Promoting Financial Inclusion - United Nations Development ...

and other products and education and
advice on managing money and debt
counselling, promoting and nurturing
SHGs/JLGs, post-sanction monitoring and
handholding of SHGs/JLGs and follow-up
for recovery.
...for lack of a business model
Since the circular of November 2009,
there has been increased debate and some
impetus to the pilot programmes for BC
implementation. Yet, many months after
the shackles were removed the Indian
government has had to initiate yet another
effort to generate some momentum for
financial inclusion. As the banks put together
their financial inclusion strategies, there is
little talk of the centrality of the BC model
in their plans. The fact is that the BC model
has not been successfully implemented
anywhere except Brazil; even there it is
used mainly as a bill payment mechanism
rather than as a tool to facilitate deposit and
credit transactions. Nowhere, therefore, is
there a real business model appropriate to
the relatively informal functioning of the
micro-economy of low income families
in India; nowhere is there experience that
the Indian banking system can turn to.
If the BC model is to succeed, there will
need to be an innovative approach to the
development of business models. For that
bankers will need to see real business in this
market. There is presently little evidence
that this is the case.
4.2 NO-FRILLS ACCOUNTS – BUT
ALSO NO THRILLS, PERHAPS?
In November 2005, RBI instructed banks
to offer simple and secure deposit facilities
which required minimal or zero balances.
The idea behind these no-frills accounts
(NFAs) was that unbanked families would
be allowed to maintain them without
the requirement of a minimum balance
but would be permitted only a limited
number of transactions per month. Over
time, the potential for using such accounts
for making government welfare payments
such as old age/widow pensions and wage
payments under employment guarantee
schemes like NREGA became apparent.
As a result of the strong thrust placed by
the government towards these accounts,
the number of NFAs increased from half
a million in 2006 to 33 million on March
31, 2009 and is over 50 million today.
However, in spite of the large number of
such accounts that have been opened, usage
behaviour analysis conducted by various
studies shows that the initiative has met
with limited success since an overwhelming
majority of NFAs are inoperative. For
example, while the Cuddalore district of
Tamil Nadu was declared 100% financially
inclusive, a 2008 study by the Institute
for Financial Management and Research
(IFMR) showed that 85% to 90% of sample
accounts were inoperative, households were
unaware of banking facilities and most of
them opened accounts only to obtain
finance from government schemes. A study
of accounts opened between April 2007 and
March 2009 by the Skoch Development
Foundation shows that only 11% of such
accounts are operational.
It has been argued that generic financial
products are unsuitable for the poor and
not much effort has been put towards
customizing financial products or services
to meet the needs of low income families.
Ironically, no-frills accounts were designed
keeping in mind the needs of vulnerable
groups, but they are still not used by the
majority of people. The supply issues that
limit the ‘thrill’ of using no-frills accounts
are discussed in Section 5.
20 PROMOTING FINANCIAL INCLUSION