Financial Literacy & Awareness: A Vehicle for Financial Inclusion

By

Rik Chakraborty

K J Somaiya Institute of Management Studies & Research

June, 2011

Financial Literacy & Awareness: A Vehicle for Financial Inclusion

By

Rik Chakraborty

Under the guidance of

Smt. Sushma Vij Dr. A.K. Pradhan Deputy General Manager Lecturer Reserve Bank of India SIMSR

K J Somaiya Institute of Management Studies & Research

June, 2011

Certificate of Approval

We approve this Summer Project Report titled “Financial Literacy & Awareness: A Vehicle for Financial Inclusion“ as a certified study in management carried out and presented in a manner satisfactory to warrant its acceptance as a prerequisite for the award of Post-Graduate Diploma in Business Administration for which it has been submitted. It is understood that by this approval we do not necessarily endorse or approve any statement made, opinion expressed or conclusion drawn therein but approve the Summer Project Report only for the purpose it is submitted. Summer Project Report Examination Committee for evaluation of Summer Project Report Name Signature 1. Faculty Examiner 2. PG Summer Project Co-coordinator

Certificate from Summer Project Guides

This is to certify that Mr. Rik Chakraborty, a student of the Post-Graduate Diploma in Business Administration, has worked under our guidance and supervision. This Summer Project Report has the requisite standard and to the best of our knowledge no part of it has been reproduced from any other summer project, monograph, report or book. Dr. A.K. Pradhan Smt. Sushma Vij Lecturer Deputy General Manager SIMSR Reserve Bank of India Central Office, Fort Mumbai 30.06.2011 30.06.2011

Abstract

Financial Literacy & Awareness: A Vehicle for Financial Inclusion

By

Rik Chakraborty

The Indian Banking Sector consists of 80 Scheduled Commercial Banks apart from Regional Rural

Banks (RRB), Co-operative Banks and Local Area Banks. The Scheduled Commercial Banks

consists of 26 Public Sector Banks, 22 Private Sector Banks and 32 Foreign Banks. There are

84,604 commercial bank branches including RRBs. However, out of 6, 00,000 villages in India only

99,840 villages are covered by banking services as of March, 2011. In other words 83.36% villages

in India are not covered by any banking services. With no exaggeration almost half of the

population of India is unbanked & rely on informal sources of credit. Lack of infrastructure,

literacy, proper financial products, and proper use of technology are some of the reasons for this

financial exclusion.

More specifically the vulnerable section of the society is totally illiterate & thereby it hinders

percolation of banking services to them. Over 25% of Indians continue to live in abject poverty. As

a result, Inclusive growth has become a national policy objective of the Union Government.

Financial inclusion is an important adjunct in this regard. But to achieve financial inclusion

financial literacy has to be promoted in a mission mode. Thus, it can be said that financial literacy is

a vehicle for financial inclusion & which in turn shall lead to inclusive growth.

As of now in India many organizations in an ad hoc manner are doing great work in promoting

financial literacy. But unfortunately neither any consolidated materials are present for promotion of

financial literacy nor is any model present.

This paper aims to develop financial literacy materials aimed at educating the vulnerable section of

the society. Along with the sample financial modules a sample model is developed suitable for

promoting financial literacy in India along with a road map.

Active discussion with the senior management of Reserve Bank of India, field visits to rural areas &

other resources have enabled me to complete this project. This is one of its kind projects & shall be

a part of the financial inclusion mission of India in the coming years.

I am thankful to Reserve Bank of India & K J Somaiya Institute of Management Studies &

Research for providing me this unique opportunity.

I dedicate this paper to the millions of poor people of India who are deprived of basic services in

every facet of life.

1

Table of Contents

1. Prelude .............................................................................................................................................. 2

2. Steps taken for Financial Inclusion .................................................................................................. 3

3. Financial Literacy & Awareness as a vehicle for Financial Inclusion ............................................. 4

4. Financial literacy materials ............................................................................................................. 5

4.1 Part I: Bringing People to the Bank ........................................................................................... 5

4.2 Part II: What Banks can do for the people ............................................................................... 17

4.2.1 Module I: General Awareness ........................................................................................... 17

4.2.2 Module II: Saving Facility ................................................................................................ 20

4.2.3 Module III: Credit Facility ................................................................................................ 22

4.2.4 Module IV: Insurance Facility .......................................................................................... 25

4.2.5 Module V: Remittance Facility ......................................................................................... 27

5. Trainers’ Corner ............................................................................................................................. 29

5.1 Guidelines ................................................................................................................................. 29

5.2 Trainers’ Material ..................................................................................................................... 29

5.3 The Approach ........................................................................................................................... 30

5.3.1 Beginners’ Course ............................................................................................................. 30

5.3.2 Experts’ Course ................................................................................................................. 30

5.4 Notes to Trainers ...................................................................................................................... 31

6. A model of spreading financial literacy ......................................................................................... 32

6.1 The Model ................................................................................................................................ 32

6.2 Some Essential Points .............................................................................................................. 33

6.3 Funding & Incentive ................................................................................................................. 33

6.4 Demystifying the model ........................................................................................................... 33

7. Sample models and/or success stories ............................................................................................ 37

8. Field Visits ..................................................................................................................................... 39

Visit I .............................................................................................................................................. 39

Visit II ............................................................................................................................................ 40

9. Road Map for Financial Literacy & Awareness ............................................................................. 41

10. Conclusion .................................................................................................................................... 42

11. List of Figures .............................................................................................................................. 43

12. References .................................................................................................................................... 44

2

1. Prelude

There are supply side and demand side factors driving Inclusive Growth. Banks and other financial

services players largely are expected to mitigate the supply side processes that prevent poor and

disadvantaged social groups from gaining access to the financial system. Access to financial

products is constrained by several factors which include: lack of awareness about the financial

products, unaffordable products, high transaction costs, and products which are not convenient,

inflexible, not customized and of low quality.

Financial Inclusion promotes thrift and develops culture of saving and also enables efficient

payment mechanism strengthening the resource base of the financial institution which benefits the

economy as resources become available for efficient payment mechanism and allocation. The

empirical evidence shows that countries with large proportion of population excluded from the

formal financial system also show higher poverty ratios and higher inequality. If we are talking of

financial stability, economic stability and inclusive growth with stability, it is not possible without

achieving Financial Inclusion. Thus, financial inclusion is no longer a policy choice but is a policy

compulsion today. And banking is a key driver for inclusive growth. However, we must bear in

mind that apart from the supply side factors, demand side factors, such as lower income and /or

asset holdings also have a significant bearing on inclusive growth. Owing to difficulties in

accessing formal sources of credit, poor individuals and small and macro enterprises usually rely on

their personal savings or internal sources to invest in health, education, housing, and entrepreneurial

activities to make use of growth opportunities.

Today we are talking so confidently about achieving universal financial inclusion. It is because

of the following reasons:

• The focus on inclusive growth which has become the mantra of the times

• The Information and Communication Technology required by the formal financial sector for

penetrating widespread unbanked areas in a cost effective way is now available;

• The realization that the “Poor is Bankable”. FMCG companies, telecom companies and

other retailers are all concentrating on the untapped rural markets for growth. Formal

financial sector players also have realized that vast untapped excluded areas have growth

opportunities not only for low cost deposits/funds but also for other products such as

micro‐credit, micro‐insurance, and micro‐pension etc.

(Source: Address delivered by Dr. K. C. Chakrabarty, Deputy Governor, Reserve Bank of India at the

National Finance Conclave 2010 organised by KIIT University on November 27, 2010 at

Bhubaneswar.)

3

2. Steps taken for Financial Inclusion

Banks are asked to formulate a board approved Financial Inclusion Plan (FIP) for the

next three years.

FIPs must be integrated with the normal Business Plans of the banks. Banking to the

poor is a viable business opportunity but a cost‐benefit analysis needs to be done by the

banks to make Financial Inclusion congruent with their Business Models. Banks must

view Financial Inclusion as a viable Business Model.

Banks must view Financial Inclusion as a huge business opportunity and perfect their

Delivery Models. BC based delivery model has been made more flexible and inclusive.

For effective implementation of the Financial Inclusion strategies, banks must fix

technology aspects first including completion of Core Banking Solution (CBS) in all

their branches and those of sponsored RRBs, and seamless integration of front‐end

devices with the back‐end systems. Without this, it would not be possible to scale up the

activities.

