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EXECUTIVE SUMMARY
Financial services actively contribute to the humane & economic development of the society. These lead to social safety net & protect the people from economic shocks. Hence, each & every individual should be provided with affordable institutional financial products/services popularly called Financial Inclusion. Despite witnessing substantial progress in financial sector reforms in India, it is disheartening to note that nearly half of the rural households even today do not have any access to any source of funds- institutional or otherwise. Hardly one-fourth of the rural households are assisted by banks. Hence the major task before banks is to bring most of those excluded, i.e. 75% of the rural households, under banking fold. There is a need for the formal financial system to look at increasing financial literacy and financial counseling to focus on financial inclusion and distress amongst farmers. Indian banks and financial market players should actively look at promoting such programs as a part of their corporate social responsibility. Banks should conduct full day programs for their clientele including farmers for counseling small borrowers for making aware on the implications of the loan, how interest is calculated, and so on, so that they are totally aware of its features. There is a clearly a lot requires to be done in this area. This enables the customer to remit funds at low cost. The government can utilize such bank accounts for social security services like health and calamity insurance under various schemes for disadvantaged. From the banks point of view, having such social security cover makes the financing of such persons less risky. Reduced risk means more flow of funds at better rates. Access to appropriate financial services can significantly improve the day-to- day management of finances. For example, bills for daily utilities (municipality, water, electricity, telephone) can be more easily paid by using cheques or through internet banking, rather than standing in the queue in the offices of the service.

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A bank account also provides a passport to a range of other financial products and services such as short term credit facilities, overdraft facilities and credit card. Further, a number of other financial products, such as insurance and pension products, necessarily require the access to a bank account. Employment Guarantee Scheme of the Government which is being rolled out in 200 districts in the country would bring in large number of people through their savings accounts into the banking system. It paves the way for establishment of an account relationship which helps the poor to avail a variety of savings products and loan products for housing , consumption, etc Financial Inclusion (FI) is broadly a means to eradicate poverty and provide Indias disadvantaged population with easily accessible financial services. In the last 15 years since the United Nations Organizations (UNO) took it up as a major challenge in its Millennium Development Goals, policy makers across the world have been giving FI their due attention. The late professor CK Prahalad, in his seminal paper and book, The Fortune at the Bottom of the Pyramid, also brought about a radical change in the thinking of corporate organizations by emphasizing that The future belongs to those companies, which will look to serve the bottom of the pyramid. Indian policy makers have always been aware of the need for poverty alleviation and taken initiatives such as the setting up public distribution systems, nationalizing banks, setting up regional rural banks and implementing various fiscal measures.

However, the lack of a well- thought out implementation strategy has resulted in the failure of all such initiatives and sickness of delivery systems. The last two decades have seen phenomenal performance from all the sectors of the Indian economy. The good health of the banking sector and a fairly strong economic growth has put the inclusion agenda firmly back into the Governments line of vision. The evolution of technology and the initiatives of banks and micro- finance organizations have been critical in giving momentum to this agenda.

However, the road ahead is still difficult as different business models are still emerging. The sustainability of the banking system needs to be balanced with social performance objectives.
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Hence, what is needed at this juncture is the concerted effort of the three pillars of state, self help groups (SHGs)/non- governmental organizations (NGOs) and the financial system to give the required thrust to achieve this objective.

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TABLE OF CONTENTS

S. NO

INDEX

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Introduction To The Project Financial Exclusion Review of Literature Research methodology Analysis and Findings Recommendations Conclusion Annexure Bibliography Copy of Questionnaire

5-31 32-45 46-60 61-64 65-84 85-87 88 89 90 91-94

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CHAPTER-1

INTRODUCTION Introduction
The word financial inclusion could be described as being the opposite of financial exclusion. However, financial inclusion is more of the process rather than a phenomenon. It is the process by which financial services are accessible to all the sections of the population. It is a conscious attempt to bring the unbanked people into banking. The process of ensuring access to financial services and timely and adequate credit where needed by vulnerable group such as weaker sections and low income groups at an affordable cost. (The committee on financial inclusion (Chairman: Dr. C. Rangarajan, 2008)) Financial inclusion does not merely mean access to credit for the poor, but also other financial services such as insurance. Financial inclusion allows the state to have an easier access to an citizens, with an inclusive population, for e.g.; the government could reduce the transaction cost of payments like pension or unemployment benefits. It could prove to be a boon in a situation like a natural disaster; a financially included population means the government will have much less headaches in ensuring that all the people get the benefits. It allows for more transparency leading to curtailing corruption and bureaucratic barriers in reaching out to the poor and weaker sections. An intelligent banking population could go a long way by effectively securing themselves as a safer future.

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THE OBJECTIVES OF FINANCIAL INCLUSION 1. The access to various mainstream financial services e.g. saving bank account, credit insurance, payments and remittance and financial and credit advisory services.

2. The main objective is to provide the benefits of vast formal financial markets and protect them from exploitation of informal credit market, so that they can be brought into the mainstream.

WHAT IS CONSIDERED AS MAINSTREAM FINANCIAL SERVICES NECESSARY FOR FINANCIAL INCLUSION OR HOUSEHOLD? Basic saving bank account- an account with all the basic features of bank account. Payment and remittance services. Immediate credit- in case of contingencies like accidents, medical treatments etc, they should be provided immediate credit. Entrepreneurial credit- this means to run/expand small scale business/shop or any other economic activity, easy credit should be provided, so that financial dependence can be created amongst households. Housing finance- funding for purchasing new residential or reconstruction. Insurance life/healthcare- to plan future better. Financial education/credit counseling centers- to guide them which product suits them better, where to go credit needs, what are various services available to better their personal financial planning.

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BASIC SAVING BANK ACCOUNT

IMMEDIATE CREDIT

ENTREPRENEURIAL CREDIT

HOUSING FINANCE

PAYMENT AND REMITTANCES SERVICES

INSURANCE-LIFE/HEALTHCARE

MAINSTREAM FINANCIAL SERVICES

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Financial inclusion therefore, is delivery of not banking, but also other financial services like insurance, pension, remittance, mutual funds, etc, delivered at affordable, though market driven costs. Opening a no-frills account is just a beginning to continuous process of providing banking and financial services. Once the first step of safety of savings is achieved, the poor require access to schemes and products which allow their savings to grow at rates which provides them growth beyond mere inflation protection.

To understand it better, lets take life of migrants street vender living in almost every part of Chandigarh, mohali and its financial life will look like this--; WHAT TYPE OF PRODUCT OR SERVICES IS REQUIRED FOR THIS TYPE OF CUSTOMER?
Daily cash income

Frequently purchases stock,mainly in cash

Irregular income due to seasonality of occupation

No income, if he misses a day due ill health

To send money regularly to his family living in village

To make small,regular payment for fee for child's education

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DEFINATION Financial inclusion or inclusive financing is the delivery of financial services at affordable costs to sections of disadvantaged and low income segments of society. Unrestrained access to public goods and services is the sine qua non of an open and efficient society. It is argued that as banking services are in the nature of public good; the availability of banking and payment services to the entire population without discrimination is the prime objective of this public policy. The term "financial inclusion" has gained importance since the early 2000s, and is a result of findings about financial exclusion and its direct correlation to poverty. Financial inclusion is now a common objective for many central banks among the developing nations.

FINANCIAL INCLUSION IN INDIA The Reserve Bank of India (RBI) set up the 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 (200506). 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, when it was introduced by K C Chakraborthy, the chairman of Indian Bank. Mangalam Village became the first village in India where all households were provided banking facilities. Norms were relaxed for people intending to open accounts with annual deposits of less than Rs. 50,000. General credit cards (GCCs) 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 or business correspondents by commercial banks. The bank asked the commercial banks in different regions to start a 100% financial inclusion campaign on a pilot basis. As a result of the campaign states or U.T.s like Pondicherry, Himachal

Pradesh and Kerala announced 100% financial inclusion in all their districts. Reserve Bank of
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Indias vision for 2020 is to open nearly 600 million new customers' accounts and service them through a variety of channels by leveraging on IT. However, illiteracy and the low income savings and lack of bank branches in rural areas continue to be a roadblock to financial inclusion in many states and there is inadequate legal and financial structure. CONTROVERSY Financial inclusion in India is often closely connected to the aggressive microcredit policies that were introduced without the appropriate regulations oversight or consumer education policies. The result was consumers becoming quickly over-indebted to the point of committing suicide, and the lending institutions seeing repayment rates collapse, threatening the existence of the entire 4 billion a year Indian microcredit industryThis crisis has often been compared to the mortgage lending crisis in the US. The challenge for those working in the financial inclusion field has been to separate micro-credit as only one aspect of the larger financial inclusion efforts and use the Indian crisis as an example of the importance of having the appropriate regulatory and educational policy framework in place

Airtel, Axis Bank Join For Financial Inclusion

Mumbai, 16th May 2012: Bharti Airtel, through its wholly owned subsidiary Airtel mCommerce Services Limited, and Axis Bank today announced a partnership for extending banking and payment services to Indias unbanked millions through the ubiquitous mobile platform. This alliance will leverage the companies respective strengths in telecom and banking sectors to empower financially excluded citizens of India with banking products and services enhancing their livelihood and quality of life. With the partnership announced today, no-frills savings account of Axis Bank will be opened customers on the Airtel Money platform called airtel money Super Account powered by Axis
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Bank offering customers banking transactions including cash deposit, money transfer withdrawal. These accounts will provide convenient, safe and secure savings avenue to Inclusion customers paying them savings account interest and also enabling them to make remittances. To begin with, savings and remittance solutions will be provided in the top four remittance corridors involving Delhi and Mumbai on the sending side and Bihar and East UP on the receiving side. Thereafter these services may be extended to other remittance corridors in the country. Gradually other banking products and services like micro Recurring Deposits, micro Fixed Deposits, small loans and micro-insurance products will also be provided through this platform. Commenting on the occasion, Sanjay Kapoor, CEO India & South Asia, Bharti Airtel said, Following the recent pan India launch of airtel money, we are today excited to collaborate with Axis Bank to further strengthen our mCommerce proposition for customers. According to estimates, nearly 43% of our countrys population does not have bank accounts and continues to rely on cash for majority of transactions as well as payments. The all new airtel money Super Account powered by Axis Bank acts as a no-frills bank account that comes with remittance capabilities which empower customers to send money, withdraw cash from the nearby designated airtel money outlets, keep money safe and even enjoy interest on savings through their mobile device. With Axis Banks expertise in banking and Airtels extensive distribution network that spans over 1.5 million outlets, together, we are confident that this association will play a transformational role in furthering economic empowerment and fast-tracking Indias financial inclusion agenda. Speaking at the launch event held in Mumbai, Shikha Sharma, MD & CEO, Axis Bank said, "We are delighted to partner with Airtel for strengthening our financial inclusion initiative. Our
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alliance with Airtel will help the Bank to reach out to excluded segments of our population, bothin rural and urban centres, with reasonably priced banking and financial services." Infosys, a global leader in consulting and technology, is the technology innovation partner for the launch of airtel money Super Account powered by Axis Bank. With Infosys WalletEdge and Finacle Digital Commerce, this alliance will leverage the companys proven IP and expertise in mobile commerce towards delivering banking and payment services to Indias unbanked millions. The airtel money Super Account powered by Axis Bank offers the following key features: A no-frills account of Axis Bank on the Airtel Money platform Cash Deposit / Withdrawal from authorised airtel money Axis Bank outlets Remittance of funds to other airtel money Super Accounts Remittance to other bank accounts through NEFT (to be enabled soon) Savings bank interest on balances Mobile customers can visit nearest authorised airtel money Axis Bank outlets and open airtel money Super Account powered by Axis Bank on their mobile phones by submitting the prescribed application form and KYC documents. The focused target segment of the airtel money Super Account powered by Axis Bank will be remittance corridors and unbanked areas, where there is greater need of easy money transfers and savings, which will be possible with this account and the need for other financial products like deposits, insurance, loans etc. that will get enabled soon. Going forward, the mobile platform can also facilitate other micro-payments. Such collaboration between Indias leading mobile and banking services providers represents a model partnership meant for making the idea of inclusive banking a reality for customers in India.
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Financial inclusion for whose benefit?

