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8/2/2019 Inclusive Finance_Sustainable Development
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Inclusive Finance:
for sustainable development
Kanika Basu
HSMI
1.2.2012
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The stark reality is that most poor people in
the world still lack access to sustainablefinancial 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.
Kofi Annan, 2003
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What is inclusive financial system?
Financial Inclusion is the delivery of
banking services at affordable costs
to vast sections of disadvantaged and
low income groups mainly thosecannot provide collateral.
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Are they part of the formal financial system?
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Financially Excluded People
Small farmers
Landless Labourers
Migrants
Self employed or unorganised sector enterprises
Slum dwellers
Socially excluded groups
Women
Senior citizens
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Consequences of Financial Exclusion
Losing opportunities to grow ,improve and or consolidate
improvements
Economic Exploitation
Overall retarded growth of the national economy
Benefits of Financial Inclusion
Poverty reduction
Growth with equity
Credit has done more to enrich nations than all the goldmines in the world put together.
The future lies with those companies who see the poor astheir customers
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Financial Inclusion: RBI Initiatives
Setting up of State Bank of IndiaNationalisation of banks
Co-operative Movement
Regional Rural Banks
Self Help Groups
2005onwards financial Inclusion has been explicitly made a policyobjective
Since 2006 banks are permitted to utilize the services of non-governmental organizations (NGOs/SHGs), micro-financeinstitutions and other civil society organizations as intermediaries inproviding financial and banking services through the use of businessfacilitator and business correspondent models.
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Some basic indices of financial inclusion
Country No. of bank
A/C (per 1000
adults)
No. of Bank
Branches (per
100,000 adults)
Domestic
credit (as %
of GDP)
Domestic
deposit (as %
of GDP
Argentina 503.3 13.7 10.3 23.2
Colombia 892.5 12.7 19.1 24.2
India 627.1 9.4 36.9 54.9
Lebanon 539.4 25.4 75.4 206.6
Malaysia 1858.8 14.6 117.9 123.9
Russia 2244.8 2.7 24.1 27.4
Thailand 1875.8 9.5 94.4 102.2
Sources: WDI (2006), World Bank; IFS (2006), IMF.
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Extent of Financial Exclusion in India
Only 17 Credit Accounts per 100 persons with all the
institutions (June 2007)
Only 54 Savings Accounts per 100 persons with all the
institutions (June 2007)
Only 13 per cent are availing loans from the banks in theincome bracket of less than Rs. 50,000
53 per cent people are taking loans from the institutional
and non-institutional sources only for emergency
purposesCritical Exclusion in terms of credit is manifest in 256
districts across 17 states and 1 UT (Dadra and Nagar
Haveli)
Source: Dr. K.C.Chakrabarty, Deputy Governor, RBI, 2009
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Why are people excluded?
Example: HOW TO GET A HOME LOAN ?
Identity Proof
Address Proof
Income Proof
Salary Statement Income Tax Returns
Bank Statement
Credible Guarantors
Other Tangible Collateral
Clear legal titles
Adequate loan Amount
HOW MANY POOR PEOPLE WOULD BE ELIGIBLE FOR A HOME LOAN FROM FORMAL
BANKING SYSTEM?
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Micro Finance: an effectivealternative?
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HistoryMicrofinance in India can trace its origins back to the early 1970s when the
Self Employed Womens Association (SEWA), Gujarat started the urban
cooperative bank, called the Shri Mahila SEWA Sahakari Bank, with the objectiveof providing banking services to poor women employed in the unorganised
sector in Ahmedabad City, Gujarat.
The microfinance sector went on to evolve in the 1980s around the concept of
SHGs, informal bodies that would provide their clients with much-needed savingsand credit services.
Got government support through specialized organizations like SIDBI Micro
Credit Fund, NABARD, RMK
Initially a public-people collaborative initiative to maximise benefits to thepoor, lately micro-finance in India evolved as a business initiative with poor as
clients.
Today, the top five private sector MFIs reach more than 20 million clients in
nearly every state in India and many Indian MFIs have been recognized as global
leaders in the industry.
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Microfinance in India: Various Models
1. Bank- SHG Linkage (Govt. Initiative)
2. Community based financial institutions
(mostly used by social developmentinitiatives)
3. Grameen style joint liability group bankingmodel (mostly used by private MFIs)
4. Co-operative bank
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Micro-finance Success in India
Unprecedented growth and stated impact in 90s to early 2000.
Govt. programme despite well in tentions had much lesser penetration with
the targeted clients compared to non-governmental outfits
Commercial microfinance lenders were able to attract clients and achieve a
better repayment rate, despite higher interest rates, by dint of their door-step
service and frequent small-value repayments. Significant achievement of the MFIs in India included not just outreach but an
efficient operating expense ratio of making then amongst the most cost-efficient
in the world (and their interest rates among the lowest).
Since around 2005 large sums of private equity began to flow into the
sector, and private MFIs grew rapidly, as microlending became a replicable,systematic, and profitable business.
the crisis followed!
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Micro finance in India: at crossroads
Krishna Crisis in 2005-06
Farmer suicides in the state of Andhra Pradesh that was connected to
inhuman loan recovery measures
Resulted in :Passing of Andhra Pradesh Microfinance Ordinance on the 15th of October,
2010.
Malegaon Committee Recommendations:
Loan limit to Rs. 25000
A cap on interest rates and margins
Provisioning norms.
Increased capital requirement
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Future of Microfinance in India?
The current demonization of the industry is
as much an oversimplification as the
earlier beatification.
The current situation is by no means comfortable
or promising either for MFIs or end-users.
The current crisis and the on-going churning can
well be the turning point for the micro-finance
industry in India leading to a balanced, better-
governed and better understood financial deliverysystem.
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