The petty neighbourhood shopkeeper is your new banker, savior

IN ADARSH Nagar, a small slum district in north Delhi, Sandeep Kumar, a 30-year-old small-time shopkeeper, attends to a line of customers. But they — local ricshawaallahs, other small shopkeepers and housewives — are not looking to buy their daily groceries. They want to withdraw money from or deposit it into their bank accounts.

This may seem unusual, but it is a sign of how the business correspondent model launched by the Reserve Bank of India four years ago is gaining traction. Financial Information Network and Operations Ltd, or FINO, the business correspondent company operating in Kumar’s locality, has more than 25,000 customers, split between 15 agents, in the district. Kumar himself gets about 60 to 70 customers per day.

FINO’s plan is aimed at improving the reach of the services to the unbanked sections of the population. Lenders are allowed to hire intermediary companies that deploy agents in rural and underdeveloped areas to open accounts for people. FINO has been hired by 16 banks and has 15 million customers.

It is a win-win situation for all concerned. Banks are able to reach remote areas without incurring the heavy expenses that opening a branch entails. For the customers, it means a safe place to keep their money, an easier access to loans and a proof of identity by way of their bank cards.

Kasim, a customer at Kumar’s shop who gave only his first name, says he likes to keep his money safe in a bank, but cannot afford to spend half a day every time he needs to deposit his cash. That is not the case with the business correspondent, where he is able to put in and take out small amounts without thinking twice. He also saves on the Rs 10 bus fare to his regular bank.

Punit Bist, FINO’s district coordinator for the area, says that in unsafe neighbourhoods like this one, depositing their money gives people security. Additionally, since most of these people do not have guarantors and an official proof of residence, they cannot open accounts with banks the regular way. He claims that 80 percent of FINO customers are first-time account holders.

The system of withdrawing and depositing money at a FINO outlet is easy. Agents keep about Rs 5,000 with them at all times. Customers come to the agent, who is open for business 12 hours a day, to either deposit money or withdraw small amounts. But first, the person identifies himself or herself through a small ‘point of transfer’ machine by inserting a smart card and using the thumb impression, instead of a PIN. The money is then shown as withdrawn from or deposited into the customer’s account. The agent links the machine to FINO servers through the Internet at the end of the day. Where such connection is not available, the machine can link through wireless GPRS.

On Sundays and holidays, the agent even goes door-to-door to customers, so they can operate their accounts, and get more people to open accounts.

The business correspondent model is fast catching on, with several companies using different technologies.

EKO is one such company. It has tied up with the State Bank of India (SBI) and has over 70,000 customers and 500 service points in Delhi, Bihar and Jharkhand. EKO uses the mobile phone to offer similar service. When a customer makes a deposit with the agent, he or she enters a code and his account number on the agent’s cellphone, and the money is instantly shown as having been deposited in a customer’s account. Further, money can be transferred from an EKO customer’s account to any person with an SBI account, using the phone. This is useful for migrant workers who may work in different areas and may need to send money home.

THERE ARE between 1,500 and 2,000 transactions (deposits, withdrawals and transfers) per day, totalling between Rs 12 lakh and Rs 20 lakh, according to Abhishek Sinha, chief executive officer of EKO. He says cellphones have made financial transactions possible on the move, and his company is making a difference in rural areas.

In India, where only 40 percent of the population has bank accounts, the potential for such no-frills accounts may be large. Whether this potential will be realised will depend on how fast the business correspondent model spreads, but for people who now have a place to keep their savings, and an easy way to send money to their families, this has come as a blessing.

By VILASINI ROY

TURNING THE TIDE: ENABLING POVERTY REDUCTION

It is rare to find a woman shoulder the responsibility of farming. It is usually the male counterpart who takes up the farm responsibility, but it is not so in the life of Kamatchi. She owns around 4.5 acres of rainfed land, and lives with her husband and their two sons in Sengapadai village of Madurai district, Tamil Nadu. As Kamatchi says, “He (her husband) never has once stepped on the land for farming.” She has to run the family all alone with the income she earns from the farm and from the income she earns as a coolie. Further, vagaries of monsoon and lack of effective coping mechanism, farming itself is loosing its lustre as viable livelihood option for many in this area. Adding to this, lack of suitable financial services pushes resource-poor farmers like Kamatchi into the depths of poverty.

