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Organized by

Indian Chamber of Commerce

ICC FINANCIAL INCLUSION SUMMIT 2014

INTEGRATING THE ECONOMY, BRIDGING GAPS

HOTEL LALIT GREAT EASTERN, KOLKATA NOVEMBER 8, 2014

PROCEEDINGS

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Indian Chamber of Commerce The Approach paper to the Twelfth Five Year Plan sets “Faster, Sustainable and More

Inclusive Growth” as the prime agenda for India during the plan period 1. Inclusive

growth calls for increased participation and benefit sharing and financial inclusion is

the proven way out for reaching to the marginalized population. It promotes poverty

reduction and social inclusion. In this backdrop, the Indian Chamber of Commerce

organized the ICC Financial Inclusion Summit 2014 towards bridging the income

inequality in the country and forging workable steps for integrating the economy.

The summit was chaired by senior bankers, regulators, heads of leading micro finance

institutions and concerned stakeholders. Eminent panelists who graced the panel

included the likes of Dr. K C Chakrabarty, Former Deputy Governor, RBI on Financial

Inclusion, Mr. Tamal Bandyopadhyay, Consulting Editor MINT and Mr. Chandra

Shekhar Ghosh, CMD, Bandhan Financial Services Pvt Ltd. Over 20 speakers and 200

delegates participated in the forum. A co-branded ICC- Resurgent India Ltd.

Knowledge report was released at the Inaugural session.

1 http://planningcommission.gov.in/plans/planrel/12appdrft/appraoch_12plan.pdf

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Opening Session – “Financial Inclusion -The Road Ahead: Realizing the

Dream”

Welcome Address Mr. Shiv Siddhant Kaul, Senior Vice President, ICC

Financial inclusion is defined as the delivery of financial services at affordable costs to

large sections of the society; particularly those who are disadvantaged and have

lower income said Mr. Shiv Siddhant Kaul, Senior Vice President, ICC. The standard

no-frills bank accounts and the business correspondent model have not caught on in

a big way felt Mr. Kaul. As per the Census 2011 estimates, there are about 25 crore

households in India and less than 60per cent of them are estimated to have access to

financial and banking services informed Mr. Kaul. In the rural segment, there exist an

estimated 17 crore rural households, and only 50 per cent to 55 per cent of them are

served by the banking sector he added.

Mr. Shiv Siddhant Kaul shared a set of sectoral recommendations from ICC. He

advocated widespread adoption of new technologies and ideas, and called for

greater leveraging of the available information technology resources. The industry

ought to promote increased collaboration between banks, micro-finance institutions,

and the non-banking financial sector companies felt Mr. Kaul. A unified credit history

framework would help to foster robust risk management in the industry. Improved

physical infrastructure is set to promote all-round economic development and will

augment credit –off take thereby ensuring financial inclusion. Electrification is also

critical for the computerization of bank branches, especially in the rural areas said Mr.

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Kaul. E-governance can confer the right kind of transparency and time bound

implementability to the financial inclusion mechanism added Mr. Kaul.

Address by Special Guest

Mr. Shrihari Bhat, Regional MD, India & Greater China, FIS

About 70per cent of the rural population in India is deprived of basic financial services

like payments, remittance, and savings etc informed Mr. Shrihari Bhat, Regional MD,

India & Greater China, FIS. India has got tremendous potential to foray into financial

inclusion and considerable opportunity lies at the bottom of the pyramid felt Mr.

Shrihari Bhat. GDP wise India ranks at number 10 and population wise it is just second

to China. To improve GDP, one of the most important levers is velocity of payments.

The country needs to improve the velocity of payments by reaching out to the

masses, the unbanked population. Savings, payments, and lending are the three basic

approaches to financial inclusion. Countries like India and Indonesia predominantly

use the savings based model, while Kenya and Philippines prefer the payments model

which involves remittance or electronic benefit transfer. Bangladesh has adopted the

lending model, which predominantly involves microfinance. Every country has

adopted a model which is most easily adaptable by the masses said Mr. Bhat. Mr.

Shrihari Bhat felt that every institution ought to adopt a financial inclusion strategy

based on its requirements. He singled out literacy as an important component of

financial inclusion.

Technology can bring down the cost of funding for the marginal population. Side by

side with technological innovation, the concerned financial institutions need to adopt

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disruptive models said Mr. Bhat. Banks need to work outside the cost plus model

which has been the norm till date, urged Mr. Bhat. Over the decade new concepts

like electronic channels and mobile phones have gained in popularity in pursuing

financial inclusion. India’s mobile penetration is close to about 800-900 million for a

population of 1.2 billion. The focus should be on frugal innovation which makes

technological innovation affordable summed up Mr. Bhat.

Address by Special Guest Mr. Vijay Mahajan, Founder and CEO of the BASIX Social Enterprise Group

Along with technology, general consensus based political will is also necessary for

forwarding the cause of financial inclusion observed Mr. Vijay Mahajan, Founder and

CEO of the BASIX Social Enterprise Group. Mr. Vijay Mahajan reiterated that just

opening a bank account would not suffice to forward the cause of financial inclusion.

