important step towards
implementation of the two-fold objectives of deposit mobilization on an
extensive scale and stepping up of lending to weaker sections of the economy.
Realizing that the flow of credit to employment oriented sectors was
inadequate, the priority sector guidelines were issued to the banks by the
Reserve Bank to step up the flow of bank credit to agriculture, small-scale
industry, self-employed, small business and the weaker sections within these
sectors. The target for priority sector lending was gradually increased to 40
per cent of advances for specified priority sectors.

The National Bank for Agriculture and Rural Development (NABARD) was set
up in 1982 mainly to provide refinance to the banks extending credit to
agriculture. RRBs, which were set up in 1975 to cater, to the credit
requirements of the rural poor, were put on restructuring.

Nationalization of Banks and Spread of Banking

The Indian banking system underwent major structural transformation after
the nationalization in 1969. To address the issue of urban orientation, specific
emphasis was laid on making banking facilities available in the then
unbanked areas. This was executed through two definite steps, viz., by
designing a specific branch license policy and by initiating specific schemes
like the Lead Bank Scheme (LBS). The LBS, launched by the Reserve Bank
with a view to mobilizing deposits on a massive scale throughout the country
and also for stepping up lending to weaker sections of the economy, became
the principal instrument for branch expansion.

Institution of Directed Credit Programme

Directed credit programme involving loans on preferential terms and
conditions to priority sectors was a major tool of development policy in both
developed and developing countries in the 1960s. An enunciation of the need
to channel the flow of credit to certain sectors of the economy, known as the
priority sectors with the social objectives in mind, was first discussed in India
in July 1961. Banks were expected to play a more active and positive role in
aiding sectors such as agriculture and small scale industries.

The National Credit Council (NCC) was set up in February 1968 to assist the
Reserve Bank and the Government to allocate credit according to plan
priorities. The Differential Rate of Interest (DRI) Scheme was also instituted
in 1972 to cater to the needs of the weaker sections of the society and for
their upliftment.

On the whole, scheduled commercial banks’ advances to agriculture, exports

and small scale industries showed a significant rise, while those to industry
declined. The distribution of bank credit to the agricultural sector increased
from 2.2 % (end March 1968) to 15.8 % (end June 1989) whereas that for the
industrial sector declined from 67.5 % to 37.5 % during the same period.

2.3 Developments during 1991-2005

With the onset of economic reforms in the beginning of the 1990s, a strong
and resilient financial sector was considered necessary for accelerating the
growth momentum in the country and also for expanding the coverage of
financial services in a sustainable manner. Accordingly, the financial sector
reform process placed more emphasis on creating a strong, vibrant and

competitive banking system. A high-powered Committee on the Financial

System (CFS) was constituted by the Government of India in August 1991 to
examine all aspects relating to the structure, organization, functions and
procedures of the financial system (Chairman: Shri M. Narasimham). The
main issues faced in this phase were (i) increase the flow of credit to
agriculture and SMEs; (ii) strengthen the urban cooperative banks and
resolve the issue of dual control; and (iii) bring a large segment of excluded
population within the fold of the banking sector.

Credit to the SME and agriculture sectors decelerated in the 1990s and early
years of the current decade. Given the significance of both the sectors,
concerted efforts were made by the Government and the Reserve Bank to
increase the flow of credit to these sectors. The restructuring of RRBs by
merging them sponsor bank wise at the state level was done to make them
larger and stronger to serve as a better instrument of rural credit delivery.

An important step to bring financially excluded people within the fold of

formal financial sector was the promotion of microfinance in India. The SHG-
bank linkage programme was launched by NABARD in 1992, with policy
support from the Reserve Bank, to facilitate collective decision making by the
poor and provide ‘door step’ banking. Banks, as wholesalers of credit, were to
provide the resources, while the NGOs were to act as agencies to organize the
poor, build their capacities and facilitate the process of empowering them.

Improving Credit Delivery – Rural Sector

Notwithstanding the impressive geographical spread, functional reach,
improved credit flow to agriculture and consequent decline in the influence of
informal sources of credit, rural financial institutions were characterized by
several weaknesses, viz., decline in productivity and efficiency, erosion of
repayment ethics and profitability. On the eve of the 1991 reforms, the rural
credit delivery system was again found to be in a poor shape. In this context,
it was felt that there was a need for better alignment of interest rates and mix
of target and non target lending.

The Reserve Bank initiated several measures to increase the flow of credit to
the agriculture sector. These included (i) treating loans to storage units
designed to store agricultural products, irrespective of location, as indirect
credit to agriculture; (ii) treating investment by banks in securitized assets
representing direct (indirect) lending to agriculture as direct (indirect)
lending to agriculture; and (iii) waiver of margin/security requirement for
agricultural loans up to Rs.50000 and in case of agri-business and agri-clinics

for loans up to Rs.5 lakh. In addition, the Reserve Bank also aligned
repayment dates with harvesting of crops by treating loans granted for short
duration crops as an NPA, if the installment of the principal or interest
thereon remained unpaid for two crop seasons beyond the due date.

Improving Credit Delivery – SMEs

Consequent upon the deregulation of interest rates, there was an expectation
that credit flow to the needy will increase. However, credit to the SME sector
decelerated in the 1990s and the first four years of the current decade.
Realizing the critical role of small industries in the economy, the Reserve
Bank initiated several measures with a view to increasing the flow of credit to
Small Scale Industry (SSI) units.

Several other measures were also initiated to increase the flow of credit to
the SSI sector. These included identification of new clusters and adopting
cluster-based approach for financing the small and medium enterprises
(SME) sector; sponsoring specific projects as well as widely publicizing the
successful working models of NGOs; sanctioning higher working capital limits
to SSIs in the North Eastern region for maintaining higher levels of inventory;
and exploring new instruments for promoting rural industry. Interest rates
on deposits placed by foreign banks with SIDBI in lieu of shortfall in their
priority sector lending obligations were restructured and the tenor of
deposits was increased from one year to three years with effect from financial
year 2005-06.

SHG – Bank Linkage Programme

The problems in the beginning of 1990s were two fold i.e. institutional
structure was neither profitable in rural lending nor serving the needs of the
poorest. Reaching the poorest, whose credit requirements were very small,
frequent and unpredictable, was found to be difficult. Further, the emphasis
was on providing credit rather than financial products and services including
savings, insurance, etc. to the poor to meet their simple requirements.
Therefore, need was felt for alternative policies, systems and procedures,
savings and loans products, other complementary services and new delivery
mechanisms, which would fulfill the requirements of the poorest. As a result
National Bank for Agriculture and Rural Development (NABARD), in India,
launched its pilot phase of the Self Help Group (SHG) Bank Linkage
programme in February 1992.

Since 1992, SHG-bank linkage programme has been promoting micro finance
facilities to the poor. A growing component of inclusive banking is the lending
by MFIs that are societies, trusts, cooperatives or ‘not for profit’ companies or
non banking financial companies registered with the Reserve Bank. The MFIs
cover millions of borrowers and the NBFC segment within this sector is the
fastest growing segment. Interest rates on lending to MFIs/NBFCs have been
completely deregulated. Bank lending to such entities for microfinance is
treated as priority sector lending. In India, there have been several innovative
experiments with various variants of micro-finance taking into account the
highly localized needs.

To further promote the SHG-bank linkage programme in the country, banks

were advised in 1998 that SHGs that were engaged in promoting the saving
habits among their members would be eligible to open savings bank accounts
and that such SHGs need not necessarily have availed of credit facilities from
banks before opening savings bank accounts. Subsequent to the Monetary
and Credit Policy announcement for the year 1999-2000, banks were advised
that interest rates applicable to loans given by them to micro credit
organizations or by the micro credit organizations to SHGs/member
beneficiaries would be left to their discretion. Subsequently, banks were
advised that they should provide adequate incentives to their branches for
financing the SHGs and that the group dynamics of working of the SHGs may
be left to themselves.

The main advantage to the banks of their links with the SHGs is the
externalization of a part of the work items of the credit cycle, viz, assessment
of credit needs, appraisal, disbursal supervision and repayment, reduction in
the formal paper work involved and a consequent reduction in the
transaction costs. Though a variety of micro-finance models are followed in
India, SHG-bank linkage programme is the predominant one.

Along with the SHG-Bank Linkage Programme, a multi-pronged strategy was

followed to promote financial inclusion which not only served better the
diverse demand for financial services, but also reduced the systemic risks,
increased competition, and improved efficiency. On the larger scale, a wide
paraphernalia of institutional framework was established by the Reserve
Bank and the Government to ensure better banking penetration and outreach
so that the credit needs of agriculture and small enterprises were met while
allowing sufficient flexibility to banks to evolve their own policies and
strategies for the purpose.

3. International Experiences in Financial


While India has followed a multi-pronged strategy to promote financial

inclusion, the global experience also suggests that countries that allow
diversity in approaches are more likely to achieve better results. Diversity in
approaches not only serves better the diverse demand for financial services,
but also reduces systemic risks, increases competition, and improves
efficiency. Many other countries have also followed more or less a similar

An interesting feature which emerges from the international practice is that

the more developed a society is, the greater is the thrust on empowerment of
the common person and low-income groups. The problem of financial
exclusion is found even in several advanced countries. These countries have
also initiated specific measures to bring financially excluded people within
the fold of the banking system. The measures initiated by governments of
developed as well as developing/less developed countries have been
discussed below.

3.1 United Kingdom

The Government of UK has been tackling financial exclusion since 1997. For
example, in 1999, the Social Exclusion Unit’s Policy Action Team 14 (PAT 14)
recommended the creation of basic bank accounts. The Government worked
successfully with the banks to bring these products to the market, and there
are now basic bank accounts available from 17 providers. Since 2006, the
Financial Inclusion Fund (FIF) has provided Growth Funding of £42 million
for third sector lenders. The Fund provides capital for lending to financially
excluded customers, with revenue support to meet costs.

A Post Office Card Account (POCA) has been created for those who are unable
or unwilling to access a basic bank account. This enables cash withdrawals at
post offices but does not offer an overdraft facility.

The Government is also piloting Savings Gateway’s schemes in which those on

low-income employment will receive £1 from the state for every £1 they

invested, up to a maximum of £25 per annum. The forthcoming Child Trust

Fund (CTF), which will offer all households a fixed sum for long-term
investment at the birth of their children, is hoped to be most beneficial in
lower income households.

Initiatives to promote financial inclusion have not been restricted to just the
urban centres. As part of the Commission for Rural Communities’ (CRC) work
to tackle disadvantage in rural areas, some good and enterprising practices in
rural financial inclusion includes the NatWest’s mobile bank, Cumbrian Debt
Rescue and Financial Advice, Ely Citizens Advice Bureau, Farm Crisis Network
and many others.

3.2 United States of America

A civil rights law, namely Community Reinvestment Act (CRA) in the United
States prohibits discrimination by banks against low and moderate income
neighbourhoods. The CRA imposes an affirmative and continuing obligation
on banks to serve the needs for credit and banking services of all the
communities in which they are chartered.

The US Community Development Financial Institution (CDFI) Fund uses

Federal resources to invest in and build the capacity of CDFIs to provide
capital and financial services to under-served people and communities.

The Federal Reserve System’s recently redesigned financial education

website, FederalReserveEducation.org, is dovetailed to increase the use of
Federal Reserve educational materials and promote financial education in the
classroom. It provides easy access to free educational materials, a resource
search engine for teachers, and games for various ages and knowledge levels.

3.3 Brazil
In 1997, banks and regulators in Brazil created a network of "correspondents
bancarios" or "banking correspondents", small outlets with extended working
hours that offered basic banking services. At that time, 40 out of the 68
million economically active Brazilians had no access to formal financial
services. Today, an additional 4 million have begun using banks for the first
time through 27,000 banking correspondents. Under this arrangement, banks
are permitted to appoint a wide variety of institutions/entities as
correspondents/ agents, which are easily accessible to people, e.g., drug
stores, petrol pumps, super markets, small stores in neighbourhood, post

offices and even lottery shops. The Brazilian model is largely technology
driven. The agents use kiosks or automated teller machines to accept
payment, open accounts, without a cheque book facility, take small deposits,
provide micro credits, and sell savings bonds and insurance.

3.4 South Africa

The Financial Sector Charter in South Africa led to the establishment of the
‘Mzansi’ account; a National no frills Bank Account (NBA). In its first year of
operation itself, it garnered nearly 2 million accounts. Access to the affordable
card based product is provided through a combination of existing service
point outlets and physical branch outlets including own and shared ATMs,
Post Offices, and merchant PoS devices. There is a money transfer service
associated with the Mzansi account which makes it possible to transfer
money between un-banked/banked customers from any participating bank
or South Africa Post Office. All banks in South Africa are participants in this
unique venture. As it is a technology intensive product, the transaction costs
are very low and thus, what was thought to be as ‘too costly to serve areas
and people’ has become an attractive proposition.

3.5 Singapore
A sophisticated example of global payments network operating via postal
banks is the Singapore Post which regards payments and remittance services,
an important catalyst for enhancing financial inclusion. Singapore Post’s
remittance services, in partnership with banks and other financial entities in
a number of countries, provides consumer loan services, insurance and
investment products on behalf of banks and finance companies, offices and
investment managers to Singapore residents including workers from

3.6 Philippines
In 2004, BSP, the central bank of Philippines sanctioned two e-money
products. The first was ‘Smart Money’, product of a major commercial bank
and the second was ‘G-cash’, a non-bank product whose provider was
ultimately licensed as a remittance agent. The impact of these e-money
products has been substantial. Some 8 million people use one or other of the
two products, while the numbers of banks involved has grown rapidly. Apart
from the larger commercial banks, increasing numbers of small rural banks

has also participated in these products. Some banks have lowered interest
rates, by up to 50bps/month, on microfinance loans administered via the
phone repayment platform. Lower cost remittance channels have seen
remittance costs fall markedly. These advances have increased financial
inclusion in the country with the convergence of e-money, mobile technology
and the traditional brick-and-mortar networks of financial institutions.

3.7 Bangladesh
The Grameen Bank (GB) in Bangladesh has reversed conventional banking
practice by obviating the need for collateral. It has created a banking system
based on mutual trust, accountability, participation and creativity. GB
provides credit to the poorest of the poor in rural Bangladesh, without any
collateral. It offers credit for creating self-employment, income-generating
activities and housing for the poor, as opposed to consumption, and provides
service at the doorsteps of the poor. In order to obtain loans, a borrower must
join a group of borrowers. The repayment responsibility solely rests on the
individual borrower and there is no form of joint liability. Loans can be
received in a continuous sequence. New loan becomes available to a borrower
if his/her previous loan is repaid. All loans are to be paid back in instalments
(weekly or bi-weekly).