She says, “… one has to walk four to five times to their house (the well-offs and moneylenders) to get a loan for urgent needs. They didn’t trust us for we are from Kallar community, and even if one could get a loan, it was at the exorbitant rate of 5 to 10%.” She was unable to enterprise herself due to such lack of support and an enabling environment.

A Ray of Hope

It was during this time that Kamatchi joined the Kaliamman Uzhavar khulu (or rainfed farmers’ groups) promoted DHAN Foundation in that area. With a bit of hope in her heart, she plunged ahead, and the group helped her all along the way. The group, thus formed, proved to be a safe platform to save, to access timely credit services. This helped her meet various household needs and supported her in farming activities.

An Array of Achievements

As of today, she has a total savings of Rs.5600 in the group, and had availed a total loan amount of Rs.70191 from her group, with the current loan outstanding of Rs.21360. “In earlier days, none of the banks cared us of our credit needs. Now, the bankers they themselves invite us to take loan from their bank, for they know our group’s credibility and discipline, and trust us,” says Kamatchi. And these loans were used for variety of purposes like to purchase goats and a milch animal. She also got a loan of Rs.15000 to purchase an acre of rainfed land and to purchase oil engine to pump water. She has recently taken a loan of Rs.12000 to construct a farm house in her land. Apart from this she has taken a variety of loans for various consumption needs like medical expenses, marriage expenses, outside debt redemption and household expenses. Further, time and time again, she had also taken loans for working capital requirement of her farm activities.

As part of the watershed project, an amount of Rs.54146 was invested in her land for the construction of farm ponds and to plant dryland horticulture crops in 0.75 acres of her land. The farm pond harvests around 14.4 lakhs litres of rainwater, and with that, she cultivates around 1 acres of paddy, and gets an yield of 1400 kg of paddy that is used for household consumption.

In the past five and half-years, Kamatchi found that little spark in herself, and with the support from the group, she had made major changes in her life and livelihood. The various intervention activities resulted in the following outcomes in the lives and livelihood of Kamatchi and her family.

·         Increased income

o    Brought more area under cultivation

o    Brought more area under irrigation

·         Reduced vulnerabilities and risks

o    Increased land holding size

o    Increased food security by increased paddy cultivation

o    Crop diversification with cultivation of dryland horticulture crops

o    Reduced vulnerabilities to risks–insured in human life insurance programme, and also insured goats

o    Reduced dependency on money lenders and increased access to mainstream financial institutions

·         Increased fixed asset holdings, and asset value appreciation

o    Conversion of rainfed to irrigated land

o    Purchase of land

o    Invested in farm assets like oil engine

o    Purchase of livestock–goat rearing and milch animal purchase

Beacon of Hope

Thus, DHAN Foundation and the group promoted by DHAN, had increased Kamatchi’s access to institutional credit facilities, and reduced dependency on money-lenders. There has been an increased level of awareness and social respect that she had gained. She speaks to bankers to get loan for her group; “Now the bankers, themselves, approach us; we have shown our trustworthiness,” she says.

With the additional income from the farm, she had further invested in purchasing a pair of cattle, and a bullock cart; she is also planning to complete her little farm house. This shows a positive trend in moving towards a farming-based livelihood options, which was once a not so dependable source of income. She has gained confidence to face the future.

Through the support rendered by DHAN Foundation, and with the confidence in her heart, Kamatchi proved it could be done–to come out of poverty with a sustainable source of income. She is now a beacon of hope, and a source of inspiration, for her own villagers and the community at large.

Source:-Dhan Foundation

How to Tell Good MFIs from Bad MFIs

Most of us working in microfinance want microloan clients to be paying interest rates that are as low as possible. While we have the same vision, there is disagreement about how to determine whether an interest rate is an appropriate one.

Some people, including Mohammed Yunus, are worried about the growing commercialization of microfinance, including the entry of profit-motivated owners and managers.  They are concerned, reasonably enough, about possible “mission drift,” especially in the form of interest rates rising to (or staying at) excessive levels. In his book and in many presentations, Professor Yunus offers a straightforward formula for judging MFIs and their objectives:

• If you’re a real microlender who cares about the poor, then your interest margin (the difference between the rate you charge when lending to your clients and the rate you have to pay when you borrow from your funding sources) should be no more than 10%. That’s the “green zone” where true microlenders operate.
• If your interest margin is 10-15%, a big warning sign is flashing because you’re in the yellow zone.
• Anything above 15% is the red zone, where you’ve left true microcredit behind and joined the loan sharks.