May 30, 2012:

The tale of financial inclusion in India is akin to that of the blind men and the elephant. You all know the story. A bunch of blind men chance upon an elephant. The one who catches hold of its tail says the elephant is like a rope. The one who touches the trunk says the elephant is like a snake, while the one touching the animal's leg insists it's like a tree. Likewise, when it comes to financial inclusion, every member of the dramatis personae has got hold of a different bit of the inclusion elephant. And they all appear to think that the whole animal looks like the bit they have caught hold of. The Finance Ministry, for instance, seems to think that financial inclusion ends with ensuring that everyone has a bank account. Whether the accounts have any money, or in what way those accounts will help the holders of these accounts, is not its concern. The Reserve Bank of India, charged with implementing this goal, has done its bit to ensure that banks do not haemorrhage money in the process. So it created the concept of Business Correspondents', so that banks could actually outsource the actual process of reaching out to the great unbanked at a reasonable cost, of course.

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PLETHORA OF SCHEMES

In a recent article, Mr K.C. Chakrabarty, Deputy Governor, Reserve Bank of India, defined financial inclusion as the process of ensuring access to appropriate financial products and services needed by vulnerable groups such as weaker sections and low-income groups at an affordable cost in a fair and transparent manner by mainstream institutional players. That is an excellent definition, and one which is capable of transformational change if implemented in letter and spirit. The trouble is, when it comes to implementation, the process has been largely driven by government fiat and regulator-pushed (even if implicitly so) quota regime. The latest Finance Ministry directive on one household, one account' is an excellent example of this. And nobody has stopped to ask why the previous initiatives aimed at financial inclusion have not worked or at least, worked satisfactorily. Banking was first subjected to overarching political/governmental objectives as far back as the 1960s, when banks were first nationalised. We have had, and continue to have, a plethora of schemes, rules and directives aimed at expanding banking coverage and ensuring service to the unbanked. From pre-emptive lending' like imposing quotas for agricultural credit and other defined priority sector' lending, to the current mandatory requirement for all banking licence holders to provide at least a no frills' account to anybody who demands one, both the Government and the RBI have fired any number of regulatory weapons from their arsenal at banks, in order to meet so called social objectives'.

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WHAT THE NUMBERS SAY

Take farm credit. The government first set up regional rural banks (RRBs) and even created an apex bank to fund and direct rural development, in the form of NABARD (National Bank for Agriculture and Rural Development). There is also the lead bank' system already in place, with the country being carved up between various state-owned banks, which are supposed to take the lead in development of banking services in their allocated area. Then there is the service area' scheme, another one for linking self-help groups to bank, yet another for micro credit initiatives. Then came the push for starting no frills' accounts, which saw over 6 million such accounts being opened in just the first year this scheme got pushed politically, 2006-07. In short, there is no end of schemes, plans and regulations aimed at providing financial services and products to the poor. And as the unending stream of new initiatives and orders in this regard clearly demonstrates, all these have failed to achieve their basic objective of financial inclusion. The numbers back this. A world-wide study to index Financial Inclusion to assess the extent of penetration of banking services saw India rank a lowly 50, out of the 100 countries covered in the survey. Just a little over one-third 34 per cent to be exact of the population has access to or receives banking services. Why is this so? According to Anirban Roy, head of SEED, one of India's largest entities in the country operating in the areas of correspondent banking and financial inclusion initiatives, the exclusion is because of lack of reach, inability to meet basic know your customer' (KYC) norms insisted upon by banks, a lack of collateral, etc.
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That, like the blind man's elephant, provides part of, but not the entire answer. The biggest factor is the lack of relevance, even when financial services come within reach. That is because, merely providing an account which is what the government and even the banks think needs to be done is not enough. Most of the no frill' accounts opened under the inclusion agenda, for instance, are today dormant, with hardly any transaction.

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Role of FICCI and UNDP

As we are all aware, financial inclusion is a mammoth task and it cannot be achieved without the active collaboration of all stakeholders. It is in this context that this particular seminar organised by Federation of Indian Chambers of Commerce and Industry (FICCI), which is an apex industry association and brings a large number of stakeholders under its fold, and United Nations Development Programme (UNDP), which is at the centre of the UNs efforts to reduce global poverty, assumes significance. FICCI has been playing a leading role in policy debates touching social, economic and political issues and I believe that corporates have a great role to play in furthering financial inclusion. It is in their interest. UNDP, as I am aware, has always been a solution-oriented, knowledge-based development organization, supporting various countries to reach their development objectives and internationally agreed goals. The strength of UNDP is that it partners with people at all levels of society to help build nations as also helps build capacities for sustained development and to meet the emerging developmental needs. It also brings in global perspective which is much needed. Within the thematic area of poverty reduction, UNDP has also associated itself with state governments to facilitate the design and implementation of pro-poor and inclusive livelihood promotion strategies with focus on excluded groups such as women, Schedule Castes (SCs), Scheduled Tribes (STs), Minorities, belowpoverty line and migrant households and involuntarily displaced people. It is indeed an opportune time for FICCI-UNDP to release the paper on A study on the progress of Financial Inclusion in India which aims to analyze the role played by banks in creating Financial Inclusion and the future strategy they need to adopt to make further progress. The important objectives under Financial Inclusion were aptly deliberated by the Committee on Financial Inclusion and the Committee on Financial Sector Reforms headed by
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respected Dr. Rangarajan and Dr. Raghuram Rajan. These reports have spelt out the imperative need to modify the credit and financial services delivery system to achieve greater inclusion. The full implementation of the recommendations made in these Reports will definitely go a long way to modify particularly the credit delivery system of the banks and other related institutions to meet the credit requirements of marginal and submarginal farmers in the rural areas in a fuller measure.

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Nation all focus on inclusive growth Today, there is a national as well as global focus on inclusive growth. The Financial Stability and Development Council (FSDC) headed by the Finance Minister is mandated to focus on financial inclusion and financial literacy. All financial sector regulators including the Reserve Bank of India are committed to the mission. And, very publicly, so are banks and other financial sector entities. If we are advocating any kind of stability whether financial, economic, political or social and inclusive growth with stability, it is not possible to attain these goals without achieving financial inclusion. Financial inclusion promotes thrift and develops culture of saving, improves access to credit both entrepreneurial and emergency and also enables efficient payment mechanism, thus strengthening the resource base of the financial institution which benefits the economy as resources become available for efficient payment mechanism and allocation. Empirical evidence shows that countries with large proportion of population excluded from the formal financial system also show higher poverty ratios and higher inequality. Thus, financial inclusion is no longer a policy choice today but a policy compulsion. And, banking is a key driver for financial inclusion/inclusive growth.

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Role of Banks But, it is well recognized that there are supply side and demand side factors driving inclusive growth. Banks and other financial services players are largely expected to mitigate the supply side processes that prevent poor and disadvantaged social groups from gaining access to the financial system. Access to financial products is constrained by several factors which include lack of awareness about the financial products, unaffordable products, high transaction costs and products which are inconvenient, inflexible, not customized and of low quality. However, we must bear in mind that apart from the supply side factors, demand side factors such as lower income and /or asset holdings also have a significant bearing on inclusive growth. Owing to difficulties in accessing formal sources of credit, poor individuals andsmall and microenterprises usually rely on their personal savings and internal sources or take recourse to informal sources to invest in health, education, housing and entrepreneurial activities to make use of growth opportunities. The mainstream financial institutions like banks have an important role to play in overcoming this constraint, not as a social obligation, but as pure business proposition.

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Financial Inclusion - A global policy priority

The importance of an inclusive financial system is widely recognized in the policy circles, not only in India, but has become a policy priority in many countries. Several countries across the globe now look at financial inclusion as the means of a more comprehensive growth, wherein each citizen of the country is able to use their earning as a financial resource that they can put to work to improve their future financial status, adding to the nations progress. In advanced markets, it is mostly a demand side issue. Initiatives for financial inclusion have come from the financial regulators, the governments and the banking industry. The banking sector has taken a lead role in promoting financial inclusion. Legislative measures have been initiated in some countries. For example, in the United States, the Community Reinvestment Act (1997) requires banks to offer credit throughout their entire area of operation and prohibits them from targeting only the rich neighborhood. In France, the law on exclusion (1998) emphasizes an individuals right to have a bank account. The German Bankers Association introduced a voluntary code in 1996 providing for an everyman current banking account that facilitates basic banking transactions. In South Africa, a low cost bank account called Mzansi was launched for financially excluded people in 2004 by the South African Banking Association. In the United Kingdom, a Financial Inclusion Task Force was constituted by the government in 2005 in order to monitor the development of financial inclusion. The Principles for Innovative Financial Inclusion serve as a guide for policy and regulatory approaches with the objectives of fostering safe and sound adoption of innovative, adequate, low-cost financial delivery models, helping provide conditions for fair competition and a framework of incentives for the various bank, insurance, and non-bank actors involved and delivery of the full range of affordable and quality

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financial services.

What does Financial Inclusion means to us? Objective Our broad objective is to take banking to all excluded sections of the society, rural and urban. Our attention was specifically attracted to provide banking services to all the 6 lakh villages and meet their financial needs through basic financial products like savings, credit and remittance for obvious reasons. Though, the focus initially was to cover villages with population above 2000 by March 2012, banks have since drawn up their Board approved Financial Inclusion Plans to put in place a roadmap for extending banking services in all villages in an integrated manner over a period of next 3 to 5 years.

Is it the first time? It is not that efforts have not been made in the past to promote financial inclusion. The Nationalization of banks, Lead Bank Scheme, incorporation of Regional Rural Banks, Service Area Approach and formation of Self-Help Groups- all these were initiatives to take banking services to the masses. The brick and mortar infrastructure expanded; the number of bank branches multiplied ten-fold - from 8,000+ in 1969 when the first set of banks were nationalized to 80,000+ today. Despite this wide network of bank branches spread across the length and breadth of the country, banking has still not reached a large section of the population. A number of rural households are still not covered by banks. They are deprived of basic banking services like a savings account or minimal credit facilities. The proportion of rural residents who lack access to bank accounts is nearly 40 per cent, and this rises to over three-fifths in the eastern and north-eastern regions of India. The major barriers cited to expand appropriate services to poor by

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financial service providers are the lack of reach, higher cost of transactions and time taken in providing those services. The existing business model does not pass the test of convenience, reliability, flexibility and continuity.

So, what has changed now? It is not correct to surmise that banks were uninterested in increasing penetration. They were constrained by their capacity/ability as, till a few years ago, appropriate banking technology was not available. But, now, with the availability of suitable banking technology, the time has come when the Indian banking system can make and deliver on that promise. Quite clearly, the task to cover 1.2 billion population with banking services is gigantic and, hence, banks have now realized that technology is the driving force for achieving this. Harnessing this power of technology for making the banking system more efficient for achieving the goals set under financial inclusion is going to be a big opportunity as well as a bigger challenge for the banking system. We should also understand that poor people are bankable and there is tremendous potential for business growth by providing banking services to them. What we need is an appropriate business and delivery model.

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Is Financial Inclusion a viable Business Model today? Contrary to common perception, financial inclusion is a potentially viable business proposition because of the huge untapped market that it seeks to bring into the fold of banking services. Financial inclusion, prima facie, needs to be viewed as money at the bottom of th e pyramid and business models should be so designed to be at least self-supporting in the initial phase and profit-making in the long run. It is important to keep in mind that service provided should be at an affordable cost. It is also pertinent to note that providing subsidy does not necessarily lead to a better delivery mechanism.