GB’s success can also be gauged from the fact that it has 7.46 million
borrowers in Bangladesh alone and has grown into over 2 dozen enterprises
represented by the Grameen Family of Enterprises. Grameen Foundation not
only provides microloans in the USA itself but also supports microfinance
institutions in Asia-Pacific, America and Africa.

3.8 Kenya
Recent international experience indicates that micro savings are as important
as micro credit. Moving in this direction, Equity Building Society in Kenya has
developed the Jijenge Savings Account, a contractual savings product with an
emergency loan facility. The client defines the length of the contract and the
periodicity of the deposits, which could be weekly or monthly. A premium
interest rate is offered to those who take out longer term contracts and there
are significant penalties for premature withdrawals. All Jijenge savings
account holders have guaranteed immediate access to an emergency loan of
90 percent of the amount in their Jijenge savings account. As well as providing
a disciplined way to save, this product allows clients to meet their "illiquidity"
preference and protects their savings against the demands of petty spending

or "marauding relatives". The account is already proving extremely popular

with existing as well as new clients.

Commercial Bank of Africa in conjunction with local mobile operator

Safaricom has enabled mobile subscribers to make micro payments from
mobile phones. The majority of the people in Kenya do not hold bank
accounts but purchase prepaid mobile refill cards. The technology allows
settlement of bills by building up credit balance on the mobile phone and
sending text message to make payments.

The above discussed cross country experiences show that there has been
several innovative experiments worldwide to promote financial inclusion
with special emphasis on creating demand through diversified credit
instruments, outreach considerations, sustainability aspects, delivery
mechanisms among others. Although these international experiences come
with their own merits and demerits, the initiatives undertaken in India (to be
discussed in subsequent chapters) are unique in nature, formulated with due
consideration to the diverse socio-economic conditions prevailing in the

4. Initiatives for Promoting Financial

Inclusion – 2005 Onwards

The objective of bringing financially excluded people within the fold of the
banking sector received renewed emphasis in 2005-06 as the term ‘financial
inclusion’ was explicitly used for the first time in the Annual Policy Statement
for 2005-06. It observed that there were legitimate concerns in regard to the
banking practices that tended to exclude rather than attract vast sections of
population, in particular pensioners, self-employed and those employed in
the unorganised sector. It also indicated that the Reserve Bank would (i)
implement policies to encourage banks which provide extensive services,
while disincentivising those which were not responsive to the banking needs
of the community, including the underprivileged; (ii) the nature, scope and
cost of services would be monitored to assess whether there was any denial,
implicit or explicit, of basic banking services to the common person; and (iii)
banks urged to review their existing practices to align them with the objective
of financial inclusion.

The recent approach focuses on financial inclusion on the individual and

household level. The important difference in the recent focus on financial
inclusion is the adoption of market oriented approach that recognises the
importance of business consideration of banks and other financial institutions
for the long-term sustainability of the process.

4.1 Microfinance
Of the different models for delivery of microfinance, the SHG-Bank Linkage
Programme has emerged as the major micro-finance programme in the
country. It is being implemented by commercial banks, RRBs and co-
operative banks. As on March 31, 2008 3.6 million SHGs had outstanding
bank loans of Rs.17000 crore, an increase of 25 per cent over March 31, 2007
in respect of number of SHGs credit linked. As at end-March 2008, SHGs had 5
million savings accounts with banks for Rs.3785 crore.

Based on the findings of a joint study conducted by the Reserve Bank along
with a few major banks, the banks were advised in November 2006 to
encourage microfinance institutions (MFIs) assisted by them to (i) focus on

unbanked and underbanked areas; (ii) desist from multiple lending; (iii)
engage in capacity building and empowerment of the groups; and (iv) follow
practices that maintain the cohesiveness of the groups. This led to banks
financing NGOs/MFIs for on-lending under micro-finance. As on March 31,
2007, the number of MFIs that had outstanding bank loans was 550
amounting to Rs.1585 crore.

Recognising the potential of microfinance to positively influence the

development of the poor, the Reserve Bank has advised commercial banks
that micro credit should cover not only consumption and production loans for
various farm and non-farm activities of the poor, but also include their other
credit needs such as housing and shelter improvements. A Micro Financial
Sector (Development and Regulation) Bill, 2007, which envisages the
regulation of the sector, is currently under consideration of the Parliament.

4.2 ‘No-Frills’ Accounts

The Reserve Bank reiterated the concerns of financial inclusion in its Mid-
term Review of Annual Policy Statement for 2005-06. All banks were advised
in November 2005 to make available a basic banking ‘no-frills’ account either
with ‘nil’ or very low minimum balances as well as charges that would make
such accounts accessible to vast sections of population. The nature and
number of transactions in such accounts could be restricted, but made known
to the customer in advance in a transparent manner. All banks were also
advised to give wide publicity to the facility of such a ‘no-frills’ account
including on their web sites indicating the facilities and charges in a
transparent manner. Significant progress has been made in this regard, and
till now, banks have opened more than 15 million no-frills accounts in the

As announced in the Annual Policy Statement for the year 2008-09, and in
order to give further impetus to financial inclusion, banks were advised in
May 2008 to classify overdrafts up to Rs.25000 (per account) granted against
‘no-frills’ accounts in rural and semi-urban areas as indirect finance to the
agriculture sector under priority sector with immediate effect.

4.3 Relaxation of KYC Norms

The Reserve Bank in its Annual Policy Statement for 2005-06, emphasised
that banks should empower depositors by providing wider access and better
quality of banking services. Furthermore, banks were advised in August 2005

to ensure that customers belonging to poor sections of the society are not
kept away from banking system, on account of difficulties in meeting the KYC
requirements for opening bank account. The KYC procedure for opening
accounts was simplified further for persons who intend to keep balances not
exceeding Rs.50000 in all their accounts taken together and the total credit in
all the accounts taken together is not expected to exceed Rs.1 lakh in a year.
The customer is allowed to exceed the threshold limit only after the full
compliance with the KYC norms.

Based on feedback received on the extant KYC/AML/CFT regime, relevant

guidelines were revised on February 18, 2008. These guidelines include
among others (i) in case of close relatives who find it difficult to furnish
documents relating to place of residence while opening accounts, banks can
obtain an identity document and a utility bill of the relative with whom the
prospective customer is living, along with a declaration from the relative that
the said person (prospective customer) wanting to open an account is a
relative and is staying with him/her. Banks can also use any supplementary
evidence such as a letter received through post for further verification of the
address; (ii) banks have been advised to keep in mind the spirit of the
instructions and avoid undue hardships to individuals who are otherwise
classified as low risk customers; (iii) banks should review the risk
categorization of customers at a periodicity of not less than once in six

4.4 Kisan Credit Cards

The KCC scheme enabling farmers to purchase agricultural inputs and draw
cash for their production needs was further extended by providing personal
accident insurance coverage on an ongoing basis at competitive rates/terms,
thus safeguarding the interest of the KCC holders. Banks have been given the
discretion to approach either any general insurance company which is a
member of GIPSA (General Insurer’s [Public sector] Association of India) or
any private sector general insurance company, to take advantage of the
competitive offers. However, the banks have been advised that they may,
while negotiating with the insurers, keep in mind the guiding principles of
Personal Accident Insurance Scheme (PAIS), especially the aspects such as
premium sharing formula and coverage. This “add on” benefit is expected to
bring in an increasing number of farmers under the KCC fold, thereby leading
to complete coverage. The cumulative number of KCCs issued by public sector
banks aggregated 31.22 million (provisional) up to March 31, 2008 involving
an amount of Rs.1.54 crore.

4.5 General Purpose Credit Cards

With a view to providing credit card like facilities in the rural areas, with
limited point-of-sale (POS) and limited ATM facilities, the Reserve Bank
advised all scheduled commercial banks, including RRBs, in December 2005
to introduce a General Credit Card (GCC) facility without insistence on
collateral or purpose, with a revolving credit limit up to Rs.25000 based on
the assessment of income and cash flow of the household to enable hassle
free access to credit to rural and semi-urban households.

The Reserve Bank also advised banks to classify fifty per cent of the credit
outstanding under loans for general purposes under General Credit Cards
(GCC), as indirect finance to agriculture under priority sector. The Reserve
Bank further advised banks in May 2008 to classify 100 per cent of the credit
outstanding under GCCs as indirect finance to agriculture sector under the
priority sector with immediate effect.

4.6 Use of Intermediaries as Agents

With the objective of ensuring greater financial inclusion and increasing the
outreach of the banking sector, banks have been allowed to use the services
of NGOs/SHGs, MFIs and other civil society organisations as intermediaries in
providing financial and banking services through the use of business
facilitator and correspondent models. The BC model allows banks to do ‘cash-
in/cash-out’ transactions at a location much closer to the rural habitation,
thus addressing the last mile problem. Banks are also entering into
agreements with India Post for using the vast network of post offices as
business correspondents, thereby increasing their outreach and leveraging on
the postman’s intimate knowledge of the local population.

Banks have also been permitted to engage retired bank employees, ex-
servicemen and retired government employees as BCs with effect from April
24, 2008, in addition to the entities already permitted, subject to appropriate
due diligence. While appointing such individuals as BCs, the Reserve Bank
advised banks to ensure that these individuals are permanent residents of the
area in which they propose to operate as BCs and also institute additional
safeguards as may be considered appropriate to minimise agency risk. With a
view to ensuring adequate supervision over the operations and activities of
the BCs, the Reserve Bank advised banks that every BC should be attached to
and be under the oversight of a specific bank branch to be designated as the
base branch. The distance between the place of business of a BC and the base

branch, ordinarily, should not exceed 15 kms. (further extended to 30 kms.

from April 2009) in rural, semi-urban and urban areas. In metropolitan
centres, the distance could be up to 5 kms. However, in case a need is felt to
relax the distance criterion, the matter can be referred to the District
Consultative Committee (DCC) of the district concerned for approval.

4.7 Financial Literacy and Credit Counselling

Recognising that lack of awareness is a major factor for financial exclusion,
the Reserve Bank has taken a number of measures towards imparting
financial literacy and promotion of credit counselling services. The Reserve
Bank has undertaken a project titled “Project Financial Literacy” to
disseminate information regarding the central bank and general banking
concepts to various target groups, including, school and college going
children, women, rural and urban poor, defence personnel and senior
citizens. It would be disseminated to the target audience with the help of,
among others, banks, local government machinery, schools/colleges using
pamphlets, brochures, films, as also, the Reserve Bank’s website.

The Reserve Bank has also created a link on its web site ‘For the Common
Person’ to give him the ease of access to information, in Hindi, English and 11
regional languages (Assamese, Bengali, Gujarati, Kannada, Malayalam,
Marathi, Oriya, Punjabi, Tamil, Telugu and Urdu). A ‘Financial Education’ site
link on the Reserve Bank’s website was launched on November 14, 2007,
mainly aimed at teaching basics of banking, finance and central banking to
children in different age groups. The comic books format has been used to
explain the complexities of banking, finance and central banking in a simple
and interesting way for children.

In May 2007, convenor banks of the SLBCs/UTLBCs were advised to set up,
on a pilot basis, a Financial Literacy and Credit Counselling Centre (FLCC) in
any one district in the State/Union Territory coming under their jurisdiction.
The objectives of the FLCCs are to provide free financial literacy/education
and credit counselling - educating people in rural and urban areas with
regard to various financial products and services available, providing face-to-
face financial counselling services, and formulating debt restructuring plans
for borrowers in distress and recommending the same to formal financial
institutions for consideration. FLCCs should not, however, act as investment
advice centres. In rural areas, the centres could concentrate on financial
literacy and counselling for farming communities and those engaged in allied
activities while the centres in metro/urban areas could focus on individuals

with overdues in credit cards, personal loans, housing loans, etc. among
others. So far, banks have reported setting up or proposing to set up 123
credit counselling centres in various states of the country.

4.8 Setting up of RUDSETIs

The Reserve Bank has issued guidelines, framed by the Government of India,
to the SLBC convenor banks to set up at least one Rural Development and Self
Employment Training Institute (RUDSETI) in each district by 2010. These
institutions will train at least one youth in a family below poverty line (BPL)
in various fields and enhance capacity building. In all, 134 RUDSETIs have
been set up as on December 31, 2008. A target for opening of 100 RUDSETIs
by banks was set for the year 2008-09 and a grant of Rs.1 crore per RUDSETI
has been earmarked by the Planning Commission for setting up the institutes.
The Regional Offices of the Reserve Bank have been advised to monitor the
progress of setting up of RSETIs under their jurisdiction on a quarterly basis.

4.9 Establishment of FIF and FITF

In order to meet the costs of technology adoptions, developmental and
promotional interventions for ensuring financial inclusion, the Union Finance
Minister, in his Budget Speech for 2007-08 announced the constitution of the
Financial Inclusion Fund (FIF) and the Financial Inclusion Technology Fund
(FITF), with an overall corpus of Rs.500 crore each at NABARD. The FIF/ FITF
would be in operation until financial inclusion to the extent of 100 per cent of
rural families in all districts is achieved, over a period of five years from the
date of commencement of the Fund or for such enhanced period as may be
decided by the Government.

The FIF would be used for activities such as funding support for capacity
building inputs to BCs/BFs; providing promotional support to institutions
such as resource centres, farmers’ service centres and RUDSETIs; providing
funding support for promotion, nurturing and credit linking of SHGs; funding
support for setting up of Rural Credit Bureaus and credit rating of rural
customers; and supporting pilot projects for development of innovative
products, processes and prototypes for financial inclusion.

The FITF would be used for purposes such as providing financial support to
technological solutions aimed at providing affordable financial services to the
disadvantaged sections of the society; creating a common technology
infrastructure with comprehensive credit information; providing viability

gap/pilot project funding for unproven but potential technological

interventions; and conduct of studies, consultancies, research, evaluation
studies relating to technological interventions for financial inclusion.

4.10 Other measures

The Reserve Bank has continued with its endeavour to improve credit
delivery through its various measures. The revised guidelines on priority
sector lending which became effective from April 30, 2007 have given special
emphasis on agriculture, small enterprises, micro credit, retail trade,
education loans and housing loans up to Rs.20 lakh. There has been
significant improvement in the credit flow to the agriculture with the
implementation of the Advisory Committee on Flow of Credit to Agriculture
and Related Activities from the Banking System’s recommendations;
provision of assistance packages to the distressed farmers of Maharashtra
and Andhra Pradesh; and the more recently developed Agricultural Debt
Waiver and Debt Relief Scheme (ADWRS), 2008. Sections of population
employed in the MSME sector have also benefited with the formulation of the
debt restructuring mechanism for small and medium enterprises and
enactment of the Micro, Small and Medium Enterprises Development
(MSMED) Act, 2006.

