A policy cornerstone of every government in modern India, financial inclusion is the delivery of financial services in the ruraI areas and to the poor and marginalised sections at affordable costs – in other words, segments that banks would not normally serve had it not been for external regulations. It is a commonly accepted fact that the poor have a higher risk of financial problems due to an unstable stream of income, low savings and an unpredictable environment, all of which have a multiplier effect in times of emergency and personal exigency. With no social security programme in this country, they are left to fend for themselves. Barriers to finance for these sections include distance, lack of infrastructure, suitable and affordable products, and education. Financial inclusion, in some ways, can solve these problems by making them less dependent on loan sharks, usury, and other desperate measures, and also give them economic security. This is vital for them as well as for the nation’s inclusive growth. Financial inclusion initiatives can take various forms but in corporate India it is usually limited to providing basic financial services to the rural poor (the underserved segment), funding microfinance institutions and self-help groups (SHGs), and providing financial literacy.

It must be kept in mind that this set of customers is highly varied in itself, not to mention completely different from the urban, middle class segment that banks typically prefer to cater to. Starting with their lack of a ‘proper’ credit history to the seasonality of their income and expenditures, standard financial solutions cannot be employed here. Also, depending on the type of work, the products have to be customised. A migrant labourer will have different requirements from a small farmer, who, in turn, won’t have the same needs as a landless farmer. The informal credit sector takes the lion’s share of the market in rural and backward regions. Various studies have shown that it is the most socially oppressed groups like manual workers who have to rely on these sources. In India, there have been several schemes initiated by the central and state governments for financial inclusion. In fact, it has been a mainstay of the country’s banking policy since decades and with a sizeable chunk of the population outside the formal financial system, it has become even more urgent to bring them into the fold. As per a 2015 Brookings Institution report, India accounts for 21 per cent of the world’s and 67 per cent of South Asia’s unbanked population. Just over half of the country’s 15 years+ population have bank accounts, according to the 2014 World Bank data – the figure is 79 per cent for China. About 15 per cent of the population have savings and a measly six per cent have borrowed from the formal credit sector. In response to these glaring disparities, the current government launched the Pradhan Mantri Jan-Dhan Yojana (PMJDY) in 2014 with the objective of enabling universal access to banking facilities. The main features of this programme include setting up of at least one basic banking account for every household, financial literacy, and access to credit, insurance, and pension facility. Although the jury is still out on its impact, it has been one of the more well-intentioned programmes on financial inclusion and is easily one of the largest in the world.

The accompanying insurance schemes – Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and Pradhan Mantri Suraksha Bima Yojana (PMSBY) – are simple and affordable enough for the rural and urban poor alike and have found moderately enthusiastic takers among the corporate lot. India has the world’s largest SHG–bank linkage programme; it has delivered some positive results but faced plenty of criticisms too. The same goes for MFIs – they have gone from being a darling of institutions like The Nobel Committee and World Bank to a cautionary tale of half-baked poverty-alleviation schemes. The truth, as usual, lies somewhere in-between. In pure numbers, till 2013–14, 74 lakh SHGs were part of the SHG–bank linkage programme (84 per cent being all-women), with Rs 24,017 crore disbursed in fresh loans in that same year (although there are reports that some banks try to pass off a second or third tranche of existing loans as new loans). An estimated 545 MFIs were given Rs 10,282 crore worth of loans in 2013–14.

Banking and financial services in the rural areas and to the poor have still a lot left to be desired. Until 2010, only about five per cent of the nearly six lakh villages in the country had bank branches. Between 2004 and 2012, new bank branches in rural areas had registered a growth of only 12 per cent. Consider these figures and facts from the RBI: 7.8 branches per 1 lakh population in rural/semi-urban areas compared to 18.7 in urban/metro areas, low penetration of basic savings bank deposit accounts (BSBDA) in north-eastern and eastern states, low number of female-owned bank accounts compared to male-owned ones, lower level of financial inclusion in states with a higher share of rural population and a higher share of female population, and six cities accounting for 11 per cent of all bank branches.