What RBI has done? Removed all regulatory roadblocks

It has been RBIs endeavour to remove all hurdles in the way of its regulated entities in achieving financial inclusion objectives. While I would mention a couple of enabling p olicy measures undertaken by RBI a little later, I would first like to highlight certain special characteristics of Indias financial inclusion model.

RBI has adopted a bank-led model as its main plank for achieving the goals under financial inclusion.

Due to the constraints involved in going for a full-fledged brick & mortar branch model, RBI has adopted the ICT based agent bank model through Business Correspondents for ensuring door step delivery of financial products and services. The approach adopted has been technology and delivery model neutral, whether through handheld devices, mobiles, mini ATMs,etc. We have endeavoured to deliver a minimum of four basic products and services, viz. a savings account with overdraft facility, a remittance product, a pure savings product, preferably, variable recurring deposit, and an entrepreneurial credit product such as Kisan Credit Card (KCC) or General purpose Credit Card (GCC). Naturally, the front end devices must be able to transact all these four products and services.

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RBI has undertaken a series of policy measures to make our unique model a success. Some of the important ones are: i. Relaxation on KYC norms: Know Your Customer (KYC) requirements for opening bank accounts were earlier relaxed for small accounts in August 2005, simplifying procedure by stipulating that introduction by an account holder who has been subject ted to full KYC drill would suffice for opening such accounts or the bank can take any evidence as to the identity and address of the customer to the satisfaction of the bank. During the year, it has been further relaxed to include job card issued by NREGA duly signed by an officer of the State Government or the letters issued by the Unique Identification Authority of India containing details of name, address and AADHAAR number. ii. Simplified branch authorisation: To address the issue of uneven spread of Bank branches, since December 2009, domestic scheduled commercial banks are permitted to freely open branches in Tier 3 to Tier 6 centres with population of less than 50,000 under general permission, subject to reporting. In the North Eastern States and Sikkim, domestic scheduled commercial banks can now open branches in rural, semi urb an and urban centres without the need to take permission from Reserve Bank in each case, subject to reporting. iii. iv. Pricing has been made free: Banks have been given the freedom to price their advances. Liberalisation of Business Correspondents Model: In January 2006, the Reserve Bank permitted banks to engage business facilitator and business correspondent (BC) as intermediaries for providing financial and banking services. The BC model allows banks to provide door step delivery of services especially cash in - cash out transactions at a location much closer to the rural population, thus addressing the last
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mile problem. The list of eligible individuals/entities who can be engaged as BCs is being enlarged from time to time. For-profit companies have also been allowed to be engaged as BCs. You would be happy to know that as on March 31, 2011, domestic commercial banks have reported deploying 58,361 BCs, providing banking services in 76,081 villages. v. Opening of branches in unbanked rural centres: To further step up the opening of branches in rural areas so as to improve banking penetration and financial inclusion rapidly, the need for opening of more brick and mortar branches, besides the use of BCs, was felt. Accordingly, banks have been mandated in the Monetary Policy Statement April 2011, to allocate at least 25 per cent of the total number of branches to be opened during a year in unbanked rural centres. vi. Financial Inclusion Plan for Banks: In our effort to achieve sustained, planned and structured financial inclusion, in January 2010, all public and private sector banks were advised to put in place a Board approved three year Financial Inclusion Plan (FIP) an d submit the same to the Reserve Bank by March 2010. These banks prepared and submitted their FIPs containing targets for March 2011, 2012 and 2013. These plans broadly include self determined targets in respect of rural brick and mortar branches to be opened; business correspondents (BC) to be employed; coverage of unbanked villages with population above 2000 as also other unbanked villages with population below 2000 through branches/BCs/other modes; no-frill accounts opened including through BC-ICT; Kisan Credit Cards (KCC) and General Credit Cards (GCC); and other specific products designed by them to cater to the financially excluded segments. Banks were advised to integrate Board approved FIPs with their business plans and to include the criteria on

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financial inclusion as a parameter in the performance evaluation of their staff. The implementation of these plans is being closely monitored by the Reserve Bank.

What has been done by banks so far? Snapshots from FIP

A criticism that the bankers' often face is that they are not doing enough or that they are not sincere enough. But is that really true? Let me quote a couple of statistics from the consolidated FIP of the scheduled commercial banks to debunk some of these myths (Detailed statistics in Annex 1). i. Coverage of villages: Banks have, up to June 2011, opened banking outlets in 1.07 lakh villages up from just 54,258 as on March 2010. Out of these, 22,870 villages have been covered through brick & mortar branches, 84,274 through BC outlets and 460 through other modes like mobile vans, etc. ii. Opening of No-frills accounts: Basic banking 'no-frills' account, with 'nil' or very low minimum balance requirement as well as no charges for not maintaining such minimum balance, were introduced as per RBI directive in 2005. As on June 2011, 7.91 crore Nofrills accounts have been opened by banks with outstanding balance of Rs.5,944.73 crore. These figures, respectively, were 4.93 crore and Rs 4257.07 crore in March 2010. iii. Small Overdrafts in No-frills accounts: Banks have been advised to provide small ODs in such accounts. Up to June 2011, banks had provided 9.34 lakh ODs amounting to Rs.37.42 crore. The figures, respectively, were 1.31 lakh and Rs 8.34 crore in March 2010.

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iv.

General Credit Cards: Banks have been asked to consider introduction of a General Purpose Credit Card (GCC) facility up to Rs. 25,000/- at their rural and semi-urban braches. The credit facility is in the nature of revolving credit entitling the hold er to withdraw up to the limit sanctioned. Based on assessment of household cash flows, the limits are sanctioned without insistence on security or purpose. Interest rate on the facility is completely deregulated. As on June 2011, banks had provided credit aggregating Rs.2,356.25 crore in 10.70 lakh General Credit Card (GCC) accounts.

v.

Kisan Credit Cards : Kisan Credit Cards to small time farmers have been issued by banks. As on June 30, 2011, the total number of KCCs issued has been reported as 202.89 lakh with a total amount outstanding to the tune of 1,36,122.32 crore.

Now, these figures in themselves may not seem very impressive considering the gargantuan task that we have at hand. But if we look at the progress that has been achieved in the last one and a quarter years, and if we are able to scale up and sustain our efforts, I am quite hopeful that the targets set by the banks and our objective of achieving universal financial inclusion is attainable. But, it is not automatic and cannot be taken for granted. There are a number of issues and challenges that have to be surmounted. Way Forward Future of Financial Inclusion i. One of the major challenges under Financial Inclusion has been addressing the last mile connectivity problem. For addressing this issue and for achieving the goals set, experts ii. have recommended the Business Correspondent/Facilitator (BC/BF) model. Though the BC model may not be commercially viable at the initial stage due to high transaction costs for banks and customers, the appropriate use of technology can help in reduc ing this. The need is to develop and implement scalable, platform-independent

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technology solutions which, if implemented on a large scale, will bring down the high cost of operation. Appropriate and effective technology, thus, holds the key for financial inclusion to take place on an accelerated scale. iii. Banks need to perfect their delivery and business model. A number of different models involving handheld devices with smart cards, mobiles, mini ATMs, etc are being tried ou t and it is necessary that they are integrated with the backend CBS system for scaling up. A good delivery model is also needed and, perhaps, even more so if there is a glitch and customer grievances needs to be resolved expeditiously. Thus, the time is approaching when these various experiments with different models are taken to their logical conclusion and banks start scaling up their implementation. At the same time, banks must also have an integrated business model. These hold the key to the success and failure of the financial inclusion efforts. iv. In addition to this, RBI has advised banks to focus more towards opening of Brick & Mortar branches in unbanked villages. These branches can be low cost intermediary simple structures comprising of minimum infrastructure for operating small customer transactions and supporting up to 8-10 BCs at a reasonable distance of 2-3 kms. This will lead to efficiency in cash management, documentation and redressal of customer grievances. Such an approach will also act as an effective supervisory mechanism for BC operations. Another very important thing is that banks have to realise that for Business Correspondent (BC) model to succeed, the BCs, who are the first level of contact for customers, have to be compensated adequately so that they too see this as a business opportunity v. As mentioned earlier, banks should strive to provide a minimum of four basic products

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and, in addition, design new products tailored to income streams of poor borrowers and according to their needs and interests. Banks must be able to offer the entire suite of financial products and services to the poor clients at an attractive pricing. Though the cost of administering small ticket personal transactions is high, these can be brought down if banks effectively leverage ICT solutions. This can be supplemented through product innovation with superior cost efficiency. Mobile banking has tremendous potential and the benefits of m-commerce need to be exploited. vi. It is important that adequate infrastructure such as digital and physical connectivity, uninterrupted power supply, etc. are available. vii. All stakeholders will have to work together through sound and purposeful collaborations to ensure appropriate ecosystem development. This would include government, both Central and State, Regulators, Financial Institutions, Industry Associations, Technol ogy Players, Corporates, NGOs, SHGs, Civic Society, etc. Local and national level organizations have to ensure that these partnerships look at both commercial and social aspects to help achieve scale, sustainability and desired impact. This collaborative model will have to tackle exclusion by stimulating demand for appropriate financial products, services and advice with appropriate delivery mechanism and by ensuring that there is a supply of appropriate and affordable services available to those that need them. viii. Mindset, cultural and attitudinal changes at grass roots and cutting edge technology levels of branches of banks are needed to impart organisational resilience and flexibility. Banks should institute systems of reward and recognition for personnel initiating, ideating, innovating and successfully executing new products and services in the rural areas.

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POSSIBLY 1. A bank account ,where he /she can save small amounts at regular intervals ideally with savings being collected at their place of work or a specified point of transaction in the locality. 2. Micro-credit for working capital to increase stock and business. This credit can be short term and repayment to be configured at regular intervals. Saving history and creditability checks can be used as a proxy for collateral. 3. Insurance for life. 4. Health insurance for minor illnesses and hospitalization. 5. Investment plan for childs education. 6. Pension for old age

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CHAPTER-2

FINANCIAL EXCLUSION
Broadly defined, financial exclusion signifies the lack of access by certain segments of the society to appropriate, low-cost, fair and safe financial products and services from mainstream providers. Financial exclusion is thus a key policy concern, because the options for operating a household budget, or a micro/ small enterprise, without mainstream financial services can often be expensive. This process becomes self-reinforcing and can often be an important factor in social exclusion.

Reserve Bank of India data shows that as many as 139 districts suffer from massive financial exclusion, with the adult population per branch in these districts being above 20,000 and only 3% with borrowings from banks. On the assumption that each adult has only one bank account (which does not hold good in practice, so that actual cover age is likely to be worse) on an all India basis, 59 percent of the adult population in the country has bank accounts. 41 percent of the population is, therefore, unbanked. In rural areas the cover age is 39 per cent against 60 per cent in urban areas. The unbanked population is higher in the poorer regions of the country, and is the worst in the North-Eastern and Eastern regions. Working or operational definitions of financial exclusion generally focus on ownership or access to particular financial products and services. The focus narrow down mainly to the products and services provided by the mainstream financial services providers. Such financial products may include money transmission, home insurance, short and long term credit and savings. Furthermore, the operational definitions have also evolved from the underlying public policy concerns that many people, particularly those living on low income, cannot access mainstream financial products such as bank accounts and low cost loans, which, in turn, imposes real costs on them-often the most vulnerable people. Broadly defined, financial exclusion signifies the lack of access by certain segments of the society to appropriate, low-cost, fair and safe financial products and services from mainstream providers. Financial exclusion is thus a key policy concern, because the options for operating a household

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budget, or a micro/ small enterprise, without mainstream financial services can often be expensive. This process becomes self-reinforcing and can often be an important factor in social exclusion.

