Promoting Financial Inclusion - United Nations Development ...

ather than simply concentrating on the
opening of accounts.The key to the viability
of the BC operations however, will be in
achieving volumes.
Other Challenges
• Restrictions on NBFCs to act as BCs:
The Rangarajan Committee suggested
that NBFCs engaged in microfinance
could actually be engaged as BCs for
the provision of deposit and remittance
services. The committee opined that the
provision of such services would not
lead to any conflict of interest as NBFCs
are not permitted to undertake such
activities. Furthermore NBFCs have
the necessary, manpower, knowledge,
skills and accessibility. It is in the case of
deposit taking NBFCs that there is likely
to be a conflict of interest and the risk of
the mingling of funds. However, so far
even microfinance NBFCs continue to
be excluded from providing BC services
along with other NBFCs.
• Inappropriate targeting of clients: The BC
model has also been found to have been
floated in areas which have easy access
to banks and where clients already
have bank accounts. Here the BC
model functioned mainly as a provider
of additional/convenient services for
financially included people.
5.2.3 FINANCIAL LITERACY AND CREDIT
COUNSELLING CENTRES
One of the main impediments to the
achievement of financial inclusion is limited
literacy in general and financial literacy in
particular. Some of the challenges faced
by FLCCs as documented in the Mid
Term Review of 2007-08 revealed that
FLCCs were not functioning as envisaged
by the RBI. Some of the main challenges
identified are:
• FLCCs as marketing centres: Under the
FLCC guidelines, counsellors must
refrain from marketing and advertising
their own products. However, the review
revealed that the majority of FLCCs
were operating as marketing centres and
were simply promoting the banks’ own
products to the detriment of generic
financial literacy.
• Lack of training: The FLCC staff should
ideally assist and guide people to manage
their finances most effectively. Hence,
they should have sound knowledge of
banking, law and finance and need to
be equipped with social skills such as
team work and effective communication.
Upgrading of knowledge is also required
to keep credit counsellors abreast of the
latest developments in the banking sector.
The review however showed that no
formal training on financial management
or social-attitudinal skills was provided
to counsellors, and this hindered the
provision of useful counselling.
• Arms-length distance: The banks are
allowed to set up trusts/societies for
running FLCCs; but the centres are
required to maintain an arm length’s
relationship with the parent bank.
Such steps are indispensable to prevent
FLCCs from being viewed as marketing
or recovery agents of banks. Since bank
branches face monetary challenges and
aim to minimize their costs, they tend
to set up FLCCs in their own premises,
inadvertently creating the impression
that the centres are part of the bank.
• Limited sensitization of banks: According to
the model scheme FLCCs are allowed to
call joint meetings with banks to discuss
their concerns and/or debt restructuring
plans for distressed individuals. However,
banks are yet to give due consideration
to debt management plans prepared by
FLCCs before they embark on recovery
measures.
36 PROMOTING FINANCIAL INCLUSION