rangarajan commitee analysis on financial inclusion
Post on 24-Nov-2014
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ANALYSIS OF RAGHURAM RAJAN COMMITTEE REPORT
Gaurav Gupta (27)Paridhi Khemka (28)
Priyanka Kanther (29)
Rural Households 70%
Rural Bank< 10000 People
Rural Branches 45%
Earners having a Bank AccountAnn. Income (Rs.) Urban Rural Total
<50000 43.1 26.8 28.3
50000- 100000 75.5 71.2 73100000 - 200000 91.8 87.4 89.9200000 - 400000 95.5 93.6 94.9
> 400000 98 96.3 97.6
All 61.7 38 44.9
% Farm households not having access to credit
Region % Households
Northern 74.95
North-Eastern 95.91
Eastern 81.26
Central 77.59
Western 56.02
Southern 57.25
Union Territories 89.86
North Eastern, Eastern & Central regions are financially excluded to the extent of 90% and needs immediate attention
As the income grows the difference of financially excluded households between urban & rural population is decreasing.
Financial Inclusion - Statistics
Source : IISS
LINK BETWEEN INCOME AND BANK ACCOUNT BY OCCUPATION GROUP
Just 27% Households are financially Included with income <50000
Source : NSSO
SOURCES OF LOAN
Lowest Income Group have access to credit mainly through moneylenders which might lead them to debt trap
With increase in Income, credit taken from formal credit institutions increases
Source : NSSO
STRATEGY FOR FINANCIAL INCLUSION
Improvements in existing formal credit delivery mechanisms New models for effective outreach Technology based solutions
National Rural Financial Inclusion Plan (NRFIP)- To reach 50% excluded households by 2012
State Level Rural Financial Inclusion Plan (SLRFIP)- Jointly prepared by State Level Bankers Committee (SLBC) & NABARD
National Mission on Financial Inclusion (NaMFI)
STRATEGY FOR FINANCIAL INCLUSION Commercial banks
- Targets for rural & semi urban branches
- Branch Expansion in identified districts- Product Innovation- Incentivizing Human Resource- Funding
Financial Inclusion Funds
- Financial Inclusion Promotion & Development Fund- Farmers Service Centre- Promoting Rural Entrepreneurship- Self Help Groups- Capacity building BCs/BFs
- Financial Inclusion Technology Fund
STRATEGY FOR FINANCIAL INCLUSION Procedural Changes
- Simplifying Mortgage Requirements
- Exemption from Stamp Duty for Loans to Small and Marginal Farmers- Saral Documentation for Agricultural Loans- Nodal Branches
Business Facilitators- Insurance Agents, Retired Govt. officials, Postmaster
Business correspondents- MF-NBFC to act as BC- Incentive mechanism- Govt. payments through SLBC- Customer Service Points e.g. Kudumbashree in Kerela
STRATEGY FOR FINANCIAL INCLUSION Regional Rural Banks(RRBs)
- 14494 branches
- 37% of total offices of SCB in rural areas- 91% of workforce posted in rural & semi urban areas- 31% of deposit accounts, 19 % of deposit amount 37% Loan Accounts- out of29.25 lakh SHG credit linked by banking system, 31% linkage is done by RRB
RECOMMENDATIONS
Exclusive targets for Microfinance & Financial Inclusion
Provide funding support
Provide technology support
Widening Network & Expanding coverage• 535 districts covered, 87 are yet to be covered
Microfinance plan with NABARD support in terms training promotion & development
NRFIP for RRBs
Pilot testing of BCs/BFs model by RRB
Computerization by support from Financial Inclusion Fund
Tax Incentives
NABARD to support HR development
IMPLEMENTATION OF RBI INITIATIVES FOR FINANCIAL INCLUSION
Financial inclusion, viz., no frills accounts,GCC,One Time Settlement (OTS) for loans up to Rs. 25,000, use of intermediaries,etc., should be implemented by RRBs.
New Local Area Banks (LABs) ,especially in districts /regions manifesting high levels of exclusion to integrate well with local financial markets and offer a host of financial services including savings, credit, remittances, insurance, etc.
Cooperative Credit Institutions
• Cooperatives in SHG-Bank Linkage – Need for enabling legislation for admitting SHGs as members of PACS
• Use of PACS and other Primary Cooperatives as Business Correspondents:
Cooperatives Adopting Group Approach for Financing Excluded Groups
• Develop / test a new form of community based organisation other than SHGs like JLGs
• Mutual trust and support tend to be weaker in a JLG New forms of collateral or guarantee may have to be worked out.
• Use of the BF model could be thought of to organize vulnerable segments of the population into JLGs.
Setting up of Credit Guarantee Fund
• For Risk Mitigation• Providing comfort to the banks for lending to such JLGs
COOPERATIVE CREDIT INSTITUTIONS
SELF HELP GROUP – BANK LINKAGE MODEL
As of Mar 2007, 29.25 lakh SHGs have been credit-linked with banks, benefiting more than 400 lakh poor families.