There is a need to increase the bouquet of products currently being offered. During

discussions on their FIPs, banks have been advised to provide a minimum of four

products to the account holder, viz:

a) A savings cum overdraft account

b) A pure savings account, ideally a recurring or variable recurring deposit

c) A remittance product to facilitate EBT and other remittances, and

d) Entrepreneurial credit products like a General Purpose Credit Card (GCC) or a

Kisan Credit Card (KCC)

Apart from these minimum basic products, banks can offer any other product like

insurance, mutual funds, etc. to the account holders.

On the issue of coverage, for a village to be considered covered by banking services,

either a bank branch has to be present or a BC has to be visiting/present in that village.

There must be a bifurcation between villages with more than 2000 population and those

with less than 2000 population. The plan needs to cover in an integrated manner both

categories of villages. The name of the BC / branch covering a particular village needs to

be indicated on the banks website.

Special focus on Financial Inclusion at Urban and Metro centers through a functional

approach.

Involve all the stakeholders in the process. Governments, both Central and State, NGOs,

technology vendors, Industry Associations, Insurance and Mutual Fund companies,

society at large

RBI’s efforts have been to remove all regulatory bottlenecks for facilitating greater

Financial Inclusion.

4

3. Financial Literacy & Awareness as a vehicle for Financial Inclusion

India's population as on 1 March 2001 stood at 1,028 million. For the purpose of census 2001, a

person aged seven and above, who can both read and write with understanding in any language, is

treated as literate. A person, who can only read but cannot write, is not literate. The results of 2001

census reveal that there has been an increase in literacy in the country. The literacy rate in the

country is 64.84 per cent.

However, no such comprehensive data exists about the financial literacy. It has to be kept in mind

that the definition of financial literacy varies with the target audience. For example, when the target

audience is educated & upwardly mobile middle class then financial literacy aims to sensitize them

with regards to the intricacies of various financial products. But when the target audience is the

marginalized & vulnerable section of the society living under abject poverty then the goal of

financial literacy shifts to sensitize them on the very basic aspects of finance.

According to a 2005 World Bank estimate, 41.6% of the total Indian population falls below the

international poverty line of US$ 1.25 a day. Most of them have no fixed source of income & are

economically & socially vulnerable. In recent years, as delineated above, Indian government has

aimed to bring all and sundry under the ambit of financial services. The major roadblocks in this

regard are:

Lack of financial literacy & awareness

Lack of any single model for dissemination of such knowledge

Lack of synergy among SHG, NGO, Banks & Government

Many organizations in an ad hoc manner are doing great work in spreading financial literacy.

However, the impact is not felt in a significant manner. The Business Correspondent (BC) model is

gaining popularity in India & they are also used for spreading financial literacy. However, in many

cases neither the BCs are provided with appropriate training aids nor the banks are doing any

reinforcement learning for the BC & the local population.

This paper aims to put forward a practical model of spreading financial literacy. The structure of the

paper is given below:

Financial literacy materials

o In simple way banking concept is explained to the vulnerable section of the society

o Next in 5 modules viz. General awareness, Saving Facility, Credit Facility, Insurance

Facility & Remittance Facility we try to sensitize the rural & urban poor on the

various aspects of finance. The modules are quite succinct & written in a FAQ style

Trainers material

o This section has guidelines, resources & methodology for imparting the above

modules

A model of spreading financial literacy

o A simple model is proposed to spread financial literacy

Sample models and/or success stories

o A quick review of some prominent efforts made by some institutions with regards to

implementing financial inclusion

Road Map

o A final closing section giving road map for promoting financial literacy & awareness

5

4. Financial literacy materials

4.1 Part I: Bringing People to the Bank

Why do you think that God have made some people very rich & most people very poor?

God has given equal natural resources, mental & physical capacity to each & every person. Yet

we find some persons very rich & happy & most poor & unhappy. Have you ever thought about

the possible reasons?

Typically we blame everyone for our condition. But do you know that the real person to blame is

no one except Y-O-U-R-S-E-L-F.

But most of you work very hard & are sincere. What more can one ask?

You people work for money but the rich get their money work for them. Let us take a

simple example, consider two brothers Ram & Shyam.

Ram is very happy & rich. Shyam is very unhappy & poor. Most importantly both of them earn

the same amount Rs 2000. But still at the end of the month Shyam borrows from Money

lenders, vishi, relatives. But Ram never borrows from them.

We shall shortly look into the Ram & Shyam story.

Life Line Financial Needs

Believe it or not the above are the events that happen in every person’s life irrespective of

whether he is a crorepati or people like you. Each such event triggers the need of taking

financial assistance from some external source.

But self-help is the best help thus, before taking external financial assistance you need to

know about financial planning.

Fig: 1 Life Line Financial Needs

6

What is financial planning?

Many of you think that the only way to increase your income is to work more. Many of you work

in double shifts. But just reflect over this statement:

“Money not spent is money saved resulting in increased income”

Now you may think that by not spending money you shall have to face hardship. But it is

completely baseless. You can maintain or even enhance your current lifestyle and still be able to

increase your income through saving. The way of doing this is known as financial planning.

In the past 6 months how many cups of tea have you drunk?

If every day you drink 4 cups of tea then in the past 180 days you have drank 720 cups of tea.

Say each cup of tea cost you Rs. 4 then the total cost is Rs 2,880. Just pause & think whether

4 cups of tea is required in a day. Had you drunk 2 cups of teas every day then the expenses

would have been Rs 1,440 & you have saved an equal amount Rs 1,440.

4 cups of tea is what you wanted but basically you needed 2 cups of tea. Financial planning shall

enable you to differentiate between need & want & shall help in saving.

Learning is: “Money saved is money earned”

Why moneylenders are rich?

Most of you borrow money from money lenders. Say the moneylender has Rs 1000 & lends

money to 5 of you. Say each one of you borrows Rs 200. The condition is to repay within 1

month. He charges Rs 50 as interest.

Each one of you work hard & after 1 month return him Rs 250 i.e. principal & interest. Now,

moneylender has Rs 1,250. He has earned Rs 250.

Now wait it is your sweat & blood which made the moneylender earn Rs 250. In fact, he didn't

work for the money rather made his money work for him. The result is in front of you: He is

getting richer everyday & you poorer every day.

Learning is: “Work for your money & better if your money works for you”

Saving

Differentiating between what

you need & want

Making your money work for

youFig: 2 Simple perspective of Saving

7

How can the money work for me?

The moneylenders become rich by lending money to those who desperately need it. They charge

heavily for the same. Similarly, you can also lend money to those who need them. But there are

problems like, that person may run away with your money, may refuse to pay etc. You do not

have the might of a moneylender.

Do not worry you can keep your money safely with the banks. Banks are safe, transparent,

reliable & convenient to deal with. They shall lend the money to those who need them. Banks

shall return you the money along with some extra money. You do not have to worry about

anything the bank shall ensure timely payment.

Whatever we earn gets spent for daily necessities & many times we need to borrow

money from neighbors, relatives or vishis. What can we do?

Each one of you fills water in pitcher. Life is like a pitcher with a leak at the bottom of it.

The water flowing into the pitcher is your income & the water flowing out of the pitcher is

your expenses.

More the flow of water into the pitcher & lesser the flow of water out of the pitcher the sooner it gets filled.

Many of you earn very less & the expenses are more. Just compare this with a pitcher being

filled from a source with very weak flow of water & with a large leak beneath. The pitcher shall

never get filled rather it shall remain almost empty most of the time. Thus, you people borrow,

i.e. asks someone else to pour water into the pitcher to make it full. Those persons in turn

charge you heavily.

There are two options in front of you:

Increase the inflow of water, i.e. increase your income

Decrease the outflow of water by making the leak small, i.e. spend on necessities & not

on luxury items

Bank Saving

Recurring DepositDeposit small amounts

everyday, e.g. Rs 20 everyday

Fixed Deposit

Deposit a lump sum amount for a fixed

period of time, e.g. Rs 1500 for 5 years

Fig: 3 Bank Saving in simple terms

8

Now in the long run even if you put a check on your expenses, to live comfortably you have to

increase the income.