Under the government sponsored schemes such as the SGSY, SJSRY and SLRS,
a total number of 1,505,944 beneficiaries received bank credit during the
year 2007-08 amounting to Rs.1523.64 crore. The beneficiaries of the above
schemes included women, physically challenged persons, SC/STs and OBCs.
Assistance under the PMRY scheme as on March 2008 amounted to Rs.1746
crore for 234,165 beneficiaries. The Government of India has decided to
merge PMRY with REGP to form a new scheme viz. Prime Minister’s
Employment Generation Programme (PMEGP).

Efforts to promote financial inclusion have so far yielded good results with a
large number of people having been brought within the banking fold. The
momentum gained in respect of micro-finance through SHG-bank linkage
programme, the largest of its kind in the world, would also be maintained. In
future, greater emphasis would be placed on leveraging technology through a
multiagency approach, which would not only expand banking outreach but
also reduce the transaction costs and make the process of financial inclusion

5. Role of ICT in Enabling Financial


The use of Information and Communication Technologies (ICT) solutions for

providing banking facilities at the doorstep holds the potential for scalability
of financial inclusion initiatives. To be able to ensure that the challenges of
banking the unbanked are met effectively and converted into growing and
sustainable business for banks, there is no alternative to adoption of ICT
solutions on a very large scale and range. ICT solutions capture customer
details, facilitate unique identification, ensure reliable and uninterrupted
connectivity to remote areas, offer multiple financial products through the
same delivery channel, develop comprehensive and reliable credit
information system, develop appropriate products tailored to local needs and
segments, provide customer education and counseling, enable use of
multimedia and multiple languages for dissemination of information and

Technology can play an important role in reducing operating cost of

providing banking services, particularly in the rural and low income groups
segments. There are three broad types of technologies that have been
identified to drive the growth of financial services. These are (i) pro-poor new
information and communication technology, primarily low-cost cell phones;
(ii) ATMs and other point of sales devices; and (iii) smart plastic card.

5.1 ICT Solutions and Technology Enablers

The centralised data processing system and the non-conventional methods
based on computer systems, which do not require uninterrupted electric
supply and radio frequency network, can significantly reduce the cost of
extending financial services. Mobile phone-based services can be provided
using various available connectivity technologies, each one of which has its
own pros and cons (Table 5.1). However, the extent to which technology will
be integrated into the financial service industry at the low end will depend on
supportive government policies and the quality of the infrastructure,
particularly in rural areas.

While self-service solutions like ATMs, PoS and mobile phone applications are

readily available and have been deployed widely in the country, financial

Table 5.1 Pros and Cons of Various Technologies

Connectivity Pros Cons

Short Message  Easier to build  Still unreliable – delivery of
Service (SMS) applications message is not guaranteed
 Already a popular  Requires user to remember
medium to communicate codes/ keywords
 Billing activities can be  Data size per message is
automated by tight restricted to 160 characters
integration with  Multiple SMS based transactions
operator’s systems can cause user resistance
General Packet  Provides ability to build  GPRS in particular requires
Radio Service advanced features separate hardware and is not
(GPRS) / Code  User interacts with a well present wherever GSM
Division Multiple designed user interface connectivity is available
Access (CDMA) (UI) and does not require  Both in turn do not have a pan
training India presence
 Can integrate seamlessly  CDMA requires specialised
with e-commerce skillset which is not widely
scenarios available
Handset Technologies

Subscriber Identity  Ensure availability of  Requires operator’s assistance

Module (SIM) application as and when in replacing existing SIM cards
Toolkit customer buys a new SIM  Operator lock-in for banks
 Operator is closely  Technology may not be inter-
associated with the operable in multiple operator
mobile banking project, scenarios
hence the delivery of
service is easy
Mobile Application  Operator independent  Development skillset is rare for
Development  Development skillset is CDMA
widely present for GPRS  Data security is a concern
 Ability to deliver better
features and UI
Emerging Technologies

Near Field  Ease of use  Still in nascent stages.

Communication  Experience similar to  Mobile phones still costly
(NFC) credit card usage
Mobile Phone as  Round the clock  Not built for mobile transactions
a device availability with customer  Compared to PoS/ATM devices
 More handsets, than bank which are built and certified for
accounts banking activities

inclusion presents some unique challenges. Low levels of literacy, the high
number of languages spoken and poor infrastructure, for example, require
enabling technologies to bring self-service closer to the unbanked population.

 Biometric Recognition eliminates the need for a personal

identification number (PIN). It authenticates the user by scanning a
thumb impression or retina of the account holder. Biometrics is an
important enabler when reaching out to the illiterate and semi-literate
population that avoids banking due to fear of technology and security
 Interactive Voice Response Services (IVRS) are software-based
solutions that relate the transaction process in a synthesized voice
format and guide a customer through the entire transaction flow. In
India, this has obvious and immediate benefits as a large section of the
population cannot read or write.
 Multilingual Software: There are about 1600 languages spoken in
India and, according to the country’s constitution there are 22 ‘official’
languages of communication. This creates a complex environment for
the consistent delivery of any service. As an extension of IVRS,
multilingual software provides a navigation solution in multiple
languages, overcoming regional barriers, communication issues and
 Graphical User Interfaces (GUIs) as part of the navigation process
helps to guide a user through a transaction by providing an intuitive
set of graphical images or pictorial references instead of words. For
India’s poor and illiterate, GUIs increase confidence in performing a
transaction and thereby encouraging adoption of new technology. GUIs
can also help to eliminate transactional errors through step-by-step
 Wireless Connectivity: Every month, nine million new Indians
subscribe to a mobile service. The growing wireless networks provide
an excellent platform to reach out to the financially excluded
population in the diverse and remote regions of the country. Mobile
banking applications can deliver banking facilities to the financially
excluded population at low costs. For a geographically divided country
like India with the growing rate of mobile connectivity, banking
through mobile phone presents a strong future for technology enabled
financial inclusion.
 Internet Connectivity: A person’s usage of Internet banking basically
depends on access to Internet through computer or mobile phone
either at home or in the office. In most of Asia, where home computer
penetration is much lower 15.3 percent, access to the internet, is

increasing via the wireless mobile phone networks. Nevertheless,

India’s internet penetration is barely more than five percent and it is
difficult today to see the internet by itself being a key self-service
enabler for eliminating exclusion and bridging the divide.

5.2 Initiative by the Govt. of Andhra Pradesh

The Rural Development Department of Government of Andhra Pradesh
launched a pilot project in Warangal District for payment of Social Security
Pensions (SSP) and National Rural Employment Guarantee Scheme (NREGS)
benefits to the beneficiaries.

The project involves payment through BCs with the use of smart card and
mobile technology. The BC uses a fingerprint scanner cum identifier, a mobile
and a printer to process the payments. The beneficiaries hold smart cards
with their photographs and images of their fingerprints pre-loaded at the
time of their enrolment. The photograph and fingerprint are used for
identification and authentication of the beneficiary. Once authenticated, the
RFID chip embedded in the card gets charged. When the card with charged
chip is brought close to the mobile phone, message templates for deposit,
withdrawal and balance enquiry are generated in the mobile. The BC needs to
select the relevant option and feed the amount of transaction through the
mobile keypads and send the message to the back-end server. The server
authenticates the message, processes the transaction and sends an update
back to the mobile, which, in turn, writes back to the card. When the card is
brought close to the printer, transaction report is printed in triplicate. The BC
carries cash physically for making payments to the beneficiary. Thus, in effect,
each BC carries a pocket ATM to the village in which it operates.

The mobiles connect to a central data base server of the banks. The
application has an off-line model also, which enables its operation in remote
areas where there is no connectivity. Presently, the SSP and NREGS benefits
are being paid through post offices which are given a commission of 2 per
cent. The State Government, for the initial pilot agreed to pay Rs.90 per smart
card, Rs.10000 per hand held device and 2 per cent commission on
transactions, with the Government agreeing to meet a part of the
infrastructure costs to kick start the project. The banks pay Rs.1000 to the
village organisation member in the village who is the representative of the BC
of the bank. The cost of cards is a one-time exercise and enrolment of
beneficiaries also involves an expense of Rs.50 per person in addition to the
card cost.

The technology holds potential for a whole range of activities that banks can
conduct through BCs and this includes other products like fixed deposits,
various loans, and insurance, among others. Thus, this model is very likely to
gain acceptance when more products of the banks are routed through them.

5.3 State Bank of India Tiny Initiative

SBI launched a project in Nov-Dec 2006 on making available banking facilities
to the excluded people of Aizwal, Pithoragarh and Medak in the states of
Mizoram, Uttarakhand and Andhra Pradesh respectively. SBI appointed a
NGO named Zero Mass as its business correspondent (BC). Each village is
served through a SBI-Tiny CSP, who is a BC. The CSP is the face of BC in the
village, a banking outpost delivering banking services to the customers.

The process of enrollment of beneficiaries for issue of smart cards begin with
the distribution of enrolment forms by the CSPs. Prospective customers come
to the CSP with filled forms, the CSP collects the forms, enters the data in a
personal computer, captures one photo and two fingerprints of each
customer. The collected forms are sent to nearest SBI branch for approval and
enrolment data are sent to card production centre. The printed cards are
dispatched to the CSP and the CSP hands over card to the customer after
verifying the fingerprint and photo. The cards store extensive identity profile
including bio-metric finger print data, multiple accounts, last known balance
and history of recent transactions.

The BC carries portable equipment - NFC mobile, fingerprint unit and

transactions printer - which operate on portable battery with a stand-by time
of up to 10 days. Customer identification takes place by matching of photo
and fingerprint. The fingerprint unit matches the fingerprint on the card with
client fingerprint. Once authenticated, the process followed is the same as in
the case of Andhra Pradesh State Government (discussed in previous section
5.2). The BC keeps working capital in an aggregator account in a SBI core
banking branch and carries cash physically for making payments to
customers. The available services include savings product (SBI-Tiny no-frills
pre-paid account), microcredit, micro-insurance, cash withdrawal and can be
used for routing Government payments too.

5.4 Cost Considerations

IT-enabled financial inclusion models can be acquired at relatively low costs.
A smart card is estimated to cost around Rs. 100 and a terminal with the BC

between Rs.10000 to Rs. 20000 depending upon its features and accessories
like printers. The cost of the central processor would depend upon the
configuration which in turn is dependent upon the number of accounts, types
of accounts, number of transactions, type of reports etc. As compared to the
cost of establishing and operating a physical bank branch in a rural area, the
system would be extremely cost effective. It will extend outreach at the
doorstep of the farmers, handle even small size transactions, is capable of
being operated by persons having local presence and feel, have necessary
checks and balances to avoid frauds, protect the interest of depositors and
help expand the volume of business for the bank.

The experience of many banks in India suggests that the appropriate use of
information technology can help in reducing the cost of providing financial
services and make it operationally viable to expand the coverage of financial
services. The appropriate technology combined with an effective use of
banking correspondents has the potential of creating a banking outpost/ATM
in every village, as has been observed in the case of Andhra Pradesh, which
has successfully implemented mobile phone technology for providing banking
services in remote areas in coordination with the Reserve Bank and IDRBT.
There are several other instances where it has been observed that technology
has the potential to overcome the problem of high operating cost. The need,
therefore, is to increase the use of technology to expand the outreach in the
hitherto untapped areas. A wide range of technologies is available.

Financial inclusion offers a huge potential for business in terms of resources

and assets. However, while selecting a technology, banks need to ensure that
the solutions are highly secure and amenable to audit. It must have widely
accepted open standards to ensure eventual inter-operability among the
different systems as was highlighted in the Reserve Bank’s Annual Policy
Statement for 2007-08.

6. Survey on Extent of Financial Inclusion

Substantial literature on financial inclusion in India with particular reference

to groups with low incomes is very much available. Although various
organisations especially NGOs, are working with people who are especially
vulnerable to financial exclusion, significant changes on a much wider and
larger scale can be brought about only by giving special emphasis to financial
inclusion by Indian policy makers and practitioners. In order to address the
needs of these underserved sections of the population, a number of financial
inclusion initiatives have been launched by the Reserve Bank of India. Since
these initiatives are relatively recent and remain at the early stages, our
survey aims at evaluating the impact of these very initiatives in the sphere of
financial inclusion.

6.1 Objectives
The broad objectives of conducting the survey are as follows:
(i) To identify the extent and nature of financial inclusion in and around
(ii) To understand the drivers of financial exclusion/inclusion;
(iii) To determine the level of awareness of people in various financial
products and interest in undergoing courses in financial inclusion;
(iv) To assess further thrust needed to achieve 100 percent financial inclusion
so as to enable appropriate policy modifications; and
(v) Finally, to hear from the very people for whom various financial inclusion
initiatives have been launched, what they think and what needs to be done by
government agencies to make them financially included.

6.2 Methodology
Primary data collected from 160 randomly selected households have been
analysed and the results interpreted in this chapter. Households have been
selected both in urban as well as rural areas, and a comparison has been
drawn. Survey of urban areas have been conducted both inside and outside of
bank premises which include ICICI Bank, Ranchi Main Road; PNB, Mahavir
Chowk; SBI, Pandra; Pandra Krishi Market and Mesra all lying in rural and
urban areas of Ranchi. We also visited the under-developed Gumla district for

the purpose, for it being more prone to financial exclusion, as also has been
brought out by our survey.

We looked at various aspects of financial inclusion. One was the savings side
where we tried to assess the number of households having/not having a bank
account, the type of account, the reasons behind opening an account as well
as reasons behind not having such an account, and the awareness among
people on the recently launched initiative of no-frills accounts. On the
borrowing side, we identified households which have ever availed of loans
whether from institutional or non-institutional sources, their reasons of
availing a one and whether they have ever been refused credit and on what
grounds. We also looked at other financial products (mainly insurance) and
services (mainly credit counselling) as well as financial education being
provided by organisations and the financial services sector. The survey
questionnaire employed is provided in Annexure I.

6.3 Major findings from the survey

(i) Sample Data:

Total number of households surveyed: 160

Urban households: 82
Rural households: 78

(ii) Households having at least one bank account:

Out of the 82 urban households surveyed, 78 % of households were having a

bank account whereas in case of rural households, it was a mere 41 %. More
than half of the rural respondents, i.e. 59 % were not having any bank
account. This reinforces the belief that financial exclusion is widespread in
rural areas than it is in the urban ones.