Unfortunately, when you look at the evidence, this appealingly direct formula turns out to be pretty far off the mark.

To begin with the conceptual problem, the formula doesn’t allow enough room for legitimate differences in administrative costs among MFIs. For an MFI that makes especially small loans or serves a sparse rural clientele, administrative costs will inevitably be a higher percentage of loan portfolio, and the lion’s share of the interest rate spread goes to cover those costs. Application of the proposed formula could actually discourage outreach by such MFIs to poorer clients.

But concepts aside, how does the formula match up against actual MFI experience? It turns out that this formula would place most of the world’s MFIs in the red zone—the average interest rate spread for MIX MFIs in 2008 was over 20%.  But to be fair to Prof. Yunus, that shouldn’t end the discussion.  After all, maybe plenty of the MFIs in the MIX are charging their borrowers rates that are way too high.

Now let’s test the green-yellow-red formula against a group of Grameen-approved MFIs. Christoph Kneiding and I analyzed MIX data on Grameen along with several dozen MFIs that received support from the Grameen Foundation and reported to MIX. In 2007, for instance, 33 MFIs (representing about two-thirds of the Grameen Foundation recipients) reported to the MIX.  The only one in the green zone that year (interest spread below 10%) was Grameen Bank itself. Seven were in the yellow warning zone (10-15%). All the other 25 were up in the red zone (above 15%) and most of them way up in the red zone (between 30 and 55%). The three preceding years looked pretty much the same.

The proportion of Grameen affiliates in the red zone was about the same as the worldwide proportion:for instance, 75% of all MIX MFIs were in the red zone in 2008, according to a new study by Adrian Gonzalez of MIX. NGOs were more likely to be in the red zone than for-profit MFIs, suggesting that interest spreads may be driven more by the higher costs of smaller loans than by profit maximization objectives. (Average loan size in NGOs is about a third of what it is in for-profit MFIs.)

Has the Grameen Foundation has been fooled into working with a bunch of red-zone partner MFIs that are wolves in sheep’s clothing? Far from it. The Grameen partner MFIs that look so terrible on the green-yellow-red test actually appear quite strong—in fact, well above average—on indicators normally thought to be associated with commitment to the poor, such as average loan size.  Nor do they appear to be inefficient: they average considerably lower on cost per borrower than the other MFIs in their countries.

It’s disappointing that simple formulas can’t help much when it comes to appraising things like mission drift or fairness of interest rates. It takes a more complex analysis (see, for example, the CGAP papers on microcredit interest rates and Banco Compartamos).  I hope we see a lot more MFI-by-MFI analysis, in which the reasonableness of interest rates is judged by the reasonableness of the costs and profits that produce those interest rates. We all want to see MFIs charging clients rates that are as low as possible, so we need analytic tools that can do a credible job of separating the sheep from the goats in that regard.

by Richard Rosenberg

Source:-CGAP

Financial Literacy for Financial Inclusion

The majority of the working poor in India, especially those working in the informal sector like small and petty vendors, home-based workers, artisans, labourers, maid servants, desperately need financial services from formal financial institutions. The reason is that they are involved in economic activities in which they need working capital. They also need credit or term loans to buy business equipment like sewing machines or cutting machines or livestock or handlooms.

There is also a need for credit for improving their huts or houses, for adding water and drainage services in their living place, or for getting electric connections.

These are all their needs for running economic activities, mainly because they are self-employed or working on their own. Because of their nature of work (mostly manual labour), poor living and working conditions, and low income level, they are very vulnerable and susceptible to many types of risks, i.e., personal risks like sickness, accident death, or natural disasters like floods, cyclone and fire. They need to be protected under these risks. They also want to build little savings for their future needs. Women want to "save for rainy days". Vulnerability during their entire working life does not allow them to build or plan for their old age.