It has been estimated that 43 per cent of those who work primarily in the agricultural sector do not have access to a bank account. Even within this segment, 36 per cent of farmers and 55 per cent of farm workers do not have a registered bank account. It has also been observed that much of the agricultural credit goes to landowning farmers (the creamy layer, if you will) and not to the tenant farmers or labourers (most banks want proof of land ownership or rental documentation). This becomes even more significant in light of the never-ending agrarian crisis and the epidemic of farmer suicides. As per the report of National Sample Survey Organisation (NSSO) in 2012, almost 51.4 per cent of farm households are financially excluded from both formal and informal sources. The survey also reports that only 27 per cent of farm households have access to any formal source of credits. There is region-wise disparity in SHG and micro credit as well, especially in the north-eastern region.

All of this despite the RBI’s requirement that all banks open 25 per cent of their new branches in unbanked rural areas—and despite the age-old priority-sector lending norms. With financial inclusion being a mandate for all banks and financial services companies in India, we take a look at some of their work in this key area.

ICICI
ICICI’s financial inclusion programmes are centred around financial literacy, SHGs and microfinance, aside from its rural bank branches and business correspondents for last-mile connectivity. It is an active participant in schemes like Pradhan Mantri Jan-Dhan Yojana (PMJDY). ICICI Foundation’s Rural Self-Employment Training Institutes provide financial literacy to the rural youth through specific training modules. The central part of its financial inclusion strategy hinges on microfinance and business correspondents. The delivery of these initiatives is done through its Financial Information Network and Operations Limited (FINO) technology platform which has conceptualised the biometric card to collect and maintain customer information including credit history.

ICICI’s financial intermediation models (as it calls them) can be divided into two parts:

1. Microfinance: Here, the bank partners with MFIs and NGOs wherein it either provides financing to the MFI who is responsible for the client or buys out the loan portfolios, one time or periodically from the MFI. In both cases, ICICI has no direct linkage with the end customer but takes on the credit risk, in part or whole. This plays to each participant’s strengths as the bank’s role is limited to financing. The programme has a portfolio of Rs 9.6 billion and a client base of 3.5 million. 

2. Technology: This comes under its FINO innovations for technology-based solutions comprising of core banking and smart card systems. These enable better data capture, management, and reporting with high-security features. FINO PayTech, started at ICICI Bank in 2006, is now promoted by 24 public and private sector banks including LIC and International Finance Corporation in India. While the concept sounds good on paper, its long-term impact remains to be seen.

Aside from these, ICICI extensively uses business facilitators, or Vikas Sahyogis, and business correspondents (including SHGs for delivering credit) to expand its network. In terms of overall numbers, ICICI covered 15,500 villages and had 18.5 million basic savings bank deposit accounts (30 per cent of those being active) in 2014. About 52 per cent of its branches were in semi-urban and rural areas. Last year, it launched a digital village in Sabarkantha district of Gujarat with the target of providing technology solutions to every aspect of a resident’s life there, including cashless banking. Its micro insurance services and work with state governments and GoI ministries covering around 89 million lives for personal accident insurance and health insurance are also well known.

Although these numbers are impressive, it will be even more impressive to get a sense of the actual progress and the medium- to long-term impact of their key projects which haven’t been made public yet.


J&K Bank
The financial inclusion programmes of this bank have covered nearly 3,000 villages in J&K – with a combined population of 43 lakh – through more than 700 BCs. It also organises financial literacy-cum-credit counselling centre (FLCC) camps in several districts in the state. This year, NABARD and J&K Bank have come together for a massive financial literacy campaign across the state. Over 900 Financial Literacy and Awareness Programmes (FLAP) will be conducted through more than 500 branches of the bank to educate people on basic financial matters and practices. Existing financial literacy centres will also be used to deliver these. NABARD will provide entire grant assistance to the bank under its Financial Inclusion Fund (FIF). About 50,000 households are expected to be covered under this programme.

Last year, J&K Bank received an Excellence Award for outstanding performance under the PMJDY, for its efforts which included providing information & communication technology- (ICT-) based banking services in 795 unbanked villages in Phase I of its Financial Inclusion Plan and setting up of 12 Financial Literacy Centres (FLCs) as per target.

