Financial Inclusion Conference - Sa-Dhan

Financial Inclusion Conference - 2012The First Mile Walkinto the Financial SystemAugust 7 & 8, 2012, The Ashok, New Delhi

Financial InclusionConference - 2012

F i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2“The First Mile Walk into the Financial System”C o n t e n tTable of ContentsAcknowledgement 2C O N T E N TInaugural Session 3Session - 1:Microfinance and Inclusive Growth : What are the Measuresof Success or Learning? 6Session - 2:Significance and Sustainability of SHG Federations 10Session - 3Breakaway Session 1 : Building an Effective Credit Information System 13Breakaway Session 2 : Promoting Microenterprise and Livelihoods Finance 16Breakaway Session 3 : Wider inclusion: Social Security for the Poor 17Session - 4Swavalamban : Old Age Income Security for Unorganized Sector 20Day 2, Opening Session 21Session - 5The First Mile Walk into the Financial System: Experiences of life 22Session - 6Breakaway Session 1: Business Correspondents: A potential model 25Breakaway session 2: Overcoming barriers to resource flow to MFIs 28Breakaway Session 3: Overcoming Barriers of Resource Flow toSHGs and Federations 30Session - 7Microfinance Regulation: The Emerging Landscape 33Session - 8Responsible Lending and Way Forward 35Anexture I 42-43News Paper clipping on the conference1

ACKNOWLEDGEMENTF i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2“The First Mile Walk into the Financial System”AcknowledgementThe Financial Inclusion Conference-2012 was organized by Sa-Dhan and FICCIon the 7th & 8th August 2012 in New Delhi. The theme of this year's conference was"The First Mile Walk into the Financial System”. The theme was innovative in itsconception and significant in its new approach of deepening Financial Inclusion.The conference deliberated upon the issues and challenges that the clients faces inits first mile walk into the financial system. The client centric approach of theconference was widely appreciated. The conference provided a unique platformfor multiple stakeholders including policymakers, practitioners, bankers,researchers and others to dialogue, share information and building partnerships.This was a unique platform to deliberate upon the contemporary issues andconcerns of the sector, and exploring the way forwardThe ninth edition of Bharat microfinance report 2012 was released in theconference. The report provides information and insights of the sectoral positionand performance culled out from empirical data. This year 184 MFIs contributeddata that represent 95% of client/credit portfolio of microfinance in India. Thereport captures an overview of the AP crisis, the operational and financialperformance of the MFIs in 2011-12 and some suggestions for responsible andsustainable microfinance practices. The conference also witnessed the release ofthe study report on efficacy of Business Correspondence (BC) Model. The study,among others, focused on the challenges of the BC models, operational andfinancial viability issues and recommendations to strengthen the model.We are extremely thankful to Dr K C Chakrabarty for delivering the key noteaddress and acknowledging the role for microfinance institutions in the arena offinancial services to the poor. Our sincere thank goes to all the speakers andresource persons for sharing their insights with the participants.The conference would not have been possible without the generous support fromour sponsors including IFC, SIDBI, IDBI Bank, NABARD, HSBC, LIC, BajajAllianz and Asian Institute of Finance. We also express our gratitude to oursupporters including Ford Foundation, HIVOS, Citi Foundation, Plan India, andGIZThe organizers are extremely grateful for the continued and overwhelmingsupport for the cause without boundaries by various sector stakeholders indifferent capacities contributing to the phenomenal success of the conference. Lastbut not least let me thank M2i consulting for compiling the deliberations into areport format and also our team members from Sa-Dhan and FICCI for theircommitment and dedication in making the conference into a meaningfulintervention and a great success.Mathew TitusExecutive Director2

INAUGURALSES SIONF i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2“The First Mile Walk into the Financial System”Elaborating RBI’s approach to financial inclusion Dr Chakrabarty highlighted itsimportant aspects:Minimum bouquet of products and servicesTo meet the criterion of availability of banking services, a minimum of four basicproducts must be offered to customers:1. a check-in account with emergency credit facility2. payment services and remittance facility3. a pure savings product such as a recurring deposit4. facility of entrepreneurial credit to deserving peopleTechnology driven- but technology platform neutralDr Chakrabarty said that financial inclusion cannot be done without activelyleveraging technology and without the involvement of society as a whole. However,it has consciously been ensured that the models adopted by banks are technologyneutral, which facilitates easy up-scaling and customization, as per individualrequirements.Combination of Branch and BC StructureA combination of Brick and Mortar structure with Click and Mouse technology willbe helpful in extending financial inclusion, especially in geographically dispersedareas. Banks need to make effective use of technology to provide banking servicesin remote areas through the BC model. The BC model allows banks to providedoorstep delivery of services, especially cash transactions. To ensure increasedbanking penetration and control over operations of BCs, more Brick and Mortarbranches are needed.Structured, planned approachA structured and planned approach to financial inclusion has been followedwherein all banks have prepared Board approved Financial Inclusion Plans (FIPs)with a three year horizon extending up to 2013, containing self-set targets whichare congruent with their business strategy and comparative advantage. The focushas now shifted from just opening of accounts to the volume of business transactedin these accounts, which is the key for making the FI model a success.Dr. Chakrabarty further said that the conceptual framework underlying MFIs,calls for a change and MFIs must revisit their business model to support the incomeearning ability of the borrower. MFIs will have to take initiatives to retool theproduct design towards garnering new customers and for acquiring more share ofthe market. In the long run, MFIs need to arrive at a firm position on their4

S E S S I O N - 1F i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2“The First Mile Walk into the Financial System”Microfinance and Inclusive Growth:What are the Measures of Success or Learning?Session-1HIGHLIGHTS• The success of microfinance depends largely on the success of their clients• At the very basic level, MFIs need to ensure that their operations do not result in anyundesirable outcome for their clientsPANEL OF SPEAKERS:• Mr Mathew Titus, Executive Director, Sa-Dhan• Mr Jayanta Kumar Sinha, CGM–Rural Business, State Bank of India• Dr. Ramesh Bellamkonda, Project Director, BSS Microfinance Pvt. Ltd• Mr Larry Reed, Director, Microcredit Summit Campaign• Dr Hema Bansal, India Manager – SMART Campaign• Mr T K Arun, Editor, Times OpinionOpening the session Mr Mathew Titus stated that the sector has been through atime when its achievements have been put to question. There is a need to look at themeasures of its success afresh.Mr Jayanta Sinha, in his presentation, highlighted the fact that SBI has utilizedseveral channels to take forward its financial inclusion initiatives. So far, SBI hasfinanced over 1 crore farmers of which greater than 60% are small and marginalfarmers. SBI has been reaching out to the remote parts of the country through itsbranch network, RRBs, MFIs, SHGs as well as Business Correspondents across thecountry. It provides a variety of financial services to customers in remote and ruralareas. In order to provide skills training to the underprivileged SBI has alsopromoted 107 Rural Self Employment Training Institutes (RSETIs) spread overthe country. SBI has trained over 1 lakh youth through these RSETIs and helpthem access employment opportunities. For providing financial literacy, it haspromoted 87 Financial Literacy and Counselling Centres (FLCCs). Recounting thesuccesses of SBI, Mr Sinha also highlighted the following achievements:1. Credit linkage of over 20 lakh SHGs leading to social and economicempowerment especially of women and the downtrodden2. Increased financial inclusion through the BC channel which has helped in theunderprivileged access banking and remittance services on the one hand,eliminated middle-men in government benefit transfers on the other.Mr Larry Reed, emphasized the need to move beyond numbers (such as number of6