What we need is a two-step financial literacy programme — developing personal financial management skills and developing financial operation skills — to make financial inclusion successful

The poor need credit, insurance, savings and pension services. But because of lack of access to these financial services from formal sector, they have to depend on informal financial sources, i.e., private money lenders. Not only are these informal sources exploitative, they provide only credit services and do not provide other financial services like savings, insurance, pensions and remittances. As a result, the poor are caught in a debt trap; they borrow at very high interest rates for all types of life-cycle needs, whether it is a business need or a personal need like sickness or accident, or a social need like marriage. If our objective is to bring these economically active poor out of the vicious cycle of poverty and help them build their own capital assets and business, we need to ensure that they get access to integrated financial services, and that too from formal financial institutions at a reasonable price.

The current ‘financial inclusion’ policy has all the components that are required to ensure that poor get access to financial services. Most importantly, the policy does not talk about only credit service, but also about integrated financial services. It provides for "door-step" banking, which is needed by the poor. It talks about bank appointing business facilitators and banking correspondents. It seeks to allow the poor to open "no frills" accounts. Banks are given targets and they are strictly monitored. There is the necessary political will as well as positive response from the formal financial sector, especially banks.

Though targets are supposedly being achieved, it is yet to be seen that it is bringing a positive change in the life of the excluded population. Thus, while "no frills" accounts have been opened, few accounts are being meaningfully operated.

Probably the gap is at the demand side; may be the needy are not ready to avail of these services in a meaningful way; because this is the first generation of the population which we are trying to link with formal financial services. They are taking time to get used to such services. They are used to deal with informal financial service providers who provide 24-hour service at their doorstep with the simplest procedures. May be, they are reluctant because they are scared to follow procedures.

We need to ensure that the poor get access to integrated financial services, and that too from formal financial institutions at a reasonable price

For a few services like savings and insurance, there is a need which needs to be converted into demand. There is also a need to help them change their financial behaviour – they normally live on day-to-day basis and also think on a day-to-day basis. We need to build their awareness to help them think for long-term lifecycle needs. There is a need to help them to change their habit of making financial decisions like impulsive borrowing without thinking or understanding its terms and conditions, and their repaying capacity. There is need to teach them to differentiate between productive and consumptive use of money, specially borrowing.

What we need is a two-step "financial literacy" programme to make "financial inclusion" successful and meaningful. One is developing personal financial management skills and the other is developing financial operation skills for availing various financial services.

Personal financial management literacy includes the component of awareness building for financial planning and changing impulsive financial decisions, understanding importance of regular savings, borrowing only for productive purpose, minimising risks through availing insurance services and also understanding financial principles. These include the following:

· the principle of fungibility of money;

· principle of power of compounding;

· principle of productive versus unproductive use of money;

· principle of borrowed versus own capital; and,

· principle of insurance.

A proper understanding of the principle of power of compounding will make the provision of "no frills" accounts meaningful because poor will understand the importance of regular savings for the long term. Similarly, the principle of productive versus unproductive use of money will reduce the use of borrowed money for productive purpose and the principle of fungibility of money may help them to save and plan for different purposes or different life-cycle needs. Personal financial management literacy should be accompanied with financial operational literacy, like account opening procedure, explaining a nomination facility, types of saving accounts or how to avail credit from a bank.

The financial inclusion programme can become meaningful if parallel work is done on both the demand and supply side. Excluded population should be prepared to avail of financial services from formal financial institutions and financial literacy can play a very important role in bringing in the desired results. Of course, it will be too much for banks to play this role of preparing people for availing financial services or converting need into demand. Thus, a parallel financial literacy movement should be encouraged, may be through the media, even as we build a cadre of financial counsellors at the grassroots level to educate people by building financial awareness.

Jayshree Vyas is Managing Director,
Sewa Bank

Do the poor need financial literacy?

Olga Morawczynski is Project Manager for Grameen Foundation’s financial literacy project in Uganda.

When I started the financial literacy project at the Grameen Foundation in Uganda, I was faced with some very fundamental questions—what exactly is financial literacy? And do the poor really need it, or even want it? Aside from my own questions, I also faced some reservations from colleagues in the field. Many were very frank in their opinions. There is no need for financial literacy, they told me. What the industry needs is appropriate financial products. The learning bit will take care of itself.

I have spent the last months travelling around Uganda and speaking with individuals who depend on a wide variety of livelihoods, from fishing to trading and farming. And I have made some extremely interesting discoveries. Amongst the people I spoke to, there was a clear demand for financial information. Many of my informants did not have a lot of money, and their inflows of cash were extremely irregular. But they had many questions on how to manage it better. A significant portion wanted advice on savings and budgeting. As one farmer explained, “when you have so little, you have to become an expert at managing it. If not, it will disappear from your hands before you even had the time to count it”.