State Bank of India
Being the jewel in the very thorny, NPA-laden crown of India’s public sector banks, SBI drives its financial inclusion programmes through government schemes as well as literacy campaigns. Surprisingly, it is also a keen adopter of banking technology. As of September 2015, it had nearly 6,000 BC outlets, opened 4.45 crore accounts under PMJDY, set up 219 FLCs, and covered 88,000 villages with a total of 7.28 crore accounts in areas inaccessible by roads. It has been reported that close to 50 per cent of its accounts under the PMJDY programme are active; if these numbers remain true a couple of years down the line, then it will be truly remarkable.

Out of 16,000 branches, just over 6,000 are in rural areas and 631 in unbanked villages. The bank has also opened 1.5 crore small accounts with simplified KYC norms and used the facility of customer service points (CSPs) to link over 69,000 villages. SBI works with SHGs as well, having lent Rs 4,586 crore to 3.85 lakh SHGs. It has a market share of over 17 per cent (as of 2014), making it a key stakeholder in the country’s SHG–bank linkage programme. SBI has also consistently been lauded for its financial inclusion initiatives and is the only bank in India experimenting with digital branches. Its eKYC, which enables account opening online through the Aadhar card without any paperwork, and kiosk banking have been commended by industry insiders as well.

Metlife
Globally, Metlife Foundation had committed $200 million over five years starting 2013 to provide low-income individuals access to affordable financial services. In 2014, MetLife Foundation awarded over $27 million in grants to financial inclusion programmes. Last year, the Foundation along with Sesame Workshop in India launched the Indian version of the global programme ‘Dream, Save, Do: Financial Empowerment for Families’, aimed at educating young children and their families on financial knowhow and best practices. The target is to reach seven million people through community engagement and over 18 million children through television.

In 2014, the Foundation partnered with Women’s World Banking and its partner Ujjivan to develop individual loan products for women, and this year it is working with Trickle Up India and other community-based partners on a financial inclusion programme touching 100,000 poor, rural households.

Citibank
Citibank has been quite active in the financial inclusion space in India, using its financial prowess to generate innovative ideas from entities who understand this space better. One of the first in India to invest in financial literacy for poor women (facilitating this for 800,000 women), Citi has delved deep into microfinance, establishing a long relationship with the Indian School of Microfinance for Women (ISMW), which it co-founded with SEWA and Friends of Women’s World Banking (FWWB). Citi’s strategy since 1999 is to partner with several NGOs to deliver its CSR initiatives. In 2011 it embarked upon its next phase of CSR, announcing a Rs 100 million grant across 12 NGOs, focusing on economic empowerment with financial inclusion as one of its key objectives. This was followed, in 2014, by Citi Foundation’s Rs 114 million investment in seven major financial education and capability programmes in India targeting 580,000 individuals. The projects were chosen through an Innovation Grant Program that encouraged NGOs to design solutions around these issues. One of these was Buzz India by Navya Disha Foundation which was essentially a mobile classroom teaching basic financial planning and skills to low-income women. The 2016 edition is underway with last year’s programme seeing more than 290 applicants.

The long-term impact of these multiple projects is yet to be ascertained; one hopes it’s not big money down the proverbial drain.

IndusInd
IndusInd Bank believes that financial inclusion is not just about access but also about repeated usage of these instruments, although not much evidence is available to validate its own work to make that a reality. Like most of its competitors, it uses BCs, micro credit and technology solutions to drive its programmes. Non-critical functions are outsourced and like-minded partners are sought out for delivery and execution. As of March 2014, around 41 per cent of its branches were in rural and semi-urban locations. Till last year, it reached out to approximately 718,000 clients across 13,300 villages and 180 slums. Currently it works with 386 MFIs in 10 states.

Yes Bank
Yes Bank’s efforts in this space are small and fledgling. Its Inclusive and Social Banking (ISB) division is responsible for financial inclusion initiatives and works with SHGs and joint liability groups (JLGs) on its flagship Yes LEAP programme, which has reached out to 1.8 million households spread across 260 districts in 19 states. The ISB division claims to be influencing $1.5 billion in the Indian economy due to the multiplier effect of its over $500 million loans – the calculations behind this spectacular figure are not available. In 2014, it raised Rs 200 million from Asian Development Bank to finance working capital and investment loans to small households, rural entrepreneurial women and SHGs in India, with the bulk of it going to small agro-sector businesses.