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CAUSES OF FINANCIAL EXCLUSION

Financial exclusion may also have resulted from a variety of structural factors such as unavailability of products suiting their requirements, stringent documentation and collateral requirements and increased competition in financial services. The causes of financial exclusion can be identifying broadly in two categories, firstly the demand side and the second the supply side. A. DEMAND SIDE BARRIERS The people who have the requirements/need but still not demanding/availing the financial services and products which can be due to the following reasons-: 1. LOW INCOME-: A higher share of population below the poverty line results in lower demand for financial services as the poor may not have savings to place as deposit i n savings banks, hence the market lacks incentives in providing financial services/products.

2. TRANSACTION COST-: Vast number of rural population resides in small villages which are often located in remote areas devoid of financial services. Consequential, the overall transaction cost to the customers in terms of both time and money proves to be a major deterrent for visiting financial institutions.

3. FINANCIAL SERVICES BEING VERY COMPLEX IN NATURE-: Excluded sections of the society finds dealing with organized financial sector cumbersome.

4. EASY ACCESS TO ALTERNATIVE CREDIT-: For a good amount of low income people, the alternative credit provided by the money lenders and pawn shop owners are far more attractive and hassle free compared to getting a loan from a commercial banks.

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5. LOW LITERACY LEVEL-: The lack of financial awareness about the benefits of the banking and also illiteracy act as stumbling blocks to financial inclusion. The lack of financial awareness maybe the single most risk in financial inclusion as those who are newly included in the financial sector have to maintained within the formal financial sector.

6. LEGAL IDENTITY-: Lack of legal identities like identity cards, birth certificates or written records often exclude women, economic and political refugees and migrants workers from accessing financial services. 7. SOPHISTICATED FINANCIAL TERMINOLOGIES-: Bankers often use complex financial terminologies, which the masses are unable to comprehend and hence do not approach for financial services voluntarily. 8. TERMS AND CONDITIONS-: Terms and conditions attached to products such as minimum balance requirements and conditions relating to the use of accounts as in the case of saving bank account often dissuade people from using such products and services. 9. PSYCHOLOGICAL AND CULTURAL BARRIERS-: The feelings that the banks are not interested to look into their cause has led to self-exclusion for many of the low income groups. However, cultural and religious barriers to banking have also been observed in some of the countries. 10. DISINCENTIVES FOR THE CONSUMER-: The cost for maintaining an account (non-zero balance account) and procedural problems in accessing formal credit act as disincentives for consumers with weaker financial background.

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B. SUPPLY SIDE BARRIERS Some of the important causes of relatively low extension of institutional credit in the rural areas are risk perception, cost of its assessment and management, lack of rural infrastructure and vast geographical spread of the rural areas with more than half a million villages, some sparsely populated. 1. PERCEPTION AMONG BANKS ABOUT RURAL POPULATION-: Generally, there exists a perception among banks that large number of rural population is unbankable as their capacity to save is limited. Therefore, they do not look favorably at small loans often required by marginalized section. Such loans are considered to be nonproductive.

2. MINISCULE MARGIN IN HANDLING SMALL TRANSACTIONS-: As a majority of rural population resides in small villages that too in remote areas, banks find small transactions cost ineffective.

3. KYC REQUIREMENTS-: The KYC requirements of independent documentary proof of identity and address can be a very important barriers in having bank account especially for migrants and slum dwellers. 4. UNSUITABLE PRODUCTS-: One of the most important reasons for the majority of rural population not approaching the formal sector for financial services is the unsuitability of products and services bring offered to them. 5. STAFF ATITUDE -: As public sector banks(PSBs) cater to more than 70% of banked population and about 90% of rural banked population, a majority of staffs in these PSBs remain insensitive to needs of customer and shirk away from duty. The situation is even worst in rural branches where they behave with rural poor in a condescending manner. 6. POOR MARKET LINKAGE-: Poor market linkage or say penetration of services providers also constitutes the major factors of financial exclusion. 7. LACK OF INTERESTFROM COMMERCIAL BANKS-: There is a lot of criticism on the commercial banks because of their inherent tendency to think that poor people are not worthy of being banked on. Banks are in business to make profit and would like to only indulge in activities that give them profit. Due to high transaction costs on smaller

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transactions and the speculated high risk in lending credit to the lower strata of the society, they see banking with poor as unviable. 8. POOR CREDIT RECORD-: Areas with poor credit record, bad past experience, socially unstable and poor recovery of previous loan/credit given are observed to be a highly financially excluded, a banks blacklist such areas as a part of their risk management strategy.

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SCOPE OF FINANCIAL INCLUSION

The scope of financial inclusion can be expanded in two ways. (a) Through state-driven intervention by way of statutory enactments ( for instance the US example, the Community Reinvestment Act and making it a statutory right to have bank account in France). (b) Through voluntary effort by the banking community itself for evolving various strategies to bring within the ambit of the banking sector the large strata of society. When bankers do not give the desired attention to certain areas, the regulators have to step in to remedy the situation. This is the reason why the Reserve Bank of India is placing a lot of emphasis on financial inclusion. In India the focus of the financial inclusion at present is confined to ensuring a bare minimum access to a savings bank account without frills, to all. Internationally, the financial exclusion has been viewed in a much wider perspective. Having a current account / savings account on its own, is not regarded as an accurate indicator of financial inclusion. There could be multiple levels of financial inclusion and exclusion. At one extreme, it is possible to identify the super-included, i.e., those customers who are actively and persistently courted by the financial services industry, and who have at their disposal a wide range of financial services and products. At the other extreme, we may have the financially excluded, who are denied access to even the most basic of financial products. In between are those who use the banking services only for deposits and withdrawals of money. But these persons may have only restricted access to the financial system, and may not enjoy the flexibility of access offered to more affluent customers.

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CONSEQUENCES OF FINANCIAL EXCLUSION

Consequences of financial exclusion will vary depending on the nature and extent of services denied. It may lead to increased travel requirements, higher incidence of crime, general decline in investment, difficulties in gaining access to credit or getting credit from informal sources at exorbitant rates, and increased unemployment, etc. The small business may suffer due to loss of access to middle class and higher-income consumers, higher cash handling costs, delays in remittances of money. According to certain researches, financial exclusion can lead to social exclusion. There are three dimensions of consequences that financial exclusion has on the people affected: Firstly, financial exclusion can generate financial consequences by affecting directly or indirectly the way in which the individuals can raise allocate, and use their monetary resources. Secondly, a wider dimension of financial exclusion can be identified as socio-economical consequences i.e. groups which are socially excluded are mostly also found financially excluded. These consequences are affecting individuals pattern of consumption, the way they participate to economic activities or access to social welfare and the distribution of incomes and wealth. They impact the way in which people behave both in terms of purchase decisions and the way in which they choose to spend their time, as well as their overall quality of life. Lastly, a last dimension can be identified as the social consequences generated by financial inclusion. These are the consequences affecting the various links that are binding the individual: link to corresponding to self-esteem, links binding to the society and links binding to community and/or relationships with other individual or groups. These include: Barriers to employment as employer may require wages to be paid into banks account. Opportunities to save and borrow can be difficult to access. Owing or obtaining assets can be difficult. Difficulty in smoothening income to cope with shocks. Exclusion from mainstream society.

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In terms of cost to the individuals, financial exclusion leads to higher charges for basic financial transactions like money transfer and expensive credit, besides all round impediments in basic/ minimum transactions involved in earning livelihood and day to day living. Individuals/ families could get sucked into a cycle of poverty and exclusion and turn to high cost credit from moneylender s, resulting in greater financial strain and unmanageable debt. At the wider level of the society and the nation, financial exclusion leads to social exclusion, poverty as well as all the other associated economic and social problems. Another cost of financial exclusion is the loss of business opportunity for banks, particularly in the medium-term. Banks often avoid extending their services to lower income groups because of initial cost of expanding the coverage which may sometimes exceed the revenue generated from such operations. Two other factors have often been cited as the consequences of financial exclusion. First, it complicates day-to-day cash flow management - being financially excluded means households, and micro and small enterprises deal entirely in cash and are susceptible to irregular cash flows. Second, lack of financial planning and security in the absence of access to bank accounts and other saving opportunities for people in the unorganized sector limits their options to make provisions for their old age. From the macroeconomic standpoint, absence of formal savings can be problematic in two respects. First, people who save by informal means rarely benefit from the interest rate and tax advantages that people using formal methods of savings enjoy. Second, informal saving channels are much less secure than formal saving facilities. The resultant lack of savings and saving avenues means recourse to non-formal lenders such as moneylenders. This, in turn, could lead to two adverse consequences a. Exposure to higher interest rates charged by informal lenders; and b. The inability of customers to service the loans or to repay them As loans from non-formal lenders are often secured against the borrowers property, this raises the problem of inter-linkage between two apparently separate markets. Judged in this specific context, financial exclusion is a serious concern among low-income households, mainly located in rural areas. To sum up, the nature and forms of exclusion and the factors responsible for it are varied and, thus, no single factor could explain the phenomenon. The principal barriers in the expansion of financial services are often identified as physical access, high charges and penalties, conditions attached to products which make them inappropriate or complicated and perceptions of financial service institutions which are thought to be unwelcoming to low income people. There has also been particular emphasis on socio-cultural factors that matter for an
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individual to access financial services. The most conspicuous dimension of exclusion is that a majority of the low-income population do not have access to the very basic financial services. Even amongst those who have access to finance, most of them are underserved in terms of quality and quantity of products and services. The critical dimensions of financial exclusion include access exclusion, condition exclusion (conditions attached to financial products), price exclusion, and self exclusion because of the fear of refusal to access by the service providers. The financial exclusion process becomes self-reinforcing and can often be an important factor in social exclusion, especially for communities with limited access to financial products, particularly in rural areas. Apart from the above mentioned supply side factors, demand side factors may also significantly affect the extent of financial inclusion. For instance, low level of income and hence low savings would result in lower deposits. Similarly, at low level of income, the ability to borrow is affected because of low repayment capacity and inability to provide collateral. In the Indian context, both demand and supply side factors have an important bearing on the usage of financial/banking services.

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BENEFITS OF FINANCIAL INCLUSION

Improvements in access to financial institutions accrue several benefits to the consumer, regulator and the economy alike. Establishment of an account relationship can pave the way for the customer to avail the benefits of a variety of financial products. The bank accounts can also be used for multiple purposes, such as, making small value remittances at low cost and making purchases on credit. Furthermore, the regulator benefits, as the audit trail is available and transactions are conducted transparently in a medium that can be monitored. The economy benefits, as greater financial resources become transparently available for efficient intermediation and allocation, for uses that have the highest returns. Promoting financial inclusion can also help in the regeneration of local areas if money saved by increased access to financial services can be re-invested in the community. Inclusive finance - safe savings, appropriately designed loans for poor and low income households and for micro, small and medium sized enterprises, and appropriate insurance and payments services can help people help themselves to increase incomes, acquire capital, manage risk, and work their way out of poverty. Increasing the inclusiveness of financial sectors, fuelled by domestic savings to the greatest extent possible, will, over time, bolster the poorer segments of the population as well as those segments of the economy that most affect the lives of poor people. Holding a bank account itself confers a sense of identity, status and empowerment and provides access to the national payment system. Therefore, having a bank account becomes a very important aspect of financial inclusion. While financial inclusion, in the narrow sense, may be achieved to some extent by offering a single financial service/ product, the objective of comprehensive financial inclusion would be to provide a holistic set of services encompassing all of the above.