But what makes one an expert at managing their cash? “When times are good, you put cash away”, the farmer explained. “So when the cash is not flowing, you have something saved”. I asked what happens if you don’t have something little saved. The farmer pointed to a small herd of his cows. “You sell one of them”, he said. So maybe that brings us a little bit closer in our understanding of what financial literacy is and what it should do. That is, helping people to plan accordingly so they are prepared for the periods of cash deficits. And when you are an expert, you get to keep your cows.

Source:-Grameen Foundation

Remittance: a step towards financial inclusion

Financial Inclusion is the buzzword doing the rounds in the social sector these days. Financial inclusion is an umbrella term used to represent access to various financial services by the poor (bottom of the pyramid!). One of these services is the transfer of money i.e. remittance; a field which is seeing a lot of developments lately.

Remittance in common parlance refers to the transfer of money by a person abroad to his family/friends in his/her home country. Various reports by World Bank, United Nations University show that remittances form the second largest source of international finance to many developing countries of the world, often surpassing the official development flows. International Fund for Agricultural Development (IFAD) 2006 estimates put the total flow of remittances to developing countries at $301 billion (including informal channels) while the World Bank estimates are $250 billion (excluding informal channels), which mirrors the huge market potential.

And we are not just talking about the rich or middle-class but the poor too. We have known through personal experience or news stories about the sheer no. of unskilled labour who have migrated to areas for e.g. Gulf (from Kerala) in search of livelihoods. And it is this section of migrants that the development sector needs to concentrate on by ‘introducing’ formal channels to them which can be better leveraged to promote economic development.

Remittances make a real difference to people, a difference that’s measured not in money but in its ultimate utilization for better food, medicines, education and healthcare. But what’s the connection between remittance flows and financial inclusion?

In countries like Ghana, remittances can account for up to half the household income. In Bangladesh, they can represent most of the household income. It is estimated that about 10% of the world’s households receive remittances (DFID). And while this money is used to support basic necessities like roti, kapada, makaan, it can have a multiplier effect. It is known that most often the excess money is further invested for genetrating profits for the family. The cumulative effect on the economy could be increased employments, increased money flow for investments, thereby stimulating growth. And it is this aspect that if encouraged, can help communities to come out of poverty.

Money is sent through formal channels like banking institutions or money transfer agencies or more frequently, as in case of poor migrants, through informal channels like friends, acquaintances or illegal Hawala channels. There a number of impediments faced in the informal fund transfer – higher charges, delivery issues, possibility of theft etc., which may not just mean reduced money to the beneficiary but may even further tax the family. On the other hand, the formal channels ensure easy transference of the entire amount in return for set charges. And as money transfers through formal channels often require the use of a bank account, remittances promote access to formal financial services for the sender as well as recipient.

However the problem lies in the fact that the penetration of the formal channels is much limited, due to the same demand and supply problems which are plaguing the banking sector - problems of availability and accessibility, identification, information gap, illiteracy, higher operational costs.

This situation if utilized efficiently can prove to be a win-win situation for all stakeholders. As Dilip Ratha(World Bank) points out, encouraging remittances through the banking channels (formal channel) can increase the development impact of remittances by encouraging more savings and furthering investment opportunities. Banks and other financial institutions can introduce their other products to its remittance customers thereby reducing their costs per customer. MFIs can make use of the history of the remittance receipts to map out the credit history of the potential customers.

Access to remittance services in rural and remote areas can be improved by encouraging the participation of the microfinance institutions, credit unions, and saving banks (including postal saving schemes) in the remittance market thereby effectively increasing the probability of usage of formal channels by the poor.

The opportunities are limitless; and if combined with initiatives by the financial institutions and policy and regulatory support by Governments have the potential to make a difference!

By Ms. Swati Vempati.

Need for sustainability in the quest for financial inclusion

A focus on “financial inclusion” has been there in India for quite some time now. If we look back we can see examples of policies aimed at financial inclusion at various instances in the past; most prominent amongst them being the policies that were enforced in the immediate aftermath of bank nationalization and in many subsequent policies even later. So if there existed policies for financial inclusion why it is that a vast segment of our population continue to remain outside the coverage of formal financial institutions and their products and services and continue to rely on informal sources of finances like moneylenders who charge exorbitant rates of interest.