This has the potential to be a game changer but, again, the exact details of this investment are hazy.

Standard Chartered
Standard Chartered’s work on financial inclusion is focused on agribusiness lending ($188 million in 2015) and microfinance, with approximately $383 million in lending to 24 MFIs impacting 2.5 million clients till 2014. Being an emerging-markets bank, it has won some prestigious global accolades for its initiatives related to financial access; its activities in India remain rather limited and cursory though.

HDFC
HDFC Bank, being the behemoth it is, should ideally be well placed to be a market leader in delivering financial services to the unbanked segments. As articulated in its last annual report, its Sustainable Livelihood Initiative (SLI) has been designed to deliver credit to historically underserved sections, with the overall objective of including 10 million households in the next couple of years. SLI also conducts capacity building, financial counselling and training programmes, and has disbursed loans of about Rs 6,884 crore to groups like SHGs and JLGs. A major participant in the PMJDY, the bank has completed its fair share of account opening within its stipulated areas. Till March 2015, HDFC had 2,208 rural and semi-urban branches, of which 469 branches were in unbanked areas. It also makes extensive use of BCs.

A more interesting initiative (among its many underwhelming ones) has been the ‘Milk to Money’ for dairy supply chain which appoints  dairy societies as BCs; members (individual farmers) are paid through their HDFC bank accounts for their services, with the entire process being facilitated through a multifunction terminal (MFT) in the dairy society at the villages. Similar projects have been undertaken by other banks as well, including Axis Bank. HDFC has also ventured into financial literacy, considering it to be a key part of its financial inclusion strategy. Last year, its Dhanchayat video vans crisscrossed multiple states in the country, educating villagers about basic financial vigilance and risks.

Axis Bank
Financial inclusion, while not explicitly a part of Axis Bank’s CSR policy, is directly related to its stated policy of creating ‘meaningful socio-economic impact in the lives of vulnerable and underprivileged sections of the society.’ The bank, like many of its counterparts, uses the BC model to deliver financial services through entities such as MFIs, cooperative societies, education institutions and mobile network companies such as Idea. It services approximately 89.8 lakh customers through 575 rural branches and more than 53,000 BC agents spread over 18,004 villages.

Aside from PMJDY, Axis has also enabled eKYC and Aadhar-based payment systems amounting to Rs 126 crore in 2014–15, using instruments like kiosks and micro ATMs. Axis Bank Foundation’s major thrust being on creating livelihood options in the country’s backward regions, it endeavours to create linkages with the formal banking sector for the beneficiaries (borrowings of Rs 86 crore and savings of Rs 49 crore till September 2014). It also works with SHGs to provide banking and credit linkages. Currently, these are spread across 61 districts in 17 states, and about 25,033 SHGs with a membership of 316,792 women have been formed through its partners.

Financial literacy forms an integral part of Axis Bank’s inclusion outreach. This includes consumer education with focus on the rural populace. In the past year, the bank organised 7,210 FLCs that had approximately 68,000 participants. There seems to be a decent amount of work being done by the bank in this area but you will be hard-pressed to find relevant information even on their own website. Perhaps they choose to go about their work in a nondescript manner?

IDBI
IDBI Bank’s three-year financial inclusion plan (which ended in March 2016) included establishing 382 rural branches, 262 of which would be in unbanked villages, and opening over 12 lakh basic accounts. While it is yet to be known if these targets have been achieved (the number stood at 373 branches in rural centres till March 2015), the bank uses the usual means of BCs, micro credit and kiosk banking for fulfilment of its products and services. It has Aadhar-based payments enabled as well and conducts its financial literacy camps through its rural branches; 500 such camps were organised in 2013–14, educating more than 11,000 villagers. This went up to 842 in the last FY. Aside from PMJDY (the bank had opened 9.29 lakh accounts till last year), IDBI has also actively participated in Urban Financial Inclusion Programme (UFIP), which is a government scheme for the upliftment of the urban poor.