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FINANCIAL EDUCATION/FINANCIAL LITERACY

Financial literacy allows people to increase and better manage their earnings - and therefore better manage their life events like education, illness, job loss or retirement. It also promotes understanding and acceptance of important political reforms, such as health care or pension reforms. While the significance of financial literacy has not yet been fully articulated and recognized by the international development community - or by policy makers and practitioners in developing countries - measures to promote and improve financial education ar e becoming more frequent. It has been noted that low financial literacy significantly contributes to financial exclusion in general and self-exclusion in particular. It accounts for many low-income households not using insurance and deposit services, for instance, or keeping their savings under the mattress. It prevents people from understanding how inflation affects the real value of money and what options they have to protect against erosion. Many poor people opt out of formal financial systems due to misconceptions about price of credit. Many are unaware of the best utilization of credit facilities and become over-indebted, including micro credit facilities where markets have become more competitive in recent years. Improved financial education can bridge these gaps. It can also strengthen accountability and competitiveness across financial sectors, and reduce the elite capture of community level institutions, such as cooperatives, that provide financial services to low-income people. And it can also contribute towards efficient use of public resources that ar e targeted to assist the poor in various ways. Thus, benefits of financial education can be enormous not only to individuals, but to society as a whole. With increased financial literacy, there will also be an increased demand for financial ser vices from the poor, which will further assist in percolating the benefits of inclusive finance throughout ever y strata of the society.

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THE INDIAN SCENARIO

In India the focus of the financial inclusion at present is confined to ensuring a bare minimum access to a savings bank account without frills, to all. There could be multiple levels of financial inclusion and exclusion. At one extreme, it is possible to identify the super-included, i.e., those customers who are actively and persistently courted by the financial services industry, and who have at their disposal a wide range of financial services and products. At the other extreme, we may have the financially excluded, who are denied access to even the most basic of financial products. In between are those who use the banking services only for deposits and withdrawals of money. But these persons may have only restricted access to the financial system, and may not enjoy the flexibility of access offered to more affluent customers. Further, Financial exclusion may not definitely mean a social exclusion in India as it does in the developed countries, but it is a problem that needs to be addressed. The large presence of informal credit, could avoid social exclusion but the legal validity of such financial services pose an obstacle for creating a modern globalizing economy. Without a formal and a legally recognized financial system in which all sections of the population are a part of, it would be impossible even for the most efficient of the governments to reach out to all sections of the people. A stable and healthy financial service sector creates trust among the people about the economy and only with this trust (which has legal validity) could a strong, stable and an inclusive economy be created. Financial exclusion could be looked at in two ways: Lack of access to financial services mainly payment system, which could be due to several reasons such as:

Lack of sources of financial services in our rural areas, which are popular for the ubiquitous moneylenders but do not have (safe) saving deposit and insurance services. High information barriers and low awareness especially for women and in rural areas.

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Inadequate access to formal financial institutions that exist to the extent that the banks could not extend their outreach to the poor due to various reasons like high cost of operations, less volume and more number of clients, etc. among many others.

Poor functioning and financial history of some beleaguered financial institutions such as financial cooperatives in many states, which limit the effectiveness of their outreach figures.

Primary Agricultural Cooperative Societies (PACS), which number around one lakh are also often exclusionary, as their membership is restricted to persons with land ownership. Even to their members, not many PACS offer saving services.

Lack of access to formal financial services in of both rural and urban areas, but is a larger issue in cities and small towns. The distinction between access to formal and informal services is crucial to understand, as informal financial markets suffer from several imperfections, which the poor pay for in many ways.

Some attributes of informal financial services, due to which there is exclusion are: A. High risks to saving: loss of savings is an easily discernible phenomenon in low-income neighborhoods in urban areas. B. High cost of credit and exploitative terms: credit against collateral such as gold is even more expensive than the effective interest rates, similarly, rates paid by hawkers and vendors who repay on daily basis are very high. C. High cost and leakages in money transfers: the delays in sending money home through all informal channels add to these. D. Near absence of insurance and pension services: life, asset, and health insurance needs. Another key aspect of financial exclusion is the lack of financial education and advice. In India, as the basic literacy rate is low supporting basic financial capability is indeed not just necessary, but also equally difficult. Financial exclusion is often related to more complex social exclusion issues, which makes financial literacy and access to basic financial services even more complex.

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CHAPTER- 3 LITERATURE REVIEW

This section presents an analysis, derived from existing literature, of the definitions of financial inclusion, as well as a summary of financial inclusion initiatives in India other countries. There are different definitions of financial inclusion and there is no universally accepted one. Financial inclusion has generally been defined in terms of financial exclusion which results in social exclusion. In 1995, Leyshon and Thrift in their paper defined financial exclusion as those processes that prevent poor and disadvantaged social groups from gaining access to the financial system. It has important implications for uneven development because it amplifies geographical differences in levels of income and economic development. The European commission in its paper on prevention of financial exclusion defines financial exclusion as a process whereby people encounter difficulties accessing and / or using financial services and product in the mainstream market that are appropriate to their needs and enable them to lead a normal social life in the society in which they belong. The Committee on Financial Inclusion (Chairman: C. Rangarajan) defines financial inclusion 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. Usha Thorat, Deputy Governor, RBI in her speech on financial inclusion said financial exclusion, broadly, is construed as the inability to access necessary financial services in the appropriate form due to problems associated with access, conditions, prices, marketing or selfexclusion.

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The problem of financial exclusion varies widely across countries and is especially pronounced between developed and developing countries. In developed countries, the nature of the problem is to include small percentages of people who are outside the banking net and to improve access to people who suffer due to switching of banks from branch banking to internet banking. In developing and underdeveloped countries such as India, South Africa and other African countries, the nature of exclusion is very different because majority of the population in these countries do not have access to basic financial services at an affordable cost. A variety of schemes have been designed and implemented across the world to tackle financial exclusion. The United States passed the Community Reinvestment act in 1977 that prohibits banks from targeting rich neighborhoods alone. The law of exclusion in France makes holding bank account as a right. Credit unions in the US and the UK offered flexibility in providing affordable credit to customers. South Africa has MZANSI account which is a low cost card-based savings account with easy accessibility. Mexico has a microfinance program called PATMIR where savings take precedence over credit. Canada has free encashment of government cheques even for noncustomers. The UK has set up a separate independent financial inclusion task force which mainly looks at three priority areas namely access to banking, access to affordable credit and access to free face to face money advice. The government also allotted 120 million pounds to the fund for financial inclusion over three years. Banks in various countries have extended basic savings accounts similar to no frills account, though with different names, with a view to making financial services accessible to the common man.

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POLICY DEVELOPMENTS
We have seen in the previous chapter that in our country the financial services has been\being used by a very limited group of people\individuals. To enlarge the area and service sector, certain policy measures have been taken by government. Policy development in India for financial inclusion can be seen in three stages

FIRST PHASE DEVELOPMENTS (1969-1981)

In 1969, the banks were nationalized in order to spread banks branch network in order to develop strong banking system which can mobilize resources/deposits and channel them into productive/needy sections of society and also government wanted to use it as an important agent of change. So, the planning strategy recognized the critical role of the availability of credit and financial services to the public at large in the holistic development of the country with the benefits of economic growth being distributed in a democratic manner. In recognition of this role, the authorities modified the policy framework from time to time to ensure that the financial services needs of various segments of the society were met satisfactorily. Before 1990, several initiatives were undertaken for enhancing the use of the banking system for sustainable and equitable growth. These included Nationalization of private sector banks, Introduction of priority sector lending norms, The Lead Bank Scheme, Branch licensing norms with focus on rural/semi-urban branches, Interest rate ceilings for credit to the weaker sections and Creation of specialized financial institutions to cater to the requirement of the agriculture and the rural sectors having bulk of the poor population. SOCIAL NETWORKING APPROACH The announcement of the policy of social control over banks was made in December 1967 with a view to securing a better alignment of the banking system with the needs of economic policy. The National Credit Council was set up in February 1968 mainly to assess periodically the demand for bank credit from various sectors of the economy and to determine the priorities for grant of loans and advances. Social control of banking policy was soon followed by the nationalization of major Indian banks in 1969. The immediate tasks set for the nationalized
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banks were mobilization of deposits on a massive scale and lending of funds for all productive activities. A special emphasis was laid on providing credit facilities to the weaker sections of the economy. THE PRIORITY SECTOR APPROACH The administrative framework for rural lending in India was provided by the Lead Bank Scheme introduced in 1969, which was an important step towards implementation of the two-fold objectives of deposit mobilization on an extensive scale and stepping up of lending to weaker sections of the economy. Realizing that the flow of credit to employment oriented sectors was inadequate; the priority sector guidelines were issued to the banks by the Reserve Bank in the late 1960s to step up the flow of bank credit to agriculture, small-scale industry, self-employed, small business and the weaker sections within these sectors. The target for priority sector lending was gradually increased to 40 per cent of advances in the case of domestic banks (32 per cent, inclusive of export credit, in the case of foreign banks) for specified priority sectors. Sub targets under the priority sector, along with other guidelines including those relating to Government sponsored programmers, were used to encourage the flow of credit to the identified vulnerable sections of the population such as scheduled castes, religious minorities and scheduled tribes. The Differential Rate of Interest (DRI) Scheme was instituted in 1972 to provide credit at concessional rate to low income groups in the country LEAD BANK SCHEME APPROACH But all these measure were focused towards inclusion of a sector, regional areas etc., there was a very less or no emphasis was on financial inclusion of Individual/household level. The promotional aspects of banking policy have come into greater prominence. The major emphasis of the branch licensing policy during the 1970s and the 1980s was on expansion of commercial bank branches in rural areas, resulting in a significant expansion of bank branches and decline in population per branch. The branch expansion policy was designed, inter alia, as a tool for reducing inter-regional disparities in banking development, deployment of credit and urban-rural pattern of credit distribution. In order to encourage commercial banks and other institutions to grant loans to various categories of small borrowers, the Reserve Bank promoted the establishment of the Credit Guarantee Corporation of India in 1971 for providing guarantees against the risk of default in repayment. The scheme, however, was subsequently discontinued.

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SECOND PHASE ANNUAL POLICY (2005-2006)

As the central bank of the country, the Reserve bank of India has taken steps to ensure financial inclusion in the country. It has tried to make banking more attractive to citizens by allowing for easier transactions with banks. In 2004 RBI appointed an internal group to look into ways to improve Financial Inclusion in the country. With a view to enhancing the financial inclusion, as a proactive measure, the RBI in its Annual Policy Statement for the year 2005-06, while recognizing the concerns in regard to the banking practices that tend to exclude rather than attract vast sections of population, urged banks to review their existing practices to align them with the objective of financial inclusion. In the Mid Term Review of the Policy (2005-06), It is observed that there were legitimate concerns in regard to the banking practices that tended to exclude rather than attract vast sections of population, in particular pensioners, self-employed and those employed in the unorganized sector. It also indicated that the Reserve Bank would 1. Implement policies to encourage banks which provide extensive services, while disincentivising those which were not responsive to the banking needs of the community, including the underprivileged; 2. The nature, scope and cost of services would be monitored to assess whether there was any denial, implicit or explicit, of basic banking services to the common person; 3. Banks urged to review their existing practices to align them with the objective of financial inclusion. RBI exhorted the banks, with a view to achieving greater financial inclusion, to make available a basic banking no frills account either with nil or very minimum balances as well as charges that would make such accounts accessible to vast sections of the population. The nature and number of transactions in such accounts would be restricted and made known to customers in advance in a transparent manner. All banks are urged to give wide publicity to the facility of such no frills account so as to ensure greater financial inclusion. RBI came out with a report in 2005 (Khan Committee) and subsequently RBI issued a circular in 2006 allowing the use of intermediaries for providing banking and financial services. Through such policies the RBI has tried to improve Financial Inclusion. Financial Inclusion offers immense potential not only for banks but for other businesses.. RBI has realized that a push is needed to kick start the
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financial inclusion process. Some of the steps taken by RBI include the directive to banks to offer No-frills account, easier KYC norms, offering GCC cards to the poor, better customer services, promoting the use of IT and intermediaries, and asking SLBCs and UTLBCs to start a campaign to promote financial inclusion on a pilot basis.