Why it is that poverty characterizes vast tracts of rural India and people there aren’t able to use the ladder of access to alternative sources of finance to escape the clutches of poverty and the social and economic shackles that a poorly performing agricultural sector has imposed up on them. Why is it that large numbers of landless agricultural laborers AND farmers continue to be dependent on agriculture despite falling wages and incomes?

The answer to this is that though the architects of India’s poverty alleviation programs had their intentions right and realized that providing financial inclusion in the form of access to formal financial institutions and their services to the most impoverished segment of the population would help them to break away from their dependency on incomes from agriculture and also liberate them from the clutches of the moneylender (principally responsible for a large part of rural indebtedness); in implementation the “financial inclusion” did not go further than increasing the number of bank branches in rural India and emphasizing on credit requirements of the rural population; most of which again went to the land owning segments of the agricultural class who were able to muster sufficient collateral.

There was hardly any focus on providing the landless laborer with credit let alone other financial products and services including savings, insurance, etc. Thus the rural financial infrastructure that came about was quantitatively impressive but qualitatively poor.

What they forgot was that the approach towards making financial inclusion a reality needs to focus on perceiving the common man at the base of the pyramid not merely as a recipient of the financial services that institutions hand down but also as an important stake holder in the entire process; one for whom these products and services are a gateway to greater freedom from poverty and underdevelopment. The focus therefore needs to be not only on the quantitative but also on the qualitative. This poses interesting questions to us today. It forces us to ask ourselves are we providing the base of the pyramid with what they need or are we providing them with what we think they need? what difference is what we are doing making in terms of providing the base of the pyramid with a greater avenue of choices to escape the poverty and impoverishment that binds them?

It brings us to the realization that when we talk about financial inclusion we should not merely talk about the quantitative but also about the qualitative. There needs to be a focus on sustainability; on providing the base of the pyramid with access to financial services and products that are designed to help bring about transformational changes within the structure of rural society and economy that will help it escape from the clutches of poverty and grow while at the same time providing adequate protection to those making use of these products and services. The task of financial inclusion will be incomplete if the common man at the base of the pyramid, who is in a vulnerable position due to poverty and marginalization is not protected and is left even more vulnerable at the end of it.

it requires us to adapt and adopt newer systems and processes to cater to the demands of different geographical, economical and social environments with the purpose of breaking restraining forces that are inhibiting their economic development and hence fulfill the objective of achieving sustainable growth that is all inclusive

Posted By Vivek John Varghese. http://knowaboutvivek.blogspot.com

The nature of Financial Literacy

Ever since i have become familiar with the word "financial literacy" and the manner of its usage and the contexts in which it is used i have had reason to wonder whether it is actually necessary to differentiate between financial literacy for the rich, poor (and to do justice to what is a large segment of the Indian population) the middle class. The origins of this question is founded in the fact that today we live in an economic context where macro economic realities and happenings impact the lives of people, Rich and Poor with the same intensity (albeit in manners more dependant to their different contexts).

A classic example of this is the economic phenomenon called as inflation (or in common parlance "price rise") and the kind of different impacts it has on all segments of society. While on one hand it is necessary to rein in inflation (and often this reigning in is done through stricter monetary policy like raising interest rates) as it can make the life of the common man hell by pushing up the prices of most essentials like vegetables and fuel etc, the same stricter monetary policy can also force loss of confidence in equity markets and by making credit expensive push down industrial growth rates. Whose concern should the government address in such a situation is a question of choice and i believe that the only way this dillema can be addressed is democratically.

This is where the question that i posed earlier becomes of paramount importance. If financial literacy is provided tailor made depending upon what we feel should people be made aware of it can leave some people better informed and others ignorant; thereby giving the better informed a better chance at shifting the decision making towards themselves and in disfavour of the ignorant (mostly the poor and the middle classes) who constitute the greater number and who should have been the recipients of redressal.At the same time it is also necessary to inform people that many at times macro economic happenings over which they are not responsbile can also have severe and sometimes shocking impacts on their economic and financial contexts. Many of you might say that it would be unfair to think that all people; whether rich or the poor or whether educated or uneducated; have the same level of understanding and hence can be dealt with in the same manner. I say i agree with you too. All people might not have the same level of understanding but the differentiation should not be in what constitutes the curriculum for financial literacy programmes but the methodology of carrying out the financial literacy initiatives; which should differ according to the socio-economic contexts of the audiences involved; so that all people have some idea about the financial and economic issues that to greater or lesser degrees affect them and their lives.

