United Nations Development Program

Consultancy 2014 /

Report on “Deepening Financial Inclusion”

Evidence from Two States

December 2014

PREPARED BY

SEWA BHARAT

Table of Contents List of Acronyms ...... 10 Two Pager Brief: Financial Literacy Based Financial Inclusion (A Sewa UNDP Initiative) .. 16 Executive Summary ...... 19 A. Backdrop ...... 19 B. Financial Literacy ...... 19 Financial Literacy as a Tool to Inclusion: ...... 19 Study Findings on Financial Literacy: ...... 20 Recommendations on Financial Literacy: ...... 22 C. Financial Inclusion ...... 24 The States:...... 24 Evidence from Survey: ...... 26 Monitoring and Evaluation: ...... 27 D. Recommendations on Financial Deepening ...... 28 Financial Deepening of the Samruddhi: ...... 29 Creation of a Financial Inclusion Innovation Fund: ...... 30 Chapter 1. Introduction and Backdrop ...... 31 1.1 Introduction to Financial Inclusion ...... 31 1.2 Global Perspective on Financial Inclusion ...... 33 1.2.1 The World Bank on Financial Inclusion ...... 33 1.2.2 The United Nations ...... 35 1.2.3 Global Partnership for Financial Inclusion (GPFI) ...... 35 1.2.4 The Alliance for Financial Inclusion (AFI) ...... 35 1.2.5 The Maya Declaration ...... 36 1.2.6 International Monetary Fund on Financial Inclusion ...... 36 1.2.7 International Finance Corporation (IFC) ...... 37 1.2.8 Consultative Group to Assist the Poor (CGAP) ...... 37 1.3 Chronology of Financial Inclusion: Micro Credit to Cashless ...... 38 1.3.1 The 2013 Global Forum on Financial Inclusion for Development ...... 39 1.3.2 From Protection to Inclusion: Shifting to Cashless Payments ...... 39 1.4 Global Best Practices: The G20 Principles for Innovative Financial Inclusion ...... 39 1.4.1 Principle 1: Leadership ...... 40

1.4.2 Principle 2: Diversity...... 40 1.4.3 Principle 3: Innovation ...... 40 1.4.4 Principle 4: Protection ...... 41 1.45 Principle 5: Empowerment ...... 41 1.4.6 Principle 6: Cooperation ...... 42 1.4.7 Principle 7: Knowledge ...... 42 1.4.8 Principle 8: Proportionality ...... 42 1.4.9 Principle 9: Framework ...... 43 1.5 Indian Perspective on Financial Inclusion ...... 43 1.5.1 Historicity ...... 44 1.5.2 Bank Nationalization Phase (1960s) ...... 44 1.5.3 Social Banking ...... 45 1.5.4 Cooperative and Rural Credit ...... 45 1.5.5 Lead Bank Scheme ...... 46 1.5.6 Roadmap of FI under Usha Thorat Committee ...... 46 1.5.7 Service Area Approach (SAA) ...... 47 1.5.8 Regional Rural Banks (RRBs) ...... 47 1.5.9 Primary Agricultural Credit Societies (PACS)...... 48 1.6 Contemporary Financial Inclusion in India ...... 48 1.6.1 Initiatives of Reserve Bank of India ...... 49 1.6.2 India’s Approach to Financial Inclusion...... 51 1.7 Indian Banking Trends and Financial Inclusion ...... 52 1.8 Status Update on India’s Financial Inclusion ...... 53 1.8.1 Basic Data ...... 55 1.8.2 Volume and Accounts Based Basic Data ...... 55 1.9 Pradhan Mantri Jan Dhan Yojana ...... 56 1.91 Phases of PMJDY ...... 57 1.9.2 Comprehensive Plan ...... 58 1.9.3 Demand Generation ...... 58 1.9.4 The Six Pillars of PMJDY ...... 59 1.10 CRISIL’s Inclusix (Financial Inclusion Index) ...... 60 1.11 Chapter Construction ...... 61

Chapter 2. Financial Literacy as Prerequisite of Inclusion ...... 63 2.1 Backdrop ...... 63 2.2 Financial Literacy Definition and Concept ...... 63 2.3 Financial Capability of Rural Low Income Households ...... 64 2.3.1. Conceptual Understanding ...... 65 2.3.2 Applications ...... 67 2.4 Financial Literacy Centers...... 67 2.4.1 Financial Literacy and Credit Counseling Centre (FLCC) ...... 68 2.4.2 Revamping Financial Literacy Centers ...... 68 2.5 RBI’s Guide to Financial Literacy ...... 70 2.6 Strategy for Expanding Financial Literacy ...... 71 2.6.1 Initiatives of the Reserve Bank of India ...... 72 2.7 Financial Literacy – A Tool for Financial Inclusion ...... 74 2.7.1 Factors Affecting Quality of Financial Literacy ...... 77 2.8 Financial Literacy and Capacity Building in FI Models ...... 78 2.9 Micro-insurance and Insurance Education in India ...... 78 2.91. Handling of Risks ...... 78 2.9.2 Vulnerability of Poor ...... 79 2.9.2 Community Risk Management ...... 80 2.10 Drivers of micro-insurance in India ...... 82 2.11 Evolution of Models ...... 84 2.12 Role of Consumer Education in Microinsurance Development ...... 86 2.12.1 Current Status of Insurance Consumer Education in India ...... 88 Chapter 3. Research Methodology ...... 91 3.1 Backdrop to Research ...... 91 3.2 Research Questions, Hypothesis and Strategy Involved ...... 91 3.2.1 The ‘As Is’ (existing) status of Financial Literacy ...... 92 3.2.2 The ‘As Is’ situation of Financial Inclusion in Two States ...... 93 3.2.3 Strategies for Possible Micro Wealth Management for Women...... 95 3.2.4 Designing Different Models for Financial Literacy ...... 95 3.3 Secondary Data Gathering ...... 96 3.3.1 Literature Review ...... 96

3.4 Primary Data Gathering ...... 98 3.4.1 Institutional Survey ...... 98 3.4.2 Process Evolution of Financial Inclusion Model ...... 98 3.4.3 Individual and Group Survey ...... 99 3.4.4 Quantitative Research / Survey ...... 99 3.4.5 Target Group ...... 99 3.4.6 Sampling ...... 100 3.4.7 Field Work ...... 102 3.5 Qualitative Research / Focused Group Discussions (FGDs) ...... 103 3.6 Field Visit to Madhya Pradesh ...... 104 3.6.1 Institutional Survey in Madhya Pradesh ...... 105 3.7 Field Visit to Bihar ...... 106 3.7.1 Institutional Survey in Bihar ...... 107 3.8 Data Entry and Analysis ...... 109 Chapter 4. Status of Financial Inclusion and Literacy in Bihar ...... 110 4.1 Backdrop to Bihar...... 110 4.1.1 Economy and Growth ...... 110 4.1.2 Special Purpose Vehicle (SPV) ...... 111 4.2 Roadmap of Financial Inclusion in Bihar ...... 111 4.3 Financial Inclusion Through Banking Structures in Bihar ...... 112 4.3.1 Credit Deposit (CD) Ratio ...... 113 4.3.2 Commercial Banks ...... 115 4.3.3 Cooperative Banks ...... 115 4.3.4 Regional Rural Banks ...... 116 4.3.5 Kisan Credit Card ...... 117 4.4 Postal Network ...... 119 4.5 Micro Finance in Bihar ...... 121 4.6 FI and E Shakti Project in Bihar ...... 126 4.7 Microsave Report on BC Models in Bhar ...... 127 Chapter 5. Status of Financial Inclusion and Literacy in Madhya Pradesh ...... 129 5.1 Backdrop to Madhya Pradesh ...... 129 5.1.1 Economy ...... 129

5.1.2 ‘Samruddhi’ – The Prosperity ...... 130 5.2 Madhya Pradesh FI Model ...... 131 5.2.1 The Three Pillars of Samruddhi – The MPFI Model ...... 132 5.3 Functions Performed at Various Administrative Levels ...... 133 5.4 Salient Features of Samruddhi – the MPFI ...... 135 5.4.1 Paradigm Shift from Population Norm to Geographical Area Norm ...... 135 5.4.2 Re-introduction of the Banking Industry’s Concept of ‘Service Area’ ...... 136 5.4.3 Common Database for an Integrated Approach to Social Security ...... 136 5.4.4 The Common Conduit – The Electronic Fund Management System ...... 136 5.4.5 Last Mile Common Plumbing for Access to Finance ...... 137 5.5 Ultra Small Branches / Customer Service Points under the MPFI ...... 138 5.5.1 Evolution of Alternative Concept of USB/CSP and the Process Adopted ...... 142 5.5.2 Redefining Concepts: Shadow Area Mapping ...... 144 5.5.3 Re-invocation of the Concept of Service Area of the Banks ...... 145 5.5.4 Identification of the USB / CSP Locations ...... 146 5.5.5 Status Update on Bank Mitra and Infrastructure ...... 147 5.6 Challenges Faced ...... 149 5.6.1 Supply Side Challenges and Solutions ...... 149 5.6.2 Internal Challenges and Solutions ...... 149 5.6.3 Demand Side Challenges and Solutions ...... 150 5.7 Current / Updated Banking Outreach and Performances ...... 151 5.7.1 Kisan Credit Card ...... 151 5.7.2 Conversion of KCC into RuPay KCC ...... 152 5.7.3 Credit Deposit (CD) Ration ...... 152 5.7.4 Branch Expansion Plans in MP ...... 153 5.7.5 Pradhan Mantri Jan Dhan Yojana (PMJDY) ...... 154 5.7.6 Self Help Groups in MP ...... 157 5.7.7 Coverage of Shadow Villages ...... 158 5.8 Integrated and Comprehensive Financial Inclusion in Madhya Pradesh ...... 160 5.9 Analysis of Samruddhi – The MPFI Model ...... 161 5.10 Financial Deepening With Samruddhi...... 161 5.10.1 Financial Deepening Fosters Inclusive Growth ...... 162

5.10.2 Opportunities in MP ...... 163 5.10.3 Samruddhi’s Best Practices ...... 164 Chapter 6. Qualitative Analysis – Status of Financial Literacy and Inclusion in Two Districts ...... 165 6.1 Methodology ...... 165 6.1.1 Profile of the Participants ...... 165 6.2 Inclusion Through Pradhan Mantri Jan-Dhan Yojna (PMJDY) ...... 166 6.2.1 KYC Documents ...... 169 6.3 No-Frills accounts at Bank and Post Offices ...... 169 6.4 Household Budgeting and Planning ...... 171 6.5 Benefits of Bank/Post Office Account for Savings ...... 171 6.6 Practices of Savings and Investment ...... 174 6.6.1 Savings in Unregulated Instruments ...... 175 6.7 Credit Needs and its Channels ...... 177 6.7.1 Cost of Borrowing ...... 178 6.8 Insurance Needs and Usage ...... 178 6.8.1 Credibility Issues ...... 179 6.8.1 Absence of Adequate Knowledge ...... 179 6.9 Need For Pension ...... 179 6.10 Money Transfer, its Avenues and Associated Risks ...... 181 Chapter 7. Quantitative Analysis ...... 183 Section A. Awareness on Financial System ...... 184 7.1 Financial Literacy ...... 184 7.1.1 Frequency of Payment ...... 184 7.1.2 Household Budget ...... 185 7.2 Awareness on Financial Products ...... 187 7.2.1 Levels of Literacy and Awareness on Financial Products ...... 191 7.2.2 Awareness of Financial Products by Occupation ...... 193 7.2.3 Awareness of Financial Products by Age ...... 195 7.3 Use of Financial Products ...... 195 7.3.1 Information on Savings Bank Account ...... 197 7.3.2 Lack of Interest in Graduating from Savings Account ...... 198 7.3.3 Chit Fund ...... 199

7.3.4 Differentiation Between Regulated and Unregulated Products ...... 200 7.3.5 Use of Financial Products by Literacy Using Cross Tabulation ...... 201 7.3.6 Use of Financial Products by Occupation Using Cross Tabs ...... 201 7.3.7 Use of Financial Products by Age ...... 203 7.4 Tackling Financial Risks ...... 203 7.5 Issues Relating to Insurance Claim ...... 209 Section B. Level of Financial Inclusion ...... 211 7.6 Financial Inclusion ...... 211 7.6.1 Savings Bank Account ...... 211 7.7 Availability of Financial Institutions ...... 216 7.8 Purpose of Opening Bank Account ...... 218 7.8.1 Account Operation ...... 220 7.8.2 SHG Membership ...... 221 Section C Financial Products ...... 222 7.9 Savings...... 222 7.10 Loans ...... 225 7.11 Money Transfer ...... 229 7.12 Insurance ...... 230 7.13 Pension ...... 232 7.14 Direct Benefit Transfer ...... 235 Chapter 8. Conclusions and Recommendations ...... 237 Section ‘A’ Financial Literacy ...... 237 8.1 Financial Literacy Converts Needs into Demand ...... 237 8.1.1 Target for Financial Literacy ...... 238 8.2 Field Survey – Conclusive Evidence ...... 238 8.3 Need for Financial Literacy in FI Model – Survey Based Recommendations ...... 243 8.3.1 Customizing Financial Literacy for Financial Inclusion ...... 244 8.3.2 Know the Target Group ...... 246 8.3.3 Technology ...... 247 Section B – Inclusion ...... 247 8.4 Conclusions on Madhya Pradesh Financial Inclusion Status ...... 248 8.4.1 Global Best Practices (G – 20) on Financial Inclusion ...... 248

8.4.2 Integrated Social Security Missions ...... 248 8.4.3 Electronic Fund Management System (E- FMS) ...... 250 8.4.4 Common Database ...... 250 8.4.5 Innovations ...... 251 8.5 Conclusions on Bihar Model of Financial Inclusion ...... 251 8.6 Financial Inclusion: Evidence and Conclusions from Survey ...... 252 Section C. – Products and Services ...... 256 8.7 Need for Knowledge on Financial Products – Field Evidence ...... 256 8.7.1 Evidence from Survey ...... 257 Section D. Recommendations ...... 260 8.8 Policy Level Recommendations ...... 260 8.8.1 Develop Baseline on Financial Literacy and Mechanism for Monitoring Impact ...... 260 8.8.2 Create an oversight mechanism for financial literacy ...... 260 8.8.3. Create a Financial Inclusion Innovation Fund ...... 260 8.9 Implementation and Programmatic Recommendations ...... 261 8.9.1. Expand the content base of financial literacy programmes ...... 261 8.10 Recommendation for Model ...... 262 8.10.1 First level of Approach – Basic Banking and Literacy ...... 262 8.10.2 Second Level of Approach – Prevention and Protection Against Frauds...... 263 8.10.3 Third Level of Approach – Financial Deepening ...... 264 8.11 Madhya Pradesh Model: Financial Deepening Can Foster Inclusive Growth ...... 265 8.11.1 Possible Challenges for Financial Deepening in MP and Life Cycle Needs ...... 265 Annexure 1. Questionnaire for Quantitative Survey at Field ...... 269

List of Acronyms

1 AAO Assistant Accounts Officer 2 AAP Annual Action Plan 3 AABY Aam Aadmi Bima Yojana 4 ACS Additional Chief Secretary 5 ADB Asian Development Bank 6 AEPS Aadhaar Enabled Payment System 7 AFI Alliance for Financial Inclusion 8 AML Anti Money Laundering 9 APBP Aadhaar Payment Bridge Platform 10 APL Above Poverty Line 11 ASA Association for Social Advancement 12 ATISG Access Through Innovation Sub-Group 13 ATM Automated Teller Machine 14 AusAID Australia Aid 15 BC Business Correspondent 16 BCA Business Correspondent Agents 17 BCNM Business Correspondent Network Managers 18 BLCC Block Level Coordination Committee 19 BLF Block Level Federation 20 BOI Bank of India 21 BoP Bottom of Pyramid 22 BP Branch Penetration 23 BPL Below Poverty Line 24 BRAC Bangadesh Rural Advancement Committee (Formerly) 25 BRICS Brazil, Russia, India, China and South Africa 26 BRLP Bihar Rural Livelihood Project 27 CBS Core Banking Solution 28 CBSE Central Board for Secondary Education 29 CBO Community Based Organisation 30 CCB Central Cooperative Bank 31 CCT Conditional Cash Transfers 32 CCS Cooperative Credit Structure 33 CD Credit Deposit 34 CDR Credit Deposit Ratio 35 CEO Chief Executive Officer 36 CFT Counter Terrorrist Financing 37 CGA Controller General of Accounts 38 CGAP Consultative Group to Assist the Poor

39 CIF Commissioner Insitutional Finance 40 CLF Customer Level Federation 41 CMD Chairman and Managing Director 42 CP Credit Penetration 43 CPSMS Central Plan Scheme Monitoring System 44 CRISIL Credit Rating and Information Services of India Limited 45 CRM Community Risk Management 46 CSC Customer Service Centre 47 CSP Customer Service Point 48 CT Cash Transfer 49 DBT Direct Benefit Transfer 50 DCC District Consultative Committee 51 DCP District Credit Plan 52 DDM District Development Manager 53 DFS Department of Financial Services, Government of India 54 DGM Deputy General Manager 55 DIC District Industries Centre 56 DLBC District Level Banking Committee 57 DM District Megistrate 58 DP Deposit Penetration 59 EBT Electronic Benefit Transfers 60 e-FMS Electronic Fumd Management System 61 e-KYC Electronic Know Your Customer 62 EU Europian Union 63 FAS Financial Access Survey 64 FD Fixed Deposit 65 FGD Focussed Group Discussion 66 FI Financial Inclusion 67 FIEG Financial Inclusion Experts Group 68 FINSUSIX Financial Inclusion Index 69 FIP Financial Inclusion Plan 70 FL Financianl Literacy 71 FLC Financial Literacy Centres 72 FLCC Financial Literacy and Credit Counseling Centre 73 FSDC Financial Stability and Development Council 74 FTO Fund Transfer Order 75 FY Financial Year 76 G2P Government-To-Person 77 G20 Group of 20 Nations 78 GCC General Credit Card 79 GDP Gross Domestic Product

80 GDS Grameen Dak Sevak 81 GDDP Gross District Domestic Products 82 GP Gram Panchayat 83 GIZ Deutsche Gesellschaft für Internationale Zusammenarbeit 84 GOI Government of India 85 GoMP Government of Madhya Pradesh 86 GP Gram Panchayat 87 GPFI Global Partnership for Financial Inclusion 88 GSDP Gross State Domestic Product 89 IBP International Budget Partnership 90 ICT Information and Communication Technology 91 IDI In Depth Interview 92 IFC International Finance Corporation 93 IFSC Indian Financial System Code 94 IMF International Monetary Fund 95 IMPS Interbank Mobile Payments Service 96 INFE International Network on Financial Education 97 IRDA Insurance Regulatory and Development Authority 98 IT Information Technology 99 JBY Janshree Bima Yojana 100 JLG Joint Liability Group 101 JP Janpad Panchayat 102 HCR headcount ratio 103 HO Head Office 104 HR Human Resource 105 KCC Kisan Credit Card 106 KM Kilometer 107 KVIC Khadi and Village Industries Commission 108 KYC Know Your Customer 109 LAMPS Large and Multi-Purpose Cooperative Society 110 LDM Lead Development Manager 111 LIC Life Insurance Corporation 112 LR Lead Researcher 113 MFI Micro Finance Institution 114 MGREGS Mahatma Gandhi National Rural Employment Guarantee Scheme 115 MIS Management Information System 116 MNREGA Mahatma Gandhi National Rural Employment Guarantee Act 117 MoF Ministry of Finance (Government of India) 118 MoRD Ministry of Rural Development (Government of India) 119 MOU Memorandum of Understanding 120 MP Madhya Pradesh

121 MPFI Madhya Pradesh (Model of) Financial Inclusion 122 MPSRLM Madhya Pradesh State Rural Livelihood Mission 123 MR Muster Roll 124 MSE Micro and Small Enterprise 125 NA Not Applicable / Not Available 126 NABARD National Bank for Agriculture and Rural Development 127 NAIS National Agricultural Insurance Scheme 128 NCERT National Council of Educational Research and Training 129 NE North East 130 NEFT National Electronic Fund Transfer 131 NGO Non Governmental Organization 132 NPA Non Performing Assets 133 NPCI National Payment Corporation of India 134 NPS National Pension Scheme 135 NRLM National Rural Livelihood Mission 136 NSFE National Strategy for Financial Education 137 NSSO National Sample Survey Organisation 138 OBC Other Backward Class 139 OD Overdraft 140 OECD Organisation for Economic Co-operation and Development 141 OGD Open Government Data 142 P2M Person to Merchant 143 P2P Person to Person 144 PACS Primary Agriculture Cooperative Society 145 PFIP Pacific Financial Inclusion Program 146 PFIP Pacific Financial Inclusion Programme 147 PFRDA Pension Fund Regulatory and Development Authority 148 PI Personal Interview 149 PMJDY Pradhan Mantri Jan Dhan Yojana 150 PO Post Office 151 PoS Point of Sale 152 PPF Public Provident Fund 153 PPP Private Public Partnership 154 PSB Public Sector Banks 155 RBI Reserve Bank of India 156 RD Rural Development 157 RD Recurring Deposit 158 RFIP Rural Finance Insurance Program 159 RIDF Rural Infrastructure Development Fund 160 RRB Regional Rural Bank 161 RSBY Rashtriya Swasthya Bima Yojana

162 RSETI Rural Self Employment Training Institute 163 RTGS Real Time Gross Settlement 164 RTI Right To Information 165 SAA Service Area Approach 166 SBI State Bank of India 167 SC Scheduled Caste 168 SCB Scheduled Commercial Bank 169 SCB State Cooperative Bank 170 SCRIPT Saving Credit Remittance Insurance Pension Transfer 171 SEWA Self Employed Women's Association 172 SGSY Swarnjayanti Gram Swarozgar Yojana 173 SHG Self Help Group 174 SHGBLP SHG Banking Linkage Program 175 SLBC State Level Bankers Committee 176 SME Small and Medium Enterprise 177 SPSS Statistical Package for social sciences 178 SPV Special Purpose Vehicle 179 SRLM State Rural Livelihood Mission 180 SSA Sub Service Area 181 SSSM Samagra Samajik Suraksha Mission 182 ST Scheduled Tribe 183 TNA Training Need Assessment 184 TSP Technology Service Providers 185 UBGB Uttar Bihar Grameen Bank 186 UCT Unconditional Cash Transfers 187 UID Unique Identity 188 UIDAI Unique Identification Authority of India 189 UN United Nations 190 UNCDF United Nations Capital Development Fund 191 UNDP United Nations Development Program 192 UP Uttar Pradesh 193 UPU Universal Postal Union 194 USA United State of America 195 USAID United States Aid Agency 196 USB Ultra Small Branches 197 USSD Unstructured Supplementary Service Data 198 UT Union Territory 199 UTLBC Union Territory Level Banking Committee 200 VPN Virtual Private Network 201 VO Village Organisation

202 WSHG Woman Self Help Group 203 ZP Zila Panchayat

Two Pager Brief: Financial Literacy Based Financial Inclusion (A Sewa UNDP Initiative) Backdrop: Financial Inclusion agenda has been pursued both by the Central Bank (RBI) and the Central and State Governments for over a decade and yet the desired results are far from being achieved. More recently, the banking inclusion under the PMJDY has brought many a poor closer to the bank and their accounts have been opened yet, people still shy away from banking activities for various known and unknown reasons. While the most basic and fundamental step to financial inclusion, namely opening up of banking accounts have been achieved, the next step of using the same and putting money in the fixed or recurring deposits is yet to be observed.

Current Study: Sewa has taken up a research based study that largely covers the current status of financial literacy and financial inclusion in two states namely, Bihar and Madhya Pradesh. The study not only captures the secondary information and data about the two states on inclusion, but also has gone one step ahead and performed primary survey by testing at the ground the existing structures and demand side of financial inclusion. The primary survey included institutional surveys to understand the ‘supply side’ of financial inclusion and ran a structured questionnaire on a stratified random sample of 600 respondents in one district of each state (Khandwa in MP and Katihar in Bihar). Using a structured questionnaire the data was collected with different occupational groups practicing varied livelihoods and receiving incomes at different frequency of intervals through a variety of modes like cash, cheques, bank transfers etc. The study was focused on three aspects of financial inclusion that could lead to financial deepening viz. existing structures and level of financial literacy bringing out the need and necessity for it; existing level of financial or banking inclusion including usage of banking and other regulated products at an optimal cost and; use and understanding of different financial products profile including SCRIPT (Savings, Credit, Remittances, Insurance, Pensions and Transfers).

Results from Study: The primary survey at the field revealed that in both the states the respondents were savings (237/300 in Katihar and 145/300 in Khandwa), most of the savings were done by stacking cash at home rather than institutional savings despite having bank accounts. The savings in institutional mechanism including banks and post offices witnessed a low of one third (54/145) proportion in MP despite more than 91% of respondents having bank accounts and about one fourth (66/237) in Bihar where more than 50% of respondents had banking accounts. Thus Savers in MP and Bihar were not saving in regulated mechanism despite having access.

As a corollary of the field work both in the form of qualitative and quantitative surveys, it emerges that there is a strong need for creating awareness by means of financial literacy in a various areas. While financial literacy would generate interest amongst the masses, it would also help to convert the latent need into demand for various regulated financial products and services. Study suggests that the following grey areas are required to be covered under various financial literacy modules and a comprehensive financial inclusion program is mentioned below: a. Opening up of Banking Accounts with Proper Understanding of its usage and KYC. b. Usage of Banking Accounts for Purpose Other than Payment Channels for G2P. c. Understanding the Full Implications of PMJDY including the use of RuPay Card that is Linked to other Benefits like the Life and Accident Insurance as well as Procuring Credit at Low Cost.

d. Opening and Use of Postal Accounts including using the vast network of Post Offices for Financial Services, other than merely P&T and Money Orders e. Application of Banking Accounts towards SCRIPT (Savings, Credit, Remittances, Insurance, Pension and Transfers) f. Differentiate Between Regulated and Unregulated Financial Products and Services and Subsequent Identification and Suspects of Frauds and Financial Crimes. g. Need Based Assessment of Requirement of Different Financial Products and Services including the Life Cycle Needs of Products. h. Understanding on Planning and Budgeting the Cash Flows towards Income and Expenses in Near and Medium Term (Futuristic Planning) i. Understanding and Planning for Financial Risks in Lives including Risk of Being Unemployed (Savings and Liquidity), Risk of Death (Life Insurance), Risk of Longevity (Pensions and Annuities), Risk of Credit Default due to Death (Gap / Credit Insurance) Risk of Health Hazard (Medical Insurance), Risk of Weather on Agriculture (Crop Insurance) etc. in that order. j. Remittances using Regulated Mechanism including Bank and Post Offices. k. Consumer Protection against Financial Frauds This could only be achieved by means of financial literacy that is targeted to resolve such issues. The existing modules of FL prescribed by the RBI may fall short of attaining a complete inclusion since the process is dynamic and requires updating the modules. Even the RBI documents are to be Used properly as the field survey found that the financial literacy modules, work books etc. were only distributed to the end user without even opening a single page, what to make them understand. Similarly, the institutional survey found that the FLCCs established by the LDMs in the districts only serve a limited purpose as it largely caters to the walk-in customers rather than holding regular camps et al in the field. Even where the camps were held, it becomes imperative to impart the financial literacy in the ‘teachable moments’ rather than in a class room mode.

Recommendations: The study recommends that while financial literacy modules should be customized to the need and requirements of various occupational groups and for states or regions that are at different levels of financial inclusion, it also suggest financial inclusion models at different levels of deepening. While states like Bihar requires the basic first level model where basic FI and FL interventions are necessary so that every household has a bank account and that they understand the need and application of these accounts, the second level of financial inclusion pays greater emphasis on shielding and safeguarding against financial frauds and consumer protection. This is most necessary but neglected so far since with G2P and banking accounts more and more money would be saved and invested that would attract money sharks like the unregulated chit fund companies and fraud insurance companies. This is a preventive level and state governments will have to take action and protect its FI model. For, financial regulators like the RBI, IRDA, SEBI and PFRDA have no bandwidth to control them in the micro sector. The third level of FL based FI graduate itself to financial deepening where doorstep services should be provided within the vicinity of 5 kms so that people have access to a variety of regulated financial products and services. This level should ideally emanate from a comprehensive plan for financial literacy based deepening where people understand the difference between regulated and unregulated products and are free to take an informed and concerted decision to pick up products related to their life cycle needs. This level of financial deepening provides for liquidity in the system through the G2P and use and access of regulated financial products.

SEWA recognizes that Financial Education is an important tool to address this imbalance and help consumers both ‘accept’ and ‘use’ the products to which they increasingly have ‘access’ as a consequence of the multipronged efforts of Government and the Central Bank. Sewa clearly understands that the challenge in states like MP and Bihar is that without the third element, ‘use’, the first two, despite the best efforts of the Central Bank as well as the Governments, shall fail to leave an impression in financial inclusion space.

Executive Summary

A. Backdrop General: While the initial traces on financial inclusion owe to the United Nations initiativesthat broadly described the main goals of inclusive finance as access to a range of financial services including savings, credit, insurance, remittance and other banking / payment services to all ‘bankable’ households and enterprises at a reasonable cost, the G20 Toronto Summit (June, 2010) outlined the “Principles for Innovative Financial Inclusion”. It serves as a guide for policy and regulatory approaches aimed at fostering safe and sound adoption of innovative, adequate, low-cost financial delivery models, help provide conditions for fair competition and a framework of incentives for the various bank, insurance, and non- bank actors involved in the delivery of a full range of affordable and quality financial services.

India has had a history of FI that is actually much older than the formal adoption itself. The nationalization of banks, Lead Bank Scheme, Expansion of Cooperatives incorporation of RRBs, Post Offices, Service Area Approach and formation of Self-Help Groups - all these were initiatives aimed at taking banking services to the masses. A more focused and structured approach towards financial inclusion was followed since the year 2005 when the Reserve Bank of India (RBI) decided to implement policies to promote financial inclusion and urged the banking system to focus on providing banking services to all six lakh villages and meeting their financial needs through basic financial products. The objectives of financial inclusion, in the wider context of the agenda for inclusive growth, was pursued by Financial Stability and Development Council (FSDC), which was mandated, inter alia, to focus on Financial Inclusion and Financial Literacy. In order to further strengthen the ongoing financial inclusion agenda in India, a high level Financial Inclusion Advisory Committee was constituted by RBI. Financial sector regulators including RBI are fully committed to the Financial Inclusion Mission. The Prime Minister’s initiative on the Pradhan Mantri Jan Dhan Yojana (PMJDY) coincides with the current study and has been targeting the individuals as part of the household with focus on bank accounts for women. The financial inclusion along with direct benefit transfer has now become a parameter of good governance and service delivery system.

B. Financial Literacy The current policy objective of inclusive growth with financial stability cannot be achieved without ensuring awareness on the financial system and its regulations including products and services. A paradigm shift is necessary in the micro space that draws one’s attention from the financial institution ‘back to the client’.

Financial Literacy as a Tool to Inclusion: Government have started recognized financial inclusion and consumer protection as integral to achieving financial stability and integrity as a multidimensional, pro- client concept, encompassing ‘improved and increased access’, ‘better products and services’, and ‘better use’. The challenge in states like MP and Bihar is that without the third element, ‘use’, the first two, despite the best efforts of the Central Bank as well as the Government, at best are worthless. Increased access and better choices do not automatically translate into ‘effective use’. The path from uptake (i.e. opening an account) to usage is still an uncharted course. For, ‘effective use’ is hampered by asymmetries of information / literacy and power between financial institutions and poor consumers, an imbalance which grows as customers are less knowledgeable, illiterate and inexperienced while the products they can choose could be more sophisticated. Financial education is an important tool to address this imbalance and

19 help consumers both ‘accept’ and ‘use the products’ to which they increasingly have access. As it facilitates effective product use, financial literacy becomes critical to financial inclusion and can help clients to both to develop the skills to compare and select the optimum combination of products for their needs and empower them to exercise their rights and responsibilities in the consumer protection equation.

Study Findings on Financial Literacy:The study presents evidence that financial literacy is an important predictor of financial behavior. While it is a known fact that financial literacy stimulates demand side of financial inclusion – making people aware of what they can and should demand – the study also found a strong co-relation between level of awareness of processes and availability of mainstream financial products and their sources among poor households and level of usage of these product among them. Furthermore, financial illiteracy level was found to be particularly low among the key demographic groups: women; less educated; low income; and older respondents. The overall analysis reveals that not only low income households have poor access to important financial products and remain outside the financial mainstream but deficient record keeping practices, poor cash management, improper saving habits, and less awareness regarding different financial products and instruments are also common place among them. These constraints make them ill equipped in using their resources well and become contributing factors in affecting their income as well as growth.

There is general perception that lack of literacy is main hurdle in expanding the coverage of financial services to low income segment. On the contrary, the study indicates that qualitative interactions even with the illiterate respondents revealed that illiteracy was neither a big challenge to operate a savings account nor an impediment in money management. However, lack of financial literacy prevented them in moving out of the vicious circle of being a non saver as it prevents them to understand the various regulated options available for savings and investments. Similarly, an educated sophomore cannot take decisions as regard her financial investments unless she is a financially literate person.

Study recommends that financial literacy should be taken up more as an on the spot experiential learning as there is a strong need for financial literacy that should be targeted towards learning from the ‘teachable moments’as well as from building up the financial capabilities rather than confining to mere class rooms.

The survey also indicates that while the respondents to certain extent were aware about some of the financial products like the PMJDY etc. but the information at best was half baked that could be extremely dangerous. People were unable to differentiate between a regulated and unregulated financial product and service just as they failed to differentiate between insurance and plantation (fraud) companies. Most respondents lacked the idea of either visualizing and anticipating their daily or monthly expenditures or even accounting for the same. They had absolutely no idea as to how to prepare household budgets and keep an account of the expenditures.

The study also found that while most in MP and many in Bihar had a bank account, they were seldom aware of its utility and application. The accounts were either never used or used only for the purpose of collecting G2Ps. It was used as payment outlets where the money could be withdrawn as full and final within days of its arrival. Thus having a bank account does not mean financial inclusion as in both the states respondents had extremely poor information about even opening up of bank accounts. Their bank

20 accounts were opened just because there was an FI drive in the state or in camps where the peer pressure brought them. Similarly, the perception about post offices was only confined to the posts and telegraph and to certain extent money orders. The fact that post offices could also offer financial services was unknown. Evidence suggests that the awareness level about the bank accounts and post office account was extremely poor and the usage of such accounts seldom existed in its meaningful and logical efficiencies. Unless regular dosages of financial literacy is imparted to the public as teachable moments, the accounts cannot be meaningfully utilized by the masses for saving or other purpose.

There is a very strong need to create financial literacy and awareness amongst poor people. Most of respondents had very poor information about the ATM / Debit cards and many of rural women had never seen or heard about the ATM card in their lives. Even the success of accounts opened under the PMJDY largely depends on the brand ‘RuPay’ card, as the utility and application of the same need to be concertedly conveyed to the masses by means of the financial literacy. Most respondents did not have the basic information about the bank and post office products such as the most basic products of recurring deposits (RD) and fix deposit (FD). Unless people park their surplus savings into such regulated products there could never be a meaningful inclusion and hence they need to be told about these products as ‘teachable moments’. Most respondents had knowledge and information about the PMJDY account on zero balance. People in Madhya Pradesh were more aware about it compared to Bihar. However, respondents were mostly found to be misinformed about the PMJDY. The level of misinformation was huge such as the overdraft facility of Rs. 5000/- was treated as a dole out by the government as free deposit. Although the advertisement in print and electronic media is creating awareness but it falls short of achieving expected outputs amongst which only financial literacy can achieve. There is a need to bring awareness amongst poor who still have little or no information about it and for whom the PMJDY was launched.

The Chit-Fund companies are widely prevalent in Bihar and have been trying to lure people by offering attractive and high interest returns. Many of the respondents in Bihar were found to be the victims of such companies. There are many cases even in Madhya Pradesh where many people were trapped in the name of livelihoods and employment, SHGs, loan and other policies. There seemed to be a great need to provide Protection against Frauds in both the states.

The study also found very little evidence amongst the masses as regard their understanding of risk. In most cases it was found that people were Underprepared for Exigencies. More than half of the respondents reported that they were not prepared to face any type of risks and any such exigencies in lives. In case of risks / exigencies like unemployment, untimely death of earning family members, inflation, serious accident etc. they were unsure as to how to tackle it and had never thought to even mitigate such risk. They considered it is a matter of luck and chance that nobody could do anything about it. Respondent even reported that they would be compelled to borrow money in case of such exigencies, which would again lead them to the trap of poverty. People wanted to mitigate risk by greater savings but lack of information / knowledge prevented them from doing so. Nearly two-third of the surveyed households possessed below poverty cards (BPL cards) but they were lacking information regarding coverage under the Janshree Bima Yojana. Amongst the respondents who had insurance within their family members, a majority lacked

21 the information on processes regarding claims. They had no idea as to whom to approach in case of medical or death claims.

Recommendations on Financial Literacy: The experience in the field of financial inclusion reveals that left on their own, neither the bankers nor the Government could bring the community to ‘use’ the approach to its optimum, despite having the best of structures at the supply side. Even the best of the FI models need an external (third) but independent agency to create awareness and financial literacy so that the meaningful financial inclusion could be achieved that shall bridge the gap between the supply and demand side and shall generate demand at the community level. The study also recommends the approach by using ‘teachable moments’ to be used for financial literacy. Lesser inclusion states like Bihar where the structures are yet to be established and the FI drive lacks institutionalization there is also a strong need to begin work at both, the supply side as well as demand side. Whatever is the level and quantum of financial inclusion in these states, it should be clearly understood that the challenge in states like MP and Bihar is that without the element, ‘use’, despite the best efforts shall fail to leave an impression in financial inclusion. Study therefore recognizes that Financial Education is an important tool to address this imbalance and help consumers both ‘accept’ and ‘use the products to which they increasingly have access as a consequence of the multipronged efforts of Government and central bank.

Earmark FL under PMJDY: As the general awareness on the features of PMJDY is also found to be abysmal and there were misconceptions found about purpose of the scheme and benefits under it, there exists a strong case to provide for financial literacy under the scheme. Not much effort of the government has gone into unfolding the benefits of the scheme, while popularising it. As we have seen from the past that a majority of the bank accounts opened under financial inclusion drive remain unused as they don’t see value or utility of the account. Demand for such services can only be generated if such drives (of bank account opening) are ably assisted through financial education programmes. Banks to Create Public Goods by Investing into Financial Literacy: Financial inclusion should be treated as a multi-dimensional, pro-client concept, encompassing better access, better products and services, and better use. The challenge lies in the last element as without its use, the earlier elements are not worth. The models should use financial education as an important tool to address this imbalance and help consumers both accept and use the products to which they increasingly have access. Properly designed, financial education should be tailored to the client’s specific context, helping them to understand how financial instruments, formal or informal, can address their daily financial concerns, from the vagaries of daily cash flow to risk management. Thus the banks should be advised to take proactive steps in the drive for financial education since financial inclusion without imbibing the tenets of financial literacy would be a futile exercise as merely opening up of bank accounts will certainly not help the customers since they need to understand the benefits of opening the bank accounts. It can simply not be brought in or inculcated amongst the target group by merely conducting the training classes and courses. It should be brought as a practice in their daily lives. They should be reminded about the concepts of financial literacy as and when the customers take any monetary related action. The customers should have the ability to make informed judgments and to take effective actions regarding the current and future use and management of money.

Develop Baseline on Financial Literacy and Mechanism for Monitoring Impact: Carry out base line survey (by NSSO) of financial capability to create a baseline on current levels of financial literacy among different income group. Baseline surveys can serve as a catalyst for raising awareness on the topic and for a dialogue

22 on what are the key aspects or skills people need to be financially capable. Simultaneously, a mechanism also need to be developed for monitoring advancement in levels of financial literacy by using baseline data. In addition, also perform impact evaluations of financial literacy programs to enhance understanding of what works and what doesn’t, including costs and benefits of different programmatic approaches. The baseline data will provide a reference point for impact evaluation. Create an oversight mechanism for financial literacy: The rationale of establishing an oversight body is to create a focal point of developing national financial literacy strategy and make it operation. The body should also foster continuous learning among the various stakeholders by promoting the exchange of information on financial literacy between public and private sectors and across institutions such as NGOs and financial institutions. It should also serve as a nodal point of initiatives supporting financial education.The oversight body must include all sorts of financial institutions and other key stakeholders, like, commercial banks, NBFCs, MFIs, insurance companies etc. Rejuvenate FLCCs: The financial literacy initiative by Banks through FLCC has remained by and large ineffective, as most of the existing centres are actually working as institutions of sponsor banks. They are mostly manned by retired bankers and they serve mostly walk-in clients. Moreover, all such centres are located in urban and semi-urban areas and seldom in rural areas, where most of the financially excluded population resides. The awareness of such centres among people is also very low. There were indeed some outdoor campaigns carried out by banks but given the magnitude of the population to be covered, the figure was highly insignificant. Thus there is a strong need to revamp and rejuvenate the FLCCs in view of the current changes in the FI sector.

Post Offices to be Provided with Funding for Financial Literacy: Post Offices and sub post across India offers financial products and services and are an inevitable part of the financial inclusion model. Though a drive to cover the post offices under the core banking solutions are currently on it conspicuously lacks providing financial literacy. Under the funding from NABARD or Finance Ministry / Rural Development Ministry / India Post should be provided with suitable funds for financial literacy. These funds could be used to initially train and build up the capacities of the staff and Grameen Dak Sevaks of the Postal department who could potentially be used for marketing the financial products of the postal department. India Post has a huge army of more than 3,00,000 Grameen Dak Sevaks (GDS) who on a part time and commission basis perform the basic tasks of the department. This would lead to financial deepening with greater availability of liquidity in the ecosystem and allow the customers to perform more transactions using the channel.

Expand the content base of financial literacy programmes: Most of the financial literacy modules currently in use cover basic budgeting, savings and investment in their curricula. However, the topics like debt management, risk management and insurance, pension, consumer protection, bank services, financial negotiation, and remittances are currently under represented and not properly addressed in currently used financial education curricula. The study found following areas in financial education for poor requires special attention and to be incorporated in financial education curricula:  Given the poor level of usage of bank account among poor mass, it prominently highlights the need of basic financial education among them on how they could use bank accounts to add value to their lives. Mere encouraging them to open bank account would certainly not result in better financial management at household level aiming at wealth creation among them. One needs to appraise them on how bank account is an important tool in improving their financial status and managing risks.

