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Ultra Small Branch Step Towards Financial Inclusion: A Case Study*

CASE STUDY, BANKING & FINANCIAL SERVICES
ET Cases - GSMC, 13 Pages
AUTHOR(S) : Dr. Pooja S. Kushwaha, Assistant Professor, Jaipuria Institute of Management, Indore and Prof. Kalyani Mulchandani, Assistant Professor, Jaipuria Institute of Management, Indore

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Ultra Small Branch Step Towards Financial Inclusion: A Case Study

 

“The financial inclusion is the only key driver for economic development at national level and economic empowerment at an individual level. It’s a human right of the modern age.”

– David Lewis, Former Lord Mayor, London



India is a federal democratic country with three levels of Government namely Central, State and local. There are various issues considered under union list which is under the purview of Central Government this includes areas which are considered crucial for the country’s development like defence, banking, communication, etc. According to Census 2011, the rural population comprised 68.84% of total population share and 31.16% was the share of the urban population. The rural population too contributes to the GDP of our country predominately through agriculture. We can expect the overall development of our nation only when we are able to provide financial services at a feasible cost to all without any discrimination on the basis of financial status or education. The people residing in the rural areas feel that it’s wastage of time, money and resources, to visit a bank for opening accounts or for loan. According to NSSO report 51.4% of farmers are financially excluded, only 27% of total farmers access formal sources of credit and rest borrow from non-formal sources.

In India we have very strong banking system. Banks such as State Bank of India, Bank of Baroda, Syndicate Bank and Canara Bank are the Public sector banks. Public sector banks are controlled and managed by the Government of India. These banks have been serving the nation for over centuries and are most favoured choice of public because of their affordable and quality services.........

Current Scenario: Financial Inclusion

Indian Prime Minister, Narendra Modi (Modi) announced “Pradhan Mantri Jan Dhan Yojna” (PMJDY) a national financial inclusion mission on August 15th 2014 aiming to provide bank accounts to at least 75 million people by January 26th 2015. According to DNA news article dated January 2014 there are 703 million total savings accounts in India. The number increased by 12.6% only in 2012 and this proves increase in number of people under formal financial system...........

Measures to Achieve Financial Inclusion

No Frills Bank Account

Opening of basic no frill bank accounts for unbanked people is not the only way to achieve the financial inclusion but, also need to focus more on ensuring that these accounts remain operational. This is possible only if all government payments are routed through the banking channel. Secondly, policy makers must have some remuneration schemes for banks for opening such types of accounts with zero balance. These zero balance accounts can be opened under PMJDY by any bank branch or BC (Business Correspondent), but if the account holder wants to have cheque book then he/she needs to fulfil the minimum balance criteria................

Accessibility of Banking Facility

One of the reason of having unbanked population in India is the absence of formal banking facilities. In order to have unified banking facilities throughout the country RBI instructs RRBs to open at least 25 percent of the total number in unbanked or rural area. Private Banks also need to ensure that at least 25 percent of their total branches are in semi-urban and rural areas according to RBI.

India, being a multilingual country has no official language. So in order to access the information about banks, RBI has decided to have the website content in 13 languages so that everybody can access the information...............

Microfinance and Self Help Groups

Microfinance programmes are conceptualised to reach the economically weaker segments of the society as they are not able to access formal financial services. According to S. Porkodi and DR. D. Aravazh (2013) there are immense opportunities for MFIs in micro credit in India as there is huge demand for rural finance, and the inadequacies of formal sources. Microfinance institutions (MFIs) provide small loan to poor people without any collateral. All the microfinance institutions have Self Help Group...............

White Label ATMs

White ATM machines help in conducting banking transactions in rural area where formal financial structure does not exist. RBI gave license in 2013 to open white label ATM by any non-banking entity including NBFCs with a condition of having net worth of more than INR 100 crore. Tata communications opened the first white label ATM named as “Indicash”. Other white label ATMs includes Muthoot Finance, Srei Infra., Vakrangee Software, Prizm Payments, and AGS etc...........

Ultra-Small Branch

One of the reasons of not having banking transaction in rural area is the absence of formal banking structure in remote areas. So to enhance the banking services in these remote areas, The Ministry of Finance, Department Of Financial Services, Government of India, and the Reserve Bank of India (RBI) are introducing Ultra- Small Branches (USBs) in the areas where population is less than 5,000, where brick and mortar branches are not viable. Indian banks have set up over 40,000 USBs across the country to drive financial inclusion in un-banked and under-banked centres, according to the Economic Survey for 2012-2013............

Assignment Questions

I. Why financial inclusion is important? What is the impact of financial inclusion?
II. Do you think that financial inclusion means that banks extends credit to all those who approached them?
III. .............