Fig 6.1 Urban Households Fig 6.2 Rural Households

22% with a bank Households
account 41% with a bank
78% 59%
Households Households
without a without a bank
bank account account

(iii) Number of accounts in a household:

The graph (Fig 6.3) below shows the % of households having one, two, three
and more than three accounts in urban as well as rural areas. Out of the 78 %
urban households and 41 % rural households who were having a bank
account, 66 % urban households were having two or more than two accounts.
On the other hand, 75 % rural households were having just one account. This
observation should serve as a caution before we declare that 100 % financial
inclusion has been achieved. It has to be ensured that there is no duplicity of
accounts when we are taking into comparing the number of accounts and the
number of households. It has to be ensured that each household has at least
one bank account, rather than simply dividing the total number of bank
accounts and the total number of households to obtain a somewhat
misleading ratio.

In the figure below, it may be seen that, whereas in urban areas, households
with one, two or three accounts are relatively uniform, in case of rural
households there exists a large variation. Moreover, in case of rural
households, there exists not even a single household surveyed with more
than three accounts. This clearly brings to light that there exists a section of
people in urban areas who are ‘super included’ having more than three
accounts. In fact, we encountered a few households having double the
number of accounts than the number of members in the family. Also there
were households having one account each for the adult members as well as
the children in the family. The accounts include savings, current, recurring as
well as fixed deposit ones, but excludes accounts maintained in post offices.

This highlights that, while financial deepening already exists in urban centres,
financial widening is what needs to be achieved, especially in rural areas.

Fig 6.3 Number of accounts in a household

80 75
% of households

40 34 33
30 19 19 Urban
20 14
6 Rural
10 0
1 2 3 More than 3
Number of accounts

(iv) Households having a bank account with cheque book facility:

In urban areas, out of total number of households having a bank account only
44 % were having a cheque book facility, whereas in rural areas, it comes out
to be a mere 12 %. This disparity may be due to the fact that rural households
generally deal in cash transactions and cheque books are not accorded much
importance. High illiteracy rates among rural households can also be a
contributing factor.

(v) Reason behind households opening a bank account:

The graph (Fig 6.4) below shows the various reasons behind opening of
accounts in rural and urban areas. In rural households, while few have
opened accounts for the sole purpose of receiving NREGS payments, there is
hardly such a household to be found in urban areas, which is quite obvious
when seen from the context of the place of implementation of such programs.
When it comes to receiving remittances, rural households are ahead of their
urban counterparts, since many men folk have migrated to the cities in search
of work and continue remitting money from their work places. Moreover,
urban households seem to be more aware of saving money than rural ones,
which may also be because of their higher earning incomes. That urban
households are more inclined in availing credit from institutional sources is
reflected in their opening accounts just for requesting a loan. While it is 7 %
in case of urban households, the same is just 3 % for rural ones.

Fig 6.4 Reasons behind households opening a bank account

To receive Govt payments from NREGP 7

To receive Govt payments from other schemes 5
For receiving remittances 30
For saving money 49 Rural
To request a loan 3 Urban
Others 6

0 10 20 30 40 50 60 70 80
% of households

(vi) Reasons for not having a bank account:

For a vast majority of households not having bank accounts, for 63 % of urban
respondents and 72 % of rural respondents, the sole reason was – they had
no or little money to put in. Since the areas we surveyed were having at least
one bank branch in their vicinity, so there were no respondents complaining
of not having an account because of absence of a bank branch in their area.
Although no one said they were not having an account as they thought it not
important to them, there were many instances (17 % in urban and 20 % in
rural) where people were put off just because of anticipated rejection, lengthy
processes and the pre condition of maintaining a minimum balance in the

(vii) Reasons for being refused a bank account:

As pointed out by the respondents, the primary reason for being refused of a
bank account was their lack of identity proof. Lack of legal identities like
identity cards, birth certificates, etc came out as the major reason resulting in
exclusion of women and especially migrant workers who are most likely not
to have an address proof. There were also people complaining that their
application forms were outright rejected without bank authorities offering
any explanation. This comes not as a surprise considering the indifferent
attitude of officials towards the disadvantaged groups, whom they do not
consider a viable business opportunity.

(viii) Awareness regarding no-frills account:

Awareness on no-frills account was limited to a handful of 4 to 5 people we

surveyed. This finding is consistent with our observation of the different
banks we visited, where we did not come across any notice or poster giving
information on no-frills account. Even if it was present it was not an eye
catching one, not to the eyes of a person seeking one, let alone to one who is
unaware of any such scheme. In one of our visits, replying to our query on
whether any notice on no-frills account was put up inside the bank premises,
we were pointed to a more than 30 page thick booklet placed near the notice
board. And the supposedly easy task of finding the word ‘no-frill’ in the
booklet was achieved not by us, but by the bank’s manager who consulted the
contents table and finally brought out the page where a two line note on no–
frill account was mentioned.

If this is the scenario prevailing in and around Ranchi, we can fairly estimate

the situation in far flung areas of a State like Jharkhand with large tracts of
areas populated with tribal sections. With bank employees adopting such an
indifferent and insensitive attitude towards the needs of the disadvantaged
groups, there is no doubt the scheme will take an indefinite period to take off
in a full blown manner.

(ix) Sources of availing loans for households:

Of the 82 urban households surveyed, only 40 % had availed credit from

institutional and non-institutional sources. In case of rural households, the
percentage was 62 % but the majority was from non-institutional sources.
The graph (Fig 6.5) below shows the different sources from where loans were
availed by urban and rural households.

It has been observed that while financial institutions esp. banks play a major
role in fulfilling the credit requirements of urban households, in case of rural
households, it is done mostly by moneylenders. When it comes to small and
immediate borrowings, the majority prefers taking help from their relatives
and friends, which is why the proportion of households in urban and rural
areas is relatively close to each other (24 % in urban and 31 % in rural). In
urban areas, households have a wider choice in the other category too which
was seen to be dominated by the firms in which they worked. This can be
explained when seen in the context of relationship lending. People found it
much easier to approach their employers asking for loans than going to a
bank, which they believed would be a complicated process. It was also easier
to repay such a borrowing as the installment was deducted from their salaries
right at the source.

Fig 6.5 Sources of availing loans for households

50 43
% of households

30 24 Urban
20 15 Rural
10 5
Banks Relatives/Friends Moneylenders Others

(x) Reasons cited for borrowing from banks:

The graph (Fig 6.6) below gives an overview of the different reasons cited for
availing loans from banks. In urban households, it was found that this was
also because a larger amount of credit was involved, for example while
purchasing a house, a four wheeler, etc. However, for majority of respondents
in rural as well as urban households, ‘low rate of interest’ and ‘bank being a
trustworthy lender’ were the primary reasons behind availing of credit
facilities from banks. The graph also shows that cases where loans were
offered or arranged by banks were generally higher in case of urban
households than rural ones. This also shows that banks are generally averse
in meeting the credit requirements of their rural customers and consider
them as risky. 52 % of rural households citing low interest rate of banks as
the biggest reason may also be because of a much larger prevalence of
moneylenders charging exorbitant rates of interest in the countryside.

Fig 6.6 Reasons for borrowing from banks

Low rate of interest 52

Was offered/arranged by banks 5
It was easier (vague) 10
Trustworthy lender 29
33 Urban
Others 4

0 10 20 30 40 50 60
% of households

(xi) Reasons for borrowing from sources other than banks:

The graph (Fig 6.7) below shows the various reasons for opting out of banks
while availing credit. Borrowing sources, other than banks are dominated
mainly by friends, relatives and moneylenders. Borrowing from friends and
relatives can be justified on the grounds of it being generally security free,
which is also evident from the plot where % of households citing this reason
was almost equal (35 % in rural areas and 32 % in urban). But reasons for
borrowing from moneylenders can be explained only by looking at the ‘other’
category in which respondents said they had no friends or relatives who
could afford to lend a relatively large sum. This situation is obvious because
poor households are more likely to have relatives who themselves are

poverty stricken too. Moreover, borrowing from moneylenders at exorbitant

interest rates of 2 % per month (which amounts to 24 % p.a.) speaks of the
compulsions such people face which ultimately leads to their getting into such
debt traps of these unscrupulous moneylenders. Ignorance and illiteracy kept
aside, this also highlights how much inaccessible some of our banks have
become to poor households. Most of these respondents have developed an
aura of fear of stepping into bank premises, which has been facilitated to an
extent, by the banks themselves, creating procedural hassles for those who
are in dire need of credit, and who finding no other means, finally fall into the
clutches of such non-institutional financial intermediaries.

Fig 6.7 Reasons for borrowing sources other than banks

Being able to borrow realtively small sums 21

No security/guarantee was to be provided 35
It being available locally 11
Because of knowing the lender 10
31 Urban
Others 23

0 5 10 15 20 25 30 35 40
% of households

(xii) Type of loan availed:

While in urban areas, credit was availed for a number of reasons – housing
(21 %), business (39 %), education (7 %), vehicle (10 %) as well as personal
loans (23 %), the scenario was completely different in rural households. In
rural areas, the majority of households surveyed borrowed just for
consumption purposes – for marriages, meeting medical expenditures, and
even to pay off other debts (62 % in case of rural areas compared to just 23 %
in urban areas). This can also be ascertained from Fig. 6.5 where 43 % of
rural households had to borrow from moneylenders, since banks tend to
avoid doling out personal loans for consumption purposes, esp. in poor

(xiii) Difficulties faced in availing a bank loan:

Lengthy time-consuming processes, documentation and indifferent behaviour


of bank personnel were cited as the major hurdles in taking out a bank loan.
Some even complained of unwillingness by public sector banks to lend to self
employed persons (salaried people working in government enterprises were
the ones those banks preferred). Indifferent attitude of bank employees
towards their customers even resulted in some people taking the help of
agents in order to get a quick loan. In one case, we encountered a person who
was sent to a branch 4 km away from his home branch (both branches of the
same bank, of course) just because the loan application form was not
available in the home branch. This was in spite of technology making
progress in leaps and bounds. The bank could have simply given him a
downloaded print out of the loan application form, but it didn’t.

Thus, we can see that banks faced with viable business opportunities too,
leave no stones unturned in transforming simple processes to time
consuming ones, thus adding to the inconveniences of the masses. If potential
bank customers are made to undergo such hassles, there remains no doubt
what poor households are made to bear while applying even for loans of a
modest amount, not speaking of what difficulties they are made to face while
applying for a no-frills account (which is more seen as a mere obligation by
commercial banks rather than prospective business opportunity).

(xiv) Households using other financial products:

The graph (Fig 6.8) below gives the distribution of households possessing an
insurance policy, a debit card (ATM card) or a credit card. Although 64 urban
households had a bank account, when it came to possessing a debit card, the
number came down to a stunning 46 nos. (i.e. only 72 % of bank account
holders had a ATM facility too). In rural areas, the situation was worse, only
26 % were having a debit card. Similar was the difference between urban and
rural households in insurance too (41 % in urban areas compared to a mere 7
% in rural areas). Insurance product in the graph provided below includes all
types of insurance – life insurance, health insurance, vehicle insurance, and
miscellaneous others.

One aspect that the graph doesn’t bring to picture is the difficulties faced by
households (if any) in availing the three products mentioned in the graph. It
was a bit surprising to us that not a single household faced even a minor
difficulty in buying an insurance policy, whereas a large majority of
households had to deal with some or other problem when availing a bank

Fig 6.8 Households using other financial products

80 72
% of households

50 41
40 Urban
30 26
7 5
10 0
Debit Card Insurance Credit card

(xv) Different sources of advice on money matters:

The following graph (Fig 6.9) gives the different sources where households
have sought advice on financial matters. Most of the respondents both in
urban as well as rural areas consulted their friends and family members.
However some of them from urban households also discussed their financial
problems with bank officials and a few even paid a visit to a financial adviser.
But in case of rural households, the number of people consulting bank
officials was negligible. Even those who went to a financial adviser were the
ones surveyed in Gumla district. This was mainly because of the presence of a
bank sponsored credit counselling centre in the area (the only one in the
entire of Jharkhand) ‡. This also brings to light how such centres can go a long
way in resolving the financial problems of the affected people.

Fig 6.9 Souces of advice on money matters

No where 29
Family/Friends 55
Bank 3
Financial Adviser 9
5 Urban
Others 4

0 10 20 30 40 50 60 70 80
% of households

‡ More information on this Credit Counselling Centre has been provided in the next

(xvi) Managing money:

The graph (Fig 6.10) below shows how well respondents thought were they
managing their money. As expected, urban households were more adept at
managing their money with 29 % of respondents saying they were managing
well, whereas for their rural counterparts, it was a mere 11 %. While in urban
households 23 % expressed their difficulties in managing their money, 45 %
households said the same in rural areas. Moreover, 19 % rural households
could not even decide how well they were at money management. This
highlights to their lack of self confidence in financial matters and points to the
greater need of catering to the rural sections’ money managing abilities.

Fig 6.10 Money management by households

Managing well 19

Just getting by 45

Getting into difficulties 25 Rural

Not sure 11

0 10 20 30 40 50
% of households

(xvii) In case of emergencies:

The graph (Fig 6.11) below shows what respondents do when they are in
need of money in case of exigencies. In case of urban households, while 15 %
would resort to taking a loan from sources other than a bank, it was mainly
from the firm in which they were employed (for servicemen only). But 30 %
of rural households taking a loan from other sources meant mainly from
moneylenders. Also rural households were more disposed to sell something
in order to meet their emergency needs than their urban counterparts (22 %
and 7 % respectively). In urban areas, those with credit cards were also more
likely to use it in emergency. With 5 % urban households possessing a credit
card, 3 % said they would use their credit cards in such a situation.

Fig 6.11 Arranging money in times of emergencies

Ask family or friends 30

Draw on savings 14
Take out loan (other than banks) 30
Use credit card 0 Rural
Sell something 22 Urban
Others 4

0 5 10 15 20 25 30 35 40
% of households

(xviii) Level of interest in basic financial services:

Table 6.1 below shows the level of interest of households (both urban and
rural households) in basic financial services. It can be seen that rural
households were much more inclined in saving small amounts of money than
their urban counterparts. Urban households were more interested in availing
a loan if it comes with a reasonable interest rate than rural households. This
may be explained on the grounds that urban respondents were more likely to
use the loan for investment purposes and were in a better position to repay

Table 6.1 Level of interest of households in basic financial services:

Very Fairly Not very Not at all Not sure

Financial services interested interested interested interested %
% % % %
Saving small amounts of money
17 (53) 31 (24) 28 (14) 21 (04) 03 (05)

Taking out a loan at reasonable

35 (15) 28 (19) 12 (27) 23 (22) 02 (17)
Taking a business loan
35 (15) 05 (15) 05 (30) 49 (24) 03 (16)

Advice about managing debts

30 (31) 26 (23) 19 (22) 23 (17) 02 (07)

Advice on welfare benefits

36 (56) 37 (21) 19 (11) 05 (09) 03 (03)
More information on financial
38 (44) 40 (20) 12 (16) 07 (10) 03 (10)
NOTE: Numbers without brackets are for urban households and those within brackets for rural households.

when compared to rural households, for whom it was mainly for meeting
their consumption needs. However, an interesting feature that came out was
that rural households were more interested in managing debts which
indicates their borrowings were more in emergency cases than in a well
thought out process. Rural households were also more interested in welfare
benefits, as well as other financial matters.

