CHAPTER CHAPTER – –– VIIIVIIIVIIIshodhganga.inflibnet.ac.in/bitstream/10603/113342/14/14_chapter8.… · Chapter – VIII: Summary and Suggestions 203 cost. − H 9: Self Help

Chapter – VIII: Summary and Suggestions

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CHAPTER CHAPTER CHAPTER CHAPTER –––– VIIIVIIIVIIIVIII

SUMMARY & SUGGESTIONSSUMMARY & SUGGESTIONSSUMMARY & SUGGESTIONSSUMMARY & SUGGESTIONS


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In a developing country like India achieving inclusive growth is a mammoth

task. Indian economy has achieved phenomenal growth resulted from the territory and

secondary sectors during the last decade but this growth is not inclusive as the

benefits of economic prosperity have not trickled down to all the sections of the

society. RBI continued its focus on financial inclusion and financial literacy by

strengthening the credit delivery mechanisms to the targeted sections of the

population under different measures, initiatives and schemes. Inclusive growth always

received special emphasis in the Indian policy making. Governments of India and the

Reserve Bank of India have taken several initiatives to expand access to financial

systems to the poor. Some of the salient measures are nationalization of banks,

prescription of priority sector lending, differential interest rate schemes for the weaker

sections, development of credit institutions such as Regional Rural Banks, etc.

Despite the policy efforts, gap remains in the availability of financial services

in rural areas. The dependence of the rural poor on money lenders continues,

especially for meeting emergent requirements. Such dependence is more pronounced

in the case of marginal farmers, agricultural laborers, and petty traders and rural

artisans belonging to socially and economically backward classes and tribes whose

capacity to save is too small. Financial inclusion has been emphasized as an important

policy option aimed at alleviating poverty, minimizing social exclusion, enhancing

economic growth and is an important process to attain the goal of inclusive growth.

Financial inclusion is not just a matter of providing various financial products

and services to the excluded population but doing in a responsible manner. It is 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.

Review of Literature:

The researcher reviewed several books, journals, reports, records and other

literature relating to financial inclusion.

Need for the Study:

The review of literature on the financial inclusion leads us to make a few

conclusions like many gaps are identified in the demand side and supply side for


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promoting financial inclusion through micro finance institutions. Creating delivery

systems, usage of existing network and adopting ICT are some of the channels in

promoting financial inclusion. With about 19% of the State's population below the

defined poverty line, Karnataka has initiated various poverty alleviation programmes

both in rural and urban areas. While these programmes have resulted in a marked

decline in the number of the state's poor. Incidence of urban poverty is much higher in

Karnataka than in India as a whole for all the years. Financial infrastructure in the

state is robust with significant improvements being seen in key indicators such as

population per branch, credit deposit ration and priority sector advances. With

financial inclusion as an important policy initiative adopted by the state, the

government has initiated projects for financial inclusion through use of information

technology. Karnataka has been among the top three states in the country in SHG-

Bank linkage.

Urban Financial Inclusion (UFI) has not got the attention of GOI/RBI as a lot

of work required to be done to cover all the unbanked villages. However, now the city

wards have been allotted to bank branches under the Direct Benefit Transfer (DBT)

scheme of GOI. In Bangalore Urban District all wards in Bruhat Bangalore

Mahanagara Palike (BBMP) have been allotted by State Level Bankers Committee to

various banks, banks already started taking initiatives to move forward Urban

Financial Inclusion. That is why; a modest attempt has been made in this research

work to study financial inclusion initiatives taken by the different stake holders and its

impact. The study is intended to cover the financial inclusion initiatives taken by the

Government of India, State Government, Micro Finance Institutions and Non-

Government Organizations.

Objectives of the study are:

1. To examine the extent of financial exclusion in India

2. To understand the framework of financial inclusion policy and the phases of

financial inclusion in India.

3. To study various initiatives taken by the stakeholders to address the financial

exclusion.


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4. To study how microfinance institutions and technology is promoting financial

inclusion.

5. To analyse the progress of Self Help Group Bank Linkage Program.

6. To measure the operationalization of Basic Savings Banking Account.

7. To study the impact of Financial Inclusion initiatives on Self Help Groups,

Urban Self Help Groups, Micro Self Help Groups, Joint Liability Groups and

Individuals.

8. Finally to give successful strategies for improving the access to financial and

non-

financial services to underserved population.

Research Hypotheses:

The main hypotheses formulated for the study are as given below:

− H1: Bank branch penetration progressed the objective of achieving hundred

percent financial inclusion.

− H2: Existence of demand and supply side factors as hurdles in promoting

financial inclusion.

− H3: Micro finance institutions promoting financial inclusion has an impact on

the economic empowerment of poor people.

− H4: Availing credit from the formal financial system has improved the

economic conditions of the underserved population.

− H5: Financial inclusion initiatives taken by the stake holders have significant

impact on operationalization of Basic Savings Banking Account (BSBA).

− H6: The most important factors like savings, leadership qualities, credit

utilization, repayment, regular meetings and economic activities are

significant for the success of the Self Help Group Model.

− H7: The delivery channels like bank branches, NGOs, Joint Liability Groups,

Self Help Groups, Micro Finance Institutions and Business

Correspondents/Facilitators are significant to reach the unbanked and

underserved population.

− H8: Technology as a significant factor to minimize the transaction and service


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cost.

− H9: Self Help Group – Bank Linkage Program (SHG-BLP) is considered as an

important tool for inclusive growth.

− H10: The indicators like rapid urbanization, raising population, in-migration,

poverty, imbalanced growth in the rural and urban areas are significant

factors for the need of Urban Microfinance

Research Methodology:

To study the above research objectives case study and survey methodology

adopted. The study is based on both primary and secondary data. The primary data

collected through questionnaires and pre designed schedules. Primary data collected

by distributing pre designed schedules to self-help groups and micro self-help

groups(refer annexure I). By distributing questionnaires primary data collected from

bank managers(refer annexure II), joint liability groups and individuals(refer annexure

III). Secondary data have been collected from State Level Bankers Committee,

Reserve Bank of India, National Bank for Agriculture and Rural Development,

Planning Commission of India, Government of Karnataka, doctoral theses, referred

journals, working papers and research edited volumes.