Now many of you are illiterate or semi-literate & do not have permanent job. Many of you have

the potential to start your own business. But lack of money prevents you. Also your current

financial health is poor.

Many of you borrow from informal sources like: Moneylenders, neighbours etc. But they are not

only costly but unreliable.

Much better alternative is if you come to a bank. A bank is a safe, reliable, transparent &

convenient institution which can help you by lending money on convenient terms.

Banks as a friend help you to meet your daily needs & start your own business & also

assist you to meet your aspirations.

Bank Credit

GCC/KCC

Start your own business

Meet your day to day household

needs

Education LoanEducate your

children

Farm tools LoanBuy tools to

cultivate your land

Housing LoanBuild your dream

house

Fig: 4 Bank Credit in simple terms

9

"Banks are your best friend & stands by your side in tough times. Best thing is the banks charge quite less than informal sources viz. relatives, friends, moneylenders, vishi, mukhiya etc." Before coming to a bank

After coming to a bank

Your Current state People who do financial planning

People who do financial planning & interact with the bank

Fig: 5 Improvement of Financial Status

Fig: 6 Difference after coming to a bank

10

Events like death, illness, accident, riot, flood, fire, earthquake, lockout etc happen & the flow

of income dries up. What can we do?

How many of you have never got wet in rain? Why you got wet?

All of you have got wet in rain & not once but many time. The most common reason is either you

never bought an umbrella or forgot to carry one.

At times you were so confident that it won't rain as the skies were blue. But to your dismay

within next few hours the skies got cloudy & it rained.

Remember those days in which getting wet in rain made you sick & you missed your daily wage.

What should you do?

Buy an umbrella….

Like rains YOU CAN NEVER PREDICT THE EVENTUALITIES IN YOUR LIFE. The only

solution is to carry an umbrella!!!!

Banks extend umbrella to you & also to your family at a very less cost.

Banks take care of you no matter whatever eventualities or crisis you face. This is

known as Insurance

At very affordable cost you can secure your family's & yours future by taking appropriate insurance policy from the banks.

Fig: 7 Insurance as an umbrella

Fig: 8 Choose the right umbrella

11

Banks are located far away & cater to the rich only. A lot of paper work is involved in banks. It

is better we continue our old habit of going to informal sources even if we have to pay a

premium.

Many of you travel few kilometers to fetch drinking water for your family. Shall you

fetch dirty water available in your neighborhood & allow your children to drink it?

Borrowing from informal sources and/or doing business with them is similar to drinking

contaminated water. The only difference being that after several years you shall realize your

folly.

Insurance helps you to be safe under any eventuality

Fig: 9 Benefit of Insurance

12

Banks often come to your doorstep…

Deal conveniently with moneylenders & regret for the rest of your life

Accept a little inconvenience & deal with banks & be happy for the rest of your life

Fig: 10 Bank Vs Moneylender

13

Do you mean banks shall come to our neighborhood?

Sometimes banks open their branches in your locality…

Most of the times there shall be someone from banks who shall be a bank representative

& shall visit your village. He may also be one among you…

USES

Banks have come to your doorstep don't miss this opportunity

Banks cater to the needs of all irrespective of their economic stature

Fig: 11 Bank at your doorstep

Fig: 12 Business Correspondent Model

14

My only son works in the city. He is security in charge and earns well but the money he sends takes a

lot of time. Can the banks do anything?

The banks shall help in delivering the money from your son to you in a safe, reliable, convenient

& transparent manner.

The banks transfers your money

Bank gets the money from you

Banks at your hometown receives the money

Your family receives the money

You get SMS confirmation

BANK

BANK

1

2

3

4

5

6

Fig: 13 Remittance Model in simple manner

15

The world is a small place to live!!!

Banks help you to send money to anyone you want living in any part of the world

The service is low cost, safe & quick as because you are dealing with banks

BANK

Fig: 14 The world is a small place to live

16

Ram & Shyam story Ram always visits the local bank but Shyam is too lazy to visit the same & often

makes fun of Ram. Instead, Shyam often borrows from informal sources & spends

lavishly.

Ram often used to warn Shyam about this. One day while returning from work Ram

found the local moneylender thrashing Shyam. He confronted the moneylender &

learned that Shyam has failed to re-pay the debts. Further, Shyam has mortgaged

his house & land to the moneylender. He has now come to take possession.

In reality Shyam never agreed to mortgage either the home or the land. Further,

he never took the amount of loan which the moneylender is demanding. Ram

understood what has happened. Shyam never looked into the paper work as he was

illiterate like Ram. The moneylender has cheated Shyam.

The world in which we live is very tough & heartless. Shyam had to let go the land

& house. However, Ram was kind enough to give shelter to Shyam.

On one evening Shyam asked how Ram never borrows from informal sources.

Ram explained to Shyam that two things he religiously followed throughout his

life:

Never spent on things which are not needed Always perform transactions with the banks

Initially Ram had barely two square meals a day. He went to the local bank &

applied for a credit. The officer at the bank interacted with him & gave some loan.

With the loan amount his household needs were met & he also started the cycle

repair shop.

Over the last 2 years his economic lot has improved a lot & now he has some left

with him. He went to the bank and asked for suggestion.

The officer advised him to deposit a part of the money with the bank & start

repaying the loan with the rest. Once the current loan is repaid he can take

another loan & expand his business. If he fails to timely repay the loan the bank

may sever all ties with him. Thus, Ram is very cautious & is keeping track of every

rupee spent. Bank is Ram's best friend & losing best friend is always a matter of

regret.

The officer advised him to deposit a certain amount regularly & told him that at

the end of some years the money shall grow. Once Ram starts earning even more

he can keep a lump sum amount with the bank. After a certain period of time his

money shall grow even more. He also asked Ram to take an insurance cover for his

family.

Shyam understood the importance of bank & why it is Ram's best friend.

17

4.2 Part II: What Banks can do for the people

4.2.1 Module I: General Awareness

Any individual on this planet has 3 basic needs, viz Food, Cloth & Shelter. We all aspire to be

millionaires but often it is a day dream. Many of you do not have a steady flow of income. Further,

the income of many of you is very meager. With every passing day the cost of living is increasing.

The price of necessary food items like rice, wheat, sugar, potato, onion etc have increased and shall

increase even further.

The cost of healthcare is also becoming very high. Many deaths happen due to lack of medical

treatment. Even at the subsidized rate it is quite costly to carry on medical treatment. It is very

tough to see your near & dear one pass away before your eyes.

All of you like any other responsible parent of India aspire to educate your children. You want to

see them successful in life & enjoy all the comforts in life that you have missed. Getting your

daughter married to an appropriate family is a dream shared by each one of you. But each of these

dreams needs money, lots of money.

Many of you live in poor conditions. The conditions of your houses are deteriorating with every

passing day. After a hard day of work you have to live in houses which become flooded in

monsoon, lack privacy & are very small for your family. You aspire for a better house.

Many of you have to borrow money for meeting some unforeseen requirements. You have to rely

on the local moneylender, who charges very high interest. To repay the debt you borrow again &

enter into a vicious debt cycle. It is very common to find your sons repaying the debts that you have

taken.

Many of you are the sole bread earner for your family. Unfortunately if the sole bread earner dies or

meets with an accident the whole family gets ruined.

Many of you have migrated to distant lands to earn more. But it is very difficult for you to send

money to your families. It is tough to find reliable persons. Often the money reaches late & the

family suffers. All your hard work goes waste.

But you are not alone; every 2 persons out of 3 in India share these concerns. You are working

hard, caring for your family, the government is also trying its best. But why all the efforts are

falling short. The reason is that you all have to become aware & take the control of your financials

in your hand.

Very few of you are literate. But don't think that you cannot take the control of your future. Believe

or not all the above concerns can vanish if you become little aware. The government has started a

new policy of financial inclusion & many persons like us have joined hands to help you all.