(xix) Level of interest in courses and sessions:

Table 6.2 below shows the level of interest of households in various courses
and sessions. It gives the general picture that whatever the course/session is,
rural households are more likely to participate in such events than urban
households (be it support for numbers, with reading or writing). This also
brings to light the high illiteracy still prevailing in rural areas. Although only
41 % of rural households were having a bank account (please refer to Fig 6.2),
48 % of rural respondents were ‘very interested’ in knowing how to operate a
bank account and 23 % ‘fairly interested’. This shows that in spite of not
having a bank account, they are much willing to have one and operate it too.

Table 6.2 Level of interest of households in various courses and sessions:

Very Fairly Not very Not at all Not sure

Courses/Sessions interested interested interested interested %
% % % %
Support for numbers or
05 (41) 08 (33) 14 (10) 69 (10) 04 (06)
Support with reading 09 (52) 09 (30) 14 (08) 65 (06) 03 (04)
Support with expressing
08 (55) 14 (26) 12 (10) 63 (06) 03 (03)
yourself in writing
Support with how to operate a
12 (48) 16 (23) 30 (14) 38 (10) 04 (05)
bank account
Support for taking a loan
36 (29) 08 (21) 12 (21) 40 (20) 04 (09)

Support for various bankable

40 (33) 38 (27) 09 (18) 11 (15) 02 (07)
NOTE: Numbers without brackets are for urban households and those within brackets for rural households.

(xx) Level of importance given by households to financial products:

Table 6.3 below gives the level of importance households attach to various
financial products and services. Having a bank account is of utmost

importance in urban households (with 81 % of respondents considering it

‘very important’). This is true for rural households too, but to a lesser extent
with 45 % respondents of the view that it is ‘very important’ and 24 %
considering it ‘fairly important’. Lack of any interest in credit cards in rural
areas is self explanatory. Even in urban areas, only 32 % of respondents
viewed possessing a credit card is ‘very important’ and among those having
one, some equated it with status too. While rural households attached more
importance to financial education, the level of importance to financial
counselling and investment advice was much lower. This may be because
they viewed financial education as more of basic education than in purely
financial terms. However, in case of urban households the level of importance
was distributed more or less uniformly in all the three matters.

Table 6.3 Level of importance to various financial products:

Very Fairly Not very Not at all Not sure

Financial products important important important important %
% % % %
Bank account
81 (45) 13 (24) 03 (17) 02 (12) 01 (02)

Small personal loan 39 (30) 25 (31) 12 (18) 23 (18) 01 (03)

Credit card
32 (00) 10 (00) 14 (09) 40 (89) 04 (02)

Financial counselling
58 (45) 21 (35) 07 (11) 10 (04) 04 (05)

Investment advice
64 (25) 16 (20) 07 (30) 09 (19) 04 (06)

Financial education
58 (60) 22 (24) 09 (09) 08 (05) 03 (02)
NOTE: Numbers without brackets are for urban households and those within brackets for rural households.

(xxi) Suggestions by respondents to achieve financial inclusion:

Across households, whether rural or urban the consensus was on giving wide
publicity to financial inclusion promoting initiatives through newspapers,
posters, public gatherings, advertisements, etc. Other suggestions included
reducing paper work or documentation, making available a number of
retirement schemes, opening of financial advice centres, simplifying
borrowing procedures, awareness campaigns, relaxation of KYC norms
(already in existence), increasing social welfare benefits, rethinking on
negative areas marked by banks, among many others.

The survey findings point out that although financial exclusion is widespread
in rural areas, it would be incorrect to say that urban households have been
satisfactorily financially included. The common thread that runs between
rural as well as the urban households who still remain outside the financial
net is poverty and illiteracy combined. Though financially excluded, there is
no lack of willingness on the part of the excluded sections to uplift themselves
from their present status. What remains to be done is fast and effective
implementation of the already launched initiatives on a nationwide scale so
as to bring the benefits of the country’s economic growth to all and one.

7. Field Visits

Apart from conducting financial inclusion surveys in and around Ranchi, we

also embarked on our journey to evaluate the myriad initiatives that have
been launched to promote financial inclusion, by undertaking field visits and
assessing the ground reality. We went on to meet members of SHGs and
farmers’ clubs in Ramgarh district, visited the FLCC (the only one in
Jharkhand) in Gumla District and also visited the RUDSETI / BMIED (the
oldest RUDSETI in the state) in Hazaribag district. Besides, we gave a
presentation on financial inclusion/financial literacy to students of St. Francis
School, Ranchi.

In all these visits and sessions, we tried to assess whether the financial
inclusion initiatives that have been undertaken were working in accordance
with the issued guidelines or not, and if not, what were the reasons holding it
back. For example, in our visit to the FLCC in Gumla district, we assessed the
centre keeping in mind the framework proposed in the ‘Financial Literacy and
Credit Counselling Centres: Concept Paper’ released by RBI. Similarly, while
reporting on the RUDSETI/BMIED, Hazaribag our evaluation has been based
on the ‘Guidelines for RSETIs’ issued by the MoRD, GOI. This has been done,
because we believe that only with effective implementation of such schemes,
can their desired goals be achieved, and their benefits realised by the targeted

7.1 Meeting members of SHGs and Farmer Clubs:

Our interaction with members of SHGs and Farmer Clubs provided us a new
insight in the working of such groups, their activities, their problems and
their feedback on the scheme. The interactive session was chiefly between
members of SHGs and Farmer Clubs and representatives of the NGO named
‘SUPPORT’ on one side; and the LDO, LDM and the manager of the local bank
(the only commercial bank in the area) on the other. The session was
conducted in the NGO’s office in Mandu block of Ramgarh district.

The Mandu Block has around 400 - 500 SHGs and 12 Farmer Clubs having
80% credit linkage with banks. The SHPI in all these cases is the NGO -
‘SUPPORT’. The entire block is having only one commercial bank, i.e. Bank of
India and one PACS.

(i) Interaction with SHGs:

The SHGs were involved in activities like poultry, wormi-compost, brick

manufacturing, etc – poultry being the key activity. SHG members were
imparted a one month duration training by the NGO, teaching them the basics
and intricacies as well of poultry activities.

Although all the groups were maintaining group accounts in banks, many of
the SHG members were not having individual bank accounts. Moreover, the
groups were not routing their savings through their group accounts, instead
they were doing their transactions directly with the group members. This was
resulting in their savings not being reflected in the bank accounts. This even
led to improper grading of the groups. They were unaware of the fact that not
having proper transactions in their account books necessitated them to
produce character certificate to banks for availing further credit.

Some SHG members were also harbouring confusion regarding the subsidy on
the revolving fund of Rs. 10000 (under the SGSY scheme). They were under
the wrong notion that the revolving fund that was the subsidised amount,
rather than the interest on the revolving fund that was the subsidy.

Although the area was having a good poultry market, during the bird flu
period, insurance companies were not willing to insure their livestock and
this had led some groups to incur losses in those difficult times.

(ii) Interaction with Farmer Clubs:

There were relatively few Farmer Clubs in comparison to the number of

SHGs. NABARD had sent some of the club members to Ahmednagar for
nursery training. Prior to the training, they were of the opinion that lac
cultivation was possible only on large sized trees, but the training program
taught them that it could be done in smaller ones too. They cited many such
examples of how the training program has benefited them. The key activity
among the Farmer Clubs, though, was agriculture and pig farming.

Post-farmer club formation, they had started recognising the advantages of

team work. Instead of all the members visiting the market for seed
purchasing (as was in earlier occasions), now only one of the group member
visits the market. This has distributed and brought down their travelling

Farmer Club members were encountering difficulties in availing the Kisan


Credit Card (KCC) facility. This was so, as the farmers were not having the
title deeds of their land which the banks sought, in order to give the KCC
facility. Also, the Land Possession Certificates (LPCs) issued by the district
administration were not recognised as an authentic document by the banks
and this had led to many groups not being able to access the KCC facility.

(iii) Assessment:

Although the SHGs were having some minor confusions regarding the
revolving the credit subsidy and not routing the savings through bank
accounts, overall, they were in an advanced stage of micro-enterprise
development. They even admitted of their living standard being improved,
albeit to a somewhat little extent, after entering in the SHG fold.

Similarly, the Farmer Club members too had imbibed the philosophy of
working with each other in tandem and were availing themselves of credit
facilities under the Government sponsored schemes chiefly through KCC.

One problem that was common to both the groups was the presence of only
one bank in the entire block. Because of the Service Area Approach (SAA)
followed in the Government sponsored schemes, some had to travel as much
as 5 – 6 km to reach their bank, in spite of having a bank just one km away
(since it was outside the service area). This was accentuated by the
manpower crunch in the only bank present in the block. The bank has only
three personnel – one manager, one officer and one cashier. This resulted in
long standing hours and daily wage labourers had to lose their one day’s pay,
if they had to visit the branch for cash withdrawal or any such purpose.

It was also noticed that linkages under the SGSY scheme were much lower
than normal linkages. This was amplified by the SHPI/NGO’s view that under
the SGSY scheme, people were more interested in availing the revolving fund
interest subsidy rather than undertaking productive activities with the credit
availed. The SHPI’s preference for normal linkages rather than SGSY linkages,
prevented villagers to fully exploit the benefits envisaged under the SGSY

7.2 A visit to ‘Abhay’, Gumla:

The Credit Counseling Centre (CCC) named ‘Abhay’, in Gumla, Jharkhand,
sponsored by Bank of India was set up on 8th September, 2008. The centre is
situated within the premises of the sponsoring bank’s Lead District Office and

is manned by only one counsellor. According to the Credit Counselling

Centre’s performance report sent to CGM, RPCD, RBI Central Office (please
refer to Annexure II for the full report), the centre has handled 1237 cases till
31st March, 2009 and has arranged 21 seminars/meetings wherein 2647
persons were present.

The Gumla centre provides counselling services to distressed people on their

heavy debt burden, creates awareness among the masses emphasising on
financial inclusion, and offers counselling to people who come for advice on
various financial problems. The debt counselling that is being done here is
more curative than preventive.

(i) Organisational Set-up:

The Gumla centre (as well as other three centres in Mumbai, Wardha and
Chennai) is being run by the trust christened ‘Abhay’, which was formally
launched at New Delhi on 25th August 2006. Bank of India being the lead bank
in Gumla district has taken the initiative of setting up the FLCC in its Lead
District Office. Counseling and debt management services are provided free of
charge to the customers so as to put no additional burden on them.

(ii) Working:

The centre remains open thrice a week, i.e. on Tuesdays, Thursdays and
Saturdays from 11 am till 4 pm.‡ The days have been selected giving die
consideration to the local conditions. Tuesdays and Saturdays being ‘market
days’ and Thursdays being ‘non-ploughing day’ in the area, attracts more
people to the centre than any other day would have done. On Wednesdays
and Fridays, the counsellor accompanies the sponsoring bank’s LDM on his
visits to nearby villages for meeting with SHGs, Farmer Clubs, etc in order to
spread awareness on credit counseling services as well as the ‘Abhay’ centre.

The counsellor also undertakes personal visits to local places where weekly
meetings are held in the early morning hours. The counsellor has also visited
a few banks in the area for promoting the centre. The centre does maintain
liaison with local NGOs working in the field of farming and allied activities.

‡ The working days and working hours as told by the counsellor

during our visit, is inconsistent with those provided on the centre’s
website http://abhaycreditcounselling.com/contact.htm (can also be
found in Annexure III).

(iii) Infrastructure:

The centre consists of a single room in the Lead District Office, and is not
equipped with adequate communication and networking facilities. The only
interface the centre has is face to face. Bereft of a phone, computer and a fax
facility, it is not in a position to deal with requests received by phone or e-
mail (though the latter one is unlikely to be used considering the socio-
economic conditions prevailing in the district).

(iv) Qualification and Training – Counsellor:

The counsellor has been a scale I officer in Bank of India’s East Singhbhum
branch before opting for voluntary retirement. The counsellor being a local
person was given preference in manning this centre. After induction, the
counsellor was sent to the sponsoring bank’s Mumbai office in Dadar for a
two day training programme on credit counselling services.

(v) Monitoring:

The functioning of the CCC is monitored by the sponsoring bank’s head office.
The monthly, quarterly and annual performance reports of the centre are
submitted to RBI Ranchi, apart from being sent to the bank’s zonal office and
head office.

(vi) Assessment:

Although the initiative taken by Bank of India of opening a CCC in Gumla

District is laudable (the only one such centre in entire Jharkhand), there still
remains a few stumbling blocks which need to be cleared off.

In spite of the centre having counselled a number of clients, the proportion of

clients from non-sponsoring banks to the sponsoring bank cannot be termed
satisfactory. There was not even a single case where a non-sponsoring bank
had taken the initiative of recommending its customers to this counselling
centre. Whenever customers from other banks visited the centre, it was on
their own initiative.

The counsellor was quick enough to point out a case of how one of his clients
(from the sponsoring bank) had greatly benefitted from the counselling
sessions. Due to the bank’s computer fault, the client had been charged Rs.
14500 in excess, at an interest charged higher than the stipulated one. The
counsellor helped his client in interest recalculation, in applying for a refund

and ultimately got the matter sorted out. This effort definitely deserves
praise. But we did not come across any such cases when clients were
customers of some other bank. This is not to imply that the counselling centre
restricts itself to the sponsoring bank’s customers only, but it does show that
the sponsoring bank is more willing to send its customers to the centre than
are other banks in the same area.

In course of our interaction with the counsellor, it also came to our notice that
although the counsellor did not indulge in marketing the sponsoring banks
products and services, there was an unsaid implicit directive/instruction
from the bank’s management to counsel more number of clients from the
sponsoring bank’s customer pool rather than other banks’ customers.

