BASIX Consulting and Training Services Ltd

1. BASIX Consulting and Training Services Ltd Presentation on Financial literacy 26/08/11

2. Outline • Indian Economy and Financial Inclusion • Financial Inclusion and Financial Exclusion • Causes of Financial Exclusion • Financial literacy-Definition • Why Financial Illiteracy a Global Issue? • Promoting Financial Literacy • Indian Initiatives in Financial Literacy • Government of India Initiatives – Swabhimaan Campaign • Commitment from Government of India • Best Practices in the African Context • Recommended model for Africa 2008-2009 2010 -

3. Indian Economy and Financial Inclusion • India is the fourth largest economy in the world on a purchasing power parity(PPP) basis and twelfth on a nominal basis. • India’s Economy is growing more than 7% per annum for the past five years. • 10% of the population is employed in the organised sector. • Agriculture employs 60% of the population and is growing slowly, less than 3% p.a. • 40% of the population is unbanked, financially excluded • The unbanked population includes farmers, small businesses, unorganised labor

4. Financial Inclusion and Financial Exclusion • Financial Incluion 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 • Financial exclusion means the lack of access by certain segments of the society to appropriate, low-cost, fair and safe financial productsand services from mainstream providers

5. Causes of Financial Exclusion • 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. • 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 serve them • Level of income • - A higher share of population below the poverty line results in lower demand for financial services.

6. Causes of Financial Exclusion- Contd • 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 • Location constraints • – Absence of bank of branches in interior-most parts of the country • 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 requirements.

7. Causes of Financial Exclusion- Contd • 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. • 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.

8. The possession of knowledge and understanding of financial matters. Knowledge of properly making decisions pertaining to personal finance areas like Savings,Loans,real estate, insurance, investments, and retirement Knowledge of financial concepts like compound interest, Savings Methods, consumer rights, etc.  Financial literacy-Definition

9. Personal finance is not a part of curriculum Parents and teachers are equally illiterate on financial matters Comparatively low banking habit Financial Institutions and Government had not focussed on Financial Literacy in the past Financial products are getting complicated day by day Why Financial Illiteracy a Global Issue?

10. Institutional mechanisms Make financial education part of academic curriculum at school and college levels, to enable the students to manage their personal finances successfully through out life. Universities and business schools can offer specialized courses in financial education to prepare trainers. Financial institutions can engage NGOs to promote financial literacy among their existing and Potential clients. Integrate financial literacy financial literacy into various types of development programs: microfinance, vocational education, skills training, business development, health, nutrition, agriculture, and food security programs. Promoting Financial literacy

11. Delivery mechanisms 1. Presentations, lectures, conferences, symposia, training courses and seminars can be actively utilized to deliver financial literacy programs to address the needs of specific sub-groups of consumers the young or elderly, educated, illiterate etc. purpose. 2. Publications in diverse forms, including books, brochures, magazines, booklets/pamphlets, direct mail documents, can also be useful in this regard. 3. Communication media such as Radio and TV can be utilized to run media campaigns of financial literacy, Promoting Financial literacy

12. Indian Initiatives in Financial Literacy • Reserve Bank of India chose 160 remote unbanked villages for achieving 100 per cent financial inclusion with each household having at least one credit facility along with effective grievance redressal mechanism and awareness. • Project Financial Literacy : Reserve Bank Of India launched a web site to disseminate information about central bank, general banking concepts to target groups (school/college children, women, rural/ urban poor, defense personnel, senior citizens) • Credit Counselling Centers : Financial counselling to avoid informal sector & debt trap to Provide information about banks, financial management, repayment obligations, avoiding indebtedness, rehabilitation of distressed

13. Will Ensure banking facilities in habitation with a population in excess of 2,000 by March 2012 Using BC model. Provide a customer facing channel that’s close to the customer not more than three to four Kilometers walking distance. Enable small and marginal farmers obtain Credit at lower rates from banks and other Financial institutions. Cost effective and safe avenues for micro savings, remittances and pensions. Impart financial literacy to the beneficiaries at the bottom of the pyramid Government of India Initiatives – Swabhimaan Campaign

14. In 2008, Government of India established 2 Funds : (i) Financial Inclusion Fund - developmental/promotional work (ii) Financial Inclusion Technology Fund – technology adoption/innovation – Each Fund of $ 125 million In 201,1Government of India established a US$ 1.8 billion fund to compensate banks for costs incurred on providing no frills accounts in rural areas and other expenses incurred in reaching credit to unbanked areas. Commitment from Government of India

15. South Africa financial sector earmarked a portion of their profit to Financial Literacy projects since 2003 Kenya & Tanzania are developing Financial Literacy through Financial Sector Deepening Trust(FSDT) since 2005 Ghana has launched the first Financial Literacy Week in 2008, to achieve prosperity through financial security Uganda : 5-year Financial Market Development Plan set up in 2008 Best Practices in the African Context

16. Financial intermediaries to impart financial literacy across the country Mobile Money Transfer agents, Money Transfer Services and Insurance Companies should serve the last mile customer in rural areas Banks to set up more number of small branches with 1 teller , ATM and home-banking with ‘no-frill’ accounts Bring every African under regulated financial segment which would eliminate Money Laundering and other unethical financial practices Recommended model for Africa

17. Reserve Bank of India (RBI) -Website National Bank of Agriculture and Rural Development -Web site Financial Inclusion-Perspective of RBI-Presentation by M.K.Samantray Financial Inclusion –State of the sector report- by Skoch Group Financial Literacy and Financial Intermediation- Presentation by Varghese Thambi References

18. Any Questions?

19. raghuram.b@basixindia.com www.basix-consulting.com www.basixindia.com