Brief glimpses of main initiative are followings: a) No-Frill Accounts It is a basic saving fund account having all the features of a normal saving fund account which it differs in the following aspects 1. The holder is not required to maintain any minimum balance requirement and also nothing is charged for opening this type of account. 2. KYC norms have been simplified so that everyone can have this account. 3. Transactions are limited to 5-10 free transactions per month. 4. ATM facility is provided free of cost. 5. There is no account maintenance cost Similar types of accounts, though with different names, have also been extended by banks in various other countries with a view to make financial services accessible to the common man either at the behest of banks themselves or the respective Governments. b) Overdraft in Saving Bank Accounts Bank were advised to give credit in form of overdraft on saving bank account to its customer so that in case of small credit need like medical bill, any accidental charges etc. can be met in.

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c) KYC norms The Know Your Customer (KYC) norms were revised in order to make it easy for people to avail financial services on February 18, 2008. These guidelines include: 1. In case of close relatives who find it difficult to furnish documents relating to place of residence while opening accounts, banks can obtain an identity document and a utility bill of the relative with whom the prospective customer is living, along with a declaration from the relative that the said person (prospective customer) wanting to open an account is a relative and is staying with him/her. Banks can also use any supplementary evidence such as a letter received through post for further verification of the address; 2. Banks have been advised to keep in mind the spirit of the instructions and avoid undue hardships to individuals who are otherwise classified as low risk customers; 3. Banks should review the risk categorization of customers at a periodicity of not less than once in six months. 4. Further, in order to ensure that persons belonging to low income group both in urban and rural areas do not face difficulty in opening the bank accounts due to the procedural hassles, the KYC procedure for opening accounts has been simplified for those persons who intend to keep balances not exceeding rupees fifty thousand (Rs. 50,000/-) in all their accounts taken together and the total credit in all the accounts taken together is not expected to exceed rupees one lakh (Rs.1,00,000/-) in a year. d)SHGModel A Self Help Group (SHG) is a group of about 15 to 20 people from a homogenous class who join together to address common issues. They involve voluntary thrift activities on a regular basis, and use of the pooled resource to make interest-bearing loans to the members of the group. In the course of this process, they imbibe the essentials of financial intermediation and also the basics of account keeping. The members also learn to handle resources of size, much beyond their individual capacities. They begin to appreciate the fact that the resources are limited and have a cost. Once the group is stabilized, and shows mature financial behavior, which generally takes up to six months to 1 year, it is considered for linking to banks. Banks are encouraged to provide
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loans to SHGs in certain multiples of the accumulated savings of the SHGs. Loans are given without any collateral and at interest rates as decided by banks. Banks find it comfortable to lend money to the groups as the members have already achieved some financial discipline through their thrift and internal lending activities. The groups decide the terms and conditions of loan to their own members. The peer pressure in the group ensures timely repayment and becomes social collateral for the bank loans. e)KCC/GCCGuidelines A. GCC SCHEME With a view to providing credit card like facilities in the rural areas, with limited point-of sale (POS) and limited ATM facilities, the Reserve Bank advised all scheduled commercial banks, including RRBs, in December 2005 to introduce a General Credit Card (GCC) Scheme for issuing GCC to their constituents in rural and semi-urban areas, based on the assessment of income and cash flow of the household similar to that prevailing under a normal credit card. The Reserve Bank also advised banks to classify fifty per cent of the credit outstanding under loans for general purposes under General Credit Cards (GCC), as indirect finance to agriculture under priority sector. The Reserve Bank further advised banks in May 2008 to classify 100 per cent of the credit outstanding under GCCs as indirect finance to agriculture sector under the priority sector with immediate effect. B. KCC Scheme Eligible farmer will be provided a Kishan Credit Card and a Pass Book or a Card-cum Passbook. Revolving cash credit facility allowing any number of withdrawals and repayments within the limit. f)FinancialLiteracyProgram Recognizing that lack of awareness is a major factor for financial exclusion; the Reserve Bank has taken a number of measures towards imparting financial literacy and promotion of credit counseling services. The Reserve Bank has undertaken a project titled Project Financial Literacy. The objective of the project is to disseminate information regarding the central bank and general banking concepts to various target groups, including, school and college going children, women, rural and urban poor, defense personnel and senior citizens. The banking information would be disseminated to the target audience with the help of, among others, banks, local government machinery, schools/colleges using pamphlets, brochures, films, as also, the

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Reserve Banks website. Similar books will be prepared for different target groups such as rural households, urban poor, defense personnel, women and small entrepreneurs. THIRD PHASE - RANGRAJAN COMMITEE The Government of India (Chairman Dr. C. Rangarajan) constituted the Committee on Financial Inclusion on June 26, 2006 to prepare a strategy of financial inclusion. The Committee submitted its final Report on January 4, 2008. The Report viewed financial inclusion as a comprehensive and holistic process of ensuring access to financial services and timely and adequate credit, particularly by vulnerable groups such as weaker sections and low-income groups at an affordable cost9. Financial inclusion, therefore, according to the Committee, should include access to mainstream financial products such as bank accounts, credit, remittances and payment services, financial advisory services and insurance facilities. The Report observed that in India 51.4 per cent of farmer households are financially excluded from both formal/informal sources and 73 per cent of farmer households do not access formal sources of credit. Exclusion is most acute in Central, Eastern and Northeastern regions with 64 per cent of all financially excluded farmer households. According to the Report, the overall strategy for building an inclusive financial sector should be based on Effecting improvements within the existing formal credit delivery mechanism; Suggesting measures for improving credit absorption capacity especially amongst Evolvingmarginal and sub-marginal farmers and poor non-cultivator households; Leveraging on technology-basednew models for effective outreach; and solutions. Keeping in view the enormity of the task involved, the Committee recommended the setting up of a mission mode National Rural Financial Inclusion Plan (NRFIP) with a target of providing access to comprehensive financial services to at least 50 per cent (55.77 million) of the excluded rural households by 2012 and the remaining by 2015. This would require semi-urban and rural branches of commercial banks and RRBs to cover a minimum of 250 new cultivator and noncultivator households per branch per annum. The Report of the Committee on Financial Inclusion Committee has also recommended that the Government should constitute a National Mission on Financial Inclusion (NaMFI) comprising 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
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cost representatives of all stakeholders for suggesting the overall policy changes required, and supporting stakeholders in the domain of public, private and NGO sectors in undertaking promotional initiatives. The major recommendations relating to commercial banks included target for providing access to credit to at least 250 excluded rural households per annum in each rural/semi urban branches; targeted branch expansion in identified districts in the next three years; provision of customized savings, credit and insurance products; incentivizing human resources for providing inclusive financial services and simplification of procedures for agricultural loans. The major recommendations relating to RRBs are extending their services to unbanked areas and increasing their credit-deposit ratios; no further merger of RRBs; widening of network and expanding coverage in a time bound manner; separate credit plans for excluded regions to be drawn up by RRBs and strengthening of their boards. In the case of co-operative banks, the major recommendations were early implementation of Vaidyanathan Committee Revival Package; use of PACS and other primary co-operatives as BCs and co-operatives to adopt group approach for financing excluded groups. Other important recommendations of the Committee are encouraging SHGs in excluded regions; legal status for SHGs; measures for urban micro-finance and separate category of MFIs. CREATION OF SPECIAL FUNDS The Committee on Financial Inclusion set up by the Government of India (Chairman: Dr. C. Rangarajan) in its Interim Report recommended the establishment of two Funds, namely the Financial Inclusion Promotion and Development Fund for meeting the cost of developmental and promotional interventions for ensuring financial inclusion, and the Financial Inclusion Technology Fund (FITF) to meet the cost of technology adoption. The Union Finance Minister, in his Budget Speech for 2007-08 announced the constitution of the Financial Inclusion Fund (FIF) and the FITF, with an overall corpus of Rs.500 crore each at NABARD. The Government advised that for the year 2007-08 it was decided to initially contribute Rs.25 Crore each in the two funds by the Central Government, RBI and NABARD in the ratio 40:40:20. The final report of the Committee has been submitted to the Government in January 2008.

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HOW GOVERNMENT AND RBI CAN BUILD ON EXISTING BANKING STRUCTURE TO PROVIDE FINANCIAL SERVICES TO ALL
Banking system is like a team, which constitutes from various entities which are different in nature, form, structure and its working but together they makes system in which they efficiently work for a common motive. SHG BANK LINKAGE PROGRAM The SHG-Bank Linkage program can be regarded as the most powerful initiative since independence for providing financial services to the poor in a sustainable manner. The program has been growing rapidly YOY basis. Currently, 10 million SHGs are working across the country with a credit base of Rs. 100000 Crore. But this is not enough to reach the entire mass. This number needs to be increased substantially. However, the spread of the SHG- Bank linkage program in different regions has been uneven with southern states accounting for the major chunk of credit linkage. Many states with high incidence of poverty have shown poor performance under the program. NABARD has identified 13 states with large population of the poor, but exhibiting low performance in implementation of the programme. The ongoing efforts of NABARD to upscale the programme need to be given a fresh impetus. NGOs have played a commendable role in promoting SHGs and linking them with banks. As of now, SHGs are operating as thrift and credit groups. They may evolve to a higher level of commercial enterprise in future. Hence, it becomes critical to examine the prospect of providing a simplified legal status to the SHG

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MICRO FINANCE INSTITUTIONS (MFIs) From the late 1980s, the emergence of the Grameen Bank in Bangladesh drew attention to the role of micro- credit as a source of finance for micro-entrepreneurs. Lack of access to credit was seen as a binding constraint on the economic activities of the poor. Microfinance Institutions (MFIs) are those, which provide thrift, credit, and other financial services and products of very small amounts mainly to the poor in rural, semi-urban or urban areas for enabling them to raise their income level and improve living standards. Lately, the potential of MFIs as promising institutions to meet the demands of the poor has been realized. The closer proximity with the people at grassroots level and the mix of offering right products at right price based on the actual needs of the masses makes their role very important in deepening financial inclusion. However, there is exigency to upscale their outreach. In India, out of some 400 million poor workers, less than 20 per cent have been linked with financial services provided by MFIs. One of the ways of expanding the successfulSteps needed to promote MFIs

operation of microfinance institutions in the informal sector is through strengthened linkages with their formal sector counterparts. Efforts are needed to make MFIs an integral part of mainstream banking and to bring down the rates of interest on microcredit to ensure the micro finance movement gets further impetus A mutual beneficial partnership should be established between MFIs and Banks contingent on comparative strength of each sector. For example, informal sector microfinance institutions have comparative advantage in terms of small transaction cost achieved through adaptability and flexibility of operations.

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COOPERATIVE CREDIT INSTITUTIONS Rural credit cooperatives in India were originally envisaged as a mechanism for pooling the resources of people with small means and providing them with access to different financial services. It has served as an effective institution for increasing productivity, providing food security, generating employment opportunities in rural areas and ensuring social and economic justice to the poor and vulnerable sections. Despite the phenomenal outreach and volume of operations, the health of a very large proportion of these credit cooperatives has deteriorated significantly. Various Low resource base High problems faced by these institutions are: dependence on external source of funding Excessive government control Huge accumulated losses and imbalances Poor business diversification Low recovery Taking all these facts in mind, there is an urgent need to address the structural deficiencies of these institutions in order to make them play an effective role in meeting the financial inclusion goal. RRBs RRBs, post-merger, represent a powerful instrument for financial inclusion. RRBs account for 37% of total rural offices of all scheduled commercial banks and 91% of their workforce is posted in rural and semi-urban areas. They account for 31% of deposit accounts and 37% of loan accounts in rural areas. RRBs have a large presence in regions marked by financial exclusion of high order. RRBs are, thus, the best suited vehicles to widen and deepen the process of financial inclusion. However, they need to be oriented suitably to serve the rural population with a specific mandate to achieve financial inclusion. It is hoped that recent regulatory changes and fresh impetus provided by the regulator will help in making RRBs front institution in achieving the target of reaching out to financially excluded people.