 Given a lot of misconceptions and poor awareness of features of PMJDY among the segment, the programmes should prominently the features of the scheme in their curricula.  There is a strong need of popularising post-offices among poor mass, as an alternative safe place to save.  There is a pressing need of education on KYC norms and rights of a bank customer and how to avail them.  Considering that the practice of budgeting at household level is almost non-existent among the target segment and adoption of budgeting by them will help to reduce their wasteful expenditure and save more money to help their capital grow faster, such concept should be popularised and the practice should be encouraged through financial literacy and counselling.  Given rampant cases of poor being duped of their life time savings by unscrupulous organisations, there is an urgent need to educate poor on how to distinguish between genuine and unscrupulous organisations and not to get lured by attractive offers. There is also pressing need of educating poor on concept of goal linked savings and selection of channels to keep their investments secure and get optimal returns.  Given the vulnerability and lack of access to social security measures, there is dire need of popularising concept of insurance and pension and bust the myths around it by educating poor on entire chain of process involved. C. Financial Inclusion The States: MP is second largest state with over 75 million inhabitants living in 54,903 villages and hence requires multiple approaches to ensure meaningful FI to take the benefits to the last mile in the state.Samruddhi(Prosperity) –the MPFI model offers a comprehensive, complete and integrated platform to provide G2P and financial services from the supply side. Financial Inclusion in MP has been rolled out through the platform of State Level Banking Committee (SLBC) and Department of Panchayat & Rural Development (P&RD) with beneficiaries at the center stage. The concept of social security integration called “SAMAGRA” carries a multi utility database that was initiated in the year 2010. The MPFI Model provides for an integrated solution to inclusive growth at the front and back end. The model is a departure from the conventional models in India and mostly resembles with the international best practices like the G – 20 Principlesfor Innovative Financial Inclusion1 and yet is little far from, but steadily heading towards attaining that status. To allow access to the banking products to the beneficiaries, MPFI has created a conduit for transmission of the Government Benefits that is free of laxities. Samruddhi – the MPFI model constitutes three basic pillars:

1. Samagra: An Integrated Social Security Mission (SSSM) 2. Electronic Fund Management System also known as e-FMS for ensuring timely and correct payments to the beneficiaries as Government to Person (G2P). 3. Ultra Small Bank Branches (USBs) / Customer Service Points (CSP) for Opening bank accounts, performing transactions and ensuring last-mile connectivity including financial dispensation, and

1The G20 Principles for Innovative Financial Inclusion bring those experiences together to produce a set of practical recommendations for policymakers worldwide. They are not rigid requirements, but rather nine valuable insights that together form a set of conditions that spur innovation for financial inclusion while safeguarding financial stability and protecting consumers.

Three of them together form the MP Financial Inclusion (MPFI) model – Samruddhi. At the backend, it captures the data base of every citizen and households and defines entitlements based on their characteristics as defined under the eligibility, features and benefits of the social sector schemes that get converged into three mainstreams namely, Health, Social Security and Education. At the frontend, the model offers huge potential for banking and financial inclusion where products and services could be offered at the doorsteps of the rural population by means of ultra small branches / customer service points (USB / CSP) using banking technology. The Three Pillars that are integrated with each other provide an end- to-end solution for the rural poor. These three pillars, left alone can be treated as modular, however the services that they offer are bundled into Government to Person (G2P). The risk of each of them if adopted on a standalone basis, may simply defeat purpose of integration. MP has cultivated a broad-based government commitment to financial inclusion to help alleviate poverty and the same has been defined and reflected in its overall objective of financial inclusion. The objectives may range from, but may not be limited to, switching over to an entitled based benefit flow to the vulnerable groups to penetration of banking access to the deepest pockets of the state Bihar has been a pioneer in developing the concept of digitization of MNREGS under the financial inclusion drive. However, despite being an early mover it has failed to attain a status of financial inclusion. The Bihar Rural Livelihoods Promotion Society has been designated as State Rural Livelihoods Mission by the state government under the overall framework of National Rural Livelihoods Mission. It will scale up its JEEViKA model of poverty alleviation throughout the state in a phased manner. The programme is being made operational in all the blocks by 2014. Overall, 1.5 crore rural poor families would be organised into 10 lakh SHGs, 65 thousand Village Organisations (VO), 1600 Custer Level Federations (CLF) and 534 Block Level Federations (BLF).

Bihar, an early riser but a slow starter, is gradually catching up with other states in both formation of SHGs and ensuring their bank linkages. As of March, 2013, SHG coverage in rural Bihar was 35.22 lakh households, roughly 48 percent of total rural households.

A Roadmap for Financial Inclusion was prepared by the banks in Bihar in consultation with the state government and approved by District Level Coordination Committees (DLCC), as per the guidelines issued by the Reserve Bank of India. It aimed to expand banking outlets by way of new branches and through any of the available ICT-based models, including Business Correspondents (BCs) in the villages having a population of more than 2000 by March 2012. Accordingly, 9213 villages were identified and allotted to the banks for providing banking facilities. Of this, 2124 villages were covered during 2010-11 and by March 2012, all but 36 of the identified 9213 villages were covered. The remaining 36 villages were to have been covered by the end of 2012-13. However, the target for the scheme was subsequently revised during 2012- 13 and it was proposed to cover all villages with a population of 1600 or more in the scope for financial inclusion. Another major initiative of the state government in the direction of financial inclusion was the decision to open at least one account in every family, in order to enhance the reach of banking services to all families. By the end of 2012-13, a total of 3052 such villages were identified and planned to be covered. Roadmap for financial inclusion as on September 30, 2013, is presented in table below according to which, by September 13, 2013 out of the target for 3052 villages, only 2242 villages could be covered, leaving 810 villages (26.5 percent) villages yet to be covered.

At the end of March 2013, 54.0 percent of the total 5008 branches of commercial banks in Bihar were located in rural areas, compared to 61.6 percent in 2008. The decline in the share of rural branches has been continuing unabated since 2008. Bihar accounted for only 4.6 percent of all the bank branches in the country in March2013, though its share in country's population was 8.6 percent. The financial sector in India has always been dominated by the Scheduled Commercial Banks (SCBs), accounting for major chunk of the total financial flows in the economy. These banks also play a major role in financial inclusion, and this is especially important for the rural sector. In the near absence of a capital market, the financial sector in a state like Bihar is almost entirely driven by the SCBs. Any adverse development in the international and national banking scenario, therefore, is likely to impact the financial sector in Bihar as well.

Evidence from Survey: The study was performed across the accounts holders and others. It was interesting to know that the Non Account Holders reported that Poverty and lack of knowledge on how to open savings bank accounts were two major reasons cited for not attempting to open savings bank account. Most of the males and few females in MP had a savings account. It was a significant discovery that despite various FI drives and even in the middle of the PMJDY, about half of the respondents in rural and urban areas of Bihar did not have a savings account in their families. Proportion of respondents having a savings account was slightly higher in urban areas in Bihar and rural areas in MP. Most of households that had a bank account needed further information to use their accounts and access banking products and services in MP. Half of the households in Bihar had no bank accounts in the family, so they were not able to use the financial services and products with zero accessibility. MP was more advanced on the matter of financial inclusion and needed to take further steps ahead for the deepening of financial inclusion, the penetration of financial literacy training is a must to create demand from the grassroot level for using the financial products. Most of the bank account users perform transactions in one or three months interval by either visiting the branches, or the CSP / USB in their own villages.

Remaining Excluded: Males and females who did not attempt to open savings account owed its reasons to ‘Poverty and lack of knowledge’. These two major reasons were cited for not attempting to open savings bank account. While the lack of knowledge could be supplemented by means of financial literacy, poverty is being tackled at the macro level by various social sector schemes involving the G2P. in any case, even savings could be treated as earnings for which there again is a string need for financial literacy.

Need for Deepening: The mean number of savings bank accounts in family was ‘1’ in Bihar and ‘2’ in MP which again revealed that savings accounts were more prevalent in MP rather than in Bihar. Mostly, these accounts belonged to women. However, as MP has the accounts it should now be looking for providing further deepening on the inclusion drive.

26 withdraw money’, ‘To receive government benefits’ and ‘To keep money safe’ were the three main reasons of opening the savings account. As many as 50 percent of respondents of MP opened saving accounts to receive the government benefits, followed by one-third to deposit and withdrawal of money. About 70 percent of women opened an account in bank to receive the government benefits in MP. These women use these accounts only as a medium of receiving the government payments/benefits.

Banking Density: The availability of bank / post office / cooperative and agents was much higher in MP than that of Bihar. Thus, the reach of FI services need improvement across the locations. In the FI Model of Madhya Pradesh, there is a provision that all villages should be covered by bank/post office within the radius of 5 km. While MP is sparsely populated with less than 200 persons per square kilometer, the population density for Bihar is approximately 1000 (5 times more than that of MP). Despite this there is a greater chance of finding a financial dispension outlet in MP.

Monitoring and Evaluation: There is a strong need to revisit the models of financial inclusion both in Bihar as well as in MP in terms of its frequent monitoring and corrective paths. There is also a need for providing the supply side corrections based on the demand at different levels. Similarly, customer protection should be paid greater importance as more and more bank accounts are being opened across the country.

Evaluation on Product Availability: The availability of appropriate but regulated financial products, including at the very least, savings products, emergency credit, payment, insurance products and entrepreneurial credit are important aspects of financial inclusion environment. As on date and purely based on the field survey currently the Financial Inclusion models both in MP and Bihar provide for a G2P and savings product. The level of penetration and quality may differ across the two states. Credit is being routed through only a few USBs / CSPs as of now and remittances are limited to certain kiosk based outlets such as SBI kiosks etc. where the customers are charged to remit. In addition to this, the fairness and appropriateness of products is also an important dimension in the context of financial education of customers and for consumer protection.

Customer Protection: On the evaluation side of the protection of customers, it is only a macro mechanism that is currently functional. This is to say, the financial regulators in India (RBI, SEBI, IRDA and PFRDA) provide for certain norms of customer protection. However, it was found that except the normal and routine regulatory framework there were no norms and information dissemination on rights and duties on customer protection under the FI models. As mentioned, there is a strong need for a customer protection implementation across India emphasizing the needs under the FI drive. The state of Bihar already witnessed frauds and while MP is gearing up for financial deepening there is likely to be substantial chunk of money in the accounts of the people by means of G2P and otherwise. MP should start working on the customer protection on an immediate basis as it would be more prudent for MP to create a Preventive model of Protection rather than cure as and when it happens.

Monitoring of Products and Service: Monitoring framework needs to be further developed that would cover transaction level, customer level and products and services level monitoring, at the micro level. Again, as mentioned earlier, there is a monitoring of such tenets at the macro level within the regulatory

27 framework, there is no such action at the micro level. In future and as is suggested in this report if more and more financial products shall be offered to the client at the grass-root level using the USB / CSP channel, there would be a greater role of the supply side stakeholders as well as that of government to monitor such action. Both the states are required to be geared up to monitor and supervise the products and services offered by the multiple regulators.

D. Recommendations on Financial Deepening For states which have articulated their supply side and for states that are in the process of doing so, the resolution lies not only at the supply side, but also in activating the ‘demand side’ of the Financial Inclusion. There is a strong need to activate the 'demand side' for financial deepening - allow G2P in their bank accounts and let them use the liquidity, which is possible by creating awareness through 'teachable moments' and offer diversified products like Savings, Credit, Remittances, FD, RDs, NPS Lite (Swawalamban) etc. so that full advantage of the FI model could be utilized by the rural and urban workers. Development sector has innumerous examples where the supply sides has only negatively dented the structures and have seldom made any impression on the impact of the socioeconomics. Supply Seldom Creates its Own Demand unless the consumers are aware of the benefits of the products and services. Thus there is a strong need to go to the trenches and identify as to what do THEY Want?? And if they don't want but just need it, then how do we get the 'Need' Converted into 'Demand'? For example, everyone on this planet needs a 'Pension' to fight old age poverty, but what is the 'Demand' for such products. Converting the ‘Need’ into ‘Demand’ by financial literacy is just the beginning of inclusion.

Needless to say that poor need prudent money management more than anyone else. Household cash-flow planning and budgeting is stepping stone towards it. Unfortunately, the survey found that such practice is almost non-existent, as they are mostly unfamiliar with the concept of planning and budgeting and their benefits. Typically they save money for future needs but the approach is to save surplus money without preparing household budgets, without prioritising financial goals, without properly allocating investments in different asset classes. However, many of the women with whom the study team interacted have shown strong interest in knowing the nuances of household budgeting, financial planning and investments.

Evaluation: financial inclusion, financial literacy and consumer protection as three major planks of financial stability. While financial inclusion acts from the supply side, providing the financial market / services that people demand, financial literacy stimulates the demand side, making people aware of what they can demand. The supply side issues also cover financial markets, network of banks and other financial institutions, appropriate design of products and services, etc. In case of the model designed and developed by MP, the supply side has been served by the bankers only to a limited extent. However, since this is only a beginning as the model has been articulated only very recently, even the supply side of the products and services would take time to mature. For lack of financial literacy customers treat their banking accounts not as a tool to optimally use them for an inclusive growth but as a means to collect their payments being passed through the USB / CSP. There is clear evidence that wherever financial literacy efforts had been initiated by RBI and NABARD, there is remarkable evidence of increased transactions beyond savings in terms of credit and subscribing to insurance products.

Demand Side Evaluation: The demand side issues in financial inclusion include knowledge of financial products and services, credit absorption capacity, etc. While in the MPFI model there is a provision of providing financial literacy, much has to be done to effectively impart the same. These issues are universally faced by both urban and rural MP. There is a strong need for financial literacy to be designed and delivered based on the customization of requirement in MP including the newly framed financial inclusion model. A framework for financial inclusion needs to take into account various aspects such as the demand and supply side issues; assessment of enabling environment; issues in penetration, barriers to financial inclusion, etc. and resolve them based on the local requirements rather than ‘one size fits all’ approach.

Financial Deepening of the Samruddhi: Financial deepening is the improvement or increase in the pool of financial services that are tailored to the requirement of all levels in the society. The model in MP has developed a framework for financial inclusion and has taken into account various aspects of the supply side issues; assessment of enabling environment; issues in penetration, barriers to financial inclusion, etc., however evidence for demand side shall be reflected in terms of opening of accounts, volumes of transactions, increase in bank balance and saving schemes etc. The MP model of financial inclusion poses immense opportunities for financial deepening as there are opportunities and potential for the CSPs / USBs to offer products and services to keep themselves floating and attain sustainability. Besides, the services as offered under various government schemes, the demand for regulated products could be generated by means of financial education as well as converting the need to demand. Promoting well-managed financial deepening in low-income states like MP can enhance resilience and capacity to cope with shocks, improve macroeconomic effectiveness, and support solid and durable inclusive growth. Financial deepening fosters inclusive growth as more varied and accessible financial services support growth and reduce poverty and inequality. Financial deepening supports the view that development in financial sector leads to development of the economy as a whole. However from the point of view of the Welfare State, it also plays an important role in reducing risk and vulnerability for disadvantaged groups, and increasing the ability of individuals and households to access basic services like health and education, thus having a more direct impact on poverty reduction. Financial system in low income statelike MP is growing and becoming more inclusive, but they still remain relatively small and undiversified. Encouragingly, although they have much lower levels of financial depth than high- and middle-income states, MP is likely to be experiencing financial deepening at rates far faster than higher income states. Access to finance is as pivotal as the depth of the financial system. Here again, there are encouraging signs, but more has to be done. In the state of MP and specially in the past couple of years it has been amply realized that mere banking inclusion would not serve the purpose of inclusive growth and hence the State has to move beyond opening of banking accounts. While banking accounts could be the first and foremost step of financial inclusion, it is certainly not the end all of the process. Again, from the side of the supply, it can offer various social benefits to the underprivileged by properly targeting the means as well as prop the benefits directly into their accounts. On the demand side, creation of awareness by means of financial literacy is the key to success. This would create a demand for various financial products like the need for credit, savings, term

29 and recurring deposits, remittances, insurance and finally contributory pensions2. According to certain preliminary indications in MP, it is not only the interest rate that affects financial deepening but also, various other factors such as government activities, external sector activities, and bank branch expansion and communications development. These prima facie results are in line with various empirical studies across developing countries confirming that there is a positive relationship between these variables and financial deepening indicators and that of savings and investment.

Miles to Go: However, Samruddhi is yet to reach a level where it could implement policy approaches that would promote competition and provide market-based incentives for delivery of sustainable financial access and usage of a broad range of affordable services (savings, credit, payments and transfers, insurance) as well as a diversity of service providers. The GoMP has to encourage a comprehensive approach to consumer protection that would recognize the roles of government, providers, and consumers in clear terms. Again, it still has to develop a well defined and targeted financial literacy and financial capability. It has to create an institutional environment with clear lines of accountability and coordination within government; and also encourage partnerships and direct consultation across government, business, and other stakeholders. For G2P, accountability line is clearly devised in the SSSM directions issued by the Finance Department as well as the parent department. MP has so far not used its FI model to offer any regulated financial products other than the basic banking mentioned earlier. MP is also lacking in building a consensus, a policy and a regulatory framework that would commensurate with the risks involved in innovative products and services.

Creation of a Financial Inclusion Innovation Fund: The purpose for creating an innovation fund is to encourage both private and public sector institutions to conduct research, innovate and pilot test new approaches to financial literacy. The fund could support activities such as:  Design, development, and launch of social marketing of financial products/financial behaviour change campaigns;  To explore alternative delivery channels and produce alternative financial education toolkits that use other engaging formats such as comic books, video clips played on tabs or computers or mass media channels. Currently most of the financial literacy programmes are training based programmes;  Support financial services providers in their effort to develop tactics to reinforce uptake and usage of financial products and services;  Promote technology solutions to reinforce positive financial behaviour, like, SMS reminders to encourage regular savings.

2 The GoMP announced a co contributory pension scheme ‘Shri Kushabhau Thakre Unorganized Sector Co Contributory Pension scheme’ in 2008 for the informal sector identified group of vulnerable poor, but the scheme could not be rolled out for want of implementation partner and lack of financial outreach.

Chapter 1. Introduction and Backdrop

Annotation: This chapter opens with a short discussion on the conceptual definition and utility of the ecosystem of financial inclusion and provides a global and Indian perspective of financial inclusion. It briefly discusses the G – 20 Global Best Practices on FI. It also cites certain global data on financial inclusion with reference to Indian data. It briefly discusses the historicity of FI in India and the efforts of different stakeholders including the Central Bank. Some of the indicators of FI in India are also provided at the penultimate section while it ends with a brief paragraph on outlining the rest of the report.

1.1 Introduction to Financial Inclusion Concept: Financial inclusion or inclusive financing is the delivery of financial services at affordable costs to sections of disadvantaged and low-income segments of society. In Indian context it is defined as “process of ensuring access to appropriate financial products and services needed by all sections of the society in general and vulnerable groups such as weaker sections and low income groups in particular, at an affordable cost in a fair and transparent manner by regulated, mainstream institutional players”.Access to financial services plays critical part in development by facilitating economic growth and reducing income inequality.

Need: The global financial crisis has brought the need for financial inclusion into greater focus worldwide as it is believed that the wide spread financial exclusion was one of the factors that precipitated the financial crisis. While spread of financial inclusion is recognized through formal financial institutions such as banks, credit unions, post offices or microfinance institutions, the approach of keeping some entities as part of the core or as support players, varies within country. Besides, it is important to note that the defining principles of financial inclusion, coverage, role and responsibilities of institutions and assessment / monitoring requirements have been evolving over the years.

Origination: The origins of the current approach to financial inclusion can be traced to the United Nations initiatives, which broadly described the main goals of inclusive finance as access to a range of financial services including savings, credit, insurance, remittance and other banking / payment services to all ‘bankable’ households and enterprises at a reasonable cost. The G20 Toronto Summit (June, 2010) outlined the “Principles for Innovative Financial Inclusion”, which serves as a guide for policy and regulatory approaches aimed at fostering safe and sound adoption of innovative, adequate, low-cost financial delivery models, helping provide conditions for fair competition and a framework of incentives for the various bank, insurance, and non-bank actors involved in the delivery of a full range of affordable and quality financial services. Initiatives for financial inclusion have come from the financial regulators, the governments and

31 the banking industry. While the banking sector has taken several steps to promote financial inclusion, legislative measures have also been initiated in some countries.

Financial Services Access: Access to financial services plays a critical part in development by facilitating economic growth and reducing income inequality. Inclusive financial systems allow poor to smoothen their consumption and insure themselves against economic vulnerabilities —from illness and accidents to theft and unemployment. It enables poor to save and to borrow—allowing them to build their assets, invest in education and entrepreneurial ventures, and thus improve their livelihoods. Inclusive finance is especially likely to benefit disadvantaged groups such as women, youth, and rural communities. For all these reasons financial inclusion has gained prominence in recent years as a means to improve the lives of the poor. A key challenge is how to create the broader interconnected ecosystem of market actors and infrastructure needed for safe and efficient product delivery to the poor. The term "microfinance," once associated almost exclusively with small-value loans to the poor, is now increasingly used to refer to a broad array of products tailored to meet the particular needs of low-income individuals. Recent empirical evidence highlights that access to basic financial services can make a substantial positive difference in improving poor people’s lives. Accordingly, financial sector reforms that promote financial inclusion are increasingly at the core of policymakers’ agendas.

Financial Inclusion Ecosystem

Source: Frost & Sullivan

It may be argued that as banking services are in the nature of public good; the availability of banking and payment services to the entire population without discrimination ought to be the prime objective of financial inclusion public policy.

1.2 Global Perspective on Financial Inclusion The first decade of the current century witnessed a significant shift in the ideology on access to poor and hence the term "financial inclusion" gained currency when financial exclusion and its direct impact on poverty was comprehended3. In response to policymakers promoting financial inclusion and the stakeholders demand for rationalization of resources towards Financial Inclusion, CGAP (Consultative Group to Assist the Poor) and the World Bank Group, recently launched the Financial Access project, including a cross-country database on financial inclusion topics and an annual report to inform the policy debate.4 According to its database, still 56% of the adults are unbanked globally.

1.2.1 The World Bank on Financial Inclusion World Bank is the leading global development partner for governments and regulators for financial inclusion. Taking a comprehensive approach to promoting financial inclusion among the 2.5 billion adults who lack access to formal financial services, World Bank support includes policy advice, data and diagnostics, technical assistance for legal and regulatory reforms, institutional development, risk-sharing, and financing.

Led by the Financial Inclusion and Infrastructure Global Practice and its international network of over 170 financial specialists, the World Bank takes a comprehensive approach to working with governments and regulators towards creating financial inclusion. The World Bank supports increased access to a range of financial products and services through:

1. Policy and regulatory reforms for micro and SME finance;

2. Development of sound and efficient financial infrastructure for payments, supply chain finance, credit information, and collateral frameworks;

3. Innovations to reach poorer households, including through Government to Person (G2P) payments linked to financial accounts; and

4. Responsible finance, through financial capability and consumer protection.

The World Bank also partners with countries to support national strategies for financial inclusion and provides data, technical assistance, financing, and capacity building to support the implementation and sustainability of these strategies. The World Bank’s global surveys provide data and insights on financial

3 An estimated 2.5 billion working-age adults globally have no access to the types of formal financial services delivered by regulated financial institutions. 4 It analyzes the state of access to deposit and loan services as well as the extent of retail networks, and discusses the state of financial inclusion mandates around the world.

33 inclusion, including the Global Financial Inclusion Database, Global Findex5. The World Bank’s Global Findex reports that three quarters of the world’s poor lack a bank account because of poverty, costs, travel distances, and the often burdensome requirements involved in opening an account. Only 25% of adults earning less than $2 a day have saved at a formal financial institution. Being “unbanked” is linked to income inequality: the richest 20 percent of adults in developing countries are more than twice as likely to have a formal account.

World Bank's FINDEX - Select Indicators on Financial Inclusion (Proportion of Population of Age 15+) Russian Indicator Name USA UK Germany Federation Brazil China India CREDIT: Loan from a financial institution in the past year 20.1 11.8 12.5 7.7 6.3 7.3 7.7 Loan from a financial institution in the past year, income, bottom 40% 17.6 11.1 12.3 6.3 3.5 7.7 7.9 Loan from a financial institution in the past year, income, top 60% 22.3 13.2 13.7 8.7 8.2 7 7.5 Loan in the past year 44.6 28.8 25.3 31.9 23.8 29.4 30.6 Loan in the past year, income, bottom 40% 45.1 28.1 25.4 32.1 19.7 32.4 35.7 Loan in the past year, income, top 60% 44.2 30.2 24.6 31.7 26.6 27.3 24.9 INSURANCE: Personally paid for health insurance NA NA NA 6.7 7.6 47.2 6.8 Purchased agriculture insurance (% working in agriculture, age 15+) NA NA NA 3.7 11.2 7.2 6.6 PAYMENTS: Checks used to make payments 65.5 50.1 7.2 5.2 6.7 1.8 6.7 Electronic payments used to make payments 64.3 65.3 64.2 7.7 16.6 6.9 2 Mobile phone used to pay bills NA NA NA 1.7 1.3 1.3 2.2 SAVINGS: Saved at a financial institution in the past year 50.4 43.8 55.9 10.9 10.3 32.1 11.6 Saved at a financial institution in the past year, income, bottom 40% 32.1 43.5 55.1 8.8 5.8 18.3 10.4 Saved at a financial institution in the past year, income, top 60% 66.5 44.3 60 12.4 13.3 41.7 12.9 Saved any money in the past year 66.8 56.7 67.3 22.7 21.1 38.4 22.4

5 A Bill and Melinda Gates Foundation funded survey of 150,000 people in 148 countries, implemented with Gallup, and the Global Payment Systems Survey (which covers financial infrastructure related to payments and mobile money, in 142 countries).

Saved any money in the past year, income, bottom 40% 51.5 56.2 67.1 18.9 12.1 23.3 19.4 Saved any money in the past year, income, top 60% 80.2 57.7 68.1 25.4 27.1 48.9 25.8 NA: Not Available Source:The World Bank

1.2.2 The United Nations The United Nations defines the goals of financial inclusion6 as follows:

 access at a reasonable cost for all households to a full range of financial services, including savings or deposit services, payment and transfer services, credit and insurance;  sound and safe institutions governed by clear regulation and industry performance standards;  financial and institutional sustainability, to ensure continuity and certainty of investment; and  competition to ensure choice and affordability for clients. Pacific Financial Inclusion Program (PFIP): UNCDF, together with UNDP, AusAID and the EU, has created the Pacific Financial Inclusion Programme (PFIP) where the strategy involves finding new ways of serving hard-to-reach populations, while fostering greater commitment and cooperation to build inclusive financial systems throughout the region. At the core of its efforts is building branchless banking platforms that can reach low income and rural households, the vast majority of which are unbanked. The programme supports a government-to-person (G2P) payment project, in which social welfare recipients are able to receive their stipends electronically, rather than through a voucher and cash-based system.

1.2.3 Global Partnership for Financial Inclusion (GPFI) Global Partnership for Financial Inclusion (GPFI) is an inclusive platform for all G20 countries, interested non-G20 countries and relevant stakeholders to carry forward work on financial inclusion, including implementation of the Financial Inclusion Action Plan, endorsed at the G20 Summit in South Korea.7 Spearheading the implementation are the five Key Implementing Partners: the Alliance for Financial Inclusion (AFI), the Consultative Group to Assist the Poor (CGAP), the International Finance Corporation (IFC), the Organisation for Economic Co-operation and Development (OECD) and the World Bank. Another group namely, Sub-Group on Financial Consumer Protection and Financial Literacy takes forward the G20 Leaders commitments on financial consumer protection and financial literacy. It supports and complements work of the other Sub-Groups on activities specifically related to consumer protection and financial literacy in their work programs.

1.2.4 The Alliance for Financial Inclusion (AFI) AFI is a knowledge network of central banks and other financial regulatory bodies in developing countries. As a key player for global financial inclusion efforts, AFI serves as one of the five implementing partners for the G20 Global Partnership for Financial Inclusion (GPFI). It is the world's largest and most prominent network of financial inclusion policymakers from developing and emerging economies who work together

6 In partnership with the National Bank for Agriculture and Rural Development (NABARD), the UN aims to increase financial inclusion of the poor by developing appropriate financial products for them and increasing awareness on financial services and strengthening financial literacy, particularly amongst women in India. 7 The GPFI was officially launched on 10 December 2010 in Seoul, Korea.

35 to increase access to appropriate financial services for the poor. The G20 Financial Inclusion Experts Group (FIEG) utilized many of AFI’s ongoing programs, including dialogues and meetings with developing country policymakers, together with the AFI Survey on Financial Inclusion Policy which helped to shape the G20 Principles for Innovative Financial Inclusion.

1.2.5 The Maya Declaration The Maya Declaration is a statement of common principles regarding the development of FI policy made by a group of developing nation regulatory institutions during the AFI 2011 Global Policy Forum held in Mexico. The Maya Declaration is broad in nature, focusing on creating the right environment; implementing the correct framework and ensuring consumer protection measures are taken and using data to inform and track financial inclusion efforts. This declaration8 was made through the Alliance for Financial Inclusion network of regulatory institutions and although no vote was taken, the common principles have been implicitly adopted by all of the networks members. There were as many as 17 institutions which made specific Maya Declaration commitments during 2011.

1.2.6 International Monetary Fund on Financial Inclusion Improving access to financial services and building inclusive financial systems are gaining priority for the policy makers in the aftermath of the global financial crisis. An increasing number of financial regulators around the world are tasked with promoting access to financial services in addition to ensuring the stability of financial markets by regulating and supervising financial institutions.

The Financial Access Survey (FAS) published by the IMF collects data on access to and usage of financial services from central banks and other financial regulators around the world on an annual basis. The key FAS indicators are:

a. Identify knowledge gaps and set priorities for policies on broadening financial access;

b. Monitor the effectiveness of these policies over time; and

c. Advance research and analysis to strengthen understanding of the determinants and implications of financial access and usage.

d. The newly-expanded FAS (2014) is also capturing indicators on access to and use of mobile money services.

The FAS is the most comprehensive global source of data on access to, and use of, basic consumer financial services by households and nonfinancial corporations.

IMF's FAS Database - Select Indicators on Financial Inclusion

Brazil USA Germany China India Parameters 2005 2013 2005 2013 2005 2013 2005 2013 2005 2013

8 Interestingly, India is not a signatory to Maya Declaration.

Brazil USA Germany China India Parameters 2005 2013 2005 2013 2005 2013 2005 2013 2005 2013 Commercial bank branches per 1,000 km NA 8.5 8.5 9.3 40.9 29.9 NA 9.32 23.2 35.7 Commercial bank branches per 100,000 adults NA 47.7 33.1 33.9 20.2 14.7 NA 7.85 9 12.2 ATMs per 1,000 km 17.4 23.2 43.2 NA NA NA NA 55.75 5.9 38.9 ATMs per 100,000 adults 109 131 169 NA NA NA NA 46.94 2.3 13.3

Depositors with commercial banks per 1000 adults NA 642.3 NA NA NA NA NA 15.03 NA NA Deposit accounts with commercial banks per 1,000 adults 706 1154 NA NA NA NA NA 40.44 611 1198 Household deposit accounts with commercial banks per 1,000 adults NA NA NA NA NA NA NA NA 580.1 1041

Loan accounts with commercial banks per 1,000 adults NA 2358 NA NA NA NA NA NA 101 147 Household loan accounts with commercial banks per 1,000 adults NA 1981 NA NA NA NA NA 961.38 7.5 29.8 Loan account with all MFIs per 1000 adults NA 0.27 NA NA NA NA NA NA NA NA

Outstanding deposits with commercial banks(Percent of GDP) 34.00 45.92 46.43 58.01 20.13 29.01 127.51 156.62 47.30 69.98 Outstanding loans from commercial banks (Percent of GDP) 21.2 47.15 46.99 43.77 24.7 22.84 81.99 101.38 31.2 55.1 Source: Financial Access Survey (FAS) Data extracted from http://data.imf.org/

1.2.7 International Finance Corporation (IFC) IFC is World Bank Group’s lead investor in microfinance in terms of volume and is one of the leading multilateral investors in terms of reach to microfinance institutions, working with 150 institutions in more than 60 countries. IFC works to create and support commercially viable microfinance institutions that can attract capital to scale up and meet demand. Since pioneering commercial microfinance in the early 1990s, IFC has led innovation in microfinance, using technology, financial products, and policy to help financial institutions reach a greater numbers in a more cost-effective way.

1.2.8 Consultative Group to Assist the Poor (CGAP) The CGAP works toward a world in which everyone has access to the financial services they need to improve their lives. CGAP develops innovative solutions for financial inclusion through practical research and active engagement with financial service providers, policy makers, and funders. Established in 1995

37 and housed at the World Bank, CGAP combines a pragmatic approach to market development with an evidence-based advocacy platform to advance poor people’s access to finance. Its global network of members includes over 35 development agencies, private foundations, and national governments that share a common vision of improving the lives of poor people with better access to finance. CGAP is widely recognized as a leading global knowledge resource for financial inclusion, offering vital information through its renowned publications and online knowledge resources that include the Microfinance Gateway and the CGAP Blog. CGAP projects cover a wide range of topics on financial inclusion and microfinance.

1.3 Chronology of Financial Inclusion: Micro Credit to Cashless The first and foremost efforts to provide an inclusive finance were pioneered in Bangladesh by Grameen and BRAC. Largely funded by grants and aid, the microfinance sector grew quickly and fuelled hopes for a new "miracle cure" for global poverty. But in the decades since, critics of microfinance have been just as vocal as its proponents. A series of crises, notably in Nicaragua, Pakistan and India, have called the ethics of microfinance into question, and suggested the sector might need better regulation.

While financial inclusion is an important issue, it may also be interesting to assess whether such inclusion as earmarked in policies are actually reaching the common beneficiaries. Since 1990s, there have been serious efforts both in the government agencies and in the civil society to monitor the fund flow process and to track the outcome of public expenditure through budget tracking. Organisations like International Budget Partnership (IBP) are undertaking global surveys in more than 100 countries to study the openness (transparency) in budget making process. There are various tools used by different civil society groups to track public expenditure. Such tools may include performance monitoring of public services, social audit and public accountability surveys. In India, the institutionalisation of Right to information (RTI) has been a supporting tool for activists and citizen groups for budget tracking and advocacy for social inclusion

Recognizing the need for better data to support the financial inclusion agenda, the World Bank’s Development Research Group, has constructed the Global Findex database. The Database provides 506 country-level indicators of financial inclusion summarized for all adults and disaggregated by key demographic characteristics—gender, age, education, income, and rural or urban residence. As the first public database of indicators that consistently measure people’s use of financial products the Findex database fills a major gap in the financial inclusion landscape. Covering a range of topics, the database can be used to track financial inclusion policies globally and develop a deeper and more nuanced understanding of how people around the world save, borrow, make payments, and manage risk.

In most countries, financial exclusion is a phenomenon which is mostly restricted to rural areas where accessibility is limited and the population density is substantially lower. However, recently the phenomenon has also been observed in urban areas where some segment of the populace remains financially excluded in spite of the existence of bank branches, due to constraints such as access timings, and income potential. Nearly 2.2 billion people, i.e. 62 percent of the population, living in Asia, Africa, Latin America and the Middle East are financially excluded. In China and India, only about a third of the population participates in the formal banking sector. In Africa the number is just 25 percent. Africa as a whole has 230 million unbanked households. For banks, this is a massive opportunity to serve a new demographic and tap into the previously untouched wallets of the unbanked. Traditional methods of

38 serving the unbanked - ATMs and the banking correspondent model - have achieved tepid results. It is becoming increasingly clear that new technologies like the mobile are the way forward. The use of technology has been the obvious choice to drive the financial inclusion programs of banks, as the key objectives of such a program is to reduce the cost of operations without compromising on customer experience and security.

1.3.1 The 2013 Global Forum on Financial Inclusion for Development The Universal Postal Union (UPU) helps its member countries to introduce or develop inclusive and sustainable financial services9. As an information and technical assistance platform for the postal sector, the UPU is an ideal partner for lending institutions and donors in the effort to make postal financial services accessible to the most disadvantaged populations. Postal financial inclusion is enjoying a boom. After banks, postal operators and their postal financial subsidiaries are the world's second biggest contributor to financial inclusion. The UPU, jointly with the Swiss Federal Department of Foreign Affairs and the International Organization of La Francophonie, has established this forum as a platform for dialogue on postal financial inclusion between governments, postal operators, central banks, private sector players and international organizations. The Forum's objectives are to:

 Raise awareness on the role of Posts in financial inclusion  Bring together decision-makers to exchange best practices in the area of postal financial inclusion  Provide a forum for discussion between central banks and postal operators

1.3.2 From Protection to Inclusion: Shifting to Cashless Payments All around the world, social protection is evolving into much more than a safety net for the poor. It is becoming a tool for financial inclusion and economic opportunity. CGAP published the first official estimate of financially-inclusive G2P payments. Since then, government, donor and NGO efforts to link financial access to government payments has become a swiftly growing movement, culminating in individual efforts indicating a global multi-stakeholder alliance called ‘Better than Cash’. These stakeholders, such as USAID, cite not only the potential to leverage payments for effective financial inclusion, but also improvements in transparency, security, corruption and potential cost savings for both governments and intermediaries (banks) as motivators of their efforts. According to a recent report by CGAP that evaluated some of the biggest social protection programs in the world, the business case for financial intermediaries is fully dependent on government fees, rather than on the opportunity to cross-sell new products to this new client base. Beneficiaries, even when they could, do not always choose to save any portion of their benefit or take advantage of the bank for other financial services.

1.4 Global Best Practices: The G20 Principles for Innovative Financial Inclusion Despite advances in financial inclusion across the globe, people remain excluded and this restricts their ability to save, to borrow and to protect themselves and their families against hunger, crime and natural disaster. To counteract this, and increase access to and usage of financial services for the poor, many innovative approaches have been adopted. These range from agent banking to delivering financial services through the mobile phone networks. New institutions have been established, new products devised and new technologies harnessed to reach un/ under - served markets. Behind the scenes, changes in legislation

9 Some 1.5 billion people worldwide are already using the financial services provided by Posts.

39 and regulation have helped provide the right conditions for innovation to thrive while protecting consumers and the financial system. The Principles were developed in 2010 by the Access Through Innovation Sub-Group (ATISG) of the G20, Financial Inclusion Experts Group (FIEG).

1.4.1 Principle 1: Leadership Cultivate a broad-based government commitment to financial inclusion to help alleviate poverty.

Experience from around the world has underlined that government leadership and commitment at the highest level is an essential condition for increasing financial inclusion. More importantly still, that leadership is vital to ensuring that increased financial inclusion successfully translates into progress in alleviating poverty. The best results have been seen when financial inclusion is viewed as an integral component of overall financial sector growth and development strategies. In practice, this has meant that governments that have successfully increased financial inclusion have shown leadership in some or all of the following ways:

 addressing policy and regulatory issues related to innovation, consumer protection and payments, facilitating new approaches and ensuring that excessive regulation does not stifle growth  adopting a collaborative approach to financial inclusion that engages all players, including the private sector and auditing authorities  supporting inclusion programs with financial education and / or by developing payment systems and infrastructures, and  collecting data to support proportionate and evidence-based policy, which in turn maintains the safety and soundness of the system.

1.4.2 Principle 2: Diversity Implement policy approaches that promote competition and provide market-based incentives for delivery of sustainable financial access and usage of a broad range of affordable services (savings, credit, payments and transfers, insurance) as well as a diversity of service providers.

It is widely recognized that competition in a market produces greater value, choice and opportunities for customers, and the financial services market is no exception. However, when it comes to reaching the unbanked, diversity of products, providers and delivery methods is more important. Services need to be offered outside of the traditional channels to reach a wider customer base. For governments, this means there is a crucial role to play in facilitating the development of market structures that promote entry. One key aspect is the design of appropriate market-based incentives for all parties — from traditional banks to prospective ‘agents’ to telecoms companies, microfinance institutions and customers themselves — that encourage the development of a broad range of sustainable, secured, and affordable financial services, such as savings, credit, payments, and transfers. At the same time, these incentives should aim to attract a wide range of providers, as this can help improve both access and usage.

1.4.3 Principle 3: Innovation Promote technological and institutional innovation as a means to expand financial system access and usage, including addressing infrastructure weaknesses.

Many of the most effective methods of increasing financial inclusion have been based on the application of new technologies, such as mobile phones, or the introduction of new institutional arrangements, such as banking agents. These allow rapid expansion of services to reach excluded populations, while at the same time reducing the costs of service delivery. For example, the massive global growth in mobile phone usage means that financial services offered through the mobile phone networks can be delivered cost-effectively to a wide population. Experience has shown that in some cases the existing financial services infrastructure can be a barrier to innovation. For example, the interbank payments system might make it difficult for new providers to enter the market. Policymakers need to address such barriers as part of a holistic financial inclusion strategy.

1.4.4 Principle 4: Protection Encourage a comprehensive approach to consumer protection that recognizes the roles of government, providers, and consumers.

The mix of innovation, new service providers, and inexperienced consumers bring new risks of consumer fraud and abuse, as well as the possibility of technical or human error around financial services. An equitable and transparent consumer protection infrastructure is therefore vital part of a broad financial inclusion framework. To establish protections and promote trust in new and innovative services, government, regulators, and supervisors need to take responsibility for:

 establishing regulations that promote transparency in pricing and services

 creating a dispute resolution mechanism for consumers

 identifying an appropriate authority to enforce this protection

1.45 Principle 5: Empowerment Develop financial literacy and financial capability.

For consumers to make the most of new financial services, it is important that they have:

• Financial Literacy —ability to understand basic information about financial products and services

• Financial Capability —ability to apply that understanding to make informed choices about their finances

• Redress Mechanisms —ability to resolve disputes through a safe and recognized mechanism

These are an essential complement to consumer protection regulation: without financial literacy and capability, the regulation itself cannot adequately protect consumers, and moreover, can increase operational costs. Experience has shown that low levels of financial literacy and capability in developing countries form a significant barrier to accessing and properly using financial services. By contrast, increased financial literacy and capability lead to increased demand for relevant services. For governments, this means that building financial capability is an integral part of increasing inclusion. Best practice indicates

41 that effective financial capability initiatives focus on providing practical, easy-to-understand and impartial advice so that consumers can make informed choices.

1.4.6 Principle 6: Cooperation Create an institutional environment with clear lines of accountability and coordination within government; and also encourage partnerships and direct consultation across government, business, and other stakeholders.

The nature of innovative financial services and new delivery channels is that they span multiple public institutions and regulatory agencies — as well as a range of different private sector organizations. While there is an understandable desire to provide adequate policy across the value chain, this needs to be coordinated across the different institutions involved, to avoid conflicting or inconsistent approaches. To achieve this, coordination and increase global partnership, countries that have successfully increased financial inclusion have identified a lead agency to coordinate among government agencies and manage the consultative process with stakeholders. One essential consideration in developing coordinated policy is to understand the incentives of each player in the value chain, and how these could be affected by regulation.

1.4.7 Principle 7: Knowledge Utilize improved data to make evidence-based policy, measure progress, and consider an incremental “test and learn” approach by both regulators and service providers. As with any area of policymaking, appropriate and reliable data are needed to support the design of financial inclusion policy and to monitor and measure the impact of policy over time.

Currently, few countries have sufficient data on financial inclusion. This is changing fast, and many governments are seeking to improve the data available. A lack of data however, need not necessarily delay the introduction of new services and business models. A number of countries have overcome this by adopting a “test and learn” approach that has enabled them to examine new services and untried business models under carefully controlled conditions. As a result, they are better able to strike an appropriate policy-regulatory balance between safety and soundness on one hand, and growth and development on the other. In order to increase the role of monitoring and assessment in this 'test and learn' approach, data and knowledge management play crucial role.

1.4.8 Principle 8: Proportionality Build a policy and regulatory framework that is proportionate with the risks involved in such innovative products and services, and is based on an understanding of the gaps and barriers in existing regulation.

Any innovation involves risks. The challenge is to create a regulatory framework that is strong enough to protect the financial system and institutions against those risks, yet not so severe that the costs of regulatory compliance deter service-providers from entering the market. To strike the right balance, existing regulations should be carefully analyzed to establish whether their demands on service-providers and customers are proportionate to the risks. This diagnostic exercise will also pinpoint regulatory gaps that need to be filled to enable innovations to flourish and to develop effective tools to mitigate these

42 risks. Greater knowledge (principle 6) and greater cooperation (principle 7) are also, of course, important for a proportionate framework.

1.4.9 Principle 9: Framework Consider the following in the regulatory framework, reflecting international standards, national circumstances and support for a competitive landscape: an appropriate, flexible, riskbased AML / CFT regime; conditions for the use of agents as a customer interface; a clear regulatory regime for electronically stored value; and marketbased incentives to achieve the longterm goal of broad interoperability and interconnection.