Sampling:

Convenience data sampling is used to collect the primary data from the

respondents. Bangalore Urban district is taken for the study. Bangalore Urban District

comprises of five taluk’s Bangalore North, Bangalore North (Additional), Bangalore

East, Bangalore South and Anekal. 60 Joint Liability Groups, 120 micro self-help

groups, 120 matured self-help groups 76 bank branches and 40 individuals from all

the five taluk’s covered.

Statistical tools used:

The data collected through questionnaires and schedules are properly analysed

by applying the tools like ANOVA (Single Factor Analysis), Chi-Square Test,

Descriptive statistics and Percentages.

Limitations of the study:


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Any research by its inherent nature is bound to have some limitations and this

study is not an exception to that rule. The major limitation of the study is that it is

restricted to the Bangalore Urban District. However an effort is being made to

minimize the impact of this limitation by selecting the sample from all the five taluks.

As this study is based on the responses of the beneficiaries and bank managers there is

a possibility of personal bias. To minimize this impact cross reference questions asked

to the respondents. As financial inclusion is a process of ensuring access to financial

and non-financial services needed by vulnerable groups. In this study only few major

indicators and stake holders considered for in-depth study. With all these limitations

all the efforts are made to evaluate the impact accurately and objectively as possible.

Financial Exclusion:

According to Census 2011, out of 24.67 crore households in the country, only

about 14.48 crore (58.70%) of households had access to banking services. Out of

16.78 crore rural households only about 9.14 crore (54.46%) households were

availing banking services. To meet the credit requirements majority of the rural

households still depend on informal sources of finance particularly borrowings from

moneylenders. 13% adults borrowed from money lenders; and 32% from friends and

relatives. Gender disparity in terms of having bank accounts has not reduced as it is

observed majority of males have bank accounts compare to females. Majority of the

households have bank accounts but hardly they are using for savings and withdrawals.

43% of account holders did not make any deposits or withdrawals in their bank

accounts in the past year. 67% of account holders reported of not making a single

deposit in any typical month.

It is evident from the study that non institutional agencies played a vital role in

advancing credit. In rural areas except Tamilnadu State in the remaining states in

southern region is very high. In the urban areas Tamilnadu State percentage of

incidence of indebtedness is very high nearly 31.3 % of urban households accessed

the credit from the institutional agencies followed by Andhra Pradesh, Karnataka and

Kerala. The incidence of indebtedness was highest for the Backward Class (OBC)

households, 29% among rural and 21% among urban households. For Scheduled

Tribes (ST) the incidence was 18% in rural areas and 12% in urban areas. For

Scheduled Caste (SC) households this was 27% in rural areas and 19% in the urban


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areas. Overall in India among the social groups 27% of the rural households were

indebted and 18% of the urban households are indebted.

The lack of access to credit for the poor is attributable to practical difficulties

arising from the discrepancy between the mode of operation followed by financial

institutions and the economic characteristics and financing needs of low-income

households. For example, commercial lending institutions require that borrowers have

a stable source of income out of which principal and interest can be paid back

according to the agreed terms. However, the income of many self-employed

households is not stable, regardless of its size. A large number of small loans are

needed to serve the poor, but lenders prefer dealing with large loans in small numbers

to minimize administration costs. They also look for collateral with a clear title -

which many low income households do not have. In addition bankers tend to consider

low income households a bad risk imposing exceedingly high information monitoring

costs on operation. Microfinance institutions can broaden their resource base by

mobilizing savings, accessing capital markets, loan funds and effective institutional

development support.

Financial Inclusion:

India has been one of Asia’s fastest growing economies in recent years.

Despite this growth, data still shows that strong economic growth has not translated

into shared prosperity and better livelihoods for many Indians. The Government and

RBIs philosophy is sustainable development which recognizes and aims the growth to

be inclusive to be socially and politically sustainable. One key component of inclusive

development is financial inclusion, an area in which the country has been struggling.

Broadening access to financial services will mobilise greater household savings,

capital for investment, expand the class of entrepreneurs, and enable more people to

invest in themselves and their families.

There is a long history of financial inclusion in India. After independence, the

first initiative on financial inclusion was launched in July 1969 when 14 of the largest

privately-owned banks were nationalized. Bank nationalization marked a paradigm

shift as the policy aim was to take the banking services to the poor people. Access to

finance by the poor and vulnerable groups is a prerequisite for poverty reduction and social


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cohesion. This has to become an integral part of our efforts to promote inclusive growth.

Households need access to finance for several purposes, the most important being for

contingency planning and risk mitigation. Households build buffer savings for

retirement and purchase insurance and hedging products for insurable contingencies.

Once these needs are met households typically need access to credit for livelihood

creation as well as consumption and emergencies. Finally for wealth creation,

households require savings and investment products.

Financial inclusion initiatives have come from the financial regulators,

government and banking industry. Since the year 2005 RBIs has implemented many

policies and is more focussed followed structured approach to promote financial

inclusion in India. The following are some of the initiatives of RBI to promote

financial inclusion in India.

- RBI recognized the importance of banking industry as mainstream and

instructed all the banks to introduce a bouquet of products like savings,

payments and credit.

- Encouraged the bank led model for providing the financial access to the

unbanked population

- Instructed the regional rural banks to migrate to core banking platform.

- Deregulated fixing of interest rate on advances

- Domestic scheduled commercial banks are permitted to open the branches in

tier 2 – tier 6 towns.

- Mandated all the banks to open 25% of branches in the unbanked rural areas.

- Relaxed Know Your Customer norms (KYC) and minimum documentation

open no frills account.