F i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2“The First Mile Walk into the Financial System”accounts opened) to outcomes such as reduction in severe poverty to measure thesuccess of microfinance. He illustrated the example of Brazil where thegovernment has encouraged financial institutions to provide productive creditbased on sound business and marketing plans, which the financial institutionshelped develop, to poor farmers in rural areas. In order to make the investmentsecure for financial institutions the government bought the agriculture-produce.The government also used its social security programme to guarantee a minimumlevel of income for two years to those who had been receiving government supportearlier, but decided to join this credit programme, in order to encourage the poorto take to productive livelihood activities. This has helped reduce severe povertyfrom 22% to 7% between 1990 and the present time. Mr Reed concluded, urgingMFIs to measure their success in terms of success of their clients.S E S S I O N - 1“Your success is measured by the success of your clients and if you are rigorous inmeasuring that success, you can know that your clients are better off, so that you knowthat you provide the right products” – Larry Reed, Director Micro Credit SummitCampaignDr Hema Bansal, said that not much attention is paid to understand the clientrequirements. She said that there has been a focus on client protection from theregulator, Self Regulatory Organizations such as Sa-Dhan and Social Investors. Shefurther said that client protection is about doing no harm to clients which is focusedon the following seven principles:1. Appropriate product design2. Prevention of over-indebtedness3. Transparency4. Responsible pricing5. Fair and respectful treatment of clients6. Privacy of client data7. Mechanisms for complaint resolutionDr Ramesh Bellamkonda, said that while poverty alleviation is the key objective, inthe narrower context success would mean that every poor household has access totimely credit as per its needs in a cost effective and financially sustainable manner.Enumerating challenges he said that appropriate lending has to be a collaborativeeffort between honest sincere lenders and honest sincere borrowers. He said thatwhile lenders should be responsible not to over-lend, they should not be solelyblamed for problems as there are many constraints which are beyond their controlincluding socio-cultural, political and law and order matters.Mr T K Arun mentioned that the media could be more constructive and informedin highlighting the role that microfinance plays. He also said that as things change,7

F i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2“The First Mile Walk into the Financial System”effective in helping identify the levels of indebtedness that clients have. Clientshave themselves realized that MFIs are now able to determine where they haveborrowed from, and would not try to hide information.S E S S I O N - 1In closing comments on measures of success, Ms Bansal said that financial inclusionis about quality and it is important to put clients interest first. Mr TK Arun said thatindividual credit rating for rural borrowers would put banks in a more comfortableposition in providing credit. Mr Reed reiterated that we need to see success ofclients as the success of microfinance, adding that since savings is critical for clientsto succeed, there is a need for regulations to allow either MFIs to provide savingsservices on their own or as correspondents of banks. Mr Sinha said that a holisticmodel including all financial services such as savings, credit, insurance andremittance with technology as an enabler is important for successful delivery. DrBellamkonda said that the overall success should be seen in context of povertyalleviation, which is an ongoing process.9

F i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2“The First Mile Walk into the Financial System”members in 1,200 villages. Ms Pant emphasised the need for community basedmicrofinance as it empowered community, retained focus on community,strengthened local institutions and eliminated risk attached to foreign andcommercial borrowings.S E S S I O N - 2She said that community based models are often accused of being cost intensiveand their financial sustainability is always questioned. But she argued that‘sustainability’ has other aspects too apart from finance and without them evenfinancial sustainability will be difficult to achieve. These other aspects ofsustainability are value orientation, increasing risk appetite of members, stronggovernance, convergence across interventions, role transformation of leadershipand perception of benefits by members. If these are not achieved then financialsustainability cannot be achieved or will have no meaning.Ms Pant then explained Chaitanya’s model which invested annually on members’capacity building for a period of 4 years. She mentioned that federations becomesustainable on account of interest rate spreads and Business Correspondent (BC)commission. Ms Pant then presented the financial details and projections todemonstrate the sustainability of Chaitanya’s federations. She ended herpresentation by mentioning constraints in resource mobilization for SHGfederations, which included regulatory issues, credit ratings, higher PAR thanother models, MIS issues, capital adequacy ratio not being sufficient and lessrigorous internal controls.Mr C S Reddy emphasised the role of federations in financial intermediations androle of NGOs in capacity building of these federations. He mentioned that over theyears federations have started playing greater role in entrepreneurial activities andalso as Business Facilitators. However, according to Mr Reddy, one of the greatestroles that federations have played is to institutionalize small SHGs and give theman institutional framework. Mr Reddy cautioned that while scope of federations’activities is growing their quality must not be compromised.On the regulations front, Mr Reddy informed that in December 2011, there hasbeen an amendment of law which now recognizes the right to form cooperatives asa fundamental right, however there are caveats. The Act also mentions role ofelection commission in cooperative elections and tenure of executive board to befixed at 5 years. Mr Reddy felt that this may lead to politicizing of cooperatives andother governance issues. Mr Reddy emphasized the need for greater selfregulationsin federations which will ensure sustainability. He also mentioned theneed for capable human resources for managing federations and role of civilsociety in it.Dr B S Suran mentioned that NABARD is making an inventory of federations as noconsolidated data regarding that is currently available. He mentioned that11

S E S S I O N - 2F i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2“The First Mile Walk into the Financial System”NABARD supports federations as they have played and are playing a major role inproviding institutional framework to SHGs.Dr Suran felt that federations can play a great role in livelihood interventions andcapacity building of SHGs. However, he expressed his reservations on federationscarrying out financial intermediation because of capacity and skills. There are notmany successful examples of federations carrying out financial intermediation. Hefelt that instead of focusing on financial services federations can focus on livelihoodinterventions – one such area could be helping in optimizing agricultureproductivity, followed by aggregation of produce and marketing support.However, he assured that NABARD is very keen to support federations.“We are very clear that we want to fund and support these federations, may be evenprovide them service charges from the banking system beyond these 150 districts wherewe have WSHG fund” – B S SuranMr R B Gupta of Central Bank talked about Jeevika programme in Bihar which is acommunity based financial inclusion programme. Mr Gupta mentioned thatunder Jeevika, their bank has appointed community level workers and trainedthem on bank products and processes. These community workers are called BankMitras and act as intermediaries between the bank and the SHGs. They help inresolving many issues related to bank-community relationships. Mr Gupta furtherexplained some of the features of Jeevika loan particularly the fact that the bankprovided cash-credit instead of term loan under Jeevika, giving a lot of flexibility toSHGs. He concluded by saying that Jeevika has been very successful and the badloans in Jeevika are negligible. He informed that the programme which started in 8districts has now been expanded to all 38 districts of Bihar.Ms Sanyal then invited one the federation members Ms Manda to share herexperience to highlight if SHG has made any difference in her life. Ms Mandaexplained that SHG helped her fight against poverty. She also became legalJaankar at Chaitnaya and then a Government Jaankar, to help communityunderstand and exercise their legal rights and to avail facilities under variousgovernment schemes. She narrated that initially it was difficult for her to work butgradually she gained confidence and now is very confident to carry out her work asJaankar.The presentation and speeches of panelist was followed by a question-answersession. During this Mr Suran informed on question of one of the participantsthere were no special schemes of NABARD for supporting NGOs for formation offederations. However, if there are capacity building needs in specific areas thenNABARD may provide support particularly in low SHG density districts. Onanother question regarding delay in loan by SIDBI to a federation, Ms KalpanaPant explained that even Chaitanya had to face this problem as overall liquidity for12