Savings and loans and explaining them to people are absolutely important in the case of a country like India where the greatest segment of people remain outside the purview of formal financial services, products and institutions.but at the same time it is also important to realize that as greater numbers of people are coming into the fold of formal financal institutions they are increasingly going to be exposed to newer dangers and threats - many of which remain outside their control and under the influence of macro economic factors. It is time the common man was made more aware of these threats and informed about information assymetries so that he can claim his protection and what is due to him in the new socio-economic and financial context.

Posted by Vivek John Varghese

A Nation Awakens to The Freedom of Finance

For the first time in India’s history, everyone from politicians to entrepreneurs to technology gurus are converging on a common theme — to take the benefit of banking and finance to India’s neglected millions

If you are the scion of India’s most powerful political family with a fair chance of becoming the prime minister one day, what do you choose as the most important agenda to anchor your career on? Rahul Gandhi must have pondered this question several times in his fledgling Parliamentary career and as the years rolled by, the answer has become clearer. The kurta-clad handsome young man is not in the league of usual rabble rousers. He is playing for a unique positioning — that of a leader who brought millions of poor people living at the edges of society into the economic mainstream. He wants to take the benefit of banking and financial literacy to the remotest corners of the country. His agenda, then, is ‘financial inclusion’.

“The speed and continuity of our economic growth depend on inclusion. A small, resource-rich section of India cannot grow indefinitely while a vast disempowered nation looks on,” Gandhi said in a speech in Lok Sabha in 2008. “If opportunity is limited to a few, our growth will be a fraction of our capability as a nation.”

He followed up his statement with action. He roped in experts including central banking veterans to counsel him on the complexities of financial inclusion. He took his constituency, Amethi in Uttar Pradesh, as the test bed for some of his experiments. He took billionaire Bill Gates and British politician David Miliband there to showcase the work done by the Rajiv Gandhi Trust in bringing financial power to women. A close friend of Gandhi’s says he is steadfast and sincere in his commitment to this cause. “There is no doubt in my mind that his passion for social upliftment outweighs his passion for mundane political objectives.”

Rahul Gandhi may have read the people’s pulse just right. There is enough evidence to suggest that the concept of financial inclusion will be a major theme in India’s economic and political discourse in the coming years. The economy is at a point where the rural segment has to become vibrant to maintain the growth pace. The largely saturated urban markets can’t guarantee the same growth. But the village economy cannot kick off unless financial services such as credit, savings and money transfers reach there.

Today, large swathes of India are ‘financially excluded’. At least 73 percent of farmer households are in need of formal financial services. Out of 600,000 villages in the country, only 30,000 have a bank branch. Only 40 percent of the country’s 1.2 billion people have bank accounts. Nine out of 10 people don’t have insurance. Debit cards cover only 13 percent of the population and credit cards, a mere 2 percent. “We are totally under-banked as a nation,” says Nachiket Mor, former president of ICICI Foundation for Inclusive Growth.

But the buzz has begun. Today, everybody is talking about financial inclusion. The regulators, like the Reserve Bank of India, are giving it a fresh impetus and making it easy for bankers to take financial services to sections previously considered unviable. Technology is making it easy for the poor people to get bank accounts and transfer money without getting overwhelmed at the prospect of visiting a branch. Microfinance institutions (MFIs), which have played a large part in creating this buzz, are taking services deeper — to the poorest parts of Bihar and even some Naxalite-infested regions, for instance. Banks, both public and private, are appointing agents to offer financial services through kiosks and grocery stores.

“There is a new financial system coming together,” says Kaushik Basu, chief economic advisor in the finance ministry. “We want to have financial inclusion in a relatively market oriented way and there is a lot of imaginative work going on which could have a dramatic impact.”

For the first time in India’s history, entrepreneurs and investors have joined hands with the government and the banking network to power financial inclusion. It is important that they keep in mind the lessons of the past — such as the pointlessness of ‘loan melas’ — and the lessons of the present — such as the missteps of microfinance companies — to bring about lasting change.

Source:- Forbes India Magazine