Principle 9 draws together many of the preceding principles to summarize the key constituents of an effective regulatory framework for innovative financial inclusion. One of the key issues is how to address risk without stifling innovative services. The international financial standards provide the basic framework. However, they are very broad and designed to be flexible in their application. Thus, it is not always clear how to apply the standards to innovative financial inclusion services. The international financial standard setters are working to provide greater clarity and fill any gaps. Experience shows that in fact increasing inclusion often improves compliance with international standards: AML / CFT (Anti- Money Laundering / Counter Terrorist Financing) recommendations in particular have been better served by a more inclusive financial sector which provides increased ability to trace and monitor transactions.

1.5 Indian Perspective on Financial Inclusion The Government of India initiated measures to play an active role in the economic life of the nation, and the Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed economy. This resulted into greater involvement of the state in different segments of the economy including banking and finance.

"Access to finance by the poor and vulnerable groups is a prerequisite for inclusive growth. In fact, providing access to finance is a form of empowerment of the vulnerable groups. Financial Inclusion denotes delivery of financial services at an affordable cost to the vast sections of the disadvantaged and low-income groups. The various financial services included credit, savings, insurance and payments and remittance facilities. The objective of financial inclusion is to extend the scope of activities of the organized financial system to include within its ambit people with low incomes. Through graduated credit, the attempt must be to lift the poor from one level to another so that they come out of poverty."

Dr. C Rangarajan Committee on Financial Inclusion – 2008

Financial inclusion and inclusive growth are no longer just policy choices, but are policy imperatives, which determine the long-term financial stability and sustainability of the economic and social order. India need to ensure that all stakeholders in its drive are collectively willing to walk that extra mile to ensure that the fellow countrymen get easy access to the financial system and are able to leverage this access to improve

43 their economic and social well-being. Financial Inclusion has been an important agenda of the Central Bank as well as the Government of India in the recent past. Over the last decade, RBI et al have resolutely pursed the agenda of financial inclusion and achieved discernible progress in improving access to financial services for the masses. However, the progress is far from satisfactory as evidenced by the World Bank Findex Survey (2012).10

1.5.1 Historicity The Reserve Bank of India, India's central banking authority, was established in April 1935, but was nationalised on 1 January 1949 under the terms of the RBI (Transfer to Public Ownership) Act, 1948. In 1949, the Banking Regulation Act was enacted which empowered the RBI "to regulate, control, and inspect the banks in India". It also provided that no new bank or branch of an existing bank could be opened without a license from the RBI, and no two banks could have common directors. The decisions touch the daily life of all Indians and help chart the country’s current and future economic and financial course.

The history of financial inclusion (FI) in India dates back to the nationalization of banks, Lead Bank Scheme, Expansion of Cooperatives incorporation of RRBs, Post Offices, Service Area Approach and formation of Self-Help Groups - all these were initiatives aimed at taking banking services to the masses. The brick and mortar infrastructure expanded the branch network ten-fold - from 8,000+ in 1969, when the first set of banks were nationalized, to 99,000+ today. Despite this wide network of bank branches spread across the length and breadth of the country, banking has still not reached a large section of the population and the extent of financial exclusion is staggering. Of the 600,000 habitations in India, only about 36,000+ had a commercial bank branch with just about 40% population having bank accounts.

Financial inclusion was envisaged and embedded in Indian credit policies in the earlier decades also, though in a disguised form and without the same nomenclature and emphasis. Increasing access to credit for the poor has always remained at the core of Indian planning in fighting against the poverty. Starting in the late 1960s, India was home to one of the largest state intervention in the rural credit market.

1.5.2 Bank Nationalization Phase (1960s) The State Bank of India (SBI) was the only nationalized bank in 1950s under the SBI Act of 1955 while the Nationalisation of Seven State Banks of India (formed subsidiary) took place on 19th July, 1960.11 The Government of India issued an ordinance ('Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969')) and nationalised the 14 largest commercial banks12 with effect from the midnight of 19 July 1969.13 A second dose of nationalisation of 6 more commercial banks followed in 1980.

10 Survey findings: Only 35% of Indian had a formal bank account; 8% borrowed formally in last 12 months. Only 2% used an account to receive money from a family member living distantly and 4% used it for G2P. The miniscule numbers suggest a crying need for a further push to the FI agenda to ensure that the people at BOP join the formal financial system, reap benefits and improve their financial well-being. 11 The State Bank of India is India's largest commercial bank ranked one of the top five banks worldwide. It serves 90 million customers through a network of 9,000 branches. 12 These banks contained 85 percent of bank deposits in the country. 13 The Parliament passed the Banking Companies (Acquisition and Transfer of Undertaking) Bill and it received the Presidential approval on 9 August 1969.

Nationalization and Impetus to Inclusion: The nationalisation of major commercial banks in 1969 was an important landmark in the history of financial inclusion. It was felt that the nationalised banks can make a big push into the rural areas. To some extent, this has happened. But the fact remains that despite a very focused expansion of branches in the rural and semi-urban areas, we have not been able to reach out to the poor farm households and therefore a rethinking has started now as to what more could be done.

 1935: Reserve Bank of India formed

 1955 : Nationalisation of State Bank of India.

 1959 : Nationalisation of SBI subsidiaries.

 1969 : Nationalisation of 14 major banks.

 1980 : Nationalisation of seven banks with deposits over 200 crore

1.5.3 Social Banking While the ‘social banking’ policies being followed by the country resulted in widening the ‘geographical spread and functional reach’ of commercial banks in rural area in the period that followed the nationalization of banks, the problems in the beginning of 1990s were two fold i.e. institutional structure was neither profitable in rural lending nor serving the needs of the poorest. Reaching the poorest, whose credit requirements were very small, frequent and unpredictable, was found to be difficult. The cooperative structure occupies an eminent position in the institutional framework of agricultural credit. It showed that without a strong primary unit at the base, effective organization, mobilization of resources and operational efficiency cannot be built in the credit structure.

1.5.4 Cooperative and Rural Credit Perhaps the earliest signs of Financial Inclusion, though not in as many formal terms, in India could be sensed from the recommendations of The All-India Rural Credit Survey Committee Report, 1954 that recommended an integrated approach to cooperative credit and emphasized the need for viable credit cooperative societies by expanding their area of operation, encouraging rural savings and diversifying business. While the early phases of Inclusion, though not financial inclusion, owes its origin to the Cooperative movement in India, the cooperative movement in India itself owes its origin to agriculture and allied sectors towards an attempt to fight the problems of rural indebtedness around the end of the 19th century. The farmers generally found the cooperative movement an attractive mechanism for pooling their meager resources for solving common problems relating to credit, supplies of inputs and marketing of agricultural produce.

Cooperative Consolidation: During 1960s, further efforts were made to consolidate the cooperative societies by their re-organisation. With the emergence of national federations of cooperative societies in various functional areas and to obviate the plethora of different laws governing the same types of societies, a need was felt for a comprehensive Central legislation to consolidate the laws governing such cooperative societies.

1.5.5 Lead Bank Scheme Genesis of Lead Bank Scheme can be traced to the Study Group, on the ‘Organisational Framework for the Implementation of the Social Objectives', that drew attention to the fact that commercial banks did not have adequate presence in rural areas and also lacked the required rural orientation.

The Area Approach: The Study Group recommended the adoption of an 'Area Approach' to evolve plans and programs for the development of an adequate banking and credit structure in the rural areas. It recommended that in order to enable the public sector banks to discharge their social responsibilities, each bank should concentrate on certain districts where it should act as a 'Lead Bank'. Pursuant to it, the Lead Bank Scheme was introduced by RBI in December, 1969. The Scheme emphasized making specific banks in each district the key instruments of local development by entrusting them with the responsibility of locating growth centers, assessing deposit potential, identifying credit gaps and evolving a coordinated approach to credit deployment in each district, in concert with other banks and credit agencies.

Role and Responsibilities: The Lead Bank is expected to assume leadership role and act as a consortium leader for coordinating the efforts of the credit institutions and accordingly the various districts in the country were allocated among the public / select private sector banks, as the lead bank for the district. The Lead Bank Officer was given the responsibility to prepare the district credit plan / annual action plan (DCP / AAP) for the district after taking into account the annual estimated commitments of individual financial institutions.

1.5.6 Roadmap of FI under Usha Thorat Committee Subsequent to the announcement in the Mid-term Review of the Annual Policy Statement for 2007-08, a High Level Committee known as Smt. Usha Thorat committee was constituted to review the Lead Bank Scheme and improve its effectiveness, with a focus on financial inclusion and recent developments in the banking sector.

Roadmap for Financial Inclusion: A Sub-Committee of the District Consultative Committee (DCC) may draw up a road map to provide services through a banking outlet (in any form, such as, brick and mortar branch, mobile banking, extension counters, satellite offices or Business Correspondents) at every village with a population of over 2000 at least once a week on a regular basis.

Role of State Governments: State Governments should ensure road and digital connectivity to all centres where penetration by the formal banking system is required, expedite use of IT solutions for disbursal of all social security payments and extend support to banks in the recovery of their dues.

Preparation of State Level/District Level Plan: A one-time comprehensive State Level/District Level Development Plan should be formulated for all the districts that should identify the enablers and impeders for banking development and indicate the specific actions to be taken by banks.

Strengthening SLBC and DCC Machinery: The Chief Secretary of the State concerned may co-chair the meetings of the State Level Bankers' Committee (SLBC), along with the CMD of the convener bank. The Deputy Governor / Executive Director of the Reserve Bank may participate in the SLBC meetings on a

46 selective basis. At the District Consultative Committee (DCC) level, sub committees as appropriate may be set up to work intensively on specific issues and submit reports to the DCC for its consideration.

Financial Literacy and Credit Counseling: Each Lead Bank should open a Financial Literacy and Credit Counseling centre in each district by following the guidelines issued by the Reserve Bank.

Greater Role for Private Sector Banks: Private sector banks should involve themselves more actively by bringing in their expertise in strategic planning and leveraging on information technology. The Lead Banks, on their part, should also ensure that private sector banks are more closely involved in the Lead Bank Scheme, both while drawing up and in implementing the Annual Credit Plans.

1.5.7 Service Area Approach (SAA) In the year 1989, the Service Area Approach (SAA) was adopted wherein service area villages were identified and assigned to bank branches based on their proximity and contiguity and by adopting a cluster approach. Credit plans were prepared on an annual basis for the service area of each branch which involved co-ordination between the various developmental agencies and credit institutions. The Advisory Committee on Flow of Credit to Agriculture and Allied Activities (2004) observed that the Service Area Approach, introduced for planned and orderly development of rural areas, had developed rigidities and acted as a bottleneck despite built in measures to provide flexibility. The Committee recommended that this feature of flexibility needed to be preserved and the service area concept made mandatory only for government sponsored schemes. Over almost four decades since the introduction of the Lead Bank Scheme in December 1969, several changes have taken place, especially after 1991. The rates of growth witnessed have been unprecedented. At the same time, there are gaps in growth in agriculture and infrastructure. There has also been a greater level of devolution of expenditure to lower levels of Government. There are several regions of the country and sections of the society lagging in development. Accordingly, there has been a conscious shift towards more inclusive growth and financial inclusion. In banking, the use of Information Technology (IT) and intermediaries has made it feasible to increase outreach, scale and depth of banking services at affordable cost. However, during these years, the structure and monitoring mechanisms under the Lead Bank Scheme have remained more or less static. A need was therefore felt for a comprehensive review of the Scheme and its applicability in the changed scenario.

1.5.8 Regional Rural Banks (RRBs) The main purpose of Regional Rural Banks (RRBs) is to mobilize financial resources from rural / semi-urban areas and grant loans and advances mostly to small and marginal farmers, agricultural laborers and rural artisans. RRBs are created with a view to develop rural economy and were established to take the banking services to the doorsteps of rural masses, especially in remote rural areas with no access to banking services. However, RRB's may have branches set up for urban operations and their area of operation may include urban areas too. These banks were originally intended to provide institutional credit to those weaker sections of the society who depended on private money-lenders at concessional rates. The banks were also intended to mobilize and channelize rural savings for supporting productive activities in the rural areas. Currently, RRB's are going through a process of merger and consolidation 25 RRBs have been merged in January 2013 into 10 RRBs this counts 67 RRBs till 1st week of June 2013. The RRBs were originally

47 conceived as low cost institutions having a rural ethos, local feel and pro-poor focus. However, within a very short time, most banks were making losses. The original assumptions as to the low cost nature of these institutions were belied. This may be again merged in near future.

1.5.9 Primary Agricultural Credit Societies (PACS) The main objectives of primary credit societies were:

1. Borrowing funds from members as well as others to be utilized in giving loans to the members for productive purposes.

2. Acting as the agent for the joint supply of agricultural, domestic and other requirements of the members, and of the joint sale of produce.

3. Purchasing and owning implements, machinery or cattle for renting it to the members.

4. Disseminating knowledge of the latest improvements in agriculture, handicraft, etc.

5. Encouraging thrift, self-help and co-operation among the members.

Primary Agricultural Credit Society (PACS) has a significant role to extend credit to farmers. This unit abstracts the vitality and service potential of the co-operative movement in the country. Such societies are the kernel of the co-operative movement and were started not only with the objective of providing cheap credit but also to teach principles of co-operation to the members.

1.6 Contemporary Financial Inclusion in India Current and the most contemporary financial inclusion as is know today mainly focuses on the poor who do not have formal financial institutional support and gets them out of the clutches of local money lenders. As a first step towards this, some of the banks have now come forward with general purpose credit cards and artisan credit cards which offer collateral-free small loans. The RBI has now modified the guidelines on opening of basic savings ‘no frills account’ with a ‘Basic Savings Bank Deposit Account’ which will offer minimum common facilities to all the customers. The ‘Basic Savings Bank Deposit Account’ would be subject to RBI instructions on Know Your Customer (KYC) / Anti-Money Laundering (AML) for opening of bank accounts issued from time to time. If such account is opened on the basis of simplified KYC norms, the account would additionally be treated as a ‘Small Account’ and would be subject to conditions stipulated for such accounts.

Progress of Banks in Financial Inclusion Plan in India Year Year Year Quarter Progress ended ended ended ended April 11- SR Particulars Mar 10 Mar 11 Mar 12 June 12 March 12 1 Total No. of Branches 85457 91145 99242 99771 8097 2 No. of Rural Branches 33433 34811 37471 37635 2660 3 No. of CSPs Deployed 34532 60993 116548 120098 55555 Banking outlets in Villages with 4 population >2000 37791 66447 112130 113173 45683

Progress of Banks in Financial Inclusion Plan in India Year Year Year Quarter Progress ended ended ended ended April 11- SR Particulars Mar 10 Mar 11 Mar 12 June 12 March 12 Banking outlets in Villages with 5 population <2000 29903 49761 69623 74855 19862 Banking Outlets through Brick & Mortar 6 Branches 33378 34811 37471 37635 2660 7 Banking Outlets through BCs 34174 80802 141136 147167 60334 8 Banking Outlets through Other Modes 142 595 3146 3226 2551 9 Total Banking Outlets 67694 116208 181753 188028 65545 10 Urban Locations covered through BCs 447 3771 5891 6968 2120 11 No Frill A/Cs (No. In millions) 73.45 104.76 138.5 147.94 33.74 12 Amount in No Frill A/Cs (Amt In billions) 55.02 76.12 120.41 119.35 44.29 13 No Frill A/Cs with OD (No. in millions) 0.18 0.61 2.71 2.97 2.1 14 No Frill A/Cs with OD (Amt In billions) 0.1 0.26 1.08 1.21 0.82 15 KCCs-Total-No. In million 24.31 27.11 30.23 30.76 3.12 16 KCCs-Total-Amt In billion 1240.07 1600.05 2068.39 2094 468.34 17 GCC-Total-No. in million 1.39 1.7 2.11 2.29 0.41 18 GCC-Total-Amt In billion 35.11 35.07 41.84 43.21 6.77 ICT Based A/Cs-through BCs (No. in 19 millions) 13.26 31.65 57.08 62.77 25.44 ICT Based A/Cs-Transactions (No. In 20 millions) 26.52 84.16 141.09 45.96 141.09 Source: Reserve Bank of India

1.6.1 Initiatives of Reserve Bank of India RBI first broached up the topic of financial inclusion (Khan Commission 2004) by exhorting the banks with a view to achieving greater financial inclusion to make available a basic "no-frills" banking account14. In 2005, RBI simplified the KYC procedure for opening accounts for those persons who intended to keep balances not exceeding rupees fifty thousand (Rs. 50,000/-) in all their accounts taken together and the total credit in all the accounts taken together was not expected to exceed rupees one lakh (Rs. 1,00,000/-) in a year. General credit cards (GCCs) were issued to the poor and the disadvantaged with a view to help them access easy credit. In January 2006, the RBI permitted commercial banks to make use of the services of non- governmental organizations (NGOs/SHGs), micro-finance institutions, and other civil society organizations as intermediaries for providing financial and banking services. These intermediaries could be used as business facilitators or business correspondents by commercial banks.

RBI’s vision for 2020 is to open nearly 600 million new customers' accounts and service them through a variety of channels by leveraging on IT. However, illiteracy and the low income savings and lack of bank branches in rural areas continue to be a roadblock to financial inclusion in many states and there is

14 In India, financial inclusion first featured in 2005, when it was introduced by K.C. Chakraborthy, the chairman of Indian Bank.

49 inadequate legal and financial structure. RBI initiated several measures to achieve greater financial inclusion, such as facilitating no-frills accounts and GCCs for small deposits and credit. Some of these steps are:

1. Opening of no-frills accounts 2. Relaxation on know-your-customer (KYC) norms 3. Engaging Business Correspondents (BCs) 4. Use of technology 5. Adoption of Electronic Benefit Transfers (EBT) 6. General Credit Card (GCC) 7. Simplified Branch Authorization One District One Bank Model: To begin with around 2010 -11, Electronic Benefit Transfer (EBT) for servicing low value accounts and extending banking infrastructure to underserved low income areas was implemented in the states of Andhra Pradesh, Haryana, Karnataka, Orissa, Chhattisgarh, Himachal Pradesh, Uttarakhand, Bihar, Punjab, etc. on pilot basis in select districts under the "One District – One Bank" Model. Difficulties have been expressed by stake holders in scaling the model. The experience gained suggested that the "One District – One Bank" Model was unable to achieve the objective of financial inclusion. Allocation of villages amongst banks under the Financial Inclusion Plan (FIP), i.e. Roadmap for providing banking services to villages with population above 2000, was generally on the basis of the Service Area Approach. This led to a situation where in the designated bank for EBT and FIP in the same village differed. This issue was raised at various platforms by the State Governments and banks.

RBI’s Tools

The RBI continues its developmental role, while specifically focusing on financial inclusion. Key tools in this on-going effort include:

Directed credit for lending to priority sector and weaker sections: The goal here is to facilitate/enhance credit flow to employment intensive sectors such as agriculture, micro and small enterprises (MSE), as well as for affordable housing and education loans.

Lead Bank Scheme: A commercial bank is designated as a lead bank in each district in the country and this bank is responsible for ensuring banking development in the district through coordinated efforts between banks and government officials. The RBI has assigned a Lead District Manager for each district who acts as a catalytic force for promoting financial inclusion and smooth working between government and banks.

Sector specific refinance: RBI makes available refinance to banks against their credit to the export sector. In exceptional circumstances, it can provide refinance against lending to other sectors.

Strengthening and supporting small local banks: This includes RRBs and cooperative banks

Financial inclusion: Expanding access to finance and promoting financial literacy are a part of RBI’s outreach efforts.

1.6.2 India’s Approach to Financial Inclusion Banking industry has shown tremendous growth in volume and complexity during the last few decades and has made significant improvements in all the areas relating to financial viability, profitability and competitiveness with tall claims of 58.7% households availing bank accounts. However, a significant proportion of the households15, especially in rural areas, are still outside the formal fold of the banking system. To extend the reach of banking to those outside the formal banking system, Government and Reserve Bank of India (RBI) have taken various initiatives from time to time such as:  Opening of Bank Branches  Each household to have atleast one bank account  Business Correspondent Model  Swabhimaan Campaign  Setting up of Ultra Small Branches (USBs)  Banking Facilities in Unbanked Blocks  Unstructured Supplementary Service Data (USSD) Based Mobile Banking

A Snapshot of India’s Approach to Financial Inclusion

• Adopted a bank-led model for FI, but have permitted non-bank entities to partner banks in FI initiatives.

• As a philosophy, India has always encouraged banks to pursue FI as a commercial activity and to not view it as social service or charity. The self-sustainability and commercial viability of the FI initiatives are important if banks have to scale up their operations to cover more unbanked areas.

• Encouraged banks to leverage technology to attain greater reach and penetration while keeping the cost of providing financial services to the minimum. While it remains technology neutral, it also require banks to seamlessly integrate whatever technology they choose, with the CBS architecture.

• Advised banks to adopt innovative business models and delivery channels to expand their FI efforts. There is a need for banks to develop new products and design new delivery models that are customized to the unique needs of the financially excluded population, both in the rural and urban areas.

• Considering that financial Literacy is an important adjunct for promoting financial inclusion, consumer protection and ultimately financial stability, RBI has adopted an integrated approach wherein efforts towards Financial Inclusion and Financial Literacy would go hand in hand. Besides the various initiatives taken by RBI individually to encourage financial literacy, a National Strategy for Financial Education (NSFE) has also been finalized under the aegis of the Financial Stability and Development Council (FSDC) to coordinate efforts of various stakeholders involved in this process.

• The Reserve Bank has been playing a supportive role in FI by creating a conducive regulatory environment and providing institutional support to banks in their FI efforts. Importantly, it has provided banks the freedom and the space to determine its own strategies for rolling out FI and have encouraged them to identify their own goals and targets through their respective Financial Inclusion Plans.

15 With 102,343 branches of Scheduled Commercial Banks (SCBs) of which 37,953 (37%) bank branches are in the rural areas and 27,219 (26%) in semi-urban areas, only 63% branches in semi-urban and rural areas .

1.7 Indian Banking Trends and Financial Inclusion India on the Index of Financial Inclusion: On the first-ever Index of Financial Inclusion to find out the extent of reach of banking services among 100 countries, India has been ranked 50th. Only 34% of Indian individuals have access to or receive banking services. In order to increase this number, the RBI made the GoI take innovative steps. One of the reasons for opening new branches of RRBs was to make sure that banking service is accessible to the poor. With the directive from RBI, the banks are now offering “No Frill” Accounts to low income groups. These accounts either have a low minimum or nil balance with some restriction in transactions. The individual bank has the authority to decide whether the account should have zero or minimum balance. With the combined effort of financial institutions, six million new ‘No Frill’ accounts were opened in the period between March 2006-2007. Banks are now considering FI as a business opportunity in an overall environment that facilitates growth.

The Financial Access Survey (FAS) for India (2012)

Access to & Use of Financial Services Commercial bank branches per 1,000 km2 33.17 Commercial bank branches per 100,000 adults 11.38 ATMs per 1,000 km2 32.67 ATMs per 100,000 adults 11.21 Outstanding deposits with commercial banks (% Outstanding loans from commercial banks (% of 68.64 54.24 of GDP) GDP) Deposit accounts with commercial banks per Loan accounts with commercial banks per 1,000 1042.48 151.06 1,000 adults adults Household deposit accounts with commercial Household loan accounts with commercial 892.49 23.54 banks per 1,000 adults banks per 1,000 adults Source: IMF’s The Financial Access Survey (FAS), 2012

Trends in Banking Parameters in India Items 2007 2008 2009 2010 2011 2012

1. No. of Commercial Banks 183 173 170 168 167 173 (a) Scheduled Commercial Banks 179 169 166 164 163 169 Of which: Regional Rural Banks 96 90 86 83 82 82 (b) Non-Scheduled Commercial Banks 4 4 4 4 4 4 2. Distribution of New Branches (%) Total 100 100 100 100 100 100 Rural 9 14 18 19 24 33 Semi- urban 31 31 32 33 41 37 Urban 35 31 26 27 17 16 Metro 26 24 24 21 18 14 3. Distribution of Deposits Accounts (%) Total 100 100 100 100 100 .. Rural 29 29 30 31 31 .. Semi- urban 26 26 26 26 26 .. Urban 22 22 21 21 21 ..

Metro 24 24 23 23 22 .. 4. Distribution of Loan Accounts (%) Total 100 100 100 100 100 .. Rural 33 31 31 31 32 .. Semi- urban 23 22 23 23 24 .. Urban 14 13 13 14 14 .. Metro 30 33 33 33 30 .. 5. Average population per branch (in '000s) Total 15.7 15.1 14.5 13.8 13.3 12.6 6. Number of Banked Centres (Scheduled Commercial Banks) Total 34399 34426 34636 34801 35151 36391 ".." : Not available. Note: All the revenue centres (habitations) are classified in to four groups based on their population based on Census 2001 data. These groups are rural (centres having population < 10,000), semi-urban (10,000 <= population < 1,00,000), urban (1,00,000 <= population < 10,00,000) and metropolitan (population >= 10,00,000). Source: Reserve Bank of India 1.8 Status Update on India’s Financial Inclusion Census 2011 estimated that out of 24.67 crore households in the country, 14.48 crore (58.7%) households had access to banking services. Of the 16.78 crore rural households, 9.14 crore (54.46%) were availing banking services. Of the 7.89 crore urban households, 5.34 crore (67.68%) households were availing banking services.

In the year 2011, Banks covered 74,351 villages, with population more than 2,000 (as per 2001 census), with banking facilities under the "Swabhimaan" campaign with Business Correspondents. However the programme had a very limited reach and impact.

The present banking network of thecountry (as on 31.03.2014) comprises a bank branch network of 1,15,082 and anATM network of 1,60,055. Of these,43,962 branches (38.2%) and 23,334ATMs (14.58%) are in rural areas.Moreover, there are more than 1.4 lakhBusiness Correspondents (BCs) of PublicSector Banks and Regional Rural Banks inthe rural areas. BCs are representativesof bank to provide basic banking servicesi.e. opening of basic Bank accounts, Cashdeposits, Cash withdrawals, transfer of funds, balance enquiries, mini statements etc. However actual field level experience suggests that many of these BCs are not actually functional. Public Sector Banks (PSBs) including RRBs have estimated that by 31.05.2014, out of the 13.14 crore rural households which were allocated to them for coverage, about 7.22 crore households have been covered (5.94 crore uncovered). It is estimated that 6 Crore households in rural and 1.5 Crore in urban area needs to be covered. This is the task that the PMJDY is targeting at the current times. (Read next section on PMJDY)

In India, 35 percent of adults have a formal account and 8 percent a formal loan, according to a data from the Global Financial Inclusion (Global Findex) database. The data allow comparison with other South Asian and BRICS economies as well as within India, where they reveal deep disparities by gender and other individual characteristics in how adults use financial services. The database can be used to track the effects of financial inclusion policies in India and develop a deeper and more nuanced understanding of how people save, borrow, make payments, and manage risk.

India - ATMs per 100,000 Adults 14 13.27 12 Number of 10 ATMs… 8.9 8 5.36 6 3.41 4 2.31 2 0 2005 2007 2009 2011 2013

Perhaps more than any other country, India has striven to extend financial access to all its citizens. Both the public and private sector have been engaged in this undertaking—from early efforts to expand the outreach of banks to rural areas and promote rural banks and priority sector lending, to more recent efforts to expand the provision of “no frills” accounts and resolve ongoing debates over mobile payment regulations. Yet attempts to improve the scope and quality of financial access have been hindered by the lack of systematic indicators on the use of different financial services—both formal and informal—in India.

Account at a formal financial institution (% age 15+) 35%

Account at a formal financial institution, female (% age 15+) 26%

Account at a formal financial institution, income, bottom 40% (% age 15+) 27%

Account used to receive wages (% age 15+) 8%

Account used to receive government payments (% age 15+) 4%

Account used to receive remittances (% age 15+) 2%

Saved at a financial institution in the past year (% age 15+) 12%

Saved using a savings club in the past year (% age 15+) 3%

Loan from a financial institution in the past year (% age 15+) 8%

Loan from family or friends in the past year (% age 15+) 20%

Debit card (% age 15+) 8%

Credit card (% age 15+) 2%

Source: The World Bank 2011

1.8.1 Basic Data International Monetary Fund’s Basic Statistics about India

Parameters 2004 2006 2008 2010 2012 2013 Commercial bank branches per 1,000 km2 22.76 23.59 25.72 28.82 33.17 35.68 Credit union and financial cooperative branches per 1,000 km2 80.08 80.37 72.78 72.65 71.5 71.65 All MFI branches per 1,000 km2 ......

Commercial bank branches per 100,000 adults 9.04 9 9.43 10.18 11.3 12.16 Credit union and financial cooperative branches per 100,000 adults 31.82 30.65 26.69 25.66 24.36 24.41 All MFI branches per 100,000 adults ...... ATMs per 1,000 km2 .. 7.24 11.8 20.8 32.67 38.96 ATMs per 100,000 adults .. 2.76 4.33 7.34 11.13 13.27 Source: Financial Access Survey (FAS) Data extracted from http://data.imf.org/

1.8.2 Volume and Accounts Based Basic Data Use of Financial Service

Number of Accounts 2004 2006 2008 2010 2012 2013 Deposit accounts with commercial banks per 1,000 adults 610.98 622.19 717.35 872.91 1,035 1,198 Household deposit accounts with commercial banks per 1,000 adults 587.66 581.33 665.85 760.88 886.05 1,041 Loan accounts with commercial banks per 1,000 adults 88.73 109.58 131.95 140.94 149.97 147 SME loan accounts with commercial banks (% of non-financial corporation loan accounts with commercial banks) 2.91 2.32 5.08 8.19 8.92 10.98 Household loan accounts with commercial banks per 1,000 adults 5.63 9.96 14.26 17.65 23.37 29.77 Source: Financial Access Survey (FAS) Data extracted from http://data.imf.org/

Volume of Accounts 2004 2006 2008 2010 2012 2013 Outstanding deposits with commercial banks as percent of GDP 46.61 48.69 57.72 58.51 60.66 69.98 Outstanding household deposits with commercial banks as percent of GDP 31.93 28.67 29.99 30.22 30.72 35.24

Volume of Accounts 2004 2006 2008 2010 2012 2013 Outstanding deposits with credit unions and financial cooperatives as percent of GDP 7.77 6.26 5.94 5.82 5.63 6.3 Outstanding loans from commercial banks as percent of GDP 27.15 35.25 42.93 42.91 47.93 55.14 Outstanding SME loans from commercial banks as percent of GDP 2.2 2.36 3.79 4.65 5.27 6.83 Outstanding household loans from commercial banks as percent of GDP 7.92 11.25 13.38 12.11 16.05 24.59 Outstanding loans from credit unions and financial cooperatives as percent of GDP 7.45 6.38 4.95 4.84 5.15 5.78 Source: Financial Access Survey (FAS) Data extracted from http://data.imf.org/

Banking services are essentially for welfare of the public and providing access to basic banking services is the first phase of the financial inclusion process, but is not the end in itself. The issue that has been highlighted here is not banking inclusion or penetration of banking accounts alone, but that of using the existing banking accounts. The so called no frill / zero balance / basic bank accounts that lie on the Core Banking system have seldom been used by the account holders. Hundreds and Thousands of people in rural India have their banking accounts and most of them are NOT even aware of it, what to talk of using the same. The bankers can bring the Horse to Water, but can't make him Drink is proven by the fact that most of these category banking accounts remain without any transactions defeating the purpose as well as making the proposition unviable for the bank, their Bank correspondent network managers (BCNMS) and the customer service provider who actually opens the account and keep waiting for transactions to happen.

1.9 Pradhan Mantri Jan Dhan Yojana The Objective of "Pradhan Mantri Jan-Dhan Yojana (PMJDY)" is ensuring access to various financial services like availability of basic savings bank account, access to need based credit, remittances facility, insurance and pension to the excluded sections i.e. weaker sections and low income groups. This deep penetration at affordable cost is possible only with effective use of technology. The overall idea is to provide Bank Account to every household in the country and make available the basic banking service facilities i.e.

i. Opening of Bank Account with RuPay Debit Card and Mobile Banking facility, ii. Cash Withdrawal and Deposits, iii. Transfer, iv. Balance Enquiry and v. Mini Statement. Other services are also to be provided in due course in a time bound manner apart from financial literacy which is to be disseminated side by side to make citizens capable to use optimum utilization of available financial services. To provide these banking services banking outlets to be provided within 5 KM distance of every village. Necessary infrastructure also needs to be placed to enable e-KYC for account opening and AEPS for withdrawal of cash based biometric authentication from UIDAI data base.

Hon'ble Prime Minister, Sh. Narendra Modi on 15th August, 2014 announced "Pradhan Mantri Jan-Dhan Yojana (PMJDY)" which is a National Mission for Financial Inclusion. The task is gigantic and is a National Priority.

This National Mission on Financial Inclusion has an ambitious objective of covering all households in the country with banking facilities and having a bank account for each household. It has been emphasised by the

Hon'ble PM that this is important for including people left-out into the mainstream of the financial system.

The Pradhan Mantri Jan-Dhan Yojana was launched on 28th August, 2014, across the nation simultaneously. It was launched formally in Delhi with parallel functions at the state level and also at district and sub-district levels. Camps were also organized at the branch level. The Pradhan Mantri Jan-Dhan Yojana lies at the core of development philosophy of "Sab Ka Sath Sab Ka Vikas". With a bank account, every household would gain access to banking and credit facilities. This will enable them to come out of the grip of moneylenders, manage to keep away from financial crises caused by emergent needs, and most importantly, benefit from a range of financial products.

Putting the PSBs and RRBs numbers together implies that about 5.92 crore rural households are yet to be covered. Considering field level data mismatches in some instances, it is estimated that there are about 6 crore uncovered households which would need to be covered in the rural areas.

Assuming a minimum of one account per family, this translates into opening of 6 crore accounts in villages. In addition, account opening of uncovered households in urban areas would also be required. These households are estimated at 2.55 crore as per Censusare 2011. However, the exact number of households without bank accounts are not available but estimated to be 1.5 crore implying opening of about 1.5 crore accounts in urban areas.

1.91 Phases of PMJDY Phase I (15 Aug, 2014 - 14 Aug, 2015): The first phase of the PMJDY is dedicated to providing a Universal access of banking facilities by providing Basic Banking Accounts for saving and remittance and RuPay Debit card with an inbuilt accident insurance cover of Rs 1 lakh and RuPay Card. It also envisages a Financial Literacy Programme that shall be imparted to the banking population towards making efficient use of their banking account.

Phase II (15 Aug, 2015 - 15 Aug, 2018): The second phase beginning August 2015 shall be providing an Overdraft facility of upto Rs 5000/- after at least six months of satisfactory performance of saving / credit

57 history. There shall also be created a Credit Guarantee Fund for coverage of defaults in the overdraft accounts. This phase shall also witness certain regulated products like the Micro-Insurance and the Unorganized sector Pension schemes like the NPS Lite with ‘Swavalamban’ benefits.

1.9.2 Comprehensive Plan In addition, in this phase, coverage of households in hilly, tribal and difficult areas would be carried out. Moreover, this phase would focus on coverage of remaining adults in the households and students. All the rural and semi-urban areas of the country are proposed to be mapped into Sub Service Area (SSAs) comprising 1000-1500 households with an average 3-4 villages with relaxation in NE / Hilly states. It is also proposed that looking to the viability of each center around 74000 villages with population more than 2000 which were covered by Business Correspondents under Swabhimaan Campaign will be considered for conversion into full fledged Brick & Mortar branches with staff strength of 1+1 / 1+2 in the next three to five years.

All the 6 lakh villages across the entire country are to be mapped according to the Service Area of each Bank to have at least one fixed point Banking outlet catering to 1000 to 1500 households, called as Sub Service Area (SSA). It is proposed that SSAs shall be covered through a combination of banking outlets i.e. branch banking and branch less banking. Branch banking means traditional Brick & Mortar branches. Branchless banking comprises fixed point Business Correspondents agents, who act as representative of Bank to provide basic banking services. The implementation strategy of the plan is to utilize the existing banking infrastructure as well as expand the same to cover all households. While the existing banking network would be fully geared up to open bank accounts of the uncovered households in both rural and urban areas, the banking sector would also be expanding itself to set up an additional 50,000 Business Correspondents (BCs), more than 7,000 branches and more than 20,000 new ATMs in the first phase .

The comprehensive plan is necessary considering the learnings from the past where a large number of accounts opened remained dormant, resulting in costs incurred for banks and no benefits to the beneficiaries. The plan therefore proposes to channel all Government benefits from Centre / State / Local body) to the beneficiaries to such accounts and pushing the Direct Benefits Transfer (DBT) scheme of the Union Government including restarting the DBT in LPG scheme. MGNREGS sponsored by Ministry of Rural Development (MoRD, GoI) is also likely to be included in Direct Benefit Transfer scheme.

1.9.3 Demand Generation In order to achieve a "demand" side pull effect, it would be essential that there is Branding and awareness of Business Correspondent model for providing basic banking services, Banking Products available at BC outlets and RuPay Cards. A media plan for the same is being worked out in consultation with banks. A Project Management Consultant / group would be engaged to help the Department implement the plan. It is proposed to launch the programme simultaneously at National level in Delhi, at every State capital and all district headquarters. A web-portal would be created for reporting / monitoring of progress. Roles of various stakeholders like other Departments of the Central Government State Governments, RBI, NABARD, NPCI, UIDAI and others have been indicated. Gram Dak Sewaks in rural areas are proposed as Business Correspondent of Banks. Department of Telecom has been requested to ensure that problems of poor and

58 no connectivity are resolved. DOT have informed that out of the 5.93 lakh inhabited villages in the country (2011 census) about 50,000 villages are not covered with Telecom connectivity.

In the recent past there is substantial improvement on Technological front after adoption of CBS by Banks like electronic payment, NEFT, RTGS, mobile banking, internet, IMPS etc. After arrival of Aadhaar, Aadhaar enabled products like e-KYC for opening of accounts, Aadhaar Enabled Payment System (AEPS), Micro- ATMs, ABPS for Aadhaar based centralised credit based on biometric authentication of customer from UIDAI data base. Similarly, NPCI has launched new products like USSD based mobile banking, IMPS etc. which have potential to change the entire landscape of Financial Inclusion. There would be focus to use these products in a large way to ensure coverage of hitherto excluded section in a time bound manner.

1.9.4 The Six Pillars of PMJDY PMJDY is supposed to be executed in the Mission Mode. It envisages provision of affordable financial services to all citizens within a reasonable distance. It comprises of the following six pillars:-

1. Universal access to banking facilities: 2. Providing Basic Banking Accounts with

Mapping of each district into Sub Service Area overdraft facility and RuPay Debit card (SSA) catering to 1000-1500 households in a manner that every habitation has access to to all households: banking services within a reasonable distance The effort would be to first cover all uncovered say 5 km by 14th August, 2015. Coverage of households with banking facilities by August, parts of J&K, Himachal Pradesh, Uttarakhand, 2015, by opening basic bank accounts. Account North East and the Left Wing Extremism holder would be provided a RuPay Debit Card. affected districts which have telecom connectivity and infrastructure constraints Facility of an overdraft to every basic banking would spill over to the Phase II of the account holder would be considered after th th program (15 August, 2015 to 15 August, satisfactory operation / credit history of six 2018) months.

3. Financial Literacy Programme: 4. Creation of Credit Guarantee Fund:

Financial literacy would be an integral part of Creation of a Credit Guarantee Fund would be the Mission in order to let the beneficiaries to cover the defaults in overdraft accounts. make best use of the financial services being made available to them.

5.Micro Insurance: 6. Unorganized sector Pension schemes

To provide microinsurance to all willing and like Swavalamban: eligible persons by 14th August, 2018, and By 14th August, 2018 and then on an ongoing then on an ongoing basis. basis.

Source: Pradhan Mantri Jan Dhan Yojana – DFS, MOF, GOI

Under the mission, the first three pillars would be given thrust in the first year.

1.10 CRISIL’s Inclusix (Financial Inclusion Index) Credit Rating and Information Services of India Limited (CRISIL), India's leading credit rating and research company recently (June 25, 2013) launched an index to measure the status of financial inclusion in India.16 CRISIL Inclusix is a comprehensive index for measuring the progress of financial inclusion in the country, down to the district-level. A pro bono initiative by CRISIL, the launch of the index is in line with the company's goal of 'doing good with what it is good at'. With its ability to objectively analyse and measure inclusion, CRISIL Inclusix will be a key enabler in taking financial services to the bottom of the pyramid.

CRISIL Inclusix, whose methodology is similar to other global indices, such as UNDP's Human Development Index, is a relative index on a scale of 0 to 100, and combines three critical parameters of basic banking services — branch penetration, deposit penetration, and credit penetration — into one metric. The index uses parameters that focus only on the 'number of people' whose lives have been touched by various financial services, rather than on the 'amounts' deposited or loaned. CRISIL Inclusix is a one-of-its-kind tool to measure the extent of inclusion in India, right down to each of the 632 districts. The report highlights many hitherto unknown facets of inclusion in India. It contains the first regional, state-wise, and district- wise assessments of financial inclusion ever published, and the first analysis of trends in inclusion over a three-year timeframe.

16 The index- Inclusix- along with a report was released by the Finance Minister of India, P. Chidambaram at a widely covered program at New Delhi.

Select Key Conclusions from CRISIL Study of 632 Districts

 The all-India CRISIL Inclusix score of 40.1 (on a scale of 100) is relatively low. It is a reflection of under-penetration of formal banking facilities in most parts of the country. The bottom 50 scoring districts have just 2 per cent of the country's bank branches.

 Deposit penetration (DP) is the key driver of financial inclusion in India. The number of savings bank accounts, at 624 million, is close to four times the number of loan accounts at 160 million.

 Focused efforts to enhance branch presence and availability of credit are extremely critical. The bottom 50 scoring districts in India have only 2,861 loan accounts per lakh of population, which is nearly one-third of the all India average of 8,012.

 There are clear signs of improvement in the CRISIL Inclusix score over the past three years. The CRISIL Inclusix score at an all-India level has improved to 40.1 in 2011, from 37.6 in 2010 and 35.4 in 2009. Improvement in deposit penetration score is the key driver of this improvement.

 618 out of 632 districts reported an improvement in their scores during 2009-2011.

 Wide disparities exist across India and within states in terms of access to financial services. India's six largest cities have 11 per cent of the country's bank branches. At the other end of the scale, there are four districts in the North-Eastern region with only one bank branch each.

 The key driver for the continued high performance of the top 50 districts is the significant increase in deposit and branch penetration (BP). The DP score for these districts increased by a significant 9.3 in 2011, over 2009. Also, these districts saw an addition of 2,824 branches in this period, nearly one-fourth of the total branches added in the country.

 Even in the districts at the bottom of the list, there is an encouraging improvement in branch efficiency. For the bottom 50 districts, the number of savings deposit accounts per branch has improved by 20 per cent to 6,073 as on March 2011 from 4,919 as on March 2009.

 Improvement in credit penetration (CP) is the key driver that enabled the improvement in score of 50 most-gaining districts

 The top three states and Union Territories are Puducherry, Chandigarh, and Kerala while the top three districts are Pathanamthitta (Kerala), Karaikal (Puducherry), and Thiruvananthapuram (Kerala).

1.11 Chapter Construction This report is primarily aimed at identifying areas where intervention for financial literacy as well as inclusion and or deepening might be required at different levels the Financial Inclusion models. It explores

61 the existing structures and models globally as well as that in India in general states of MP and Bihar in particular. While this Chapter One captures the introduction and backdrop to financial inclusion it also highlights international and Indian efforts towards it. Chapter Two discusses the various aspects including the need and necessity of financial literacy. It also suggests that financial inclusion is incomplete without financial literacy. Chapter Three discusses the research methodology including a note on sampling and analysis. As the report captures the existing status and ideologies of two different states, Chapter Four capture the efforts so far and the existing inclusion status of Bihar while Chapter Five does that for Madhya Pradesh. Chapter Sixcaptures the Qualitative aspects of the field work including the report on the FGDs. Chapter Seven reports the results of the primary survey including the quantitative results from the questionnaire. It discusses Findings from Quantitative Survey on Financial Literacy and Inclusion in Two Districts. Finally,Chapter Eight concludes the discussion and provides recommendations for future so as to take the financial inclusion to its natural corollary.It also discusses the modality of designing different models for states at different stages of financial inclusion ranging from mere inclusion to financial deepening.