F i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2“The First Mile Walk into the Financial System”the sector dried up last year due to microfinance crisis. She expressed hope that thesituation will ease out soon.S E S S I O N - 2Ms Sanyal ended the session by summarizing the points made by each of thespeakers and mentioned that three key recommendations for improving servicesto SHGs by banks could be:• adoption of Bank Mitra at wider scale• dedicated counters for SHG in branches and• a single form for client identification13

BREAKAWAYSESSION - 1F i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2“The First Mile Walk into the Financial System”Session-3Breakaway Session 1:Building an Effective Credit Information SystemHIGHLIGHTS• There are direct perceptible benefits of credit information bureaus for MFIs eg.improvement in loan portfolio quality• The coverage credit bureaus need to be enhanced for increasing their effectiveness• The quality of data currently being reported by MFIs to bureaus is poor and needssignificant improvement• The cost of availing information is globally one of the lowest for Indian Credit Bureaus• The credit bureaus offer tremendous potential for industry wise reporting, forcarrying out detailed analytics and in risk managementPANEL OF SPEAKERS• Mr Colin Raymond, Credit Bureau and Risk Management Advisor, GlobalFinancial Markets Department, IFC• Mr Suresh Krishna, Managing Director, Grameen Financial Services Pvt Ltd• Mr V S Radhakrishnan, Managing Director & CEO, Janalakshmi FinancialServices Pvt Ltd• Mr Sriram Kalyanaraman, Director, Equifax Credit Information Services PvtLtd• Mr Ajay Kohli, CEO, High Mark Credit Information Services Pvt LtdMr Colin Raymond started the proceedings by mentioning that one of theprogresses made in last two years has been the development of financialinfrastructure on sharing of client information. Mr Colin mentioned that inemerging markets there still are 2 out of every 3 individuals financially excludedand one of the challenges for lenders is the lack of credit history of the potentialborrowers.It has been experienced that CIBs can help significantly in this regard in not justfacilitating the flow of credit but also in avoiding over-indebtedness. He referred toBanana Skin report which mentioned ‘over-indebtedness’ as the top risk identifiedglobally. While CIBs can play a major role there still are issues such as datareporting, data quality, coverage etc. which need to be resolved.He then mentioned one of the IFC’s exercises with MFIs on not participating inCredit Bureaus to explore the reasons for not doing so. The key reasons identifiedwere:14

F i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2“The First Mile Walk into the Financial System”• Lack of awareness that it was statutory requirement• Lack of awareness about the process of reporting• Cost involved• Reluctance towards changing systems and incorporate in credit appraisal• Perception that CIB is only for large MFIsBREAKAWAYSESSION - 1Mr Colin highlighted IFC’s role towards establishing credit information bureauswhich included broadening of coverage, awareness raising and research.Being one of the first MFI’s in India to have started reporting to CIB, Mr Krishnashared some of the perceptible benefits of CIB on their microfinance operations,they were as follows:• Repayment rates have improved. Clients are now aware that overdue againstany MFI can result in not getting loans from others too.• Old defaulters have started repaying• Credit appraisal has become more rigorousHe highlighted the need for reconsidering the regulation barring more than twoMFIs lending to an individual. He mentioned that instead of putting a bar onnumber of MFIs, the regulation should only be on total indebtedness, which isalready set at Rs50,000.While, he mentioned the advantages of CIB, Mr Krishna also highlighted certainchallenges in CIB currently in India, such as:• Lack of standardization across MFIs in client information reporting to CIB• Lack of standardized documents for KYC• Loan closed information of the client is not reported• Delayed frequency of data reporting can cause multiple lending as clientinformation does not get updated fast• All MFIs not reporting to all Credit Bureaus also data of borrowings from SHG,banks, NGOs are still not availableMr V S Radhakrishnan from Janalakshmi made his comments saying that initiallythey felt that the cost of incorporating CIB in appraisal was high. However it wasdecided to make the necessary investment needed for long-term returns. Headded that Credit Bureaus should not be seen narrowly just as a credit decisionmaking tool but should also be used for management decision making. It can helpMFIs get information on competition, concentration of credit and all these inputscan be used by MFIs in planning and expansion.He also cautioned that while we use CIBs, the role of Field Executives should not beundermined. The direct field knowledge of the field staffs must also be taken intoaccount while making credit decision and it should not be completely replaced by15

BREAKAWAYSESSION - 1CIB.F i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2“The First Mile Walk into the Financial System”From the credit bureau side Mr Sriram Kalyanaraman and Mr Ajay Kohli fromEquifax and High Mark respectively, lauded the achievement of the sector inoperationalising the credit bureau particularly within a very short timeframe. Theyalso mentioned that the cost of reports in India is one of the lowest globally.However, they said that there is a significant need for improving the quality of datathat is currently being reported by MFIs, which can greatly improve efficiency.They also mentioned the tremendous potential that credit bureaus offer for thefuture. With data available, bureaus can come out with a variety if industry reports,risk reports and customized reports for MFIs, which will further strengthen thesector. However, the first priority is to improve the quality and accuracy of datawhich is also important to gain the confidence of the regulators.16

F i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2“The First Mile Walk into the Financial System”Session-3Breakaway Session 2:Promoting Microenterprise and Livelihoods FinanceBREAKAWAYSESSION - 2Highlights• There is huge demand for credit in microenterprise segment and the demand iscurrently largely unmet.• There is need for specialized financing products to support microenterprises.• There is need for long-term financing products for activities which have longgestationbut have wider livelihood impact such as watershed, irrigation etc.• Skill-building is another key area requiring intervention and mechanisms to financethem.PANEL OF SPEAKERS:• Mr Dillip Chenoy, MD & CEO, National Skill Development Corporation-Chair• Mr Sachidanand Madan, CEO, Technico Agri Sciences Ltd, ITC• Mr Bhagirath Iyer, Partner, IFMR Capital• Mr N V Ramana, Independent ConsultantMr Chenoy presided the session and invited Mr Bhagirath Iyer from IFMR for hisviews. Mr Iyer started by underscoring the importance of micro, small andmedium enterprises. He presented data that MSME provided 85% of the non-farmemployment, 45% of the industrial production and contributed to the extent of 8%of the GDP. Mr Iyer mentioned that a large proportion of MSMEs are actuallymicroenterprises which are unable to access finance from banks. He quoted one ofthe IFC’s studies which estimated loan demand for MSME sector at around Rs 26trillion of which the microenterprises’ loan demand alone stood at Rs 6.5 trillion.He further mentioned that only one-third of this total demand of the sector iscurrently being met. He mentioned that MFIs could play a significant role infinancing this gap however, the current products and model of MFIs are not suitedto microenterprise financing. Therefore, Mr Iyer highlighted the need forspecialized NBFCs with individual lending products adapted to the sector’sdemand. He compared this with large MFIs in Bangladesh which have significantloan portfolio in individual loans.Mr Iyer in the end brought out some of the regulatory bottlenecks in MSMEfinancing. He mentioned the lack of clarity around priority sector status of MSMElending by NBFCs.Mr N V Ramana then followed, who focused on the farming sector and mentioned17

