The Chaiperson of the School gives speech on a seminar "Financial Inclusion" organised by Indian School of Microfinance for Women in collaboration with Indian Institute of Banking and Finance which was supported by Bank of Baroda, Ahmedabad. The programme was conducted at Bank of Baroda Staff college at Ahmedabad.
Inaugural Speech By Smt.Elaben Bhatt
On The Seminar On Financial Inclusion In Ahmedabad On 22nd January 2009 Organized By Indian Institute Of Banking & Finance And The School
- Ela R. Bhatt
Financial Inclusion is no less important than social inclusion. As we see in our society, millions of people not considered for a fair treatment either from the social institutions or from the financial institutions. It is commendable that, of late, the policy makers and banking institutions have come forward to address the issue of banking exclusion.
It is estimated that globally over two billion people are excluded from access to financial services, of which one third is in India. The Committee on Financial Inclusion (Rangarajan Committee 2006) observed that in India 51.4% of farmer households are financially excluded from both formal and informal sources and 73% of the farmer households do not access formal sources of credit. To be specific, those excluded are marginal farmers who happen to be women who are further excluded right from the first stage of perception.
Financial Inclusion is a complex issue, not simple. There are issues in our approach. When the excluded sections approach formal financial institutions they are confronted with problems of accessability, timeliness, inadequacy of credit. For one reason or other, they are compelled to approach the informal agencies to meet their credit demands as we all know. An all out effort has to be taken to address these problems that are not simple.
In Gujarat, the commercial banks are doing their best in providing banking services to the general public. I learn, out of 5600 bank branches in Gujarat, more than 4000 are in rural and semi urban areas. The credit deposit ratio of banks in Gujarat is 72% which is an indicator of channeling credit to the needy sectors from the deposit resources banks raise from the public. While this is a good indicator, I am not sure how balanced or evenly spread it is districtwise, incomewise, genderwise, in Gujarat.
It seems, on lending to weaker sections, the banks in Gujarat have to go a long way. Against the targeted lending of 10% of total lending, the outstanding lending of banks has reached only half way (5.21%). Under the Differential Rate of Interest (DRI) scheme (wherein banks are required to give loans to the people below poverty line at 4% Bank interest,) the banks in Gujarat, against the target of 1% of total lending, the achievement in Gujarat has reached not even 0.01%. I hope my information is wrong.
As we know, credit linkage of SHGs in Gujarat is very slow. I think, there are around one lakh SHGs in the state and around one fourth of them are credit linked. Banks should come forward to lend to the SHGs so that the members of the group get benefited with and ensure the asset creation as well as asset ownership of assets by women of SHGs. This process is an engine of social change rather than credit allocation.
The decision of the ministry of rural development, Government of India to start training institutes in every district to train the youth all over the country, is welcome. Under the concept of RUDSETI – Rural Development & Self Employment Training Institute. I understand that NABARD is supporting to conduct rural entrepreneurship development programmes and skill development programs to rural unemployed youth. We need many such RUDSETI in every District of Gujarat to build up the professional local capacity to use and manage and own their own markets and finances. Such institutes should be sustainable and serve the needs of the lives and livelihoods of the poor so far excluded.
As I know, NABARD Rural Innovation Fund has been set up in 2005 to support innovative, unconventional pro poor experiments in farm, non farm and microfinance sector. Since the focus of the Fund is on the rural poor, I urge the community organizations, commercial banks and other agencies to make use of the effective and production utilization of the Fund support.
Moreover, recently banks have come up with strategies to reach the excluded through Banking Correspondents and Banking Facilitator Models. This strategy to make use of the informal channel to reach the poor is very encouraging for a larger outreach. I urge the banks and NGO community to make the schemes to work the best way in achieving financial inclusion.
My ardent appeal to Banks is to shed away the targeted approach and understand the true needs of the poor and view financial inclusion as a vehicle to empower them through meeting their financial needs in a holistic way, motivating them to save and educate them in financial literacy. Mere opening of a savings bank account is not financial inclusion. They need to be treated as clients, not as beneficiaries.
I do realise that when business model in mf sector is gaining precedence, it necessitates the economies of scale. Yes, however, as it is important for the ‘suppliers of financial services’ to be sustainable, it is also important for the poor households to become financially sustainable. Unfortunately we often see that upscaling tends to become a number game, and, where ‘Inclusion’ is the magic word.