Keeping the accounts alive is the main requirement.

Upgradation of government infrastructure is necessary for financial inclusion said Mr.

Vijay Mahajan. He praised the e-governance model of West Bengal, noting the

benefits of replacing the cash payments structure with e transactions in the form of

lower pilferage. Bank transactions are designed to augment the accountability &

audit trail said Mr. Mahajan.

Speaking on the positive side, Mr. Mahajan informed that India is now witnessing

nationwide mobile connectivity and increasing internet connectivity, with close to a

billion cell phone connections. The unique ID has crossed 700 million registrations.

The e-KYC is also a game changer.

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Address by Special Guest

Mr. Chandra Shekhar Ghosh, CMD, Bandhan Financial Services Pvt Ltd.

Mr. Chandra Shekhar Ghosh, CMD, Bandhan Financial Services Pvt Ltd. informed that

out of the 1.15 lakhs bank branches in the country and 1.16 lakhs ATMs only 38per cent

of the total bank branch and ATM s serve the rural people, although 70per cent of

the Indian population resides in rural areas. In the last four years only 25per cent of

the bank branches have opened in rural areas, he added. However, as per the Human

development report, around 28.6per cent of the Indian population live in abject

poverty. Mr. Chandra Shekhar Ghosh felt that opening a no-frill account is not

enough for financial inclusion, if it sans financial transactions. Financial inclusion

involves regular access of bank accounts and getting banking services from therein.

He felt door step delivery of services is essential for enhancing the financial inclusion

drive. Often the small ticket size of loans becomes a deterrent for fund availability for

financial inclusion from the formal banking sector. Keeping products simple and

limited for the financially excluded population would help to augment financial

inclusion and will make it sustainable and financially viable.

Targeted talent acquisition is necessary for pushing the financial inclusion products.

Mr. Chandra Shekhar Ghosh felt people with basic level of education can be

effectively trained (by the micro finance institutions working with the financially

excluded population) to carry out door step delivery of services like deposit

collection, credit disbursal and client support services and they can effectively help to

contain NPAs to a reasonable level. Recruiting highly educated white collar

professionals would not be viable for this kind of low cost financial inclusion delivery

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business models observed Mr. Ghosh. Client education is also an important

prerequisite felt Mr Ghosh. Prior to awarding loans the customers should ideally be

awarded two weeks of education about the product, process, repayment, and usage,

he said. In this regard promotion of financial literacy is an imperative.

Address by Special Guest Mr. Arun Kaul, CMD, UCO Bank

Financial inclusion is a crucial driver for the all-around economic development of the

country said Mr. Arun Kaul, CMD, UCO Bank. Financial inclusion helps to promote the

culture of savings amongst the hitherto unbanked population, which in turn becomes

the resource base of the financial system fuelling further economic development.

The Pradhan Mantri Jan Dhan Yojana aims to enable the poor. They can operate bank

accounts using even low-end mobile phones with the help of appropriate technology

informed, Mr. Arun Kaul. The provision of debit cards for the account holders under

the Jan Dhan Yojana has some positive connotations for the economy. Empirical

estimates have shown that as advanced economies grow, substituting cash with the

electronic-based payment method becomes an imperative. Even with the associated

fees, the electronic mode of transaction can be less expensive compared to the other

channels maintained Mr. Kaul.

Spread of financial inclusion and ensuing digitalization of the banking system will

help to bring down the cash requirements for the economy and will help to contain

unaccounted money flows. The banks need to develop a sustainable financial

inclusion model to cater to a large geographically scattered base of consumers, who

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individually have very little money, but collectively are financially attractive said Mr.

Kaul. A viable financial inclusion model will be radically different from the traditional

banking model, in terms of distribution, technology, HR practices, and risk

management. It is critical to reduce the time for information collection and

verification in transfer to increase both on- field and operational productivity said Mr.

Kaul. E-KYC can be a boon as far as the customer acquisition is concerned he

maintained. It allows banks to authenticate the customer from the Aadhaar

database. This will eliminate the entire cost of the courier, paper management,

documentation and storage.

A major challenge to the banks in serving the unbanked is that banking channels

currently do not exhibit economies of scale. It is advocated that to accommodate the

low ticket size, transaction cost has to be reduced recommended Mr. Kaul.

Special Address

Mr. Kavish Sarawgi, Director, Resurgent India Ltd.

Out of the 35 states in India, 23 states are massively rural having more than 60per

cent of the rural population said Mr. Kavish Sarawgi, Director, Resurgent India Ltd.

Majority of these people are outside the purview of the formal financial system,

which adversely impacts the saving cycle resulting in lesser investments and

economic growth. In the post 2005 period initiatives like the MFI bill (which came in

2012), and the banking correspondent model have been major game changers.

Product pricing is an important component of financial inclusion, as it caters to the

marginalized section.