18

YOUR REQUIREMENTS & CHALLENGES

HIGH COST OF LIVING

CHILDREN'S

EDUCATION

DAUGHTER

MARRIAGE

PROPER HOUSE

BORROWER PRESSURE

EXPENSIVE HEALTH

CARE

SENDING MONEY

UNTIMELY DEATH

BANK

SAVING

FACILITY

INSURANCE

REMITTANCE

CREDIT

FACILITY

SAFETY

GUARANTEE

TRANSPARENT

GOVERNMENTREGULATION

EASY &

AFFORDABLE

Fig: 15 Your problems from all directions (Samasya Aato disha se)

Fig: 16 Your solutions from all directions (Samadhan Aato disha

se)

19

Spend all that isearned in a day

Borrow forconsumption need andeat your credit

Borrow heavily intimes of festival,marriage, sickness,death etc

Fall prey to the debttrap of moneylenders

Sell assets to repayyour debt & pass onthe legacy of unpaiddebts to the heirs

Lose assets in disasterslike flood, earthquake,riot, fire etc & resort tobegging

Work hard in remotelocations but themoney you send toyour family takes timeto reach & often failsto serve the purpose

Lead a life of misery,poverty & shame

Before Coming to Banks

Careful spending onthe needs & not on thewants

Borrow for incomegenerating purposeswhich in turn shallmeet yourconsumption needs

Plan well ahead &save money for suchpurposes. Also you cantake loan from banksto meet such purposes

Benefit from thesafety, reliability &transparency of banks,your true friend

Guidance from thebanks & a little effortfrom you helps inmanaging the debts &you will repay all yourdebts before you die &will also leave somesaving to your heirs

Benefit from insurance& get protected fromsuch events

Send money inrealtime to your family

Lead a life ofhappiness, wellness &pride

After Coming to Banks

20

4.2.2 Module II: Saving Facility

What is saving?

Sometime the municipal water may come for the whole day & sometime it may not come at

all. Do we stop using water? No we do not stop using water, we store water when water is in

plenty & use them up when it is scarce. This act is called saving.

What is financial saving?

Many of you do not have steady income. This means in some month, say you earn Rs 1000

& in the very next month you earn Rs 500. In the month in which you earned more you also

spent more on luxury items, say expensive meal, buying household items & clothing which

were not essential.

This is like wasting water on the day in which water came for all the day. The result is you

are left with no water on the very next day in which water has not come. Similarly, if you

spend more in the month in which you earn more you have to face great difficulty in the

next month, in which you earn only Rs 500.

Like storing water in bucket, if you save some money from Rs 1000 then you can use it in

the next month. Say, you save Rs 100. Thus, in the next month you have an additional

income of Rs 100 & the total income becomes Rs 600. Thus, saving is a form of additional

income.

Where to save?

You can save the extra money in your house. But someone may steal it or you may be

tempted to use up the money.

You can alternatively keep the money with your local moneylender. But he can cheat you

over a long period of time or he may run away with your money.

You have a very easy solution at your disposal. You can open a Saving Account with any of

the banks in your locality.

Benefits of a Saving Account

o Easy deposit & withdrawal of money

o A passbook maintaining all the details of the transactions

o Safety & transparency

o The money deposited by you earns interest & the money deposited by you grows

o You can appoint a nominee, who can claim the money after your death

o Allows you to have an accumulated fund for a future emergency situation

o Loan against the deposit

Other types of saving

o Fixed Deposit or Time Deposit

If you have a lump some money, say you have got bonus or maybe you have

inherited a sizable amount say Rs 1000 after the sale of your ancestral land, you

can deposit it as a fixed deposit. The durations range from 15 days to 10 years

o Recurring Deposit

You can deposit monthly a fixed amount of money which you can withdraw at

the end of stipulated period of time. Say, monthly deposits of Rs 100 for 5 years.

21

What is Interest?

The money which you keep with banks is not kept idle. The banks lend money to other

people. Those who borrow money from banks also pay some charge. A portion of that

charge is given to you.

Say, you deposit Rs 100 with a bank. The bank lends that amount to another person. He

pays, say Rs 10 as a charge to the bank at the end of 1 year. As soon as the bank gets the

money it gives you a share of it, say Rs 4.

This extra income which you get from keeping Rs 100 for 1 year with the bank is known as

interest. More precisely, this Rs 4 is known as Saving Interest. The person who has taken

the loan of Rs 100 has to give Rs 10 & it is known as Credit Interest.

What if a Bank cheats me?

All the banks are regulated by the governmental agencies & they have to keep a huge

amount of money with the government. It is very unlikely that banks can cheat you, but,

however, in the unlikely event of the banks cheating, you can raise a complaint & rest

assured the money shall be returned.

How to operate with the bank?

The Business Correspondents (BC) of your locality are carefully chosen by the banks &

they are regulated by governmental bodies. They shall guide you through all the banking

transactions. On opening a savings account you shall be given a Relationship Card. Verify

the authenticity of the BC through his identity card. Insert this in the machine carried by the

BC & authenticate through thumb impression. Choose the amount you want to deposit or

withdraw. Authenticate again with thumb impression & sign on the receipts generated &

keep one receipt with signature of authorized official.

Power of Saving

Say, monthly you can afford to save up to Rs 100. If you deposit it in a recurring deposit

scheme you may get Rs 7,289 at the end of 5 years. Surely this amount may help to mitigate

some of your problems.

[Source: http://www.indiapost.gov.in/netscape/5YearsRD.html]

How to keep track of monthly expenses & incomes?

A budget helps you control how much money you spend. This helps you save money. The

less you spend on little things like movie tickets, gambling or drinking, the more you have to

save for big things like farming tools, children's education and healthcare.

Say, your average monthly income is Rs 1000. Your expenses are monthly rent (Rs. 100),

conveyance (Rs. 50) and food & family expenses (Rs. 800). The excess Rs 50 is extra

money left with you & is your monthly saving.

Money Coming In Money Going Out

Wage Rs. 1000 Conveyance Rs.50

Rent Rs. 100

Food & Family Expense Rs 800

Saving Rs 50

Total Rs. 1000 Total Rs. 1000

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4.2.3 Module III: Credit Facility

What is Credit?

Suppose you want to start a small business of your own. The total cost of setting it up is say,

Rs 5,000. You are having this plan for the past 2-3 years. As you knew about saving, you

have opened a recurring deposit depositing about Rs 100 every month for the past 3 years.

Now you have a saving of about Rs 4,000. But still you need Rs 1,000.

You borrow the amount from someone & this is known as credit. But the person shall want

something in exchange. The amount that he charges is known as interest on the loan.

For anything I need or want can I get Credit?

The money which you receive as a credit is someone else’s hard earned money. Within an

agreed period of time you have to give back the money. Now if you have taken the money

and wasted it in gambling & drinking then how can you repay him?

He may punish you and also in future he may hesitate to lend money to people who really

need the money.

Thus, always borrow money either for a constructive purpose or when you are absolutely

sure that you can repay the loan within the stipulated time frame.

What can I do with the borrowed money?

You people have very low productivity, i.e. the output generated by you is meager. Say, if

you are a farmer then the amount generated from selling the crop & dairy yield is very less.

As a result of this you people earn less and the entire income goes in food & family

expenses. Thus, you have very less saving. Meager saving prevents you from buying better

seeds and/or farm tools. Thus, in the next season you people face the same fate.

If you borrow money then you can buy better seeds and/or farm tools. As result the output

increases, your income and thereby savings increases. Thus, credit gives you a slight push

which combined with your honest hard work brings prosperity to you & your family. In

the next season you can slowly start re-paying the loan from your increased savings.

The local moneylender does this, then why should we go to banks?

The moneylender charges very high interest & he may cheat you. He may ask you to sign

on blank paper & put any amount against your name. Say, you wanted to borrow Rs. 1,000.

He gives you the same amount but on the loan paper he puts Rs. 5,000. Then you become

legally liable to pay Rs 5,000 & the interest.

Many moneylenders may want you to keep something kept as collateral.

Fig: 17 Vicious cycle of poverty

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What is collateral?

The money which you shall borrow is someone’s money. Say you borrow from the

neighborhood moneylender. He may doubt your ability to re-pay the loan. Thus, he may

want you to keep something of value with him. Say, for a loan of Rs 1,000 he may want you

to deposit something worth Rs 500. As you need the loan you keep the ornaments of your

wife with him. The ornaments of your wife serve as collateral. That is if you do not re-pay

the loan entirely then he shall forfeit the ornaments.

After you repay the loan with the interest the moneylender should return the ornaments. But

sometime they may not. Again it may so happen that the business suffered loss & you failed

to repay the entire amount on time. Then also he shall keep the ornaments with him.

