Another interesting study that was presented at the microfinance conference in Pune at the College of Agricultural Banking (RBI) related to the Reserve Bank of India’s (RBI) financial inclusion drive (I am not the only one who found it interesting, a reporter from Business Standard recently wrote about the study). Hoping to reach unbanked populations, in 2006 RBI encouraged banks to make basic no frills savings accounts, either with nil or minimum balances, widely available. By November 2008, of the 342 districts identified by State Level Bankers Committee, 155 districts were declared to have achieved 100 percent financial inclusion, and by the end of March 2008, 15,788,919 no-frills accounts had been opened (according to an RBI 2008 progress report). But, as the pie graph above and to the right shows, 72% of the accounts were at minimum balance in the district the authors studied (minimum balance was either zero or a small number such as 30 rupees).
The study focused on Cuddalore district in Tamil Nadu, one of the 155 districts declared to be in 100% financially included. In collaboration with S. Thyagarajan at CAB, Jayaram Venkatesan at CMF analyzed the results of the financial inclusion project in terms of the following:
• Coverage by geography
• Account activity and usage
• Cost involved in opening of accounts and maintenance, as well as the transactional usage behaviour
The real success of the financial inclusion project would be measured by the actual quantity and quality of usage of the newly opened no frills accounts. Perusal of the sample accounts revealed that 72 percent of the accounts had zero or minimum balance even after one year of opening. Only 15 per cent of the accounts had a balance of more than Rs. 100, leaving 85 percent of the new no frills accounts inoperative. One of the most important reasons for lack of use seemed to be lack of awareness among households about savings and about the uses of no frills accounts. Many account holders were not even aware of the purpose of opening the bank account and obtaining the passbook in the first place. According to the authors, the need for financial literacy underlies the relative failure of these savings accounts.
The study is an interesting read, and one that several RBI executives referenced during the conference. To learn more, access the study here.
* I borrowed heavily from Jayaram’s 3-page summary that he wrote up for the conference to write this entry. Jayaram, I hope you don’t mind!
4 comments:
I think giving every household, every individual a bank acct is a good first step towards financial inclusion. Major hindrance in this is applying RBI's KYC norms even for zero balance no-frills bank accounts. Every time I want to pay maid, servant, driver, maali, gardener, peon, office boy or anyone whose household income is less than Rs. 5,000/month, they say they do not have a bank acct and single reason being no bank or Post Office will open their account without an address proof. You give everyone a bank accont without KYC norms and you will see that in 3 years more than 75% of these accounts will be used heavily without any financial education. So much black money will come into banking system and RBI can track it all. More taxes for govt. Just give everyone a bank account without hassling them with 100 formalities. Take a photo of person with webcam, take thumb impression, take affidavit of address just like they do in case of election card. Every Indian has a right to have at least one bank account. RBI is seriously curtailing tht right in name of national security.
Thanks for the sharing. Lots of good information.
Hi,
In the last couple of months, I have been reading a lot on Financial Inclusion
Reserve Bank of India, is doing exemplary work in promoting Financial Inclusion.
Numerous studies have been published on Financial Inclusion.
Various solutions have been suggested, and the associated cost factors discussed.
But, what is interesting is that no one has veered from the traditional path i.e the end need is always met by physical cash.
Electronic Cash has to replace with physical c cash. Than only true Financial Inclusion is achieved.
I see all efforts are made electronically to transfer the cash into the Banking Accounts and then at the last mile, physical cash is necessary.
nayakanti prashant
Safe ePayments Motivator
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