Our own humble experience has been that ‘inclusion’ entails understanding the poor, and their lives, their needs, their productivity, their vulnerability. With the banking interventions, after opening a bank account, they graduate (or are supposed to be graduated) through stages: First, stabilization i.e. minimizing their risks; second, maintenance, i.e. the stability attained so far is maintained and preferably move towards higher earnings and ownership of assets; third, self sufficiency i.e. the household has become more resilient and started reaping the benefits of loans taken and assets owned.
The financial inclusion mandate of Government is commendable. But even that process can remain at a mere transactory level where only outreach is addressed. Unless financial inclusion also builds in processes of reaching out and particularly to women in poor households it will not be able to transform and move them out of poverty.
In fact, the inclusion is a continued banking relationship which cannot rest until the poor households become environmentally sustainable, financially sustainable and gender sensitive. We all have significant roles to play to reaching out to those excluded. It is a long term process of Inclusive Growth.
Financial Inclusion currently is seen as at least one member of a family having a bank account. It is a drive that wants the poor to get linked with formal banking institutions, however, there are several issues that need attention:
Opening a bank account is only the beginning and not the end of financial inclusion. It will be better for the household if that one member with formal access to the bank account is a woman. Mere opening an account is not enough. The account has to be operational. The use of technology to increase access is invaluable and if this involves women then there are definite empowerment outcomes. The paper that the MF School is currently doing 'State of Practice Report on ICT in Microfinance' may throw more light on the subject. Financial Inclusion has to go hand in hand with financial literacy. The MF School’s experience with this regard in different parts of the country has been quite stimulating. Again, it should be women's participation that is ensured. Financial Inclusion can be a powerful tool for inclusive growth and participatory development. But there is also a danger of it remaining a mere tokenism if attention is not paid to the outcomes of financial inclusion. Microfinance institutions and banks have always been vary of each other. The current Business Correspondent and Business Facilitator mechanisms should bring the synergies of both sides together so that ultimately it will be poor households and poor women who benefit.
Providing full range of financial services, not just micro-credit has to be considered. Enabling poor people to participate in the growth economy requires ensuring that they get access to a whole range of financial services (payments/remittances, savings, insurance), not just credit. Thus the emphasis on micro-credit is misplaced, though eventually it should come as a part of all financial services. Similarly, microfinance institutions (MFIs) by themselves are an inadequate solution to the issue of financial inclusion and we need to focus on building an inclusive financial sector, as stated in the report of the Raghuram Rajan Committee on Financial Sector, and as stated in the Raghuram Rajan Committee Report on Financial Sector Reforms.
Nationwide electronic financial inclusion system (NEFIS) is another suggestion. India needs a NEFIS to enable small, personal transactions to happen in an affordable and secure manner. NEFIS needs to be treated as a public good. Why not? And worthy of an IBRD financial infrastructure plan. We can also use the Rs. 1000 crore of the Financial Inclusion Fund announced by the Finance Minister, based on the recommendations of the Ragarajna Committee on Financial Inclusion for the purpose of NEFIS. In this vast country, we need technological intervention as well, along with personal contacts.
Let poor people build a financial history using NEFIS : All government payments like the NREGA and old age pensions, as well remittances from family members who have migrated to cities, can be made using NEFIS into “no-frills” bank accounts that are opened for hitherto excluded households. In the meanwhile, all no-frills account holders can get group life and group health insurance. Once the cashflow history and savings balances builds up in the accounts, banks can initially even give overdrafts and then extend term loans. Future loan can be based on repayment history, all available through the NEFIS to any lender.
While appreciating the support by the GOI and the RBI to the financial inclusion agenda, nearly three quarters of all Indians do not have access to basic financial services. Moreover, the gap between pronouncement of intent and the actual practice has to be filled. Where financial services to the poor are pushed either to the public sector banks (with an expectation that they will cross subsidise services to the poor) or to non-profit NGOs, who have to raise money from donors to serve the poor. In either case, private, for-profit actors are discouraged, both by specific bar/restrictions on their entry/operations (e.g. Business Correspondents) and by restrictions on interest rates/fees. This leaves the poor to mercies of unregulated actors – money lenders, deposit collectors, hawala remitters. Anyway, these are practical difficulties, not difficult to reform.
But the ultimate question is, what do we do with our finance inclusion?
We build economies that encourage self-reliance and self development of communities. We build economies that conserve natural resources, restore balance of global eco system and social-political systems. We assure power and resources, decentralized and inclusive. We recycle our flow of food, water, energy, naturals, wastes. We maintain our structures and systems autonomous, interdependent, and that enrich others – so as to be self reliant and conserving. We create and recreate productive work for everybody that enhances human dignity. We regard women’s way of inclusive, collective practices of reaching out the needy.
If not, world is left with hunger and violence.