Chapter 2. Financial Literacy as Prerequisite of Inclusion

This chapter brings out the conceptual understanding on financial literacy. It starts with an essential prerequisites for financial inclusion that most governments and agencies tend to ignore due to higher concentration and focus on FI drive and then links as to how and why financial literacy should be treated as an essential prerequisite to financial inclusion. The chapter also provides for need for customization and strategizing financial literacy, it also details the initiatives action taken by the Central Bank in India.The chapter describes financial literacy and aligns its goal with that of inclusive financing. It also introduces the concept of financial capabilitythat has recently been developed by GiZ and NABARD. Last part of the chapter also provides for a detailed note on micro insurance and insurance education in India.

2.1 Backdrop Financial literacy is the ability to understand how money works in the world: how someone manages to earn or make it, how that person manages it, how he/she invests it (turn it into more) and how that person donates it to help others. More specifically, it refers to the set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources. Financial Literacy has emerged as a focus area for policy makers not just in India, but all across the globe, particularly in the aftermath of the global financial crisis. Success in dissemination of financial literacy has been identified as key to meeting the critical objectives of financial inclusion and consequently, financial stability. The absence of financial literacy can lead to making poor financial decisions that can have adverse effects on the financial health of an individual. The advantages or disadvantages of variable or fixed rates area typical example of an issue that will be easier to understand if an individual is financially literate. Similarly, real rate of return versus nominal (absolute) rate of returns explains why the intelligent and financial literate prefer a higher real rather than a higher nominal with a high dosage of inflation.

2.2 Financial Literacy Definition and Concept The literature often uses three terms – financial literacy, financial education, and financial capability -- whose overlap can cause confusion. They are, however, distinct pieces of a puzzle, parts of the whole, or steps towards the goal of financial inclusion. Financial literacy is associated with the consumer who has a responsibility to inform himself of the products he purchases and to understand the contracts he signs. It incorporates knowledge, skills and attitudes. Financial education is a key tool to reach this multidimensional goal. Financial capability, on the other hand, is about the context; it engages the financial services sector in its responsibility to offer the right products to its various target markets. Financial inclusion implies an alignment of supply and demand, where financially literate consumers have opportunities to apply their knowledge in a marketplace of appropriate product options.

Financial literacy is not a new term in India and while most have heard a number of definitions of financial literacy, we suggest using the one given by OECD, which defines it as “a combination of financial awareness, knowledge, skills, attitude and behaviours necessary to make sound financial decisions and

63 ultimately achieve individual financial wellbeing.” Financial literacy is expected to impart the wherewithal to make ordinary individuals into informed and questioning users of financial services. It is not just about markets and investing, but also about saving, budgeting, financial planning, basics of banking and most importantly, about being “Financially Smart”.

It is believed that as much as money or finance, its products and services are needed to be part of the financial inclusion, so is financial literacy. If a person does not understand what she needs money for or how to use it, to what purpose are the products and services for that person?

More questions would follow (6 Ws and one H) like;  Who are the target people?  Why should they be taught?  What should be taught? (Should it be financial literacy or education?)  Where and  When should be taught?  Who should impart the knowledge / teach?  How should this information be disseminated? Financial Capability on the other hand (more of it later) is the ability and opportunity to use the knowledge and skills learned in financial literacy and education with technology by the individual to utilise the spectrum of entities of the financial system thus enabling a total financial inclusion leading to Consumer Empowerment and Protection.

The Organisation for Economic Co-operation and Development (OECD, 2005) defines financial education as “the process by which financial consumers/investors improve their understanding of financial products and concepts and, through information, instruction and/or objective advice, develop the skills and confidence to become more aware of financial risks and opportunities, to make informed choices, to know where to go for help, and to take other effective actions to improve their financial wellbeing”

The President’s Advisory Council on Financial Literacy (PACFL-2008 USA)17 defines;

Financial education as “the process by which people improve their understanding of financial products, services and concepts, so they are empowered to make informed choices, avoid pitfalls, know where to go for help and take other actions to improve their present and long-term financial well-being” and

Financial literacy as “the ability to use knowledge and skills to manage financial resources effectively for a lifetime of financial well-being”

2.3 Financial Capability of Rural Low Income Households Financial Capability is the ensemble of abilities related to making informed financial choices, managing money effectively, and using financial services for one’s own benefit. The concept vests on the assumption that Financial behaviour is not only defined by access to finance but is significantly shaped by an individual’s environment and personal attributes. Human capital, including knowledge, skills and attitudes

17http://www.rand.org/pubs/working_papers/2009/RAND_WR708.pdf

64 as well as physical, cultural and economic properties such as health, social status and assets, define whether a person is willing and able to take financial decisions that are beneficial to him/her. The Financial Capability approach integrates these aspects and works as an add-on to existing Financial Inclusion concepts.

2.3.1. Conceptual Understanding The concept visualises factors influencing financial behaviour and its impact. The financial capability approach allows to identify more specific features of those influencing factors and shows how they are developed among households, advancing from low to high financial capability levels. The Rural Financial Institutions Programme (RFIP) is jointly implemented by the GIZ on behalf of the German Government and the National Bank for Agriculture and Rural Development (NABARD) on behalf of the Indian Government.

It aims at increasing access to sustainable and demand-oriented financial services through the institutions of the rural cooperative credit system, microfinance organizations and banks and their business correspondents.

Currently, the RFIP consists of the following main components and one cross-cutting theme:

- Strengthening the Short-term Cooperative Credit Structure (CCS) and its institutions to provide sustainable financial services,

- Promoting needs-based and sustainable microfinance services, especially through self-help groups and community-based organisations,

- Promoting inclusive financial services, including remittances services for domestic migrants, through banks and their business correspondents, and

- Promoting financial awareness, literacy and capability as a pre-requisite for effective and sustainable financial inclusion.

The RFIP has developed an innovative approach towards Financial Capability of Rural Low-Income Households which aims at making financial inclusion more effective for the households. The objective is to enable the households to use financial services in a way that it benefits them and they can move out of poverty. Being financially capable implies that users of financial services are able to make financial choices which benefit them in reaching their objectives. Only financial systems which allow and enable financial capability of their clients will be able to be effective and sustainable in the long run. The concept of financial capability provides a comprehensive framework for approaching financial inclusion from a holistic perspective: Financial Inclusion and hence inclusive growth will only happen if a lot of other factors like culture, region, social status and integration, family planning, financial education and access to financial services and many more are considered.

2.3.2 Applications The RFIP has developed a comprehensive Toolbox combining tools for a broad range of stakeholders in the area of financial inclusion of rural low-income households. These tools will help the stakeholders to improve the financial capabilities of the households by providing household-level assessment and support. In a piloting phase, the RFIP will implement the Financial Capability in selected regions with local partners.

In order to render financial inclusion strategies more effective, the efforts of key stakeholders such as policy makers, financial service providers and civil societies need to aim at improving all of these abilities in a holistic approach. Policy makers have to rethink financial inclusion strategies in order to create impact on the target group and make their efforts more client centred – the financial capability concept therefore provides an ideal ground. Providers of financial services provider are interested in including also low- income households into the mainstream banking system and making them viable clients. For this the focus needs to be on the development of the financial capability level of the clients. Also civil societies and NGOs have to sharpen their approaches and apply a holistic approach in order to establish and promote the welfare of the target group.

2.4 Financial Literacy Centers. When the banks started with its Financial Inclusion drive one the major stumbling block which the bankers faced was the lack of knowledge and confidence of the huge unreached population about the financial services on offer and the formal financial institutions. The banks thus came out with a mandate to make the masses aware of the available services the benefits of those and the benefits of transacting through banks rather than informal institutions.

It is an established fact that the first step towards FI should be Financial Literacy which is a prerequisite to make FI meaningful and sustainable. Financial Literacy is to help the unreached sector realize the importance of financial services in improving the standard of their living and where and how the services can be availed, i.e. to basically create a need and synergize the demand thus created with the supply of financial services by the formal institutions.

2.4.1 Financial Literacy and Credit Counseling Centre (FLCC) The Reserve Bank of India issued guidelines in February 2009 regarding setting up the Financial Literacy centers across the country. The broad objective of the ‘Financial Literacy and Credit Counselling Centres (FLCCs) - Model Scheme’ was to provide free financial literacy/education and credit counselling.

The specific objectives of the FLCCs were:

a. To provide financial counselling services through face-to-face interaction as well as through other available media like e-mail, fax, mobile, etc. as per convenience of the interested persons, including education on responsible borrowing , proactive and early savings, and offering debt counselling to individuals who are indebted to formal and/or informal financial sectors;

b. To educate the people in rural and urban areas with regard to various financial products and services available from the formal financial sector ;

c. To make the people aware of the advantages of being connected with the formal financial sector ;

d. To formulate debt restructuring plans for borrowers in distress and recommend the same to formal financial institutions, including cooperatives, for consideration ;

e. To take up any such activity that promotes financial literacy, awareness of the banking services, financial planning and amelioration of debt-related distress of an individual;

2.4.2 Revamping Financial Literacy Centers In the year 2012, the RBI had amply realized that there was a need for revamping the financial literacy centers. Since the Model Scheme had been in operation for quite some time, it was decided to evaluate it in terms of its efficacy and impact on the spread of Financial Literacy in the country. Accordingly, a study on the functioning of the FLCC was conducted through a nationwide sample survey of 30 FLCCs spread across 16 States. The findings of the study indicated the limitations of the model scheme in scaling up the financial literacy efforts in the desired manner.

Some of the findings of the study are given below:  All FLCCs were located in Urban and Semi Urban areas. No FLCC was functioning in the rural areas, where the largest sections of financially excluded population reside.  Awareness of existence of FLCC among local populace was limited.  FLCCs were mostly serving walk in clients, whereas outdoor literacy drives by FLCCs were exceptions.  The literacy material available at FLCCs was generally the publicity material pertaining to various products of sponsor banks.

 Even though 53% of the FLCCs were run by separate Trusts / Societies formed for the purpose, these were actually working as institutions of sponsor banks due to their dependence for funding and administrative support. Thus, FLCCs were not in a position to maintain arms- length distance from sponsor bank as envisaged in the Model Scheme.

In view of the above and with the objective of scaling up Financial Literacy efforts manifold, it was decided to modify the existing FLCC Scheme. While the existing FLCCs would continue to function with a renewed focus on financial literacy, Lead banks were advised to set up Financial Literacy Centres (FLCs) in each of the Lead District Manager (LDM) Offices in a time bound manner. This would lead to opening of 630 plus FLCs in all the districts throughout the country. In addition to the above, banks would consider setting up need based FLCs in other locations as well. Further, financial literacy activities were also to be undertaken by all the rural branches of Scheduled Commercial Banks including RRBs.

The Financial Literacy Centres (FLCs) would impart financial literacy in the form of simple messages like

 Why Save,  Why Save early in your Life,  Why Save with banks,  Why borrow from Banks,  Why borrow as far as possible for income generating activities,  Why repay in time,  Why insure yourself,  Why Save for your retirement etc. The FLCs and rural branches of the banks would also conduct outdoor Financial Literacy Camps with focus on financially excluded people at least once a month. For the purpose, the help of experienced NGOs may also be taken. As the focus of the FLCs is on simple messages of financial literacy, no risks of misselling were expected. However, it would be the responsibility of the officer specifically identified for the purpose in LDM offices and rural branches of banks to ensure that misselling of financial products and services does not take place. The officials working at FLCs should be provided training in behaviour orientation so as to enable them to work as effective trainers along with periodic knowledge up gradation on various banking products and services.

In order to facilitate effective implementation of the above guidelines, the RBI issued Standard financial literacy material / training modules, that was distributed to banks for providing awareness and knowledge of basic banking throughout the country. If necessary, banks were also asked to prepare material on above illustrative topics in vernacular language using stories and pictorial representations to disseminate information on the four basic banking products i.e.

FLCs and rural branches of banks should maintain record in the form of a register containing details such as name, gender, age, profession, contact details, whether banked or unbanked, details of services availed etc. The Head/ Controlling Offices of the concerned banks would monitor the financial literacy efforts undertaken by their FLCs/Branches through periodic reporting and also by resorting to random on-site visits. They would periodically (at least once in a year) undertake impact evaluation of their literacy efforts

69 so as to make way for continuous improvement. The SLBCs/UTLBCs would review the financial literacy efforts undertaken by banks under their jurisdiction

2.5 RBI’s Guide to Financial Literacy The RBI has released on its website on January 31, 2013, a comprehensive Financial Literacy Guide, which, banks have been advised to use as a standard curriculum to impart basic conceptual understanding of financial products and services. The financial literacy guide consists of Guidance Note for trainers, Operational guidelines for conduct of financial literacy camps, and financial literacy material, including posters. The guide also contains a financial diary to be distributed to the target audience, so as to enable them to keep a record of their income and expenses, as a first step towards financial planning. Financial Literacy creates demand for financial products and services, thereby accelerating the pace of financial inclusion as it enables the common man to understand the needs and benefits of the products and services offered by the banks. All segments of the society need financial literacy in one form or the other. However, considering that a large segment of Indian society is financially excluded, financial literacy programs, should primarily focus on the individuals who are vulnerable to persistent downward financial pressures due to lack of understanding in the matters relating to personal finance. The primary challenges in improving the effectiveness of financial literacy programs was the non availability of standardized basic curriculum to be conveyed to the target group. In order to address such issues, the RBI has issued a guide that has been prepared to ensure consistency in the messages reaching the target audience from various sources, thus making them more focused and purposeful. If the same has been delivered well, it is expected to create huge demand for banking services from the common man. The guide is meant to be used by branch managers of rural branches of banks and Lead District Managers (LDM) for their monthly financial literacy camps. The guide can also be used with suitable customization for educating various segments of urban excluded people. Banks need to gear up their machinery for conduct of financial literacy programs and simultaneously provide their customers affordable and user friendly access. This is the time to upgrade financial inclusion model as a sustainable, scalable and viable business opportunity which would enable the transition from poverty to financial empowerment, while ensuring profitable business opportunity to banks.

Creating awareness and knowledge about various products and providing these products at their doorstep would be the first step in capturing the accounts. The objective of the Financial Literacy Guide is to create awareness and educate masses in a lucid manner about management of money, importance of savings, advantages of saving with banks, other facilities provided by banks and benefits of borrowing from banks. The guide is a ready-reckoner for trainers involved in Financial Literacy and Financial Inclusion and is used as a standard text to be imparted to financially excluded people during the monthly financial literacy camps. In line with the objective of bringing the unbanked people into the banking fold, the strategy of conducting the literacy programs also incorporates opening of accounts in camp mode followed by close monitoring of usage of accounts. In addition, a granular review helps in identifying the factors inhibiting the frequent use of accounts. The strategy also includes sorting out all such issues at the earliest. Moreover, while organizing financial literacy events, the involvement of Local Government officials and other prominent persons in the villages is also highly recommended. The banks also consider associating NGOs with proven track record in the field of financial literacy. However the contents of the guide issued by the

RBI to be followed by the banks are used as a standard text to be imparted to exclude people during the monthly financial literacy camps.

Source: Reserve Bank of India’s Financial Literacy Guide

2.6 Strategy for Expanding Financial Literacy Promotion of financial literacy and the role of key stakeholders and players in it, is as important an area as the campaign itself. As already argued, financial literacy is required for each player in the economy, albeit in different degrees, forms and modules and should be customized to target different people at different stage of inclusion in their lives. World over, countries have targeted programmes for schoolchildren, teachers, research institutions, among others. Further, they have also launched mass media campaigns/websites providing simplified information, often in vernacular mediums, which can be used by the public to learn about the monetary and banking system. A global problem requires a global approach. Realizing this, the Organisation for Economic Cooperation and Development (OECD) created the International Network on Financial Education (INFE) in 2008 to promote and facilitate international cooperation between policy makers and other stakeholders on financial education issues worldwide. Currently, more than 200 institutions from 90 countries have joined the OECD/INFE.

Financial Stability and Development Council (FSDC) In view of the sheer magnitude of the task at hand, it is beneficial to have a strong institutional architecture guiding and coordinating the efforts of various stakeholders towards spreading financial literacy. India has this advantage through the Financial Stability and Development Council (FSDC), which is chaired by the Union Finance Minister with heads of all financial sector regulatory authorities as members. FSDC is mandated, inter alia to focus on spread of financial inclusion and financial literacy. The RBI, besides its role as a member of the FSDC, has also taken numerous initiatives for spreading financial inclusion and financial literacy, both in terms of creating an enabling policy environment and providing institutional support. Under the aegis of the FSDC, the draft National Strategy for Financial Education (NSFE) for India has been prepared. The Strategy envisages ways of creating awareness and educating consumers on access to financial services; availability of various types of products and their features; changing attitudes to translate knowledge into responsible financial behavior; and making consumers of financial services understand their rights and obligations. The Strategy calls for active involvement of individuals, financial sector regulators, educational institutions, NGOs, financial sector entities, multilateral international players and the Government at both Centre and State.

School Curriculum: The Strategy envisages a time frame of five years for its massive financial education campaign. It envisages that financial education will be delivered to different target groups through trained users. Basic financial education is aimed to be included in school curricula up to senior secondary level. This is based upon the premise that the most effective way is to weave financial education into the normal content of curriculum. Accordingly, India is engaging with the curriculum setting bodies like the National Council of Educational Research and Training (NCERT), Education Boards like the Central Board for Secondary Education (CBSE), Central and State Governments to try and embed such concepts in the school curriculum.

Mass Outreach: Simultaneously, the Strategy aims at establishing initial contact with 500 million adults, educating them on key savings, protection and investment related products so that they are empowered to take prudent financial decisions. It also seeks to create awareness about consumer protection and grievances redressal machinery available in the country. All the above measures would be undertaken through various stakeholders including NGOs, civil society and by using all available channels of mass communication. As a first step towards increasing financial education, the NSFE envisages conducting a National Survey on Financial Education to provide a holistic assessment of the need for financial education in the country.

2.6.1 Initiatives of the Reserve Bank of India Since the challenge in India is to link large number of financially excluded people to the formal financial system, the focus of our strategy at the base level is to create awareness of basic financial products. Some of the steps that have been taken by the RBI and other stakeholders to promote financial literacy in India are as under:

1. Outreach visits by Top Executives of RBI to remote villages: The objective of these visits is to understand the ground level position, spread awareness about benefits of being connected to the formal financial system and disseminate information about the functioning of RBI.

2. RBI Website: Provides a link on Financial Education in the RBI website, containing material in English, Hindi and 11 vernacular languages, which includes comic books on money and banking for children, films, messages on financial planning, games on financial education and link for accessing the Banking Ombudsman Scheme.

3. Awareness - Distributing pamphlets, comic books, enacting plays and skits, arranging stalls in local fairs, exhibitions, participation in information / literacy programmes organized by Press. Books on financial planning for students and new professionals have also been released.

4. Financial Literacy Centres (FLCs) have been opened by various banks with focus on the spread of Financial Literacy, to create awareness about financial products and provision of counseling facilities for customers of banks. There were 575 FLCs in the country as on September 30, 2012.

5. Conducting Town Hall events across the country, including in Tier II and smaller cities, bringing together commercial banks and other stakeholders. News exhibition on Mint Road Milestones has become the focal point for financial literacy activities with all activities relating to financial literacy coalescing at a common forum at each centre.

6. Setting up of a monetary museum by RBI to create awareness about money and banking among general public and spread knowledge about the history of money.

7. Use of mobile Financial Literacy vans by banks in the North Eastern States and elsewhere

8. Awareness programmes on various Governments sponsored self employment schemes involving bank loans and subsidy by Government agencies like KVIC, DICs and SC/ST corporations.

9. Mass media campaign tie ups with educational institutes, financial awareness workshops/ help lines, books, pamphlets and publications on financial literacy by NGOs, financial market players, etc.

10. National and State level rural livelihood missions have large number of field functionaries for proper handholding support to large number of Self Help Groups.

11. Large number of websites/portals of banks/ State Level Bankers Committees disseminating information on banking services

12. Conduct of Financial Literacy programmes by Rural Self Employment Training Institutes

In line with the ‘catch them young’ strategy for our financial education initiatives, the RBI launched the RBIQ, an all India inter school quiz competition, in 2012. The quiz seeks to be an effective platform for disseminating financial education by creating awareness and sensitization about the history and role of the RBI, about banking and finance, economics, current affairs, etc., besides seeking to build a ‘connect’ between the RBI and the young student community enrolled in schools across the country.

RBI’s Financial Inclusion and Literacy

Expanding Access; Encouraging Education, Expanding access to and knowledge about

finance is a fundamental aspect of the RBI’s operations. These efforts are critical to ensuring that the benefits of a growing and healthy economy reach all segments of the population. RBI’s work here includes:

Encouraging provision of affordable financial services like zero-balance Basic Savings Bank Deposit Accounts, access to payments and remittance facilities, Pure savings account viz. Recurring Deposit, credit and insurance services.

Expanding banking outreach through use of technology, such as banking by cell phone, smart cards and the like.

Encouraging bank branch expansion in parts of the country with few banking facilities.

Facilitating use of specified persons to act as agents to perform banking functions in hard-to- reach parts of the country RBI’s work to promote financial literacy focuses on educating people about responsible financial management. Efforts here include:

Information and knowledge-sharing: User-friendly website includes easy-to-understand tips and guidance in multiple languages; brochures, advertisements and other marketing materials educate the public about banking services.

Credit counseling: The RBI encourages commercial banks to set up financial literacy and credit counseling centres, to help people develop better financial planning skills

As part of its efforts to gain from international perspectives on financial literacy initiatives, the RBI, in association with the World Bank and the OECD, organizes Regional Conferences on Financial Education. These Conferences are among the various events organized globally to disseminate the knowledge and products developed through the Financial Literacy and Education Trust Fund, managed by the World Bank and the OECD, for strengthening the capacity for planning and implementation of financial education programs. One of the objectives of the NSFE is to standardize the messages that various stakeholders seek to disseminate through their financial education initiatives. The draft NSFE document identifies certain simple messages such as why save; why invest; why insure; why save with banks; why borrow within limits; why repay loans in time; why borrow for income generating purposes, what is interest and how moneylenders charge very high interest rates, etc. It is a well recognized fact that the standardization will help in ensuring consistency in the messages reaching the target audience from various sources and making them more focused and powerful.

2.7 Financial Literacy – A Tool for Financial Inclusion Embracing the related goals of financial capability and financial inclusion requires a multi-stakeholder framework built around consumers, the financial services industry and government. Financial education is the nexus linking their interests in these common goals. Non-governmental and community-based organizations use it to promote livelihoods and asset building for the poor, integrating it into a range of activities that includes extension services, health education, business-development training, or mentoring.

Financial institutions use it to enhance their community profile, increase adoption and use of their products and ultimately, improve performance. Central bankers and regulators embrace financial education to protect consumers from fraud and abuse.

Financial education and the financial literacy build a winning proposition at multiple levels, for multiple stakeholders. On an individual level, financial literacy helps households to use scarce resources more effectively, choose the financial products that best meet their needs and become pro-active decision makers. At the institutional level, informed consumers make better clients, lowering institutional risk and contributing to a stronger bottom line. At the market level, financially literate consumers are a key element in effective consumer protection; placing pressure on financial institutions for services that are both appropriately priced and transparent. With multiple stakeholders, financial education is beginning to fill a hitherto empty space in the movement towards financial inclusion.

Case Study1. Financial Inclusion as a Corollary of Livelihoods– Santosh Kumar, Rickshaw Puller A resident of Khagaul, Patna, Santosh Kumar, 35 years, is a Rickshaw Puller. His father was labourer and in search of regular work and shifted along with family to Patna (City) when Santosh was young. Since then, they are living in a small rented house at a slum in Patna. Santosh studied till standard eight but once moved to Patna, he had to discontinue his studies. He got married at the age of 25 and since then he took rickshaw pulling as main occupation to support his family. Apart from his wife, he has two sons and a daughter in his family that he supports from his earning. His wife works as housemaid to supplement family’s income

In the initial days of his rickshaw pulling, he used to hire rickshaw on daily rent of Rs 20-25 from rickshaw fleet owners. In those days, he had no savings account in any bank or post office and did not have any safe place to even park his money or save, so he used to deposit part of his daily earnings with the fleet owner himself. The daily deposits were made without receiving any receipt or recording in any book. Once when he needed the money and asked the fleet owner to return his deposits, the fleet owner returned him the sum, which, according to Santosh, was about Rs 1000 less than his estimated deposits, leave alone the interest. He felt cheated but couldn’t do anything, as nothing was on record to settle his claim.

Since then he use to keep money at home, as he had no other safe place to park his savings. He found that by keeping money at home, he was not able to save much, as his family often indulged in wasteful expenditure due to ease of liquid cash at their disposal. He was aware that he could open his savings account in bank but was wary of doing so, as he had seen numerous cases of private companies running away with deposits of slum-dwellers and villagers. He had no idea of the difference between a regulated (bank) and unregulated financial institutions and hence he had chosen not to take chance with any of them.

In June 2007, he came in contact with “Sammaan Foundation” – an NGO working in Bihar for welfare of unorganised sector workers, especially with rickshaw pullers. They helped rickshaw pullers of Bihar to get organised and imparted basic financial literacy to them. They also liaisoned with Banks to open

savings account of rickshaw pullers, as they often are migrants and carry no local residence proof. Santosh became an active member of the rickshaw-pullers union and soon he became ‘President’ of the union.

With financial support from Sammaan Foundation, he managed to buy rickshaw of his own. He also opened a savings bank account (joint account along with his wife) with Dena Bank at Patna with the help of Sammaan Foundation. He now deposit Rs 20 daily from his earning at the co-operative of rickshaw-pullers, promoted by Sammaan Foundation and at end of month, he gets back his deposit in lump-sum which he then deposit them again in his bank account.

Apart from his bank account, he doesn’t use any other source to save. He feels that after putting his savings in bank account, his money is now safer than ever before and also he used to save more than what he could do earlier as he was able to cut down in wasteful expenditures. He also wants to open a recurring and fixed deposit accounts in bank to secure some savings for his daughter’s marriage. He still has no insurance or pension cover. He learnt that Sammaan Foundation is helping the co-operative to get life insurance to all its members. He is not aware of health insurance scheme (RSBY) or Swavalamban Pension Scheme, however, after being told about the NPS lite he now wants to open a pension account for himself.

According to him, availing credit from banks is still a distant dream. He had to borrow from friends or relatives or even money lender at the time of emergency, especially during medical emergencies. He is aware of PMJDY but feels that unless KYC norms are relaxed by banks, it will be difficult for the rickshaw-puller community to open bank account. He wants to spread financial awareness among the rickshaw-puller community so that they can avail financial services to build their capital and reduce vulnerabilities.

Target groups for financial education can be defined by age, gender, employment status or relationship to a specific financial product. Financial education targeted to youth is more likely to focus on negotiating with parents about spending money, the value of saving, and planning for the future than it is on investing. Migrant workers may need help budgeting new income sources and managing expenses as they move through the various stages of migration, from initial travel and settling expenses to sending remittances home and eventual return. Some learners are brought together by interest in a specific product like a home mortgage or insurance. In this field of limitless possibilities yielding impressive variety in both what is taught and how, there is still much to learn about which types of financial education are needed by whom, which methodologies are most effective in changing knowledge, skills, attitudes and practices, and how financial education can be combined with other opportunities to reinforce long-term behavior change. Target groups for financial education can be defined by age, gender, employment status or relationship to a specific financial product. Financial education targeted to youth is more likely to focus on negotiating with parents about spending money, the value of saving, and planning for the future than it is on investing. Migrant workers may need help budgeting new income sources and managing expenses as they move through the various stages of migration, from initial travel and settling expenses to sending remittances

76 home and eventual return. Some learners are brought together by interest in a specific product like a home mortgage or insurance. In this field of limitless possibilities yielding impressive variety in both what is taught and how, there is still much to learn about which types of financial education are needed by whom, which methodologies are most effective in changing knowledge, skills, attitudes and practices, and how financial education can be combined with other opportunities to reinforce long-term behavior change.

2.7.1 Factors Affecting Quality of Financial Literacy The two elements of effective financial education discussed in the previous sections above – ‘relevance’ and ‘use’ are also the defining criteria of its Quality. Yet, the quality of financial education also depends on good trainers who can facilitate two-way dialogue with learners and engaging them actively in the content. To do this, they need to embrace a pedagogy that is significantly different from the traditional lecture method that still dominates formal educational systems and relies on one-way communication whereby the teacher / expert delivers the content to the passive recipient. While curriculum is now available to help trainers navigate through more participatory approaches, most of it needs some adaptation to respond to specific learners abilities (e.g. literacy levels) and the local context (reflecting local currencies, common businesses, place names and actual products offered by local financial institutions, etc.)

Do It Yourself Approach: Research has have found that a good investment in the quality of financial education is to offer it to trainers themselves. Realizing its relevance to their own lives, trainers become motivated to share it with others. However, they have been challenged by the task of curriculum adaptation cited above, and we have learned by experience not to underestimate this part of the process. Experiences of offering micro pensions like the NPS Lite products of the PFRDA regulated entities have suggested that if the motivators / sellers themselves buy and experience the products they are more likely to be selling the same as if they themselves own the product.

Quality education also requires attention to the mundane – logistics, location, schedule. Getting these details wrong can easily sink a program. All aspects of an education program must reflect the participants’ priorities.

The Camp Approach: This kind of approach on imparting financial literacy is very common in large population base countries like India. The objective of conducting of financial literacy camps is to facilitate financial inclusion through provision of two essentials i.e. literacy and easy access. It should aim at imparting knowledge to enable financial planning, inculcate saving habits and improve the understanding of financial products leading to effective use of financial services by the common man. Financial literacy should help them plan ahead of time for their life cycle needs and deal with unexpected emergencies without resorting to debt. They should be able to proactively manage money and avoid debt traps. In order to ensure that the knowledge provided through awareness results in inculcating banking habits, literacy inputs need to be synchronized with access to financial services so as to enable the common man to use the information effectively to gain control over financial matters. It should also result in enhancement of their economic security aided by use of banking services.

Banking Services through Banking Literacy: The banks as providers of financial services have an inherent gain in the spread of financial inclusion and financial literacy, as it would help them capture the untapped

77 business opportunities. Small customer is the key and banks should harness the business opportunities available at the bottom of the pyramid. Hence, banks must view the financial literacy efforts as their future investments. Banks must provide a bouquet of banking services comprising of a small overdraft facility, variable recurring deposit account, KCC, remittance facilities to the account holders in order to make the accounts transactional. People should be encouraged to make transactions in these accounts so that the cost of maintaining the accounts is recovered to make it a viable and profitable business of the banks. The provision of adequate credit is also important not only in the interest of the customer, but also for the banks as the income earned through interest would make the exercise a commercially viable proposition. Banks must provide credit at a competitive though non exploitative rate but certainly not at a subsidised rate.

2.8 Financial Literacy and Capacity Building in FI Models States like MP have seen enormous progress and growth in the past decade. While the growth story and financial inclusion drive has been impressive, there are still causes for concern on the dimensions of credit and lower utilization of capital. Low-income MP households in the informal or subsistence economy often have to borrow from friends, family or usurious moneylenders. They have little awareness and practically no access to insurance products that could protect their financial resources in unexpected circumstances such as illness, property damage due to man-made /natural disaster or death of the primary breadwinner. The state of Madhya Pradesh is low in literacy rate and even lower in its financial literacy and hence one may doubt that even the financial literacy programs like the classroom courses, teachable moments due to cash transfer etc. may or may not work. Hence there is a strong need for building up the capacities of the stakeholders on financial literacy at all level. The GoMP and/or support agencies like the UNDP should ideally take up this initiative separately and independently of the bankers / NABARD efforts on financial literacy. Since MP requires a specialized and customized financial literacy, it should be more in the form of capacity building and hand hold support for a medium term plan rather than a one-time effort. On a more scientific note, the state would do well to pilot such training cum capacity building by mapping a baseline on traits of financial behavior to get preliminary background information to understand the resources available, existing intervention, understand the role of each stakeholder, identify gaps in the strategy, design and plan the intervention. On the demand side, the state could even hire an independent credible agency for Community Mobilization and awareness meetings that would make people aware about DBT and its process and banking processes and the process of opening accounts on one hand and using them for enhancing their wealth on the other.

2.9 Micro-insurance and Insurance Education in India

2.91. Handling of Risks a. Risks have confronted mankind since time immemorial. The history of risks could be as long as the history of life on earth. Because of its ancient character, man has tended to respond to risks in different ways right from the beginning. Hence the history of risk handling techniques also could be as old as risk itself.

i. Avoidance is the first reaction of any human being to a risk. In fact even a cursory look at mythology will reveal that man has tended to worship virtually everything that appeared

threatening to him. Sun, sea, rivers, fire, rains and even snakes are few examples. With due respect to religious sentiments, this in our parlance, means nothing but risk avoidance. However, simple or amusing as it might seem, there is much more to it, in terms of real life risks. For risks arising out of actions or events, avoidance implies relinquishing opportunities which has cost factor attached with it. Avoidance also means pursuing other options (if at there are any) that may be more risky or costly. Due to these factors, despite the historical or mythological background, avoidance seems to be technique that should be used as a last resort (rather than a first reaction). Avoidance in any case amounts to escapism and hence it can hardly be termed as a ‘management’ technique. Despite this argument, there are certain types of risks that have to be avoided, as we shall see later.

ii. Control is the first risk handling technique that involves positive action. The actions are aimed at reducing the frequency and severity of losses. Loss prevention measures such as appropriate sanitation in the neighbourhood, taking nutritious diet, regular exercise are pre-loss measures aimed at reduced frequency of losses due to sickness. On the other hand once a loss takes place, it is equally essential to strive for Loss Minimization. Thus measures like installing fire extinguishers, evacuation from low-lying areas in case of floods, etc. are directed towards loss minimization.

iii. Retention takes place when the individual decides to finance the risk out of its internal resources or borrowing. Such an active retention takes place in case of small losses occurring occasionally. More important to the context of community development is passive retention since it has major implications on poverty aggravation, as we shall see later.

iv. Transfer is a contractual arrangement by which the risk, to which a person is exposed, is transferred to a counter-party. Insurance is the most common form of risk transfer. All risk handling techniques discussed above probably evolved within the communities over the years of trying to cope with risks. Transfer on the other hand is a modern day instrument that is based on concrete principles of economics. The party assuming risk or a part of it, generally charges a price for the same. While insurance as a risk transfer tool is common for pure risks, for business risks, other tools like hedging are widely used.

2.9.2 Vulnerability of Poor a. Vulnerability of poor to cope with risks mainly due to lack of adequate financial resources, has been widely discussed in the developmental circles so far. We shall see what this means from the risk management angle. All the risk handling techniques discussed above are aimed at managing risks in some way or the other. However each technique has a cost attached to it.

b. To start with cost of avoidance refers to the resources required to avoid or to escape risk. Consider the families lining on river banks that get flooded every year causing widespread damage to life and property. In case they decide to move to interior areas away from river bank to avoid flood losses, there are certain direct costs involved in shifting their household property to the new place. Apart from these direct costs there are certain opportunity costs attached with avoidance. For example moving away from the river banks could also mean foregoing the opportunity of fishing in

the river or carrying out the activity of transporting people from one side of the river to other side. Lastly if avoidance is still desirable there should be other options available. In our example there should be land available for occupation far from the river bank which again implies additional costs.

c. Control as a risk handling technique also involves cost. Depending upon the context or the risk for which control is resorted to, it may require additional equipment or materials to control risk. Nutritious and balanced diet and clean drinking water could be good control techniques for reducing the incidence of diseases, but there is a cost attached with these measures. In many cases control also implies availability of information that may again involve cost.

d. Similarly retaining risks would mean bearing the financial consequences of a loss producing event which would again involve cost. Active retention of risks pre-supposes some buffer in the form of savings that can be use to finance the retained risks.

e. Since the poor communities lack the resources required to meet the cost of handling risks more often than not they end up retaining all risks by default. Retention as a risk management technique has to be a result of active financial analysis. Since this not the case with poor communities they tend to retain all risks passively. The ultimate effect of such passive retention is that whenever a risk strikes the family is pushed further into poverty and indebtedness.

2.9.2 Community Risk Management It is against this backdrop that the role of Community Risk management (CRM) becomes significant. Since most of the times various risk handling techniques are beyond the reach of communities because of affordability and accessibility issues, there is a tendency to think of insurance as a low cost risk handling technique that would take care of at least some of the risks to which poor are exposed. However, as we shall see, insurance is neither available nor advisable for all risks. b. The first step in CRM process involves identification of risks – pure as well as speculative – to which the particular community is exposed. In order to be able to do anything about risks they have to be first identified. As indicated earlier, this depends on a number of external and internal factors surrounding the community. Risk identification helps us in understanding the overall risk profile of a community. Vulnerability of a community in real sense would depend on its risk profile which can be known only if all the risks to which it is exposed are identified. c. Technically, risk is nothing but a possibility of financial loss. “Possibility” denotes the chance of a happening of a loss producing event. The statistical concept of probability measures the chance of a particular event or outcome. Calculating probability involves application of statistical techniques and could be quite complex. A simpler way of expressing possibility of an event is to express the same in terms of ‘frequency’. This can be derived from past experience or by applying probability factors in relation to a time period. Severity on the other hand implies the quantum of loss the risk is capable of inflicting. It is a measure of financial impact of a loss producing event. This again could become a bit technical because of calculations involved. Quantification of risks which is the second step in the risk management process is nothing but assigning frequency and severity factors to each risk that has been identified at the earlier stage. The product of frequency and severity factors gives the overall risk

exposure (vulnerability) of the community. While such a detailed exercise is ideal and not impossible, it might become too technical for practitioners and hence the simple way out would be to plot all the identified risks in the relevant area of the Risk Quadrant based on broad parameters of high and low frequency as well as severity (refer Figure 1). This is called qualitative risk analysis. d. Instead of quantifying all risks identified, it will be sufficient to classify them into four categories of

i. Low frequency low severity

ii. High frequency low severity.

iii. High frequency high severity.

iv. Low frequency high severity risks. e. Low frequency low severity risks are those rare as well as low cost events that happen in one’s life. Some small things like items of crockery getting broken in a household are example of such risks. Similarly in the context of health risks, out-patient treatment (OPD) is also a low frequency low severity risk. From the risk management angle such risks are best to retain. Because of low frequency as well as severity the expected losses are quite low and hence it is advisable that they be absorbed from routine cash flows of the family. Retention of these losses may require some cushion in the form of savings. Insurance is not the right instrument for handling such risks. Even if insurance is available for such risks it is bound to be cost-ineffective. In other words retention is the best strategy. for addressing this part of the risk quadrant. Risk retention capacities of the community however need to be attended.

Figure 1. The Risk Quadrant

High Frequency High Frequency F Low Severity High Severity R E Control Avoid Q U Low Frequency Low Frequency E Low Severity High Severity N C Retain Transfer Y (Insure)

S E V E R I T Y

f. High frequency low severity risks are those events that occur quite frequently but result in small expense whenever they occur. Medical treatment (mostly out-patient0 for chronic ailments like bronchitis, seasonal infection, allergy, etc. are examples of such risks. Such disorders are more prevalent among children. Water-borne or air-borne bacterial and viral infections due to factors like use of contaminated water for drinking purposes, lack of sanitation and occupational hazards are other examples of such risks. When a risk falls under high frequency category, it best to try and control

the same. Most of high frequency risks can be controlled through appropriate interventions. For example chronic ailments can be controlled by suitable alternative therapies like ayurveda or homeopathy. By controlling these risks, we try to reduce the frequency of incidence. If the frequency of such risks can be reduced they would fall under low frequency low severity risks and can then be retained. Preventive healthcare measures like distributing ORS or fumigation drives during monsoon or even immunization camps are all loss prevention measures aimed at reducing disease incidence, and thereby control frequency. Again, here also insurance is not the ideal instrument since the premium to be paid will become too high on account of high frequency. g. Instances of high frequency high severity risks are difficult to find in practice. However repeated patterns of heavy rains and consequent floods in certain parts are such examples. When a calamity like flood strikes, it can inflict huge damage to the community. If such a calamity becomes regular feature, the only option is avoidance. The moment a risk starts falling under this category even the insurers will start declining insurance coverage. This was recently witnessed in US where insurers started declining catastrophe covers in certain states because of repeated and devastating cyclones in the area. From a business risk angle, agriculture as a business is fast becoming a high frequency high severity risk. Being a speculative risk agriculture also has a profit element attached to it. The risk- return equation in case of agriculture has become heavily loaded in favour of risk, particularly for small and marginal farmers. Most often, either there is very little or no rain or there is too much rain. If the rain is all right, crops get damaged by pests or untimely rain. If everything goes right the farmer mostly fetches a low price for the agricultural produce. Risks are too high in comparison to returns and that is why more and more people are leaving agriculture. Since the return is largely market driven and cannot be altered a great deal through external interventions, the only alternative to check avoidance is to address risks in agriculture. h. Insurance is an ideal instrument only in respect of the fourth part of the quadrant which encompasses low frequency high severity risks. An event likely to occur ‘quite rarely’ but has the propensity to inflict substantial financial loss to the exposure unit (individual, family, society, etc.) can be best handled with the help of insurance products. We shall look at this aspect in detail while discussing the economics of insurance but for the moment it would be sufficient to understand that insurance is not a panacea for all risks. Insurance would be effective only if the risk falls in the fourth part of the risk quadrant.

