Recent Developments in Rural Finance

8/3/2019 Recent Developments in Rural Finance

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Recent

Developments


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No Frills Accounts: In November 2005, RBI asked banks to offer a basicbanking no-frills account with low or zero minimum balances andminimum charges to expand the outreach of such accounts to the low

income groups. As on 31st March, 2009 there were 3.3 crore no frillaccounts.

Easier Credit facility: Banks were asked to introduce a General PurposeCredit Card (GCC) facility up to Rs. 25,000. The total number of GCCsissued by banks as on end March, 2009 was 0.15 million.

Simpler KYC Norms: In order to ensure that people belonging to the lowincome groups, both in urban and rural areas, do not encounter difficultiesin opening bank accounts, the 'Know Your Customer' (KYC) procedure foropening accounts was simplified for those accounts with balances notexceeding Rs 50,000 and credits thereto not exceeding Rs.100,000 in ayear.

Use of Information Technology: Banks have been urged to scale up ITinitiatives for financial inclusion speedily while ensuring that solutions arehighly secure, amenable to audit, and follow widely-accepted openstandards to ensure eventual inter-operability among the different systems.


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Electronic Benefit Transfer (EBT) through Banks: To

encourage banks to adopt Information and Communication

Technology (ICT) solutions for enhancing their outreach, theRBI formulated a scheme to quicken the pace of adoption of

the smart card-based Electronic Benefit Transfer (EBT)

mechanism by banks and rolled out the EBT system in the

States that are ready to adopt the scheme. As per the scheme,the RBI would reimburse the banks a part of the cost of

opening accounts with bio-metric access/smart cards at the rate

of Rs.50 per account. The scheme was implemented in Andhra

Pradesh. So far, seven banks have been paid Rs.1.8 crore for

smart cards issued by banks in Andhra Pradesh during July-December 2008


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Business Correspondent (BC) Model : The BC Model ensures

a closer relationship between poor people and the organized

financial system. Reorganizing this, in 2006, RBI permittedbanks to use the services of non-governmental organizations,

micro-finance institutions, retired bank employees, ex-

servicemen, retired government employees, RBI has also

permitted banks to appoint the following entities as BCs (i)Individual kirana/medical /fair price shop owners (ii)

individual Public Call Office (PCO) operators (iii) Agents of

Small Savings schemes of Government of India/Insurance

Companies (iv) Individuals who own Petrol Pumps (v) Retired

teachers and (vi) Authorised functionaries of well run SelfHelp Groups (SHGs) linked to banks.


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Bank Branch and ATM Expansion Liberalized: Reserve Bank of India hastotally freed the location of ATMs from prior authorization. Further, in the

October 2009 RBI took another big step by freeing branch opening intowns and villages with a population below 49,999.

Financial Literacy and Credit Counseling : RBI has advised the convener-bank of each State Level Bankers Committee (SLBC) to set up a financialliteracy-cum-counseling centre in any one district on a pilot basis, and

based on that experience, to extend the facility to other districts in duecourse. So far, 154 credit counseling centres have been set up in variousstates of the country .

Currently, interest rates for loans up to Rs.200000 (about $4200) in thepriority sector are capped at the prime lending rates of banks. RBI hastaken a decision to free the interest rates, which will come into effect fromJuly 1, 2010. Thus, these interest rates would soon stand deregulated aslong as banks ensure that the rates charged by them are reasonable andtransparent.


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Various Initiatives taken by Banks

for Financial Inclusion


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Corporation Bank initiated pilot projects on branchlessbanking in Karnataka, Andhra Pradesh. Tamil Nadu and Goa,

surveying villages, assisting rural households to open bankaccounts and issuingsmart cards. It operationalised branchless

banking units in 1200 villages during 2009-10 and mobilizeddeposits of Rs25.97 crore by opening no-frill accounts ofabout 5.47 lakh customers who were issuedsmartcardkeeping in view RBIs requirements of KYC.

Indian Bank, Andhra Bank, SBI, State Bank of Hyderabad,Union Bank, Axis Bank, HDFC and Canara Bank are other

banks using smart card-based technology solutions.

SBI conducted pilot projects in Mizoram, Meghalaya, AndhraPradesh and Uttrakhand and developed a mobile banking kitcalled bank in a box that comprises a cell phone acting as aPoint-Of-Sale [POS] machine, a finger print reader and a tiny

printer. This is used for opening no-frills accounts that are

on smart cards issued to clients..


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HDFC Banks Anywhere Bank Terminal at locations of BusinessCorrespondents, besides Bankon Wheels launched in 13 States[including Bihar, M.P., Rajasthan and U.P] exclusively for the rural marketfacilitates low-income unbanked & underprivileged households to accessfinancial services at affordable cost at their doorsteps using biometricATMs. Bank reached more than six lakh customers beyond 200 km fromits branches using the technological platform.