- Encouraged SHG – Bank linkage programme.

- Set up Financial Stability and Development Council (FSDC) to focus on

financial inclusion and financial literacy issues.

- Banks are advised/encouraged to migrate to Core Banking System (CBS) to

provide remittances using electronic payments systems such as Real Time

Gross Settlement System (RTGS), National Electronic Funds Transfer (NEFT),

National Electronic Clearing Services (NECS), immediate payments Service

(IMPS) and Aadhar Enabled Payment Systems (AEPS).


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- Liberalised the mobile banking guidelines in December 2011, to facilitate

funds transfer for remittances and purchases.

- For developing viable, sustainable and affordable banking products and

services RBI has constituted a Financial Inclusion Advisory Committee (FIAC)

to leverage the experience and expertise of members who are from central

board of the RBI, NGOs and civil society.

- For building financial capability RBI has setup Financial Literacy Centres

(FLCs) and mandated the scheduled commercial banks to have minimum one

outdoor financial literacy program for bringing the financial discipline among

the adult population.

- Under the aegis of NSFE, a National Centre for Financial Education (NSFE) is

proposed to set up and will launch a website exclusively for financial

education.

- Advised all the commercial banks to submit board approved Financial

Inclusion Plans (FIPs) to make FIP as integral part of banks corporate plans.

- For providing anywhere and anytime banking services RBI encouraged

electronic payment systems by drafting 'The payment system Vision

Document 2012-2015'.

- Provided guidelines for appointing Business Correspondents (BCs) where

there is no availability of branches. Encouraged BC model to promote

financial inclusion in the villages.

- Advised the banks to setup intermediate brick and mortar infrastructure in

rural areas as a base branch for cluster of BCs

- To facilitate financial inclusion interporability was permitted at the retail

outlets or sub-agents of BCs

Government of India increased the financial access through Reserve Bank of

India (RBI) especially by the way of priority sector lending. GoIs National Rural

Financial Inclusion Plan (NRFIP) has set targets to achieve complete financial

inclusion through commercial banks, regional rural banks and Co-Operative banking.

The GoI is giving more importance to the financial inclusion which is evident from

the previous budgets. Directly advising banks and insurance companies to extend their

services to the remote areas. The Self Help Group-Bank linkage programme (SBLP);

Kisan Credit Card (KCC) scheme for farmers; Rashtriya Swashtya Bima Yojana


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(RSBY); financing and refinancing of various cooperative banks, regional rural banks

and public sector commercial banks that extend credit to rural clients, especially

farmers; and various state level programmes for extending credit to rural areas are

examples of more direct efforts.

During 2007-08 in order to improve credit delivery and to promote financial

inclusion RBI has number of initiatives. One of the initiatives is revision of priority

sector lending guidelines based on the draft technical paper by an internal working

group on priority sector lending chaired by C. S. Murthy in September 2005. Through

priority sector lending RBI ensured adequate flow of credit to the sectors like weaker

sections, employment intensive, agriculture, tiny and small industries. Majority of the

banks has not achieved the lending targets. Only foreign banks has achieved the target

(32% for foreign banks). During the year 2014 public sector banks achieved the target

of when compare to corresponding year it was only 36.2%. Private sector banks have

achieved more than the target rate with 43.9% when compared to previous year it was

37.5%. In terms of banks 10 out of 26 public sector banks, 4 out of 20 private sector

banks and 1 out of 39 foreign banks has not achieved the target of the overall priority

sector lending as on March 31, 2014.

RBI adopted the recommendations and advised commercial banks have SME

branch in every district where there is a SME cluster, to open more SME focused

bank branches, to achieve a target of 10% growth every year in terms of number of

micro enterprises accounts, to achieve 20% growth in terms of credit to MSMEs every

year.

The reasons behind the poor performance of priority sector advances in India

are firstly the nature of the loans under the sponsored programs, absence of security,

ineffective and costly legal recovery system, lack of follow-up due to large number of

accounts. Secondly social consideration and commercial considerations are important

for the priority sector lending in India. At present commercial banks have to

concentrate on the rural credit development mechanism so that majority of the

population will have accessibility to direct and indirect finance.

Public and private sector banks had been advised to submit board approved

three years Financial Inclusion Plan (FIP). These policies aimed at keeping self-set


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targets in respect of rural brick and mortar branches opened, BCs employed, coverage

of un-banked villages with population above 2000 and as well as below 2000, BSBD

accounts opened, KCCs, GCCs issued and others. RBI has been monitoring these

plans on a monthly basis.

The study observed that performance of the SHG-BLP is declining due to

many attributable reasons like decline in the formation of new SHGs, decline in the

number of SHGs formed under SGSY/NRLM/sponsored, increase in the awareness

level of SHGs of using savings for internal borrowings, continued decline in the

number of SHGs availing fresh loans, declining recovery performance of MFIs,

commercial banks raising NPA against the loans disbursed to SHGs are some of the

reasons.

RRBs as local institutions well suited for achieving financial inclusion and

played a critical role in the multi-agency approach to delivery of agriculture and rural

credit in India. Co-Operative banks have also played a limited but important role in

the banking system of the country especially in the rural areas extended short term

and long-term credit. The Co-Operative Banks plays a crucial role in the process of

financial intermediation but at the same time they are vulnerable to disruptions

created by economic shocks. NABARD has taken various policy and developmental

issues to enable these institutions to with stand against economic shocks. To

encourage people from the unorganized sector to voluntarily save for their retirement

the Central Government launched a co-contributory pension scheme, 'Swavalamban

Scheme’. Setup of Financial Inclusion Fund (FIF) and Financial Inclusion

Technology Fund (FITF) with corpus of Rs.500 Crores each helped to setup financial

literacy Centre’s, farmers club, upscaling the activities of SHGs etc.