Do the banks lend?

Yes the banks lend money for various purposes. Like the money which you deposit with the

bank is in safe hands the loans are also transparent & reliable.

Benefits of availing bank credit.

o Much less interest charge

o Safe, reliable & transparent

o Strict government regulation

o Easy loan re-payment facility

o Credit counseling tailored to meet individual needs

o Flexible collateral requirement

o Loans are extended for various purposes

What are the various purposes for which I can avail loan

o Starting up a small business

o Children's education

o House building

o Buying of farm tools, like tilling machine or tractor

o Consumption loan

o Healthcare loans

Is a bank loan cheap than the local moneylender?

Yes. If you take a loan of Rs 100 from a bank it may charge you Rs 15 as interest at the

end of 1 year. But the local moneylender may charge anything between Rs 26 to Rs 1000.

How to understand the interest rate?

Say the local moneylender charges you Rs 2 daily on every Rs. 100. Now you typically

borrow small amount and also repay in a month or two. But do you know how much you are

actually paying?

Believe it or not, you are paying Rs 730 for Rs 100 over a period of 1 year. Thus, always

consider the interest over 1 year to realize the actual amount you are paying.

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What is multiple borrowing and debt trap?

Due to excessive high cost of loan from moneylenders you are not able to repay them. The

collaterals also are not sufficient. Thus, you have no option but to borrow more. This is

known as multiple borrowing. Like a quicksand with every single passing day you get

entangled into more debt. Thus, you get trapped in a debt trap. It is not uncommon that

many of you are repaying the loans taken by your fathers' years ago.

How to prevent from falling into a debt trap?

o Always take loan from a bank. They are safe, reliable & transparent

o You should cut your coat according to the cloth. That means never try to aspire for

things beyond your limit.

o Take loans for the correct purpose which would be beneficial for your family & you

Shall the bank give loan for anything & everything

Every bank shall listen to your requirements & then issue you the loan. The loan must be of

good to your family & yourself. The banks lend hard earned money of people like you, thus

banks shall lend for constructive purposes only.

Will the bank entertain a small borrower like me & is the process of loan approval easy?

The government of India has vowed to make each individually financially independent. The

banks are appointed for that purpose only. They shall be glad to have you as a customer.

Getting a loan is as easy as getting a mobile connection. However, as the bank is a reliable,

safe & transparent institution some paper work is involved. The Business Correspondent

(BC) of your locality shall assist you throughout the loan process.

If you have a term or recurring deposit with the bank then the loan approval would have

been even easier. However, it is not mandatory to have such deposits.

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4.2.4 Module IV: Insurance Facility

What is insurance?

Say you are the only breadwinner of your family of 5. Unfortunately you meet with an

accident & become incapacitated to perform your usual work. But life shall not stop; your

family shall still need all the necessities of life. But how shall you fulfill them?

You can visit the local moneylender & take credit from him. But like running water is

needed to fill a bucket, running income is required to repay debt.

After sometime all the deposits carefully saved by you shall get exhausted in the process of

repaying the debt. You shall be left with no money to feed your family. The result:

You commit suicide & your family gets wasted.

Now, you could blame fate & God but do you know there are people who could have helped

you. You carry an umbrella with you to get protected from rain & heat. Insurance is also

a type of umbrella which shields you from all types of eventualities.

In which cases do I need insurance?

Health and incapacity for work (e.g., illness, disability, accidents – either

occupational or non-occupational)

Life cycle risks (e.g., death, old age)

Economic risks (e.g., unemployment, loss of property, crop failure)

Natural disasters (e.g., floods, droughts, earthquakes)

How my family shall get benefited?

Say, you become seriously ill & doctor advised you to rest for 3 months. Then for 3 months

the umbrella shall protect your family from all eventualities.

Similarly, say the crops don't grow this year. Again the umbrella shall help you to sail

smoothly through the season.

Is insurance very costly?

No, the government has several schemes for people like you. Only authorized insurance

distributors are allowed to provide insurance coverage to you. However, depending on the

amount of coverage the cost of the insurance shall vary.

What is amount of coverage?

Like you have umbrellas of different quality & size the insurance schemes are also different.

Some umbrellas protect you from very heavy rainfall & are generally little costly.

Similarly, if you want to make your family more safe then the cost shall increase.

26

The local agent has promised me less costly insurance schemes. Then why go to authorized

insurance distributors?

Some such agents may give you inferior schemes or may simply cheat you & run away

with your money. Surely you shall not like to have a defective umbrella. Like banks the

authorized insurance distributors are safe, reliable & transparent.

How to pay for an insurance scheme?

There are varieties of payment options & it depends on the scheme you have opted.

Generally, you have to pay a fixed amount of money monthly, quarterly or annually till a

fixed period of time, say 10 years. Thus, during these 10 years your family & you shall be

protected from certain eventualities, say death, illness, unemployment, earthquake etc.

Some schemes might give back some money after the expiration of the scheme. Certain

schemes give you back the entire money that you have paid.

If I get back the full amount in an insurance scheme, then it is better to opt for deposit

schemes, as in deposits I earn interest?

Deposit schemes only stores your money & pays you certain extra amount in the form of

interest. They won't be able to save you from various eventualities.

Further, insurance is like carrying umbrella in anticipation of heavy rainfall or scorching

sunshine. There is no guarantee that it shall rain but still you have to carry an umbrella.

Remember, many times the sky was clear & you left home without umbrella but got

caught up in a heavy downpour. Keep in mind eventualities like death are certain only

uncertainty is when they shall strike. If we are not prepared enough then we may not get

another chance.

If I & my friend buy the same umbrella we pay the same price, but why we are charged

differentially in case of insurance schemes?

You buy umbrella for day to day personal use. But an insurance scheme needs to consider

the various aspects of you & your family.

Say, your friend is very healthy compared to you. Thus, he may not easily die. But you are

very sickly and thus you may die soon. The authorized insurance distributors have to bear

the risk of protecting you more. Thus, they charge you more.

What if the authorized insurance distributors cheat me?

Like banks they are also regulated by the government and thus are safe, reliable &

transparent.

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Like carrying an umbrella becomes useless if it does not rain, having an insurance cover &

not meeting any eventuality is like wasting money.

Just think in the opposite way you don't have any life cover. Your son is a brilliant student

& has stood 1st in the district in the board exams. He also got selected in engineering. You

have taken a loan for this purpose. But while coming to home from your work you get hit by

a truck & die.

The result shall be your son abandoning study & joining some petty job, working day in &

day out to repay the family debts. In some cases even that may also not be sufficient.

Had you an accident cover, then on the unfortunate untimely death of you, your family

would have got a lump sum amount which would have sufficed for your family to repay the

debts. Your son might have taken a part time job & continued engineering.

You decide which one is better.

4.2.5 Module V: Remittance Facility

What is remittance?

Often to earn a livelihood one has to travel to distant lands. Your family stays behind, but

who will feed them? They need money to run the household. You should send money to the

family. But the problem is you stay far from your family and thus you cannot personally

send the money.

Generally there are two options, either you send the money through some person who stays

in your locality or through hawala way. A third option of dispatching money through post

office in the form of Money Order.

This sending of money from a distant location to another location is known as remittance.

Okay, so what is the problem?

Existing means of remittances have certain problem, viz.

o High charge is levied. For example, to send Rs 100 you may have to pay up to Rs

25.

o The entire money may not be delivered, say you dispatch Rs 1000, but your family

receives Rs 900. Only after you personally visit you shall realize that your trusted

sender cheated your family & you.

o Even if the person is not cheating you, it takes a long time for the money to reach.

Is any solution available?

As always the banks as a representative of government has remittance facility. The benefits

are:

o Real time money transfer. Your family gets money on the same day you send

money

o Very less costly method

o Safe, reliable & transparent

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Do I need to have a bank account?

No you do not require a bank account. You can send the money through designated branch

or business correspondent or facilitator. You shall be given a receipt having a certain

number printed on it. The recipient has to carry an identity card & the number that you

received. Then only s/he shall be given the money.

How many times can I send the money?

You can send money as many times you wish.

What are the other benefits of sending money, if I visit my village every month?