Grameen Financial Services piloted m-banking in Bangalore with 100

borrowers in partnership with mChek [Bangalore-based technologyprovider]. After two years, it served more than 3,30,000 rural clients andplanned to reach over two million by 2012.

[\Integra offers iMFAST [Integra Mobile Financial Applications SecureTerminal], a portable teller machine that performs simple banking functions

in rural areas. Operated by BCs in villages, the iMFAST solution, a hand-held terminal handling transactions concerning deposit, RD, withdrawal,loans, insurance, bill payments and booking train/bus tickets in rural areas,is currently used in over 500 locations by 15 banks [including Bank ofBaroda, Canara Bank, Central Bank of India, Indian Bank and VijayaBank]. Integra has issued ATM cards to three lakh customers in Karnataka,Madhya Pradesh, Tamil Nadu, Kerala, Andhra Pradesh, Maharashtra, Uttar

Pradesh, Sikkim and Jharkhand


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Union Bank of India added thousands of customers in remotevillages through its BCs, such as Infrastructure Leasing andFinancial Services, Drishti and Basix.

Under NREGS, banks in Andhra Pradesh conducted pilot projects totest leakage proof routing payments electronically to beneficiariesaccounts and transfer payments to the laborers through smartcards-based savings accounts.

Zero-M.A.S.S Foundation in Karnataka launched a new generationbiometric fingerprint authentication-based solution, which hasreached five million customers including beneficiaries of socialsecurity, pension scheme, NREGS, and SHG members in 18 States.

Mchek, provides services mostly to women, which include bank

deposits, withdrawals, loan repayments, account balance and kiranashop payments. MCheck has a vision to bring together the entireeco-system of partners across the banking sector, banking serviceproviders, as well as telecom operators to serve the base of users


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State Bank of India (SBI), India's largest commercial bank,and Bharti Airtel, the country's largest mobile operator, aresetting up a joint venture "to make available banking servicesto India's unbanked millions".

SBI, which is majority government owned, plans to takeadvantage of Airtel's customer base of about 150 million and

its 1.5 million retailers and distributors across India. ICICI Bank, India's largest private sector bank, also announced

a tie-up with Vodafone Essar, the Indian joint venture ofVodafone, to offer financial products such as savings accounts,

pre-paid instruments and credit products through a mobile

phone platform. ICICI Bank plans to take advantage of the distribution strength

of Vodafone, which manages over 1.5 million retail points foracquiring customers and servicing them.


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Union Bank of India, a nationalized bank in India, jointly with Nokia and

Obopay has announced their partnership to launch mobile payment services

called Union Bank Money available to consumers across India.

The Union Bank Money service will provide those who do not have a bank

account, access to financial services through their mobile phones, thus

empowering people and their businesses. The Union Bank Money service

allows users to store money safely, to send money and tomakepayments across locations, eliminating the need for intermediaries


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Mobile services and associated

opportunities


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In the first nine months of 2008, the four largestmetropolitan areas together added 10.3 million

subscribers, while the rural areas added more than 11.3

million.

Of the next 250 million mobile subscribers in the country,

approximately 100 million will be from rural areas, and

this will drive the growth of rural VAS. By 2012, 60 per

cent or close to 400 million of Indias projected 650

million total mobile subscriber base, will be rural

subscribers.


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Some of the major VAS products already in the rural market are:

Reuters Market Light (RML) - Reuters has dispensed comprehensive

agriculture-related information on a pilot basis in Maharashtra since April2007.

IFFCO Kisan Sanchar Limited - a joint venture between Bharti Airtel andIFFCO to provide rural-specific telecom services to rural households; is setto expand rural coverage from 3.2 lakh to 5 lakh villages by 2010.

Soochna Se Samadhan - by One World Network in collaboration withReliance Mobile since 2006.

Mandi on Mobile service - by the state run BSNL in Uttar Pradesh.

Fisher Friend project - a pilot project launched in Tamil Nadu andPondicherry aimed at the fishing community.

LifeTools - by Nokia, a package providing agricultural information andeducational services, slated to be commercially launched in 2009.


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M-Pesa: Mobile Banking in Kenya


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Safaricom, the Kenyan mobile phone company, launched M-Pesa two years ago in March 2007.

44% of households were using this services in 2008 increased

to 70% in 2009.

Has around 9 Million customers. M-Pesa records an average of 10,000 new registrations per

day.

More than 20,000 M-Pesa agents across the country offer

banking services to people in remote villages and dense slums,places traditional banks have not penetrated.


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It takes about $2,000 in start-up capital and a location to applyfor an M-Pesa franchise, and owners can start to see a profit inas little as four months.

The service allows customers to transfer up to $450 per day,although the average transaction is only $30.

Each M-Pesa transaction, no matter how large, costs less than

a dollar. Banks, traditional money transfer services andcouriers cost as much as US$5.

M-Pesa also allows customers to keep up to $600 in theiraccounts.

Mobile banking products are being launched in other places

including Tanzania, Afghanistan and West Africa.

Documents

Recent Developments in Rural Finance