NABARD's SHG-BLP has shown the significant achievement in terms of

outreach and coverage of rural households. RBI through the policy efforts advised the

banks to consider the SHGs as business activity. GoI launched the three social

security schemes Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), Pradhan

Mantri Suraksha Bima Yojana (PMSBY) and Atal Pension Yojana (APY) aimed at

providing affordable universal access to essential social security protection in a


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convenient manner. The strategies adopted by the stakeholders are effective and they

have been able to affect financial inclusion in the economy.

Karnataka State has a fairly well developed financial infrastructure. Majority

of the banking business is from seven leading commercial banks. Currently there are

twenty six public sector banks, sixteen private sector commercial banks and three

regional rural banks are operating in Karnataka State. The ever growing demand for

institutional finance has resulted in the expansion of banking. The expansion has

resulted in better access to financial services. As on 31 December 2014 there are 9844

branches comprising of 3713 branches in rural areas, 2315 in semi-urban, 1943 in

urban areas and 1873 in Metropolitan areas. Over all there is an increase in the branch

network, but in the urban and metropolitan areas there is huge variation in terms of

number of branches. During 2012-13 there is a variation of 34 branches in the urban

areas and 66 branches in metropolitan areas increased drastically to 163 branches in

urban areas and 166 branches in the metropolitan areas during the period of 2013-14.

In the last couple of year there is increase in branch network in the rural, semi

urban and urban areas. As on 31 December 2014 deposits and advances registered

positive growth. Deposits with 20.33% when compared to previous year it was

15.30%, advances growth rate increased to 16.93% when compared to 2012-13 it was

16.21%. Credit Deposit (CD) Ratio stood at 73.45. It is observed that during the

period 2012-13 there is a negative growth of -5.14% to total advances increased

drastically to 15.27% during the 2013-14 December end. Improvement in the

agricultural advances to weaker sections, SCs, STs and advances to education

marginally increased year after year. In terms of deposit mobilization and in gross

credit flow Karnataka State has done fairly.

In Karnataka State there are 23126 unbanked villages identified with the

population below 2000 as per census 2001, has been provided with banking outlets. In

terms of provision of banking outlets in the villages with population above 2000, so

far as on 3395 unbanked villages identified and provided with banking outlets. 2870

banking outlets provided in the form of ultra-small branches and business

correspondent model, 499 brick and mortar branches and 26 banking through mobile

vans has been made available to access the financial services provided by banks.


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Karnataka has been among the top three states in the country in SHG-BLP. The State

Government through its Women and Child Development Department (WCDD)

through its mission empowered 9,00,000 families as on 31 March 2014.

According to Census 2011 Bangalore has an estimated population of

96,21,551 persons, 18th populus city in the world and the fastest growing metropolis

after New Delhi in India. Bangalore district’s population ballooned 46.68 per cent

over the past decade to around 9.59 million in 2011. The district today with 15.69 per

cent of the state’s population. This, despite the thrust of the state on deflecting growth

towards tier II and tier III cities in the state. 4,378 persons cram every square

kilometer space of the district110. Bangalore is dealing with many problems that

come from growing very rapidly in a developing country, including social inequality,

an increasing number of slums, public health crises from sewage issues and water

shortages, and mass displacement. Much of the population growth in Bangalore is due

to migration from other states, which has increased tension between locals and

immigrants.

Bangalore also has a much skewed female-male gender ratio: 908 women for

every 1,000 men. It also has the lowest work participation rate among women, with

just 24% of women working. Interms of population and area wise Bengaluru City

ranks no.1 with share of 87.76%. The levels of poverty in Bangalore are growing

faster than the technical industry. More and more people inhabit the city attracted to

its industrial growth. Bangalore is a place where extreme poverty exists directly

alongside wealthy high-tech culture. While globalization has brought some

opportunities to some sections of the urban lower classes in Bangalore, there is as yet

no substantive analysis of the precise nature of these opportunities, and more

importantly, whether these translate to increased access to economic and social

resources for the urban poor and their progeny.

It should be noted that large sections of the urban underclass in Bangalore

have remained untouched by the process of globalization which appears to have

offered no significant opportunities to those, for example, which have only unskilled

labor to sell. According to official statistics from the Karnataka Slum Development

Board (KSDB), the state has 2,796 slums housing 40.5 lakh people. With the


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expansion of Bangalore, the slums have also increased, taking the official number of

slum from 473 in 2003 to 597 in 2013. 13.86 lakh out of 84.25 lakh people in

Bangalore, which is 16.45%, live in slums. Bangalore's situation is different from

other cities, as it has many temporary (migrant workers living near construction sites)

and scattered slums, which are hardly counted by the officialdom. The poor migrate

from various parts of the country are flowing into the city. Except in the city in all the

four taluks inhabited and uninhabited villages exist. These villages if not provided

with basic amneties and employment, urban poverty may rise. As Bangalore has

highest number of industrial estates, towns and units which has provided employment

opportunities to the unskilled labors attracted population from rural areas. In

migration continuously rising. The population in the Bangalore city is ballooning with

unexpected rate. To meet the requirements growing population is mammoth task.

The performance of the SHG Bank Linkage Programme in Karnataka is steady

and progressive. Every year formation of new SHGs and linkage by banks is

increasing. Even in terms of loan disbursement to SHGs also increased since from

inception. As SHG-BLP is considered an important tool for inclusive growth,

stakeholders of the programme like commercial banks, RRBs, Cooperative banks,

MFIs and NGOs played a vital role in the performance and success of the SHG-BLP

in Karnataka State. Savings linked number of SHGs is increasing with commercial

banks when compared to RRBs and Co-operative banks. In terms of credit linkage of

SHGs commercial banks performed well compared to RRBs and Co-Operative banks.