BREAKAWAYSESSION - 2F i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2“The First Mile Walk into the Financial System”the lack of products in MFIs for agriculture financing. He mentioned thatmicrofinance has not been able to address the demand for finance for farming. MrRamana then expressed his anguish over the fact that today we have to ask whethermicrofinance is actually supporting livelihoods while microfinance started with thesole objective of improving livelihoods.Mr Ramana highlighted that today we do not actually have true financial productsfor livelihood financing which can improve people’s income and generate enoughemployment. To substantiate his point he gave examples of lack of long-gestationfinancial products for watershed development, revival of irrigation systems and forskill building each of which can have huge impact on livelihoods. There is hugepotential to finance the unorganized sector but somehow the focus on is stilllacking.Mr Chenoy while summarizing the speech of Mr Ramanna also explained the roleof National Skill Development Corporation (NSDC). He mentioned that NSDCfunds entities which help improve livelihoods through creation ofmicroenterprises or skill building. NSDC funds entities that can transform the livesof at least 100,000 people over a period of 10 years. He mentioned that followingtypes of institutions are typically come for support from NSDC:• Start-up enterprises• NGOs• Skill development entities• Large scale enterprises• Large corporatesHe specifically mentioned an innovative model that NSDC has funded, where anentrepreneur will be helping a cluster by building their design skills. Hementioned that there was a huge opportunity for financing skill development ofpeople and MFIs are currently not in this space. He informed that NSDC hasdeveloped a loan product for skill development.Mr Sachidanand Madan started by posing a question that do we want to finance thelivelihoods or we also want to co-create livelihoods that could be financed? Hethought that latter was more sustainable. He gave an example of drip irrigation,which often fails not because of technology but due to lack of training of people onwhole eco-system that needs to be developed along with it. He thought that therewas a need for such packaged trainings targeted to develop the whole eco-systemalong with an intervention. He gave another example of automation in agriculturewhere equipments are available, subsidy to buy them is available but there is nosupport for training of farmers on the equipment.Mr Madan ended his presentation highlighting the need for skill building along18

F i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2“The First Mile Walk into the Financial System”with other interventions to develop livelihoods.BREAKAWAYSESSION - 2During the question answer session it came out that unlike microfinance, the longtermlivelihood finance does need subsidy support at this stage.19

BREAKAWAYSESSION - 3F i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2“The First Mile Walk into the Financial System”Session-3Breakaway Session 3:Wider inclusion: Social Security for the PoorHIGHLIGHTS• Wider financial inclusion requires provision of financial services which allow clients tomanage their risks such as life and health insurance.• Given that insurance and pension products are complex, adequate efforts need to bemade in raising clients’ awareness regarding these products, particularly the scopeand limitations of these products.• Servicing of micro insurance policies so that they do not lapse remains achallenge.PANEL OF SPEAKERS:• Mr Arman, Oza, Chief Executive Officer, Vimo SEWA• Mr Yogesh Gupta, Sr VP & Head, Micro insurance, Bajaj Allianz LifeInsurance• Mr V Sathyakumar, Director-Microinsurance, LIC• Mr Kumar Shailabh, Executive Head, Uplift Mutuals• Mr A G Das, Chief General Manager, PFRDAThere were deliberations on wider financial inclusion, which includes socialsecurity for the poor in the third breakaway session. Mr Arman Oza, in his openingremark stated that there is a need to include financial education to complete the setof services necessary for wider financial inclusion. The instruments of widerfinancial inclusion, ie savings, credit, remittance, insurance and pensions, lead toeither creation of opportunities or management of risks, both of which are neededfor poverty alleviation. However, financial education plays a major role inenhancing the abilities of the underprivileged households to utilize theseinstruments for accessing opportunities as well as managing risks. He posedquestions on the future evolution of financial services, as well as the role of financialintermediaries and the regulatory framework, to the panel.“What matters is the risk perception at the consumer level and that assessment skill needsto be developed by the intermediary before offering insurance products.” – Mr ArmanOza, CEO, Vimo SewaMr V Sathya Kumar stated that lapse of policies is one of the key challenges. Thishappens because agents involved in microinsurance are not been able to continueto service the policies. He further stated that collaborative relationships ofinsurance companies with BCs have the potential to make distribution andservicing of microinsurance economically viable. He emphasized the need for20

F i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2“The First Mile Walk into the Financial System”strong system of distribution of microinsurance in a sustainable manner. He feltthat in the future, with the use of technology the segment represented by the“bottom of the pyramid” would be profitable.BREAKAWAYSESSION - 3Mr A G Das informed the audience about the Swabhiman and Swavalambanschemes of the government and stated that the participation in these schemes isimproving which is encouraging. Swabhiman, initiated in 2009-10, is a scheme toprovide access to banking services in unbanked areas. Under this scheme bankshave reached out to over the targeted 74,000 villages at the end of March 2012. Thescheme is now targeting such villages, which have a population of over 1000.Similarly, Swavalamban, was initiated in 2009-10. It caters to the low-incomesegment, which have to earn daily to live and when they are unable to workanymore, have nothing to live upon. Under the scheme, while the subscriber has tocontribute between Rs 1000 and Rs 12000, the government also makes acontribution of Rs 1000 for the first five years. At the age of 60, the accumulatedcorpus is invested in an annuity scheme and the subscriber gets a pension.Mr Yogesh Gupta said that insurance is a complex product. For microinsurance tosucceed there is a need to simplify the product as well as the associated proceduresand documentation. He also said that selection of appropriate intermediaries whohave existing infrastructure to distribute products in rural areas viably as well asability to provide financial literacy to clients in such areas is important for successfuldelivery of microinsurance.Mr Kumar Sialabh, said that health insurance is a need that has not beenadequately addressed. He also spoke about the challenges in providing healthinsurance, which include claim rejection or reduction as well as non-renewal ofpolicies. He further emphasized the need to have a long term relationship betweenthe insurer and the insured so that trust builds up on both sides. The intermediarybetween the insurance companies and the clients plays an important role inensuring that this trusts builds up by ensuring a greater mutual understanding ofthe needs of the insured on the one side and the scope, coverage and limitations ofinsurance products to the clients on the other.21

SESSION - 4F i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2“The First Mile Walk into the Financial System”Session-4Swavalamban:Old Age Income Security for Unorganized SectorHIGHLIGHTS• Swavalamban is a pension scheme designed for workers in the unorganized sector,which aims to provide them with old age income security• MFIs are well suited to play the role of aggregators for SwavalambanPANEL OF SPEAKERS:• Mr A G Das, Chief General Manager, PFRDA• Rakesh Sharma, General Manager, PFRDAMr Rakesh Sharma said that pension is an essential requirement for old age incomesecurity. However the economically underprivileged have so far had no access topension services. PFRDA was created to implement a new pension system forgovernment employees, which requires people to contribute towards their ownpension fund. NPS was made more widely available later. Swavalamban was startedin order to provide access to the unorganized and disadvantaged section. Thescheme depends on aggregators for distribution. MFIs and NGOs are well suited towork as aggregators as they can educate the underprivileged on the need for oldage income security. At present there are 51 aggregators who have helped inincreasing the outreach of Swavalamban. Under Swavalamban a minimumcontribution of Rs 1000 contribution per annum makes the beneficiaries eligiblefor government support of Rs 1000 for accounts opened in 2012-13. For five years,the government will continue to provide Rs 1000 per year provided people maketheir own contributions. The overhead charges have been kept very low.Investments are managed by professional fund managers and overseen by NPStrusts. KYC is relaxed to the extent KYC requirements prescribed by RBI for NoFrills Accounts.Answering a question regarding the challenges faced by an account holder in casehe migrates, Mr Sharma said that the NPS account is completely portable and thesubscriber continues to remain in the system even if he migrates. In order tocontinue making NPS contributions the person will need to find an aggregator inthat area. Answering another question Mr A G Das said that PFRDA has certaincriteria for selection of aggregators so that he can continue to provide services in asustainable basis.22