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Financial illiteracy is a key challenge for financial inclusion. Mr. Sarawgi spoke about

some of the significant policy changes ushered in recent times, which include branch

expansion through the Business Correspondent model in the rural areas, relaxed KYC

norms and product simplification etc.

Mr. Sarawgi felt the corporate can get involved in the financial literacy drives and can

effectively use their large staff strength base for ensuring the much required last mile

connectivity. The service of credit bureaus is much called for in financial inclusion

observed Mr. Sarawgi. He felt Information technology is a key enabler for scaling up,

largely due to the cost competitiveness factor.

Report Release at ICC Financial Inclusion Summit 2014

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Exclusive Interactive Session

Mr. Tamal Bandyopadhyay Consulting Editor MINT

The Exclusive Interactive Session with Dr. K C Chakrabarty, Former Deputy Governor,

RBI on Financial Inclusion was moderated by Mr. Tamal Bandyopadhyay, Consulting

Editor MINT. Mr. Tamal Bandyopadhyay raised some pertinent issues on financial

inclusion. He noted that as per a World Bank working paper, 2012 only 35per cent of

India’s adult population has access to formal banking services. Currently, about 60per

cent of India’s adult population still does not have access to banking services added

Mr. Bandyopadhyay. He mentioned that financial inclusion based subsidies when

routed through the formal banking channel can contain pilferage. He added that the

public sector bankers are often averse to serving in the hinterland citing the low

ticket size of loans, high transaction costs, low last mile-connectivity and poor

technological infrastructure. However, places like unbanked regions in Eastern India

have a substantial collective fund base as evident from the huge volume of deposits

collected by the shadow banking entities.

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Dr. K C Chakrabarty Former Deputy Governor, RBI on Financial Inclusion

Dr. K C Chakrabarty, Former Deputy Governor, RBI on Financial Inclusion felt

concerted effort on part of all industry stakeholders is needed for forwarding the

cause of financial inclusion. Dr. K C Chakrabarty was categorical that the prime

objective of financial inclusion was the provision of financial services at affordable

rates. According to him promotion of financial inclusion should be through a

regulated financial architecture like a bank. Dr. K C Chakrabarty observed that lending

rates of micro finance institutions are still quite high for the marginalized population,

way above the standard benchmark for medium and large industries from the formal

banking system. Banks are the best financial intermediary in any economy as they are

regulated maintained Dr. K C Chakrabarty. Huge Government Fiscal deficit is

responsible for the crowing out effect he reflected. Without increased access

(through bank accounts) there cannot be increased usage of these accounts

observed Dr. Chakrabarty. Any lending system is based on the premise that the

borrower has an obligation to pay the lender; he has the responsibility to do the

diligence and get back the money summed up Dr. Chakrabarty.

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Mr. Vijay Mahajan Founder and CEO of the BASIX Social Enterprise Group

Mr. Vijay Mahajan, Founder and CEO of the BASIX Social Enterprise Group maintained

that the lending rate of micro finance institutions are higher than that of commercial

banks because they factor in the cost of a whole lot of other related services

provided. The microfinance institutions involved in providing credit to the financially

excluded need to organize multiple visits to the clients (as they mostly offer door

step services), acquaint them with the nitty gritties of the payment structure, form

groups and build considerable rapport with the clients to ensure timely collection of

loans and recovery and this entails a considerable hike in the distribution cost, which

is factored in the lending rates. He informed that the transactional returns of small

businesses are typically 20 per cent, and this high transactional return enables them

to accommodate the relatively high lending rates. Commenting on the efficacy of the

Indian Banking System on financial inclusion Mr. Mahajan suggested that any bank

branch where the CD ratio is less than 40per cent for 10 years continuously may be

closed.

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Mr. Chandra Shekhar Ghosh CMD, Bandhan Financial Services Pvt Ltd.

Mr. Chandra Shekhar Ghosh, CMD, Bandhan Financial Services Pvt Ltd said that the

high lending rates in microfinance are partly explained by the level of customized

services rendered and also by the higher risk taken by the organizations. Mr Ghosh

felt that micro finance, besides being a sustainable business is also equally committed

to the social cause.

Mr. Arun Kaul CMD, UCO Bank

Speaking on the below par performance of the nationalized banks in India in reaching

out to the financially excluded Mr. Arun Kaul CMD, UCO Bank observed that rural

segment penetration have been low due to factors like high cost, different HR

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processes etc. The nationalized banks ought to roll out innovative products and

processes to effectively reach out to the customers across different market

segments. The nationalized banks ought to usher in innovative talent management

policies, whereby focus can be laid on the use of locally based resources. A locally

based employee is more involved in the local economy and can pro-actively pursue

the cause of its growth. Activation of existent bank accounts is a major challenge for

financial inclusion observed Mr. Kaul. Government payments like NREGA or subsidies

can be routed through these accounts for keeping them activated.

Session I – “Role of Financial Institutions and Banks in driving Financial Inclusion forward”

The session was moderated by Mr. Kavish Sarawgi, Director, Resurgent India Ltd.