As it is mandatory to scheduled commercial banks to monitor closely the performance

of the SHGs and their income generating activities. Overall the banking sector in

Karnataka state has scaled up the SHG-BLP in terms of number of SHGs and loan

disbursement but commercial banks and co-operative banks played vital role in

scaling up of SHG-BLP in the state. Overall in Karnataka State public sector banks

performed well in promoting the SHGs. As the objective of the cooperative banks and

RRBs is to provide access to financial services where there is no bank penetration.

Because of the initiatives taken by the public sector banks like setting up of the rural

branches, rural banking strategies, no frills accounts, technology, BC model etc.

helped public sector banks to perform well.


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The economic activities taken up by the SHGs enhanced the consumption and

expenditure pattern of the members. Through the additional income members are able

to acquire low value assets, as there is a relationship between the formation of group

and individual household income. Collective and collaborative decision making

helped the groups to perform well in meeting the group objectives without leader and

group representatives. Equal opportunity in the group and making the members to

participate in the decision making process and group activities contributed to the

transformation of the group from micro to matured self-help groups. Weekly meetings

helped the members to review their performance, solving the individual member’s

problem, guiding the members, supporting the members to achieve the group and

individuals objectives.

In the case of matured SHGs and micro SHGs basic literacy and illiterates are

also able to manage the group activities with the support from the children, family

members, friends and representatives from the MFI, NGOs and banking institutions.

Household occupation is one of the main indicators as it is the basic source of income.

Without income it is very difficult to meet the basic requirements of the household.

Majority of the women who join the SHGs are unemployed and joined to generate

additional income to meet their financial requirements.

SHGs are not only availing the credit but also saving to meet their financial

requirements. Majority of the members are not only using credit for income

generating activities, but also using for personal consumption like providing

education for children, loan for marriage, constructing house, to meet the hospital

expenses and to buy low value assets. From the analysis it is found that majority of

the SHGs are not maintaining the complete records due to the lack of skill and basic

literacy.

SHGs and members opined that requirements like income generating ideas,

skills to run the business, marketing facilities, child welfare services, credit, housing

and training to improve the group and individuals performance. It is found from the

study that after joining the SHGs asset acquisition in the low value assets observed.

SHG member’s economic and social status improved. Sustainable livelihood activities

helped the members to overcome the poverty level.


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The financial inclusion objective has an impact on the inclusive growth by

providing financial services to the organized group. Access to the financial services

empowered the women and contributed to achieve the inclusive growth and

development of the economy.

Urban development in Karnataka State is assuming more importance due to

the rapid urbanization. If urbanization is not tackled properly it gives rise to various

issues like urban poverty, rising urban slums, difficulty in providing the basic

services, more demand for urban education and healthcare. Karnataka India's 7th most

urbanized state in India as per Census 2011 nearly 38.57% population reside in urban

areas (refer table). The population has grown by 31.27% between 2001 and 2011

compared with 28.85% which indicates the rapid urbanization in Karnataka.

In the State Bangalore district tops in terms of urbanization with 91%.

Population living in urban slums in Karnataka state has risen from 14.02 lakhs to

32.91 lakhs (Census, 2011). Bangalore district itself has 21.5% of the total slum

population. Urban micro finance plays a crucial role in providing the sources of

livelihood in the urban areas and urban slums. Rapid urbanization and rural and urban

regional imbalance growth, decreased agricultural and farm activities, increased

employment opportunities in the urban areas and in migration contributed for the

rising urban poor population in Bangalore.

Group based lending is one of the most novel approaches of lending small

amounts of money to a large number of clients who cannot offer collateral. The size

of the group can vary, but most groups have between four to eight members. The

group self-selects its members before acquiring a loan. Loans are granted to selected

member(s) of the group first and then to the rest of the members.

Most MFIs require a percentage of the loan that is supposed to be saved in

advance, which points out the ability to make regular payments and serve as

collateral. Group members are jointly accountable for the repayment of each other’s

loans and usually meet weekly to collect repayments. To ensure repayment, peer

pressure and joint liability works very well. The entire group will be disqualified and

will not be eligible for further loans, even if one member of the group becomes a


215

defaulter. The creditworthiness of the borrower is therefore determined by the

members rather than by the MFI.

The study concludes that the financial and non-financial services provided by

the urban micro finance institutions have an impact on improvement of economic and

social status of the urban poor. The impact factors like consumption level, standard of

living, income generation activities, income and occupation strengthened the need for

urban microfinance. After joining JLG members were now able or better financially

resourced to send their children to school provide educational materials for their

children, access healthcare facilities or provide clothing to their family.

Again a majority indicated they now had better housing conditions and can

now participate fully in communal activities due to their improved financial stand.

MFIs provide education and training to their clients, as well as support their micro-

enterprises. Clients must be given training in financial literacy and money

management so that they can meet both their business and personal needs. The access

to finance for unbanked in Indian economy is available through the intermediaries like

SHGs & MFIs. Even the commercial banks like private, foreign banks, public sector

banks and non-banking companies integrated and using technology in delivering the

financial services to unbanked poor. It is found that most of the MFIs use either paper

based or excel based method to track the accounts. Few banks partnered with MFIs in

providing access to finance for unbanked. Inspite of such initiatives also a large

segment of population is excluded.

In Indian economy business correspondents (BC) model is very popular where

Bcs will provide the access to finance with the help of ICT (Information,

Communication & Technology). As technology is the platform which will connect the

masses and remote areas in providing access to financial services. For providing

banking services through technology and information technology (IT) solutions will

have an impact on financial inclusion initiatives and also enables banks to increase the

volume of transaction. The usage of existing mobile communications will bring down

the cost and increases the operational efficiency.

In India all most all banks got enough financial resources and expertise in

operating. These banks should invest in technology and R & D (Research &


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Development) in developing low cost banking facilities for the rural and semi urban,

which brings the excluded people into included.

In India telecom companies have advantage over commercial banks, MFIs and

SHGs in reaching unbanked poor. In India most of the unbanked poor have informal

access to finance many of them are poor but own a mobile phone.