F i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2“The First Mile Walk into the Financial System”Day 2, Opening SessionIn the opening session of Day 2, Larry Read, Director Microcredit SummitCampaign made an impactful presentation on rediscovering the soul ofmicrofinance. He said that the tools which we develop to help the people sometimebecome tools of exploitation. Therefore, we need to act proactively so that the soulof microfinance is not lost.Day 2Opening SessionHe suggested the following seven steps to ensuring this• Do no harm – follow code of conduct and client protection principles• Know your clients – understand what is happening in the lives of the clients• Encourage savings – this will help in achieving self reliance for the people• Promote financial literacy – to empower clients• Monitor and reward social performance – develop tools to measure socialperformance• Be transformative – Understand how we can address various challenges in thelives of the people• Recognise excellence – Recognise clients and institutions who have performedwell and achieved the objectives23

SESSION - 5F i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2“The First Mile Walk into the Financial System”Session-5The First Mile Walk into the Financial System:Experiences of lifeHIGHLIGHTS• SHG and federations have provided much needed financial services to the poorhelping them to free themselves from moneylenders.• SHGs have resulted in several socio-economic benefits. It has empoweredwomen and helped in building livelihood skills and improved householdincome.• Community still has to face practical problems in dealing with banks.• Women from the community are looking forward to progress further. Theywanted to professionalize their federations learn new livelihood skills and to playgreater role in economic mainstream.PANEL OF SPEAKERS• Ms H Bedi, Managing Trustee, Development Support Team• Community representatives• Ms Roopa Sharma• Ms Kamlesh• Ms Radha• Ms Sunila• Ms ShobhaThe objective of this session was to hear the experiences of the community on theirfirst step towards financial inclusion. The session was moderated by Ms H Bedi andthe speakers were drawn from SHGs promoted by different NGOs from acrossdifferent parts of the country. The community members narrated their journey onSHGs, impact, constraints and expectations for the future.Social impactThe community members narrating their life experiences clearly established thesocial impact of SHGs brought into their lives. They narrated the difficulty intaking the first step to become part of the SHGs. They mentioned that beforebecoming members of SHGs they were largely restricted to their houses howeverSHGs have helped them to ‘step out’ of their houses and be more active socially andeconomically. Some of the major social changes seen and experienced by memberswere:• Feeling of empowerment24

F i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2“The First Mile Walk into the Financial System”• Improvement in education status – as members resolved to study• Feeling of greater social security and unity• Ability to deal in finance and talk to bankers• Greater participation in household decision makingSESSION - 5One of the members mentioned that with capacity support from the NGO, theSHG members have been able to create a fund for meeting health relatedemergency requirements of their members. The members now feel less vulnerableon account of sudden health issues.Economic impactSHGs not only had social impact but also economic impact on the members. Themembers mentioned that through SHGs they have received trainings on severallivelihood skills. Through these skills and funds availability from SHGs, womencould engage in various income generating activities like dairy, animal husbandry,small enterprises and agriculture.Women also got trainings on modern agriculture practices, which resulted inimproved agriculture productivity. Thus, overall SHGs helped members inbuilding livelihood skills and increasing household income.Move towards federationsWhile discussing their experiences community members shared how they slowlymoved on from SHGs to federations. Members mentioned that while SHGs helpedthem in taking the initial steps and provided finance for household needs and pettybusinesses, soon the funds in SHGs started proving small for taking up biggerlivelihood activities. Funds from SHGs alone could not meet the businessrequirements of all the members.It was thus primarily because of the need for higher volume of credit, SHGs withsupport from their promoting NGOs started forming federations. Federationsoperated at larger scale and thus could provide livelihood finance.Constraints facedThe members during their respective speeches highlighted some of the practicalproblems that they had to face in dealing with banks. Some common issues broughtout by community members were:• Procedural difficulty in opening bank accounts and• Procedural difficulties in transaction, particularly in withdrawal of money• Indifference of bank branch staffs25

SESSION - 5F i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2Expectations for the future“The First Mile Walk into the Financial System”For the future, community expected the banks to ease processes and make themmore SHG friendly. They also expected bank branch staffs to be moreapproachable. The community called for capacity building support fromgovernment on livelihood skills, management skills and leadership. They believedthat with these supports they will be able to manage their SHGs and federationsbetter and it will also help them in becoming economically self-reliant.Ms Bedi then opened the floor for the audience. During this Ms Jayshree Vyasremarked that while we highlight various shortcomings of our bankers we mustalso thank them for large number of SHG bank linkages. She mentioned that overthe years there have been a lot of attitudinal changes although more is needed. Shespecially thanked NABARD for their enabling role.26

F i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2“The First Mile Walk into the Financial System”Session-6Breakaway Session 1:Business Correspondents: A potential modelBREAKAWAYSESSION - 1HIGHLIGHTS• The viability of Customer Service Point Operators, who are the BC’s interfacewith its clientele, is most critical for the success of the BC model.• There is a need to increase the volume of transactions in the No-Frills-Accountsopened by Bcs.• The viability of BCs can improve significantly if they can provide a host ofservices.PANEL OF SPEAKERS:• Mr R Prabha, Expert,Banking and Microfinance• Mr Mukul Jaiswal, MD, CASHPOR Micro Credit Ltd.• Mr. Rajeev Lal , General Manager, SBI• Mr. Abhishek Sinha, Co-Founder & CEO, Eko India Financial Services• Mr Philip Brown, Citi FoundationModerating the session, Mr Rajeev Lal said that as the BC model was new, itpresented several challenges. When invited to bid, BCs bid too low and found itdifficult to operate viably. There was also the issue of technology that needed to besorted out. He however said, that many of SBI’s BC companies which earlier hadlosses, were now starting to make money. He also said that SBI preferredindividuals as BCs as the overheads were low. He added that the new clusterapproach is an experiment, which may or may not succeed.“This model is new to the banks. We in the banks had never thought that basic bankingactivities can be outsourced. That is why we see a lot of resistance towards the BC and CSPat the ground level. We are taking steps so that such issues are addressed”. - Rajeev LalMr Philip Brown released the report of the study on Efficacy of BC Model. He saidthat while access to financial services is important, presently its coverage is limited.Client centricity is important and clients need to be provided with a range ofappropriate products as well as financial literacy.Presenting the important highlights of the report, the lead researcher in this study,Mr R Prabha said that RBI came out with BC model in 2006 with the objective ofproviding banking services at affordable cost to a very large section of population,which was financially excluded. 73,000 villages were identified to be covered byBCs by 2012 in the first phase. As on March 2012, 120,355 Customer Service Points(CSPs) had been established by BCs. This research on BC model tried to explorewhether the model was achieving its intended results. The study covered differentmodels of BCs such as kiosk model, as well mobile-based models and included all-27