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THE BUSINESS CORRESPONDENT MODEL In January 2006, the Reserve bank permitted banks to utilize the services of nongovernment organizations (NGOs/SHGs), micro-finance institutions and other rural organizations as intermediaries in providing financial and banking services through the use of business facilitator (BF) and business correspondent models(BC). The BC model allows banks to do cash in cash out transactions at a location much closer to the rural population, thus addressing the last mile problem. Banks are also entering into agreement with Indian Postal Authority for using the enormous network of post offices as business correspondents for increasing their outreach and leveraging the postmans intimate knowledge of the local population and trust reposed in him. The intention behind the model is to promote the business of banking with low capital cost by enabling outsourcing of rural business to agents on a commission basis. Recent guidelines issued by RBI to ensure adequate Every BC to be attached to a certain supervision over operations of BCs: bank to be designated as the base branch The distance between the area of operation of a BC and the base branch should not exceed 30 km in rural, semi-urban and urban areas.

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ROLE OF TECHNOLOGY IN FINANCIAL INCLUSION According to recent Boston Consulting Group report, with cost of funds today at 9%, provision for bad debts at 10% and cost of operation and transaction at 13% for poor customers in far flung areas, banking for the poor by formal sector becomes unviable. The key role the technology is expected to play is to reduce the last two components drastically. Unfortunately, public sector banks (PSBs), which account for 70% of assets, have been slow in making use of modern technology to bring down transaction costs. How technology can lower operating costs as well as lending. In rural areas, different villages are separated by large distances and rates? Poor connectivity. Consequently, communication technology could play an important role in bridging the last miles between the customer and the provider thus facilitating faster transactions. The telecom network in India is expanding rapidly as more and more private operators are entering in the telecom sector. Banks could leverage the network for expanding operations, reducing costs and increase reliability of their operations. As more than one million new mobile users are being added every month in India, Mobile Banking can become the most promising front end technology for facilitating financial inclusion in India. As mobile phones have reached out to segments and geographies but not yet penetrated by banking sector, this may be one of the most preferred choices for banks for spreading their network in unbanked areas.

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CHAPTER-4 RESEARCH METHODOLOGY

My research project has a specified framework for collecting the data in an effective manner. Such framework is called RESEARCH DESIGN. This report is based on primary as well as secondary data, however primary data collection was given more importance since it is overhearing factor in attitude studies. One of the most important users of research methodology is that it helps in identifying the problem, collecting, analyzing the required information data and providing an alternative solution to the problem. It also helps in collecting the vital information that is required by the top management to assist them for the better decision making both day to day decisions and critical ones.

DATA SOURCES:
Research is totally based on primary data. Secondary data can be used only for the reference. Research has been done by primary data collection, and primary data has been collected by interacting with various people. The secondary data has been collected through various journals and websites (i) Primary Data: Direct collection of data from the source of information, technology including personal interviewing, survey etc. (ii) Secondary Data: Indirect collection of data from sources containing past or recent past information like Banks Brochures, Annual publications, Books, Fact sheets of mutual funds, Newspaper & Magazines etc.

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SAMPLING:
Sampling procedure:-

I have completed my survey in Mohali, Punjab. Population of Mohali consist a big group of migrants, labor coming from other part of country in search of employment, education and other purposes. This groups being financially weak due to low literacy, low income; generally do not have access to financial services. In order to assess the level of financial inclusion in Mohali, a survey was conducted in area of Mohali through a questionnaire. Target group were laborers, small shopkeepers migrant, i.e. people employed in unorganized sector who are unbanked. The data has been analyzed by using mathematical/statistical tool. .

Sample size:-

The sample size of my project is limited to 50 people only..

Sample design:-

Data has been presented with the help of pie charts and bar graphs etc.

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OBJECTIVES OF THE STUDY

The broad objectives of conducting the survey are as follows: 1. To identify the extent and nature of financial inclusion in and around mohali. 2. 3. To understand the drivers of financial exclusion/ inclusion. To determine the level of awareness of people in various financial products and interest in undergoing courses in financial inclusion. 4. To assess the impact of policy initiatives on financial inclusion in mohali.

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LIMITATIONS OF THE STUDY

The study based on survey through pre-designed questionnaires suffers from the basic limitations of the possibility of difference between what is recorded and what is the truth, no matter how carefully the questionnaire has been designed and field investigation has been conducted. This is because the persons may not deliberately report their true responses and even if they want to do so, they are bound to be differences owing to problems in the communication process. In addition, there are some limitations, which are as below; 1) Time has played a biggest constraint that the research could not be carried out comprehensively as the duration of the study was only 2-3 weeks. 2) The sample size for collecting the primary data was meager as it includes only 50 respondents, hence the conclusion would not be a universal one. 3) The employees were not explorative 4) Possibility of error in data collection because many of the investors may have not given actual answers of my questionnaire.

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CHAPTER-5 DATA PRESENTATION, ANALYSIS AND INTERPRETATION PART I-HOUSEHOLD PROFILE I-Family size
Data (out of 50) SN. Family size No.of respondents 1. 2. 3. 4. 5. 3 4 5 6 7 3 20 10 12 5

Famiy size
1 2 3 4 5

12% 28% 16%

24%

20%

INTERPRETATION The Response Was As Follows Majority of them were having family size of 4 were 20 and family size of 3 was the lowest 3. Family size of 5, 6 and 7 were 9 were 10,12 and 5 respectively.
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II. How many of them are earning?

Data (out of 50)

SN 1. 2. 3.

Earning members Family having 1 earning member Family having 2 earning members Family having 3 earning members

No. of respondents 35 10 5

Earning members
Family having 1 earning member Family having 3 earning member Family having 2 earning member

10% 20% 70%

INTERPRETATION 35 (70%) families were having Sole earning member, family having 2 earning member were 10(20%) and 5 (10%) were having earning members more than 2 earning members.

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III. Literacy level

S. No. 1 2 3 4 5 Literacy level School dropout High school Sr. secondary Graduate PG & above No. of respondents 20 15 8 5 2

Literacy level
School dropout high school Sr. secondary 4% 10% 16% 40% Graduate PG & above

30%

INTERPRETATION Of the total sample, Majority were school dropout (20 i.e. 40%), High school (15 i.e. 30%) and Sr. Secondary (8 i.e. 16%) which implies that their literacy level was not enough to understand a financial product, or the complications attached with opening a saving bank account or operating it conveniently. It also means that as they are not very educated they wont be having fixed income as most of them are working daily wages and are underpaid, hence they cannot afford high charges and penalties. Graduates consisted 5(10%) and PG & above consisted 2(4%).

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IV-Employment

S.No 1 2 3

Employment Organized sector Unorganized sector NA

No. of respondents 2 48 1

Employment
Organised sector Unorganised sector 2% 4% NA

94%

INTERPRETATION Of the total 50 people surveyed 2 were found working in organized sector and 48 were found working in unorganized sector. To understand the financial position of household they were further asked further about their employability or the nature of employment, out of the 50 respondent 20 were labourers working in Factories in nearby areas; 18 were self employed i.e. shopkeepers and running small scale business activities; 12 were engaged in service in unorganized sector.

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PART II - FINANCIAL POSITION I. Earnings

S.No Earning 1 Cat 1-0-4000 2 3 4 5 Cat 2-4000-8000 Cat 3-8000-12000 Cat 4-12000-16000 Cat 5-16000 & above No. of respondents 10 25 4 3 8

Earning
25 20 15 10 5 0

INTERPRETATION The observation indicates that Cat. I consist mainly the labors and household working on daily wages (10), and Cat. II & Cat III (25 & 4 respectively) consist mainly those who are self employed i.e. shopkeepers, Students (3) etc. Cat. IV (3) and Cat.V (8) people engaged in organized sector and those who are having business which is stable in nature.

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II. Earning pattern

S.No 1 2 3 4

Earning pattern Daily Weekly Monthly NA

No. of respondents 9 10 30 1

Earning pattern
Daily Weekly 2% 18% Monthly NA

20% 60%

INTERPRETATION On the further question about earning pattern, 60% of the respondent were earning monthly whereas 18% and 20% had earning on daily basis and weekly basis respectively and 2% respondent did not answered on this.

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III. Saving

S.No. 1 2 3

Saving Yes No NA

No. of respondents 35 13 2

Saving
Yes 4% No NA

26%

70%

INTERPRETATION 70 %(35) of respondent said that they are saving some part of their income, 26%( 13) of respondent are not saving anything and 4% (2) didnt responded to this question It was interesting to see that all those who were earning on daily basis were saving on regular basis

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IV-How much?

S. No 1 2 3 4

Saving Up to 10% 10% to 20% 21% to 30%

No. of people 2 5 25

31% and above 18

Saving (annually)

up to 10% 4%

10% to 20% 10% 31% and above 36%

21% to 30% 50%

INTERPRETATION According to survey, 50% of the people save (annually) between 21% to 30%, 36% of the people save 31% and above, 10% people save between 10% to 20% and only 4% of the people up to 10%.

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V-Where do you keep your savings?

S No. 1. 2. 3. 4.

Keep your savings Banks Insurance schemes In cash at home PO/NSC/FD

No. of respondents 20 5 20 5

Where do you keep your saving

Banks Insurance scheme In cash at home PO/NSC/FD

10% 40% 40% 10%

INTERPRETATION Majority of the respondent were either keeping their saving in saving bank account or cash at home (40% each) and only 10% each were putting it in investment alternatives and PO/NSC/FD.

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PART III - BANKING HABITS I-Do you have bank account

S.No. 1 2

Bank account Yes No

No. of respondents 20 30

Do you have bank account

Yes No

40% 60%

INTERPRETATION Out of the 50 respondent, 20(40%) are having saving bank account and 30(60%) are not having bank account

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II- Did you face any problem while opening account?

S.No. 1 2

Face any problem (out of 20) Yes No

No. of respondents 5 15

Did you face any problem while opening account

Yes No

25%

75%

INTERPRETATION Out of the 20 respondent, who have bank account 75% of the respondent didnt faced any problem while opening bank account, while 25% said they faced.

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III- What are the services\product you avail along with your bank account?
S. No. 1 2 3 4 5 6 Services/products availed (out of 20) Payments and remittances Mobile banking ATM/Debit card Loans and advances Credit card Net banking No. of respondents 6 2 6 4 1 1

Products and services availed

6 6

2 1 1

Payments and remittances

Mobile banking

ATM/Debit card

Loans and advances

Credit card Net banking

INTERPRETATION 20 respondent were having bank account, among them 6 respondent each were using payments and remittances and ATM/Debit card , 4 respondent were using loans and advances, 1 respondent each were using credit card and net banking and 2 respondent were using mobile banking.

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IV-For what purposes you use your account?

S. No. 1

Usage of bank account

No. of respondents

Depositing and withdrawing money so that cash flow is 25 managed

2 3 4

Accumulating funds/interest earning for future requirement Making and receiving payments To become eligible for other services

10 10 5

Usage of bank account

Depositing and withdrawing money so that cash flow is managed Accumulating funds/interest earning for future requirement Making and receiving payments To become eligible for other services 10% 20% 50% 20%

INTERPRETATION The majority of sample population, 50% uses bank account for managing their cash flow as they get their salary or earning in beginning of month but expenditure is over the month, 20% uses bank account for accumulating funds and interest thereon for meeting future contingencies, and other 20% uses bank account for making and receiving payment And rest 10% uses bank account as means of becoming eligible for other financial services.

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PART IV -THOSE WHO DO NOT HAVE BANK ACCOUNT(out of 30)

REASONS FOR NOT HAVING BANK ACCOUNT S. No 1 2 3 4 5 Reasons for not having bank account Tried but refused Not aware of benefits of a bank account Tedious procedure/paper work Low level of literacy Lack of awareness and guidance No. of respondents 3 10 2 8 7

Reasons for not having bank account

Tried but refused Not aware of benefits of a bank account Tedious procedure/paper work Low level of literacy Lack of awareness and guidance 23% 10%

33% 27% 7%

INTERPRETATION Out of 30 respondents, 33% of the respondents are not aware of benefits of a bank account, 10% tried but refused, 27% of the respondents thinks that there is a low level of literacy, 23% thinks there is a lack of awareness and guidance and 7% of the respondents face tedious procedure/paper work.