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Mr. Sunil Srivastava Deputy MD, State Bank of India

He started his deliberations praising the view of Mr. K.C. Chakraborty who considers

financial inclusion not as a financial policy choice, but as a policy compulsion. He is of

the opinion that it is not always feasible to follow the same kind of HR policy for

monitoring the activities in banks that is being followed in MFIs due to unavailability

of manpower. He pointed out that using the transfer pricing model the under

recovery for a bank has been narrowed down to 35per cent last year from 52per cent

two years back. Mr. Srivastava mentioned that this model has been proved to be very

viable due to opening of large number of accounts. It’s expected that with increase

in volume of transactions the transfer pricing model will become more viable. In this

content he said that in West Bengal the average balance in any account is counted to

be INR 708 which somehow indicates that banks are consciously involved into

monitoring transaction account, credit and debit transaction, transfer details and

records of micro insurance. He appreciated the active engagement of Government in

developing credit linkages and linkages to pension. The government has taken some

phenomenal steps to execute this job. While discussing about the spread of financial

inclusion he pointed out that even though the banks want to offer financial

assistance to the economically backward classes to lift them, they don’t want to

come forward to take the help. Mr. Srivastava said that he has personally

experienced this sort of incidences from the weavers and Jori workers of Nadia,

Purulia and Howrah. He thinks there is a particular reason for this kind of

apprehensive approach at the end of these villagers. According to him the primary

reason for these refusals is the sole concentration on the supply side. He feels there

is a need to look at the demand side simultaneously. He strongly feels that the with

suitable market support from the NGOs the interest among the small scale rural

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entrepreneurs can be generated. Mr. Srivastava is of the opinion that the banks’

role is not limited not only to provision of credit, but to enhance the value chain by

increasing the amount of transaction and to finance each part of the value chain to

complete the linkage. This kind of operations will actually devolve greater amount of

responsibility to the banks. Now to carry out this entire task banks need

considerable support from NGOs. Mr. Srivastava thinks to make the entire process of

financial inclusion in general customer friendly, there is a necessity to go beyond the

use of mobile technology. For the rural and semi urban people who are not very

much literate, the easy understanding of the usage of ATM card and other smart

cards is pre requisite. It calls for a more simplistic technology like biometrics which

doesn’t involve memorizing the PINs. Finally he opined that credit linkage being one

of the major responsibilities of banks, enumeration has become a major criterion

which banks need to fulfill. He said that the target of enumerating household will be

attained easily, but that is not the ultimate goal of financial inclusion. Technological

outspread is essential for credit linkage .To determine the way forward ,time has

come up when the rural households will be able to connect themselves via smart

phones which are Aadhar enabled and will have several necessary application

platforms.

Mr. V P Nandakumar MD & CEO, Manappuram Finance Ltd

According to Mr. Nandakumar, NBFCs have the potential to play more essential role

than banks in attaining financial inclusion. He mentioned about a CRISIL study which

reveals that the averages return on assets of micro finance institutions in the country

is around 2.1per cent. He thinks that unless they offer2per cent return on asset, they

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won’t be able to attract much needed capital to sustain the business. Coming to gold,

he said that there is around 25000 tonnes of gold with the families in the country

which has got an estimated value of almost 1 trillion US dollars. Surprisingly much of

this gold is with rural households. He mentioned that adequate technology must be

available to assess the pricing of gold and to reach out the mass at an affordable rate

using a larger network. He strongly feels that gold loans play a very critical role in

financial inclusion as they provide low ticket loans at the convenience of customers

with hassle free money. He thinks NBFCs can play a very important role to expand

the reach ,as the cost of HR of NBFC is much less, which is only 1/3 of the HR cost of

public sector banks. Mr. Nandakumar feels that with lower operation cost associated

with rental and staffing, NBFCs act as a vital tool in financial conclusion. However he

feels the regulators need to put significant cap to monitor the pricing properly. Along

with that the expansion of technology to trained people should take place at

affordable cost to bring the excluded sections under the umbrella of financial

coverage.

Mr. K G Alai CGM, Mumbai Head Office, SIDBI

Mr. Alai started his speech talking about the proactive measures that have been

taken by SIDBI for promoting the microfinance movement in the country. He thinks

the experiment of financial inclusion with microfinance playing the pivotal role has

helped the marginalized people to be self sustainable. They have become able to

come out of debt trap and survive economically. As most of them are trying to

improve their livelihood by getting involved in some kind of economic activity they

can reap the benefit of the microfinance institutions. He gladly announced that SIDBI

has been successfully ventured into microfinance and it has promoted more than 150

