Financial_Inclusion

Tele communication - Financial inclusion in India Premalatha.R Introduction: Financial inclusion means including common man into financial world by which he will add to the economy of the country. It is the delivery of financial services at affordable costs to sections of disadvantaged and low income segments of society. Financial inclusion may be defined 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. Financial inclusion is now a common objective for many central banks among the developing nations. On 29 December 2003, Former UN Secretary-General Kofi Annan said: ”The stark reality is that most poor people in the world still lack access to sustainable financial services, whether it is savings, credit or insurance. The great challenge before us is to address the constraints that exclude people from full participation in the financial sector. Together, we can and must build inclusive financial sectors that help people improve their lives.” In India the financial inclusion scenario may be viewed in various banking viewpoint and rural viewpoint. The Reserve Bank of India has set up a commission (Khan Commission) in 2004 to look into financial inclusion and the recommendations of the commission were incorporated into the mid-term review of the policy (2005–06). In the report RBI exhorted the banks with a view of achieving greater financial inclusion to make available a basic "no-frills" banking account. In India, Financial Inclusion first featured in 2005 that, too, from a pilot project in UT of Pondicherry, by K C Chakraborthy, the chairman of Indian Bank. Mangalam Village became the first village in India where all households were provided banking facilities. In addition to this KYC (Know your Customer) norms were relaxed for people intending to open accounts with annual deposits of less than Rs. 50,000. General Credit Cards (GCC) were issued to the poor and the disadvantaged with a view to help them access easy credit. In January 2006, the Reserve Bank permitted commercial banks to make use of the services of non-governmental organizations (NGOs/SHGs), micro-finance institutions and other civil society organizations as intermediaries for providing financial and banking services. These intermediaries could be used as business facilitators (BF) or business correspondents (BC) by commercial banks. Despite heightened focus on financial inclusion, Indian banks still somewhat failed to bring the under- and un-banked into the mainstream banking fold. India has currently the second-highest number of financially excluded households in the world. Approximately, 25% of India’s population have bank accounts, and only about 10% have any kind of life insurance cover, while a meager 0.6% have non-life insurance cover. 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. Figure 1: Bank credit Vs Telecom penetration Why telecom in financial inclusion' Financial inclusion through banks shows very slow progress and we can have statistical data to support this fact. The surveys conducted shows that the penetration of telecom is exponential whereas the banks growth rate is still much smaller. So when bank services are integrated with the telecom services we could achieve a significant growth in financial inclusion. The data which supports the prior fact: Total number of Bank account holders in india: 200 Million Percentage of population without bank account : 75% Number of mobile phones/ Users: 600 Million For every 10% increase in tele density -> 1.5% increase in GDP In 1992- teledensity is 4/1000 In 2010- teledensity is 500/1000 Total number of villages vs total number of banks: 8 Lakh vs (25000 , rural), (85,300, overall) Average transaction cost in banks per transaction: Rs.8 Net banking average transaction cost per transaction: Rs.3 Retail network for telecom service providers all over the country: 2 Million retailers Micro - banking: Microfinance is the provision of financial services to low-income clients or solidarity ending groups including consumers and the self-employed, who traditionally lack access to banking and related services i.e people whose income is less than 1$ per day. More broadly, it is a movement whose object is "a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund transfers." Those who promote microfinance generally believe that such access will help poor people out of poverty. Microfinance is a broad category of services, which includes micro credit. Micro credit is provision of credit services to poor clients. Although micro credit is one of the aspects of microfinance, conflation of the two terms is epidemic in public discourse. Critics often attack micro credit while referring to it indiscriminately as either 'micro credit' or 'microfinance'. Financial Inclusion Includes Accessing Of Financial Products And Services viz, Savings facility Credit and debit cards access Electronic fund transfer All kinds of commercial loans Overdraft facility Cheque facility Payment and remittance services Low cost financial services Insurance (Medical insurance) Financial advice Pension for old age and investment schemes Access to financial markets Micro credit during emergency Entrepreneurial credit