The absence of modern facilities like phone and an internet enabled PC, in a
way hampered the effective functioning of the centre. In one of the instances,
a group of people approached the centre to know how to avail the subsidy
from the National Horticulture Board in case of horticultural loans, but the
counsellor had no information on the topic, and finally the group had to leave
empty handed. Since the counsellor has not been provided any internet
facility, he is unable to keep himself updated with the recent developments.

The counsellor is not even authorised to place an order for a time-table board
from the local carpenter, which he wants to put up in front of the centre. For
such a minor task too, he had to write a letter to the bank’s zonal office
requesting for the same. Since the centre remains open only for three days a
week, this has caused much inconvenience to people who unknowingly land
on the centre’s premises on non working hours/days. With this little
autonomy assigned to the counsellor, it gets difficult for him to implement
any such improvements he wishes to undertake for the centre’s upgradation.

A comparison of the centre’s performance report (to be found in Annexure II

section 2 A (iv)) and our findings from the counsellor’s interview throws up a
few mismatches. With the centre counselling a minimum of 30-35 clients
monthly (as found during our interview) it is not clear how could the centre
have handled 1237 cases till 31st March 2009 as have been reported in the
bank’s communication to RBI. From 8th September 08 to 31st March 09 (even
considering a period of 7 months) at a rate of even 40 clients per month, the
centre could have managed around 280 clients only. In order to handle 1237
cases in just 7 months, the centre has to counsel people at a rate of 176
people per month instead of 30 – 35 cases on a monthly basis. This is even so,
when the number of persons attending the 21 seminars/meetings has been
provided separately at 2647. Also, with an initial contribution of Rs. 51 lakh

as a corpus for ‘Abhay’ (please refer to Annexure II section 4) it is difficult to

find a reason why is the Gumla centre having just one fan, one table and two
chairs, and is bereft of as basic a thing as a landline telephone connection
(although the Lead District Office of which the centre is a part, is having
phone, cooler and computers too).

The analysis of the CCC is in no way to criticise the efforts that the sponsoring
bank has undertaken in taking cognizance of the directives of the Reserve
Bank of India to set up financial literacy and credit counselling centres. The
initiative the bank has taken in setting up the first ever FLCC in Jharkhand is
highly appreciated and is worthy of praise. But this analysis is just to give a
picture of the real ground situation, to know what has been done till now and
what still needs to be done which is not at all an insignificant task. Until and
unless we have a fair and transparent picture before us, it would be difficult
to undertake corrective measures. The analysis provided, just aims to present
a clearer picture, not to undermine the picture itself.

7.3 A visit to BMIED, Hazaribag:

Our visit to Birsa Munda Institute for Entrepreneurship Development
(BMIED), Hazaribag threw up some mixed results. Established on 14th
September 2001, the RUDSETI sponsored by Allahabad Bank has since
trained more than 3000 unemployed youth towards self- employment, and
now it has set a target of training 900 youth for the year 09-10. The institute
offers a variety of courses for both the male and female youth, ranging from
mushroom cultivation to beautician course, screen printing to electric motor
winding, and readymade cloth manufacturing to two –wheeler repairing. The
BMIED leaflet (which includes the programmes offered, eligibility criteria of
trainees and facilities provided at the institute) has been provided in
Annexure IV.

Courses are offered free of cost to the trainees. Along with the training, they
are also provided with breakfast, lunch, snacks and dinner (all free of cost)
and out-station students can avail themselves of the free accommodation in
the institute premises itself. Training is imparted to candidates by people
associated with the local NGOs, etc.

(i) Administrative Cost:

The institute has been functioning since September 2001 on hired premises.

The current rent being paid by the institute is Rs. 11000 per month for a 3200
sq feet area. Cost of running the institute is around is Rs. 1 lakh per month
which was being fully borne by the sponsoring bank until the formation of the
Allahabad Bank Rural Development Trust on 1st April, 2009. From October
2007 onwards, NABARD has been refinancing 40 – 50% of the cost of running
the training programmes. For the financial year 09-10, the budget for running
the courses has been pegged at Rs. 12.44 lakhs and the funding agencies for
different programmes include KVIC and DRDA apart from NABARD. The
annual training calendar of the institute for 09-10 can be found in Annexure V
(it includes the period, duration, budget and funding source of each training

(ii) Infrastructure:

The institute has one classroom, accommodation provisions for 20 trainees

with one common bath and toilet facility, one kitchen and one dining hall, one
Director’s room cum office and one personal room for the Director (the
Director resides in the institute premises itself).

(iii) Programme Structure:

The institute has till now offered around 12 training courses, and is ready
with 30 skill development programmes to be implemented in the year 09-10.
All the programmes are of short duration ranging from one to four weeks.
The programmes already/to be organized are in the trades of agriculture,
product manufacturing, process and repair, skill development for PMEGP,
SGSY-SHG, among many others (please refer to Annexure V for the complete
list of programmes).

(iv) Size of Batch:

The batch for each of the programmes consists of a maximum of 30

candidates. In case a course falls short of this number, the Director and his
supportive staff (only one) makes a visit to the nearby villages for public
awareness and finally brings the size of the batch to 30. This ensures that
maximum number of youth avail themselves of the benefits of the
programmes and simultaneously, publicity of the institute also gets done.

(v) Selection of trainees:

The minimum qualification for enrolling in a programme is that the applicant

should be literate. Some other programmes require higher qualifications - the

candidate to be Class VIII passed or having secondary education.

Selection procedure is a two stage process – review and scrutiny of received

applications followed by personal interview of the applicant by the institute
Director and DDM, NABARD.

(vi) Assessment:

Although BMIED is not officially a RSETI, it follows all the guidelines for
RSETIs (issued by the MoRD, GOI) to the maximum extent possible, in spite of
constraints such as manpower crunch (one Director, one staff and one faculty
on contractual basis) and lack of modern infrastructure. This is in sharp
contrast to RUDSETI, Ranchi which we were willing to visit but could not do
so because no training program was currently going on over there, to put it
simply, it was closed. First, we were informed by its sponsoring bank that
training will commence from 6th July, 09 but when the day arrived, the
commencing date got postponed to one more week. And it seems likely to get
postponed once again after this one week also passes away.

Coming back to BMIED, lack of modern infrastructure like computers and

workshops did not come in their way of conducting programmes like screen
printing and carpet making for which they hired five computers (in the
former case) and conducted practical classes in the District Industry Center
Workshop (in the latter case). Still, the institute is in severe need of a LCD
projector, PCs with internet connections and a fax machine other than the
basic infrastructure facilities like chairs, tables, etc. The institute is having just
one computer for official work only and that too is not having an internet

Since the institute is functioning from a smaller area, i.e. 3200 sq feet, the
infrastructure standards are not at par with the guidelines for RSETIs.
Moreover due to shortage of rooms and facilities, programmes for boys and
girls are not run simultaneously. There is facility of holding only one
programme at a time and only in exceptional circumstances, does the
institute hold two or more than two programmes side by side as was the case
in March – April 2009. But talks are ongoing with the district administration
over land being allotted to the institute, the area of being larger than the
minimum stipulated, so as to ensure smooth expansion in the future.

During our interaction with the trainees (in their T.V. and radio repairing
classes) we encountered some students with qualifications much higher than
the prescribed norms. Some were even doing their under graduation while

simultaneously undergoing the training course. Almost all the students

present over there, had come to the institute based on the recommendations
they received from the passed out students of the institute. This conveys that
the ones who were trained in the institute have found it effective and
beneficial, and thus are recommending the institute to their peers.

From our interaction with the Director, staff and the trainees, it could not be
judged whether the trainees were from BPL families or not. Also this was not
the criterion for selection of candidates. The institute has started training
programmes for SGSY-SHGs from this academic year and has informed DRDA
of this new course. Since DRDA has not yet sponsored or sent any list of BPL
candidates to the institute, BMIED is continuing with its other programmes
only. But the Director is very much willing to enroll the BPL trainees,
understanding that they are in more need of such training than the others
who are well-off and literate too.

Although the institute has done whatever was in its scope to train the rural
youth, manpower crunch has been a major stumbling block which has held it
back in their follow up of the trainees for longer periods as has been provided
in the guidelines of handholding of trainees for a minimum period of two

However, the major challenge facing the trainees was of credit – linkage,
which was between 10 – 20 % of the total candidates trained in the institute.
After the completion of each programme, the institute sends the trainee list to
all the nearby banks, so as to ensure financial assistance to the trained youth.
In spite of this, the banks have not shown any interest in sponsoring the
candidates. The scenario was no different with the institute’s sponsoring
bank too. Although the institute has been making repeated calls to the banks
for trainee sponsoring, banks have only tried to put off the matter on the
backburner. This has led to trainees working as employees in garages or
shops rather than starting their own micro-enterprise. In other cases, it has
also led to a feeling of dejection among the trainees as well as the institute
officials. This situation highlights that banks are not giving due recognition to
certificates issued by the BMIED/RUDSETI for extending credit to the

Until and unless, trainees are provided with proper financial assistance, the
role of RUDSETIs in rural development and upliftment of the poor youth will
remain limited even with the best intentions of the policy makers. The full
potential of the trainees can be brought out only by providing them with
proper credit linkage after they are done with their training programmes.

7.4 Presentation in St. Francis School, Ranchi:

As part of our project and in order to promote financial literacy among the
school going children, we gave a presentation on financial inclusion/financial
education to students of class X in St. Francis School, Ranchi. The group
addressed comprised of 62 students, boys and girls combined.

We started off with a brief introduction of the roles and functions of the
Reserve Bank in our country’s economy. Among the core functions, we
discussed currency management, public debt management, monetary
regulation, exchange management and the Reserve Bank being the banker to
the Government. Regulatory and developmental roles like regulation and
supervision of financial intermediaries, priority sector lending, etc. were also
briefed on. This was followed by our core topic ‘Financial Inclusion’. After
elaborating on what financial inclusion means, why is it needed and who the
target groups are, we shed some light on the present financial inclusion
scenario prevailing in Jharkhand. Finally, we switched over to the initiatives
that have been undertaken by RBI and the GoI to promote financial inclusion
and financial literacy. We spoke on Government sponsored schemes, SHGs,
no-frill accounts, relaxed KYC norms, KCCs and GCCs, the BC/BF model,
FLCCs, RUDSETIs and the RBI’s financial education website.

The question-answer session turned out to be extremely interactive with

students expressing their doubts over the possibility of the BCs being robbed
of their money on their way to villages, of no-frills accounts being misused by
the rich households and many others such queries. To do away with these
apprehensions, we elaborated the schemes further, clarified their doubts, and
finally ended the session.

The immense response we received from the students was indicative enough
of their desire to know more. Through such sessions, we can create
awareness among school going students of the recent developments going
over in our economy as well as promote the cause of financial education.
Imparting financial literacy to the already literate will result in a considerable
section of the Indian population being aware of various financial aspects of
day to day life. They will also act as a medium of further spreading financial
literacy. But caution is to be exercised that our quest to make the literate ones
financially literate too, is not at the cost of leaving behind those illiterate ones,
who are in dire need of not just financial literacy but literacy in the broader
context as well.

8. Recommendations

From the diversity of households covered in our survey, the major issue that
came up was the lack of awareness among the masses (both literate and the
illiterate ones alike). Although Reserve Bank of India has undertaken a
myriad of initiatives to promote the cause of financial inclusion, no mass
sensitization has taken place yet. This is evident from our survey findings,
where only 59 % of rural households were having a bank account and
knowledge of no-frills account was limited to a handful of four to five people
only. This is in spite of the fact that no-frill accounts have been in existence
since the last three years, if not more. (For more information on these
particular findings, please refer chapter 6, section 6.3 [ii] and [viii]).

Sensitisation regarding the importance of financial inclusion has been limited

to the banking sector’s top level officers only, and it has yet to reach the line
functionaries – branch managers, branch staff and the like. This has also
contributed to ignorance among the masses, in general and the targeted
groups (the ones financially excluded), in particular.

8.1 Raising awareness:

Ensuring take up of services emerges as a vital area. The awareness approach
has to be both top-down as well as a bottom-up one. The top-down approach
is to begin with sensitisation of staff at the rural as well as urban branches.
This is because financial exclusion, though higher in rural households, is not
limited to rural areas alone. There is exclusion among the poor urban
households too. Simultaneous adoption of both the approaches will lead to
their convergence, and thus expedite the process of financial inclusion.

Poor households are often apprehensive about the indifferent nature of bank
personnel. This leads them to the clutches of moneylenders who charge as
exorbitant a rate as 24 % per annum. 43 % of rural households borrow from
moneylenders, compared to just 21 % borrowing from banks. (Please refer to
chapter 6, section 6 [ix] for further details on the different sources of availing
loans for rural as well as urban households).

The top-down approach may comprise of training programmes being

conducted for branch managers. Training modules may be developed for the

rural staff, with special emphasis on loans for agriculture and allied activities.
Manpower crunch in bank branches of remote locations lead to long standing
queues, results in work overload for the staff and makes bank customers
impatient. To mitigate such stress causing situations, there is an urgent need
to adequately staff those branches having just two or three personnel, in spite
of being the only bank in an entire block as was the case in Mandu block of
Ramgarh district, Jharkhand. (Please refer chapter 7, section 7.1 [iii] on the
difficulties faced by rural households mainly from BPL families in such cases).
This is all the more important in rural areas as there as few ATMs in these
villages, which lead customers to visit branches even for cash withdrawal.
This is not the case in urban areas, where people visit bank branches for
various purposes but rarely for withdrawing cash.

The staff may be trained to develop a positive attitude towards their

customers. Banks may also devise suitable incentive structures for rural
posting including monetary benefits, so as to make them lucrative. Branch
managers, with a rural background and inclination towards serving rural
people may be given preference while considering such postings.

The bottom up approach may comprise of different mechanisms from door-

to-door leafleting, public meetings, and advertising through print as well as
non-print media. Where resources are not put into an awareness raising
campaign, there is a danger that knowledge of the financial services will
remain restricted and target groups of financially excluded people not

Since majority of rural households tend to borrow money so as to meet their

consumption needs, they need to be sensitised for availing credit in order
create income generating assets. (Please refer chapter 6 section 6.3 [xii] for
more information on types of loan availed by households).They are to be
made known of the various Government Sponsored Schemes (GSSs). This can
be effectively done in partnership with NGOs working in the fields of poverty
alleviation. The long list of schemes like SGSY, SJSRY, PMEGP and SRMS can be
made effective only if they are known to people whom they target. Except
NREGS, there is hardly any news of the other GSSs in the media, although the
other schemes too have been devised with the sole aim of poverty alleviation
and ultimately, financial inclusion. Awareness of the GSSs and their benefits
will also lead more people to opt for them. This will also be beneficial to SHGs,
some of whom are led by NGOs preferring direct linkages rather than SGSY
linkages, as was the case in Mandu block, Ramgarh. (Please refer chapter 7

section 7.1 [iii] for the detailed reasons behind preferring normal linkages
over SGSY linkages by NGOs).