Need for further deepening and upscaling of microfinance interventions
Encouraging SHGs in Excluded Regions – Funding support
• Active involvement of Department of Women and Child Development at State-level in promoting SHGs.
• The State Govts. and NABARD may set aside specific funds out of budgetary support and the Micro Finance Development and Equity Fund (MFDEF)
• Need to evolve SHG models suited to the local context in hilly regions.
Capacity building of Government functionaries By NABARD from grass root level upwards within the SHG framework.
Legal Status for SHGs : As of now, SHGs are operating as thrift and credit groups.
SHG movement retains its participatory and self-help character and they should not be politicized.
NABARD to open ‘Project Offices’ in identified 13 Priority States for upscaling it by strategizing interventions such as stronger involvement of State Governments, capacity building of NGOs, broadening the range of SHPI, etc.
Incentive package for NGOs : It could be in the form of expeditious and hassle-free grant support.
RBI/NABARD to study the issue of ‘evergreening’
Transparency in maintenance of records of SHGs : Banks, with the help of NABARD, should evolve a checklist for concurrent monitoring of SHGs.
SHGs to evolve norms for distribution of surplus
Need to restructure design & direction of SGSY subsidy:
There is a Need to formulate a single programme synergising the positive features of SGSY such as specific targeting of Below Poverty Line (BPL) families, etc. and those of the SHG –Bank Linkage Programme such as group cohesiveness, discipline, etc.
Need for technology adoption for effective disbursal of Govt. subsidy should be recognized
Interest rate subsidy
• Being charged by banks to the SHGs.• Margin available to SHGs is sufficient to take care of operational
costs• Subsidy on interest rates cuts at the very root of the self help
character of SHGs.• The subsidy could be re-directed towards capacity building efforts
or in providing input supplies and marketing support to the SHGs.
RESOURCE CENTRES
Aims
• To help organise SHGs into federations and other higher level structures effectively
• For ensuring the long term sustainability of SHGs and for helping the members of mature SHGs to graduate from microfinance to micro-enterprisesSet up by various stakeholders such as NGOs, banks,Government
departments, NABARD at the State/ district level
The specific role of Resource Centres would be :
• To work towards a comprehensive capacity building of SHGs,• Share innovative ideas and models that can be replicated
elsewhere,• Enhance functional literacy among SHG members,• Support livelihood interventions among SHG members,• Facilitate availability of all services to SHG members under one
roof.Setting Up Cost – Financial Inclusion Fund and/ or the MFDEF.
RESOURCE CENTRES
To provide SHGs alternative savings products to capture the huge potential of savings that remains untapped.
From Microcredit to Microenterprise – Challenges
• Present challenge :To induce SHGs and their members to graduate into matured levels of enterprise, factor in livelihood diversification, increase their access to the supply chain, linkages to the capital market and appropriate production and processing technologies.
• Spin off :How to address the investment capital requirements of matured SHGs
GREATER ROLE FOR NABARDFederations
• if they emerge voluntarily from amongst SHGs, can be encouraged
• However ,The Committee feels that they cannot be entrusted with the financial intermediation function
• Supported out of the Financial Inclusion Fund and the MFDEF.• Example : Andhra Pradesh ; SHG members federation Societies
under the MACS ActUrban Microfinance
• Urban branches of banks, even though having manpower and technology support, are not attuned to SHG lending or microfinance.
• Opening of specialised microfinance branches / cells• BFs / BCs could be the mechanism to reach the target clientele in
these areas.• Banks can also consider associating with MFIs undertaking urban
microlending as a viable optionAmendment : Permitting NABARD to provide micro finance services to the urban poor.
MICRO FINANCE INSTITUTIONS
About 1,000 NGO-MFIs and more than 20 Company MFI
MFIs are major players accounting for over 80% of the micro finance loan portfolio.
Recognising MF-NBFCs
• without any relaxation on start-up capital and subject to the regulatory prescriptions applicable for NBFCs. S
• Provide thrift, credit, micro-insurance, remittances and other financial services up to a specified amount to the poor in rural, semi-urban and urban areas.
• At least 80% of the assets of MF-NBFCs should be in the form of microcredit of upto Rs.50,000 for agriculture, allied and non farm activities
• In case of housing, loans upto Rs. 1,50,000/- per individual borrower, whether given through a group mechanism or directly.
MF-NBFCs as BCs of banks for only providing savings and remittance services.
Relaxation in Foreign Investment Promotion Board (FIPB) guidelines
• Minimum amount of foreign equity for MF-NBFCs may be reduced to a level of US$ 100,000/- istead of US$ 500,000/-
• NABARD may extend equity support out of its MFDEF to such MF-NBFCs based on objective rating / criteria.