The financially excluded sections largely comprise Marginal farmers, Landless laborers, Oral lessees, Self employed and unorganized sector enterprises, Urban slum dwellers, migrants, Ethnic minorities and socially excluded groups, Senior citizens, Women and North East, Eastern and Central regions contain most of the financially excluded population. Mobile Financial Services: The proliferation of mobile phones globally together with the de-regulation of the financial services market has provided new opportunities for trusted brands. Mobile Financial Services (MFSL) has built a set of technology and service capabilities to address these challenges and provide end to end solutions to add value in our business to business delivery model. They include mobile banking, mobile payment and mobile money. These are all the features that could be integrated to bring in mobile technology in financial sector. While integrating mobile services with financial services higher priority is given to the financial services with increased levels of authentication for reliability Case studies based on Implementation in other countries: Mpesa : M-PESA (M for mobile, pesa is Swahili for money) is the product name of a mobile-phone based money transfer service for Vodafone. The development was initially sponsored by the UK-based Department for International Development (DFID) in 2003–2007.The initial concept of M-PESA was to create a service which allowed microfinance borrowers to conveniently receive and repay loans using the network of  Safaricom airtime resellers. This would enable microfinance institutions (MFIs) to offer more competitive loan rates to their users, as there is a reduced cost of dealing in cash. The users of the service would gain through being able to track their finances more easily. But when the service was trialled, customers adopted the service for a variety of alternative uses; complications arose with Faulu, the partnering microfinance institution (MFI). M-PESA was re-focused and launched with a different value proposition: sending remittances home across the country and making payments. M-PESA is a branchless banking service, meaning that it is designed to enable users to complete basic banking transactions without the need to visit a bank branch. The continuing success of M-PESA, in Kenya, has been due to the creation of a highly popular, affordable payment service with only limited involvement of a bank. The system was developed and ran by Sagentia from initial development to the 6 million customer mark. The service has now been transitioned to be operationally run by IBM Global Services on behalf of Vodafone, the initial 3 markets (Kenya, Tanzania & Afghanistan) are hosted by Rackspace. M-PESA Customers can deposit and withdraw money from a network of agents that includes airtime resellers and retail outlets acting as  banking agents. The user interface technology of M-PESA differs between Safaricom of Kenya and Vodacom of Tanzania, although the underlying platform is the same. While Safaricom uses SIM toolkit to provide handset menus for accessing the service, Vodacom relies on USSD to provide users with menus.The service enables its users to deposit and withdraw money,transfer money to other users and non-users, pay bills, purchase airtime. The economic impact of mobile phones is a well talked about fact but the role of mobile phones in remittances and money circulation can be far  greater. Despite the great potential, there are very few examples of successful mobile money transfer due to regulatory hurdles and evolving business models. By far the most successful example of mobile money is M-Pesa. M-Pesa is a joint venture between Vodafone and Safaricom (the local mobile operator ) with the backing of Citibank and Commercial Bank of Africa.Grameen: Grameen Foundation helps the world’s poorest, especially women, improve their lives and escape poverty through access to microfinance and technology. Global poverty is a daunting challenge. But by making very small loans to very determined people, we’ve seen millions of the world’s poor pull themselves out of poverty. First initiated in 1976 by Professor Muhammad Yunus, founder of the Grameen Bank, microfinance institutions in Bangladesh are known for their pioneering, large-scale services. Bangladesh has a population of more than 140 million with almost half of the population living below the poverty line. Most of the population earns less than a $1 a day. In Bangladesh, microfinance institutions have taken an active role in poverty alleviation efforts, providing credit to poor people who lack savings and capital. However, poverty remains a major challenge for millions of people in Bangladesh. The three most widely recognized MFIs – Grameen Bank, BRAC, and ASA – account for 85 percent of the 18.6 million active borrowers in the country. Despite the presence of large MFIs, Bangladesh continues to face enormous challenges in reducing poverty. In Bangladesh, the Grameen Foundation Education Scholarship Program works through Grameen Shikkha to provide scholarships to poor rural children.  