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PART V - CREDIT PATTERN I-Have you ever borrowed or taken a loan?

S. No. Have you ever borrowed or taken a loan 1 2 Yes No

No. of respondents 40 10

Borrowed or taken a loan

YES NO

20%

80%

INTERPRETATION Out of the 50 respondents, 80% respondents borrowed or taken a loan and 20% respondents dont borrowed or taken a loan.

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II- Purpose of borrowing (out of 40)

S. No. 1 2 3 4 5 Purpose of borrowing Housing loan Business loan Vehicle loan Education loan Personal loan No. of respondents 11 10 10 7 2

Purpose of borrowing
Housing loan Education loan Business loan Personal loan 5% Vehicle loan

18%

27%

25%

25%

INTERPRETATION This analysis shows that 27% of the respondents said that they have borrowed money for housing loan, 25% said they have borrowed money for business and vehicle loan, 18% for education loan and 5% for personal loan.

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III- Source of borrowing

S. No. 1 2 3 4 5 Source of borrowing Banks Relatives Friends Moneylenders If Others No. of respondents 20 15 5 9 1

Source of borrowing
Banks Relatives friends 2% 18% 40% 10% Moneylenders Others

30%

INTERPRETATION 40% and 30% of respondents borrowed from the banks and relatives and whereas only 10%, 18% and 2% borrowed from friends, moneylender and others.

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PART VI-AWARENESS PATTERN I- Do you know about banking credit?

S. No. Know about banking credit No. of respondents

1 2

Yes No

20 30

Do you know about banking credit

yes no

40% 60%

INTERPRETATION 60% of the respondents do not know what is banking credit, whereas 40% knows what is banking credit.

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II- Have you purchased any insurance scheme?

S. No.

Have you purchased any insurance scheme

No. of respondents

1 2

Yes No

40 10

Have you purchased any insurance scheme

Yes No

20%

80%

INTERPRETATION 40 (80%) respondents have purchased some insurance scheme, whereas 10 i.e. (20%) respondents have not purchased any insurance scheme

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PART VII-SUGGESTIONS Do you think that every bank should have the following things in place to enable financial inclusion?

S. No.
1 2 3

Suggestions
Customer care/reception/may I help your counter Credit counseling centers Compulsory No Frill Account offering from every bank

No. of respondents
25 15 10

Suggestions
customer care/reception/may I help your counter credit counseling centers comulsory NO FRILL ACCOUNT offering from every bank

20% 50% 30%

INTERPRETATION Majority with 50% of respondent felt that establishing customer care counter/may I help you counter should be made compulsory, When told about what is no frills account, 20% felt that every bank should be made to offer No Frill account and 30% said there should be at least one credit counseling centre/financial education centre in their area.

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CHAPTER- 5 FINDINGS, RECOMMENDATIONS AND SUGGESTIONS: FINDINGS In Mohali, majority of them were having family size of 4 were 20 and family size of 3
was the lowest 3. Family size of 5, 6 and 7 were 9 were 10, 12 and 5 respectively.

35 (70%) families were having Sole earning member, family having 2 earning member
were 10(20%) and 5 (10%) were having earning members more than 2 earning members.

Majority were school dropout (20 i.e. 40%), High school (15 i.e. 30%) and Sr. Secondary
(8 i.e. 16%) which implies that their literacy level was not enough to understand a financial product, or the complications attached with opening a saving bank account or operating it conveniently. It also means that as they are not very educated they wont be having fixed income as most of them are working daily wages and are underpaid, hence they cannot afford high charges and penalties. Graduates consisted 5(10%) and PG & above consisted 2(4%). Of the total 50 people surveyed 2 were found working in organized sector and 48 were found working in unorganized sector. To understand the financial position of household they were further asked further about their employability or the nature of employment, out of the 50 respondent 20 were labourers working in Factories in nearby areas; 18 were self employed i.e. shopkeepers and running small scale business activities; 12 were engaged in service in unorganized sector. The observation indicates that Cat. I consist mainly the labors and household working on daily wages (10), and Cat. II & Cat III (25 & 4 respectively) consist mainly those who are self employed i.e. shopkeepers, Students (3) etc. Cat. IV (3) and Cat.V (8) people engaged in organized sector and those who are having business which is stable in nature. 60% of the respondent were earning monthly whereas 18% and 20% had earning on daily basis and weekly basis respectively and 2% respondent did not answered on this. 70 %(35) of respondent said that they are saving some part of their income, 26%( 13) of respondent are not saying anything and 4% (2) didnt responded to this question It was interesting to see that all those who were earning on daily basis were saving on regular basis
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Majority of the respondent were either keeping their saving in saving bank account or cash at home (40% each) and only 10% each were putting it in investment alternatives and PO/NSC/FD. Out of the 50 respondent, 20(40%) are having saving bank account and 30(60%) are not having bank account Out of the 20 respondent, who have bank account 75% of the respondent didnt faced any problem while opening bank account, while 25% said they faced 20 respondent were having bank account, among them 6 respondent each were using payments and remittances and ATM/Debit card , 4 respondent were using loans and advances, 1 respondent each were using credit card and net banking and 2 respondent were using mobile banking The majority of sample population, 50% uses bank account for managing their cash flow as they get their salary or earning in beginning of month but expenditure is over the month, 20% uses bank account for accumulating funds and interest thereon for meeting future contingencies, and other 20% uses bank account for making and receiving payment And rest 10% uses bank account as means of becoming eligible for other financial services. Out of 30 respondents, 33% of the respondents are not aware of benefits of a bank account, 10% tried but refused, 27% of the respondents thinks that there is a low level of literacy, 23% thinks there is a lack of awareness and guidance and 7% of the respondents face tedious procedure/paper work Out of the 50 respondents, 80% respondents borrowed or taken a loan and 20% respondents dont borrowed or taken a loan. 27% of the respondents said that they have borrowed money for housing loan, 25% said they have borrowed money for business and vehicle loan, 18% for education loan and 5% for personal loan. 40% and 30% of respondents borrowed from the banks and relatives and whereas only 10%, 18% and 2% borrowed from friends, moneylender and others. 60% of the respondents do not know what is banking credit, whereas 40% knows what is banking credit. 40 (80%) respondents have purchased some insurance scheme, whereas 10 i.e. (20%) respondents have not purchased any insurance scheme
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SUGGESTIONS AND RECOMMENDATIONS

a. Every bank should be forced to establish a customer care /May I help you Counter at every branch so that new customer should be guided and relevant information is provided. b. To increase the awareness, there is a good scope of having financial literacy cell or credit counseling centers in each district so that it can take care of uneducated/illiterate individuals. c. Every bank should be made to offer No frill saving account with basic services without terms & conditions which are class/group specific but are applicable to all. d. Private sector should be involved in process of financial inclusion and they should be made realize that it is not only a business opportunity for them but corporate social responsibility too.

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CHAPTER- 6 CONCLUSION
Steps taken towards bringing lower income groups to the banking system has been successful to a significant extent, as the main causes observed earlier like distance of bank branch, unawareness about banking services has improved. While doing survey it was found that people are not voluntarily excluding themselves from banking system, most of them have faith in banking and feels that they need banking services. The need varies from managing cash flow as they earn on daily basis or irregular basis. The reasons behind not approaching banks are mainly the minimum balance requirements which have been taken care by No Frills Bank Account but most of the respondent was not aware about this type of account. Hence it needs to be advertised; literacy level and awareness about various other products/services. It was also found that people prefer to borrow from personal/informal sources when the purpose is personal or consumption. Where the amount to be borrowed is generally small, the people found to be reluctant to approach banks, whereas for other productive purposes they borrow from banks. In other words, it may be said as per the study conducted in Mohali. Despite the thrust given to financial inclusion, the desired results have not come up.

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BIBLIOGRAPHY

Annual Policy report 2005-2006 Report on currency and Finance 2006-08 Ranjrajan Committee report on Financial Inclusion(2008) Universal Financial Inclusion in India: The Way Forward by S. Ramesh and Preeti Sahai The need for financial inclusion with an Indian perspective by Amol Aggarwal, IDBI Pushing Financial Inclusion Issues, Challenges and Way Forward - A Presentation by Dr. K.C.Chakrabarty Deputy Governor, RBI Presentation on Financial Inclusion & Banking System by S K Kale, General Manager, NABARD Working paper on social, economical and financial Consequences of financial exclusion by Bernard Bayot

Websites WWW.GOOGLE.COM WWW.YAHOO.COM WWW.WIKIPEDIA.COM WWW.RBI.ORG.IN WWW.SHAREMARKET.COM

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GLOSSARY
MBR- Minimum balance requirement AMC Annual maintenances charges HNI High Net worth Individuals KYC norms- Know Your Customer Norms SLBC State levels banker committee GCC- General credit card KCC- Kisan Credit Card SHGs Self Help groups SHPIs Self help Promoting Institutions POS Point of sale RRBs Regional Rural Banks UCBs Urban Cooperative banks MFIs Micro-finance Institutions PACS Primary Agricultural Cooperative Societies No Frill Bank Account- a zero balance saving bank account with no annual maintenance charges

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Questionnaire A PROJECT REPORT ON FINANCIAL INCLUSION

Name: Mobile Number: Address:______________________________________________________________________ ___________________________________ Age: ____________________________ PART I-HOUSEHOLD PROFILE 1. When asked about their how many members they have in their family? a. 3 d. 6 b. 4 e. 7 c. 5

2. How many of them are earning? a. 1 earning member 3. Literacy level a. School dropout d. Graduate 4. Employment a. Organized sector b. Unorganized sector c. NA b. High school e. PG & above c. Sr. secondary b. 2 earning member c. 3 earning member

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PART II-FINANCIAL POSITION 5. Earnings a. Cat 1-0-4000 d. Cat 4-12000-16000 6. Earning pattern a. Daily c. Monthly 7. Do you save? a. Yes 8. How much? a. Up to 10% d.31% & above 9. Where do you keep your savings? a. Banks d. PO/NSC/FD PART III-BANKING HABITS 10. Do you have bank account? a. Yes b. No b. Insurance schemes c. In cash at home b. 10% to 20% c. 20% to 30% b. No c. NA b. Weekly d. NA b. Cat 2-4000-8000 e. Cat 5-16000 & above c. Cat 3-8000-12000

11. Did you face any problem while opening account? a. Yes b. No

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12. What are the services\product you avail along with your bank account? a. Payments and remittances b. Mobile banking c. ATM/Debit card d. Loan and advances e. Credit card f. Net banking 13. For what purposes you use your account? a. Depositing and withdrawing money so that cash flow is managed b. Accumulating funds/interest earning for future requirement c. Making and receiving payments d. To become eligible for other services PART IV -THOSE WHO DO NOT HAVE BANK ACCOUNT 14. Reasons for not having bank account? a. Tried but refused b. Not aware of benefits of a bank account c. Tedious procedure/paper work d. Low level of literacy e. Lack of awareness and guidance

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PART V - CREDIT PATTERN 15. Have you ever borrowed or taken a loan? a. Yes 16. Purpose of borrowing a. Housing loan d. Education loan 17. Source of borrowing a. Banks d. Moneylenders b. Relatives e. Others c. Friends b. Business loan e. Personal loan c. Vehicle loan b. No

PART VI-AWARENESS PATTERN 18. Do you know about banking credit? a. Yes b. No

19. Have you purchased any insurance scheme? a. Yes PART VII-SUGGESTIONS b. No

20. Do you think that every bank should have the following things in place to enable financial inclusion? a. Customer care/reception/may I help your counter
b. Credit counseling centers c. Compulsory No Frill Account offering from every bank

d. If suggestions

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