• The SEBI Venture Capital Guidelines may permit Venture Capital Funds to invest in MF-NBFCs
Tax Concessions to the extent of 40% of their profits
MF-NBFCs as microinsurance agents as agents of regulated life and non-life insurance companies.
MICRO FINANCE INSTITUTIONS
Code of Conduct covering aspects including mission, governance, transparency, interest rates, handling of customer grievances, staff conduct, recovery practices, etc., may be made mandatory for MFIs
Accounting and Disclosure Norms
• ICAI may be involved in formulating appropriate norms • Banks exercise a lender’s discipline in enforcing reasonable rates
of interest and acceptable modes of recovery.
Unifying regulatory oversight : supervision of MF-NBFCs could be delegated toNABARD by RBI.
MICRO FINANCE INSTITUTIONS
Technology Applications Driving Force for Low-cost Inclusion Initiatives Essence of most models: issue of smart card (or mobile phone) to the
farmer Shared infrastructure FITF (Financial Inclusion Technology Fund): provide necessary
support for defraying part of costs
MICRO FINANCE INSTITUTIONS
Optimisation of Existing Infrastructure Optimal usage of existing banking infrastructure State Governments should make payments under National Rural
Employment Guarantee Scheme and Social Security Payments through BF/BC technology based solutions
Building database National data-base, sectoral, geographic and demographic reports, and also
a payment system Remittance needs of poor
Ahmednagar DCCB low value card linked to a bank account e-kiosks
MICRO FINANCE INSTITUTIONS
OTHER RECOMMENDATIONS
Feasibility of integrating postal network: A committee may be set up with representatives from RBI, Department of Posts, NABARD and commercial banks
Remittance product similar to InstaCash
One BC point and one micro-bank in each of the six lakh villages
Card-based remittance products: card to card transfer, or simply a scratch card type remittance card
MICRO-INSURANCE
Issues (given by Consultative Group on Micro-Insurance: not viable as a standalone insurance product not penetrated rural markets Partnership between an insurer and a social organisation micro-insurance products must have the features of simplicity,
availability, affordability, accessibility and flexibility
MICRO-INSURANCE
Leveraging the Existing Network for Micro-Insurance: Partner-agent model
Linking micro credit with micro insurance Implementation Strategy for Micro-Insurance
Human Resources Requirement and Training Operations and Systems Development of Adequate Feedback Mechanism Development of Data Base Consumer Education, Marketing and Grievance Handling
Product Development / Process Re-engineering Using Existing Infrastructure & Technology Review of existing schemes
MICRO-INSURANCE
Life Insurance Micro Insurance Guidelines (MIG) 2005 issued by IRDA has provided for equal
commission throughout the life of a policy
Health Insurance capital requirements for stand-alone health insurance companies be
reduced to Rs.50 crore Crop Insurance
policies be evolved to make crop insurance universal, viz., applicable to all crops/regions and pricing actuarial
Livestock Insurance involvement of local organisations like SHGs, dairy co-operatives, NGOs and MFIs
improves the quality of service, reduces false claims and expedites claims settlement
Asset Insurance (residential buildings, farm and nonfarm equipments and vehicles)
lack of distribution channels appropriate for lower income groups
DEMAND SIDE CAUSES & SOLUTIONS FOR FINANCIAL INCLUSION
Primary health, nutrition, primary education and vocational training Access to Land and Titling:
The Forest Dwellers and Tribal Land Rights Act, 2006 Recording of tenancy and ownership rights on land land cultivation certificate by the Village Panchayats Computerisation of land records
Access to Work – NREGA Infrastructure support – rural connectivity through Pradhan Mantri Gram
Sadak Yojana and electric power support through Rajiv Gandhi Gram Vidyutikaran Yojana
DEMAND SIDE CAUSES & SOLUTIONS FOR FINANCIAL INCLUSION
Equitable distribution of RIDF resources Enhancing productivity and incomes Value Addition – Primary processing of all agriculture produce Reducing Vulnerability
Risk Mitigation through Non-financial Channels Calamity Relief Fund Managing Price Risks through Warehouse Receipts and Commodity
Derivatives Organising the Unorganised producers
OUR VIEWS – IN FAVOR
Combined use of RRBs,BF/BC model,cooperatives ,SHGs will lead to increase in efficiency, reducing operational cost ,providing greater benefits to poor.
Concept of Resource Center Technology based models like farmers smart card should be encouraged Incentive packages for NGO For funding , Govt can have other donation funds/schemes too ,other than the
MFDEF and Investors fund . Linking Micro-credit with Micro Insurance will not only create awareness and
reach as well as reduce the operational cost with high efficiency.
OUR VIEWS - CRITICS
× SHGs should not be regulated to the limit that political interference is minimal else it would have the same fate as of RRBs ( Old Rigid Bureaucratic Inefficient Structure)
× Nothing was recommended with respect to the evergreening issue
× Local area banks concept was a failure. Inspite of creating a new system like this , we should expolit the existing resources.
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