CRISIL
CRISIL’s work on financial inclusion emphasises quality over quantity. One of its key CSR goals is empowerment of the economically weaker sections by strengthening their financial capabilities, and its initiatives are structured around the same. Its flagship programme, Mein Pragati, targets rural women with the intent of not just improving their financial literacy but also helping them build their financial capability, facilitating linkages, and enabling long-term interventions with maximum impact. This includes awareness drives at the village/panchayat level, gathering support from the residents, workshops on basic financial skills as well as more advanced modules, community meets and melas where participants can interact and share learnings, and related counselling and advisory.

Trained personnel – or CRISIL Mitras, as they are known – facilitate these sessions. The results in the past one year have been pretty impressive with 17,765 bank accounts/post office savings plan opened and nearly 11,000 insurance policies, 1,114 pension plans and over 14,000 loan/credit schemes purchased. Future targets are suitably ambitious – to have 100,000 rural women in Assam by 2017 and 110,000 rural women in Rajasthan by 2018 as beneficiaries. To assess the ongoing impact of this project, three levels of indicators are used. The first is at an individual level which includes knowledge of personal finance and financial products as well as future planning behaviour. The next is at a household level which looks at ongoing usage of financial products and increased influence on financial matters and decision making within the family (which is also critical for these women’s growing confidence). Last is access to financial services which is measured by the sensitisation of FIs and other services providers and the pool of mentors available to the community on a continual basis.

Recognising the need to scale up this programme, they aim to customise this model for project-affected people and small and marginalised farmers as well as spread out geographically. To this end, talks are on with key stakeholders such as Assam State Rural Livelihood Mission (ASRLM), Rajasthan Grameen Aajeevika Vikas Parishad (RGAVP) and RBI.

Lakshmi Vilas
Lakshmi Vilas bank prefers to keep its financial inclusion initiatives under the radar, with its hard-to-find annual report being the only source of some information. It has implemented its financial inclusion plan in 356 villages and wards in Tamil Nadu and opened 1.6 lakh basic savings accounts, which include 81,297 PMJDY accounts. The bank’s BC model avails the help of intermediaries like NGOs, SHGs and MFIs. It must be noted that financial inclusion is not explicitly a part of its CSR policy.

Observations and Thoughts
A common theme among all banks, regardless of whether in the public or the private sector, is an over-reliance on intermediaries like bank branches and BCs, which may take the form of SHGs, MFIs or even cooperative societies. To an extent, this is understandable – regulations demand compliance. But aside from this, there is little or no inventive thinking behind their other financial inclusion projects. Technology solutions are frequently mentioned but are limited to a few projects here and there with no real scale evidenced. As for foreign banks, considering that their target audience is the relatively well-off section in urban areas and with their strict global guidelines on opening new branches, it’s no wonder that most of them would rather limit themselves to fewer branches in urban centres than have the RBI regulation on new branches in rural areas imposed on them.

Intriguingly, when the CB team reached out to these various banks and FIs, save for CRISIL and Axis Bank, none were forthcoming about the details of their financial inclusion programmes. Perhaps the lack of response can be attributed to our questions around the actual results and learnings of their programmes. Excuses and evasions by these banks were plentiful, which would not be the case had there been a functioning CSR team that actually cared for its causes. Participating in grand schemes like PMJDY when an opt-out option isn’t available or following the diktats of the RBI is easy and unavoidable; proactively investing in innovative programmes that actually make a tangible difference to marginalised communities is difficult and requires real dedication.

Intriguingly, when the CB team reached out to these various banks and FIs, save for CRISIL and Axis Bank, none were forthcoming about the details of their financial inclusion programmes. Despite being given adequate time, responses were patchy at best and there was little or no information provided on their otherwise ‘significant’ initiatives, as proudly proclaimed on their websites. One would imagine that there would be a lot to say about such praiseworthy, consequential efforts. More than one bank redirected us to their annual reports because, otherwise, one wouldn’t even suspect that those could be valid sources of information. Perhaps the lack of response could be attributed to our questions around the actual results and learnings of their programmes. Excuses and evasions by these banks were plentiful, which would not be the case had there been a functioning CSR team that actually cared for its causes. Participating in grand schemes like PMJDY when an opt-out option isn’t available or following the diktats of the RBI is easy and unavoidable; proactively investing in innovative programmes that actually make a tangible difference to marginalised communities is difficult and requires real dedication. Even within the few projects that are taken up by these banks, there’s little or no data on the long-term progress. And without constant monitoring, there can be no useful insights or real improvements. This could be why information pertaining to the number of no-frills bank accounts or rural branches is emblazoned across their websites and annual reports, but little else is mentioned when it comes to financial inclusion.