With 2130 dailies being published in the country and a circulation of more
than 88 million, 1 the print media has a huge potential of creating mass
awareness about the measures being taken by the Reserve Bank for
promoting financial inclusion. Statistics also show that people prefer their
regional language newspapers, and hence awareness through such media can
go a long way in bringing financial awareness to the grass-root level. With
high illiteracy levels prevailing in the country, non-print media too can be
effectively used. With the national network DD1 alone having a viewership of
167 million 2 and the only one having a pan India reach (DD1 being more
popular in rural households), it can be an effective medium of reaching the
rural masses. The fast growing radio segment, registering an increase in
listenership with each passing day can also be utilised for promoting the
cause of financial inclusion/financial literacy in rural as well as urban India.
With the top three FM stations having a combined 83 million listeners 3, they
can be used to promote and sensitise the common man at the grass-root level
on the need to open bank accounts by developing appropriate audio capsules.

Also, one may be of the opinion that people coming to bank branches need
not be told about no-frill accounts or other financial services, since they are
already financially included. But this belief is based on shaky grounds, as we
found out during our surveys. In some of the surveys conducted inside bank
premises, we encountered people who were standing in queues for
depositing cash in accounts that were not their own. They had been sent to
the bank by their employers and to our surprise, they didn’t have their own
account. These people can be financially included at ease. They are regularly
visiting banks, carrying out transactions and yet they themselves don’t have a
bank account. And this is because some banks have tried their best not to let
them know about no-frills account. The banks have displayed no such notices,
although they have put up huge boards showing their various schemes on
credit cards, personal loans, etc (the more profitable ones). So there is an
urgent need to immediately include these bank-coming-but-not-having-bank-
account people in the financial sector, and this be can be done by just putting
up a no-frills poster on the banks’ display boards.

1. Registrar of Newspapers for India (2005-06 figures).

2. Indian Readership Survey 2009 Round 1 data.
3. The top 3 FM stations being Radio Mirchi, AIR FM Rainbow and Big FM (in
order of their rank): IRS 2009 Round 1 data.

8.2 Financial Counselling Helpline:

FLCCs being sponsored by a particular commercial bank are viewed with
suspicion by the non-sponsoring banks. This was evident from our visit to the
Credit Counselling Centre ‘Abhay’ in Gumla, Jharkhand where we did not
encounter any case of a non-sponsoring bank recommending its clients to the
counselling centre. Also there is a legitimate concern of the centre being
misused by the sponsoring bank. (Chapter 7 section 7.2 [iv] provides a
complete assessment of the hurdles coming in the way of the ‘Abhay’ centre).

In order to mitigate such apprehensions, a national helpline may be set up for

providing financial counselling. This can help in assisting customers even
from rural areas to get information on availability of credit and terms to
comply. Since the helpline is to provide financial counselling rather than
financial help, it may be accordingly named ‘Financial Counsel-Line’ rather
than a helpline, to set it apart from other such services. Commercial banks,
instead of opening their own separate FLCCs, may pool their resources for
this new helpline. The expenditure may be shared among the participating
banks. The contribution of banks can be in the basis of their customer base.
With banks all over India contributing their share for this helpline, it will be
possible to create one having the capacity of serving the entire country. Since
all the banks will mandatorily be a part of the project, they will show little
hesitation in recommending their clients to this helpline. Also chances of the
service being used by a bank for its promotional and marketing purposes will
also get drastically minimized, thus enabling financial counselling to be more
neutral than it is being viewed of in the existing scenario. Such centres can
also have advanced networking and communication facilities like internet
enabled PCs, fax facilities, etc.

Considering the fact that people are not in an emergency situation when
seeking financial counselling, the service can also be provided at some delay
rather than instantaneously of a call being received. This approach can be
adopted in the initial stages of the project, and if found more cost-effective
than the instant service, may be continued with.

In order to ensure that poor rural households who are in more need of such
advice, and who have the least number of options available of accessing such
advice, ‘market segmentation’ can also be thought of. The helpline may be
made toll-free for calls from rural areas, while charging a small fee for calls
from urban centres. This will also reduce the cost of building the helpline,
thus garnering greater acceptability from its developers, i.e. the banks.

Instead of banks building this service, the project can also be made a self-
sustaining one by adopting a ‘user-pays’ model. Charging users a small fee per
call can make the project self-sustaining. But counselling being not similar to
just answering a question, it may be time consuming and lead to a rather
higher bill for distressed farmers, etc, thereby putting an additional burden.
Still, market segmentation remains a viable option. Such a self-sustaining
helpline extended by telecom companies is already available in 700 villages
across 3 states (as of October 07) providing farmers with export advice on
pest control, modern farming methods, etc, charging Rs. 5 per call. 4

A free phone counselling is already in existence provided by Disha Financial

Counselling under the ICICI Trusteeship Services Ltd. One just needs to sms
DISHA to 53030 and within 48 hours, he/she id contacted by a financial
counsellor. 5 This service has been verified by us too. Since ‘Disha’ does not
have a presence in Jharkhand or Bihar, we intentionally texted the centre
from a Bihar mobile number, and to our extreme delight, we were contacted
by a counsellor from Hyderabad, within 48 hours as was promised.

With a single trust being able to provide such a service free of cost, there is
hardly any doubt, what can a service provided by all the banks in the country,
can achieve. These kinds of ‘digital inclusion’ will definitely a major step
forward in promoting financial inclusion across the nation.

8.3 Improving Credit Linkage to RUDSETI Trainees:

Prior to our visit to BMIED/RUDSETI, Hazaribag we were of the opinion that
banks which sponsor such institutes benefit immensely from these. But this
belief of ours was turned upside down when we visited the institute. Instead
of the sponsoring bank forming a major chunk of the credit being availed by
its trainees, we found that the credit linkage from the entire banking sector
was at a dismal 10 – 20 %. (The entire assessment of the institute is provided
in chapter 7 section 7.3 [vi]).

This kind of situation in the state’s oldest such institute begs attention. The
sponsoring bank’s indifferent attitude to the trainees’ credit requirements
necessitates some strong actions to be taken. In this regard, RBI may instruct
the sponsoring bank as well as other banks in the area to direct their lendings
to the RUDSETI trainees. Since there is no compulsion on the part of banks to

4. An article on this helpline has been provided in Annexure VI and can

also be accessed at http://www.business-
5. The financial counselling centre’s URL: www.dishafc.org (Annexure VII).

provide loans to such trainees, they continue to adopt a hands free approach.

But considering that so much is being done by the institute for the rural youth
in providing such training, let’s not leave the last mile problem unaddressed.
Since the trainees are expected to start off with their own micro-enterprises
after the training is complete, it would be of immense help if they are
provided loans right after their training gets over. The sponsoring bank, if not
willing to fund the entire project cost, may be directed to compulsorily lend a
minimum of 60 % of the cost of the project to be undertaken by the trainee.
Similarly, directives may also be issued to the other banks in the area so as to
meet the entire project cost of the trainee’s enterprise.

Also, the Reserve Bank may review whether a loan to such a RUDSETI trainee
be included in priority sector lending or any such GSS. Quick and hassle free
loan to these trainee will boost their morale, increase the institute’s
popularity and most importantly, increase banks’ lending, thus finally
translating into profits.

8.4 Financial Education in School Curriculum:

Our interaction with students of class X during the presentation in Financial
Inclusion/Financial Education brought out the wide gulf existing between
financial literacy and literacy in general. Although simple interest and
compound interest calculations, problem on shares an dividend, etc were
being taught in class, financial literacy as a whole was missing in the

In this regard, RBI can join hands with the leading educational boards in the
country, those having a strong presence in rural areas, to develop curriculum
framework so as to promote basic financial education. The subject may cover
topics such as basic banking, importance of bank account, developing a
savings attitude, and initiatives taken to promote financial inclusion and
financial literacy. The financial education course can start from class VI
onwards. Elementary economics can also be incorporated in the course and
continued till the secondary level.

Financial Markets Management (FMM), a joint certification course introduced

by NSE and CBSE for standard XI and XII is already in place. The course
curriculum includes accounting for business, introduction to financial
markets, BPO skills, computer applications in financial markets, economics,

etc. The course was being offered in 58 schools in 07 – 08 and 120 more
schools in 08 -09.

Considering the low reach of the FMM course because of its specialised
nature, Reserve Bank’s focus should be to reach maximum number of schools
so as to integrate them with the school curriculum quickly. The immense
work still left to be done in financial inclusion, quick implementation of a
basic financial education course has the potential to develop a large
financially literate work force in the country.

8.5 Connecting donors/lenders and entrepreneurs:

One of the survey findings that could not show itself in the graphs, was of
person with bad credit history (or staying in banks designated negative
areas) not being able to get a traditional bank loan. This is a serious and
complicated issue. Since some people living in these areas are having high
default rates, banks have declared them negative and do not conduct business
with residents of those areas. This although may be justified to an extent,
does punish the innocent too by denying them credit and treating them at par
with the willful defaulters. Also, if people from these areas are not given an
opportunity to prove themselves, the entire section is going to lead such a life

In such a scenario, microfinance or microcredit can play a significant role in

addressing this problem. There have been instances where people with bad
credit history have been provided with small amount of loans, only to see it
being repaid on time and with interest too. Since banks are unwilling to serve
these people, private donors contributing small sums of money and
aggregating to larger amounts, can come to the rescue. In fact, there are non-
profit organisations such as ‘Kiva’ which enables people to connect with and
make personal loans of as little as $ 25 to low income entrepreneurs in the
developing world. How these organisations work by bringing together
lenders and worthy entrepreneurs on the web, etc can be found on their
website www.kiva.org (Please refer to Annexure VIII for more details). Such a
model, if implemented in India, can free up those who have been labelled as
negative. Sponsoring these poor households to purchase business related
items such as sewing machine or livestock can empower them to earn their
way out of poverty. After a loan is refunded, journal updates keep the lenders
informed about the progress of the entrepreneurs they sponsored. Once the
loans are repaid over the course of 6 – 18 months, lenders can choose to
withdraw their principal or re-loan to another entrepreneur.

There are organisations such as ‘Microplace’ which even offer interest to such
lenders with the interest rate being fixed by the lender, whether one wants to
give an interest free loan or at an interest of 1 %, 2 % or 3 % whatever. The
working model and its advantages can be understood from the following self-
explanatory picture:

The best part of such a model is that people give a loan, not a handout. They
get it repaid, choose to re-loan and continue to do so with little sums of
money from their side which adds up to a substantial amount when
aggregated at their end. Adopting such a model can free up those people
shackled in the chains of ‘negative area’ and can finally integrate them into
the mainstream financial sector, thus enabling financial inclusion.

8.6 Upgrading RBI’s Financial Education Website:

The financial education site launched by Reserve Bank on 14th Nov, 07 is one
of the first sites on financial education. Even now, a Google search by the
word ‘financial education’ displays result with the RBI’s site at the top slot.
The site available in English, Hindi and 11 other regional languages has comic
books dealing with topics such as monetary policy, bank regulations, currency
notes, etc. It has a games section too which aims to educate children through

But has the site achieved its aim to promote true financial education. A
comparative study of popular financial education sites available on the web
throw some startling results, pointing out that the Reserve Bank’s financial
education website needs an overall change.

Financial education sites such as www.federalreserveeducation.org,

www.mymoney.gov and www.meine-schulden.de (a German site) seem to be
much more popular in attracting visitors. A comparison of the top keywords
driving traffic to these sites from search engines, gives us a fair idea of what
users are looking for in these sites. Here is the list of keywords:

www.rbi.org.in www.federalreserveeducation.org

www.mymoney.gov www.meine-schulden.de

The German translation is as follows:

schulden - owe/liabilities
haushaltsplan - budget
inkasso - law contract
eidesstattliche versucherung - affidavit
schuldnerberatung - debt counselling
umschuldung - rescheduling
meine schulden - I owe
haushaltsbuch - budgetary accounting
inkassoburo - collection agency
konto pfandung - pledge account

The above comparison is clear enough to prove that people visiting RBI’s
website are not looking for financial education, but in all the other three
cases. Users do visit the sites for financial education/financial counselling. So
there remains little doubt that the site should be made more aligned to
financial counselling and at the same time public awareness regarding the
site is to be substantially raised. (Please refer Annexure IX for more details).

Again, if we compare the time spent on the above four sites, RBI’s website
comes at a distant third (as evident from the following graph). People visiting
RBI’s website spend less time on the site than users visiting the sites
www.federalreserveeducation.org and www.meine-schulden.de.

Comparing the daily reach of these sites, RBI’s website wins hand down
(please refer the following graph), and this is what we will have to capitalise
on to popularize the financial education website. It was also observed that
www.meine-schulden.de with the lowest number of sites linking in at 83 is
also the one where people spend more minutes per day. This may be because
meine-schulden.de is the only site specifically aimed at debt counselling.

The Federal Reserve System’s financial education website,

FederalReserveEducation.org, is dovetailed to increase the use of Federal
Reserve educational materials and promote financial education in the
classroom. The website has material intended for the general public, as well
as materials specifically geared toward teachers and high school and college
students. It provides easy access to free educational materials, a resource

search engine for teachers, and games for various ages and knowledge levels.
The other regional Feds also have various interactive online programmes on
their website designed to generate awareness about better financial
management and assessment of one's own financial position.

Similar in nature is the site mymoney.gov with articles on budgeting and

taxes, credit, financial planning, home ownership resources, retirement
planning, credit card repayment calculator, etc.

The site meine-schulden.de provides first information to people seeking

advice on how to deal with their debt problems. It consists of three parts
covering information, services and guidance. On the information sites, visitors
are systematically guided through the regulations around the subject of debt
relief. The workflow of a debt settlement process and consumer insolvency
proceedings are described as are the many practical notes on what creditors
are allowed to do and what they are not. In case visitors have a concrete
request they can search for support in the guide-book on the right side of the
website. Typical questions from the debt counselling practice are answered
here and first tips on how to deal with financial problems are given. On the
service sites, many model letters are published and a search module to find
the next debt advice centre. The site provides, among others, model letters to
apply for a Current Account for everyone and contact details of the banks’
dispute settlement and customer complaint offices.

