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Banking the unbanked
The document discusses initiatives to promote financial inclusion in India through banking the unbanked, especially in rural areas. It outlines some key challenges like large rural population, financial illiteracy, and infrastructure issues. Several initiatives have been taken like "no-frills" bank accounts and business correspondent models, but impact has been limited. It proposes leveraging growing mobile technology and networks to provide basic banking services to more people through a framework involving backend systems and front-end access through mobile phones or business correspondents. An inter-ministerial group was constituted to develop this framework.
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Banking the unbanked
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- 2. The Needs &Enablers of Modern Banking People Financial Institutions Technology Save for a rainy day Advent of micro-computers Diffusion of Internet Automation in related functions of other businesses Evolution of Smart Card Technology Mobile technology Cash on the go Bank in the wallet Anywhere anytime banking Reduce operational costs High value added services Product bundling & Cross Selling Piggy Banks Traditional Banking Modern Banking (online) Interest Protection against theft Transfer large sums of money Trade Instruments Interest Service Charges
- 3. Banking & TechnologyDriving further technological innovation Technology Enables Impact on Business
- 4. Post liberalization, thegrowth in banking industry has been phenomenal
- 5. Development of KeyPayment Systems - India
- 6. The Growth ofATMs - India 22110 25247 34547 44857 20 % 20 % 37 % 30 % 2005-06 2006-07 2007-08 2009-10 2010-11E > 60000 Source – CyberMedia Research DQ Estimates
- 7. Adoption of CBS& RTGS - India Source – Report on Trend & Progress of Banking in India – RBI * - As of March, 2009 # - As of August, 2009
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- 9. % of Un-bankedRural Households Source - Rural Financial Access Survey (RFAS – 2003 ) Landholding Marginal farming households < 1 acre Small farming households = 1 to 4 acres Large farming households > 4 acres
- 10. Penetration of Banks& ATMs 1 Bank Branch for 20 Villages Number of ATMs per million of population (Mar-2009) Year Average Population Served by a Bank Branch in India (Approx.) 2005 16000 Source: ASSOCHAM’s Report on Investment Prospects in Indian Economy (2008-09) Global ATM Market & Forecasts 2013 report published by Retail Banking Research (RBR) 6,34,321 Villages 32,227 Rural Bank Branches Country Number Country Number Country Number Country Number India <40 China 98 Singapore 419 South Korea 1600
- 11. “ No Frills”Bank Accounts Source: Speeding Financial Inclusion – Skoch Development Foundation ( 20 th Skoch Summit, 16-17 July 09, Mumbai – Inclusive Growth 2.0) National Seminar on Launching a National Initiative for Financial Inclusion (NABARD) – September, 09 2015 ------------------------------------------------------- Targeted “No Frills” Accounts – 111.55 mn Projected Active “No Frills” Account – 13.81 mn (at current pace) Number of No Frills Accounts (in millions) Active “No Frills” Accounts (in millions) Year Active Accounts are those with more than two transactions per year Mar, 2009 ------------------------------------------------ “ No Frills” Accounts Opened – 30 mn Active* “No Frills” Account – 3.3 mn % of Active Accounts – 11% As informed by MoRD, at present Total A/c s = 80 mn Total Bank A/c s = 40 mn Total PO A/c s = 40 mn No of “No Frills” Accounts (in millions)
- 12. A number ofinitiatives have been taken but the impact has been limited
- 13. Challenges in RuralBanking & Viability But Banks & BCs are unable to operate a profitable model based on large number of tiny accounts and micro-transactions Revenue Cost Gap Large & Scattered Rural Population Financial Illiteracy & Unfamiliarity with Technology Inadequate Infrastructure – Power, Connectivity etc. BC/BF Model Simplified KYC Norms “ No Frills” Bank Accounts
- 14. During this time,Mobile Subscribers have grown faster than bank accounts
- 15. The Mobile GrowthStory
- 16. Mobile Subscribers VsBank A/c Holders (Rural) Rural Mobile Subscribers (in millions) Total Number of No Frills Accounts (in millions) 280 136 56 320 112 40
- 17. There is aneed to leverage Mobile technology & penetration to provide basic financial services to the unbanked
- 18. Policy Initiative -Constitution of Inter-Ministerial Group (IMG) IMG constituted on 19 th November 2009 To enable finalization of a framework for delivery of basic financial services using mobile phones Given an indicative list of the issues to be addressed Met twice 3 rd December 2009 24 th December 2009
- 19. Key elements offramework Decisions Taken
- 20. Key elements offramework Decisions Taken
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- 22. Governing Principles fora Sustainable framework People Boost Financial Literacy Develop Products that meet their needs Create Awareness Technology Reduce transaction cost Ensure interoperability Reach remotest areas Channel Reduce distribution cost Scale up network of Business Correspondents/ Sub-agents Engage “ for profit” companies Devise suitable compensation for channel partners Pricing Provide services at Optimal cost to the consumers Create a Viable model for all stakeholders
- 23. Framework for deliveryof Basic Financial Services Basic transactions
- 24. Framework for deliveryof Basic Financial Services Back End Once a Micro Account is opened, the citizen can use his mobile phone to perform basic transactions Alternatively, citizens who do not have a mobile phone or find it inconvenient to use one, can approach a BC to perform a transaction An Account Mapper that intelligently identifies the bank & micro account associated with a mobile number A central payments switch to route the transaction to the issuing & receiving bank A shared depository for hosting and maintenance of micro accounts Middleware Front End Micro Account s in the CBS of Banks or Outsourced Partners of Banks
- 25. This framework willenable …
- 26. Payment under GovernmentSchemes
- 27. Jan 12, 2010– An earthquake of magnitude 7.0 strikes Haiti According to the Mobile Giving Foundation (MGF), a Bellevue, Wash.-based non-profit organization that enables mobile giving in the U.S. and Canada, Americans donated over $11 million dollars to Haitian relief efforts via text message By the first week in February that number had ballooned to over $35 million In all, approximately 14 percent of all donations to Haiti relief efforts were made via text message according to a survey by the Pew Research Center . That's slightly less than the 20 percent threshold some experts use to determine whether a given technology has reached critical mass, but it's still a giant leap forward Source - http://www.banktech.com/payments-cards/showArticle.jhtml?articleID=222700080 by Nathan Conz
- 29. Indicative list ofissues for IMG The type/types of transactions that could be allowed The quantum of financial limits which may be imposed Eligibility of the agencies involved The role, responsibility and accountability of telecom service providers Regulatory issues to ensure accountability, auditability and traceability of money transfers Need for inter-operability between various service providers and standards involving the agencies processes, transactions and formats involved Interface with banking regulator Safety of deposits Security standards governing transactions Issues with respect to KYC-Know Your Customer provisions Customer Protection, complaints & redressal mechanism Linkages with the proposed Unique ID for residents Geographical coverage of services with respect to inclusion of border/sensitive areas Leveraging the existing infrastructure established and operationalised by the telecom service providers across the country electronic service delivery outlets in the form of Common Service Centres/Bharat Nirman kiosks being established across the country existing infrastructure created by the States/any other agency Any other issue with respect to conceptualization and operationalisation of the mobile-based basic financial services model
- 30. Second meeting ofIMG – 24 th December 2009
- 31. Early Data onViability of BC model for Banks Revenue per client is only one-fourth of the total Cost Source: Business Correspondents & Facilitators - Pathway to Financial Inclusion? ( Retreat on the BC Model – CAB, RBI, ACCESS)