Recommendations
As stated in the 2008 Committee on Financial Inclusion report, “Access to finance by the poor and vulnerable groups is a prerequisite for poverty reduction and social cohesion.” Studies have shown that access to basic financial accounts and insurance has a positive impact on poverty reduction, even as the case for micro credit is less compelling. What must be recognised (and has been acknowledged by RBI as well) is that financial access doesn’t necessarily translate into financial usage. The number of active bank accounts is abysmally low and most of the underserved segments tend to not use it. Aside from inclusion, there needs to be further incentives for the poor to use these accounts for financial transactions and make it a part of their daily lives. Delivery of government-backed schemes such as subsidies and monetary benefits can vastly improve if these accounts are operational. Other ways to increase financial inclusion are mobile payments (used by only 0.3 per cent of adults in the country) and constant monitoring and refining of SHG–bank linkages and MFIs and joint liability groups models (especially for small and marginal farmers and workers).

When it comes to the standard programmes and strategies adopted by most banks, there is room for scepticism about their actual intent and delivery. For instance, many are of the opinion that BCs are not delivering the requisite results despite RBI expanding the list of entities that can become such facilitators. Some reasons given for this failure are cost structure, lack of relevant financial knowledge and operating model, absence of grievance redressal system, and disinterest by the banks themselves. The BC model has also been repeatedly questioned, with accusations that banks are essentially outsourcing their financial inclusion mandate to BCs without investing their own efforts.

When it comes to the standard programmes and strategies adopted by most banks, there is room for scepticism about their actual intent and delivery. For instance, many are of the opinion that BCs are not delivering the requisite results despite RBI expanding the list of entities that can become such facilitators. Some reasons given for this failure are cost structure, lack of relevant financial knowledge and operating model, absence of grievance redressal system, and disinterest by the banks themselves. The BC model has also been repeatedly questioned, with accusations that banks are essentially outsourcing their financial inclusion mandate to BCs without investing their own efforts.

The biggest issue with opening new accounts is that many of them lie unused. For example, the number of active no-frill accounts varied from 3 to 20 per cent in 2012. The UPA government had aggressively pushed for these accounts but as per RBI data, more than half remained inactive. As for those under PMJDY, reports state that more than 30 per cent are already dormant—although it has recently fallen to 25 per cent as per the official website. Then there’s the other depressing fact that domestic credit provided by banks in India is low compared to other developing countries. Most of these loans are disbursed to relatively well-off farmers and traders in rural areas rather than the ones who are in desperate need of it. These problems cannot be solved by banks, of course. A mixture of bold policy measures (suggestions include giving banks more leeway to design the terms and rates of these loans, adjustments to PSL norms, etc.), government backing and sincere efforts by the finance sector is required.

That being said, banks need to genuinely integrate financial inclusion into their core business objectives. Customised risk models, collaborations with innovative fintech and payment companies, and well-designed interventions for the long haul will help. There is also a crying need for products that understand the behaviours, limitations and compulsions of the underserved segments of the population. The right incentives for BCs and other facilitators need to be offered, focusing not just on the number of new accounts but also on their continued usage.

Right now, there seems to be a presupposition by most banks that the poor are not a viable segment in terms of pure profits—and hence the foot-dragging on projects that would benefit them. Given the reality of India’s chronically unbanked population, banks need to start considering the financial inclusion space as a key driver of their business growth and strategy, instead of treating it as an unwanted burden foisted upon their balance sheets by an intrusive government. Merely ticking off the ‘accounts opened’ box might save them the hard questions but it does nothing for them and their shareholders as well as the country and its shareholders.  The fact of the matter is that most banks do not see any correlation between financial inclusion and profits and, hence, concerted efforts in this domain remain spotty and rare. That needs to change urgently.