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institutions across the country including some big shots many of which are in the

verge of becoming banks. During his speech he pointed out that money is not the

only object that poor need. There are a lot of other nonmonetary support systems,

which are required to make the movement robust and take it forward. He noted that

in that direction SIDBI has introduced rating system of MFIs and formed lenders’

forum to ensure that all the lenders come on a common platform to have meaningful

dialogue and introduce best practices in the system. It has also formed a capacity

assessment tool to actually asses the capacity of the MFIs to deliver the credit to the

rural people. He also talked about the encouraging results that came out of the

impact assessment study undertaken by SIDBI in 2009. He particularly mentioned

about the improvement in livelihood of rural people who are the main beneficiaries

of these finance and also about the equality of gender. Mr. Alai noted that the overall

disbursement to MFI sector has been INR 8500 crores as a whole. He feels the total

requirement of microfinance is three times of what is presently available, so this

demand supply mismatch needs to be addressed to move forward. During his

deliberations he also talked about the large segment of urban poor who are still not

covered under any financial scheme. He strongly feels there is lack of penetration

amongst urban poor who need to be tapped with the provision of microfinance type

assistance. It calls for relaxation in various regulation norms to address these urban

poor in a big way. In this context he also referred to the grey zone between

microfinance and loan which commercial banks or financial institutions normally give

above a particular level. He called this segment as the missing middle segment and

even addressed them to be a part of the financial inclusion agenda which need to be

pursued. He briefly mentioned that parameters of the Credit Guarantee Trust Scheme

have got an important role to play to offer security to the lenders. He again thinks

handholding of all these stakeholders is very much important like the RRBs and the

NBFCs. But he thinks it is important to train the staffs of these institutions to really

make an impact at the grass root level. He mentioned that SIDBI has been doing this

for a good amount of time through its capacity building programmes. He is hopeful

that if all the articulated possibilities in this sector are explored, a huge positive

difference can be seen in coming years in terms of reduction in number of people

lying below poverty line.

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Mr. P.K Sharma FGM, Punjab National Bank

In the beginning of his speech, Mr. Sharma praised the arrival of Jan Dhan Yojana as

he thinks it will prove to be an additional step towards financial inclusion. He also

mentioned that better infrastructure has been in place in last few years. According to

him the rural branches of banks have been actively engaged in the agenda of

financial inclusion over time. Business correspondents have also been taken up

through service providers. He noted that to bring success in the agenda of financial

inclusion, the banks are regularly being monitored by Ministry of Finance for getting

updates. Mr. Sharma said that banks are not only focusing on opening of accounts

across districts only, but are putting serious efforts to mobilize the money to the

bank. He feels this attempt will prove to be beneficial for the poor or lower economic

class of the society in the long run, as banks will become the safer option than the

chit funds. The banks are always ready to serve the poor people and provide them

with necessary financial assistance. According to Mr. Sharma, the 5P’s of financial

inclusion need to be learnt, which include product, place, price, protection and profit.

He thinks there should be provision of a simplified product which will address the

needs of poor. A basic savings account should be there which will satisfy their need.

They will become able to keep their money safely unlike chit funds. However he

thinks for the poor class of people the interest rate charged need to be considerable

so that they can borrow in a quick way in times of need. To simplify the procedures of

withdrawal and other banking operations, Mr. Sharma feels e-KYC can be a reliable

solution. He is of the opinion that Aadhaar card can be linked with opening of an

account which will ensure protection in future and no documental proof will be

needed. Mr. Sharma opined that to spread the financial literacy amongst all sections

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of the society, a lot of literature published by RBI can be utilized. These will help

people to be aware about their rights and benefits. He thinks banks can initiate this

by holding classes to reach out the concerned people. He said that banks have to be

very careful in case of any sort of mischief. As banks mostly depend on service

providers these issues need to be taken care of. Banks also have to come up with due

diligence service. Banks also need to keep a track whether sufficient amount of

transaction has been taking place in all accounts. He said with more opening of

accounts banks’ duty to provide proper facilitation of kiosks to provide timely service

also increases. He also mentioned that although some of the DBTs coming through

accounts involving subsidy (kerosene subsidy, LPG subsidy, and old age pension) may

not prove to be profitable for banks, but over a period of time they are going to be

gold mines. Mr. Sharma is of the opinion that banks should also start following

Bandhan in terms of providing doorstep delivery service. He also mentioned about

the problem of connectivity in reaching out rural areas. Because of lack of

connectivity in terms of infrastructure, only one –fourth of the accounts have been

given Rupay cards. Particularly in Northeastern states connectivity and staffing have

become major bottlenecks. These are actually creating hindrance in delivery of FI

services in North-east. Bancassurance needs to be promoted with opening of new

accounts to ensure availability of insurance products.

Ms. Sakshi Varma Operations Officer, Finance & Markets, International Finance Corporation

In the beginning of her deliberations she talked about role of banks and other

financial institutions to bring in financial inclusion. Ms. Varma feels to really move

forward with the mission of financial inclusion, the entire ecosystem needs to be

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developed and mobilized with proper connectivity. She appreciated the role of

microfinance institutions to reach out a large scale of population with credit facility.