BREAKAWAYSESSION - 1F i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2geographies and stakeholders.“The First Mile Walk into the Financial System”The key findings of the research are:• Commercial Viability is the greatest challenge of this model, as compensation istoo meager for Customer Service Point (CSP) operators• CSP operators are the weakest link of the model – there is a mismatch in theirexpectations and the returns they make – affects their morale and stayingpower.• Activity in the accounts opened is very little. The activity in these accountsaveraged one operation in one account in a year• Banks consider the model as a mandated program and fail to see their businessinterests in the program.• There has been an over-emphasis on the quantity (in terms of number of NFAsopened and CSPs established) as opposed to quality• There is an inadequacy in financial literacy support as clients don’t feel the needto take advantage of financial infrastructure• The range of products offered is limited to no frills accounts and limitedremittance services by urban BCs. Very few instances of credit, bill payment,and insurance.• Lack of a customer grievance mechanism which can address complaints of CSPsand clients served by them limits the effectiveness of the Bcs• There is a need for improvement in connectivity and technical infrastructure• BCs and CSPs need business continuity planThe following strategies emerged from the research for improving theeffectiveness of the Bc’s:• Banks should consider providing viability gap funding to BCs. They should inturn be allowed to amortize costs incurred by them as investments during theearly stages of BC operations• RBI/IBA needs to prescribe uniform minimum rates to BCs to ensure theirviability.• There is a need to change the selection process to ensure selection of competentBCs rather than relying solely on the lowest bid-cost• A minimum assured income for CSPs needs to be provided until they achievebreak-even• BCs should keep initial investment low as this ensures early breakeven• SHG federations, CBOs and NBFC-MFIs need to be included as Bcs• All government transactions need to be necessitated through BCs as this wouldgive 2% admin costs to banks, and make the model attractive to them• There is a need for convergence of the BC model with National e-governanceplan and the Kiosks as the Kiosk model can act as common service centers• BCs should go beyond No Frills Accounts and offers other products andservices. This can improve the viability of BCs substantially28

F i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2“The First Mile Walk into the Financial System”• National Financial Literacy Taskforce can be set up by utilizing the FinancialInclusion Fund with NABARD.BREAKAWAYSESSION - 1“Activate the dormant No Frills Accounts. It will be a game changer.” – R Prabha, leadresearcher of Sa-Dhan’s and Citi’s research on BC model.Mr Prabha further added that the new norms from the ministry of Finance suggestcreation of 20 clusters for BC operations. The SLBC convener has to appoint BCfor the cluster, which will be applicable for all banks. While with these norms, thegovernment signals that well-established entities with adequate financial musclesshould become BCs, this may create a monopolistic situation as smaller entities witha local flavour such as SHG federations may get ruled out.Mr Mukul Jaiswal presented the credit led full service BC-MFI approach, whichCashpor has adopted with encouraging results. He said that there is enoughpotential under the existing regulatory framework for each player – Bank, BC andclients to benefit mutually. The core product of no-frills savings accounts needs tobe layered with suitably designed micro credit products as well as other productsand services such as remittances, insurance, recurring deposit.He added that it is difficult for poor household to save. That is why suitablydesigned credit products can help households generate surplus, which they canthen deploy as savings and investments, again through the BC, turning this into avirtuous cycle. Cashpor has opened over 66,000 no frills accounts, with over 80%active accounts, averaging six transactions per account. Average balance peraccount is Rs 425.Mr Abhishek Sinha, CEO of Eko India, asked the audience to think whether thepoor should be seen as customers or beneficiaries and whether a change inperspective could make the model more client centric. He felt that it was importantthat right from the beginning BCs should be made an interoperable alternatechannel for the bank. Mr Sinha also said that the service tax benefits are availablefor BCs in rural areas and suggested that it should be extended to the entire sector.29

BREAKAWAYSESSION - 2F i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2“The First Mile Walk into the Financial System”Session-6Breakaway Session 2 :Overcoming barriers to resource flow to MFIsHighlights• The MFI sector has been facing severe liquidity crisis since the events in AndhraPradesh unfolded in 2010. The situation is improving but getting funds is still difficultfor most of the MFIs.• Development Finance Institutions (DFIs) role in providing equity to the MFIs wouldbe important in the coming few years.• With the regulatory framework becoming more defined, the funding scenario is likelyto improve and the sector can grow in an orderly manner in the years to come.• Building good relationship with the clients and community is most important.PANEL OF SPEAKERS:• Mr Royston Braganza, CEO, Grameen Capital India• Mr P K Saha, Chief General Manager, SIDBI• Mr P S Hooda, General Manager, Oriental Bank of Commerce• Mr C S Ghosh, Chairman and Managing Director, Bandhan Financial Services• Mr Vineet Rai, Managing Director, Aavishkaar Venture Management ServicesThe MFIs in India witnessed unprecedented liquidity crisis subsequent to theevents in Andhra Pradesh in 2010. This session discussed the current situation andthe funding outlook for the Indian MFIs. In his introductory remarks, RoystonBraganza said that the liquidity crisis following the AP crisis has negativelyimpacted MFIs of all sizes. Disbursements and the loan portfolio of the MFIsdeclined significantly over the past one-year. He further said that after the crisisonly a few MFIs are getting significant amounts of funding.Mr P K Saha, however, highlighted the positives out of the crisis. He felt that theseries of directions from the RBI in the past one-two years has helped in clarifyingthe regulatory framework in which the MFIs operate. Through these guidelines,the RBI, directly or indirectly, has accepted the role of the MFIs in the financialinclusion agenda of the country. The Government of India has also introduced themicrofinance bill in the Parliament to provide statutory framework for thedevelopment, promotion and orderly growth of the MFIs.He further said that compliance requirements under the new regulatoryframework are likely to increase costs and reduce margins for the MFIs. Given thisscenario there is a need for the MFIs to redesign their strategies so that theybecome sustainable. He expressed hope that with a clear regulatory framework the30

F i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2“The First Mile Walk into the Financial System”confidence of the lenders will improve and liquidity crisis will be over for the MFIs.BREAKAWAYSESSION - 2Providing investor’s perspective, Mr Vineet Rai classified the investors in fourcategories.1. Private Equity Investors: Most of the private Equity investors made investmentsin the MFIs on the basis of very high growth projects. He felt that most suchinvestors, even if the sector recovers, will not get any returns and it is unlikelythat many of them will return to the sector soon.2. India based Microfinance Funds: The Microfinance Focused Funds like LokCapital and Aavishkaar Goodwell raise money internationally. They havereasonably good understanding of the market but as the situation improvesthey are likely to continue with their strategy of making investments in earlystage promising ventures.3. International Microfinance Funds: These are the microfinance focused fundswhich make investments, internationally including in India. Such funds usuallymake investments in the middle and large MFIs but there are also examples ofsuch funds making investments in early stage MFIs, which is an encouragingsign.4. Development Financial Institutions (DFIs): These include the organisationslike IFC and FMO and have been involved in the sector for a long time, globally.They have also witnessed ups and downs in the sector many times and carry alonger-term perspective. The DFIs, in his opinion, are still quite positive aboutthe sector. They also have investments in many microfinance funds soessentially most of the investments are likely to come, directly or indirectly, fromthe DFIs.Mr Rai felt that valuations are likely to remain low for most of the equityinvestments in the next few years.Mr P S Hooda expressed hope that the current situation was temporary and soonthe funds flow to the MFIs will improve, the need is for the MFIs to reorientthemselves. The MFIs can operate successfully in the relaxed regulatory norms butthey can also explore working as Business Correspondents and BusinessFacilitators of the Banks. He also felt that the MFIs will also have to make longerduration loan products, for investment purposes, available to the clients atreasonable rates of interest.Mr C S Ghosh said that all industries face crisis at one point of time or the other, butif the banks feel that the industry is viable they will come back to the sector. Specificto Bandhan, he felt that the good relationship of the organisation with the clients31

