By Dr. Amrit Patel,

Microfinance Focus, August 22, 2011: Financial inclusion [FI] refers to the policy goal of providing a full range of formal financial services [savings, credit, insurance, remittance] to all financially excluded households without discrimination. Affordable price, delivery with dignity, convenience, reliability, flexibility and continuity determine the quality of financial access. Of the 6.9 billion people on the planet, just 30.43% [2.1 billion] have bank accounts while 75.36% [5.2 billion] people have mobile phones. In India, for a population of 1.21 billion people only 200 million people [16.52%] have access to a bank account  while 811 million [67%] have a mobile phone. This suggests how best mobile phone potential can be harnessed to connect un-banked population and achieve FI. Acknowledging these facts Government & RBI initiated policy for FI which banks have been implementing successfully. This paper examines the implementation of FI by banks through harnessing potential of technology and suggests banks to look FI as business opportunity to achieve FI goals by 2015, not a compulsion.

Banks’ Response: Acknowledging the importance of FI public sector banks in particular have significantly responded with regard to [i]opening  50.6 million  ‘no-frills’ accounts [now 75 million] with overdrafts of Rs.27.54 crore as on March 2010. [ii] appointing and training Business Correspondents [BCs] [iii] using Financial Inclusion Fund & Financial Inclusion Technology Fund to extend benefit to 50,255 villages as on March 2010 [iv] Identifying 431 districts in 18 States and five UTs for 100% FI coverage of which 204 districts already covered by March 2009.[v]reaching 29,569 unbanked villages [against allotted 27,425] above 2000 population each and preparing roadmap to provide banking services under Financial Inclusion Plan [FIP]. Planned to cover additional 43,381in 2012 and also cover adjoining villages with population between 1000 and 2000 to optimally utilize FI infrastructure created by investing in technology, manpower, and BCs. FIPs include strategy adopted for enrolling and training BCs and branch managers, technology plans, awareness generation plans and monitoring mechanism. [vi] 160 remote unbanked villages for 100% FI under RBI’s ‘outreach program of financial inclusion & financial literacy’. Banks have also initiated following measures to promote FI in rural areas.

1.    SBI based on successful pilot projects in Mizoram, Meghalaya, Andhra Pradesh and Uttrakhand developed a mobile banking kit[  ‘bank in a box’ ] that comprises a cell phone acting as a Point -Of-Sale  machine, a figure print reader and a tiny printer. This is used for opening ‘no-frills’ accounts that are on smart cards issued to clients. [ii] SBI introduced Tiny Smart Card which is biometrically enabled Contact-less/Contact Cards/Chip/chipless operable at PoT/PoS device machine. Chipless Cards cut down the operation costs. The operations through PoT/PoS device support both offline & online/real time transactions in customers’ account. Tiny Cards support Savings Bank, Recurring Deposit, SB-Cum-Overdraft and Remittance products. [iii] It has also introduced Tiny Cards for SHG customers with authorized signatures & finger print validation operable at BC/CSP PoS near to their place of residence. [iv] Kiosk banking, a Bank’s own Technology initiative operated at internet enabled PC [Kiosk] with bio-metric validation, supports online/real-time transactions. Besides individuals, Companies and Common Service Centers set-up under e-governance project are also working as BC/CSP using this channel.[v] Cell Phone Messaging Channel is a cost effective model that works on low-cost simple mobile phones. Transactions are well secured through PIN/signature based security [v] SBI, since August 2010, introduced SBI Tatkal,  an instant money transfer service that allows customers to deposit cash into any regular SBI branch based account at all existing Eko-SBI customer service providers [CSPs] in Delhi, Bihar and Jharkhand. The customer is charged a flat Rs.25 fee per transaction with a limit of Rs.10,000 per account per day. It is a two steps simple process. Once the transaction is completed the sender and the recipient receive a confirmation SMS on the mobile numbers registered. The target segment for this product includes migrant laborers, daily wage workers, self-employed and small entrepreneurs working in the cities. Most customers use this service for remittance purposes by depositing cash in the recipient’s bank account, while others use it to make deposits in their own account. The CSPs reported daily deposits over Rs.80 million in Delhi area alone. Till March 2011 around 1.6 million transactions of more than Rs.8.7 billion were made. Eko’s system with over 800 CSPs can now reach any part of the country where SBI has a branch. Additional products like small size loans can be offered based on transaction history of customer. This will broaden the revenue stream of Eko as BC and bank can leverage the platform to widen the product range for customers. With the successful implementation of IMPS from NPCI already introduced, SBI Tatkal can accelerate FI process.