Exhibits

Exhibit I: Benefits of Financial Inclusion

Exhibit II: India’s Position in Financial Inclusion as Compared to Other Countries

Exhibit III: Financial Inclusion Plan-Summary Progress of All Banks Including RRBs

Exhibit IV: Number of Accounts in Indian Banks

Exhibit V: Growth of Self Help Groups

Exhibit VI: No. of ATMS of Public Sector Banks

Exhibit VII: No. of ATMs of Scheduled Commercial Banks (SCBs)

Exhibit VIII: Comparison of Banks Accounts Opened by Branches and BCs

Exhibit IX: Growth of Business Correspondent Network

Annexures

Annexure I: Total Number of Bank Accounts Opened Under Pradhan Mantri Jan Dhan Yojna

Annexure II: Guinness World Record of Pradhan Mantri Jan Dhan Yojna

Teaching Note Preview

Ultra Small Branch Step Towards Financial Inclusion: A Case Study

 

Case Synopsis

Our country GDP, in July 2015, is growing around 7 percent, but this growth is not complete or commendable as this would include only 40-50% of our total population and rural population is not included in this overwhelming growth, the condition of rural people is still worsening further. Rural people are still fighting for basic necessities like toilets and other health and hygiene facilities. The poor are getting more poorer and the rich are getting richer day by day as the poor are being financially excluded and financial services like ATMs, net banking, mobile banking are available only in the urban areas. According to latest census report close to 70 per cent of our country’s population lives in rural areas and according to NSSO report 51.4% of farmers are financially excluded, only 27% of total farmers’ access formal sources of credit and rest borrow from non-formal sources. Government have launched different schemes for unprivileged and rural people but as these schemes are linked with the bank account, people are not able to avail the benefits from these schemes in the absence of bank account and they still depend on local money lenders. According to Prime Minister’s Jan Dan Yojna country’s growth would only possible if we have inclusive growth. We have to cater unbanked rural people and brought them in the banking system.

Many actions taken by the government in order to provide banking facilities to the unbanked rural and underprivileged people like no frills account, white ATMS, Business Correspondent (BC), rural banks, Ultra Small Banks (USB), Nationalizing of Banks, 40% of credit targets from rural and underprivileged. But after all these efforts still 80% of rural people are not having any account in the bank. Banks are extensively working for financial inclusion. The main problem is that the savings and other financial products of banks are not for low-income group. In order to include poor, rural and underprivileged people in banking we have to design affordable products for them. Secondly, banks are unable to reach directly to these low-income rural people. BCs or USBs can be the perfect solution as far as reach is considered. Financial literacy would be more important as that would help to generate need of financial planning.

Financial inclusion can be proved very important step to confiscate poverty, but it requires combined contribution of banks, Business Correspondents, Government, and rural people.

Learning Objectives

  • 1. Understand the need of financial inclusion in India
  • 2. Understand role of Ultra Small banks in financial inclusion
  • 3. Comprehend problems in implementation of financial inclusion
  • 4. Analyse the impact of financial inclusion on growth of economy

 

Case Positioning and Setting

This case can be used in Finance to explain the need and process of financial inclusion in marketing by explaining the role of business correspondent, in  E-governance and Entrepreneurship.

Assignment Questions

  • 1. Why is financial inclusion important? What is the impact of financial inclusion?
  • 2. Do you think that financial inclusion means that banks extends credit to all those who approached them?
  • 3. How can the objectives of financial inclusion be achieved by Ultra Small Banks?
  • 4. .............

.......................................................

 

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Abstract

Even after more than 60 years of India's independence there is big community in the country which is not included in banking, because of which they are unable to access any financial products and services, as a majority of these products demand for bank account details. Khan Commission was formulated by RBI in 2004 for incorporating financial inclusions. The digital India campaign would be successful if India would practice financial inclusion in a true sense. To practice financial inclusion RBI instructed banks to provide basic banking to all with minimum KYC (Know Your Customer) norms either with zero or very minimum balance. In order to include bottom of the pyramid section of our society under banking we have the need to provide them with the basic banking facilities in their own locality. Even with minimum KYC norms if banks are not available in rural areas, opening an account would again be big issue of concern. RBI is trying to solve this problem by including the Business Correspondents (BC) to facilitate banking services in those areas where banks are unable to open or operate their branches due to cost constraints. Banks have started CSCs (Customer Service Centres), these CSCs appoint a Business Correspondent (BC) of a bank to carry out banking transactions on behalf of the bank. Now BC or Business Facilitator (BF) become a small branch. As low cost is involved to setting up such models major public sector banks use 'Ultra Small Branch' (USB) kind of model for providing banking facilities where formal banking infrastructure is not available. This would prove itself as an initial step towards  financial inclusion.

This case would help to build an understanding about different ways by which financial institutions can target the sector where banking is out of reach or is not that prominent. The business correspondent can help us to provide banking facilities in some of the interior villages where no banking facilities exist like rural bank, USBs, etc.



Pedagogical Objectives

  • Understand the need of financial inclusion in India
  • Understand role of Ultra Small banks in financial inclusion
  • Comprehend problems in implementation of financial inclusion
  • Analyse the impact of financial inclusion on growth of economy

Case Positioning and Setting

This case can be used in Finance to explain the need and process of financial inclusion in marketing by explaining the role of business correspondent, in E-governance and Entrepreneurship.


* GSMC 2016, IIM Raipur

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- Teaching Note (**ONLY for Academicians)
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