To date, we have sponsored 250 scholarships, and continue to support programs for Bangladeshi youth. Grameen believes that charity is not an answer to poverty. It only helps poverty to continue as it creates dependency and takes away individual's initiative to break through the cycle of poverty. It believes that all human beings, including the poorest, are endowed with endless potential and unleashing of the creativity in each individual should be the answer to poverty, and this is exactly what the Grameen offers to its people. Grameen brought credit to the poor, women, illiterate and the unemployed. It created access to credit on reasonable terms such as the group lending system and weekly-installment payment with reasonably long term of loans, enabling the poor to build on their existing skill to earn a better income in each cycle of loans. Grameen’s objective has been to promote financial independence among the poor. Yunus encourages all borrowers to eventually become savers so that their local capital can be converted into new loans. Since 1995, Grameen has funded 90 percent of its loans with interest income and deposits collected, hence aligning the interests of its new borrowers and depositor-shareholders. Hence, Grameen distinguishes itself from such institutions by converting deposits made in villages into loans for the more needy in the villages (Yunus and Jolis 1998).It targets the poorest of the poor, with a particular emphasis on women, who receives 95 percent of the bank’s loans. Women represent a suitable clientele because, given that they have less access to alternatives, such as traditional credit lines and incomes, they are more likely to be credit constrained and they have an inequitable share of power in household decision making. Lending to women also generates considerable secondary effects, including empowerment of a marginalized segment of society (Yunus and Jolis 1998). This is especially crucial as Yunus claims that in 2004, women still have difficulty getting loans as it represented less than 1 percent of borrowers from commercial banks (Yunus 2004). The interest rates charged by microfinance institutes including Grameen Bank is high compared to that of traditional banks; Grameen's interest (reducing balance basis) on its main credit product is about 20%.Down the years, Grameen has also diversified the types of loans it makes. Among its new interests, hand-powered wells and loans to support the enterprises of Grameen members' immediate relatives. There were also seasonal agricultural loans and lease-to-own agreements for equipment and livestock. The bank also set a new goal for itself: making each of its branches free of poverty, as defined by benchmarks such as having adequate food and access to clean water and latrines. Grameen Bank is the only business corporation to have won a  Nobel Prize. Customer’s perspective: KYC – Know your customer – Authentication procedure. The identity of the customer is to be perfectly verified. Talk time to money transactions are to be modified to money to money transactions itself. The mobile comapatibility is an issue so the developed technology should be compatible with even the basic model mobile. The technology should be user friendly so then even common man could use. The customer and retailers communicate since the network of retailers is larger. Need to improve the levels of authentication so as to ensure security. Road Blocks in financial inclusion in India: UAID- This means a unique Identity to be given for the individuals means every individual of the nation must be provided with a identity card. Voice signatures- Identifying individuals with their voice. Thought of insecurity of money transfer. Reluctance offered by the banks to adopt the technology. Inter Ministry group: Financial inclusion in mobile banking. Factors affecting access to financial services: Legal identity : Lack of legal identity like voter id , driving license , birth certificates ,employment identity card etc. Limited literacy : Particularly financial literacy and lack of basic education prevent people to have access from financial services . Level of income : Level of income decides to have financial access . Low income people generally have the attitude of thinking that banks are only for rich. Terms and conditions : While getting loans or at the time of opening accounts banks places many conditions , so the uneducated and poor people find it very difficult to access financial services . Complicated procedures : Due to lack of financial literacy and basic education , it is very difficult for those people who lack both to read terms and conditions and account filling forms . Psychological and cultural barriers : Many people voluntarily excluded themselves due to psychological barriers and they think that they are excluded from accessing financial services . Place of living : As the name suggests that commercial banks operate only in commercially profitable areas and they set up branches and main offices only in that areas .People who lived in under developed areas find it very difficult to go to areas in which banks are generally reside . Lack of awareness : Finally , people who lack basic education do not know the importance of the financial products like Insurance , Finance , Bank Accounts , cheque facility ,etc. Financial Transactions Made Easy : Inclusive finance will provide banking related financial transactions in an easy and speedy way . Safe savings along with financial services : People will have safe savings along with other allied services like insurance cover , entrepreneurial loans , payment and settlement facility etc, Inflating National Income : Boosting up business opportunities will definitely increase GDP and which will be reflected in our national income growth . Becoming Global Player : Financial access will attract global market players to our country that will result in increasing employment and business opportunities . Initiatives in India: Zero: ZERO is India’s first domestic payment system with specific focus on reaching out to masses with lowest available communication infrastructure. ZERO collaborates with leading banks and banking regulators, and the government to identify opportunities and bring about consensus on standards and processes for financial inclusion. The solution uses biometrics-based ID, RFID smart cards, and NFC (Near Field Communication) mobile phones as acceptance and enabling devices with merchants, field forces of micro-finance institutions  and as cashless ATMs. The solution in the front-end was integrated with the Core Banking System (CBS) of Banks using the ZERO backend platform and mobile connectivity. ZERO-MASS Foundation provided business correspondent services to banks for last mile deployment of the service in villages for education of banking agents and customers, recruitment of banking agents, enrollment of customers, liasoning with the government and cash management services. Pilot projects have been carried out in Andhra Pradesh, Karnataka, Tamil Nadu, Maharastra, Jharkhand, Orissa, Bihar, New Delhi, Rajasthan, Mizoram, Meghalaya, Assam, Uttarakhand, West Bengal, Punjab and Gujarat in partnership with State Bank of India, State Bank of Hyderabad, Punjab National Bank, Canara Bank, Bank of Baroda, Development Credit Bank, Andhra Bank, Andhra Pradesh Grameen Vikas Bank, Nainital Bank, Union Bank of India and Axis Bank. About 250,000 customers have enrolled with the State Bank of India and about 100,000 with the other banks.The project is based on a hosted application service provider (ASP) model, which is scalable to a large segment of the population. The ZERO platform absorbs the dependencies of interfacing with multiple banking and mobile systems, hence provides a plug-and-play access to banks to roll out their services using the platform. The project has been replicated by various leading banks in a short period of time. The developer has been keeping pace with the project by creating new products like mZERO (using the SIM card of the customer as a payment card in partnership with SmartTrust, Sweden), virtual card (using the NFC phone to securely create and store payment card of multiple customers, hence reducing the cost acquisition of customers), finger print registration and verification using mobile phones, etc. Idea Cellular collaboration with axis bank: Idea Cellular has partnered with Axis Bank to launch 'Idea MyCash'-a facility aims at providing basic banking services, using the mobile platform. This mobile-based financial inclusion initiative, besides providing basic banking services like cash deposit, cash withdrawal, and balance enquiry will also enable money transfer. The association will be flagged-off with a ‘remittance pilot’ between Dharavi in suburban Mumbai and Allahabad in Uttar Pradesh, which will enable money transfer using the mobile platform. Idea and Axis Bank will also explore extending the association to include other banking products and services such as savings, credit, micro insurance, micro SIP and micro pensions in a phased manner. On completion of the successful pilot, a full range of banking services is proposed to be launched across the pan-India footprint of IDEA Cellular, subject to receipt of all statutory and regulatory approvals. The Mobile Payments Forum of India (MPFI) has been trying to put in place unified technical standards to make it possible for banks, telecom service providers and companies to jointly use the mobile platform for payments. Conclusion: The mobile services in financial inclusions will add to the revenue of the nation. Co-Operations between the banks and mobile operators in this respect is required primarily. The system should be made much more reliable for even common man is ready to use it. References 1) http://www.scribd.com/doc/13791822/Financial-Inclusion-in-India-CPBYR 2) http://www.oecd.org/dataoecd/16/55/40339652.pdf 3) http://www.oneworldonepeople.org/articles/World%20Poverty/Grameen.htm 4) http://www.mobilefinancialservices.com/ 5) http://www.chillibreeze.com/ 6) http://www.centerforfinancialinclusion.org 7) http://voicendata.ciol.com/ 8) http://www.tele.net.in/ 9) http://www.thehindu.com/sci-tech/technology/article110391.ece 10) http://censusindia.gov.in/ 11) http://www.telegraphindia.com/1110313/jsp/business/story_13707060.jsp 12) http://www.inclusioncentre.org.uk/ 13) http://www.financialinclusion.in/ 14) http://indiamicrofinance.com/x/m/financial-inclusion