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Financial Inclusion: Grassroot Innovations


Financial Inclusion: Grassroot Innovations By: Abhinav Rishi Grassroot Innovation Innovation is about thinking and creating solutions with an uncommon perspective ... – PowerPoint PPT presentation

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Title: Financial Inclusion: Grassroot Innovations

Financial InclusionGrassroot Innovations
  • By Abhinav Rishi

Grassroot Innovation
  • Innovation is about thinking and creating
    solutions with an uncommon perspective, that tend
    to positively impact the environment, both
    socially and economically.
  • In terms of subject, grassroots innovation is a
    bottom up innovation starting from the grassroots
    wherein grassroots refers to disadvantaged class
    as opposed to mainstream elite
  • In terms of type, grassroots innovation is the
    practical low-cost innovation based on technology

I would like to discuss how concepts of grassroot
level are being applied to the field of Financial
Inclusion In India to bring about a constructive
Financial Inclusion
  • What is Financial Inclusion?
  • The process of ensuring access to financial
    services and timely and adequate credit where
    needed by vulnerable groups such as weaker
    sections and low income groups at an affordable
    cost - The Committee on Financial Inclusion
    (Chairman Dr. C. Rangarajan, 2008)

Scope of Financial Inclusion
  • Scope Financial Inclusion should include access
    to financial products and services like
  • Bank accounts
  • Check in account
  • Immediate Credit
  • Savings products
  • Remittances Payment services
  • Insurance
  • Mortgage
  • Financial advisory services
  • Entrepreneurial credit

A large population financially excluded
  • Coverage of (Estimates based on various studies
    and Market Surveys)
  • Check in accounts - 40
  • Life Insurance - 10.0
  • Non-Life Insurance - 0.6
  • Credit Card - 2
  • ATM Debit Card - 13
  • Geographical coverage Only 5.2 villages are
    having a bank branch

  • The future of democratic polity and social
    harmony of India rests on the premise of
    inclusive growth
  • Financial inclusion is a crucial driver for such
  • The political leadership is looking at the
    banking industry to deliver on this promise over
    the next few years
  • The various approaches to deal with this that are
    coming from grassroot have been discussed in the
    following slides

Requirement of a new business model
  • The business model to profitably serve excluded
    customers will be significantly different from a
    conventional bank model. It needs to be created
    from a clean slate to prevent existing models
    from influencing the design.
  • Challenges faced are
  • Low ticket size
  • High cost in last mile
  • High risks (no credible collateral)
  • Unique customer traits (like low financial
    literacy, unpredictable cash flows, etc)

Use of Mobile Phones (1/4)
  • Research by The Boston Consulting Group in 2006
    found that a large segment of customers just
    above the bottom of the pyramid are excluded from
    formal financial services.
  • They could be profitably served with an
    innovative low cost business model. This segment,
    with annual household incomes in the range of Rs
    60,000180,000 is termed The Next Billion

Use of Mobile Phones (2/4)
  • REACHING OUT Mobile banking has the potential to
    emerge as a game changer in terms of costs,
    convenience and speed of reach for banks to
    address the needs of the urban poor. In the
    picture, a member of a self-help group putting
    her thumb impression to use RFID/smart card based

Use of Mobile phones (3/4)
  • Transaction costs must be reduced by as much as
    90 percent to achieve a sufficiently low
    breakeven to accommodate the low ticket sizes
  • Use of mobile phones for financial inclusion
    enable a shared accounthosting infrastructure to
    reduce the cost of technology for very small
    balance accounts
  • UIDAI infrastructure (Aadhar cards) would reduce
    KYC costs in new customer acquisition.

Use of Mobile phones(4/4)
  • Many of the unbanked are illiterate, and may
    not be able to type on their mobile phones.
  • The solution that is offered to promote financial
    inclusion is thus voice-based, said Ashok
    Jhunjunwala, an expert who leads the
    Telecommunications and Computer Networks Group
    (TeNeT) at IIT-Madras
  • The Mobile Payments Forum of India (MPFI) has
    been trying to put in place unified technical
    standards to make it possible for banks, telecom
    service providers and companies to jointly use
    the mobile platform for payments

Product Offerings
Product Offerings (Contd.)
  • Expansion of bank branches to provide transaction
    facilities to rural population
  • Credit facility Micro credit, group loans for
    as low as 200
  • Micro-insurance Insurance of agricultural
    produce as Indian agriculture is largely
    dependent on good monsoon
  • Savings through deposit account Investment of
    those savings into real assets Gold, Real
  • Co-operative systems
  • Rural credit cards

Penetration of Banks
  • Business from urban and big cities still account
    for 75 of banks business and has been growing
    over the years
  • Size of deposits and advances per account has
    also increased significantly indicating that the
    increase in business is not due to the
    acquisition of additional customers at the bottom
    of the pyramid
  • Evaluation study by RBI indicated that most of
    the accounts that were opened in backward
    districts remained inoperative.
  • The awareness regarding the non-frills accounts
    continues to be virtually non-existent in many

  • The increase in number of accounts of size INR
    25000 and below in the banking system rose from
    36.8mn in 2004 to 39.2mn in 2009 (a mere 6.5)
  • The number of borrowers with credit accounts of
    less than 200,000 increased from 61.9mn in 2004
    to 95.8mn in 2009 an increase of 54.8
  • Priority Sector lending scheme this policy
    has helped in imparting resilience to the
    agricultural sector despite the global financial
  • Overall priority sector lending constituted 42.7
    of the total by the banks

Coverage through Micro Finance
  • Two major models for delivery of microfinance
    services the SHG bank linkage programme (SBLP)
    and the MFI model
  • SBLP - coverage of 89mn low income households
    through 6.81mn SHG
  • Provides group saving facility and bank credit
    facility to low income families
  • MFI Model Microfinance portfolios grew by 100
    lately compared to 17.5 growth in overall bank
  • MFIs, except the cooperatives are currently not
    allowed to provide deposit services to their

Ring Fence Financial Inclusion(1/2)
  • The business model for this segment will be
    substantially different from that of a
    traditional bank, it will be crucial to
    ringfence this business
  • The banking industry should draw learnings from
    the airline industry where companies often create
    a separate low cost airline to capture the entire
    range of customers

Ring Fence Financial Inclusion(2/2)
  • In inhouse approach, the bank ringfences the
    Financial Inclusion business unit into a separate
    SBU with separate PL, organization, and HR, as
    seen in the diagram.
  • This is to ensure that the business model can be
    created without any bias from the existing
    practices and mindset of the current business

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  • FICCI- IBA report, Indian Banking 2020,
    September 2010

Thank you!
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