The “no-frills account” (NFA) has been one of the landmark financial

products which allowed financially excluded individuals to access banking services

for the purpose of savings and also had credit feature in the form of overdraft facility.

To ensure that more and more people come within the banking fold and realizing that

there is some stigma attached to the NFA, it is now felt that banks should offer all the

customers a “basic savings deposit account” with certain minimum common facilities

and without the requirement of minimum balance.

Majority of the unbanked population opened the account to receive the

payments from the government schemes and subsidies. In case if account holders stop

receiving the payments, there is a problem of dormant accounts and also it will

increase the operational cost to the banks. Bank managers opined that they require

more human resources, separate information system, and updated technology and also

opined that if they maintain separate records, banks can measure the performance and

achievement of financial inclusion objective. Bank managers are also opined that

accounts opened by BF/BCs are not operational, in few areas they have achieved

100% and in few areas savings are very low with less number of transactions.

As in the case of Bangalore district, majority of the customers lack income

generating activities and few customers opined that when they have additional income

they save in the account. Due to the lack of regular income majority of the customers

opened the BSBA only to receive the payments, wages and subsidies from the

Central, State Governments and from other agencies.

Suggestions:

SHG Bank Linkage Programme in Karnataka State:


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H0: Since from the inception SHG-BLP in Karnataka State there is steady progress in SHG

credit linkage and loan disbursement

H1: There is no steady progress in credit linkage of SHGs and loan disbursement to SHGs

SHG Bank Linkage Programme in Karnataka is steady and progressive. Every year

formation of new SHGs and linkage by banks is increasing. Even in terms of loan

disbursement to SHGs also increased since from inception. As SHG-BLP is

considered an important tool for inclusive growth, stakeholders of the programme like

commercial banks, RRBs, Cooperative banks, MFIs and NGOs played a vital role in

the performance and success of the SHG-BLP in Karnataka State. Hence null

hypothesis accepted.

Banking sector played vital role in linkage and mobilization of SHGs savings:

Ho: Commercial Banks, RRBs and Co-Operative Banks played vital role in linkage and

mobilization of savings.

H1: Commercial Banks played vital role in linkage and mobilization of savings in Karnataka

State.

H2: RRBs played vital role in linkage and mobilization of savings in Karnataka State.

H3: Co-operative banks played vital role in linkage and mobilization of savings in Karnataka

State

From the study it is clearly evident that savings linked number of SHGs is

increasing with commercial banks when compared to RRBs and Co-operative banks.

Hence Alternative hypothesis H1 is accepted as commercial banks outperformed than

RRBs and Co-Operative banks in terms of savings linked SHGs. It is suggested that

NABARD and Government should provide refinance support to these banks whereas

inturn these banks will lend to the SHGs.

Credit linkage by various banks in Karnataka:

Ho: SHGs Credit linkage by the banking sector scaled up SHG-BLP in Karnataka State.

H1: SHGs Credit linkage by the commercial banks scaled up SHG-BLP in Karnataka State.

H2: SHGs Credit linkage by the RRBs scaled up SHG-BLP in Karnataka State.

H3: SHGs Credit linkage by the Co-Operative banks scaled up SHG-BLP in Karnataka State.


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From the study it is evident that in terms of credit linkage of SHGs

commercial banks performed well compared to RRBs and Co-Operative banks. Hence

alternative hypotheses H1 and H3 is accepted. It is suggested that RRBs in the state

has to concentrate on credit linkage of the SHGs and also RRBs has to give incentives

to increase the number of SHGs with credit linkage.

Promoting SHGs under SHG-BLP in Karnataka State:

Ho: Agencies like public sector banks, private sector banks, regional rural banks and co-

operative banks actively promoting SHGs in Karnataka State.

H1: Public Sector Banks are actively promoting SHGs in Karnataka State.

H2: Private Sector Banks are actively promoting SHGs in Karnataka State.

H3: Regional Rural Banks are actively promoting SHGs in Karnataka State.

H4: Co-Operative Banks are actively promoting SHGs in Karnataka State.

It is clearly evident from the study that public sector banks performed well in

promoting SHGs compared to Co-operative banks and RRBs in Karnataka State.

Hence alternative hypothesis one is accepted. It is suggested that Co-operative banks

and RRBs has to take initiatives like setting up of the rural branches, rural banking

strategies, no frills accounts, technology, BC model etc.

Literacy among the SHG Members:

Ho: Financial Literacy as an important factor for taking financial decision for

economic development of SHGs

H1: Without basic literacy also SHGs are good in taking financial decision making

As the chi square calculated value is 6.67 which is greater than critical value at

5% is 6.64. Hence alternative hypothesis is accepted. There for it can be concluded

that without basic literacy also SHG members are able to take financial decisions.

Therefore it is suggested to MFI that they should continue the literacy programs and

awareness programmes regularly not only on the aspects of financial literacy and also

on the sustainable activities and health care

Occupation of the SHG members:

Ho: Women join SHGs to generate additional income to uplift their family economic

status.


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H1: Lack of income is a factor which is motivating women to join the SHGs

As the chi-square calculated value is 12.93 which is greater than the critical

value at 5% is 7.82. Hence alternative hypothesis is accepted. Therefore it is

suggested to MFI, NGOs and Government to provide sustainable income generating

opportunities.

Leadership / Group Representatives in the SHG:

Ho: Having Leaders/Group Representatives will improve the activities taken up by the

SHGs

H1: Without leaders/group representative collaborative participation will improve the

activities taken up by the SHGs

The chi-square calculated value for the above factor is 60, which is greater

than the critical value at 5% is 3.84 and also greater than when critical value at 1% is

6.64. Hence alternative hypothesis is accepted. It is suggested to MFIs instead of

appointing group leader through MFI, let the SHG decide leadership role or

encourage the SHG members to participate in all the activities and decision making

actively.