The requirement of money arises often without giving any notice. It may so happen that

suddenly your father falls ill & urgent requirement of money arises. But you cannot visit

your village immediately. Thus, you have to avail the services of the remittance feature of

banks. On the same day your family shall get the money & your father gets a new life.

Is there any other form of remittance?

Say your son is studying in the city & you earn by farming in the village, you can send

money to your son through remittance to meet the living & study expenses.

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5. Trainers’ Corner

5.1 Guidelines

It is not feasible for Banks and/or governments to send their representatives for making the

marginalized, poor & vulnerable financially literate. Further, it is also seen that people respond

better when “one among them” is spearheading such initiatives. Thus, the trainers’ should be

selected on the below basis:

Individuals like retired bank employees, retired teachers, retired government employees and

ex-servicemen, individual owners of kirana / medical /Fair Price shops, individual Public

Call Office (PCO) operators, agents of Small Savings schemes of Government of

India/Insurance Companies, individuals who own Petrol Pumps, authorized functionaries of

well run Self Help Groups (SHGs) which are linked to banks, any other individual including

those operating Common Service Centres (CSCs)

Care should be taken that the trainers’ are not Business Correspondents / Facilitators. Even

if they are BC / BF then the respective banks should take care that the trainers’ do not

advertise on behalf of the banks

The objective of the financial trainers’ shall be to make the community financially

literate. The Lead Banks of the district may appoint the trainers’ & shall train them on basic

financial topics.

5.2 Trainers’ Material

Trainers’ Materials

Stories

Role Plays

Discussions

Posters Lecture

Blackboard Examples

Movie Fun Activities

Fig: 18 Sample Trainers' materials

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5.3 The Approach

The target audience is people living on the edge, for them every day is a struggle for existence.

Many of them spend the whole day working. They value time the most. Thus, our approach should

be two pronged:

Beginners’ Course

Experts’ Course

5.3.1 Beginners’ Course

Objective: To invoke interest among the audience regarding financial aspect of life

Methodology: As the trainer is selected from the community he is well known in the

community & also has an understanding of the community’s behavior. S/he shall be using Part I

(Page 5) & Part II’s Module I (Page 17). The duration shall be 30 minutes. The aim should be to

emphasize on the life cycle needs of a person. Then to emphasize on the 8 requirements &

challenges a person of their economic status might face in life. In conclusion the trainer should

introduce Banks as the one stop solution for each 8 problems.

Delivery: A suitable day should be chosen when most of the community members are

present. They have to be summoned to common place, viz. locality municipality school, club house

or in the open air. Expected crowd size of 50-60 can be effectively sensitized on the lifecycle needs.

The trainer should use some cases of their community to highlight the lifecycle needs of a

person. For example, Mr. A had daughter’s marriage 2 years back. He borrowed heavily for the

same and is paying off the debts even now. The trainer may comment that Mr. A has entered into a

debt cycle and how it could have been avoided. However, the trainer should be extremely cautious

of not hurting anyone’s sentiment & should be free from any communal bias.

The main thrust of the beginner’s course shall be to sensitize the audience about the 8

lifecycle needs of a person. The delivery style should be least technical. However, the trainers’ has

to introduce the Banks as a Safe, Reliable & Transparent organization.

The trainer should make the session interactive & some humour must be there in the session.

Evaluation Criteria: The below shall prove the success of the course:

The participants could relate with the 8 requirements & challenges

The participants were communicated the Banks’ positive image

The participants had fun

5.3.2 Experts’ Course

Objective: To make the audience aware about the 4 basic banking products, viz. Saving,

Credit, Insurance & Remittance

Methodology: A group of 15-20 persons should attend each session. The duration of each

module shall be 1 hour. The trainer may use Posters, blackboard, multimedia to conduct the

session. Ideally each session should start with a short story followed by the course & summed up by

the role play. Now depending on time the role plays may not be conducted.

31

Delivery: A session plan has to be done and in a phased manner the entire

community may be covered. For example, say we have targeted a community with 100 persons & 2

trainers. The detailed training roster is given below:

Day 1 Beginner’s Training Batch I (Comprising of 50 persons)

Day 2 Beginner’s Training Batch II (Comprising of rest 50 persons)

NB: The gap between Day 1 & Day 2 should be within 15 days. That is after 2 weeks all the 100

persons have completed the Beginners’ course.

Now 4 groups shall be formed viz. A, B, C &D each comprising of 25 persons. Say, Trainer 1 shall

be assigned Group A & B and Trainer 2 shall be assigned Group C & D.

Day 3 Saving Facility Group A

Day 4 Credit Facility Group A

Day 5 Insurance Facility Group A

Day 6 Remittance Facility Group A

NB: Trainer 1 shall also conduct the same session for Group B also, preferably on the same module

within 2-3 days of the session for Group A. The entire sessions for 4 groups should be completed

within 30 days.

Evaluation Criteria: The course shall be considered successful if at the end of 45 days the

entire community has:

Basic idea about the lifecycle needs (viz. the 8 problems)

The usual problems of local money lenders

The idea that banks can be the friend in need in each of such lifecycle needs

The willingness of people to visit the nearest Financial Literacy and Credit Counseling

Centre (FLCC) to know more

5.4 Notes to Trainers

The purpose of the Beginners’ & Experts’ Course are to make people aware about the ABC

of finance

The language in the module is quite lucid and has to adopted as per particular regions

No reference to any particular bank scheme can be done. There are two reasons:

o The purpose of the two courses is to make them financially aware. That is it is

imperative to teach them say, the power of compounding or saving than explaining

various saving schemes of Banks

o If any particular bank scheme is mentioned then some vested interest may creep in

and the trainer in lieu of commission may promote the schemes. Thus, the whole

purpose of this endeavor shall get diluted and probably lost

After the participants are financially literate, that is they have some idea about saving,

credit, insurance & remittance they can better grasp the advice of FLCC representatives or

BCs or BFs

The trainers shall also be knowing little or nothing about the various bank schemes. It is

perfectly fine, as they are required to make the people aware about the lifecycle needs &

banking facilities. In fact that is the precise reason that Non BC / BF is preferred

Usually a trainer having good visibility in the community & relatively better enlightened

than the rest has to be selected. The lead banks shall select the trainers

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6. A model of spreading financial literacy

6.1 The Model

Fig: 19 The model for promoting financial literacy

33

6.2 Some Essential Points

Financial Literacy is an integral part of financial inclusion. Thus, the existing vehicles for

financial inclusion shall have to be judiciously leveraged

Financial Literacy in essence is similar to Literacy Mission of India, thus the Government

should pursue it in a mission mode

Banks have their core competency in providing banking services. They cannot have

dedicated resources for spreading financial literacy. They shall play the roles of an enabler

& facilitator in the financial literacy mission of India

The Banks, thus have to identify agents for spreading financial literacy & train them

The various stakeholders at National, State level may also choose such agents

We have identified 4 such agents, viz. NGOs, SHGs, India Post employees & Mobile

Retailers & Distributors

The Lead Bank shall have to, however, establish a separate cell to monitor their activities &

regulate them

6.3 Funding & Incentive

The activities of the 4 agents identified have to be financed by someone. The pivotal role in this

regard shall be the National & State Development funds. However, in an eclectic manner

NABARD & RBI can contribute in some specific schemes. Financial Inclusion and Financial

Inclusion Technology Funds may also be used.

At the state level the SLBC shall be responsible for proper disbursal & utilization of the fund.

The Lead Banks, however, have to bear the marginal cost of training the agents. This is in line

with the Lead Bank Scheme.

However, at the discretion of SLBC & State Government some funding on an ad hoc basic can be

made.

Each of the 4 agents shall be provided some incentive. The details are given in the subsequent sub-

sections.

6.4 Demystifying the model

OECD (INFE) & Asian Central Banks

OECD is carrying out worldwide activities on financial education since 2003 and in particular

the development of related international standards, the establishment of the International

Network on Financial Education (INFE), and some forthcoming projects such as the inclusion

of Financial Literacy Assessment in the next OECD Programme for International Student

Assessment (PISA) for 2012. Thus, OECD shall be able to guide the policy makers of India in

promulgating the right kind of policies & procedures. Also several tried & tested best practices

adopted by other countries can be tailor made under the aegis of OECD to suit India.

A yearly congregation of Asian central banks under the aegis of the OECD International

Network on Financial Education (INFE) to discuss financial education and inclusion issues

can prove quite helpful.