BREAKAWAYSESSION - 2F i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2“The First Mile Walk into the Financial System”has helped it to secure funding from the banks again. He also underscored theneed for the MFIs to build relationship with the larger community (other than theborrowers) and educate them. Various social activities undertaken by Bandhan hashelped the organisation to build good relationship with the community. Mr Ghoshwas of the opinion that to improve the funding situation the foremost requirementis to rebuild the image of the sector.32

F i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2“The First Mile Walk into the Financial System”Session-6Breakaway Session 3 :Overcoming Barriers to Resource Flow to SHGs and FederationsBREAKAWAYSESSION - 3Highlights• The lending growth rate to SHGs has slowed down in last two years.• The portfolio quality of SHGs, in general, has declined in last two years and PAR inSHGs is currently around 7-8%, which is a cause of concern.• SHGs and MFIs have to face practical constraints in availing funds due to elaborateand complex due diligence process of banks.• The slowdown in SHGs is temporary and it is likely to regain momentum. Thecurrent slowdown is primarily due to shift of focus of banks from SHGs toincreasing outreach to unbanked areas through branch networks and Bcs.• In last two years over 75,000 unbanked villages and 14.5 million people have beenbrought under financial services fold.• SBI has taken specific steps to facilitate lending to SHGs.• Private sector banks are coming with innovative ideas under BC to make fundsefficiently available to SHGs.PANEL OF SPEAKERS:• Mr Vivekanand Salimath, Chairman, IDF Financial Services Pvt Ltd• Mr Parshuram Nayak, Whole time Director, Swayamshree Microcredit Services• Mr Ajay Desai, Group Executive VP & Chief Financial Inclusion Officer, YesBank• Mr S R Nimesh, General Manager, Rashtriya Mahila Kosh• Mr J K Thakkar, Deputy General Manager, State Bank of IndiaThe session started with Mr Salimath giving a brief background of the panelists andtheir institutions. Mr Salimath then set the context for the session by highlightingthat in the last two years the growth rate of SHG lending has come down and alsothe loan portfolio quality in SHGs has been steadily declining. SHGs currently havea PAR of around 7-8%, which is a cause of concern. He also mentioned that thegovernment has recently started ‘anchor-NGO’ scheme, which aims to build betterrelation and enhance coordination between SHGs and banks through anintermediary anchor NGO.Mr Salimath presented a short film on IDF’s Banking Correspondent programmecalled ‘Sujeevana’. The film highlighted that access to finance at reasonable interesthad freed people from the clutches of moneylenders. Mr Salimath remarked that33

BREAKAWAYSESSION - 3F i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2“The First Mile Walk into the Financial System”currently the livelihood finance to community is inadequate. However, Sujeevanahelped people in getting adequate finance after which people themselves did notborrow from multiple sources. He mentioned that IDF received excellent supportfrom the bankers and expressed hope that in the coming times, with increasedtechnology, the paperwork will get reduced and efficiency will increase in SHGlending.Mr Parshuram Nayak put forth some of the practical issues and processes thatmake flow of finance difficult to SHGs. Mr Nayak started by listing down the keystakeholders of SHGs which included the government, NGOs, governmentdepartments, private players, banks, evaluation agencies and regulators.He further explained that these stakeholders are overburdening SHGs by usingthem as delivery and marketing channels for provision of range of governmentschemes or selling products. On funding side, Mr Nayak said that for lending to theSHGs or to the MFIs, bank apply equal rigour as they do for any commercialinvestment, although this is considered to be priority sector lending.He explained that SHGs are expected to fulfill elaborate documents, bookkeepingnorms, asset quality parameters and are rated internally as well as externally. MrNayak presented a list of assessments and rigorous exercise that SHG has to gothrough to avail funds. He mentioned that similar process is also adopted by banksin lending to MFIs, which eventually lend to SHGs. Such complex processaccording to Mr Nayak is a constraint in flow of funds.Mr Thakkar of SBI explained the bankers’ perspective and the reasons behindslowdown of SHG lending in the last two years. According to Mr Thakkar the keyreasons for the slowdown in SHG lending rate and deterioration in SHG portfolioquality in last two years was on account of:• Increased focus of banks on expanding outreach in non-banked areas throughexpansion of branch network and Business Correspondents (BC). Hementioned that in the last two years over 73,000 new villages have been coveredunder banking, of which SBI alone has covered around 12,000 villages. Heexplained that this expansion will continue, SBI for next year has a target ofincluding 7,5000 more un-banked villages• Focus on opening new banks accounts. Over 14.5 million new no-frill accountshave been opened in the last two years• Decreased contact of bank with SHGs due to shift of focus on area expansionand opening new accounts• High number of staffs retiring and commensurate numbers not recruited yet• Influence of NREGA on SHGsMr Thakkar said that slowdown in SHG lending is only a temporary phenomenon34

F i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2“The First Mile Walk into the Financial System”and banks still have high focus on SHGs. On issue of bank staffs support to SHGs,Mr Thakkar said SBI has appointed dedicated microfinance team and has trainedstaffs on SHGs. He mentioned that if people face problems with any bank staff theyshould approach the next higher authority and most cases will be resolved at thatlevel only.BREAKAWAYSESSION - 3Mr Nimesh of Rashtriya Mahila Kosh (RMK) informed the audience on RMK’soperations. He emphasised that RMK is the only national level microfinanceorganization of Government of India, exclusively for poor women. He informedthat RMK gives collateral free bulk loans to not-for-profit organizations. Currently,RMK has single office and the current fund size of RMK is Rs100 crore. Butrealizing its importance, government is deciding to increase RMK’s outreach toregional level and at the same time enhancing the corpus to Rs500 crores. MrNimesh explained the process of lending of RMK to NGOs. He explained thatRMK has three channels to lend viz. Direct lending, Franchisees and throughNodal agencies. RMK also provides capacity building support to NGO partnersand SHGs.Mr Nimesh highlighted impact of RMK’s work, key impacts he mentionedwere:• Increase in household income and household assets• Empowerment of women and improvement in their social status• Increase in access to health and education particularly to girl child• Improvement in standard of livingMr Ajay Desai of Yes Bank then talked about Yes Bank’s Business Correspondentmodel. He mentioned that Yes Bank has adopted the BC model just seven monthsback. Yes Bank has a centralized model for BC with deliberately no function atbranch level, as branch staffs are not trained on SHGs. The centralized unit is basedin Mumbai to manage the BC operations. Yes Bank uses advanced technology foraccount updation and MIS functions, which helps it to track transactions andmaintain controls. Mr. Desai mentioned that currently all collections are centrallymanaged and soon even disbursements will also be centrally done, which willreduce disbursement time from current level of 10-12 days to 3-4 days.Mr Desai’s speech was followed by open interaction of panel with the audience. Mr.Thakkar was asked various questions on bank’s efforts for promoting SHGlending. He gave specific efforts being made by SBI to facilitate SHG lending, theseincluded:• SBI having trained and dedicated microfinance staff who are mandated to stayin rural areas for at least 10 years• Instead of term loan bank can now issue cash-credit limit for SHGs35

BREAKAWAYSESSION - 3F i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2“The First Mile Walk into the Financial System”• SBI will soon release instructions to even provide cash-credit to NGO-MFIslending to SHGs• BCs can now open SHG accounts, which was not allowed earlier• Link branch officer will go every week to each BC outlet for better coordination36