2.10 Drivers of micro-insurance in India a. After the opening-up of the insurance sector to private players in the year 2000, the focus on microinsurance or insurance for the rural and social sectors has increased significantly. The Insurance Regulatory and Development Authority (IRDA) under its developmental mandate started taking steps to ensure that insurance coverage is made available to low income segments by the mainstream insurers. This has been done mainly through some supply side interventions. Firstly the IRDA (Obligations of Insurers to Rural and Social Sectors) Regulations were notified in the year 2000. These Regulations make it mandatory for insurers to procure a part of their total business from rural as well as social sectors as defined in these Regulations. Failure to achieve the rural and social sector targets on the part of insurers attract penalties. These stipulations are expressed as a percentage of the total

business (lives in case of life insurers and premium in case of general insurers) procured in a financial year by the concerned insurer. Moreover, the rural and social sector targets prescribed by the regulations are progressive in nature. They keep on increasing automatically with the age of the insurance company thus ensuring that as the insurance company grows older, it reaches out to more and more rural and social sector clients. b. In the year 2005, IRDA came out with IRDA (Microinsurance)Regulations 2005, which introduced the concept of ‘microinsurance product’ and ‘microinsurance agent’ for the first time in the Indian market. These regulations laid down the broad contours of various life and non-life insurance products that could qualify as microinsurance products under these regulations. Insurers were encouraged to develop and file products that conform to the contours laid down in the regulations. Once these products were approved by the IRDA, they could be sold by a dedicated distribution channel of microinsurance agents. The recruitment norms for microinsurance agents were kept quite liberal in order to facilitate a range of entities like SHGs, cooperatives and NGOs to take-up insurance distribution as one of their activities. The purpose was to develop voluntary uptake of microinsurance in rural as well as urban areas through a dedicated army of microinsurance agents. c. Supported by these two regulatory initiatives, the penetration of microinsurance products in the market increased significantly subsequent to the year 2000. This was also the period when microfinance sector was registering an inorganic growth across India. Credit life and credit life plus products offered by MFIs to their borrowers comprised a substantial portion of microinsurance products distributed in the country. Many MFIs also started offering health and savings linked life insurance products to their clients on a voluntary basis but the proportion of such products remained low. Alongside MFIs and NBFCs, some cooperatives and NGOs also made significant contributions to the development of voluntary microinsurance. In addition, some mutual have also done a good job in offering health microinsurance products to the low income segment in some small pockets of the country.

d. On the other hand, the sector is also witnessing an increasing presence of government sponsored insurance schemes since past few years. In fact, social microinsurance, as it is now better known as, is becoming more and more prominent in almost all emerging markets of the world. In India, the Rashtriya Swasthya Bima Yojna (RSBY) has been the most ambitious health insurance scheme rolled out on a national scale since the year 2008. Even before RSBY was launched certain state level schemes like Rajiv Arogyashree (Andhra Pradesh), Yashashwini (Karnataka) and Chief Minister’s Health insurance Scheme (Tamilnadu) were already in vogue. On the life insurance side the Aam Admi Bima Yojna (AABY) was launched in 2007. The National Agriculture Insurance Scheme (NAIS) has been in operation since last many years. All these schemes carry a substantial premium and operational subsidy element and are aimed to offer insurance protection to the weaker sections of the society. e. The landscape of microinsurance in India has thus been driven by the above regulatory and market factors (see Figure 2). As of 2012, more than 422.11 million lives and/or property were insured under some kind of microinsurance schemes. This figure is largely dominated by social microinsurance with a coverage of 311 million lives. Between 2010 and 2012, the Indian microinsurance sector grew at a healthy rate of 31% in terms of lives / property covered and 49% in terms of premium. As a result of these initiatives, India contributed to almost 70% of growth in microinsurance outreach across Asia.18

2.11 Evolution of Models Amidst this action, three distinct models have emerged at the sector level (see Figure 3). The compulsory model emerged out of piggybacking of insurance with a fast moving micro-credit product. Mainly credit life and index based weather insurance products are offered under this model. Since the primary aim of this model is to reduce the credit risk of the MFI / bank the benefits of insurance are not quite felt by the borrowers and hence such products often enjoy a low client value. To some extent, this also happens on account of lack of transparency and education. In order to overcome this criticism, many MFIs started offering ‘credit life plus’ covers where a part of the benefit also accrues to the nominee of the deceased borrower. Despite its limitations the credit for offering insurance to a large number of people has to go to this model. It did provide a good firsthand experience of insurance to the poor households. However this dependent on micro-credit outreach, limits its potential to the credit clientele. This model will eventually reach its culmination once micro-credit markets start approaching their saturation levels. The fact however remains that this model currently commands a sizable share in the microinsurance market.

18 The Landscape of Microinsurance in Asia and Oceania – Munich RE Foundation and GIZ 2013.

The active involvement of governments in the social security space of the world’s emerging markets has given birth to the subsidised model. Again this model comprises mainly of term life, health and agriculture insurance covers offered to the ultra-poor households. A substantial part of the premium (if not the full) is subsidised by the government. Because of this very character subsidised model has succeeded in attaining sizable outreach in a short span of time. Huge and quick volumes also come with their due share of problems at the service delivery level. Lack of information and facilitation at the ground level and absence of effective monitoring mechanisms are some of the challenges this model is grappling with. It will be a while before such schemes settle down and demonstrate tangible impact on the risk profile of the target population. Moreover, the fundamental questions concerning the macro-economic suitability and financing plans of these schemes and their long term sustainability also remain. Last comes the ‘voluntary’ model that promotes microinsurance through hard-selling, much like the mainstream insurance and which currently commands only modicum proportions in the sector. The sacrifice in insurance is real and immediate while the benefits are distant and contingent. While this makes voluntary microinsurance arduous, it also means that the positive impact of insurance on the society will be apparent only over a period of time. This is possible only if people continue to remain insured for longer periods Voluntary model by its very nature contains an in-built Imperative to promote sustained insurance purchase, thus offering better chances of positive impact on vulnerability. Due to these features, voluntary microinsurance is likely to remain an area of interest in the years to come, notwithstanding its inherent problems of scalability, financial viability and mis-selling besides the inability to offer inorganic growth. Expanding outreach among the low income populations beyond the captive catchments of compulsory and subsidised models will impel a persevered endeavour on the voluntary side. All the three models have demonstrated a unique combination of strengths and limitations on various parameters of social and financial performance (see Figure 4). While the compulsory and subsdised models have been able to achieve scale and are therefore financially sustainable, their performance on client value and utilization parameters appears to be lagging. On the other hand, while the voluntary models demonstrate string social performance in terms of client value and utilization, they have been unable to attain decent scale and are thus vulnerable on the sustainability front.

Given this state of affairs, the coming years may see the emergence of hybrid or fusion models that capture the strengths of each of these models but at the same time are also able to eliminate their respective limitations. The sector is fast moving towards an innovative form of public-private-partnership that can effectively harness the ability of subsidised model to generate volumes and the capacity of voluntary models to deliver client value in a cost-efficient manner.

2.12 Role of Consumer Education in Microinsurance Development a. The biggest challenge in developing voluntary microinsurance is the absence of latent demand for insurance among the low income segments of the society. Insurance is an intangible service and therefore does not carry a high perceived value in the eyes of common consumers. The sacrifice (premium to be paid) in insurance is real and immediate while the benefits (claims) are distant and contingent. This aleatory and synallagmatic nature of insurance contract makes it difficult to comprehend, even for the educated consumers. Insurance contracts are generally loaded with several conditions and exclusions in legal jargon which creates a lack of transparency and gives rise to suspicion as regards the real benefits of insurance. Moreover, in societies like India, risk is often considered to be a function of fate thus reducing the acceptability of financial instruments like insurance as credible risk management techniques.

b. Behavioral economics today provides useful insights into consumer behavior on insurance19. Accordingly. There are several behavioral anomalies that preclude consumers from buying appropriate and adequate insurance products. Some of these behavioral anomalies are discussed hereunder

i. Loss Aversion: People become risk-averse when it comes to choosing between possible gains but become risk-takers while considering ‘bad’ options involving potential losses. In ‘bad’ choices when

19 For further insights on the subject please read ‘Insurance and Behavioral Economics’, Kunreuther, Pauly & McMorrow, Cambridge University Press.

a large but rare loss is pitted against a small but certain expense, diminishing sensitivity causes risk- seeking, thus preventing people from buying insurance.

ii. Status Quo Bias: Every one of us tend to create our own reference points as regards our socio- economic condition. Paying insurance premium without anyapparent benefit amount to changing one’s reference point. Status quo bias prevents people from changing their reference points unless there is a compulsion to do so or there is a big incentive. People are more sensitive towards increased risk than reducing risks. As a result, the cost people are ready to pay (premium) for reduction / mitigation of risks is always lower than the compensation they would expect to assume an equivalent amount of risk. This tendency makes insurance an unattractive preposition. iii. Availability Bias: Generally, people tend to under-estimate high probabilities and over-estimate low probabilities. At the same time, people tend to totally ignore very low probability events. The risks covered by insurance are generally very low probability events that tend to be ignored thus creating poor risk perceptions. People assess probabilities based on the ease with which instances of occurrence can be brought to mind. As a result, people rush-in to buy insurance once a natural calamity strikes, only to drop-out at a later stage once the memories of devastation start fading. iv. Mental Accounting: There is a tendency in everybody’s minds to keep ‘mental accounts’ of gains and losses. Typically, we would like to close every account with a gain. Paying premium without any immediate ‘benefit’ generates a loss in the mental account. As a result there is a reluctance towards buying insurance.

v. Cognitive Dissonance: Many times a sense of regret creeps in after buying a product. This is more likely to happen if the product is costly and / or was purchased out of an impulsive action. In insurance, this tendency of cognitive dissonance persuades people from dropping-out after continuing with insurance for a few years.

c. All these factors make consumer education an imperative for sustainable development of voluntary microinsurance. Building the right risk perceptions among the low income consumers is essential to create a pull for insurance products. Unlike popular belief, a financially literate consumer is an asset. Informed purchase of insurance is more likely to sustain for longer periods as compared to compulsory and susbsidized approaches.

d. Consumer education is a process and not a product. Hence it becomes essential to ‘perform’ the process effectively in order to achieve impact. The process of consumer education typically follows the path of education, awareness and information (see Figure 5). While education is aimed at creating an understanding and changing attitudes towards the concept of risk and risk management, awareness creates the much needed knowledge to enable objective analysis of one’s risk exposure and needs. Finally information can enable action in terms of purchase of the right product. Consequently the time and resources required for the education component of the process is significantly higher, as compared to the other two components.

e. Insurance education is a time-consuming and a costly process. It is therefore essential that insurance education campaigns are conducted in a holistic manner by a various stakeholders, with a strong focus on impact. A sample framework for insurance education is provided in Appendix A. Accordingly, macro level consumer education is aimed at addressing the education component and has to be done on a national level by regulators and governments. Meso level initiatives are intended to create knowledge and skills on the part of consumers and are to eb carried out by industry participants. Micro level insurance education is supposed to carry the tools developed at macro and meso level to the end-users and also provide information on various available products so that consumers can actually exercise choice.

2.12.1 Current Status of Insurance Consumer Education in India a. Unfortunately, insurance education has not received due attention anywhere in the world. Many countries have taken-up financial education agenda by developing national strategies on financial education. Insurance as a subject is supposed to be included in the financial education agenda. However, the concepts underlying insurance are much different from savings and credit and hence most financial education campaigns at best, only end-up covering the information part of the insurance education Moreover, the efforts on educating the consumer are fragmented. The insurance regulators on their part come out with occasional education campaigns and tools like video films, comic books, etc. Insurance companies also create some material that aims at imparting information on the concept. At the micro level some organizations try to do some good work on educating consumers on the need for insurance. But due to the absence of a holistic as well as sustainable approach to insurance education the impact is not apparent. No national or state level studies assessing the insurance literacy levels, are currently available. Hence it is impossible to assess the education needs of the population at large.

88 b. One possible yardstick for measuring insurance awareness levels among the low income segment could be the data on enrollment and utilization of susbsidised insurance schemes of the government. Table 1 shows the number of lives covered and claims paid under AABY as on March 31, 2014 in some states. Firstly, the wide divergence in lives enrolled among various states is noteworthy. Secondly, a comparison of lives covered versus the number of claims paid also shows a highly diverse picture among the states. The difference in utilization rate is more vividly depicted in Figure 6. c. Thus while states like Andhra Pradesh are demonstrating high enrollment to the tune of 8.43 million lives and a decent utilization rate of 0.248%, other bigger states like Bihar and Madhya Pradesh are showing lower enrollments as well as utilization. This goes to show that even after offering free insurance to masses, its effectiveness relies to a great extent on the awareness created around the schemes as well as the ground-level facilitation available to communities. This is where the real role of insurance education lies.

Table 1: AABY Data for the Quarter ended March 31, 2013

STATES/UTs NEW CLAIMS LIVES PAID - COVERED NO

ANDHRA 84,34,213 20,915 PRADESH

BIHAR 2,32,337 304

CHANDIGARH 16,430 0

DELHI 31,291 11

GUJARAT 10,03,086 828

HARYANA 58,039 30

KARNATAKA 31,15,480 598

KERALA 15,25,605 230 Figure 6: Utilization Rate

MADHYA 53,92,581 2,695 0.248% PRADESH 0.178% 0.131% 0.113% 0.083% 0.050% MAHARASHTRA 61,30,487 2,975 0.052% 0.035% 0.049% 0.030% 0.019% 0.036% 0.000% 0.015% ORISSA 7,09,760 256

RAJASTHAN 23,64,287 2,666

TAMIL NADU 6,45,897 1,152

U.P 41,01,818 1,251

Source: Open Government Data (OGD) Platform India

Chapter 3. Research Methodology

Annotation: This chapter is dedicated to the Research Methodology used during the project. It includes both, the primary as well as secondary research on one hand and qualitative and quantitative study on the other. The chapter also includes a note on the sample, field work as well as data analysis and methods and techniques used for the same.

3.1 Backdrop to Research One part of the research study has captured the ‘supply’ side of the Financial Inclusion model of the two states of MP and Bihar, wherein it brought out in bold relief the design, evolution and the tenets of the model including its implementation planning from top to bottom as well as at the field. It also described in brief the concept of financial deepening and rolling out of banking products and benefits under the inclusion plan including the PMJDY. However, since that part of the report was based on secondary research of published data and report as well as institutional meetings with relevant stakeholders it was a mere documentation of the facts and figures, as made available from the supply side of the products manufacturers and services providers and is also to certain extend verified at the ground level. While that only provides an insight into an areal overview of the model it seldom get based on the field experiences and practical realism. In order to understand the nuts and bolts of the financial inclusion model it was therefore essential to understand the realism from the field perspective including the districts, Janpad, gram Panchayat and the village level. This also means that there was a strong need to capture the ‘demand side’ views of the model. Hence part of the report also deals with the observations made and evaluated at the field including running a questionnaire based quantitative survey. While the scope of evaluation and the observations thereof are also covered in the subsequent chapters, this chapter briefly describes the set of activities taken up and the methodologies adopted for taking up this evaluation at the field level.

As the study captures both financial inclusion as well as financial literacy, part of of the assignment and the report thereof is focused on the evaluation of the models in MP and Bihar. It is supposed to field test the hypothesis generated in the research questions proposed at the proposal stage. It begins with the premise and assumptions of what has been available at the secondary sources including the level of intervention in the inclusion and literacy space and is purely based on and appurtenant to the models described by the stakeholders. While a detailed set of tools and techniques used to evaluate the model have subsequently been discussed, thebroad set of activities was involved at two broad levels.

3.2 Research Questions, Hypothesis and Strategy Involved There were four Research questions that were posed for the study. While two of them were supposed to be answered in secondary research and institutional primary survey, the rest were to be investigated purely into the primary survey that could be run in the field.

3.2.1 The ‘As Is’ (existing) status of Financial Literacy Specifically, put, the research question included as to What is the ‘As Is’ (existing) status of interventions and understanding on financial literacy in two states namely, Madhya Pradesh and Bihar in general and people of Khandwa and Katihar districts in particular to be gauged from a sample.

As mentioned earlier, the answer to this question could be found out using primary as well secondary survey on both qualitative as well as quantitative basis. This would be accomplished in three ways as follows using the tools and techniques mentioned hereunder:

1. Identification of Level of Sensitization, Interventions and Status of Financial Literacy a. Type of Research: Primary b. Tools Used: In Depth Interviews (IDI) c. Stakeholders / Source: IDI Conducted with: i. Coordinator, State Level Banking Committee ii. Relevant Departments of Government – Panchayat Rural Development, Social Justice, Finance etc. iii. Projects and SPVs of State Government including NRLM etc. iv. Coordinator, District Level Banking Committees v. DDMs, NABARD vi. Financial Literacy Centers (FLCC) vii. Lead Bank Manager (LDM) of the District viii. DM / CEO Zilla Panchayat

2. Study of Existing Literature on Financial Literacy Relevant to Identified States / Districts a. Type of Research: Secondary b. Tools Used: Literature Review c. Stakeholders / Source: Published Documents on Financial Literacy, research reports and RBI document on financial literacy.

3. Testing Level of Financial Literacy among Community Members, especially women working in different categories of informal work including domestic workers, home based workers, construction workers, agricultural laborers, livestock rearers, MGNREGA workers and street vendors. As mentioned earlier these three groups have a schedule through which they receive payment on a monthly, weekly and daily basis respectively. a. Type of Research: Primary b. Tools Used: i. Quantitative Tools: Survey Based Structured Questionnaires ii. Qualitative Tools: Focused Group Discussion (FGD) and Personal Interviews (PIs) iii. Case Studies c. Stakeholders: PI and FGDs Conducted towards Testing the Following: i. Personal Interviews through Structured Questionnaire for Quantitative Assessment ii. Focused Group Discussions with Women for Qualitative Assessment iii. Focused Group Discussions on different aspects of Life Cycle Needs and Budgeting iv. Assessment of Knowledge of Government Schemes confining to CTs and / or DBT. v. Understanding on Banking and Other Financial Products like Micro Credit, Remittances, Insurance, Pensions etc.

vi. Knowledge, Understanding and Information over Financial Frauds, Consumer Protection etc. vii. Their version on the roadblocks in their comprehensive access and use of financial systems Impact: This would help design the different areas on Financial Literacy and provide an idea as to what kind of FL interventions/financial modules are required in the state and districts for individuals with different earning patterns and how UNDP-SEWA can help the State Governments, the SLBCs, DLBCs and the FLCCs to intervene using Financial Literacy and gear up for the and Financial Inclusion drive, post 2015.

3.2.2 The ‘As Is’ situation of Financial Inclusion in Two States This research question is targeted to explore as to what is the current status of financial inclusion (FI) in the states of MP and Bihar including efforts of State Governments, the SLBCs, DLBCs, FLCC, LDMs and that of RRBs and its Impact of the Ground? Answer to the current status of FI was found using the primary and secondary surveys. This was accomplished in three ways as follows incorporating the views of the policy makers and testing the same at the field level using the tools and techniques mentioned hereunder:

1.Testing the Level of Intervention and Financial Inclusion from the perspective of policy makers and execution side – Its status and coordination within State and Districts a. Type of Research: Primary i. Tools Used: Qualitative Tools: Focused Group Discussion (FGD) and In Depth Interviews (IDIs) b. Stakeholders: IDI were Conducted with: i. Coordinator, State Level Banking Committee, ii. Coordinator, District Level Banking Committees, iii. Relevant Departments of Government – Panchayat Rural Development, Social Justice, Finance etc. iv. Projects and SPVs of State Government including NRLM etc. v. NABARD and its associated RRBs including status of SHG II and inclusion vi. DDMs of NABARD vii. Lead Bank Manager (LDM) of the District viii. District Officials like the DM and CEO Zilla Panchayat

2.Testing the level of financial inclusion with Banks and Post Offices at Ground Level (District / Block / Village) – The Supply Side Perspective a. Type of Research: Primary i. Qualitative Tools: Focused Group Discussion (FGD) and In Depth Interviews (IDI) ii. Quantitative Tools: Survey based Structured Questionnaires and PIs b. Stakeholders: Perspectives of Banks, its BCs and Post Offices – Supply Side i. Number of Banks, Bank Branches including RRBs and Cooperative Banks ii. Number of Bank Accounts opened under the Financial Inclusion drive so far including accounts opened for cash transfers, fI accounts and those at branche iii. Availability of Banking Correspondents and Ultra Small Branches (BCs/USBs) and its proximity from villages, sub urban and urban dwellings iv. Products and Services offered by Bank and POs in the identified areas including products other than basic banking. v. Third Party Products offered by Banks / POs like Insurance, Pensions etc.

vi. Systems available and Processes adopted and set up by Banks and POs for FI including Payments and Remittances. vii. Supply side availability and willingness to offer different regulated products by various stakeholders including bankers, insurance and pension companies and the NSSO/PO.

3. Testing the level of financial inclusion with community members (including the category of women informal workers described earlier. Special focus at Ground Level (Block / Village) – The Demand Side Perspective. Understanding from the active account holders, inactive account holders and people without a bank account on what are the roadblocks in opening and using the back accounts and how can they be eased. a. Type of Research: Primary b. Tools Used: i. Qualitative Tools: Focused Group Discussion (FGD) and In Depth Interviews (IDI) ii. Quantitative Tools: Survey based Structured Questionnaires and PIs iii. Stakeholders: This will include perspectives of Community Members – Demand Side iv. Understanding, Suitability and Need for Banking Accounts v. Ease of Opening and Operating Banking Accounts vi. Turn- Around-Time for Processes vii. Issues related with KYC et al viii. Purposes and Use of Banking accounts ix. Need Versus Demand for Social Security Products – Insurance and Pensions x. Demand side view of understanding the needs, ways and means to transform need into demand, life cycle needs including SCRIPT (Savings, Credit, Remittances, Insurance, Pension and Transfers)

4. Assessing Published Reports for understanding the Level of Financial Inclusion – Its Status in State and Districts a. Type of Research: Secondary b. Tools Used: Literature Review and Desk Review c. Stakeholders / Source : Secondary Research using 1. Reports such as that of CRISIL Findex, and other national level reports comparing different or all states. 2. Any relevant reports published by the State Governments and / or independent agencies eg. SAMRUDDHI for MP 3. RBI’s documents on banking status in States Impact: This would help design the type and level of intervention required for each state in order to gear up for Financial Inclusion, post 2015. On the supply side, it shall highlight the issues of capacities (under / over) and subsequent capacity building and Training Need Assessment (TNA) for the bankers, especially the under capacitated RRBs on one hand and help UNDP/SEWA plan out a strategy to build up the supply side capacities including offering products like micro insurance and NPS Lite Swawalamban on the other. On the demand side, UNDP/SEWA can help the stakeholders build up a strategy for financial literacy that will help build up the Financial Inclusion on a sustainable basis in the short, medium and long term. It shall also have policy implications as to how and why there is a strong necessity to convert the latent need into demand for products like the micro pensions and insurance where the GoI and few State Governments provide for top ups. This is especially relevant in the light of upcoming Jan Dhan Yojana.

3.2.3 Strategies for Possible Micro Wealth Management for Women This is a purely exploratory research which identifies the need, strategy and planning the strategies for the possibilities of micro wealth management for women (informal workers from the three categories described earlier) including savings for different purposes and tenure in different instruments and covering various risks.Answer to this question lies in the theory of Micro Wealth Management where members, specially poor women could be taught the need and importance of money and savings for short, medium and long term using a Diversified Portfolio of securities under a regulated environment.

The purpose of this research was the testing the level of intervention required to create a strategy towards an ecosystem for implementing practices for micro wealth for women and promote the compliance of SHG 2 of NABARD in motivating Individual Savings. a. Type of Research: Exploratory b. Tools Used: i. Qualitative Tools: Focused Group Discussion (FGD) c. Stakeholders: FGDs Conducted with: i. Women, ii. SHGs and Women SHG members iii. Recipients of G2P It is assumed that the impact of this research shall go a long way in helping UNDP/SEWA pilot testing practices of micro wealth management for women including promoting Individual Savings as per the intent of NABARD’s SHG2. Micro wealth management for women shall also help in financial deepening and take the financial inclusion drive to its logical culmination.

3.2.4 Designing Different Models for Financial Literacy This research question further explores if there a need to create separate implementation models for interventions in the area of financial inclusion depending upon the existing levels of financial literacy and inclusion. In other words as there are different models of financial inclusion that are at different level of implementation, hence will there be a need for pitching the literacy based inclusion at different levels or a universal model of literacy and inclusion be fit for all. Solution to such questions are purely exploratory in nature and shall depend on the capacity requirement and literacy level for different states. This can only be tested with sample being different states at different level of implementation of financial inclusion. It may lead to a Basic Model of FI where the need of hour could be opening and usage of bank accounts and encourage G2P on one hand and a second model on financial deepening where G2P are available and there is liquidity in the system. This strategy shall supplement the micro wealth management as mentioned above.

1. Identify the necessity and design different models of implementing financial inclusion drive depending on level of FI in different states. a. Type of Research: Exploratory b. Tools Used: i. Qualitative Tools: Focused Group Discussion (FGD) and In Depth Interviews (IDI) c. Stakeholders: FGDs and IDI with stakeholders including field level workers. i. Field Intensive Discussions with Governments, Stakeholders and Bankers. ii. Coordinator, State Level Banking Committee etc. iii. BCs and USB operators who provide the last mile connectivity.

Impact: The research would be able to identify the need of at least two separate models of financial inclusion. The first could be adopted in a state where little or no intervention has been done on G2P, FL and FI. This would help the state Governments and bankers alike to create basic institutions for FI and create the infrastructure required for assessing banking accounts and use the same for G2P. similarly, state governments should be encouraged to provide for G2P using the last mile connectivity of banking access. The second model could be identified and designed to use the existing institutions and structures that are already created by the State Governments and the bankers alike including optimum utilization of existing banking accounts and using the G2P for financial deepening including offering SCRIPT as mentioned above. This model can also work for providing stability and sustainability to the BCs and USBs.

3.3 Secondary Data Gathering At the State level, it involved meeting and interacting with the state/ district level officials involved in the implementation of the entire model. The objective was to discuss the existing level of implementation of the model and the various issues involved in the implementation of the same. It also involved collecting and reviewing various kinds of progress reports and other implementation documents to get an idea of current level of the implementation. Since there was a need to understand the evolution of the FI model itself, the relevant documents and letters of correspondence related to its development and fruition were also studied. Documenting ‘As Is’ situation for Financial Inclusion and Financial Literacy requires both the secondary as well as primary research. It would involve both the quantitative as well as qualitative research in the field. As mentioned above, the first Output shall be a mere documentation of facts which would be entirely based on

3.3.1 Literature Review A complete review of available Literature including generic literature on financial inclusion, various circulars and orders issued by the Government of India, State Government of MP and Bihar, Central Bank (RBI), Lead Bank in MP (Central Bank of India), Lead Bank in Bihar (State Bank of India) etc was performed as part of desk research. The documented minutes of the SLBCs of MP and Bihar were also studied and analyzed for understanding the past and current status. Specifically, the desk study included but not limited to the following:

1. Reserve Bank of India’s Documents a. Reserve Bank of India’s vision on Financial Inclusion viz. Objective, Approach, Institutional Mechanism etc. b. Pradhan Mantri Jan Dhan Yojana c. RBI’s Policy Initiatives to Foster Financial Inclusion including Relaxed KYC Norms and Roadmap for Banking Services in Unbanked Villages including i. Reach ii. Access iii. Products iv. Transactions (DBT) d. RBI’s Financial Inclusion Plans for Bank for the FY 2010 – 2013 and 2013 – 2016

e. RBI’s Financial Literacy Guide 2. Government of India’s vision and views of Financial Inclusion a. Circulars issued by the Department of Financial Services (DFS), Ministry of Finance (MOF), Government of India on Financial Inclusion b. Circulars issued by the UIDAI of India and its correspondence with the DFS and RBI on banking accounts to be linked with the ‘Aadhar’ for achieving efficient transfers c. Portal developed and managed by the Controller General of Accounts (CGA) over the Central Plan Scheme Monitoring System (CPSMS) towards transferring benefits to the end user. 3. Literature Review of Government of Bihar and Madhya Pradesh’s vision and views of Financial Inclusion a. MP’s Financial Inclusion Model’s Paradigm Shift i. Geographical Norms for Installation of Ultra Small Banks (USBs) ii. Concept of Shadow Area Villages iii. Universal Opening of Bank Accounts b. Madhya Pradesh’s Samagra Samajik Suraksha Mission (SSSM) towards building up a common data base of the entire population of MP c. E Governance Initiative: Electronic Fund Management System (e FMS) under the Mahatma Gandhi National Rural Employment Guarantee Act d. E Shakti Project in Bihar and its implications on Financial Inclusion 4. Central Bank of India and State Bank of India as Lead Banker for Madhya Pradesh and Bihar respectively and as Convener of SLBC. a. Statistics under Banking i. Performance of Banks on FI ii. Coverage and Access iii. Appointment of BCAs iv. Account Opening Process v. Enrollments and New Account Opening vi. Following KYC Norms vii. Transactions viii. PMJDY and its implementation b. Central Bank of India’s Madhya Pradesh Financial Inclusion Document including Updated Statistics on FI and FL c. State Bank of India’s Bihar Financial Inclusion Document including Updated Statistics on FI and FL d. Minutes of Bihar and MP’s State Level Banking Committee (SLBC) e. Bankers Leveraging on FLCCs and R-SETIs Platform for Greater Financial Deepening 5. News Briefs on Bihar and Madhya Pradesh’s Financial Inclusion Model 6. Sundry Publications a. UNDP’s Report on Samruddhi b. Reportage on Round Table Conference on SMARUDDHI c. SEWA UNICEF Conference Report on Unconditional Cash Transfers (UCTs) in MP – Two Pilot Studies of Indore District

3.4 Primary Data Gathering While, the evaluation did involve interactions with the state level teams as well, the first-hand feel and the realities of the model implementation was obtained through the visits to a set of sample districts, Janpads and villages. At the district level, it involved meetings and interaction with the district level officials of the banks, Zila Panchayat and the Janpad Panchayats. It also involved visits to villages and in turn to the USBs/CSPs to understanding the functioning and the rollout of FI model and the PMJDY. It also involved collection and analysis of various status, progress and monitoring reports at the district and village levels. The visits to villages and USBs involved interactions with BCAs, CSP Operators, Panchayat level officials and also with the MGNREGA and Pensions beneficiaries and customers of the CSP / USBs etc. the target

The states have a 3-tier system of Panchayati Raj and consists of:  Village-level Panchayats  Block-level Panchayats  District-level Panchayats. It was therefore necessary to visit at each of this tier at the district, block and village level to gather the primary source of information and data. Similarly, state of Bihar was travelled across the capital city of Patna, followed by district of Katihar and a few blocks of the district. The primary survey was performed through an Institutional Survey where the team of consultants visited various government and banking officials and interviewed them to gain an insight into the financial inclusion and literacy space.

3.4.1 Institutional Survey The team of consultants have met the various officials as mentioned earlier and documented the deliberations with them. It is being produced in the current report along with the secondary literature review. During the field visits to the districts, the consultants have also probed further the responsibilities and role of a range of banks / institutions – Public and Private sector bank, Regional Rural Banks, Cooperative banks and Post offices in the process of FI and any other activity undertaken by them on financial literacy. Though this would encompass the ‘supply side’ of the product and processes, it is proposed that in the embedded cases, there would be study of Ultra Small Branches, Business Correspondents and also clients / primary stakeholders at the ‘demand side’.

As mentioned in the proposal itself the consultant have worked towards understanding how did the state government and banks attain the so called five Ps of inclusion; Product, Place, Price, Protection, and Profit; "products that address their needs; a safe place to save, a reliable way to send and receive money, a quick way to borrow in times of need or to escape the clutches of the moneylender, easy-to-understand accident, life and health insurance, and an avenue to engage in savings for old age."

3.4.2 Process Evolution of Financial Inclusion Model The study has also capture the various processes and roadmap that ushered Bihar and MP to evolve such a model. This would be used by means of understanding the thinking of the officials

98 and stakeholders from the ‘supply side’ and the roadblocks that they must have faced in due course to reach to a decision.

3.4.3 Individual and Group Survey Within the primary research a mixed methods approach was adopted for the survey that involved both quantitative and qualitative measures. Qualitative research was conducted to identify and explain the variations in figures reaching through primary survey or secondary research. Qualitative research included Focus Group Discussions (FGD) and In-depth Interviews (IDI) with key stakeholders in financial inclusion ecosystem and the community members including women.

3.4.4 Quantitative Research / Survey As mentioned elsewhere the secondary research output of the study would be performed purely from the ‘Supplier’ side of the policy makers and implementers and would be confined to the versions of the stakeholders engaged in manufacturing and distributing the product and processes including the government agencies. However, the issues of financial inclusion and the level of financial literacy including the need for any further intervention were also to be tested at the ground. Individual separate interviews were taken with a sample of Users and Non-users of various services of the financial inclusion model. As mentioned elsewhere, a more structured questionnaire was developed and administered while taking these interviews. The Interview/questionnaire had similar checklist as that of the FGDs. However, the responses to the checklist items were more personal and individual as against group responses in the FGDs. The data and information obtained from this tool was analyzed and provides an empirical base to the evaluation of the level and understanding of financial literacy as well as level of inclusion in the financial system.

The conclusions of the institutional survey phase namely, field visits and deliberations including the institutional surveys swiftly precipitated as a hypothesis for the second phase namely, primary research with the community members that would be required to be tested at the ground using various research based tools and techniques and a pre defined sample size.

3.4.5 Target Group While the institutional entities have already been defined elsewhere in the report, this sub section pertains to the quantitative survey that was conducted amongst the informal sector workers specially targeting women workers. This was accomplished by running a structured questionnaire amongst a pre decided sample size that was selected on a stratified random sampling basis.

Essentially the focus of the primary survey was on those who either did not have a bank account or those who did not have active bank accounts. It is important to recognize that demand can be sustainably generated after understanding multiple realities of the clients. The client in our case was informal women workers who had varied types of payment schedules for their meager

99 earnings. Some like domestic workers received payments on a monthly basis, the home-based workers receive payments on a weekly basis and the street vendors on a daily basis et al. The construction workers were paid either on daily or weekly basis, the agricultural labourers on a daily basis, the livestock rearers who sell milk on a daily basis and MGNREGA workers on a fortnightly basis. Poor women were also excluded from financial systems is because they often do not have independent identification papers to satisfy the Know your Customer (KYC) norms required by the Banks. Moreover, they rarely own assets such as land or a house so getting a credit is almost impossible for them. Demand could only be created if financial products and services were catered to the multiple realities of the clients. Similarly coverage of different occupational groups helped in disaggregating the data. Finally, there are diversified case studieson different themes as cited above one of them essentially emanating from the need of financial inclusion precipitated by livelihoods.

3.4.6 Sampling A sample size of six hundred was considered sufficient more on a convenience basis rather than a scientific calculation basis. This has been arrived at under the given time frame and resources available for the primary research.

A stratified random samplingwas used to select the sample households as well as the individuals within the household for the survey purpose. The method of sampling therefore involved the division of a population into smaller groups as strata. Typically, in stratified random sampling, the strata are formed based on members' shared attributes or characteristics and in this case, it would be women engaged in different occupation including house wives. A random sample from each stratum was taken in a number proportional to the stratum's size when compared to the population of the respective block or district. These subsets of the strata were then pooled to form a random sample.

The main advantage with stratified sampling is how it captures key population characteristics in the sample. Similar to a weighted average, this method of sampling produces characteristics in the sample that are proportional to the overall population. Stratified sampling works well for populations with a variety of attributes, but is otherwise ineffective, as subgroups cannot be formed.

Sample Size

Gender MP Bihar TOTAL However, since the focus of the UNDP Sewa study Male 53 36 89 is on women and the fact that Sewa Bharat largely Female 247 264 511 works with women, it was considered that at least Total 300 300 600

80% of the sample size shall comprise women workers from the informal sector.

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Sample Distribution

Bihar MP Total Type of workers No. Percent No. Percent No. Percent Agricultural Workers 95 31.7 100 33.3 195 32.5 Farmer 21 7.0 31 10.3 52 8.7 Construction Workers 9 3.0 40 13.3 49 8.2 Street Vendors 3 1.0 12 4.0 15 2.5 HBW 18 6.0 21 7.0 39 6.5 Domestic Workers 34 11.3 22 7.3 56 9.3 Forest workers 0 0.0 5 1.7 5 0.8 Cattle Rearing 19 6.3 4 1.3 23 3.8 Others 101 33.7 65 21.7 166 27.7 TOTAL 300 100.0 300 100.0 600 100.0

The survey also covered users and non users of the banking and financial products so as to create a diversified mix of inclusion and literacy. However, the survey targeted women workers mainly engaged in the following major occupations20: a. Agricultural Laborers b. Agriculture Owner Workers c. Building and Other Construction Workers d. Home Based Workers (Beedi, Stitching, Agarbatti etc.) e. Street Vendors and Petty Shopkeepers f. Housemaids working in other houses for wages g. Forest Workers h. Workers engaged in Animal Husbandry, Looking after Animals, Arranging Fodder etc. i. Paid Employment / Jobs / Service j. Tailor, Barber, Carpenter, Blacksmith, Potter, Mechanic etc. k. Home Maker / House wife l. Others Since these were major occupations mentioned, at least a three fourth of the sample was selected from these occupations. Since the sample size was further subdivided into two districts, each of the sub set mentioned above almost had of each district.

20 The list is not exhaustive and shall vary between the ethos and working environment and culture between the two districts of Khandwa and Katihar. Few occupations may be added based on the local livelihoods opportunities and occupations.

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3.4.7 Field Work The field work began on 8th of October and started with the training of the supervisors and surveyors on the research, design and the questionnaire for two days, followed by field testing of the questionnaire for next three days and a wrap up session on the following (fifth) day of the training session. While the training guidelines were developed separately, every effort was been taken to maintain uniformity across both the teams in districts of Khandwa and Katiahar.

Training: The first two days of the classroom training covered the overall concepts, objective and methodology of the field work on one hand while each and every question in the questionnaire were dealt with separately and explained in details by the Lead and Sr. Researchers on the other. On the following days which would be day 3 onwards the training each surveyor and their supervisors took place at the field. They were asked to perform and run the questionnaire as a mock drill. Issues within the questionnaires were noted down by one of the supervisors under the overall guidance of the Sr. Researcher. At the end of the day a list was compiled at each location flagged the issues of various questions that required revisiting. The Lead Researcher was in constant touch with both the senior researchers on a minute to minute basis and between the three of them improvised the questionnaire based on the feedback from the field. In fact, the LR had visited both the districts personally to supervise the trainings as well as data collection in the field. Final days were necessary to make the corrections / amendments in the questionnaire as well as retrain the staff on the revised questionnaire. Few sessions of retraining or repeated mock drills were also organized by the senior researcher depending on the circumstances and need to do so. However, it was made clear to the teams that no compromise should be made with this process. An extra day / spare day was scheduled by the senior researchers in case there is a delay in tweaking the questionnaire or even re training on the revised questionnaire. Hence a week was budgeted to take up the training and reach to the ground zero after the testing of the questionnaire and training of the staff.

Manpower Requirement for Each District: In order to accomplish the tasks, there was a requirement for 12 Surveyors for 14 days (5 days for training and 7 days for survey plus 1 extra day for contingency) with a manpower requirement of 12*14 = 168 Man Days. It was decided that each surveyor shall get 5 forms filled on daily basis and hence 5 days would be required for 25 forms by one surveyor. Twelve surveyors with 25 forms each in a district were able to get 300 forms filled. There was One Supervisors over a team of Four Surveyors and hence Three Supervisors were required to accomplish the tasks. In addition, few of the supervisors also helped the Sr. Researcher in accomplishing the FGDs as well as taking up the case study as the case may be. The decision of the Sr. Researcher was final in such cases and he would justify the same in the internal report on the survey. Each Supervisor also checked all 100% forms the very same day and ensured quality. There was also back checking by the Sr. Researcher to the tune of 33.33%. Random verification of the filled up forms was also performed by the Sr. Researchers. The Lead Researchers visited both the locations to ensure that uniformity was maintained at both the districts both in terms of quality and quantity of the survey as well as following up of the defined processes.

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The survey was conduced from 13 Oct. to 18 Oct. 2014 in urban and rural areas of Khandwa and Khalwa blocks of East Nimar district (Khandwa district). After training the survey was started with team of 11 surveyors and 3 supervisors. Each team had 1 supervisor and 4 surveyors (one team had 3 surveyors). The urban and rural areas were already selected. The supervisor had gone in the field along with respective surveyor's team and ensured that whether each surveyor was getting responses properly.

The supervisors ensured that filled in questionnaires were complete in all respect, and on the same day they used to check each and every questionnaire of their respective team, and in case of any doubt in the responses given by the respondent, supervisors marked with pencils and sent again to surveyors to correct it. After getting questionnaires from the surveyors, the supervisor selected randomly and used to go with the questionnaire to the same households and respondents and asked same questions for back checking on the same day. About 30-40 percent back checked was done by supervisors on the same day with the respondent to ensure the quality of questionnaire.

3.5 Qualitative Research / Focused Group Discussions (FGDs) For the purpose of conducting the FGDs, the same location of blocks and villages were identified and chosen as were selected for the purpose of quantitative survey. However, the villages were kept different between the two as the locations selected was based on certain characteristics like higher concentration of occupational women workers, remote areas, high incidence of migration (Bihar), prevalence of tribal traditional norms (Khandwa), low literacy rate etc. In each location FGDs were conducted with all the target groups separately to understand the issues related to access to banking accounts, financial products, financial literacy, traditional norms on savings and banking, gender difference in perception of financial inclusion and literacy, factors influencing financial literacy and retention of money in G2P accounts, and family factors regarding understanding of risk perception and contributing to budgeting and savings on a sustainable basis.

FGDs were organized in each of the identified Blocks and villages under the study. At least one FGD was organized with the group of Users and Non-Users of the services, separately, in each of the identified blocks.

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a. With Users: The kinds of services available to them through the existing or improved model of FI, what is the awareness about the services on offer, broad timeframe of delivery of the mentioned services, status of the delivery of services prior to the introduction of model, a quick comparison of the costs (monetary and otherwise) involved in availing these services – presently and earlier, response system and response mechanism of the service providers, instances of disruption of the promised services, reasons quoted for such disruptions – exit of the service provider, failure of the infrastructure (electricity, internet connectivity, etc.), if known/communicated, other benefits of the newly introduced system, various other issues and concerns in availing the service, the scope of improvement in the system, if any, overall satisfaction level in availing these services through the recently modified channel, etc. Level of financial literacy in understanding their own incomes and expenses, preparing budgets and understanding the risk perception against non savings, risk of death and risk of longevity as perceived for insurance and pension products.

b. With Non-Users: What are the reasons of still being/remaining the Non-users of these financial services, are these supplies side issues, demand side issues, the costs related issues, eligibility related issues, or other issues, what is the awareness about the services on offer – banking, remittance, payments, e-FMS, availing of SSSM services in MP, what is the feeling about these services on offer in the villages/locality, what else should be done to bring the Non-Users into User group, how can these services be made more effective and efficient, etc.

3.6 Field Visit to Madhya Pradesh As the study proposed to build around Two different models and approaches on Financial Literacy based Financial Inclusion, the first model namely, ‘an advance FI model that requires financial literacy and capacity building to attain financial deepening’ could be tested and hence was proposed for MP.

The hypotheses behind the field visit in MP were that much of the efforts have already gone in developing the Samruddhi model of MP. With the development and appraisal of MP Financial Inclusion model ‘Samruddhi’ in January 2014 that is largely following the G – 20 Global Best

Practices including the G2P structures, many state governments have come forward to vie and follow similar institutions. The Central Government has also indicated that it will be using the M.P model for expanding financial inclusion in the country. The model envisaged that banking facilities should be provided to villagers within five kilometres, which resulted in opening of 76.5 lakh bank accounts in the state. However, there was a huge potential in the state to improve upon financial deepening and to discuss the subject matter further, there was a need for the Lead Researcher as

104 well as State Researcher and Local Team to visit the state capital Bhopal as well as the district headquarter Khandwa and meet the relevant officials involved with the process of financial inclusion.

Field Visit to Madhya Pradesh

Project Research Oriented Study on ‘Literacy Based Total Financial Inclusion’

Client UNDP / SEWA

Dates of Visit 22nd September 2014 – 26th September (Five Days)

Places Visited Bhopal,

Khandwa District Headquarter and

Khandwa Rural

Approvals Sewa Bharat

Persons Dr. Kavim V Bhatnagar, Mr. Santosh Malviya and

Sewa Team

3.6.1 Institutional Survey in Madhya Pradesh A series of meetings were held to different levels:

A. State Capital Level: Bhopal

1. Meetings at the State Government Level with Additional Chief Secretary (ACS) of Department of Rural Development and Department of Finance. These meeting were targeted to understand the Policy and Strategy of the RD Department’s initiatives on Financial Inclusion and the FD’s role in the PMJDY and its strategies.

2. Meeting with the Additional Secretary – Panchayat and Rural Development Department who is in charge of monitoring and mapping of un-banked villages. Technical integration of NREGAsoft with CBS platforms and SANCHAY Post and the inter agency coordination like bank, post office and NIC etc.

3. Meeting with the Mission Director, Financial Inclusion – Pradhan Mantri Jan Dhan Yojana (PMJDY) and the officials of the Commissioner Institutional Finance (CIF) as well as the Banking official. This was targeted to understand the perspective of the Mission Director, FI and the strategies developed to undertake financial inclusion drive in the state of MP with special reference to the PMJDY.

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4. Meeting with the Officials of the State Rural Livelihoods Mission (SRLM). As SRLM is an SPV created under the aegis of the Rural Development Department, they are responsible towards implementation of the livelihoods projects of RD including the inclusion on SHGs and banking linkages etc.