34

Minisry of education, corporate affairs & finance, State Government, RBI, IBA,

NABARD

India is a vast country with a billion population spanned over 28 states & 7 union territories.

No two regions are same & the socio-political-economical context of India is one of the

most complex.

Financial literacy program to suceed need active cooperation from National & State

government. In essence educations leads a person towards freedom by empowering them.

Financial literacy mission is also the same. It plans to equip the vulnerable section of the

society with basic financial knowledge thereby empowering them. Thus, ministry of

education can provide support & guidance in this regard, like the national literacy mission.

The ministry of corporate affairs shall sensitize the various companies about the financial

literacy mission. Unless the India Inc. takes active interest the financial literacy mission

shall meet with partial success. It is to be noted how successful HUL’s Project Shakti has

been. ITC’s e-Choupal is also another excellent example. We may also also leverage such

existing channels for the financial literacy mission.

Ministry of finance shall oversee the financial aspect & ensure proper alignment of this

literacy drive with the Union Budget.

India Post shall help immensely through their vast network of postal offices & staff.

RBI, NABARD & IBA shall play the role of integrator. They shall ensure that all the agents

of financial literacy mission are on the same page.

SLBC

The SLBC (State Level Bankers’ Committee) plays a very important role in development at

state level. SLBC convenor banks / lead banks are focusing on the urgent need for achieving

100% financial inclusion through penetration of banking services in the rural areas.

Financial literacy being the vehicle of financial inclusion logically should be the

responsibility of SLBC convenor banks / lead banks. At the state level the SLBC shall be

responsible for proper disbursal & utilization of the funds required to promote financial

literacy.

Lead Banks

The Lead Banks have their core competency in providing banking services. They cannot

have dedicated resources for spreading financial literacy. They shall play the roles of an

enabler & facilitator. The Lead Banks, however, have to either identify and train or train

already identified agents for spreading financial literacy. They have to establish a separate

cell to monitor their activities & regulate them.

35

Banks

As the ultimate result of the people becoming financially literate is the development of the

locality the benefit shall pass on to the local PSU & Private banks as well. Thus, their active

co-operation is solicited.

Agents spreding financial literacy

They are the agents who work at the grass root level. They work at the municipal, block &

village level. It is preferable if they are from the same locality. Thus, we have identified the

below 4 agents. The agents shall be paid some commission for doing this work. However, as

financial literacy is a part of financial inclusion none of the agents is required for full time.

However, the regulation of the agents & disbursing of the incentive to them shall be taken

up by SLBC/Lead Banks.

NGO

In India there are several NGOs doing an excellent work for empowering rural &

urban poor. They have presence all over India & most importantly they enjoy the

support of the localites. Thus, NGOs should be roped in to promote financial

literacy.

SHG

Like NGOs India has several successful SHGs. Mostly run by the womenfolk these

SHGs have improved the economic lot of many. Unlike the NGOs the SHGs are our

target population i.e. the vulnerable section of society. Now each SHG member has

some little exposure to banking facilities. We can ride on this & provide training to

them. In turn the SHG members can educate their community memebers. The best

part is this the SHG members shall educate their family and/or community

members in a informal context.

Post Office

With 155,000 post offices, 139,173 of which are located in rural areas, India Post

has the potential to reach the financially excluded population, many of whom are

farmers. India’s 33,800 rural banking branches are mostly concentrated in selected

pockets, covering no more than 5.2 per cent of its 600,000 villages. India Post, on the

other hand, is represented in all villages and is often the only provider offering

savings accounts specially to those on low incomes. During the past two years, the

Post has opened 35 million savings accounts with no capital requirements for

unbanked people. The government also uses postal branches for the distribution of

currency in rural areas, where 85 per cent of transactions are still made in cash.

Postmasters in rural post offices come from the same village and know everyone in

the community. Thus, they can play a critical role in spreading financial literacy.

36

Mobile Connection Retailers & Distributors

Mobile teledensity standing at a strong 60 per cent, the market possesses great

potential for a collaboration that combines the strengths of both banking and telecom

sectors. As an illustration, Airtel's 150 million strong customer base and ecosystem

of over 1.5 million retailers and distributors across India can prove to be very vital

for the promotion of financial literacy.

In January State Bank of India, the country's largest bank and telecom giant Bharti

Airtel entered into a joint venture (JV) to make available banking services to the

country's unbanked population. The JV as Business Correspondent will engage

Airtel's retailers as customer service points (CSP) all over the country in a phased

manner. With this, existing and new Airtel mobile customers will be able to visit

these outlets and open new SBI bank accounts and avail of other banking products

and services available at CSPs. Additionally, existing SBI customers will also get

serviced at these outlets.

The government may think in this line as the recent trend shows exponential growth

in new mobile connection.

The government may choose certain mobile service providers having strong pan

India presence.

National Level Coordinating Agency

Such a body shall be responsible for co-ordinating the financial literacy mission. The agency

shall have presence in North-South-East-West Zone. This agency shall operate like the

Unique Identification Authority of India. Financial Stability and Development Council

may also play this role as the purpose of it is to institutionalize the mechanism for

maintaining financial stability. This council’s brief includes focus on financial inclusion as

also literacy.

360 Degree feedback

Several persons and/or agencies may have some path breaking idea. The government may

consider such ideas from non conventional channel(s).

Promotion, Media Campaign

The various authorities at different levels have to identify the effective promotional

technique to popularise the financial literacy mission.

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7. Sample models and/or success stories (Source: http://inclusion.in/index.php?option=com_content&view=article&id=136)

Corporation Bank has successfully implemented Branchless

Banking in Chittoor district of Andhra Pradesh. The key to making

this a success is linking banking with livelihood.

In a joint project with National Dairy Development Board (NDDB), it

has launched Milk Mitra cards in Chittoor district. Under this, women

milk producers are given loans to enter dairy farming, the milk is

supplied to NDDB and all payments are made directly to the bank

account of each woman. These accounts can be accessed at the village

level itself through the business correspondent, also a member of the

local community.

It has been seen over time that branchless banking and better

livelihood opportunities have inculcated the habit of saving in the

villages. It’s clearly a win-win situation for both the bank and the

people!

One of the villagers is appointed as “business correspondent” and he

or she is given the branchless banking kit and cash to dispense basic

banking services to the villagers. The kit is a handheld device with

multiple connectivity options. The operations are carried out through

radio frequency identification cards provided to business

correspondents and the villagers. So, the model not only provides

banking services to the villagers, it also opens an employment

opportunity.

38

(Source: http://inclusion.in/index.php?option=com_content&view=article&id=211)

Punjab National Bank has taken some initiative in introducing

Banking facilities in Tineri Village, situated about 65 km from

Patna. Panchayati Raj Institutions have been involved in Tineri as

business facilitators.

The Pradan led a padyatra through the village accompanied by drum

beating to inform people about the new banking facilities. The

facilitation role played by the panchayats in creating an enabling

environment for the bank so as to link the financially excluded people

with the bank, organising the un-organised sector of the population by

developing SHGs and assessing the genuine credit requirements of the

entire panchayat for having income generating activities, has been a

unique aspect of this project. This holds lessons for others as in any

state, the panchayat is the key village level institution.

Under the project, each family in the village is provided with a

biometric card, a thermal filter and a Near Field Communication

(NFC) mobile handset at a total cost of only Rs 110, at least half of

which is expected to come from the state government as subsidy. In

return each customer is allowed to open a savings bank account even

with zero balance in the branchless banking system. All transaction

can thus be made with the biometric card and the NFC.

Two things have been done in Bihar. First, linking the people with the

bank through the financial inclusion programme. Second, a tie-up

which enables funding all the e-Seva Kendras through village level

entrepreneurs.

