Financial Inclusion and Responsible Micro-Finance In Focus : Credit Infrastructure

1. Financial Inclusion and Responsible Micro-Finance In Focus : Credit Infrastructure A Presentation By A K Srivastava, CGM, NABARD

2. Degree of Exclusion & Required Services

3. VISION 2012 • Financial Inclusion of all RHH (11.15 cr) –2015(50% by 2012). • Financial Inclusion to precede Poverty Alleviation. • Financial Services within 15 minutes walk of RHH - Last mile client should be able to use POS/ Smart Card/ Mobile • RBI Working Group recommendation - A banking outlet in each village with population of 2000 and above, before March 2011. • Smart KCC/ GCC/ SCC to all eligible One Citizen One Card.

4. Cash flow in no- frill a/c thru’ Innovative Credit products Micro Insurance Innovation – An Approach to Inclusive Growth • Micro Insurance/ Pension • Emi based loan Products • Loans to dependents of wage earners • Getting income from business thru’ banks • Thrift/ Saving by Vulnerable population Increased awareness & Financial Literacy interventions • Empowerment thru saving • Power of compounding • Risk mitigation • Opportunities for dependents • Break the poverty chain • Support economic growth of country

5. Inclusion Process through KCC, SCC & MFIs - Status in lakh

6. Outreach of Banks including RRBs * In Rs. Thousand as on Mar 2008,

7. Other Infrastructure –Coop. & MFI • DCCBs / PACS : 12500/ 97000 • MFIs - > 800 • Sa Dhan affiliated 233 • MFIs - Client outreach >2 Cr • NB SHG/MFI Client outreach > 8.60 Cr • MFI loan portfolio 11700 Cr • Large – MFIs ( O/S portfolio>50 Cr) 28

8. General Perceptions - USPs of micro-Finance by MFIs and Concerns USPs • Small size loans without collateral • No insistence on specific purpose • On occasion, combined with hand holding & capacity building • Hassle free (ease of access) and usually door delivery model (local touch) Concerns • High rate of interest/high cost of delivery of micro-credit • Lack of prudential norms in accounting • Lack of transparency/uniformity/supervision issues • Indiscriminate lending without past record scrutiny • Recovery not linked to cash flow from asset

9. Category March 31, 2006 March 31, 2007 March 31, 2008* March 31, 2009* Public Sector Banks 3,32,878 58,65,419 1,39,09,935 2,98,59,178 Private Sector Banks 1,56,388 8,60,997 18,45,869 31,24,101 Foreign Banks 231 5,919 33,115 41,482 Total 4,89,497 67,32,335 1,57,88,919 3,30,24,761 Inclusion through 'No frills' A/c by Banks * Provisional

10. FIF and FITF - Funding Status Rs Crore Contribution : GoI : RBI : NB in the ratio 40 : 40 : 20 * RBI Contribution to be received on reimbursement basis. @ GoI has been requested to release the amount $ Amount sanctioned under FIF – Rs. 17.98 crore and under FITF – Rs. 7.48 crore

11. NABARD-UNDP Collaboration for FI Rajasthan UP Bihar MP Jharkhand Chattisgarh Orissa

12. NABARD support for Financial Inclusion • As per the recommendations of Committee on Financial Inclusion, two funds viz., • Financial Inclusion Fund (FIF) • Financial Inclusion Technology Fund (FITF) created with NABARD with corpus of Rs. 500 crores each, to be contributed 40:40:20 by GoI, RBI &NB • Guidelines for FIF and FITF are issued to banks. • Advisory Board for FIF and FITF has been constituted. • Sub-Committee has been constituted under FITF. • State / District level workshops on Financial inclusion conducted for Stakeholders. • National Conference on Financial Inclusion One Citizen One Card.