5. Bankers’ Meetings with the Convener of the State Level Banking Committee – Central Bank of India. This was targeted to understand the perspectives of the various Banks including their achievements, role and future strategy.

6. Officials of the NABARD, the Chief General Manager MP Region NABARD. As NABARD is a key stakeholder in financial inclusion drive with special emphasis on SHG movement, it was necessary to pick up their perspective, strategy, achievements and their role in the overall FI in MP.

B. Meetings at the District Level

1. Meeting with the officials of the District Panchayat and Rural Development Department to understand their perspective on Financial Inclusion as well as financial literacy and their level of coordination with the bankers through the LDM as well as NABARD

2. Meeting at Bank level - Lead District Manager – Bank of India. This was targeted to pick up the current status of Financial Inclusion in the district of Khandwa with special reference to their achievements, current status and the strategy involved with opening banking accounts under the recently launched PMJDY.

3. Meeting with NABARD official – District Development Manager, NABARD who is in charge of all the development activities of the NABARD mandate including the financial inclusion using the SHG and SHG II of the NABARD that pertains to individual bank accounts and savings foe the district of Khandwa.

4. Two separate Meetings with Community Members / Villagers at different locations with an objective to understand their perspective of financial inclusion and financial literacy and testing the broad areas of research questions so as to produce the survey tools.

3.7 Field Visit to Bihar The second model namely, ‘a basic FI model that requires financial literacy and capacity building to open and operate basic banking accounts by women’ could be tested and hence was proposed in Bihar. The second hypotheses behind the field visit in Bihar was therefore that very little efforts and hence results, were visible in the state in the area of financial inclusion. In this connection and to discuss the subject matter further, there was thus a need for the Lead Researcher as well as

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State Researcher and Local Team to visit the state capital Patna as well as the district headquarter Katihar and meet the relevant officials involved with the process of financial inclusion. The purpose of the first field visit was to meet and pick up the perspectives of different officials involved in financial inclusion, either at policy and strategy level or at execution level.

Field Visit to Bihar

Project Research Oriented Study on ‘Literacy Based Total Financial Inclusion’

Client UNDP / SEWA

Dates of Visit 15th September 2014 – 19th September (Five Days)

Places Visited Patna City,

Katihar District Headquarter and

Katihar Rural

Approvals Sewa Bharat

Persons Dr. Kavim V Bhatnagar, Mr. Niraj Kumar and

Sewa Bharat Team –

Maushmi, State Coordinator Sewa Bihar

Swati, District Coordinator Katihar

3.7.1 Institutional Survey in Bihar A series of meetings and workshop were held to different levels:

A. State Capital Level: Patna

2. Meetings at the State Government Level with Secretary of Department of Rural Development. This meeting was targeted to understand the Policy and Strategy of the RD Department’s initiatives on Financial Inclusion.

3. Meeting with the Officials of the Bihar Rural Livelihoods Project (BRLP). As BRLP is an SPV created under the aegis of the Rural Development Department, they are responsible towards implementation of the projects of RD including the inclusion on SHGs and banking linkages etc.

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4. Bankers’ Meetings with the Convener of the State Level Banking Committee – State Bank of India. This was to targeted to understand the perspectives of the various Banks including their achievements, role and future strategy.

5. Officials of the NABARD, the Chief General Manager and the DGM Financial Inclusion. As NABARD is a key stakeholder in financial inclusion drive with special emphasis on SHG movement, it was necessary to pick up their perspective, strategy, achievements and their role in the overall FI in Bihar.

6. Meeting with officials of relevant Civil Societies – Samman Foundation, an organization which initiated a need based financial inclusion almost a decade back and displayed a precedence to bankers et al as to why and how the FI should be need based and not merely for sake of FI.

B. Meetings at the District Level

1. Workshop with all Bankers of the District at the auspices of the District Magistrate. This was at the invitation of the DM Katihar and was organized by the Lead District Manager (LDM – Central Bank of India). While the DM Katihar introduced the team of UNDP Sewa project there were intense discussions on the PMJDY as well.

2. Meeting at Bank level - Lead District Manager – Central Bank of India. This was targeted to pick up the current status of Financial Inclusion in the district of Katihar with special reference to their achievements, current status and the strategy involved with opening banking accounts under the recently launched PMJDY.

4. Regional Rural Bank – Uttar Bihar Grameen Bank (UBGB) which is an RRB jointly promoted by the Central Bank of India and NABARD towards attaining various banking objectives in the rural belt of the district. It provided the perspective of the RRB towards financial inclusion.

5. Field visit to the Financial Literacy Center (FLC) – owned, managed and operated by the RRB located in the interior rural areas of the district. A field visit to the FLC was performed by the team to understand their activities in financial literacy space and was accompanied by the DDM NABARD and hosted by the UBGB.

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6. Field visit to the Banking Correspondence Agent (BCA) at a remote location in the interior rural belt of Katihar district. The purpose was to understand the actual grass root level banking activities including processes and benefits that have been reaching the community members as the last mile connectivity.

7. Field Visit to a group of SHG office bearers being formed by the BRLP district project support unit team in the district of Katihar. The purpose was to understand the activities of the various SHGs formed and nurtured by the BRLP and the financial literacy level of their office bearers and members.

8. Two separate Meetings with Community Members / Villagers at different locations with an objective to understand their perspective of financial inclusion and financial literacy and testing the broad areas of research questions so as to produce the survey tools.

3.8 Data Entry and Analysis To enter the data received from the individual respondents belonging to different household and community questionnaires one software package shall be developed in MS-Access. The package shall be tested with a small set of completed questionnaires and the errors that shall be identified shall be rectified. Data entry operators and supervisors shall be trained during October 2014 before the data entry work starts. Data entry and cleaning shall be completed during early November 2014 and analysis shall be completed by mid November after the cleaning of the primary data.

Raw data was cleaned in the SPSS. Data was analysed by state, urban / rural residence and gender. The analysis was carried out through frequency tables, crosstabs and mean and Standard Deviation were presented wherever it was found relevant. Analysis was carried out using SPSS. The findings are presented through charts and tables in Chapter 7.

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Chapter 4. Status of Financial Inclusion and Literacy in Bihar

Annotation: This chapter deals with the existing status of financial inclusion and financial literacy in the state of Bihar. It provides for the roadmap for financial inclusion model – its evolution and current status as well as efforts of the state governments and bankers in Bihar. One section of the chapter also deals with the efforts of the state on financial literacy. The chapter also captures a couple of theme based Case Studies and an extract of the report of MicroSave.

4.1 Backdrop to Bihar Bihar is the 12th largest state in terms of geographical size of 38,202 sq mi (98,940 km2) and third most populated state of India with a population density of 1106 persons per sq. kms., compared to the national average of 382 persons per sq. kms. With a total population of 104.1 million in 2011, Bihar constitutes 8.6 percent of the total Indian population. Three demographic features of Bihar which are substantially different from India are — decadal growth rate of population, density of population and rate of urbanisatioin. The decadal growth rate of population for Bihar (25.1 percent) is much higher than for India (17.6 percent). Bihar, with only 11.3 percent urban population, remains the least urbanised state in India, the national average standing above 30 percent. Since the late 1970s, Bihar has lagged behind other Indian states in terms of its social and economic development.

4.1.1 Economy and Growth Bihar has been the best performing state in terms of growth rate of both gross state domestic product (GSDP) 2012-13 (15.1 per cent and average GSDP 205-06 to 2012-13 (9.9 per cent) and also per capita income growth 2012-13 (13.9 per cent). Madhya Pradesh, Gujarat and Kerela are other states that have performed well in all these indicators and well above the all India average21. However Poverty estimates indicate that Bihar which had the second highest poverty headcount ratio (HCR) in 2004-05 moved to first place in 2011-12 with the HCR at 3.7 per cent relegating Odisha to second place.

The GSDP of Bihar at 2004-05 prices in 2012-13 is Rs. 1.65 lakh crore, yielding a per capita income of Rs. 16,537. The estimated GSDP at current prices in 2012-13 is Rs. 3.09 lakh crore, implying a per capita income of Rs. 30,930. In 2008-09, the per capita income of Bihar (Rs. 13,728) was 33.7 percent of all-India average (Rs. 40,775), but in 2012-13, this ratio has increased to 41.18 percent (Rs. 28,317 for Bihar and Rs. 68,757 for all-India). It is, thus, clear that the momentum of growth in Bihar's economy has got to be sustained for many more years if the gap between the per capita income of Bihar and that of India has to be closed. The problem of low per capita income in Bihar is accentuated by the fact that there exists considerable disparity across the districts in terms of their per capita income. The latest estimates of per capita GDDP (Gross District Domestic Product) relate to 2010-11. In 2010-11, Patna (Rs. 57,483), Munger (Rs. 21,019) and Begusarai (Rs. 18,447) are the most prosperous districts of Bihar. On the other end of the ranking

21 In terms of absolute values of GSDP and per capita income, Maharashtra and Haryana respectively are at the top.

110 ladder, the most economically backward districts are Sheohar (Rs. 6209), Banka (Rs. 7764) and Madhepura (Rs. 8102).

The recent data on state income shows that the economy of Bihar has grown steadily during the period (2006-13). During the period 1999-2006, the economy had grown at an annual rate of 5.7 percent at constant prices. This was the period immediately after the bifurcation of the state in November, 2000. However, the economy witnessed a turnaround due to the policies pursued by the state government thereafter and, as a result, the annual growth rate was much higher at 12.0 percent during 2006-13 period. One can, therefore, term the recent growth process as a 'revival of a stagnant economy'. During this period, the investment level had also increased substantially. From an average annual plan size of Rs. 4200 crore during the Tenth Plan period (2002-07), the average plan size climbed to more than Rs. 16,700 crore during the Eleventh Plan period (2007-12). Besides the size of the investment, the pattern also has undergone major changes, with considerable emphasis now on infrastructural development and social delivery system.

As per the Economic Survey of Bihar, 2013 – 14 around 92 percent of entrepreneurs, falling under micro, small and medium scale industries, are not taking benefits from the banking service. The main reason for this state of affairs is the lack of awareness about the specific schemes of banks. The banking professionals, both from the public and private sectors, should come forward to help MSMEs in promoting industrialisation of the state.22

4.1.2 Special Purpose Vehicle (SPV) The Bihar Rural Livelihoods Promotion Society has been designated as State Rural Livelihoods Mission by the state government under the overall framework of National Rural Livelihoods Mission. It will scale up its JEEViKA model of poverty alleviation throughout the state in a phased manner. The programme is being made operational in all the blocks by 2014. Overall, 1.5 crore rural poor families would be organised into 10 lakh SHGs, 65 thousand Village Organisations (VO), 1600 Custer Level Federations (CLF) and 534 Block Level Federations (BLF).

Bihar, a slow starter, is gradually catching up with other states in both formation of SHGs and ensuring their bank linkages. As of March, 2013, SHG coverage in rural Bihar was 35.22 lakh households, roughly 48 percent of total rural households.

4.2 Roadmap of Financial Inclusion in Bihar A Roadmap for Financial Inclusion was prepared by the banks in Bihar in consultation with the state government and approved by District Level Coordination Committees (DLCC), as per the guidelines issued by the Reserve Bank of India. It aimed to expand banking outlets by way of new branches and through any of the available ICT-based models, including Business Correspondents (BCs) in the villages having a population of more than 2000 by March 2012. Accordingly, 9213 villages were identified and allotted to the banks for providing banking facilities. Of this, 2124 villages were covered during 2010-11 and by March 2012, all but 36 of the identified 9213 villages were covered. The remaining 36 villages were to have been covered by the end of 2012-13.

22 Economic Survey 2013 – 14. Government of Bihar, Finance Department February 2014.

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However, the target for the scheme was subsequently revised during 2012-13 and it was proposed to cover all villages with a population of 1600 or more in the scope for financial inclusion. Another major initiative of the state government in the direction of financial inclusion was the decision to open at least one account in every family, in order to enhance the reach of banking services to all families. By the end of 2012-13, a total of 3052 such villages were identified and planned to be covered. Roadmap for financial inclusion as on September 30, 2013, is presented in table below according to which, by September 13, 2013 out of the target for 3052 villages, only 2242 villages could be covered, leaving 810 villages (26.5 percent) villages yet to be covered.

During that last fiscal year, the three Regional Rural Banks have together financed 11,880 SHGs for a total amount of Rs 91.49 crore, which amounts to 41.21 percent of the total credit of Rs. 222 crore to SHGs in Bihar. Of the total number of 11,880 SHGs, as many as 10,330 were exclusively women SHGs, involving a savings amount of Rs 83.37 crore (91.1 percent).

4.3 Financial Inclusion Through Banking Structures in Bihar At the end of March 2013, 54.0 percent of the total 5008 branches of commercial banks in Bihar were located in rural areas, compared to 61.6 percent in 2008. The decline in the share of rural branches has been continuing unabated since 2008. Bihar accounted for only 4.6 percent of all the bank branches in the country in March2013, though its share in country's population was 8.6 percent. The financial sector in India has always been dominated by the Scheduled Commercial Banks (SCBs), accounting for major chunk of the total financial flows in the economy. These banks also play a major role in financial inclusion, and this is especially important for the rural sector. In the near absence of a capital market, the financial sector in a state like Bihar is almost entirely driven by the SCBs. Any adverse development in the international and national banking scenario, therefore, is likely to impact the financial sector in Bihar as well.

As observed by the RBI’s Report on Trends and Progress of Banking in India, 2012-13, “The weakening domestic macroeconomic conditions combined with continuing subdued global growth and its increasing spillover risks posed challenges to the banking sector during 2012-13.”23 The global economy also registered subdued growth of 3.2 percent in 2012 compared with 3.9 percent in the previous year, as it was yet to recover from the impact of the global financial crisis. It is no wonder that the slowdown in both domestic and global economy had resulted in the slowdown of the Indian banking sector as well for the second consecutive year in 2012-13.

23 Report on Trends and Progress of Banking in India, 2012-13 – Reserve Bank of India

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Distribution of Commercial Bank Branches among States (2012 – 2013)

Source: Statistical Tables Relating to Banks in India 2012 – 2013 – Reserve Bank of India

4.3.1 Credit Deposit (CD) Ratio The Credit-Deposit (CD) ratios in Bihar since 2001-02, according to data released by the State Level Banker’s Committee (SLBC) chaired by the State Bank of India, are presented below in the Table. As per this data, in March 2013, the CD ratio of Bihar was 40.59 percent, higher than 36.70 percent prevailing in March 2012. In September, 2013, it was marginally lower at 40.52 percent. Even though there has been some improvement in CDR in recent years, its low level continues to plague the banking scenario in Bihar.

In absolute terms, the low CD ratio means that, if the current CD ratio of about 40 percent in the state were to increase to the national level of around 78 percent, investments in the state would go up by as much as Rs. 63,000 crore; this is more than the current annual plan outlay of the state and it could provide the much-needed impetus to economic activities. Even a modest CD ratio of 50 percent in Bihar would boost local investments by nearly Rs. 16,000 crore. The low disbursement of credit also indicates that

113 either the industrial activities are stagnating, or the credit requirements of the enterprises are being met at higher rates of interest from private lending agencies, eating into their profitability. This naturally is a serious hindrance to industrial growth in the state. Further, this also indicates flight of capital away from an already disadvantaged state.

Credit Deposit (CD) Ratio of All Banks in Bihar

Note: As per the RBI data, CD Ratio of Bihar is only 30.10 percent as of March, 2013. The difference is mainly due to the inclusion of funds loaned by banks under the RIDF Scheme

Excluding the RIDF, the CD ratio would be 38.40 per cent as shown. Also Table contains data only for the commercial banks in Bihar.

Source: State Level Banking Committee (SLBC) Bihar

The following analysis of the financial sector in Bihar takes into account three kinds of institutions functioning in the state:

1. Banks that include Commercial Banks, Regional Rural Banks, Cooperative Banks as well as other Cooperative institutions,

2. State financial institutions and

3. National financial institutions.

The Cooperative banks generally look after the requirements of only agriculture sector; commercial banks provide finance for industry as well as agriculture; state financial institutions help to promote industrial development in the state; and national financial institutions cater to the interest of industrial sector and provide large scale finance.

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4.3.2 Commercial Banks The table below would clearly depict that very little effort on financial inclusion has been made by the bankers in Bihar over the past five years. For, very little or no progress is seen in rural branch expansion in the state. In percentage terms the share of rural branches have declined by more than seven percentage points as depicted below:

Distribution of Commercial Bank Branches in Bihar

Source: Statistical Tables Relating to Banks in India 2012 – 2013 – Reserve Bank of India

At the end of March 2013, 54.0 percent of the total 5008 branches of commercial banks in Bihar were located in rural areas, compared to 61.6 percent in 2008. The decline in the share of rural branches has been continuing unabated since 2008. In 2012-13, 307 new branches were added compared to 313 in the previous year, and the growth rate of 6.53 percent in bank expansion in that year was marginally lower than the highest rate (7.13 percent), achieved in 2011-12. However, out of 307 new branches opened in 2012-13, all but 128 branches were opened in either urban (64 branches) or semi-urban areas (115 branches). As of 2013, the private non-nationalised banks have 155 urban and semi-urban and only 12 rural branches. The banks obviously wanted to take advantage of the demand-driven growth and increase in purchasing power in urban and semi-urban areas, but the purpose of financial inclusion would not be achieved if the rural areas are ignored.

4.3.3 Cooperative Banks Growth in the number of State and District Central Cooperative Banks (DCCB) in the country as a whole has been minimal; however, in Bihar, there has been no expansion at all in the previous years. The total number of cooperative bank branches in Bihar was 295, both in 2011 and 2012.

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Number of Branches of State and District Central Cooperative Banks as on March 31st.

Source: Statistical Tables Relating to Banks in India 2012 – 2013 – Reserve Bank of India

4.3.4 Regional Rural Banks With the promulgation of Regional Rural Banks (RRB) Act of 1976, the regional rural banks came into existence to channel resources towards agricultural and rural credit. With equity holdings by the central government, the concerned state governments and the sponsoring banks in the proportion of 50:15:35 respectively, the RRBs provide a multi-agency approach for agricultural and rural credit in India.

While the total number of branches of RRBs had increased by 7.8 percent over the previous year, the deposits of RRBs in Bihar increased by Rs 948 crore (6.3 percent), and credits increased by Rs 823 crore (11.7 percent). In 2011-12, the deposits and credits grew at much higher rates of 9.8 percent and 11.8 percent respectively. Further, the growth rates in both deposits and credits in Bihar were among the lowest in the country. The growth of deposits and credits in 2012-13 was also much less than the peak achieved in 2008-09, when deposits had increased by Rs 3200 crore and credits by Rs 1600 crore. It is to be noted that less than 50 percent of what the rural economy of Bihar deposits with the RRBs flows back to it in the form

116 of credit. After 2008-09, the growth in deposits of RRBs has slowed down steeply; from a high growth of about 23 percent in 2008-09, it had fallen to 6.3 percent in 2012-13.

Number of RRB Branches in Bihar (As of September 2013)

At the end of March, 2012, Bihar had 1594 RRB branches; by September, 2013, the number had increased to 1718. Uttar Bihar Gramin Bank (UBGB) alone accounted for 58 percent of the total RRB branches in the

state. Source: State Level Banking Committee (SLBC) Bihar

4.3.5 Kisan Credit Card The Kisan Credit Cards (KCC) scheme, introduced in 1998-99, aims at providing crop loans to farmers in a flexible and cost-effective manner. The scheme is being implemented in all the states and union territories by all Scheduled Commercial Banks, Regional Rural Bank, State Cooperative Banks, Central Cooperative Banks, and Primary Agricultural Cooperative Societies. Beneficiaries under the KCC are issued with a credit card-cum-passbook, incorporating the name, address and particulars of land, borrowing limit, and the validity period. The credit limits are fixed taking into account the entire production credit needs for a full year, plus ancillary activities relating to crop production, sub-limits are also fixed at the discretion of lending banks. The crop loan or short-term credit is provided in the form of a revolving cash credit facility, involving any number of drawals and repayments within the fixed limit. The KCC now covers short term loan for agriculture and allied activities as well as working capital requirements for cropping.

The number of KCCs issued by banks in Bihar during the period from 2003-04 to 2012-13 is shown in Table below.

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Number of Kisan Credit Cards Issued by Banks (2003 – 04 to 2012 – 13)

Source: State Level Banking Committee (SLBC) Bihar

For the scheduled commercial banks, the achievement figures were consistently high, exceeding 80 percent till 2006-07, after which there was a visible decline with the achievement rate dropping to only 56.9 percent in 2010-11. It later recovered and, in 2012-13, the figure stood at a respectable 77.2 percent. The Regional Rural Bank have consistently improved their performance throughout the period and their achievement against target stood at 86.6 percent during 2011-12; in the current fiscal they have overachieved their targets (113 percent achievement). However, the Central Cooperative Banks lagged behind their targets till 2008-09, despite the targets having been reduced significantly; but they partly made up for their past shortfalls by achieving 175.7 and 128.3 percent of their target in 2009- 10 and 2010- 11 respectively. Afterwards, their targets were hiked up steeply and their achievements fell to the level of 55.1 percent and then to 38.8 percent in 2011-12 and 2012-13 respectively. In 2012-13, the overall achievement in the state has been 82.7 percent of the target.

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4.4 Postal Network India Posts have the largest postal network in the world. In March, 2013, there were 1.55 lakh post offices across the country. Each post office on an average serves 7,814 persons. The rural India has a total of 1.39 lakh post offices, as against only 15,826 in urban areas. There are also 1155 franchisee outlets in the areas where it is not possible to open post offices. Under Bihar circle, there are 31 head post offices, 1015 sub- post offices, 8014 branch post offices, and 6 night post offices as on March, 2013. Around 90 percent of branch post offices, which are mainly functional in rural areas, are run by the Gramin Dak Sewaks (GDS) and around 10 percent are run by the departmental staff. The number of letter boxes were a little above 25 thousand, with rural share being 89 percent. More than 95 percent of the post offices are located in rural areas of the state.

With the launching of Project Arrow in 2008, Mail Network Optimization Project in 2010 and IT Modernisation Project in 2012, all postal operations are being upgraded, that include mail delivery, remittance and banking services. The Indian Posts are emerging as a one-stop-shop for retail products and offer a single window facility for banking, money remittances and other financial products. Under Bihar Circle, all head post offices and 87 sub-post offices have been modernised under the Project Arrow. The post offices are also given the responsibility of disbursing wages to beneficiaries under Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA), through post office savings bank accounts.

As per the Economic Survey of Bihar, 2011-12, including MNREGA accounts, there were in all 354.99 lakh live accounts with the post offices under Bihar circle and the amount in deposit (closing balance) was Rs. 15.77 crore. As against this, in 2012-13, the deposits were Rs. 11.94 crore in 269.19 lakh accounts, showing around 26 percent decrease over last year. However, in the first half of 2013-14 (upto September, 2013), the number of live accounts including MNREGA became 272.79 lakh with a total deposit of Rs. 11.71 crore, which appears to be quite substantial. The number of accounts and the amount in deposit under different schemes are given below:

As is discerned, as on March 2013, there were 65.92 lakh live accounts with the post offices under MNREGA Scheme in Bihar circle, with a deposited amount of Rs. 1.50 crore. The number of live accounts became 66.36 lakh by September, 2013 showing an increase over the previous year. However, the deposits did not keep pace with the increase in number of accounts and remained at only about one-third of the last year's deposits.

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Number of Live Accounts and Amounts in Deposits with Post Offices

Source: Chief Post Master General, Bihar

Case Study 2: Protection Against Frauds – The need of Hour. Case of Asha Devi– Cotton Wicks (Baati) Maker Asha Devi, 45 years, is resident of Gareri Tola, Katihar (Bihar). Apart from her husband, she had five daughters and two sons in her family. She had studied up to standard five. Her husband was a worker at local Jute Mill that closed down about seven years ago. After losing his job due to closure of the mill, he took trading of used gunny bags and tins to support his family. However, the income was too meager to support the family of nine persons and thus to save money for marriage of their five daughters was a far cry.

So, Asha Devi took round cotton wicks (baati) making to top up her husband’s income. She learnt the skills from her neighbors, who were also involved in the same occupation for long. She used to buy cotton from nearby wholesale market and then make wicks at home during leisure time and sell it to traders, who use to visit on weekly basis at her mohalla to buy wicks. Now she also taught the skills to two of her elder daughters, who now help her in the task to make more wicks to add more income for the family.

120 bank account but the banker asked for an introducer (existing account holder) and he couldn’t find one. Hence he failed to open bank account and then gave-up the effort for ever. Earlier she used to keep the savings at home but when the amount became large, she decided to put her savings in an investment scheme of ‘Pearls Agro’, who promised her very attractive returns. She was lured by company’s agent, who lived in her neighborhood. Since many residents of the neighborhood had also invested in the same scheme, it gave her further trust on the scheme.

Last year, she came to know that that the company had closed its office and the agent was on the run. She lost her hard earned deposit of Rs 50,000 that she saved after lot of toil. She is now worried that how will she marry her daughter who is now of marriageable age. She was cursing bankers that if they would have allowed her to open bank account, she wouldn’t have landed in this crisis. Last year, with the help of Sewa Bharat, she managed to open a bank account in a nationalized bank and now keeps her savings there. She has also opened a recurring deposit account at Sewa’s Thrift and Credit Co-operative Society.

She is aware of insurance and has also enrolled herself for RSBY but neither she nor her husband has got life insurance cover. She knows about the LIC but will look at it as more of investment scheme rather than insurance scheme. She remained away from LIC as she is wary of any agent selling any scheme. She was completely unaware of Swavalamban Pension Scheme and how to get it but once told about it, she is willing to subscribe for it. However, she is still averse to deposit money with any private agency, working as aggregator for PFRDA for NPS Lite. Her bitter experience of investment with a private agency becomes a major stumbling block to take part in any social security scheme.

4.5 Micro Finance in Bihar The conventional anti-poverty programmes suffer from problems of delivery and are often unsuccessful in making a serious dent on poverty, especially the kind of poverty caused by the absence of a credit support for the poor households. This is particularly true in Bihar. In this scenario, microfinance is a potent alternative for poverty alleviation. The access to timely and adequate credit and other financial services for the weaker sections of the society at an affordable cost is essential for the overall economic development of the society. In this background, the Self Help Groups (SHGs) and the SHG-Bank Linkage Programme (SHGBLP) implemented by Scheduled Commercial Banks, Regional Rural Banks and Cooperative Banks, have emerged as the major microfinance programme in the country.

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Growth of Microfinance in Bihar

The year-wise progress made in credit linking of SHGs is shown in Table on the LHS. During 2012-

13, banks have credit-linked additional 30,297 SHGs within the state.

This is an improved performance compared to the last year, though it is yet to reach the peak level achieved during 2007-08, when as many as 49,738 new SHGs were linked with the banks in Bihar.

Economic Survey of Bihar, 2013 -14

As of 31 March 2013, there were 73 lakh SHGs in India covering about 9.5 crore households, out of which more than 59 lakh were exclusively women SHGs. These SHGs were linked to the formal banking system with their savings balance of over Rs. 8200 crore, compared to Rs 7000 crore in the previous year. The total bank loan disbursed during the year 2012-13 amounted to more than Rs 20,500 crore and the total outstanding loan amounts to more than Rs 39,375 crore. In other words, the SHG-BLP has so far been the most preferred and viable model for financial inclusion of the hitherto unreached rural poor. Bihar, a slow starter, is gradually catching up with other states in both formation of SHGs and ensuring their bank linkages. The performance of SHGs in Bihar till 2012-13 is shown below:

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Performance of SHGs in Bihar March 2013

As of March, 2013, SHG coverage in rural Bihar was 35.22 lakh households, roughly 48 percent of total rural households. All but three districts in Bihar have been identified as ‘low coverage districts’. The average savings of Rs 6264 per SHG in Bihar was much below the national average of Rs 11230 and the average credit of Rs 72.6 thousand per SHG again was far below the national average of Rs 1.69 lakh.

Source: Status of Micro Finance in India NABARD 2012 – 13

The total loans disbursed during 2012-13 to the SHGs by banks amounted to Rs 222.02 crore, which was substantially lower than Rs 398.61 crore disbursed in the previous year. Their outstanding loans at the end of 2012-13 stood at Rs 932.30 crore, again lower than the corresponding figure one year earlier (Rs 1040.71 crore). Their non-productive assets reduced from Rs 64.27 crore to Rs 56.97 crore during the year. NABARD has identified 16 districts in Bihar for promoting and financing women SHGs, through positioning an anchor NGO in each district.

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Self Help Group (SHG) Coverage in Bihar – 2012 – 13

Source: Status of Microfinance NABARD. 2012 – 13

As mentioned before, some major handicaps in the spread of SHG-BLP include the absence of reputed NGOs and low awareness of the stakeholders about the potential of SHG lending. It is expected that initiatives taken by NABARD and other implementing banks in organizing sensitisation programmes shall result in a more favourable environment towards the SHGs movement in the state. However, as noted by NABARD, despite the unique characteristics of SHGs and their accomplishments so far, the issues that continue to affect the programme include inadequate outreach in many regions, delays in opening of SHG accounts, delays in disbursement of loans, impounding of savings by banks as collateral, non-approval of repeat loans even when the first loans were repaid promptly, multiple membership, limited interface with bankers, and monitoring.

The State Level Bankers' Committee in Bihar had identified certain factors that have contributed to the success of SHGs in other states and which are, by and large, absent in Bihar. These factors are — attitude of the rural people and their education, availability of professionally-run quality micro-finance institutions, conducive regulatory framework, government support, and channelising government assistance through SHGs. It will be necessary to remove the above constraints to ensure the spread of SHG movement in the state.

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The SHG-BLP was given a renewed thrust by the NABARD with the launch of SHG-2, to address some of these bottlenecks. All the SCBs, RRBs and CCBs are part of this renewed thrust. The focus of SHG-2 would be on voluntary savings, cash credit as a preferred mode of lending, scope for multiple borrowings by SHG members in keeping with repaying capacity, avenues to meet higher credit requirements for livelihood creation, SHG Federations as nonfinancial intermediaries, audit and rating of SHGs as part of risk mitigation system, and strengthening monitoring mechanisms.

Case Study 3. Remittances as Part of Inclusion – The Case of Awadesh Shah

Awadesh Shah, 45 years, is resident of Village Gyarhika, Block Falka, Dist: Katihar is illiterate and works as agricultural labourer. He has a family of five, including his wife and three children. His wife also works with him as agricultural labourer. For last ten years, he goes to Punjab to work in farms for nearly four to six months in year.

While he goes to Punjab, his family stays back in the village. He usually remits money to his wife at his village to meet their daily expenses. Earlier he used to send money to his wife through money order but found the medium slow and expensive. He discovered that some of his co-workers were remitting money back home through banks. Subsequently, he tried to open bank account (jointly with his wife) at bank branch nearby to his village. He tried at couple of bank branches nearby but without much success as he was refused by the bankers on the ground that he didn’t have complete documents and references required to open a bank account. Finally he resorted to sending money through bank account (of SBI) of a labour contractor (through whom he is placed at farms at Punjab), who lives in nearby village.

The contractor also helped him to get SBI’s Green Remit Card, which is a simple magnetic stripe based card without PIN targeted to facilitate Non-Home Cash Deposit Transactions to be routed through Green Channel Counter or Cash Deposit Machine. The card is mapped to a particular beneficiary account (only at SBI) and is designed for remitters, particularly non-account holders, who want to remit money to a SBI bank account at regular intervals. He uses the remit card to transfer money to his family. In addition to the charges paid to bank, the person also used to charge him Rs 150 for each transaction, which was usually below Rs 10,000.

Though he was able to send money back home, as a man full of self-respect, he always had intense desire to have his own bank account so that he didn’t have to take obligations of others. However, his lack of knowledge of the processes and requirements of bank account opening were major handicap. Two years ago, he approached an unauthorized bank agent to open his own bank account at SBI branch closest to his village. He also paid Rs 1000 to the agent for the task. The agent managed to open bank account for him and gave him the receipt of initial deposit. Soon after his account was opened, the agent migrated to some other city and was not traceable.

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Moreover, he also didn’t approach the prosperous and educated community of his village, as they never liked him due to his rebellious nature. When denied of entitlements or benefits of government schemes, he was not willing to pay bribe for them. He continues using contractor’s bank account for remittance despite having his own and kept paying money transfer charges to him.

In addition to use bank account for remittance, he also felt the need for bank account for savings. Later, he also tried to open bank account with local branch of District Central Co-operative Bank. When he approached the Branch Manager, he was asked if he had opened any savings account in past and he replied in affirmative. The manager refused to open his account on the pretext that he already had a savings account. He has now resigned to his fate that he will never have his own bank account. He has become captive of his own ignorance.

4.6 FI and E Shakti Project in Bihar Bihar is among the pioneer state in India that initiated the ICT based Financial Inclusion initiative for its citizens. In February 2009, the Rural Development Department, Govt. of Bihar (GoB), launched ‘e-Shakti’ project to convert the entire process of MGNREGS implementation, like beneficiary registration, job demand, receipt, attendance, calculation and disbursement of wages etc. from manual to electronic to bring effective coordination in execution, better targeting of beneficiaries and establish transparency and accountability.

Under this project, the beneficiaries of the MGNREGS were issued a Biometric Smart Card that contained particulars of the beneficiary as textual and biometric data. The financial inclusion component was integral to the e-Shakti project that provided for opening of bank account of all e-Shakti card holders through which MGNREGS wages were supposed to be paid by the Government. The card holders would be able to transact in their bank account using the e-Shakti card at their village through Customer Service Point (CSP) of Business Correspondent (BC). While Smaarftech Technologies Pvt Ltd was the Technology Service Provider (TSP) for the project, Central Bank of India was chosen as banking partner.

Though the e-Shakti was initially conceived for MGNREGS, later the GoB planned to extend the platform for Electronic Benefit Transfer (EBT) of its other schemes, such as, old age pension, scholarship, etc. In the pilot phase, the project covered only Patna district but by November 2009, it also included Nalanda and Vaishali district. The project covered 1311 villages under 331 panchayats of 23 blocks of Patna district. The project was planned to be scaled up to all 38 districts of the state in a phased manner over four years.

The project was launched with lot of fan-fare, however, since the launch of the project, only about 13.7 lakh enrolments were made till March 2014, out of which, only about 6.41 lakh cards were made operational (all in Patna District). The Central Bank of India was highl;y optimistic at the beginning of the project and grabbed the opportunity to be part of the project with both hands, as it expected EBT by GoB of about Rs 1000 Crore in three years through bank accounts opened under the project. However, even after nearly five years of launch of the project, it managed to get only about Rs 41.56 Crore as payment of MGNREGS wages through its accounts. Out of which, nearly Rs 28 Crore were paid as commission and fee by the bank to the TSP.

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One of the reasons quoted by the TSP for slow progress of the project was consistent delay in release of payment by the GoB for the services rendered by the TSP. Looking at the trend of delay in payment, the TSP demanded for advance payment from the state government for adding patches in the smart card to enable EBT for other services. Since the deadlock continued between the state government and the TSP on the issue of advance payment, the additional patches could not be added in the card and the EBT service remained limited to only MNREGS.

Moreover, the smartcard developed by the TSP was designed for off-line transactions. In April 2014, the Department of Financial Service, Ministry of Finance, Govt. of India, issued directive to stop all off-line banking transactions. This sounded the death knell for E Shakto and brought the project to grinding halt, as now entire system required to be upgraded to on-line platform that needed huge investment. Neither the bank, nor the state government was willing to bear or share the additional cost. Meanwhile, looking at the mounting losses and poor progress of the project, the bank terminated the services of TSP. Thusan an innovative and noble effort died prematurely and the entire process of MNREGS payment returned to previous mode.

4.7 Microsave Report on BC Models in Bhar MicroSave has recently conducted a study on “Business Correspondent Models in Bihar - Constraints and Way Forward”. The study was released in September 2014.

According to the study, as on January 2013, there were more than 30 Institutional Banking Correspondents (BCs) and about 9,000 Customer Service Providers (CSPs) pursuing financial inclusion in Bihar. Most banks in the state work with more than one corporate BCs. State Bank of India (SBI) is leading bank among them that works with 8 corporate BCs. In addition, banks also employ individual Business Correspondent Agents (BCAs) to carry out their FI activities. Indian Overseas Bank, works exclusively with individual BCAs and not through corporate BC.

The report revealed that out of 9,000 odd CSPs, only close 40% are functional. There are many districts which have no BC agent. The study also identified come critical factors of success of BCs that are as follows:

 Strong relationships with the banks with which the BCs are associated.  Stringent CSP selection criteria which has provided strong on-ground presence.  Direct support and involvement of senior management with BCs, especially in field operations.  Access to sources of working capital which enables BCs to manage liquidity. It also identified key risks and challenges faced by BCs:

 Lack of enabling infrastructure (power, road & GPRS connectivity).  Absence of insurance for cash-in-transit and cash-at-point for CSPs.  Lack of ground level support and ownership of the model by bank branches.  Technical challenges, lack of field support by Technology Service Providers.  Low levels of financial literacy among the customer base.  Unsustainable business models for agents (limited products, low commissions etc.) leading to agent attrition and denial of service to customers.  Client protection challenges: While processes exist, their efficacy is still unknown. Also these practices are often non-standard.

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The study identified eight key objectives which need to be met in order to increase the BC model’s outreach and viability in Bihar. These are as follows:

1. Ensure sustainability of the CSPs: This can be achieved by paying reasonable, adequate and timely commissions to agents (3.14% fee for DBT transfers is the recommendation of the committee that was headed by Nandan Nilekani), and expanding the range of products that BCs can offer. Research studies to assess viable costing and pricing structures for BCs and CSPs should be commissioned.

2. Enhance internal buy-in for BCs amongst banks: Low value transactions can be outsourced to CSPs. Incentivise bank’s staff to leverage BC channels, where possible.

3. Building trust in BCs as alternative and legitimate channels: Mass awareness campaigns and standardized messaging for CSPs should be promoted. Banks should encourage customer referrals from branches and develop standardized marketing collateral. BCs should reduce the churn rate of CSPs, ensure the stability of technology platforms and establish adequate liquidity management systems.

4. Improve account activity and float: Regulators should consider instituting interoperability across BCs, raising limits on the number and total daily amounts of transactions and investing in financial literacy initiatives by conducting below the line marketing activities.

5. Enhance operational control and monitoring: Banks need to appoint dedicated field resources to manage and supervise their BC channel. They need to ensure regular visits to CSPs by bank staff as the channel is to all intents and purposes part of the bank.

6. Establish better support systems: Certain support systems are vital such as cash-in-transit insurance. Dedicated complaint resolution procedures should also be implemented and Technical Service Providers should be available for complaint resolving.

7. Standardise Client/CSP protection systems: Practices exist but often they are not uniform across Banks, BCs and CSPs so they do need to be enhanced and standardized. It is essential that banks take responsibility for all protection related aspects such as Training, Liquidity, Fraud & Risk, Marketing / Pricing Collateral, etc.

8. Make the FI sector more attractive to potential investors: Connecting social investors, introducing tax breaks/holidays for BCs and increasing the product portfolio offered through BC channels are all methods of attracting investors.

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Chapter 5. Status of Financial Inclusion and Literacy in Madhya Pradesh

Annotation: This chapter deals with the existing status of financial inclusion and financial literacy in the state of Madhya Pradesh. It starts with a background note on MP including its economy and links the same to Prosperity, the term widely used by the Government for its financial inclusion model. The chapter progresses with description of the financial inclusion model – its evolution and current status as well as efforts of the state governments and bankers in MP. One section of the chapter also deals with the opportunities available for of the state on financial deepening.

5.1 Backdrop to Madhya Pradesh Madhya Pradesh, literally meaning ‘Central Region’ is geographically a landlocked and the most central state of India. Once the largest24, MP is currently the second largest state in the country by area with over 75 million inhabitants living in 54903 villages. It is the sixth largest state in India by population and is landlocked, being the most central state. The population density of MP is 196 people per square km with more than 75 percent of the state's population residing in villages and their main occupation being agriculture. The low density of population results in one-third of the village residents needing to commute 20 km to 90 km to do financial transactions. With a variety of demographic and economic pattern and vast disparities on many vital counts, MP requires multiple approaches to ensure meaningful inclusion with sustained and concerted efforts to take the benefits to the last mile in the state. Madhya Pradesh is home to a large tribal population, who have been largely cut off from the mainstream development. This makes Madhya Pradesh one of the least developed states in India, with an HDI (Human Development Index) value of 0.375 (2011), which is well below the national average. MP is also the lowest-ranked state on the India State Hunger Index.

5.1.1 Economy In recent years, the state's GDP growth has been above the national average. Among India’s 20 largest states, MP has the third lowest per capita GSDP. MP’s per capita own revenue is much below the average of these states. Weak fiscal indicators point towards the weak capacity of the state government to mobilize resources for development. The state has not yet been able to capitalize on India’s improved growth and thus there exists potential and need for MP to identify and address the critical constraints to growth. Recent spurt in economic growth is encouraging and needs to be sustained. MP's gross state domestic product at current price for 2012–13 was Rs. 3,72,171 crore (approximately US$ 61 billion) with a per- capita figure of US$ 853, one of the lowest in the country. Between 1999 and 2008, the annualized growth rate of the state was very low at 3.5%. Subsequently, the state's GDP growth rate has improved significantly, rising to 9.89% (National 4.47%) during 2012-13 at constant prices with base 2004 -05. The

24 Before its bifurcation in November 2000 into MP and Chhattisgarh, it was the largest state with 4,43,000 square kilometers

129 same was 12% during 2011-12. During the last five years (from the year 2008-09 to 2012-13), the average growth rate of State GSDP was 8.68%.

5.1.2 ‘Samruddhi’ – The Prosperity Some more positive developments in recent years include the significant turnaround in fiscal indicators in revenue deficit and capital outlays. The Fiscal Deficit for the current year of 2014 – 15 is estimated at 2.98 percent of GSDP which is well within the FRBM defined limits. The Revenue Surplus in MP is estimated at 1.00 percent of GSDP for the current fiscal while the Interest payments are pegged at 6.70 percent of Revenue Receipts. MP has a Plan expenditure for the year 2014-15 estimated at Rs. 54,290.15 crores as against Rs. 37,608.16 crores for the year 2013-14, having a quantum jump of 44.36 percent.

Banking Branch Details in Madhya Pradesh

Source: State Level Banking Committee MP

The Government of MP has made a paradigm shift in its philosophy towards poverty reduction and has taken a more constructive and affirmative step towards its eradication. It uses a more positive connotation as ‘Samruddhi’ – the Wealth. The word “SAMRUDDHI” is a Hindi word having a literal meaning of ‘Prosperity’ and in the context of MP Financial Inclusion model, it denotes ensuring prosperity and inclusive growth for all. Providing easy access to banking facilities such as credit, use of savings for a better livelihood, and bringing the deprived and disadvantaged into the mainstream of development is being facilitated through the Samruddhi model. The MP Model has shown the way for the far flung and inaccessible areas of the state to be brought under the net of Financial Inclusion. In MP, a network of so called Ultra Small Branches / Customer Service Points (USB/CSP) of banks and other financial institutions have been established to penetrate the un-banked area and expand the outreach in a very significant manner. MP has carved out a distinct identity in this field by evolving a pro-poor model of financial inclusion and 'Direct Benefit Transfer'. The MPFI Model has been built up on a Three Pillar approach and readers are advised to refer to the next three chapters in this report for getting a full insight into it.