2.SBI has 300 Financial Inclusion Centers ,to be raised to 600 by March 2012, to provide back-end support to over 14000 BCs for opening ‘no-frills’ accounts, processing micro-credit applications [up to Rs.25,000] sourced by them and cash management. It will also monitor the performance of BCs under FIP.

3.HDFC Bank’s ‘Anywhere Bank Terminal’ at locations of BCs, besides ‘Bank on Wheels’ launched in 13 States [including Bihar, M.P. Rajasthan and U.P] exclusively for the rural market to facilitate low-income unbanked & underprivileged households to access financial services at affordable cost at their door steps using biometric ATMs. Bank reached more than six lakh customers beyond 200 km from its branches using the technology platform.

4.Grameen Financial Services piloted m-banking in Bangalore with 100 borrowers in partnership with mChek [Bangalore based technology provider] and after two years it served more than 3,30,000 rural clients and planned to reach over two million by 2012. GFS incorporated technology, using Mifos, an open source software developed by Aditi Technologies specifically for MFIs.

5.Integra offers iMFAST [integra Mobile Financial Applications Secure Terminal], a portable teller machine that performs simple banking functions in rural areas. Operated by BCs in villages, the iMFAST solution, a hand-held terminal handling transactions concerning deposit, RD, withdrawal, loans, insurance, bill payments and booking train/bus tickets in rural areas, is currently used in over 500 locations by 15 banks [including Indian Bank, Bank of Baroda, Canara Bank, Central Bank of India, Vijaya Bank]. Integra has issued ATM cards to 3,00,000 customers in Karnataka, M.P. Tamil Nadu, Kerala, Andhra Pradesh, Maharashtra, U.P. Sikkim and Jharkhand.

6.Union Bank of India serves thousands of customers in remote villages through its BCs, such as Infrastructure Leasing and Financial Services, Drishti and Basix.

7. Under NREGS, banks in Andhra Pradesh conducted pilot projects to test ‘leakage proof’’ routing payments to beneficiaries’ accounts and transfer payments to the laborers through smart card-based savings accounts. Now this mode of payments by Government under its various schemes is extended to beneficiaries in other States.

8.Zero-M.A.S.S. Foundation in Karnataka launched a new generation biometric fingerprint authentication-based solution, which has reached five million customers including beneficiaries of social security, pension scheme, NREGS and SHG members in 18 States. The product suite ‘ZERO’ is an end-to-end payment system to serve customers with small-value transactions including cash-in/cash-out, cashless transactions and remittances leveraging the security and connectivity of new generation mobile phones.

9.mChek provides services mostly to women, which include bank deposits, withdrawal, loan repayments, account balance and grocery  payments. mChek has a vision to bring the entire ecosystem of partners across the banking sector, banking service providers, as well as telecom operators to serve the base users.

10.In 2009 MYRADA with the support of NABARD developed NABYUKTI, a software to generate simplified MIS for promoting and linking SHGs with banks

11.Ekgaon technologies offer software for accounting and MIS in case of SHG-based financial intermediation.

12.BASIX in collaboration with banks has set up physical infrastructure in the form of Kiosks, which provide financial services and help rural households secure essentials and maintain contact with external world through internet connectivity.

13.PNB has set up 30 Banking Kiosks in Bihar, Haryana and UP providing banking services through ICT based BC models. Bank provides smart cards/KCC/GCC, no-frills account with overdraft facility to at least one member of the household in villages under Outreach Program of RBI. It has trained BCs through IIB&F and a pool of trainers has been created with the IIB&F to train bank staff.