She also welcomed the initiatives taken by RBI to introduce entire business

correspondent model and push savings. She is of the opinion that of late though the

technology providers have started to offer low cost technological solutions, still easy

technological solution is considered to be one of the biggest roadblocks for financial

inclusion. She thinks Aadhar Card can be linked with some technological platform to

simplify the financial dealings. In this line she mentioned that Jan Dhan Yojna has

started to blend these together. She thinks that although several accounts have been

opened across different districts of country. Still proper market linkages are lacking

for which suitable initiatives need to be taken by Government. She thinks there is a

need to ensure that people do use their savings account regularly for depositing

savings no matter how nominal they are. If the accounts are left untouched, then

banks ‘purpose won’t be served. Therefore no incentive is there for the bank to do

anything beyond opening these accounts and that too, by force. She raised an

important point that when he people are earning very basic money and depositing

the amount into their account, they don’t need to keep withdrawing or go for direct

benefit transfer. So it is very important to look for suitable kind of transaction for

these people. According to her here lies the importance of Government to come

along with a proper system which can translate the workers of NREGA or health

workers payments into direct benefit transfers. Then the BPL population will also be

able to get the benefits of banks’ financial service. She thinks proper co-operation

from Government will help the banks to provide the required service to the mass to

make the Jan Dhan Yojna a grand success.

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Mr. Neeraj Maheshwari

Associate Vice President - Business Procurement, Micro & Mass Markets, Bajaj Allianz

life Insurance Co. Ltd.

In the beginning of his speech he talked about the increased insurance penetration

across India over the last few years. He thinks India is one of the largest markets as

far as the insurance opportunity is concerned. However only 3.7per cent insurance

penetration has taken place so far in urban and semi urban areas, where as in rural

market less than 1per cent penetration has taken place. The penetration of health

insurance is much less. According to Mr. Maheshwari, insurance is one of the four

pillars or parameters as far as overall financial inclusion pillars are concerned. But

still insurance market is lagging behind banking and other financial services. He

mentioned that as 75per cent of Indian population is still excluded from insurance

coverage, there lies huge opportunity to tap the market. According to Mr.

Maheshwari, in rural market there lies opportunity of 84000 crores new business

premium of which 20000 crores have been explored yet. He firmly feels that for

sustainable growth of Indian insurance industry, availability, affordability, awareness

and acceptability are the major criteria for an insurance company. He said that as for

an insurance company it is not easy to expand its branches in rural areas, the

companies can partner with rural banks and other financial institutions to reach out

the rural population. An affordable solution model needs to be designed. There

needs to be provision of customized product for rural insurance. In insurance market

also there is a need to build distribution models like MFIs or RRBs or business

correspondent. Another important aspect which Mr. Maheshwari mentioned is that

there is lack of awareness amongst rural people, which needs to be catered. For

different financial segments appropriate financial literacy programs can be organized

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to spread the awareness. Coming to acceptability of products, the application

procedures need to be simplified and customized. E-KYC can be a feasible solution to

help the rural people for buying an insurance product. Also along with talking about

the insurance product the agents must also clarify the claim procedures to the

customers. He feels these are some critical elements for success of insurance market.

Apart from these from regulator‘s side certain support is desirable to monitor the

compliance of different guidelines. The micro insurance products can be sold through

petrol pumps and business correspondents to penetrate more and more rural

markets. He also mentioned about building common service centre model by

Government with the assistance of private sector. He thinks the mobile insurance

should be linked with micro which will help in clarifying claim settlements and will

also help to be well connected with the customers.

Session II – “Role of Technology Providers, Mobile Network Operators

& Credit Bureaus in facilitating Financial Inclusion”

The session was moderated by Mr. Ankit Singhal, Senior Associate, Resurgent India

Ltd.

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Ms. Maya Vengurlekar

Senior Director, CRISIL Ltd.

Branch penetration, deposit penetration and credit penetration are the three basic

markers of financial inclusion for the institutionalized banking structure in the

country informed Ms. Maya Vengurlekar, Senior Director, CRISIL Ltd. One composite

score, the inclusion index collapses all these 3 different dimensions into a single

number she added. Deposit penetration has become the focus area of all financial

service providers including banks, which are trying to open the maximum saving

deposit accounts. However, the progress of credit penetration has been tardy. As

regards to deposit penetration 1 in every 2 Indians have a saving bank account,

whereas as regards to access to credit only 1 in every 7 individuals is actually

accessing credit from banks in India today said Ms. Vengurlekar. The bank regulator

may want to monitor the efficacy of the overall branch licensing policy based on the

district level inclusion data added Ms. Vengurlekar. Under the wider ambit of the Jan

Dhan Yojana focus should be on increased opening of bank accounts in the financially

excluded pockets of India, like the Northeast and Eastern states. Financial literacy is

also an imperative. Integrated technology based development is crucial for financial

inclusion but the process of finical awareness generation cannot be totally

technology dependent and need the human touch maintained Ms. Vengurlekar.