39

8. Field Visits

Visit I

Village: Village 1

Tehsil/Mandal: Kalyan

District: Thane

State/UT: Maharashtra

Purpose of the Visit:

1) To understand the process of opening of No Frill accounts with simplified KYC norms

2) To understand the implementation and efficacy of the BC model

3) To understand the level of involvement and financial literacy of the villagers concerned and

problems faced thereof

Learnings:

UID card processing had been completed for the whole village; however physical cards had

not arrived for many of them. If they had, then more accounts could have been opened

To the Bank's credit, they had taken initiative in bringing camera so that even people

without photos could open accounts without delay. Also, the importance and convenience

which these accounts would bring was conveyed to each account holder

On the one end of the spectrum there were people who distrusted and were not willing to

accept that bank would not charge the for doorstep banking services and on the other end

were some who considered this a part of Government sponsored welfare program and

demanded that some amount be credited to their account immediately

Financial literacy is a pre-requisite for ensuring continuity of these No frill accounts. A few

individuals, especially the younger generation were simply proud to be finally having a bank

account in their own name. Human factors especially those involving rural aspirations must

be taken into consideration

The banks generally involve the local school teachers & principal in educating the local

people on various banking services

However, banks conduct such financial camp very infrequently & learning reinforcement is

poor

The overall economic condition of village 1 is relatively better than the average rural India.

But still the status of awareness about banking services is not so good. Further, this village is

located near the city. This clearly shows that the intensity of financial literacy promotion has

to be increased

40

Visit II

Village: Village 2

Tehsil/Mandal: Alibag

District: Raigad

State/UT: Maharashtra

Purpose of Visit:

To gain hands on knowledge about status of implementation of financial inclusion

To gain familiarity with the progress of financial literacy by interacting with the BC

To interact with the households & observe the level of financial awareness

To interact with the Lead District Manager (LDM) or Lead Bank's officer

To get an unbiased view about the financial behaviour of households

Learnings:

Village 2 is relatively far from the city & is served by a single BC for the past 2 years

and no significant financial literacy awareness campaigns have been conducted

The BC is well known in the locality & the villagers in an informal manner consult him

before taking any financial decision

The villagers, however, aware of the basic financial concepts. But they are reluctant

towards the formal banking channel & rely on informal sources, viz. Money Lenders,

Family, Friends, Temple fund etc

The lead bank conducts some awareness campaign but generally once a year. They are

running a Rural Self Employment Training Institute (RSETI). The institute provides

some vocational training to the villagers in the neighboring villages

The rigor of promotion of the financial literacy should be increased. The BCs should be

trained at periodic intervals of time. The banks should also have financial camps

organized every six months

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9. Road Map for Financial Literacy & Awareness

As per the model in Page 36 the financial literacy campaign has to be implemented. India being a

challenging terrain it would be better to do the same in a phase wise manner. Based on a consensus

at a national level, zones should be identified & financial literacy dissemination should be started.

The steps are given below:

Prarambh

•Finalisation of a common financial literacy course (The modules mentioned in this papercan also be considered). The modules have to be sensitized keeping in mind the diversityof Indian population

•Proper coordination among Central & State government along with RBI, NABARD, IBA

• The national level coordinating agency shall be in control of the implementation of thefinancial literacy campaign

Jagaran

•The lead bank along with the SLBC committe for the identified state has to arrange fortraining of the financial agents, viz NGO, SHG, Post Office employees & mobileconnection retailers

• Proper care has to be taken that learning reinforcements are there from time to time &appraisal of the agents are being done

• The incentives for each agent should be promptly paid & the lead bank has to involveother banks in the state

•The India Inc must be made aware of the potential profitability that may arise once thevulnerable society becomes finacially literate

Mukti

• The financial agents have to conduct awareness campaigns in the allotted block, village& municipality

• The duration, nature & other particulars of the campaign has to be finalized based onthe local sensibilities

• The sole aim of the campaigns should be to bring the maximum unbanked populationunder the ambit of formal banking services

• Livelihood has to be linked with the bank accounts & lead bank should arrange forfinancial camps in the villages on a regular basis

• Instead of chasing numbers the government & regulators should ensure the properimplementation of this program in one particular block, village or municipal areabefore rushing to the next

Fig: 20 Road Map for financial literacy & awareness

42

10. Conclusion

Financial literacy has been rightly recognized as an important adjunct for promoting Financial

Inclusion & ultimately the financial stability. In the context of Financial Inclusion, the scope of

Financial literacy is relatively broader & it acquires greater significance, as an important factor in

the very access of the excluded group to financial services.

Financial Literacy aims at bringing financial independence & prosperity in the life of low income

group by helping them to manage their personal finances efficiently. It helps them to follow a

financial strategy which enables them to build capital & assets & eventually come out of debt trap.

This ultimately leads to enhancement of their income, recognition & empowerment.

43

11. List of Figures

Fig: 1 Life Line Financial Needs

Fig: 2 Simple perspective of Saving

Fig: 3 Bank Saving in simple terms

Fig: 4 Bank Credit in simple terms

Fig: 5 Improvement of Financial Status

Fig: 6 Difference after coming to a bank

Fig: 7 Insurance as an umbrella

Fig: 8 Choose the right umbrella

Fig: 9 Benefit of Insurance

Fig: 10 Bank Vs Moneylender

Fig: 11 Bank at your doorstep

Fig: 12 Business Correspondent Model

Fig: 13 Remittance Model in simple manner

Fig: 14 The world is a small place to live

Fig: 15 Your problems from all directions (Samasya Aato disha se)

Fig: 16 Your solutions from all directions (Samadhan Aato disha se)

Fig: 17 Vicious cycle of poverty

Fig: 18 Sample Trainers' materials

Fig: 19 The model for promoting financial literacy

Fig: 20 Road Map for financial literacy & awareness

44

12. References

http://www.rbi.org.in

o Referred circulars drafted by Rural Planning & Credit Department (RPCD) on

financial literacy, BC model etc

o http://www.rbi.org.in/financialeducation/home.aspx

Deals with promotion of financial education

http://www.sewa.org

o SEWA is a trade union registered in 1972. It is an organisation of poor, self-

employed women workers. These are women who earn a living through their own

labour or small businesses. They do not obtain regular salaried employment with

welfare benefits like workers in the organised sector. They are the unprotected

labour force of our country, India

o Over the years they have developed some good financial literacy material

http://www.oecd.org

o The mission of the Organisation for Economic Co-operation and Development

(OECD) is to promote policies that will improve the economic and social well-being

of people around the world

o They have done some pioneering work in financial literacy promotion

http://www.grameen-info.org

o Grameen Bank (GB) has reversed conventional banking practice by removing the

need for collateral and created a banking system based on mutual trust,

accountability, participation and creativity. GB provides credit to the poorest of the

poor in rural Bangladesh, without any collateral

http://www.skoch.in

o Skoch Consultancy Services is a boutique strategy and management consulting firm.

Over the years they have doing some great work towards attaining inclusive growth

http://www.financial-education.org

o IGFE - International Gateway for Financial Education

o The Gateway serves as global clearinghouse on financial education, providing access

to a comprehensive range of information, data, resources, research and news on

financial education issues and programmes around the globe

o The Gateway was developed as part of the OECD Project on Financial Education

http://www.moneysmart.gov.au

o Website promoting financial education in Australia

45

http://www.navachetana.in

o Navachetana Foundation is a registered non-profit organization working to promote

financially sustainable social enterprises that generate long-term livelihood

improvements for India's marginalized citizens

http://www.flame.org.in/

o Financial Literacy Agenda for Mass Empowerment (FLAME) is an initiative by IIFL

(India Infoline Limited) to light the flame of financial literacy across India. FLAME

intends to empower the masses through education, which will eventually help them

grow financially

http://www.inclusion.in

o A web magazine having articles on financial inclusion

http://www.indg.in/financial-literacy

o A website promoted by Department of Information Technology (DIT) on issues like

agriculture, health, primary education, social welfare, rural energy, e-governance

o They also have collection of articles on financial literacy

http://fino.co.in/

o Financial Information Network & Operations Ltd (FINO) founded in year 2006,

headquartered in Mumbai, India, has emerged as a leading inventor, innovator and

implementer of integrated technology solutions for institutions like Banks,

Microfinance Institutions, Government entities, Insurance companies to enable

financial inclusion environment for the micro customers

o They have some ad hoc initiatives in promoting financial literacy

http://www.birdindia.org.in

o Banker’s Institute of Rural Development has some programs on financial literacy

http://www.nabard.org/

o National Bank for Agriculture & Rural Development

http://www.iba.org.in/

o Indian Bank’s Association

Websites of some PSU & private banks

o Many leading PSU & private banks are having deposit & credit schemes for the

vulnerable section of the society