14.Indian Bank launched Mobile branch [van] with ATM facility and coin vending machine at Jangipur [West Bengal]  & Vellore [Tamil Nadu] to provide banking services to six & five villages respectively. Customers in BC-engaged villages, under100% coverage conduct transactions through smart cards.

15.To accelerate FI process Canara Bank has taken technology initiatives viz. multi-lingual biometric ATMs, Voice-enabled mobile biometric ATM and Smart Cards. Bank opened FLCC centers and has registered a new Trust ‘Canara Financial Advisory Trust’ to manage FLCC centers. To create awareness about banking facilities and Bank’s products among rural households, the Bank has deployed ‘ Gramin Vikas Vahini’ in 35 districts.

16.Syndicate bank has adopted Mobile technology as well as Smart Card technology.  IDRBT, Hyderabad recommended security standards are adopted. Bank issued 32K [IDBRT specified] Smart Cards to1,23,243 customers. Bank’s micro-ATMs are as per IDBRT specified standards. Bank has set up three Financial Inclusion Resource Centers in Karnataka. It has designed Micro-insurance product with Tata-AIG providing risk cover of Rs.25,000 @ premium of Rs.30 plus tax per annum and sold to 5814 customers.

17.Corporation Bank initiated pilot projects on branchless banking in Karnataka, Andhra Pradesh, Tamil Nadu and Goa, surveyed 1200 villages during 2009-10, assisted rural households to open bank accounts and issued Smart Cards to 5.47 lakh customers
18.    Indian Bank, Andhra Bank, SBI, State Bank of Hyderabad, Union Bank, Canara Bank, Axis Bank, HDFC Bank and other banks are using Smart Card-based technology solutions.

The Financial Information Network & Operations [FINO] set up in 2006 uses technology to promote FI, as a BC to 21 banks, insurance companies and Government. It provides financial services such as recurring deposits, remittances, withdrawal of money, micro-loans.. It has 10,000 BCs and 18.5 million clients of which over 90% are in rural areas. It operates in 80 districts of 23 States. FINO has opened bank accounts of all farmers who supply milk to the NDDB. Along with a savings bank account they get bank loans and cattle insurance policy, all coupled in a single product in Gujarat and UP

Business Opportunity: Banks among them should share the experiences of pilot projects and those proved successful need to be replicated. Banks need to relook and redesign their area based specific business strategies to incorporate specific plans for promoting access of services to low income group treating it a business opportunity as well as a corporate social responsibility to promote FI.

FI calls for significant investment in technology applications and research & development efforts and devising comprehensive MIS, monitoring and evaluation system. Public sector banks in particular have significant financial resources, professionals and field experience of having operated since 1969 that can be fruitfully utilized to achieve FI in next four years. Their rural, semi-urban & urban branches have been allotted 5 to 10 villages under Service Area Approach since 1989 and they have gained better understanding of rural socio-economic environment that can facilitate them to systematically bring all financially excluded adults progressively within banking fold through technology and BC based business models. They can on their own build organic relationship with thousands of MFIs, 96 RRBs, millions of SHGs and 95,633 PACS covering six lakh villages with a total membership of 13.2 million that can act as catalyst for pursuing the objective of 100% FI. They have established commercial business nationally and internationally that generates significant amount of revenue to motivate expanding business in rural areas initially with some loss which can in longer term be wiped out. They can collaborate with World Bank, ADB, IFC and country’s business houses to experiment different kinds of business models to reach to remote unbanked and underserved households through public-private-partnership mode. Government may consider allowing commercial banks to deploy full amount available under RIDF for technology applications and R & D effort to develop new products & services through pilot projects and experimenting for viable BC-based business models. Banks can create profitable or break-even operations under the regulations governing the BC model and no-frills accounts when scope for appointing BCs is sufficiently expanded.

Minimum infrastructure support, viz. road, rail, power, digital connectivity etc. are prerequisites for operation of a banking outlet. Government sponsored programs need to be effectively implemented to substantially increase income that can improve cash flow of poor and low income households and motivate them to operate their bank accounts on  continuing basis.