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Mr. Sundar Arumugam

Head of Microfinance, Equifax Credit Information Services Private Limited (ECIS)

Mr. Arumugam talked about the role of credit bureau in addition to other

technological infrastructure aspects which is going to enable financial inclusion in

future. According to him credit bureaus are very critical financial infrastructure in

terms of building credit history of customers. It provides the lenders with adequate

confidence to differentiate the good borrowers from bad borrowers. He thinks a

complete credit profile of the borrower must be understood by the vendor to

differentiate the borrowers in terms of customization of products and service. This

can be made feasible by collection of granular level credit data and maintaining the

credit history of the borrowers. The credit report and credit information can be

provided to the lenders. He mentioned that from an overlap analysis they have seen

that only 5per cent of the consumers in microfinance database are also part of the

banking database. This means that due to lack of proper credit history most of them

are not offered with credit. But gradually as they are becoming part of credit bureau

they are getting the opportunity to start building a credit history. Now microfinance

institutions have also started to drill down and find out the best customers for them

.this will help them to properly address the borrowers with right set of tools and

products. According to Mr. Armugam, the underlying incentivizing of a good

behavior drives the importance of credit bureau’s presence in the market. He opined

that for streamlining the ability of getting credit, it is necessary to bring in additional

data sources including Aadhar Card which will involve less amount of paper work. To

make the credit information system more integrated e KYC needs to be incorporated

for easy delivery of credit, along with that proper technological framework is

required for fulfilling the objectives of broader financial inclusion.

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Mr. Kuldip Maity

MD & CEO, Village Financial Services Pvt Ltd

During his deliberations he mentioned about the success of microfinance concept as

a whole over the last 5-6 years. The special status given by RBI to the NBFCs and

other microfinance institutions has helped to promote the MFIs amongst different

classes. Presently as most of the MFIs are now reporting to credit bureaus, the

chance of over-indebtedness is quite low. With the proper background details and

credit history of the borrowers it has become easier for the institutions to assess the

default probability of the borrowers. Also the improved application of technology

has helped in dealing with cash transactions and coping with fraud cases. Particularly

for big MFIs of late the chances of fraud has become a bit higher. With the

development of mobile technology, the issuance of e-receipts has brought a certain

level of comfort for the micro finance institutions and also the banks. Also to

compete with banks, the MFIs have to come up with transparent services being well

equipped with all kind of technology. Mr. Maity said that ultimately being a service

oriented task, all banks and MFIs need to focus on the quality of services provided to

the customers. If the entire transaction process can be converted into a technology

based practice, every sort of possibility of misuse can be reduced. Disbursement of

money through direct transfer and collection of money using ECS can put the cost of

MFIs downwards. He thinks regulation being an important task of the entire

operation; technology will help to bring in overall transparency and a better survival

for the microfinance institutions.

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Mr. Vishweshwaran R

AVP, Product Management, Financial Software & Systems (P) Ltd

Mr. Vishweshwaran R spoke about a grain procurement system where the farmers

will have the provision to supply the harvested grain directly to the Government and

the money will be directly credited to their bank accounts. He discussed about the

benefits of application of technological tools to improve efficiency, reduce the cost

of operation and reach out the customers. These are the three pillars which are

required to run financial inclusion programme. Mr. Vishweshwaran R also talked

about the challenges that need to be addressed in terms of operation of bank

accounts which will help in increasing the residual money. He thinks likewise

microfinance companies, portable micro ATM devices can be taken to the customers

for doing transactions. He felt that in the next generation much of the transactions

will be migrated to mobile based services from micro ATMs. He also dwelled on a few

challenges. These comprise low interoperability between one BC to another BC so

that customers don’t need to distinguish between branches and can get easy service

from any of the Business Correspondents. Mr. Vishweshwaran R is optimistic that

mobile technology will be able to break the divide between the urban customers and

rural customers. With the increase in usage of smart phones, technology is going to

be a great tool to take the financial inclusion to the masses effectively he

commented.

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Mr. Rajesh Mishra

President, My Mobile Payments Ltd.

Mr. Mishra started his deliberations talking about the availability of information and

credit bureau to build a strong ecosystem to serve the unbanked customers. He

mentioned that his organization offers mobile based service to their customer which

is available across any operator. He thinks the time has come when the focus should

be on unbanked customers and find out innovative ways to address them. He

believes technological tools are going to reach out the target customers across the

country in an integrated way. He believes that technology based payment service will

help to reduce the overall cost of operation, increase efficiency and give convenience

to the consumers. He believes the amount of financial transaction via mobiles should

increase manifold to bring more and more number of people under the umbrella of

financial inclusion. Proper distributional set up with sufficient number of retailers

should be present to facilitate the customers with proper service. According to him,

the elementary services including mobile and DTS recharge and other bill payment

and commodity services should also come under net banking. He is of the opinion

that the online payment solution can be incorporated in microfinance to reduce the

cost. He was of the opinion that more number of organizations should come up with

android based payment options.

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ICC Recommendations

Improve Product pricing and Process designing: The imperative is to innovate in

business processes, products, and technology for reaching out to the bottom of the pyramid. Typically, banks earn revenue on transaction products with the float income. However, in this segment, floats are very low. So, the business model will need to be based on transaction charges. The pricing scheme has to be designed accordingly.