Credit Utilization:

Ho: SHG members availed credit for business purpose and for taking up income

generating activities

H1: SHG members utilized credit not only for income generating activities but also for

personal requirements.

As the Chi Square calculated value is 64.13 greater than the critical value @5%

12.59 and at 1% critical value are 16.81. Hence alternative hypothesis is accepted. It

is suggested to MFIs to develop varied products which can meet the financial

requirements of the members. Also suggested that SHG members has to utilize the

credit for the purpose SHG has availed.

Book Keeping and Records Maintenance:

Ho: Book keeping and records maintenance is followed by micro self-help groups

H1: Minimum documentation is maintained by micro self-help groups


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The chi-square test significance of the members in maintaining book keeping

and records as 960 which is greater than the critical value at 5% is 13.28 and at 1%

are 7.78. Therefore it is suggested that SHGs has to maintain the proper

documentation and also they have to follow the guidelines given by NABARD. And

also the records of members and SHGs should be updated periodically.

Economic activities taken up by the self-help groups:

The sustainable income generating activities are in the form of petty business,

vegetable vending, provisional stores, tailoring, pickle making, hand crafts etc. These

groups are creating their own sustainable livelihood opportunities to generate income

on a sustainable basis. From the data it is observed that SHGs have taken up these

economic activities based on the availability of local resources, opportunities for

business and member’s individual entrepreneurial skills. It is suggested to MFIs that

they have to concentrate on developing the entrepreneurial skills, organizational

management and financial management practices. And also MFIs has to develop

group based community activities which are in the nature of sustainable income

generating activity.

Future Requirements of SHGs:

As there is huge requirement from the members. Therefore it is suggested that

MFIs has to organize workshops, training programs and awareness programmes on

income generating activities, sourcing the raw material, business improvement,

marketing and sales, education, housing and skills upgradation

Joint Liability Groups:

After joining JLG members were now able to meet their financial requirement.

The member’s social and economic status has improved after joining the JLG.

Therefore the study has stressed on the need of the urban microfinance in Bangalore

district as it is considered one of the important tools to eradicate extreme poverty. It is

suggested that stakeholders like MFIs, NGOs, NABARD, Banks and Government has

to concentrate in identifying the urban poor by supporting them with credit to take up

income generating activities to generate additional income. Clients must be given


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training in financial literacy and money management so that they can meet both their

business and personal needs.

Operationalization of the Basic Savings Bank Account (BSBA):

Ho: Financial Inclusion initiatives has increased the usage and access to banking services in

Bangalore Urban district

From the anova single factor significance test it is clearly evident that F value is

greater than F critical value. Hence null hypothesis is rejected. Therefore it is

suggested to banks that to increase the usage and access of BSBA, banks should

create awareness among the vulnerable population about the importance of savings,

developing savings behavior, educating about the various banking products, schemes

and other non-financial based services provided by the banks. With minimum

documentation, banks should process the loan applications and should provide credit

at right time. Banks should develop affordable credit products linked with savings

account. Low interest credit products will attract the population towards the bank,

who are dependent on local money lenders. Providing access through ATMs, POS

devices, mobile banking, any bank any branch model will help the account holders to

access and usage of banking services. Banks should develop self-banking practices to

increase usage of BSBA.

Opening BSBA through various channels:

Ho: Savings accounts opened through various channels like NGOs, MFIs, SHGs and

JLGs contributed for speedy financial inclusion process.

H1: Financial inclusion schemes and benefits under financial inclusion objective has

attracted more number of unbanked population to open BSBA

Opening of BSBA through various channels like NGOs, JLGs, SHGs and

MFIs. Majority of the commercial banks opened the savings accounts through various

channels. These channels helped for speedy financial inclusion. The anova test

signifies that F value is greater than F critical value, hence null hypothesis is rejected.

Therefore it is suggested that banks need to educate the customers about the

importance of the savings, banking products, access and usage of account through

various modes will help the customers; and also enhances the access and usage of

banking account and banking services.


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Operationalization of BSBA through Business Facilitator/Business

Correspondents:

Ho: Appointing Business Facilitators/Business Correspondents helped the

operationalization of BSBA in Bangalore Urban District

From the study anova significance test of appointing BF/BC to improve the

operationalization of BSBA resulted that F value is greater than F critical value.

Hence null hypothesis is rejected. It is suggested to banks that instead of

concentrating on the number of accounts they have to concentrate on the financial

viability of operations through BF/BCs. Banks need to provide minimum knowledge

on the banking operations so that they can train and educate the customers. Providing

fixed pay to the BCs will help in meeting their operational expenses. Allowing BCs to

charge nominal fee on the customers for providing different services which will make

the customers to use the services properly. Effective use of BF/BCs channel will

improve the operationalization of the BSBA in the Bangalore Urban district.

Branch Policy in delivering the services to the BSBA holders:

Ho: Bank branch managers are not risk cautious in providing the products and

services like general purpose credit card, overdraft facilities and credit to BSBA

holders

H1: Bank branch managers are risk cautious in providing the products and services

like general purpose credit card, overdraft facilities and credit to BSBA holders.

The anova significance of the branch policy in providing the services to the

BSBA holders shows that F value is greater than F critical value, hence null

hypothesis is rejected. It is suggested that bank branches should educate the

customers on financial education, usage of the credit card and terms and conditions of

credit products. Even bank branches should educate the account holders when they

will get eligibility to avail certain products and services. Bank branches should

educate through campaigns in their locality also by leveraging the financial literacy

Centre to bring awareness about the products and services among the customers will

improve operationalization of BSBA. Public should be made aware of the benefits of

operative accounts. Banks should have mechanism in the case of overdraft NPA shall

be ineligible for all aadhar linked subsidies and invalidate insurance cover. Banks


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should also encourage the customers for routing of all family savings through the

account. Banks should give higher OD facilities when the customers bring the account

into credit balance at least once in a year (not by one-time credit shall make the

account eligible for an increased overdraft limit. A short term consumption loan with

regular repayment linked to SB Account will be a better option with higher loan on

every renewal.