The RBI’s financial education website which is more inclined towards

children, should be geared towards adults as well with articles on credit and

debit cards, deposits, general banking, safe banking, financial counselling,

loans, etc. It may also have online tools like financial health check-up and debt
test, etc. Videos prepared by RBSC, Chennai like the one on NBFC fraud
named ‘Mani Loses Money’, etc should be uploaded on the site so as to
acquaint the masses with such scams and prevent them from getting trapped
in such frauds. Also the site can have a list of credit counselling centres in
India. In all, it should act as a repository of information related to customer
education, and act as a one-stop site for people looking for anything related to
financial literacy. Only then can the site aim to achieve its goal of spreading
financial literacy.

8.7 Integrating UIN with Financial Inclusion:

As was observed in our survey, the primary reason for respondents being
refused of a bank account was their not having any identity proof. (Please
refer chapter 6 section 6.3 [vii] for further details). Unique Identification
Number (UIN) can be a way to address the identification challenges of Indian
banks and the financial sector. The UIN programme will be the first step
towards a universal financial inclusion. The impact on inclusive growth and
India’s saving arte from implementing this would be massive, considering
that a large section of the Indian population does not have a bank account.

The programme can be dovetailed with financial inclusion with all

Government cash transfers for instance NREGP, through the UIN linked
account. The national ID when integrated with SHGs, microfinance and micro-
insurance institutions, would link financing options for the poor more closely
with bank accounts. Each citizen of India having this UIN linked bank account
can truly claim the target of 100 % ‘comprehensive’ financial inclusion we
aspire to achieve.





Place of Survey: ________________________ Date: _____________________________

Name: ________________________________ Age: ______________________________

Gender: M/F Occupation: ________________________

No. of family members: ___ adults ___ children


1. Is your household having a one bank account? Yes No

2. No. of accounts in your household: 1 2 3 4 More than 4

3. Which type of account do you have?

Savings Bank a/c Current a/c
Recurring Deposit a/c Fixed Deposit a/c
If others, (please specify) ___________________________

4. Is the bank account with a cheque book? Yes No

5. What were the reasons that your household opened the account?

To receive Govt. payments from NREGP

To receive Govt. payments from schemes other than NREGP
For receiving remittances
For saving money
To request a loan
If others, (please specify) ___________________________

6. Who helped you open the account?

Village Panchayat Officials Bank Officials

Neighbour Friends/Relatives
If others, (please specify) ___________________________

7. How frequently do you save in your account?

Don't save / never
At least once a month
Less than once a month
I put in money as and when I can
I have paid money in but not in past 12 months
I have not added money since account was opened
If others, (please specify) __________________________

8. Reasons for not having a bank account:

I have no money/little money to put in

No bank in this area
No point - benefits received in cash
No point - paid in cash
Concerned there may be too many charges
Tried to open but was refused
Lengthy processes
Not important to me
Anticipated rejection
If others, (please specify) _____________________________

9. Reasons for being refused a bank account:

Previous bad credit history
No job, unemployed
Had to have a minimum amount
Had debts
Thought I was a risk
Not lived here long enough - no credit history - use spouse's account
Don't know - did not say
If others, (please specify) ___________________________

10. Are you aware that banks are opening zero min. balance accounts for everyone? Yes No

11. How did you find out that banks were opening such ‘no-frills’ accounts?

Bank Officials SHG Members NGOs Neighbours

Village Panchayat Farmer Clubs Posters Village Meetings
If others, (please specify) ___________________________

12. Do you have any grievances in your ‘no-frills’ a/c?

If yes, please specify? _____________________________________

13. Have your household ever borrowed or taken a loan?
If yes, from where? Banks Relatives Friends
If others, (please specify) ___________________________

14. If borrowed from banks, which of the following reasons led to this choice?
Low rate of interest
Good deal, good rate
Was offered/arranged by the banks
It is easy (vague)
Trustworthy lender
If others, (please specify) ___________________________

15. If borrowed from sources other than banks, which of the following reasons led to this choice?
Being able to borrow relatively small sums
I did not need to provide security or guarantees
It was available locally
I can make repayments in cash in small weekly or fortnightly sums
It is convenient because they come to the door to collect
It is because I know the lender/collector
If others, (please specify) ___________________________

16. If ever borrowed, what was the type of the credit/loan?

Housing loan
Business Loan
Training/Education loan
Vehicle loan
If p ersonal loan, purpose of the loan Household items Computer
Day to day living expenses or bills
To pay off other debts
If others, (please specify) ________________________
If others, (please specify) ________________________

17. If loan was availed, what difficulties were faced in the process?

18. In the past three years, have you been refused a loan or credit?
Yes, been refused credit
No, been given credit I wanted
Not asked for any credit

19. If you were refused, do you know why you were turned down? Please give details.


20. Are you using any other form of financial service or product?
If yes, then which one: Insurance Credit card Debit card
If others, (please specify) __________________________

21. What were the reasons for not availing any form of insurance?
Too expensive, can't afford it
Just don't bother, no real reasons
No need for it
I don't have much, nothing valuable
I am in process of doing it
No insurance men coming to door now
Have to have bank account
If others, (please specify) ___________________________________

21. If already having insurance, which of the following type is it?

Life insurance Health insurance Vehicle insurance
If others, (please specify) ____________________________

22. Reason for using the above said financial service(s)?


23. What difficulties were faced in the process of accessing the above financial service(s)?

24. In the past three years, have you been refused any of the above financial product(s)?
Yes, been refused credit
No, been given credit I wanted
Not asked for any credit

25. If you were refused, do you know why you were turned down? Please give details.

26. Over the past couple of years, have you been anywhere for advice about money matters?
No, no where Family/friends Bank
Financial Adviser Social worker
If others, (please specify) ___________________________________

27. And would you say this advice was

Very helpful Helpful Neither helpful nor unhelpful
Very unhelpful Not sure

28. Is there any financial advice centre/credit counseling center in your area? Yes No

29. If yes, how satisfied are you with its working and the advice it provides?
Completely satisfied Satisfied Just ok
Unsatisfied Completely unsatisfied

30. If you are not satisfied with its working, then please give reasons.

31. At present how well do you think you are managing your money?
Managing well Just getting by
Getting into difficulties Not sure

32. At present how worried are you about getting into debt?
Very worried Fairly worried Not very worried
Not at all worried Not sure

33. What would you do if you needed money in an emergency?

Ask family or friends Draw on savings Take out a bank loan or overdraft
Take out loan from other sources Use my credit card Sell something
Don't know
If others, (please specify) ___________________________________

34. Level of interest in local financial services (1. Very interested 2. Fairly interested 3. Not very
interested 4. Not at all interested 5. Not sure):
Saving small amounts of money 1 2 3 4 5
Take out a loan at reasonable interest 1 2 3 4 5
Taking a business loan 1 2 3 4 5
Advice about managing debts 1 2 3 4 5
Advice on welfare benefits 1 2 3 4 5
More information about financial matters 1 2 3 4 5

35. Level of interest in courses or sessions (same system of marking as in Q.34 above):
Support for numbers or arithmetic 1 2 3 4 5
Support with reading 1 2 3 4 5
Support with expressing yourself in writing 1 2 3 4 5
Support with how to operate a bank account 1 2 3 4 5
Support for taking a loan 1 2 3 4 5
Support for various bankable products 1 2 3 4 5

36. Level of importance in the following (1. Very important 2. Fairly important 3. Not very
important 4. Not at all important 5. Not sure):
Bank a/c 1 2 3 4 5
Small personal loan 1 2 3 4 5
Credit card 1 2 3 4 5
Financial counselling 1 2 3 4 5
Investment advice 1 2 3 4 5
Financial education 1 2 3 4 5

37. Are you satisfied with the BC/BF model or you feel the need of a bank branch at your place?
Yes, satisfied
No, not satisfied (please give reasons) ________________________________________________

38. What do you think that the Government, local bodies, banks, NGOs and others might need to
do to further achieve financial inclusion? _______________________________________________















No nnel (Rs.) SOURCE
1 REDP – Beautician Course 4 weeks 01/04/09 - 30/04/09 I 69,500 NABARD
2 PMEGP Training 2 weeks 04/05/09 - 16/05/09 I 65,600 KVIC
3 PMEGP Training 2 weeks 18/05/09 - 29/05/09 I 65,600 KVIC
4 Two Wheeler Repairing 4 weeks 01/06/09 - 27/06/09 I 75,000 NABARD
5 T.V. & Radio Repair 4 weeks 29/06/09 - 25/07/09 I 73,000 NABARD
6 SGSY – SHG 1 week 06/07/09 - 11/07/09 II 20,400 DRDA
7 SGSY – SHG 1 week 13/07/09 - 18/07/09 II 20,400 DRDA
8 Mushroom Cultivation 2 weeks 27/07/09 - 08/08/09 I 34,000 NABARD
9 Cell Phone Repairing 4 weeks 10/08/09 - 05/09/09 I 77,500 NABARD
10 SGSY – SHG 1 week 07/09/09 - 12/09/09 I 19,400 DRDA
11 SGSY – SHG 1 week 14/09/09 - 19/09/09 I 19,400 DRDA
12 Readymade Cloth 4 weeks 21/09/09 - 17/10/09 I 65,500 NABARD
13 Screen Printing 4 weeks 19/10/09 - 14/11/09 I 76,000 NABARD
14 SGSY – SHG 1 week 16/11/09 - 21/11/09 I 20,400 DRDA
15 Agarbatti Manufacturing 2 weeks 23/11/09 - 05/12/09 I 49,000 NABARD
16 PMEGP Training 2 weeks 07/12/09 - 19/12/09 I 65,600 KVIC
17 SGSY – SHG 1 week 21/12/09 - 26/12/09 I 20,400 DRDA
18 SGSY – SHG 1 week 28/12/09 - 02/01/10 I 20,400 DRDA
19 SGSY – SHG 1 week 04/01/10 - 09/01/10 II 20,400 DRDA
20 SGSY – SHG 1 week 11/01/10 - 16/01/10 II 20,400 DRDA
21 Beautician Course 2 weeks 04/01/10 - 30/01/10 I 69,500 NABARD
22 SGSY – SHG 1 week 01/02/10 - 06/02/10 I 20,400 DRDA
23 SGSY – SHG 1 week 08/02/10 - 13/02/10 I 20,400 DRDA
24 Photo Lamination & 1 week 15/02/10 - 20/02/10 I 27,800 NABARD
25 SGSY - SHG 1 week 22/02/10 - 27/02/10 I 20,400 DRDA
26 SGSY - SHG 1 week 01/03/10 - 06/03/10 I 20,400 DRDA
27 Electric Transformer Repair 1 week 08/03/10 - 13/03/10 I 29,800 NABARD

28 Irrigation Pump Repair 1 week 15/03/10 - 20/03/10 I 31,800 NABARD

29 Electric Motor Winding 2 weeks 22/03/10 - 31/03/10 I 42,000 NABARD
30 PMEGP Training 2 weeks 22/03/10 - 31/03/10 II 63,600 KVIC

Rs. 12.44 lakh













01. RBI’s website on financial education:

02. German debt counseling/financial literacy website (www.meine-schulden.de):


03. Federal Reserve Education Website (www.federalreserveeducation.org):

03. U.S. Financial Literacy and Education Commission’s site (www.mymoney.gov):



01. Alliance for Financial Inclusion - Workshop Report on Promoting Financial

Inclusion through Innovative Policies, May 2009

02. C Rangarajan – Report of the Committee on Financial Inclusion, Jan 2008

03. Chant Link & Associates, Australia – Summary Presentation: Research on

Financial Exclusion in Australia, Nov 2004

04. College of Agricultural Banking, Pune

- Financial Inclusion and Financial Literacy: Union Bank’s Initiatives, July –
Sep 2007
- Some ICT Devices: A Primer, April – June 2006
- Universal Financial Inclusion in India: The Way Forward, July – Sep 2007

05. Commission for Rural Communities, UK – Promoting Financial Inclusion in

Rural Areas, Nov 2007

06. Department of Rural Development, Govt. of India – Draft Guidelines for ‘Rural
Self Employment Training Institutes (RSETIs)’, 2008

07. Financial Inclusion Observatory – Debate on Financial Exclusion/Inclusion –

Country Report: Germany

08. Financial Services Authority, UK – Building Financial Capability, March 2007

09. H M Treasury, UK – Financial Inclusion: An Action Plan for 2008 – 11

10. House of Commons, Treasury Committee, UK – Financial Inclusion: Credit,

Savings, Advice and Insurance, Nov 2006

11. Joseph Rowntree Foundation, UK – Financial Inclusion in the UK: Review of

Policy and Practice, July 2008

12. Leeds City Council, UK – Financial Exclusion: It’s Impact on Individuals,

Disadvantaged Communities and the City Economy, Dec 2004

13. Rakesh Mohan, Reserve Bank of India – Economic Growth, Financial

Deepening and Financial Inclusion, Nov 2006

14. Reserve Bank of India

- Annual Policy Statement 2009 – 10
- Annual Report 2005 – 06
- Annual Report 2006 – 07

- Annual Report 2007 – 08

- Bulletin June 2009

- Bulletin May 2009

- Draft Guidelines on Outsourcing of Financial Services by Banks, Dec 2005

- Master Circular on Credit Facilities to SCs and STs, July 2008

- Master Circular on Priority Sector Lending – Credit Facilities to Minority
Communities, July 2008
- Master Circular on Priority Sector Lending – Special Programmes: SGSY
- Master Circular on Priority Sector Lending – Special Programmes: SJSRY
- Master Circular on New “Self Employment Scheme for Rehabilitation of
Manual Scavengers” (SRMS)

- Mid-Term Review of Annual Policy Statement for the year 2007- 08

- Report on Currency and Finance 2006 – 08 Vol. I & II

- Report of the Internal Group to Examine Issues Relating to Rural Credit and
Microfinance, July 2005
- Report on Trend and Progress of Banking in India 2007 – 08

- Working Group on Improvement of Banking Services in State of Jharkhand, 08

15. Scottish Council Foundation – Financial Inclusion and Capability in Rural

Scotland, June 2007

16. Scottish Executive – Financial Inclusion Action Plan, 2005

17. Shyamala Gopinath, Reserve Bank of India – Inclusive Growth: Role of

Financial Education, Nov 2006

18. Usha Thorat, Reserve Bank of India

- Financial Inclusion and Information Technology, Sep 2008
- Financial Inclusion: The Indian Experience, June 2007
- Financial Inclusion for Sustainable Development: Role of IT and
- Inclusive Financial System for the Aged, April 2008

19. V Leeladhar, Reserve Bank of India – Taking Banking Services to the Common
Man – Financial Inclusion, Dec 2005

20. Y V Reddy, Reserve Bank of India

- Credit Counselling: An Indian Perspective, Sep 2006
- The Role of Financial Education: The Indian Case, Sep 2006