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Total Number of Branches 6552 ATMs in Madhya Pradesh

Source: State Level banking Committee – Madhya Pradesh

5.2 Madhya Pradesh FI Model Samruddhi – the MP model of Financial Inclusion is an effort of almost half a decade of research and development that has positively digressed and diverted from the FI model envisaged for India by the Central Government and the RBI as discussed in the previous chapters. The biggest challenge today is to practice Inclusive Banking as an imperative part of effective public service delivery mechanism across the country. Banking the unbanked is a precondition to reach out to the needy population, offering them multiple benefits of the Government. The financial inclusion along with direct benefit transfer has now become a parameter of good governance and service delivery system. Positive

GoMP has also made significant progress in administrative reforms and public service delivery. This includes treasury computerisation, comprehensive monitoring and evaluation of social sector schemes, land record computerization, e-tendering, etc. However, a comprehensive administrative reforms agenda is required to make the government more effective, efficient and accountable, both at the state and the district level. While supply-side capacity development facilitates efficiency and effectiveness in service delivery, reforms enabling demand-driven approaches can foster greater accountability and responsiveness in public administration. In view of this and in order to provide door step delivery of integrated financial services to the rural poor, MP has carved out a distinct identity in this field by evolving a pro-poor model of financial inclusion and 'Direct Benefit Transfer' titled as 'Samruddhi' i.e. Prosperity.

Under the PMJDY of the Government of India, the State government geared itself with objective of the program envisaged namely, availability of basic financial services to the very remotest point of the State. It was amply realized that merely opening of accounts did not serve the purpose of Financial Inclusion and while it was necessary that there should be availability of Financial Services where it was required by the citzen, there was also ensured smooth running of other paraphernalia. The basic banking services identified by the GOI included the Deposit and withdrawal accounts as well as Credit Delivery and Micro Insurance and Pension. These were considered as the most basic needs of each Household. Each branch was required to hold camps in its SA with combination of the UID enrolment camps on the launch day. E- KYC should be adequate document for opening of accounts. Financial Literacy was also an important part of the

131 programme, which had to be ensured by banks. Two basic infrastructure needs were essential for execution of the above were the use of technology and Fixed Point BCAs.

5.2.1 The Three Pillars of Samruddhi – The MPFI Model Samruddhi–the MPFI Model basically constitutes following interrelated and interdependent entities:

1. A Common Database of All Individuals as well as Households of MP in the form of an IT Platform through an Integrated Social Security Mission – the Samagra Samajik Suraksha Mission (SSSM) commonly known as ‘SAMAGRA’;

2. Common Conduit of an Electronic Fund Management System also known as e-FMS.

3. Last Mile Connectivity through Ultra Small Branches (USBs) and the Customer Service Points (CSPs) for opening banking accounts for the beneficiaries and performing transactions.

Samruddhi – the MP Model of Financial Inclusion (MPFI)

Back-end Components eFMS SSSM of Samruddhi • e-transfer of • e-transfer of a MGNREGS variety of social (For enhancing the payments directly security scheme efficiency & effectiveness into beneficiaries ' benefits directly account into beneficiaries' of delivery of Govt account benefits to poor)

Front-end Component USBs/CSPs of Samruddhi • ensuring timely and (of establishing a deeply within reach physical dispensation of above penetrated network of benefits (in cash) and financial dispensation various other financial infrastructure in the products & services state)

Source: Madhya Pradesh Samrudhhi Report – UNDP Publication 2013- 14 (Authors: Bhatnagar Kavim & Gupta Ashish)

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Three of these components together form ‘Samruddhi – the MP Financial Inclusion (MPFI) model’ and provides for an integrated solution to inclusive growth at the front and back end.

The component of Common Database through SSSM captures the database of all individuals as well as households of Madhya Pradesh without discriminating between APL and BPL; banked and unbanked; rural and urban; and beneficiaries and non beneficiaries. This is in the form a of an IT based platform that could be used to offer various benefits to the identified population based on certain linearly programmed criteria. Thus it is targeted to provide an entitlement based benefits and is aimed at improving the efficiency and effectiveness related issues in implementing a host of social security and other social welfare based schemes of GoMP, unifying various social security and social welfare schemes being implemented by different departments of GoMP, and finally, ensuring electronic transfers of the scheme benefits directly into beneficiaries’ bank (and/or post office) accounts.

Similarly, the Common Conduit of e-FMS is aimed at improving the implementation of MGNREGS and various other schemes by enhancing the effectiveness and efficiency of its implementation and also by electronic transfer of MGNREGA wages and other payments directly into beneficiaries’ bank (and/or post office) accounts.

The component of Last Mile Connectivity through establishing USBs / CSPs is aimed at creating a deeply penetrated network of financial dispensation infrastructure in the rural unbanked areas for dispensing the benefits thus transferred into beneficiaries’ bank accounts under the other two components.

The components of SSSM and e-FMS work at the back-end towards enhancing the effectiveness and efficiency of the delivery of social security benefits and MGNREGA wages directly and electronically into beneficiaries’ bank (and/or post office) accounts, respectively. The third component of the Samruddhi – the MPFI model i.e. establishing a network of USBs / CSPs in the unbanked rural areas operates at the frontend for dispensing the benefits thus transferred into beneficiaries’ bank accounts under the other two components. The Three Pillars integrated with each other provide an end-to-end solution for the rural poor.

Under the MPFI model, while the objective of Financial Inclusion model was to usher Prosperity (Samruddhi), it could now be well achieved with the penetration of banking access to the deepest pockets. The Prosperity linked Banking inclusion model in MP, has been rolled out through the platform of SLBC and Department of Panchayat & Rural Development. With Beneficiary at the center stage, the concept of “SAMAGRA” with its multi utility database was initiated in the year 2010 where Individual-wise, Family- wise information was incorporated in its portal. To allow access to the banking products to the beneficiaries, it was necessary that the conduit for transmission of the Government Benefits was free of laxities.

5.3 Functions Performed at Various Administrative Levels The designing, roll out and implementation of Samruddhi involved a variety of functions being performed at various administrative levels viz. State, District, Janpad and Gram Panchayat levels. The table below lists some of the major functions performed at various levels under three pillars of Samruddhi. While going through the table, it may be noted the Banks being independent entities don’t exactly follow the

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administrative levels being followed in the Government. It has its own administrative hierarchy viz. Head Office, Zonal Office, Regional Office, Branches, USBs, etc. It doesn’t even have an Unit called State Office. For this reason, the functions performed at the bank’s level need to be read with some cautions.

Admin SSSM e-FMS USB Level (Being at an early phase of roll out, the roles & responsibilities at different levels are yet to be frozen, but assumingly it is as below)

State  Software development ®ular  Systems development and (Includes Zonal Level) improvisation improvisation  Coordination with HO in rolling out the  Coordination with various  Budgeting and coordination FI plan in the State departments with MoRD  Preparation of the Annual Expansion  Enrolment of various other services  Budgeting and fund Plan for USB / CSPs and getting it through Samagra Portal allotment to Districts approved from HO

 Regular monitoring of whatever  Monitoring and Supervision  Identification of the BC Partners and work has started so far in the of program implementation issuing the mandates to them districts – survey, survey feeding, beneficiary verification, account  Trouble-shooting  Regular monitoring of the USBs verification and freezing, etc. through BCs using MIS  HR and Training  Handholding and supporting the  Development of necessary materials, District teams etc. for use at USBs

 Training of the Staff at various level  Coordination with other stake-holders of the USB roll out, most importantly the Head Office

District  Still getting clarification on the  Monitoring and Supervision (Includes Regional Level) specific roles and responsibilities of program implementation  Providing support to the identified BCs  Broadly, it’s monitoring the works  Trouble-shooting to an for opening the allotted USBs done by Janpads i.e. survey, survey extent feeding, verification, etc.  Monitoring of the USBs  Training of the Janpad /  In case of Pension Payments, the Panchayat teams  Communicating the issues to the State work is to compile the list forwarded level by Janpads, vet the same and forward it to Treasury for payments

Janpad  Detailed HH survey Entire implementation as (Including Base-branch Level) detailed out in the Process  Survey feeding Flow happens at this level  Fortnightly visits to the affiliated USBs/CSPs  Account verification and freezing  Entry of Demand & Allotment of Work in the MIS  Approving the A/cs being opened in  Continuous updation in the portal USBs/CSPs

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Admin SSSM e-FMS USB Level (Being at an early phase of roll out, the roles & responsibilities at different levels are yet to be frozen, but assumingly it is as below)

 For pensions: generation of the  Generation of e-Muster beneficiary list and forwarding it to ZP for payments  Effective organization of the Rozgar Saptah in Janpad

 Entry of attendance and MR in the MIS

 Verification by the AAO & AE

 FTO generation by AAO and CEO, JP

GP /  Actually not much, as the  Collection of the Demand of (at the USB / CSP Level) Village applications for the new benefits Work by the workers including pension are accepted at  Establishment of the USB / CSP ‘Lok Sewa’ Centres  Communication to workers after allotment of Work  Regular functioning of USB / CSP

 Organization of Rozgar  A/c opening Saptah  Transactions in the A/cs  Attendance recording   Communication regarding

payment-transfer to workers

Source: Samrudhhi – The MP Financial Inclusion Model, UNDP Publication 2013 -14 (Authors: Bhatnagar Kavim & Gupta Ashish) 5.4 Salient Features of Samruddhi – the MPFI While the MPFI model prima facie look quite simple, it did involve a lot of deviations from the existing norms, practices and even existing ideologies. Some of the salient features of the Samruddhi are as below:

5.4.1 Paradigm Shift from Population Norm to Geographical Area Norm The financial service delivery system has for a long time been using the ‘population’ as a norm for deciding the financial inclusion or exclusion in the country. The RBI and the GoI have both been using this criterion for driving their financial inclusion efforts. RBI in their recent Circulars had instructed the banks to cover villages with 2,000 populations, (villages with 1,000 populations and thereafter in phased manner). However, because of the vast geographical area of MP and low population density, the criteria of population – 2,000 or 5,000 seemed to be unviable and unworkable. Instead, GoMP decided to shift the criteria from ‘population’ to ‘geographical distance. The geographical norms for installation of Ultra Small Banks / Customer Service Points have been the hallmark of Samruddhi – the MPFI Model as far as the

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Outreach is concerned. The term 'shadow area' has been coined to identify areas without cooperative bank / RRBs / Commercial Banks within 5 kms radius. The banks in MP accordingly were advised to open their USBs / CSPs in these shadow areas instead of using the population criteria. After a detailed mapping of all the districts of the state, a total of 14,767 villages were identified as shadow area villages; which were being accorded a priority for coverage by banking facilities by employing BCs and opening of USBs (Ultra Small Branches) / CSPs (Customer Service Points) by GoMP.

5.4.2 Re-introduction of the Banking Industry’s Concept of ‘Service Area’ Another important development in the evolution of Samruddhi was the re-invoking of the erstwhile concept ofService Area of the banking industry. In the recent past the concept of Service Area has practically been removed in the banking system, whereby, the banks were made free to open their branches at any place, as long as they follow other instructions of the RBI. However, after the detailed mapping of unbanked areas on the basis of geographical norm, this concept of ‘service area’ was revoked and all the banks including cooperative banks and RRBs were asked to mark all the identified 14,767 shadow area villages with their operational areas. As such, the concept of Service Area, though practically withdrawn, still existed in the state. However the problem was with the Sub-Service Area, where permanent physical brick-and-mortar structure was required, especially in the Shadow Areas. The Service Area Approach is realized as more effective tool for the fixing the responsibilities of FI on banks and making them more accountable to the FI initiatives.

5.4.3 Common Database for an Integrated Approach to Social Security25 The SSSM (Samagra Samajik Suraksha Mission) involved developing a common database of family with details of individuals. The database is developed after a detailed survey capturing of profile and parameters of the individuals and also the households. The database thus developed has been uploaded on a front-end portal named ‘Samagra’, wherein the details of all such beneficiaries of Government Grants / Subsidies / Payment are present. It also contains the profile of all such persons who are still devoid of a Bank Account. The SSSM enables individual and family based data and family based entitlements like social security pensions, food security benefits, and toilets to household, Janshree scholarship to two children of a household. Thus, it is easily linked to all entitlements. This data resource not only distinguishes between BPL and APL families but also captures whether they are special groups like those enrolled in labour department etc.

5.4.4 The Common Conduit – The Electronic Fund Management System A common conduit has been created under the Samruddhi – the MPFI where an electronic fund management system spells out a way of direct benefit transfer that is being implemented in schemes such as MGNREGS. From financial year 2013-14 the whole state is disbursing in MGNREGS through e-FMS. There are 99 lakh accounts of beneficiaries in the State and almost 44 lakh accounts have been verified and frozen till June 2013.

25 Source: Department of Social Justice, Government of Madhya Pradesh

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All the nationalized banks have been synchronized on the single platform of core banking and put in system compatible with MGNREGA- Soft. DCCBs are also likely to come on the core banking solutions shortly. Post offices have created sanchay post for disbursement. Till now 2.70 lakh musters have been issued and against this 1.20 lakh FTO have been delivered with disbursements to the tune of Rs.270 crore.

5.4.5 Last Mile Common Plumbing for Access to Finance Another important feature of the Samruddhi is a common plumbing that has been created in order to connect the database constructed under the SSSM and the NGREGA-Soft to the actual beneficiaries by means of banking solutions as conduit. This conduit has been specially developed for the devolution of funds. Normally, a large number of prospective beneficiaries have their accounts in Cooperative Banks and Post Offices that are not covered under the core-banking solutions. Thus, this conduit is developed to ensure devolution to even non-core banking institution and hence takes the Financial Inclusion drive at the doorsteps of the poor as a key to sustain equitable growth. Accesses to financial services shall provide the unbanked and poor people an opportunity to build savings, make investments, avail credit, etc. Also such access help them to ensure themselves against income shocks and equip them to meet emergencies such as, illness, death in family or loss of employment. Also it protects the poor from the clutches of the injurious money lenders.

Improving Access to Finance for MP’s rural poor by means of a paradigm shift from the conventional financial inclusion model prevalent in India, the MPFI model also provides an opportunity to examine and improve upon the current level and pattern of access to finance largely for rural households in India, evaluating various approaches for delivering financial services to the rural poor, analyzing what lies behind the lack of adequate financial access for the rural poor, and identifies what it would take to improve access to finance for India's rural poor based on Samruddhi. Based on the analysis of a ‘supply side’ large-scale secondary survey of available literature and minutization of proceedings of various deliberations, in combination with an evaluation of the role of banking and financial institutions along with Government schemes, it also examines different forms of financial service provision, including formal, informal and microfinance, and raises questions about approaches used so far to address financial exclusion, and would finally make recommendations for policy advisors and financial service providers on how to scale-up access to finance for India's rural poor, to meet their diverse financial needs (savings, credit, insurance against unexpected events, etc.), in a commercially sustainable manner. Its conclusions will be of interest to anyone involved in social sector and economic policy and its implementation, microfinance, microinsurance and micropensions, cash transfers including CCTs and UCTs, and Direct Benefit Transfers and poverty reduction.

Access to finance remains only on papers if the accounts opened so vehemently under the special drive of banking inclusion remains under used for lack of knowledge. Hence financial literacy plays a predominant

137 role in providing a meaningful access to finance. Financial literacy is the ability to understand how money works in the world: how someone manages to earn or make it, how that person manages it, how he / she invest it (turn it into more) and how that person donates it to help others. More specifically, it refers to the set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources. A separate chapter has been written in this report (Part I) to link the financial literacy with that of the Samruddhi – the MPFI.

5.5 Ultra Small Branches / Customer Service Points under the MPFI Ultra Small Branches (USBs) / Customer Service Points (CSPs) are one of the three and the most important front end components/initiatives of the FI model of GoMP. USBs/CSPs, as the name suggests are very small branches/ financial dispensation units, set-up in the unbanked rural areas of the state.

The typical characteristics of the USBs/CSPs being set-up in MP are as below:26  It’s a physical Unit with brick and mortar structure, bringing in more credibility to the banking channel, as against that of mobile van, BC outlet, kiosk, etc.  Located in between the ‘shadow Villages’ to cater to the shadow villages in its 5 KM radius; ‘Shadow Villages’ are the villages, which do not have any banking facility/outlet within the radius of 5 KM. Bringing-in the concept of ‘Shadow Villages’ was the major paradigm shift of the model, which made the ‘geographical distance’ as the basis for defining financial exclusion than the existing ‘population’ norm  Operated by and linked to the base Service Area Bank-branch of the location, where the USB/CSP is located  Housed in a room with a minimum of 100 Sq ft space; The space being provided at the Panchayat Bhawan, wherever required by the operating bank  Having proper IT enabled dispensation equipment – A Handheld device or a Laptop/Computer with a Printer and VPN Connectivity. The internet connectivity (wherever available) is provided by the e- Panchayats  Having the feature of working in offline as well as online mode  Manned with either a full-time employee of the operating bank or with a BC appointed person, with a mandatory once-a-fortnight visit by the Branch Manager of the Base (the Service Area Bank) Branch  To act not only as the financial dispensation centre but also at the provider of various other financial and banking services  To also act as the centre for financial literacy, providing due information to its clientele in the area

26 Samrudhhi – The MP Financial Inclusion Model, UNDP Publication 2013 -14 (Authors: Bhatnagar Kavim & Gupta Ashish)

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The process of bringing the USBs / CSPs from the ‘initial concept’ to its ‘pragmatic and logical culmination’ has not been as simple as the name suggests. While the concept of USB was not new to the GoMP nor to the RBI, its customization to meet the needs of MP was an initiative taken up by MP.

There have been various efforts made at different levels to implement it in its present shape. The issues, concerns and processes adopted for resolving these have been explained in detail in following pages.

Lakhan Singh Tanwar A Case Study of a BCA

Lakhan Singh Tanwar owned a grocery shop on the main road of Khedi village joining to Khandwa and Harda. The man in his late thirties used to help a lot many illiterate villagers to fill up bank forms for account opening for the branch which was located next to his shop. The Branch Manager of Bank of India always used to see him help the villagers and many a times used to discuss with him various products and services being offered by the bank. Lakhan on his part was a great learner and started taking interest in the banking activities. However, the matriculated as he was, could not get into the bank system as an employee and agent. As the luck would have it for him, the Madhya Pradesh Financial Inclusion model, also called as "Samruddhi" was being designed and was in its early stage of implementation when he realized that he could have an opportunity to work for the bank and serve his fellow folks.

Having realized the need and importance, having a USB/CSP as a banking correspondence to provide services in the rural belt as an extension of bank, the Branch Manager offered Lakhan to join as a BC. Lakhan for his passion of banking and helping people to access financial services readily agreed. In order to fulfill the requirement of Samruddhi model the bank of India offered him a salary of Rs. 3000/- per month for a period of six months and located him at village Malgoan about 5 km from Khedi.

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The bankers also told him that within the period of six months he should develop his business make it viable and thereafter, he should be working on a self-sustainable based on the commissions provided by the Bank of India. The BoI offered him an upfront commission on to opening of a bank accounts, acceptance of deposits including savings, FD, and RD, transactions based commission and commission on recovery of loans and bad debts. In return he was asked to deposit of an amount of Rs. 10,000 as security (FD) against his daily withdrawal limit of equal amount.

Lakhan started with the sincere and honest dedication at Malgaon village and covered 6 villages including Malgaon, Kundaimaal, Ratanpur, Aadhariya, Madni, Bajurkhedi and Khedi in his jurisdiction having a total population approximately 20,000. The rural population of these villages used to travel to the branch at Khedi for various transaction purposes and used to have tough times in travelling and standing in queue at a sparsely populated bank branch. Establishment of USB eased out the problems faced by both, the villagers on one hand since the USB was within 5 km of their village and relieved the bank branch from long queue.

In the past two years, Lakhan has earned a reputation for himself a sincere, honest and dedicated banker for the villagers. He has opened more than 6000 bank accounts including few accounts opened recently Pradhan Mantri Jan Dhan Yojana. On an average he has been doing 40-50 debit transactions and approximately 5 credit transactions per day. He has been also being instrumental in disbursing G2P (Government to Person) including MNREGS, National Social Assistance Program (social sector pension), scholarship, welfare schemes such as Janani Suraksha Yojana, compensation against natural calamity etc. to the tune of Rs. 25 million. According to Lakhan, a 20-25 percent of his clients migrate of a seasonal basis to state like Andhra Pradesh, Gujarat and Karnataka, and also sent remittances to their families back in the village. Last year itself, he disbursed a remittance of approximately a million for which he provides the IFSC codes to the families and migrants.

Currently, Lakhan is busy in conducting the survey under the PMJDY. He is identifying families and households without a banking account and is motivating them to open their accounts at the earliest at the USP. During his visits to the villagers he also randomly opens their accounts subject to availability of document, photographs and his own time. In the last 2 months, he has opened up more than 800 new accounts under PMJDY majority of which are that of women. According to him, a lot many women are keen to open their own bank account after viewing the PMJDY information on the television. Women at the 80s and 90s are also keen to open their bank accounts which had they never done in their lives. Lakhan has also been instrumental in motivating a few of his clients to make term deposits/fix deposit and has done a business of more than a million for the banks on deposit fronts. Most villagers deposit between Rs. 50000 to 100000 as fix deposit, however, he has clients who has upto 2 lakhs.

Now that his business is expanding and he is able to make good money out of his operations he found it difficult to continue to operating from his house which is located few miles in Khandwa. Having realized the potential of banking correspondence business, coupled with the G2P Samruddhi model and the larger scope of financial inclusion he considered shifting to Malgoan village itself. For, in order to have loyal clientele and grow on his business operations, it was necessary to be available to them on the 24X7 basis. This motivated him and his wife to buy a house at Malgoan village and shift bag and baggage in July 2014. This served the purpose of being available to the villagers at their distress time and also saved him the cost of travelling and time, energy and resources. Now, the branch is just 5 km from his house and he is able to service all 6 villages in the vicinity.

Most of these clients of Lakhan are farmers and other unorganized sector workers who have no monthly or

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regular income but may reap a lum-sum of the sale of their agriculture produce etc. However, he feels that the villagers do not manage their cash flows prudently and despite having a fix deposit do not have regular cash. Thus, there is a need for people to understand how to manage their cash flows. This is true for people who do not have regular income and have seasonal lum-sum incomes. Most of his accounts are operational and have transactions. However, about one-forth of the account holders are non-transacting. There is also a lack of financial literacy as the BC himself has never been trained on a subject except on BC operations. He strongly feels that not only he should be trained and equipped with tools of financial literacy but also there should be some external effort by banks or NGOs to train the rural population on common elements of financial literacy like budgeting, life cycle needs, saving, credit, insurance and pension. He also felt that if an external agency imparts financial literacy to the villagers it will also help him boost up his business and will be a win-win situation for the villagers, bankers and him alike.

Typical Characteristics of the State of MP and the existing Financial Inclusion efforts of RBI and MoF, GoI: The population of MP is 72 million (2011 census) and the population density is 196 people per square kilo meter. More than 75% of state population resides in villages, where main occupation is agriculture. The banking facilities were almost non-existing due to low density of population forcing more than one-third of the villagers to cover a distance of 20 to 90 km for doing financial transactions.

There are 54,903 villages in the state of MP. Out of which, 50,396 villages were identified as unbanked villages under the Financial Inclusion program, way back in year 2009-1027. This meant more than 91% of the villages in the state were not having the banking facilities. This calculation however did not include the Post Office network, which was also offering some of the basic banking services in the villages. Even if we consider the 7,200 odd rural Post Offices (without discounting the overlaps), the outreach of the banking and post office network, together, was still not reaching out to more than 79% of the villages in the state. Similarly, if we also consider the branch networks of Cooperative Banks, PACS, LAMPs, etc., the total branch network in the State reaches out to 15,018 branches in the rural and urban areas (without discounting the overlaps). This still means that more than 72% of the villages in the state have just no financial-dispensation network. There were a huge number of unbanked villages and a large number of unbanked populations.

With this background, came the directives from the RBI and the Ministry of Finance, GoI to provide banking services through the Business Correspondence Arrangements and other means to villages having a population of more than 2,000 by March 2012 (which was later modified to cover villages with population of more than 1,000 and below in graded manner).

Coverage of unbanked villages in the State: As mentioned earlier, there was a major issue with this directive and typical characteristic of the villages in the states. When the total number of unbanked villages with more than 2,000 populations was figured out, it came to only 2,736 villages out of the total 50,396

27 Samrudhhi – The MP Financial Inclusion Model, UNDP Publication 2013 -14 (Authors: Bhatnagar Kavim & Gupta Ashish)

141 unbanked villages in MP, which again was a very low number. This meant that there would still be 47,660 villages with no banking facilities available to its residents. The banks, however, continued with this intermediate target of 2,736 villages and covered them with 2,439 BCs, 105 Branches and 192 Other means (mobile vans, kiosks, etc.) by March, 2012.A roadmap to cover all the 47,660 unbanked villages in the State was prepared by the SLBC after the process of mapping all the unbanked villages was done in each district through a Special DLCC. Under the roadmap, doorstep banking services would be provided in every village through a combination of 1,006 bank branches and 9,239 BCs. The progress is being monitored by SLBC and also by RBI.

Issues with Definition and Bankers’ Dilemma: Similarly, when the status of unbanked villages was put-up in SLBC, the SLBC with due deliberations approved the opening of 300 new bank branches by March 2012, in the state of MP. Out of which, it mandated at least one-third of these branches i.e. 100 branches to be opened in the rural areas. The definition of unbanked rural area has been clarified by RBI as: An unbanked rural centre would mean a rural (Tier 5 and Tier 6) centre that does not have a brick and mortar structure of any scheduled commercial bank for customer based banking transactions. However, practically, each bank defines ‘unbanked area’ as the area which is not yet covered by its own branch network. So, a particular area would still be defined as ‘unbanked area’ by a bank ‘X’, even if the same area has ‘n’ other bank branches. Such definition prohibited banks to open the branches in the ‘real unbanked areas’.

5.5.1 Evolution of Alternative Concept of USB/CSP and the Process Adopted It were these specific geographical characteristics of the state of MP and the current status of the banking services that prompted the GoMP to evolve its own model of Financial Inclusion in the State. Consequently, the Ultra Small Branch (USBs) / Customer Service Points (CSPs), which evolved as the financial dispensation centre in the vast and unbanked areas of rural MP, became one of the significant components of the unique model of financial inclusion of the state.

While a broad evolution of this component of Samruddhi has been depicted in the diagram below, the same has also been described in detail in continuum:

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Steps/activities involved in the evolution and implementation of USB/CSP component of MPFI

USBs / CSPs Regular monitoring of the opening SLBC be made the state-wide & functioning of USBs/CSPs through anchoring, implementing & DLCC & SLBC monitoring body

A meeting with all the LDMs to Regular interaction, clarification understand the issues involved with seeking and advocacy with the RBI the rollout of this component

Allocation of the identified locations Regular interaction, clarification to Banks including RRBs and seeking & advocacy with the MoF, Cooperative Banks GoI

Identification of Central Locations Evolution of the ‘Shadow area’ within ‘Shadow Area’ villages to concept; a paradigm shift from the open the USBs/CSPs population norm to distance norm

Mapping of the existing financial Re-invocation of the ‘Service Area’ dispensation structure & identification Concept for fixing up the of the ‘Shadow Area’ villages responsibility of specific Banks

Incentivising the USBs/CSPs (providing a room in the Panchayat Building & routing the businesses of the Panchayat)

Source: Samrudhhi – The MP Financial Inclusion Model, UNDP Publication 2013 -14 (Authors: Bhatnagar Kavim & Gupta Ashish)

In the course of evolving this alternate channel of financial dispensation, following methodology/processes were adopted, while resolving some of the typical policy and operation level issues:

 Reaching out to a very large number of unbanked areas and unbanked population was one of the highest priority item for the GoMP, as being ‘unbanked’ was becoming one of the major hindrances for various other initiatives of the GoMP.  For implementation of the ambitious Direct Benefit Transfer (DBT) and smooth and seamless, timely and correct payouts of wages under the MGNREGA and also the inclusion of various other schemes of GoMP, the system had to be primarily dependent on outreach of banking services to a very large number of target populations.  Even developing efficient and ‘state of the art’ technological and operational systems would not have meant much, if a considerable number of target populations were not reached through the financial dispensation points.  It was for this reason that the GoMP had to put up its utmost emphasis on developing an appropriate financial service delivery channel, a conduit that would provide solution to most, if not all of the issues of cash transfers to the right beneficiary in the right time and space.

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Prior to evolving new channel like USBs and CSPs, it gave its due emphasis on existing channels of financial service delivery viz. Banking Correspondents (BCs), Mobile Vans, Setting up of banking Kiosks, Bio-metric ATMs and various others means that were being used in other parts of the country. However, it yielded little results as has been the phenomena across the country. Barring a few notable achievements in select pockets like the mobile vans in the district of Anoopur, Hoshangabad and Betul; Mobile Post Offices in Seoni district, shifting of accounts to commercial banks and disbursement of funds in the district of Balaghat, etc., most of the channels delivered very little and the expected results of financial inclusion were bellied.

Fragmented Existing Approach: As described above, little could be achieved using the existing model of financial inclusion in MP if each of its components were fragmented and were performing its own defined duty in a standalone manner. There were many reasons for the existing model to be either doomed or achieve very little. The first and foremost reason was the lack of a comprehensive and coordinated effort amongst the stakeholders. While each of them was performing their duties as assigned in the eco system, none was capable of producing a concerted effort targeted to attain the desired and significant objective of complete financial inclusion alone. Lack of coordination was later addressed in the new innovation through an integrated ‘model’ approach.

On the demand side the model was unable to enthuse the actual beneficiaries for a variety of reasons including credibility of the service provider themselves, distance from home etc. Getting the so far deprived target-audience ready to accept to such modern tools and equipment was another challenge that the bankers and their associates including the BCs had to face. To top it all, there was a vast ignorance amongst the beneficiaries as to why and how to use their banking accounts due to lack of financial literacy. Credibility of the ‘mobile’ and ‘irregular’ nature of these channels was another issue of failure to deliver. Also, all these models required active participation of local banks and catered to devolution of funds only. Other products of financial inclusion remained out of focus.

5.5.2 Redefining Concepts: Shadow Area Mapping It was in this background of the fragmented ecosystem of financial inclusion and the need for an integrated system that the first major effort was initiated by the GoMP. It put forth the concept of ‘Shadow Area’ with-in the administration and later among bankers at the level of the SLBC. The same was discussed in the meeting with Deputy Governor, RBI, CMD, Central Bank of India and the Chief Secretary, GoMP in June 2011. ‘Shadow Area’ was defined as the area, which does not have any brick-and-mortar financial dispensation structure, with-in a radius of 5 KM. It included branches of the commercial banks, private banks, RRBs, cooperative banks, etc., with-in a radius of 5 kilometers from the dwelling units.Having discussed the concept in the SLBC, the DLCC was entrusted with the task of mapping all the existing branch network of the financial system in the district. Special DLCC meetings were convened in all the districts of the state to map the villages. The DLCC is chaired by the District Collector, convened by the Lead Development Manager (LDM) of the Lead Bank and has all the bankers and district level development officers as members. This ensured that the mapping exercise had the local knowledge and was done with the involvement of both the District Administration and the Bankers. In total, 14,767 villages were identified as the unbanked villages, which did not have any physical brick-and-mortar financial dispensation

144 centre (including branches of the commercial banks, private banks, RRBs, cooperative banks, PACS, post offices, etc.), with-in the radius of 5 km.

5.5.3 Re-invocation of the Concept of Service Area of the Banks It was for this mapping of villages with the branches of the banking system, that the erstwhile concept ofService Area of the bank was revoked. In the recent past the concept of Service Area has practically been removed in the banking system, whereby, the banks were freed to open their branches at any place, as long as they follow other instructions of the RBI. For this mapping of unbanked areas, this concept was revoked and all the banks including cooperative banks and post offices were asked to mark all the areas, which did not have any of the mentioned institutions within the radius of 5 kms. Subsequently, in a specially convened SLBC meeting held on 15thJuly, 2011, in the presence of Chief Secretary, GoMP, the CMD – Central Bank of India and the Deputy Governor, RBI, it was agreed to evolve a unique MP Model of FI, based on the Service Area Approach. As such, the concept of Service Area, though practically withdrawn, still existed in the state, but the problem was with the Sub-Service Area, where permanent physical brick-and-mortar structure was required, especially in the Shadow Areas.

Source: State Level Banking Committee MP

The Service Area Approach was later realized as more effective tool for the fixing the responsibilities of FI on banks and making them more accountable to the FI initiatives.

Having two major deviations from the existing norms i.e. the population norm and the free area norm (non Service Area norm), the mapping of villages was done. The 14,767 shadow were mapped to various institutions as per the table above:

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The district wise pattern of the Shadow Area Villages is as below:

Source: State Level Banking Committee MP

5.5.4 Identification of the USB / CSP Locations As mentioned above, under the SLBC, it was proposed to reach out to the identified ‘Shadow Area’ villages through a network of newly designed channel – the Ultra Small Branches (USBs) / Customer Service Points (CSPs).An implementation plan was chalked out towards enforcement of decision taken at the SLBC Meetings. However, it was soon realized that it did not make much sense to open these branches in all the 14,767 shadow villages. Instead, these villages were further grouped and certain Central locations were identified to open the USBs / CSPs, in such a manner that all the 14,767 villages were covered from these USBs / CSPs, while lying with-in the radius of 5 kms from the USBs / CSPs. Again a massive exercise was taken up in the DLCCs at the District level to figure out such locations. A total of 2,998 such locations were identified, where USBs / CSPs were to be opened, in order to cater to all the shadow villages in the state. This was a major paradigm shift from the previous norms. For the first time,the existing ‘population norm’ of expanding banking network was replaced by the more logical and more appropriate ‘geographical distance norm’.

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The distance of 5 kms was worked out on certain parameters. The first logic came from the MGNREG Act. The Act mandates Government to provide employment to the eligible person, within a radius of 5 kms of his / her residence / panchayat. If it is unable to provide the employment within this radius, the Act provisions for providing an additional conveyance charge to the eligible person. The basic premise is that the workplace should be easily accessible from the place of his / her residence. The same logic has been adopted here, that the proposed USB / CSP location should be easily accessible from his / her residence. The other premise is that the proposed location should have sufficient number of customers / account- holders so as to enable the center to become viable and profitable and thus become sustainable over a period of time.

5.5.5 Status Update on Bank Mitra and Infrastructure The GoMP along with the State Lead Bank has been instrumental in setting up the CSP / USB, also know as Bank Mitra that provide the last mile connectivity at the grass root level. As per the latest figures as on September 30th, 2014 the following situation is updated:

Parameters Numbers

a. Number of Sub Service Areas (SSA) Allotted 11859

b. Total Number of Banking Correspondent (BC) Required 10044

c. SSA Covered through Fixed Location BCs 7359

d. SSA Covered through Customer Service Center (CSC) 292

e. SSA Covered through BC + CSC 7651

f. SSA Covered through Branches 1647

g. SSA Covered through Moble Vans 168

h. Total SSA Covered (e +F+ g) 9466

i. Uncovered SSA (a – h) 2393

j. Number of Location Uncovered due to Connectivity 360

Source: State Level Banking Committee MP

Following table provides for the number of Banking Correspondents having an Online Capable Device

Online Capable Device Numbers

a. E-KYC Account Opening 4775

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b. Inter Operable Withdrawal Txn Rupay Card 1924

c. Inter Operable withdrawal Txn AEPS 4123

d. Authenticated Aadhaar Seeding Of existing a/c holder 1438

Source: State Level Banking Committee MP

As mentioned earlier, the GoMP has provided 100 sq feet of covered area at the Panchayat Bhawan at the disposal of the BCs / USBs as part of its assistance in creating infrastructure, there were 4427 number of BC locations who have already been provided with premises as on September 30th 2014. Besides there are 1007 BCAs who have been provided with Uniforms and Bangs.

LHS: Panchayat Building / Premises being made available to run a USB / CSP at Malgaon, one of the Panchayats that cover 3 – 5 villages in Khalwa Block of Khandwa.

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5.6 Challenges Faced Had the state been smaller with a dense population in certain pockets the course of financial inclusion would not have been that difficult and mammoth a task to reckon with. Similarly, if it would have been a matter of only a few branches, it would have been a different story altogether, but the task was enormous. Expanding the banking network by 2,998 USBs / CSPs in such a short period of time had many challenges too:

5.6.1 Supply Side Challenges and Solutions SLBC, Not Supreme Authority: While the decision on deviating from existing norms been adopted in the SLBC, the first and foremost challenges opened flood gates for the bankers. While the bankers are regulated by the central bank, the RBI; the zonal or state level bankers are governed by their head offices and the zonal offices had limited power and authority to implement decisions taken at the state level and hence a strong backing up by the respective Head Offices of the bankers was required. The same was applicable for other offices and stakeholders who too were responsible to their Head Office.

Different Regulators: Further, most of the entities in question were regulated through different regulators and agencies and not being dictated by the SLBC or State Government. In certain cases, a single entity was regulated by different regulators for a variety of products and services. Some of the decisions of the SLBC regarding the FI model of MP were a deviation away from the existing guidelines and norms issued by respective regulators. In view of this, getting the strategic direction for the banker’s et al to open such a large number of branches of a special nature was a big challenge.

Getting GoI and RBI on Board: Both the Ministry of Finance at the Central Government and RBI had issued instructions and regulations that the state was supposed to deviate from and hence both these authorities were approached by the State Government in order to bring them on board. Both of these organization issued necessary instructions to their agencies and to the GoMP in order to allow them to move forward in the direction that was being envisaged and designed by the Samruddhi. Various correspondences between the State Government and the MoF, GOI and the RBI have proved the fact that they are in synch with each other and have a clear understanding of the same.

5.6.2 Internal Challenges and Solutions Poor Infrastructure: Besides the challenges faced on the supply side of the Samruddhi that pertained to various stakeholders like the bankers as well as state government, there were a few challenges that are internal to the state of MP itself. Besides the large geographical area inhabited by thinly spread population in various pockets and hamlets of the villages, MP also lacks in physical infrastructure such as generation and supply of power, poor tele-density and poor bandwidth on internet connectivity. Lack of a concerted effort in creating an HR MIS of sort in capturing the data of individuals as well as family households till the new model was envisaged was also a hindrance in reaching to the poorest of poor and targeting the beneficiaries. Further, the physical infrastructure and thus the capital investment required for opening such a large number of branch outlets was huge.

Initiatives of State Government: Realizing the situation, the State Government came forward to address these issues and facilitate the external stakeholders to seamlessly attain the status of total financial

149 inclusion. It proactively proposed to provide rent-free accommodation in each Panchayat for opening up USBs in the shadow area. It also agreed to provide a separate fully furnished e-Panchayat room for the USB/CSP, with free internet connectivity, upon construction. This was a major booster for unrolling the USBs / CSPs in the shadow area villages. Thus the issue of brick and mortar structure for USB as well as internet connectivity was resolved by the initiates of the Rural Development department of the State Government. The government also marched ahead beyond providing the infrastructure at the village Panchayat level and created an enabling environment for the bankers and other stakeholders to achieve the objective.

Sustainable Business Model: Apart from the initial capital investment, which was appropriately addressed by the state government, the other major challenge was to unroll this as a business model for the banks. State Government did not want these branches to be opened through a ‘push’, but through a ‘pull’ factor. The State Government decided to work out arrangements that would institutionalize the entire system on a sustainable basis. A meeting with the Lead Bank Officers of the entire State was convened to understand the issues faced by them at the field in detail. In discussions, it was expressed that a single BC operated center, involving a minimum of fortnight visit by a regular Bank official, breaks-even at a business volume of at least Rs. 45 lakhs per annum. To ensure this level of business volume on a regular basis, a decision was taken to open all the accounts falling under the 5 KM radius including that of Panchayat in the USB. This ensured that the USBs get the minimum required business volumes and that the system of USBs gets properly institutionalized in the banking structure in the state.

5.6.3 Demand Side Challenges and Solutions The first and foremost demand side challenge was on the knowledge and application of the bank accounts and banking activities by the customers. While opening of banking accounts could be performed at the supply side, the accounts normally remain dormant for lack of any transactions since the account holders are neither aware of the benefits of the banking accounts, nor are conversant in holding the transactions and taking optimal benefits of various products and services from the bankers.

The demand side challenges could initially and to a great extent be addressed by means of interventions using financial literacy. To foster Growth Momentum in the state of MP, SLBC decided to leverage the platform of R-SETIs and FLCs, which in turn, strengthened the Demand Side. In pursuance to this agenda, SLBC is regularly calling Conclave of R-SETI Directors and FLC In-charges in consonance with RBI, GoMP and NABARD.

Financial Literacy Centres (FLCs): As mandated by the RBI vide Circular dated June 6, 2012, Lead banks are required to set up FLCs in each of the Lead District Manager (LDM) Offices. As on date all the 50 districts in MP have opened a FLC. FLCs and rural branches of banks are now conducting outdoor Financial Literacy Camps at least once a month. The RBI has advised banks to conduct FLC activities by all the 2548 rural branches in the State besides 50 FLCs. While the outdoor activities are being conducted by the FLCs are being reported by the SLBC to the RBI, however, the reporting and monitoring mechanism of outdoor Financial Literacy activities conducted by the rural branches is yet to be institutionalised.

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Additional Credibility and Viability: As would be discussed in detail in the subsequent component of the FI model of MP, the State Government is continuously mandating all the benefits, including that of wage payment of MNERGA, to be transferred directly to these accounts in the USBs/CSPs. Similarly, the USBs/CSPs are continuously adopting mechanisms for not just devolution of funds but also for selling a whole lot of other financial products. All these mechanisms are bringing in additional business volumes at these centers, taking them forward from the breaking-even stage to profit-making stage. The channeling of various schemes by the government is bringing in additional credibility into the institution.

5.7 Current / Updated Banking Outreach and Performances Backed by the initial infrastructural support from the GoMP and the assurance of the required business volumes to break even, a large number of USBs and CSPs are being opened in the shadow area villages. Quite a few banks, like SBI have realized the potential of expanding their business through this channel and have taken the lead in expanding their CSP network in the entire state. They have opened their CSPs in various other areas, not necessarily mandated by the SLBC.

5.7.1 Kisan Credit Card Following is the progress under the KCC scheme in MP:

Source: State Level Banking Committee (Agenda 155) 16/10/2014

Banks have extended financial support in a big way to Agriculturists, but still the cause of small/marginal farmers has to be redressed. A special campaign has been launched by the Govt. of Madhya Pradesh for issuance of Kisan Credit Card to left over farmers.

Source: State Level Banking Committee (Agenda 155) 16/10/2014

* Out of the total number of left over farmers, the major chunk fall into category of Oral Lessee, Small Farmers, Marginal Farmers, Share Croppers & Forest dwellers. It has already been proposed by banks for issuance of Cultivators Licence to such farmers for facilitating bank linkage.

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5.7.2 Conversion of KCC into RuPay KCC All Banks have been instructed by their Head Offices for Up-scaling of KCC to RuPay Cards / Smart Cards. DCCBs and RRB’s may scale up their technology by opting for ATMs. At present illiteracy of farmers, and high incidence of overdue accounts are proving to be hurdles in issuance of Rupay Cards/ Smart Cards. This problem is predominant in RRB’s and Cooperative Banks.

The SLBC has also put up the suggestions to the GoMP that a List of farmers not availing KCC facility and yet to be covered is to be provided by District Administration to LDMs. Similarly, Banks & Agriculture Department need to work jointly to cover all farmers who have not defaulted. The Government should explore possibility of Cultivator’s License for facilitating Credit Linkages to left over farmers falling under the category of Oral Lessee, Small Farmers, Marginal Farmers, Share Croppers & Forest dwellers. This will help in extending bank linkages to this segment.

5.7.3 Credit Deposit (CD) Ration While the deposits in MP have gone up substantially over the past few years, some of the rise could largely be attributed to the financial inclusion drive of the GoMP.

Deposit wise, the following situation emerges on a year-wise break up:

Year Wise Break Up of Deposits in MP (Rs. In crore)

Source: State Level Banking Committee (Agenda 155) 16/10/2014

Aggregate Deposit growth is 11% on YOY basis is lower than previous year. Growth rate is lower in rural and urban this year when compared to previous year.