Leveraging Technology:

In this era technology is driving the business growth and improving

performance. In India every sector is leveraging technology to grow in the industry.

The Microfinance industry is not left behind. Minimizing operational cost is challenge

in promoting financial inclusion; this is possible only by adopting and integrating with

the technology. It is found that most of the MFIs use either paper based or excel

based method to track the accounts. The appropriate use of technology will help the

service providers in reducing the operating costs. Now the biggest challenge in front

of the service providers is to develop scalable and independent technology solutions.

India at this stage has to adopt best practices from around the world in bringing

excluded people in to the inclusion by leveraging the technology and existing

telecommunications network.

Developing low cost banking facilities to the rural and semi urban people will

bring the excluded people into included. RBI has to liberalize some of the legal

requirements so that other than banks, other institutions which have physical presence

in remote areas may accept the deposits. The issues like affordability of technology,

scalability, reliability and security has to be solved in promoting financial inclusion

through technology. Technology is an essential tool for MFIs in reaching underserved

in remote areas and helps in lowering operational costs, increases efficient use of

resources and cost effective.

The account holders with little knowledge about the banking products and

services need personal attention from the officer to make them to understand the

operation and usage of the account. When teller is provided to advice and guide the

poor households there may be a possibility of enhancing the operationalization of

BSBAs. As majority of the banks are concentrating on the delivery of services


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through technology to reduce the operational cost. When it comes to customer

satisfaction, account holders are satisfied when their queries are attended by an

officer. To achieve the objective financial inclusion, banks are opening number of

branches in the unbanked area. To serve in the unbanked areas banks need

infrastructure and manpower to provide access to banking services. The real goal of

ICT in banking is not just to provide access to technology, but linking communities

together in the long run.

Mobile Banking:

The study observed that majority of the respondents are comfortable with

physical banking and banking operations through ATM. Stakeholders has to educate

and encourage the customer to utilize and access the financial services through mobile

banking. Though the mobile penetration is very high in the Bangalore district still

majority of the population are using traditional way of banking. With regard to mobile

banking certain issues like affordability of technology, scalability, reliability and

security has to be solved, in promoting mobile banking through technology. Banks

should concentrate on resolving the grievances and complaints received from the

customers with respect to technical defaults. Banks should also improve the service

reliability through network system testing and by developing user interface mobile

banking applications. It is also suggested to develop the mobile banking application in

the regional language so that customers with low literacy also can operate the mobile

banking application.

Access to financial services:

Indian banking sector is both a driver and beneficiary of the strong macro-

economic growth that has been realized over the years. Banks play a crucial

intermediary role within the economy; gathering savings, then facilitating the transfer

of financial capital towards alternative productive uses in the form of credit. Banks

has to leverage the existing branch network and ATM network to reach customers far

and wide. Unbanked population should find the banking agent within the walking

distance. Banks should depute more bank mitras/business correspondents/banking

agents to reduce the access barrier.


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The quality of the financial inclusion is questionable as majority of the

customers opened the bank account as a storage tool. Instead of developing more

number of products banks has to educate and help the customers to navigate the

existing products in a more opportune way. The financial products and services which

are not used by the customers is meaningless. Banks has to develop certain products

(Example: emergency loan for meeting hospital expenses within 24 hours) which

actually meets the financial requirements of the customers. In the study as it is

observed that majority of the customers saving and borrowing for the same reason.

While lending to beneficiaries banks need to evaluate their financial requirements and

loan proposal, if the objective is same then banks need to educate beneficiary.

Financial inclusion is no longer about access, banks has to ensure that beneficiaries

are optimizing the usage of BSBA.

Priority Sector Lending:

The general perception of the banks is that 40 percent of the net bank credit

towards priority sector lending has led to the deterioration of efficiency and

profitability of banks. The reasons behind the poor performance of priority sector

advances in India are firstly the nature of the loans under the sponsored programs,

absence of security, ineffective and costly legal recovery system, lack of follow-up

due to large number of accounts. Secondly social consideration and commercial

considerations are important for the priority sector lending in India. At present

commercial banks have to concentrate on the rural credit development mechanism

and lending to the small and medium enterprises, so that majority of the population

will have accessibility to direct and indirect finance.

Microfinance:

On the basis of the findings of the study the following suggestions have been

made to improve the function and performance of the MFIs in Bangalore District.

- It is found from the study that the annual income of the respondents has

increased after taking the loan from micro-finance institutions. Hence the

Government should encourage MFIs to continue lending to the poor by

providing funds to them in form of grants and support these institutions for

overall growth in the society.


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- Banks has to increase the refinance support especially to Co-Operative banks

and regional rural banks.

- MFIs have to reduce the operational cost by setting up branch offices in the

different localities.

- MFIs have to concentrate more on the urban poor as majority of the

population in the Bangalore district is urban poor. As urban population is

rising drastically MFI has to consider this as an opportunity to tap the

unbanked population.

- As in the Bangalore district the presence of the top MFIs has created

competition in the microfinance industry. To sustain in the competitive market

MFIs have adopt client retention strategies by providing quality services.

- MFIs should ensure that the uniform distribution of micro financing in both

rural and urban areas.

- MFIs should avoid ambiguity in pricing the financial and non-financial based

services.

- MFIs should provide bouquet of products including credit, savings, remittance,

financial advice and also non-financial services like training and support. As

MFIs are acting as a substitute to banks in areas where people don’t have

access to banks, providing a complete range of products will enable the poor

to avail all services.

- By using new technologies and IT tools and applications MFIs can reduce

their operational cost.

Documents

CHAPTER CHAPTER – –– VIIIVIIIVIIIshodhganga.inflibnet.ac.in/bitstream/10603/113342/14/14_chapter8.… · Chapter – VIII: Summary and Suggestions 203 cost. − H 9: Self Help