13. Financial Inclusion Fund i. Funding support for capacity building inputs to BF/BC ii. Providing promotional support to institutions such as Resource Centres, Farmers’ Service Centres and Rural Development and Self Employment Training Institutes to enable them to provide improved tech.& financial services iii. Providing funding support for promotion, nurturing and credit linking of SHGs; iv. Capacity building of personnel of NABARD, Banks, Post Offices, State Government Departments, MFIs/ NGOs/ Local Level Associations, members of SHGs / JLG etc. v. Defraying expenses of approved institutions for undertaking interventions for financial inclusion in high excluded Regions/ States

14. Financial Inclusion Fund (cont) vi. Funding support for setting up of Rural Credit Bureaus and Credit Rating of Rural Customers; vii. Supporting initiatives of local level associations/ federations viii. Supporting pilot projects for development of innovative products, processes and prototypes for financial inclusion; ix. Any other developmental and promotional interventions recommended by the Advisory Board for the FIF.

15. Financial Inclusion Technology Fund 1. Encouraging user friendly technology solutions; 2. Providing financial support to technological solutions aimed at providing affordable financial services to the disadvantaged ; 3. Creating a common technology infrastructure with comprehensive credit information; 4. Funding support to technologies facilitating the documentation for processing of loans; 5. Providing viability gap / pilot project funding for unproven but potential technological interventions; 6. Conduct of studies, consultancies, research, evaluation studies relating to technological interventions for financial inclusion;

16. FITF (cont) 7. Promoting seminars, conferences and other mechanisms for discussions, dissemination relating to financial inclusion technological interventions; 8. Publication of financial inclusion technology literature, publicity material, etc.; 9. Capacity building of personnel of banks, Post Offices, State Government Departments,MFIs, NGOs, VAs and other stakeholders; and 10. Any other activity as may be approved by the Advisory Board.

17. Approaches under FITF • Viability Gap Funding • Integrate with proposed Unique Identification Card of GoI • Integrated approach of Financial Inclusion - Projects involving micro insurance schemes- life/asset/accident/ health etc. • Proposed support mechanism for Card based project

18. Approaches under FIF • Financial Literacy Drive • Exposure visits/ workshop of stakeholders • Certification Program for BC/ BF • Proposed support mechanism for Farmers’ Club as BF • Sensitization programme through training establishment Financial Literacy Financial Prudence Understanding Financial Product Financial Market Financial Analysis Financial Empowerment Financial Decision Making Financial Well being

19. Approaches under UNDP • Exposure visits/ workshop of stakeholders • On the Spot loan appraisal/ sanction/ rating evaluation through Mobile van system • Partnership with reputed and experienced NGOs • Financial Literacy • Resource Centre • Community Radio Service • Audio/ Visual display

20. New Dimensions of Credit Infrastructure • Need for Information sharing -necessary to avoid over indebtedness -control client delinquency -financial services to non resident migrants • How ? - Formal Credit Bureau - Informal information sharing on regional basis - Motivational issues for information sharing

21. Way Forward and Emerging Challenges • Need for Credit Bureau –Yes , possibly thro’ • Resource Centres at Local level (Block /Panchayat) • Integration with Common Services Centre • State level Federation (initially in select States) • Risks - Collateral coming into play, - Exclusion thro’ black listing, - Poaching among MFIs

22. Way Forward and Emerging Challenges (cont) • Credit Guarantee – Is it needed ? - Requirement- Registration, Supervision of loan portfolio of MFIs - Application of prudential Norms - Loss of informal character “If Yes, to be linked to Rating of MFI and compliance with Credit Bureau Requirements” • Issues - Policy formulation / funding-sharing arrangement / management / operation / regulatory framework / viability of scheme

23. Issues of Effective Outreach • Viability / Cost of delivery - BC/ BF (door delivery model) - MFI • - Bank / Branches • Involvement of MFI sector for FI • Increased participation of Coop. - issue taken up with RBI • Support and linkage of financial services to Govt payments- NREGA/ SS Pensions • Projects/ proposals through Bank – RBI • Open Standards for Technology • Innovative Financial Literacy Drive

24. FI - Road map for Institutions MFIs/ NGOs Banks/ Co-ops/ RRBs BC/ BF Financial Counselling/ Literacy Micro Credit/ Saving Loan/ Credit A/c BC/ BF Saving A/c Financial Inclusion Payment & Remittances Stand Alone Insurance Remittances Postal Savings Post Offices Insurance Cos

25. THANK YOU