Page 31 - DCOM208_BANKING_THEORY_AND_PRACTICE

Banking Theory and Practice

Notes those from the households increase. Such savings would then need to be channelized to the
productive sectors to attain the desired growth objectives.

ABC of Financial Inclusion

At this stage, however, emphasizing that Financial Inclusion rests on three pillars viz. access to
financial services, affordability of such services and actual utilization of such services. Financial
inclusion can be achieved only if all the three pillars show affirmative results. Thus, the ABC of
financial inclusion is advice, banking and credit. It must also be noted that while for developing
countries like India, generally the process of financial inclusion starts with opening of savings
bank accounts. The process, at a later stage, must also incorporate credit facilities and other
financial services such as insurance. Thus, promotion of financial inclusion would require holistic
and coherent approach on the part of the banking industry as also the regulator (RBI) and the
Government.

Opportunities in Financial Inclusion

As CK Prahalad has stated in his book “Fortune at the Bottom of the Pyramid”, “the future lies
with those companies who see the poor as their customers”. Under the new paradigm, it is
essential to develop policies with well-structured incentives. With greater competition and
narrower spread, some banks have already gone in a big way to provide financing and banking
services to micro enterprises and low income families, accompanied by an expansion of the
frontier of the micro finance products; credit and debit cards, micro mortgages, agricultural
loans, savings accounts, micro insurance and remittances as well as a number of informal
mechanisms for assisting low income groups. This is a new market sector with major potential,
which allows for portfolio risk diversification and involves a massive and stable customer base.

2.3.3 Steps taken by RBI to Promote Financial Inclusion

RBI in its annual policy statement of April 2005 recognized the problem of Financial Exclusion
and has initiated several policies, with a view to promote financial inclusion. The RBI has also
formulated two models namely, business facilitator model, and business correspondent model
to promote inclusive concept in banking sector.

Business Facilitator Model

Under this model, banks are now permitted to enlist the services of intermediaries.

Example: NGOs/Farmers Clubs, Cooperatives, Community-based organizations; IT
enabled rural outlets of corporate entities, post offices, insurance agents, well functioning
panchayats, and village knowledge centres etc.
The services that can be extended under this model include: Identification of borrowers and
activities, collection and preliminary processing of loan applications including data verification,
creating awareness about savings and other products, counselling on investment and money
matters, processing and submission of applications to banks, promotion and nurturing of
self-help groups/joint liability groups, post sanction monitoring, follow up of recovery etc.

Business Correspondent Model

Under this model, NGOs/MFIs set up under societies/trust act, societies registered under Mutually
Aided Cooperative Societies Acts or the Cooperative Societies Acts of the states, Section 25

26 LOVELY PROFESSIONAL UNIVERSITY