F i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2“The First Mile Walk into the Financial System”Session-7Microfinance Regulation:The Emerging LandscapeSESSION - 7HIGHLIGHTS• The proposed microfinance act seeks to make RBI the regulator of all forms ofmicrofinance organizations• The process being followed for legislating the act ensures that all stakeholders havethe opportunity to present their point of view• There is a consensus among key stakeholders including the regulators that financialinclusion is a priority area and a regulatory architecture is indeed required from themicrofinance sector.PANEL OF SPEAKERS:• Ms Mythili Bhusnurmath, Consulting Editor, Economic Times-Moderator• Mr Anurag Jain, Joint Secretary, Department of Financial Services, Ministry ofFinance• Mr M R Umarji, Chief Adviser (Legal), Indian Banks' Association• Mr Vijay Mahajan, Chairman, BASIX• Mrs Archana Mangalagiri, General Manager, DNBS, Reserve Bank of IndiaMr M R Umarji, explained the basis of the Parliament enacting the MicrofinanceAct. He informed that the new microfinance bill is with the Parliamentary StandingCommittee on Finance, which has invited comments on it. After having reviewedthe comments, the committee will make its own recommendations to thegovernment. The new bill requires that all microfinance institutions need to beregistered with the RBI. He explained that the bill refers to MFIs as entitiesproviding credit, thrift and other microfinance services – services, whichmoneylenders do not provide. This makes MFIs distinct and forms the basis for theCentral Act and Parliament taking a decision to regulate MFIs. He further addedthat all recommendations of the Malegam committee have been duly incorporatedin the bill. The bill also proposes district level and state level advisory committees.The district level committee will monitor the practices of the MFIs and address theconcerns of the state governments.Ms Mythili Bhusnurmath, hoped that the bill is enacted soon, with proper checksand balances. She informed that in the past the RBI had been disinclined inregulating MFIs, given the constraints in its bandwidth. Inviting Mrs ArchanaMangalagiri, to the discussion Ms Bhusnurmath, asked her to comment on RBI’sapproach towards regulating MFIs.Ms Mangalgiri, detailed out the basis of the guidelines issued by the RBI on37

SESSION - 7F i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2“The First Mile Walk into the Financial System”microfinance. She explained that the guidelines seek to increase transparency andmake MFIs soundly governed and managed organizations attractive to investors inthe long run. At the same time, the directions also try to address the concernsrelated to service delivery and consumer protection. She also said that the RBI isvery keen that the industry associations take a greater role in ensuring complianceof MFIs with the regulatory guidelines. While the RBI was aware of the need toprovide thrift in far flung areas of the country, she felt, it will have to take a call onhow such product can be operationalized.Mr Anurag Jain, Joint Secretary, DFS, Ministry of Finance hoped that themicrofinance Act will provide the much needed framework for the sector. He saidthat the way this act has come about, it has been ensured that suggestions from allstakeholders have been duly considered.“As far as government is concerned, for us financial inclusion is a topmost priority and weare also clear that multiple channels are required for financial inclusion.” – Anurag JainMr Vijay Mahajan, Chairman, Basix acknowledged the fact that all the keystakeholders of the sector including the regulators have a consensus on the wayforward. However, he also expressed his concern over unnecessary interventionsof state governments, which can have and have had adverse effect on microfinancegrowth.Responding to a question whether a central act will over-rule the AP-MFI act, MrUmarji said that there are constitutional provisions about how any inconsistencybetween state law and centre law can be dealt with. He said that there is a distinctprovision that if there is a union law enacted by the parliament, the state law isinvalid if it is on the same subject. Mr Jain added that finally somebody would haveto challenge the state law in a court of law.38

F i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2“The First Mile Walk into the Financial System”Session-8Responsible Lending and Way ForwardSESSION - 8HIGHLIGHTS• The Microfinance sector needs to stay together in the time of crisis and should learn aswell as contribute to global learning.• Social performance and client protection are critical. Therefore there is a need forincreased client focus, customized products and services.• Microfinance needs to constantly innovate to offer better services to the community.PANEL OF SPEAKERS:• Mr Alex Count, President & CEO, Grameen Foundation• Ms Sujata Lamba, Director, Finance and Private Sector Development, SouthAsia Region, World Bank• Ms Jayshree Vyas, Managing Director, Sewa BankMs Jayshree Vyas started the session by commenting on the resilience of the sectorin the face of the crisis and congratulated the sector for it. Ms Vyas then invited MsSujata Lamba of the World Bank for her views on responsible finance.Ms Lamba highlighted that the World Bank is closely associated with microfinancesector. The World Bank has been working with SIDBI and has lent over US$300million and the bank’s investment arm, IFC has also financed several MFIs. Shesaid that The World Bank looks MFIs as delivery channel for financial inclusion.Ms Lamba then provided five key factors that provide framework for responsiblefinancing, these were:1. Regulations and Code of Conduct2. Self-regulation by industry3. Strong financial market infrastructure – data transparency, assessmentagencies, credit bureaus, professional third parties4. Strong governance and management systems of MFIs including grievanceredressal5. Client awarenessShe expressed her satisfaction that Indian microfinance already had elements of allthe above factors.Mr Alex Count stated that some of the key strengths of Indian microfinance sectorsuch as its size, diversity of legal forms that co-exist and active industry associations.However, despite these strengths there also have been some poor outcomes,39

SESSION - 8F i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2“The First Mile Walk into the Financial System”primarily because of some mistaken assumptions such as• Reliable low cost credit to the poor is always a good thing• Positive impact would result automatically from credit and therefore there wasno need to measure the impact• Zero tolerance towards clients on non-repayments was ethical and effective• What is good for MFIs in short term is good for the MFIs and the clients in thelong termPresenting the international perspective, he compared the current crisis of Indiawith that of Bolivia in 1999 and drew similarities. However, he mentioned that evenamidst crisis in Bolivia where all MFIs were suffering, one survived quiteeffectively. He attributed this success of the MFI to high client focus and good socialperformance such as optimizing interest rates, providing free insurance servicesand providing non-financial services. Mr Count then also gave similar example ofanother MFI in Haiti, which also performed well amidst crisis, primarily due to itswell-segregated client focused products.In his concluding remarks Mr Count said that microfinance is globally facing acrisis and India can contribute in developing new solutions and also draw fromexperiences of others. He ended his note by underscoring the importance oftechnology which he felt can have deep impact on various aspects of lives of peopleand microfinance can be mobilizer towards adoption of such technology.“There is a global crisis in microfinance and India can both contribute to the and globalapproach to solving it and also draw from approaches developed elsewhere” – Alex CountAfter Mr Count, Ms Jayshree Vyas took the audience through some of the keyachievements of sector in last 30 years. She mentioned that in these years, we havedesigned delivery mechanisms, developed good understanding of products andservices and created institutions like SHGs. She also highlighted that governmentpolicies have become increasingly positive on inclusive growth. Ms Vyasemphasized on the need for working together as a sector and on restoring publicconfidence. The key way forward that emerged from the session were:• Sector should be forward looking and should work together to get out of thecrisis• Revise products to make them client friendly and offer more segmentedproducts for different target groups• Constantly innovate, revise and update policies and processes to suit clientneeds• Form alliances to create value and maintain dialogue with all stakeholders• Adopt Code of conduct with common sense40

F i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2“The First Mile Walk into the Financial System”• Increase outreach• Impact lives of people socially and financially• Sector would require patient capital and fresh funding must resumeSESSION - 841

F i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2“The First Mile Walk into the Financial System”Anexture INews Paper clipping on the conference42

F i n a n c i a l I n c l u s i o n C o n f e r e n c e - 2 0 1 2“The First Mile Walk into the Financial System”43

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