Attune financial products to income flow cycles: Rural households can be segmented in terms of the cash flow profiles. Farmers have high risk cyclical incomes. Fishermen have daily volatile incomes. Products need to be designed to suit the customers’ varying cash flow profiles. Innovative products and processes are the need of the hour for effectively reaching out to customers across different market segments.

Customize services: For the rural and semi urban people who are not much literate, the easy understanding of the usage of ATM card and other smart cards is a pre requisite. It calls for a more simplistic technology like biometrics, which doesn’t involve memorizing the PINs.

Usher in low cost Core Banking Solution (CBS) to reduce transaction cost: Attaining

the financial inclusion agenda calls for improved and innovative operating models, with low cost manpower, smaller branches, simpler product portfolios and processes. To reduce transaction costs a low cost core banking solution may be put in place that might have limited functionality, but greater outreach. Typically, CBS solution that works on low bandwidth should ensure that customers have a seamless transaction experience through the banks’ gateway. Low transaction costs will accommodate the problem of low ticket loan size, faced in catering to the economically marginalized population.

Tap locally based Human Resource: Nationalized banks ought to usher in innovative talent management policies, whereby due focus is awarded on the use of locally based resources. A locally based employee is more involved in the local economy and can pro-actively pursue the cause of its growth.

Promote Innovative strategies for Financial Inclusion: Simplified e-KYC norms can boost customer acquisition. It allows banks to authenticate the customer from the Aadhaar database and eliminates the cost of courier, paper management, documentation and storage etc. Keeping products simple and limited for the financially excluded population is advocated. Door step delivery of services is also solicited. Activation of existent bank accounts is a major challenge for financial inclusion. Banks ought to come up with due diligence service. They need to keep a track whether sufficient amount of transactions are taking place in all the accounts.

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Promote Credit Bureaus: Credit bureaus provide credit history of customers to the lenders. A complete credit profile of borrowers will enable the lender to differentiate between borrowers in terms of customization of products and services. This can be made feasible by collection of granular level credit data.

Perk up basic infrastructure: For the success of financial inclusion, availability of certain basic infrastructure facilities like digital and physical connectivity and uninterrupted power supply is a prerequisite. Furthermore, since mobile banking is said to play an increasingly important role, there is a need for greater coordination between the mobile telephone companies and banks.

Harness IT as a facilitator: A major challenge of the banks in serving the unbanked is

that banking channels currently do not exhibit economies of scale. Information technology is a key enabler for scaling up, largely due to the cost competitiveness factor.

Forge greater Insurance penetration: Bancassurance needs to be promoted with opening of new accounts to ensure availability of insurance products. The micro insurance products can be sold through petrol pumps and business correspondents in rural markets. Mobile insurance should be linked with micro as it will help in clarifying claim settlements and will also be helpful in remaining well connected with the customers.

Augment domain Research activities: One area of research could be the most

appropriate delivery model for different geographical regions of the subcontinent. Another could be the structure and business model of the unorganized sector, which largely serves the unbanked population. Research agencies can inter alia conduct a census of moneylenders in rural India, in order to measure the reach and influence of these unsupervised lenders in those areas.

Empower technology enabled delivery: Technology can provide real time data inputs

for real time transactions and insurance policy updations/ renewals etc. Technology can enable end point user loan validation, where a farmer accessing loan for purchasing cattle feed can directly avail the same from the cattle feed retailer, who has been integrated on to the platform. Aadhar can promote the concept of international remittance in India. The money on mobile system can provide payment services to those persons, who cannot afford a card and is not even a banking customer. Financial institutions need to adopt disruptive models. The focus should be on frugal innovation which makes technological innovation affordable.

Policy Enablers: Along with technology, general consensus based political will is also necessary for forwarding the cause of financial inclusion. Upgradation of government infrastructure is necessary for financial inclusion.

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Payments: The country needs to improve the velocity of payments by reaching out to the unbanked population. Just opening a bank account would not suffice to forward the cause of financial inclusion. Keeping the accounts alive is the main requirement. Bank transactions are designed to augment the accountability & audit trail. Benefits of replacing the cash payments structure with e -transactions will be in the form of lower pilferage.

Customer education: Client education is an important prerequisite. Prior to awarding loans, the customers should ideally be awarded two weeks of education about the product, process, repayment, and usage.

Credit linkage: Technological outspread is essential for credit linkage. To determine the way forward, time has come up when the rural households will be able to connect themselves via Aadhar enabled smart phones.

Proper pricing of Gold loans: Much of the gold deposits in India are with the rural

households. Adequate technology must be available to assess the pricing of gold so as to reach out to the masses at an affordable rate. Gold loans are low ticket loans provided at the convenience of the customers; it is hassle free and depicts low operating costs. Regulators need to put in significant cap for price monitoring.

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Thank You Sponsors

SPECIAL CONTRIBUTOR

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For further details please contact: Dr. Rajeev Singh Director General

Indian Chamber of Commerce 4, India Exchange Place, Kolkata -700001

T: +91 33 2230 3242 F: + 91 33 2231 3380/3377

E: ceo@indianchamber.net W: www.indianchamber.net