Following table provides for the growth in Credit in Madhya Pradesh

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Year Wise Break Up of Deposits in MP (Rs. In crore)

Source: State Level Banking Committee (Agenda 155) 16/10/2014

Aggregate Credit growth is 15% on a YoY basis which is lower than that of the previous year. Growth rate is lower in both rural and urban centres in comparison to previous year.

Credit Deposit (CD) Growth / Ratio:

Source: State Level Banking Committee (Agenda 155) 16/10/2014

Accounting for the disbursement of RIDF (Rs.993.35 Crores) with advances in the State CD Ratio has reached a level of 102%.

5.7.4 Branch Expansion Plans in MP As per RBI28 domestic scheduled commercial banks (other then RRB’s) are permitted to open branches in Tier 1 to Tier 6 centres without having the need to take permission from Reserve Bank of India in each case, subject to reporting under Annual Branch Expansion Plan. At least 25 percent of the total number of branches opened during a financial year is mandatory to be opened in unbanked rural (Tier 5 and Tier 6) centres. Banks may open branches in Tier 1 centres, (Over and above their eligibility as defined in the circular), equal to the number of branches opened in Tier 2 to Tier 6 centres of under banked districts.

28 Circular No.RBI/2013-14/330 DBOD/BAPD/BC.60/22.01.001 DT. 21/10/2013,

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Source: State Level Banking Committee (Agenda 155) 16/10/2014

All Banks in the state of Madhya Pradesh have submitted their Branch Expansion Plan for 2014-15 to the Convener Bank and the RBI as mentioned above.

5.7.5 Pradhan Mantri Jan Dhan Yojana (PMJDY) As in any other state, the PMJDY has been implemented in MP and the Commissioner, Institutional Finance has been nominated as the Mission Director, PMJDY. Launching the scheme in August 2014, the Chief Minister of MP hoped that the scheme would turn out to be boon for the poor who would be saved from clutches of moneylenders. They would be able to get money immediately to meet contingent needs. It was also announced that the assistance amounts under government schemes will be directly deposited in

154 beneficiaries’ bank accounts. Money deposited in bank will also be safer while wasteful expenditures will be curbed. Money will be multiplied since interest will accrue on it when deposited in banks.

Implementation of Sub Service Area under Financial Inclusion: Sampoorn Vittiya Samaveshan, has been launched in the country under the name of Jan Dhan Yojna. The focus of the coverage has shifted from village to Households with an objective to provide Banking facility to every household in the country. Sub Service Areas and Urban Wards have been allotted to all banks by DLCCs and the same was made available in the SLBC’s website www.slbcmadhyapradesh.com. Banks have participated with required measure of involvement for launching the programme on 28.08.2014 by opening accounts under the scheme, surpassing targets given to them.

The gist of the instructions issued by DFS for implementation of PMJDY has been issued by the SLBC in MP:

 Banks to conduct Survey of households. While conducting Survey if the persons desires to open Bank account they should be supplied with the account opening form and the date and venue of the next camp.  Bank’s branches to organize / conduct Saturday Camps for account opening Aadhaar seeding etc. from 8.00 AM to 8.00 PM. Banks to organize / conduct one Mega Camp every month in addition to the Saturday Camp. As far as possible Camps are to be conducted in each village of the SSA.  USSD Training to be given to the concerned staff, the training module to be made available on the Bank’s NPCI’s and DFS website.  Persons already having accounts with other Banks (except Cooperative banks and Post Offices) to be advised to get Rupay Card issued and complete Aadhar seeding in existing account.  All Business Correspondents Agents (Bank Mitras) to be supplied with the Uniform of the design and colour specified by DFS.  Bank’s to expedite Adhaar seeding and NPCI will send the weekly information on the Adhaar seeding to the Banks.  Banks to ensure that every Savings account holder opening accounts under PMJDY is issued Personalised Rupay Debit Card immediately.  Rupay Card to be used by customers within 45 days in order to get the Insurance Cover.  Banks to report the name of Villages/SSAs having data connectivity issues to SLBC in the prescribed format.  Banks should complete the Survey of Households by 15.10.2014 in their allotted SSAs / Wards.29  Under PMJDY, it is clarified by DFS30 that Bank Branches opening accounts should be on CBS platform and have ability to issue RuPay Cards to get associated benefits. Therefore Cooperative Banks (Urban/Rural) which are on CBS platform and have the arrangement of issuing Rupay Debit Cards are eligible to open accounts under PMJDY.

29 DFS Circular No. 1/9/2014-FI dated 25.9.14 30 DFS Circular No. 1/9/2014-FI (C-68798) dated 07.10.2014)

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A Poster (above) at the Launch of PMJDY at Khandwa District

Extent of Coverage (Branch/BC Outlets): All data as on 11.10.14

Source: State Level Banking Committee (Agenda 155) 16/10/2014

Madhya Pradesh has issued further implementation guidelines and follow ups with the bankers. Details of SSAs/Wards allotted to Banks are available in the SLBC website www.slbcmadhyapradesh.com and the same is being regularly updated in case of any change. Banks were requested to reconcile the figures before of SLBC with the figures being submitted by their Head Offices to DFS. A Weekly Core committee meetings are being conducted to review the progress under PMJDY in MP. Banks are also requested to ensure to attend the same without fail. Customer Complaints received at SLBC Call Centre (Toll Free No. 1800 233 4035) are being informed to concerned Bank through e-mail on the same day. Banks are supposed to resolve the complaints and report to the SLBC within 3 days.

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5.7.6 Self Help Groups in MP Government of India has proposed encouraging financing of Joint Farming Groups during the financial year. The Hon’ble Finance Minister of India has specifically mentioned financing of Joint Farming Groups of the landless farmers “Bhoomi Heen Kissan” with the help of NABARD. NABARD has been assigned the responsibility of monitoring financing of 5 lakh Joint Farming Groups of Bhoomi Heen Kissan in JLG mode. Targets for promotion of Savings linkage and credit linkage for the year 2014-15 given by NABARD is 75,000 SHG Savings linkage, 50,000 SHG Credit Linkage and 30,000 JLG Formation and Linkage. Bank wise and District wise targets have been assigned by NABARD. keeping in view the priority accorded by the GoI for financing of JLGs, Banks are requested to take necessary steps to convey the targets to branches and monitor the progress on a regular basis. Banks may take the support of NABARD to revive dormant SHG’s. NABARD has suggested for utilization of the services of Business Correspondents. Banks may consider signing an MOU with NABARD on formation and extending credit support to JLG’s for availing the refinance etc. available from them.

MP’s Progress Under National Rural Livelihoods Mission (NRLM)

Source: State Level Banking Committee (Agenda 155) 16/10/2014

Some of the suggestions that the SLBC has deliberated upon the issues of SHGs are related to the Implementation of WSHG (Women SHG) Programme. WSHGprogramme is being implemented in all 51 districts of Madhya Pradesh. So far credit linkage has taken place only in four districts (viz. Rewa, Sidhi, Balaghat and Seoni). The progress is slow in remaining districts.

Issues Affecting SHG

 Inadequate outreach in many regions.  Multiple membership and borrowings by SHG members within and outside SHGs.  Limited banker interface and monitoring.

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 Delays in opening of SHG accounts and disbursement of loans.  Impounding of savings by banks as collateral.  Non-approval of repeat loans even when the first loans were repaid promptly. Therefore, sanction of C / C limits to SHGs as per GOI guidelines are required to be adopted by banks. Madhya Pradesh State Rural Livelihoods Mission (MPSRLM) has provided bank linkages of Rs. 888.00 crore to SHGs since 2011-12. Bank linkages of Rs. 263.00 crore has been provided to 2,20,263 women members of 22,608 SHGs in financial year 2013-14. In the current financial year 2014-15, the credit linkages of Rs. 115.00 crore has been provided to 9,04,224 woman members of 10,626 SHGs, by Oct 30, 2014.

(Source – Workshop on Bank-Mitra Yojana, NRLM, Bhopal, 30 Oct, 2014)

5.7.7 Coverage of Shadow Villages For every five kilometer area financial points of dispensation has been created in Madhya Pradesh to banking services and other G2P payments leading to Financial Inclusion and financial deepening in the State. Existing financial institutions with beneficiaries accounts such as nationalized banks, post offices, RRB’s were mapped district-wise and bank-wise. The banks were mandated to provide services in their respective service areas. The areas which did not fall under 5 km radius were further identified as "shadow area". Out of 52000 habited villages in the state, 14767 villages were found which did not have any financial dispensation point. To cover these un-banked areas USBs are opened in the brick and mortar form in the rural and far flung areas at identified 3000 locations. Till now (October 2014) 2415 USBs have been opened in the State, remaining are under process of opening. Out of these USBs 33 have been upgraded into full-fledged Rural Bank Branches by the respective banks. The Govt of Madhya Pradesh has provided one room in the Panchayat Bhavan Buildings equipped with fixtures and furnitures to house the USBs which have generated tremendous response among the rural people. The aim of the Government of Madhya Pradesh is to ensure inclusive growth through Financial Inclusion thereby bringing SAMRUDDHI for one and all.

There are number of agencies engaged in payment of wages like Nationalized Banks, Regional Rural Banks, Cooperative Banks, Post Offices and Private Banks. These agencies effect payments through e-FMS by integrating it with NREGAsoft. the funds are transferred through FTOs directly into the account of the beneficiaries. At present more than 15000 branches of these financial institutions are engaged in issuing FTOs and disbursing the payments. Under the system delays in disbursement have been cut down drastically. The SAMRUDDHI Model is implemented in all 50 districts in the State covering all 23006 Panchayats and more than 52000 villages.

The existing postal network has been linked with the CBS platforms of various banks. The State has been able to create a hybrid solution for post offices. From the State Bank of India CBS platform the FTOs further goes to postal network with the help of Sanchaya Post 7.0 Software of the postal department. Thus the money is electronically transmitted in the accounts standing at the Head Post Office/ Sub Post Offices.

158 with the implementation of the Electronic Fund Management System (e-FMS). The system has brought about transparency and good governance by doing away with multiple channels and agencies involved from preparation of payment papers till final disbusement. At present 67 lacs families in MGNREGA alone have been networked with the e-FMS platform. The system created in the State will now be used for other beneficiary oriented schemes like housing, pension etc. This move of the Government of Madhya Pradesh is a step towards not only transparency, good governance but a giant step towards induction of technology and subsequently moving towards paperless and green technology.

This conduit is also being successfully implemented to transfer the funds sanctioned under Indira Aawas Youjana and Mukhya Mantri Aawas Youjana in the State curtailing thereby the time taking process of cheque issuance, cheque presentation and cheque clearance and crediting in the beneficiaries account.

Similarly, as we see the table below, the number of FI accounts opened in Commercial Banks, in the first half of the FY 13-14 itself has got increased by around 40% to 64 lakh, as against to 46 lakh accounts until last year. The number of transactions in these accounts got increased by 667% in first half of the year to 46 lakh transactions against just 6 lakh transactions done in the whole of last year. Similarly, the value of transactions in these accounts got increased by whopping over 1700% to INR 585.74 Cr. from INR 32.37 Cr. worth of transaction done in the entire last year. This clearly depicts that while the numbers of bank accounts are being opened in the banks from last two-three years, significant activity in these accounts started happening from this financial year only.

S. No. Details As of 31.03.12 As of 31.03.13 As of 30. .09.13

1 Total No. of FI A/cs Opened 0.06 cr. 0.46 cr. 0.64 cr.

2 No. of Transactions 0.02 cr. 0.06 cr. 0.46 cr.

3 Value of Transactions 12.41 cr. 32.37 cr. 585.74 cr. Source: MP-SLBC Minutes, September, 2013

Further, the products offered at these USBs and CSPs have no longer been restricted to just the No-frill bank accounts. Realizing the opportunities posed to banks, a lot of other products than just the Basic Savings Accounts like Recurring Deposits, Flexi Recurring Deposits, Term Deposits, Tiny Fixed Deposits, Remittance Facilities, Accidental Insurance, Life Insurance, ATM Cards, Credit, etc. have started being offered to villagers in these unbanked areas. Banks are increasing looking forward to including more and more products and services through these outlets. The month-on-month incremental business volumes of all these products are seeing an increasing trend in all the banks. As envisaged, while conceptualizing and implementing the concept of USB / CSP, a ‘pull’ factor from the banks has started taking effect, at least by those banks, which have been in this channel for some time now. As quoted by a banker 'What started as a mandated activity has now turned into a full-fledged business domain. The model creates a win-win situation for all the stakeholders'. It is a business model for the bankers and not a charity or a mandated forced-upon activity. Seeing the business opportunities, there has even been a ‘pull’ from progressive people in the villages, who wanted to get into the business of financial inclusion by becoming Service Provider of the CSP in their villages. As has come out in discussions with the bankers, quite a few of the CSP

159 operators have started earning to the tune of Rs. 10,000/- and more and this number is going to go up only. While, there would still be the issue of break-even for many of the CSPs, they’re heading fast to get into profit making mode.

5.8 Integrated and Comprehensive Financial Inclusion in Madhya Pradesh Thus in a nutshell, the MP Financial Inclusion model does away with the limitation of merely opening up of bank accounts and transferring the EBT. It covers a comprehensive process for the following: 1. Creation of Database of all the individuals as well as households / families (SSSM)

2. Identification of Potential / Beneficiaries through a comprehensive and common database without compelling the masses to apply and testify KYC again and again (SSSM)

3. Providing door step banking and other financial services to the Potential / Beneficiaries including account opening and transactions (USB/CSPs)

4. Provides for financial literacy to the public at large as regard usage of banking and other financial products and scheme of the Government to Potential / Beneficiaries (FLCs)

5. Seamlessly and efficiently transfers of the benefits to the existing / Potential / Beneficiaries using the Treasury mechanism so that the money gets a direct credit in their bank accounts.

6. Seamless and efficient transfer of the MGNREGA wages to the beneficiaries using the e-FMS platform so that the money gets a direct credit in their bank accounts.

7. Allows the beneficiaries to seamlessly withdraw from and deposit into their accounts, the money as received from the Government.

Source: Presentation at the Special SLBC by the Central Bank of India

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5.9 Analysis of Samruddhi – The MPFI Model Owing to various causes and factors there has been a paradigm shift from population norm to geographic norm in order to provide banking access in MP that could be replicated and scaled across other parts of the country. The Samruddhi model of MP provides for listing of all social sector schemes under one roof cutting across various departments and schemes, avoid double dipping and provide the benefits keeping a track of each and every family as well as individual in context of the benefits provided to them under various schemes. However, the major challenge is still to draw a roadmap for smooth mechanisms of devolution of funds in terms of post-office and cooperative banks that are not on the platform of core-banking. The importance of the beneficiaries is the cynosure of the model that plays a pivotal role in integrating the social sector schemes of the Government with that of their banking accounts. The model does away with the conventional model of merely opening up of banking accounts or cash transfers to the beneficiaries and received prominence and the results remained a centre stage in the MP model. The most significant aspect of the MP model is that beneficiaries find the policy and implementing mechanism easy and friendly (Supplier’s Views). The State was already in the discipline of devolving 86% of its funds through the bank accounts i.e. the cash disbursement was negligible.

It is expected that the MP Model of Financial Inclusion will be a viable and successful business model for the banks as well as for the public at large residing in rural remote and inaccessible areas. The Direct Benefit Transfer is ready to make a beginning for all the pensions that are to be devolved in the state directly from the treasury. The mechanism has been successfully tested in 15 districts and others will soon follow. The next step would be to devolve the scholarships and health benefits. The state will be doing it on a pan-MP basis with common data base model for all the schemes of the State as generated under the SSSM. The model creates a win-win situation for all the stake holders. It is a business model for bankers and not a charity. The access enabled not just the opportunity for devolution of money but also expand financial literacy pursued strongly by RBI and NABARD and the sale of other financial products especially savings and insurance. Some of the USBs / CSPs covering only three villages had a turnover of Rs. 75 lakh in just 5 months. The reported business done by operative USBs is around Rs. 600 crore.

Thus, as per the various documents the GoMP Model is now tested as a business model for holistic Financial Inclusion and thus makes Direct Benefit Transfer and not merely providing 'having greater access' but also 'gaining the access'. The gaining access means improving financial literacy, access to financial products, enabling devolution once a conduit is set for not just pension, MGNREGA payments but for scholarships etc. All benefits can be accessed at one stroke as the hallmark of the model is that the SSSM is highly dynamic. The arrangements to keep it updated will always make available real time data for the beneficiaries. This is a business model and will go a long way in transforming the rural MP bringing Samruddhi to the rural households.

5.10 Financial Deepening With Samruddhi Financial deepening is the improvement or increase in the pool of financial services that are tailored to the requirement of all levels in the society. While it also refers to the increase in the ratio of money supply to

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GDP/Other price index31 which ultimately postulates that the more liquid money is available in the economy,the more opportunities exist in that economy for continued and sustainable growth.It basically supports the view of: Development in Financial sectors leads to development of the economy as a whole. However from the point of view of the Welfare State, It also plays an important role in reducing risk and vulnerability for disadvantaged groups, and increasing the ability of individuals and households to access basic services like health and education, thus having a more direct impact on poverty reduction.

Economists have long held the view that the development of the financial system (financial deepening) and economic development are closely intertwined. Goldsmith (1969), McKinnon (1973), and Shaw (1973) are among the earlier contributions, although the ideas date back to Adam Smith and Knut Wicksell.32 The literature, however, contains relatively few formal models—presumably because it has proved hard to integrate money and financial intermediation into a standard dynamic general equilibrium framework of macroeconomics and growth.

5.10.1 Financial Deepening Fosters Inclusive Growth Promoting well-managed financial deepening in low-income states like Madhya Pradesh can enhance resilience and capacity to cope with shocks, improve macroeconomic policy effectiveness, and support solid and durable inclusive growth. Financial deepening fosters inclusive growth as more varied and accessible financial services also support growth and reduce poverty and inequality. Financial development enables bigger investments and more productive allocation of capital, which lead to higher income growth. At the same time, better and cheaper services for saving money and making payments allow firms and households to avoid the cost of barter or cash transactions, cut the costs of remitting funds, and provide the opportunity to accumulate assets and smooth income.

The model in MP has developed a framework for financial inclusion and has taken into account various aspects of the supply side issues; assessment of enabling environment; issues in penetration, barriers to financial inclusion, etc., however evidence for demand side shall be reflected in terms of opening of accounts, volumes of transactions, increase in bank balance and saving schemes etc. The demand side issues are tested in the primary survey that shall be discussed in the next chapter of this report that deals with observations from field visits

Financial system in low income statelike MP hasis growing and becoming more inclusive over the past few years, but they still remain relatively small and undiversified. Encouragingly, although they have much lower levels of financial depth than high- and middle-income states, MP is likely to beexperiencing financial deepening at rates far faster than higher income states. But financial deepening will be of low quality if financial services are available to only a few households or individuals. Access to finance is as pivotal as the depth of the financial system. Here again, there are encouraging signs, but more has to be done.

31 Financial deepening generally means an increased ratio of money supply to GDP or some price index. It refers to liquid money. The more liquid money is available in an economy, the more opportunities exist for continued growth. 32 For more recent contributions, see, e.g., Bordo and Jonung (2003), and Demirguc-Kunt and Levine (2001).

162 beyond opening of banking accounts. While banking accounts could be the first and foremost step of financial inclusion, it is certainly not the end all of the process. Again, from the side of the supply, it can offer various social benefits to the underprivileged by proper targeting the means as well as prop the benefits directly into their accounts. On the demand side, creation of awareness by means of financial literacy is the key to success in deepening. This would create a demand for various financial products like the need for credit, savings, term and recurring deposits, remittances, insurance and finally contributory pensions. According to certain preliminary indications in MP, it is not only the interest rate that affects financial deepening but also, various other factors such as government activities, external sector activities, and bank branch expansion and communications development. These prima facie results are in line with various empirical studies across developing countries confirming that there is a positive relationship between these variables and financial deepening indicators and that of savings and investment.

5.10.2 Opportunities in MP The MP model of financial inclusion poses immense opportunities for financial deepening as there are opportunities and potential for the CSPs / USBs to offer products and services to keep themselves floating and attain sustainability. Besides, the services as offered under various government schemes, the demand for regulated products could be generated by means of financial education as well as converting the need to demand. Promoting well-managed financial deepening in low-income states like MP can enhance resilience and capacity to cope with shocks, improve macroeconomic effectiveness, and support solid and durable inclusive growth. Financial deepening fosters inclusive growth as more varied and accessible financial services support growth and reduce poverty and inequality. Financial deepening supports the view that development in financial sector leads to development of the economy as a whole. However from the point of view of the Welfare State, it also plays an important role in reducing risk and vulnerability for disadvantaged groups, and increasing the ability of individuals and households to access basic services like health and education, thus having a more direct impact on poverty reduction. Financial system in low income statelike MP is growing and becoming more inclusive, but they still remain relatively small and undiversified. Encouragingly, although they have much lower levels of financial depth than high- and middle-income states, MP is likely to be experiencing financial deepening at rates far faster than higher income states. Access to finance is as pivotal as the depth of the financial system. Here again, there are encouraging signs, but more has to be done. In the state of MP and specially in the past couple of years it has been amply realized that mere banking inclusion would not serve the purpose of inclusive growth and hence the State has to move beyond opening of banking accounts. While banking accounts could be the first and foremost step of financial inclusion, it is certainly not the end all of the process. Again, from the side of the supply, it can offer various social benefits to the underprivileged by properly targeting the means as well as prop the benefits directly into their accounts. On the demand side, creation of awareness by means of financial literacy is the key to success. This would create a demand for various financial products like the need for credit, savings, term and recurring deposits, remittances, insurance and finally contributory pensions33. According to certain preliminary indications in MP, it is not only the interest rate that affects financial deepening but also, various other factors such as government activities, external

33 The GoMP announced a co contributory pension scheme ‘Shri Kushabhau Thakre Unorganized Sector Co Contributory Pension scheme’ in 2008 for the informal sector identified group of vulnerable poor, but the scheme could not be rolled out for want of implementation partner and lack of financial outreach.

163 sector activities, and bank branch expansion and communications development. These prima facie results are in line with various empirical studies across developing countries confirming that there is a positive relationship between these variables and financial deepening indicators and that of savings and investment.

5.10.3 Samruddhi’s Best Practices In relation to the global best practices, The G20 Principles for Innovative Financial Inclusion globally, Samruddhi - the MPFI model stands at the cross roads of inclusive growth. While MP has adopted some of the principles enshrined in the global document, few are yet to be attained. However, there are still some principles like the area of consumer protection where a lot has to be done in the model in MP. On the issues of regulatory mechanism, while banking and financial products are regulated in India, MP has set up monitoring through SSSM (G2P that is monitored on a daily basis). MP is yet to create an institutional mechanism that would coordinate with the financial regulators to monitor and regulate the products and services being offered for financial deepening including the welfare benefits schemes of the Government to the beneficiaries.

MP’s Adoption of Best Practices: On the positive note, the GoMP has displayed remarkable progress in cultivating a broad-based government commitment to financial inclusion as part of the commitment to help alleviate poverty. It has also promoted technological and institutional innovation as a means to expand financial system access and usage,however, it is yet to address the infrastructure weaknesses. Though it has issued instructions to provide physical infrastructure in terms of a 100 sq.ft. roomat each Panchayat, not just for USB / CSP but also for post offices, the IT infrastructure such as seamless internet connectivity etc. requires a lot more. The model has been partly successful in utilizing improved data to make evidence-based policy, measuring progress, and considering an incremental “test and learn” approach by both regulators and service providers. As with any area of policymaking, appropriate and reliable data are needed to support the design of financial inclusion policy and to monitor and measure the impact of policy over time, the model has already developed the database but its efficacy will need to be proven in years to come.

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Chapter 6. Qualitative Analysis – Status of Financial Literacy and Inclusion in Two Districts

Annotation: In addition to the quantitative analysis presented in the next chapter the current chapter discusses the results of the FGDs through primary survey on status of financial literacy and inclusion in the two districts (Katihar and Khandwa districts of Bihar and Madhya Pradesh respectively. The study team also carried out qualitative survey through Focused Group Discussions (FGDs) with groups of poor self-employed women and men workers (in informal sector) to better understand the status. The purpose of doing so is not only to complement the quantitative analysis but to also triangulate the results of quantitative analysis.

6.1 Methodology As many as Sixteen FGDs were conducted at Katihar and Khandwa districts of Bihar and Madhya Pradesh, among groups of poor self-employed men and women belonging to various occupational groups. The list of FGDs conducted is presented below:

Sl. No. of Place Occupation No. Participants 1 Bhorabari, Katihar Mixed occupation 23 2 Sitla Sthan, Katihar House-maid 18 3 Mofarganj, Gareri Tola, Katihar Cotton-Wicks maker 10 4 Buddhu Chowk, Katihar Bamboo based products maker 10 5 TV Tower, Katihar Construction Labour 20 6 Kumhar Tola, Katihar Potter 8 7 Rojitpur, Katihar Carry-bag making 8 8 Harijan Tola, Katihar Bamboo based products maker 10 9 Sujapur Kala, Indore Naka, Khandwa Construction and Agriculture Labour 20 10 Jaswadi Village, Khandwa Agriculture Labour 10 11 Shivaji Nagar, Khandwa Tailoring, Construction and Agriculture Labour 10 12 Tagore Colony , Khandwa House Maid 9 13 Roshanaai, Khandwa Street Vendors 8 14 Surgoan Joshi, Khandwa Farming 20 15 Saluja Nagar, Dharam Kanta, Khandwa Mixed occupation 25 16 Dubey Colony, Khandwa Construction Labour 10

6.1.1 Profile of the Participants The FGD participants were mostly poor self employed women working in the informal sector, involved in various occupations such as building and other construction workers, daily wage labour, agriculture labour, farming, house-maid, street vendors, bamboo workers, tailoring, potter etc. At Khandwa, one FGD was conducted exclusively with men group and one was mixed group, whereas, at Katihar, all the FGDs were conducted with women only. Almost all FGDs were conducted based on women or men belonging to a particular occupation. This was done keeping in mind to know the level of financial literacy and financial inclusion needs of a particular occupation group. Most of the women/men were in the age groups between 25 and 40 years and were mostly traditionally involved in the profession. A couple of mixed groups were also tested towards indentifying the diversified needs with the same objectives in mind.

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6.2 Inclusion Through Pradhan Mantri Jan-Dhan Yojna (PMJDY) During the FGDs, an overwhelming majority of the women were found aware that government is encouraging people to open bank accounts. They perhaps were not aware of the nomenclature and didn’t know it by the brand name of the scheme but they knew that government had launched a special drive to open bank account for poor people. They were mostly informed through their neighbours, local representatives (panchayat leaders, ward councillor etc.) and their respective employers. It was indeed a welcome move that most of the domestic workers at Katihar were informed by the owner of the households that employed them. However, the same was not true for all set of employers, especially civil contractors, as level of interaction between employer and employees was minimal in such cases. Those who primarily work from their own home, such as bamboo based products makers, potters, tailors, cotton-wicks makers, carry-bag makers etc. got information through mass media campaigns or when local representatives visited their area. It reflects that extent of information set hold by a person largely depended on level of mobility and multiplicity of interface the person had. No wonder, the male members were found to have more sources of information on PMJDY than that of women.

At Khandwa, a good number of them had come to know about it through mass-media (T.V. Radio, newspapers etc.), whereas, such number was found to be lower at Katihar. They also got to know through the camps held by the banks in their area. Since Khandwa has also been in the list of the pilot district for most of the government benefits including the Direct Benefit Transfer (DBT), there was already a focused drive earlier on bank account opening of individuals at household level. Hence, a lot of them were aware of zero balance account (or basic savings account) at banks and the process of opening a bank account. This was however confined to only those who were beneficiary of some or the other scheme of the government. The number of camps organized by banks at Katihar, were far less than that of Khnadwa. Only three out of eight areas visited during FGDs at Katihar, were covered by PMJDY account opening camps by banks.

Though most of the people at both the districts had heard about the PMJDY drive, they were neither aware about nor fully conversant with all features of the scheme. Even those who had heard of the benefits, were found to have received only half-baked information. In general, the level of information on the benefits of the scheme was found poorer among women, as compared to men. However, the level of awareness among women at Khandwa was found much better than that of their counterparts at Katihar. The rural women had very poor information as compared to urban women about the PMJDY in Khandwa. The rural women had very poor information in comparison of rural men. As explained earlier, the coverage or penetration of FI drive launched by banks and local government at Katihar was no match to that of Khandwa. As expected, with few exception, the women working from their home were found far less informed than of those who work outside or interacted with several set of people in their vocation.

At Katihar, there was confusion on zero balance in the mind of local populace, as some bankers were still insisting to deposit minimal amount (Rs. 300-500) at the time of account opening. Even the Lead Bank Manager of the district was aware of such practice adopted but allowed the same to happen as it would primarily ensure more stakes of the account holders so that they regularly transact in their accounts.

Munni Devi, a domestic worker, resident of Sitla Sthan, Katihar, visited camp held in her area by local branch

of Uttar Bihar Gramin Bank (UBGB), to open her savings account under PMJDY. She went to the camp only

with her Voter ID Card, carrying the impression that only ID proof is required to open zero balance account and no deposit is required at the time of account opening. However, to her surprise, she was asked by the branch official to deposit a minimum of Rs 300 to open the bank account. She confronted the official that she has been told that no deposit is required for account166 opening. The official refused to open her account saying that go and open the account with the person who told her so. He further added that all those who opened account at the camp had made deposit of Rs 500 and more. Since she desperately wanted a bank account in her name and didn’t want to miss the opportunity as camp was only for a day, she went back home and borrowed Rs 200 from her neighour and put Rs 100 of her own and got her bank account opened.

Bankers believed that the entire purpose of launching the scheme would get defeated as most of the people had opened their accounts thinking that the government would transfer money into their accounts whereas, these account holders would never use their account to save money it . When the same was checked during FGDs at Katihar, a good number of them were under the impression that the scheme was launched because government wanted to give free money to poor through their bank account. This misconception was largely spread across Bihar and the LDMs as well as district administration were aware of the same.

Both at Katihar and Khandwa, most of the people met were found to be aware of the insurance benefits. However, at Katihar, not many were aware that there were separate benefits of accidental insurance and normal life insurance. Most of them found holding the impression that the family members of the account holder would receive Rupee One Lakh, if the account holder dies under any circumstances. A very few of them were even aware that they had nominated someone at the time of filling-up account opening form, to receive insurance benefit. The situation was found more or less same across women engaged in all vocations at Katihar. However, the situation was slightly better at Khandwa. As compared to women, men were found more aware of the insurance benefits, as their mobility was better than of women.

The awareness on RuPay debit card with bank account under PMJDY was almost negligible at both Katihar and Khandwa. A very few of them were aware that they would also receive a RuPay debit card with this account. The knowledge level on usage or benefits of a debit card among them was also found minimal. This was found true for all occupational groups that the study team encountered during FGDs. When informed about it, they would usually get excited to know that they would get a debit card. However, it was not surprising to note that they did not know how they would be able to use it, as they were mostly illiterate. None of them were aware that the insurance benefit was actually linked to the RuPay card that would come along with the account.

At Khandwa, while a small segment were aware that they would be entitled for an amount of Rs. 5000 under PMJDY but they were not aware whether it would be a loan or a grant. A good number of them believed that it would come as a grant from the government. At Katihar, hardly anyone was found aware of overdraft facility (of Rs. 5,000) under the scheme and its conditions. A few among them who know about the overdraft facility (mostly house-maids and bamboo based products makers) were under the impression that the facility will be automatically applied to all account holders. This aspect of the scheme was perhaps deliberately underplayed by the bankers while advertising the scheme, as they were generally reluctant to give loans to poor. Moreover, they feared that they would be flooded with request of extension of overdraft facility, as everyone would flog to claim this benefit, without understanding the conditions attached to it. When declined, it would then create unnecessary resentment among the account holders and often create chaos at the bank branches. They believed that unless this aspect was explained in detail, it would only create trouble for the bankers in long run.

At Katihar, the insistence by bankers on complete Know Your Customers (KYC) documents at the time of account opening despite the provision that one could submit the required KYC documents within a period of six months of account opening, was found to be yet another roadblock to achieve the objectives of the scheme. There are also frequent cases of unavailability of account opening forms at bank branches that discouraged people to open bank accounts. A good number of those who tried opening their bank accounts and had visited nearby bank branch (especially, construction workers, bamboo product makers and carry

167 bag makers) were either told to come only at camps held by banks or to come only on a particular day of week that was specified for special drive. Some banks referred them to some other branches, citing the reason that they were not the designated branch under this scheme for the given service area. Zahira Begum, carry-bag maker, resident of Roajitpur Katihar, visited local branch of Central Bank to open her savings bank account under PMJDY. When she enquired about the application form to open the account with an official there, she was told to wait till the bank organize a camp in her area, as such account will only be opened through camps and she doesn’t require to visit branch ever again for the same. When she asked for date of the camp, she was informed that officials will visit the area 2-3 days prior to the camp and announce for it. After more than a month has lapsed since then and no camp has been held by the bank in her area. She doesn’t want to visit the branch again to enquire of the date of the camp, as she fears that she will be reprimanded by bank officials as they asked them to not come again here.

Uma Devi, a construction labour, resident of Durga Sthan, Katihar, visited local branch of Indian Overseas Bank to open her savings bank account under PMJDY. To her surprise, she was refused to open the account and was asked to approach some other bank branch. When she enquired the reason, she was being told that the branch is not designated for PMJDY for the area where she lives. She doesn’t even know which is the designated branch for her area. Now she is waiting for the camp to be held by the bank in her area to open her savings account.

At Khandwa a good number of them had opened their savings bank account under PMJDY through the camps held by banks but the same figure was relatively low at Katihar. However, in most of the families, only the adult male members had opened their account. At Katihar, there was a notion prevalent, especially among construction workers and bamboo product makers that only one member of a family could open a bank account under PMJDY. This confusion arose because banks were targeting and opening atleast one savings account for each household and discouraging those to open new bank account who already had bank account with them. As a result of this false notion, many women members of got deprived of banking opportunity. When asked, most of such women across all vocations expressed strong desire to have bank account of their own. They provided several narratives of women savings money at home without the knowledge of their husband and they finally lost the money for want of security.

At Khandwa, the domestic workers already had the saving bank account but due to lack of awareness they applied for another bank account under PMJDY. Neelam Devi, Potter, resident of Kumhar Tola, Katihar has no bank account of her own and even none of her family member have it. She also use to sell the products but the earning from pottery is handled solely by her husband. However, she use to save money in her bag from whatever little money she use to receive from her husband for household expenditure or money received by her parents whenever she visits them. She never told about her savings to her husband but after almost 10 years, when her savings accumulated to Rs 40,000, her husband found the bag in which she use to put her savings, when she was not at home. Though her husband didn’t take the money away, when she returned home, he started taunting her for hiding it from him and not trusting him. She felt so embarrassed with the guilt that she finally handed over her entire savings to her husband. She feels sorry that she didn’t have to face this situation if she had a bank account of her own.

There was also a confusion among people at Katihar that the scheme was valid only for a limited period (up to 26 January, 2015) and if anyone missed to open their account at camps held by banks would not get another opportunity to open account under this scheme. Many of them, who couldn’t open their account during camp held at their area, failed to make any subsequent attempt to open their account thinking that

168 they missed the bus forever. When checked about their interest, they were found keen to open bank account and also sought help on where and how they could approach to open it. This also lead to the fact that there would be a requirement for banking inclusion ever after the drive gets over on 26th January, 2015.

At Katihar, there were also some instances where banks have been refusing to open account of those who already were having a bank account at any of the branch. Some of them, who already had a bank account, managed to open another account (in same or other branch), in order to avail benefits under the scheme. Most of them were not aware that the benefits under PMJDY would also be extended to existing ‘no-frills’ account (or basic savings account) holders, under certain conditions. A large number of them had opened the account as they thought that government would pass on doles through these account. Others have just followed suit.

Despite the intense desire to have a bank account, on the contrary, a very few of them were found using the account to deposit or save money. Most of them had never visited the bank again to make transaction in their account. They give excuses that since bank had not given them pass-book, they did not wish to deposit their money now and they would probably do so only after receiving their pass-books. None of them had received RuPay card so far.

6.2.1 KYC Documents Barring a few, almost all of them (both at Katihar and Khandwa) were aware of the KYC norms to open a bank account. A good number of them even possessed the requisite KYC documents but at the same time, a sizable number of women, especially in Katihar, were found without any valid ID or address proof against their name. As compared to Khandwa,the penetration of Aadhar card was still poor in Bihar, especially in rural areas. Even they struggle to get certificate (certifying ID and address) from their local representatives. The investigators were informed that they usually demanded bribes to issue such certificates. However, their ordeal doesn’t end here. Many women faced problems with banks, who refused to accept certificates issued by local representatives. They still insist on card issued by Government of India (such as, Voter ID Card, Aadhar Card, PAN card etc.). Especially, the newly-wed brides, who join their husbands’ family, were found without any official ID. These families were mostly not even aware how and from where such IDs would be issued. They waited for drive or campaign to be launched (by government or NGOs) in their area to enroll such people who had not got their Voter ID card / Aadhar card / Ration card etc.

Frequent cases were found in which names of the person were either mis-spelled on the ID card or wrongly written. This has also resulted in refusal of KYC documents by the banks. They had asked them to get the same amended before opening of accounts. However, most of them had no clue as to how and from where the correction could be effected in their card. Even those who knew the processes, found it very cumbersome and time taking, in addition to paying a hefty kick-back. Despite several guidelines issued by the Reserve Bank of India (RBI) relaxing the KYC norms for ‘basic savings account’, it is yet to be followed in true spirit by the bankers. They are often found rigid on KYC norms even in case of ‘basic savings account’ or PMJDY. There was also a poor knowledge among poor mass on flexibility in KYC norms, hence they were not able to exercise their rights to open bank account. There is a pressing need of education on KYC norms and rights of a bank customer and how to avail them.

6.3 No-Frills accounts at Bank and Post Offices At Katihar, not many were found aware that the provision of zero balance account was already existing even prior to the PMJDY, however, the situation in Khandwa was relatively better due to prior FI drive

169 launched by state government. It is interesting to note that at both Katihar and Khandwa, very few were found to be aware that there was also a provision of opening savings account at Post Offices. This situation was found common across all vocational group. They knew post-office only as organisation who delivers letter and money orders. Though at Katihar, many of them also have post office savings account, opened under MGNREGS, but they did know that it could also be used as savings account. They only used it to receive their wages under MGNREGS.

Savitri bai w/o Dariyav singh, 45 years, lives in Gohawari village of Dhangaon Panchayat at Khandwa. She As far works at her own agriculture field, also works as agricultural labourer. She also is also involved in cattle as rearing. awaren ess of Before 2 years, a camp had been organised in the village and BC (Banking Correspondent) with Sarpanch deposit had taken the finger prints and KYC norms for open the basic saving accounts of all 3 adults member of schem her families – husband, her son Golu, and herself. During the case study, she showed 3 smart es of cards/biometric cards of Bank of India. All of three (Her husband, her son and herself) were not aware banks that their bank accounts had been opened in the bank through the camp before 2 years. They had and kept all 3 smart cards at one place and forgot. In 2009, they had got opened an account under Post MNGREGA through Bank of India. Offices is concerned, only a small section at both Katihar and Khandwa were found to be aware of the time deposit schemes offered by Post Offices but a good number of them were aware of same product offered by banks. At Katihar, only a few of them made investment in Post Office time deposit schemes but they had done so through agents and not by themselves. At Khandwa, the social security pension were being distributing through post offices, so a good number of women had knowledge about the post offices, but not the financial products like FD, RD etc. Most of them had never visited any post office and a sizable number among them did not know the location of their nearest post-office. While they had the pass books of the post offices they had never gone to cross verify the genuineness of the same. This also points towards the fact that there is a strong need of popularising post-offices among poor mass, as an alternative safe place to save. There is also a need for people to be aware about the genuineness of agents who had picked up money from them towards depositing in the post offices.

Amaravati bai W/o Late Shri Mohanlal, 40 years old, Ashapur village of Khalwa block. She works in forest (nursery work) for plantation under MGNREGA and as agricultural labourer when she does not involve in MGNREGA work. She does get only 100 days work in forest during a financial year.

She has 3 children one daughter and two sons. Amarawati bai had got assistance under Kutir Awas Yojana in the last corner of village and near the Agni River (almost at the bank of river). Almost every year her house is affected due to water of river during rainy days.

Amaravati bai lost her husband four years back (30 July, 2011), in an accident at the river during the rainy days. The panchayat immediately gave Rs. 2000/- for the funeral. She got family assistance in of Rs. 10,000/- (Cheque) and a cheque of Rs. 30,000/-from LIC. She got opened bank account in Primary Credit Cooperative Society in the village. She deposited her cheque in the cooperative society bank. She applied for the widow pension and it was started from March 2012. Although she had got opened a saving account in Primary Credit Cooperative Society1 to deposit the cheques and withdraw the money and she had already used this account (deposited cheques and withdrew the money), she got opened a new account in same branch of same society to receive the pension. She was unknown that the same account can be used to receive the pension. 170

6.4 Household Budgeting and Planning It was considered necessary to identify if there was a need for the community members to understand the importance of budgeting and financial planning in such a manner as to identify their existing level of understanding on the issues and need for financial literacy. Like on many aspects of financial literacy and inclusion, the situation on household budgeting and planning is not very different across vocation or state. At both the districts, not many of the participants were found aware of the concept of household budget or accounting. Many of them were not even aware of their regular monthly household expenditure. It shows that most of them were making expenses, as and when they felt the need for it without making any plans or allocating resources for the same. Though they agree that such practices often lead to wasteful expenditure. Very few were found aware of the concept of budget, but were not following it at their household, as they considered that they were already living on too little income and they did not see any scope of further cutting down of expenditure. Some also saw illiteracy as a major handicap to follow the idea, as it required keeping track of expenditures on a regular basis.

When the basic concept of budgeting and planning were shared with them in brief, they very much appreciated and liked the idea and were keen to know how they could also do for their own household. They could sense great merit in budgeting and planning as it was a great tool to control their expenditure and enhance their savings. Given the interest among women on the concept of household budgeting, there is a strong need of financial literacy and counselling among the women.

6.5 Benefits of Bank/Post Office Account for Savings The FGDs covers a wide spectrum of informal sector workers whose payment schedule varies widely – from daily to quarterly. Workers such as vendors, agricultural labourers were found to receive their income on daily basis, whereas, construction workers and home-based workers receives weekly payment. MGNREGA workers get fortnightly or monthly payment and domestic workers get payment on monthly basis. Farmers involved in agriculture have seasonal income, usually quarterly, at the time of harvest.

At Khandwa, a good number of them were found to be savings at banks or some institutional form, including Co-operative but substantial number of them still saves money at their home despite having savings account with bank. There are varied practices of savings money at home among women and they also provided several accounts of loss of their deposits.

A woman in Gareri Tola, Katihar, told that she put her five years of savings (about Rs 25,000) in a small earthen pot and dumped it under the floor of her house. After few years, when she dug out the pot she found that termites had eaten away her entire money. Another woman at Sitla Sthan, Katihar, told that her mother-in-law use to save money in her pillow and nobody in the family was aware of it. The family comes to know about it only when she died and her pillow was removed from her funeral pyre.

Some of them were also using SHG and popular local form called "Bishi34". Interestingly, most of the street vendors and house-maids, who operate from town, have bank account of their own and they also use it

34 Bishi is informal and local form of merry-go-round where money is pooled by a group of persons. The group consists of 10-20 members and they pool a fixed sum every month. On each day of collection, a person from the group is chosen by lottery system and the entire sum collected for the month is given to him/her. The same process continues every month till each member of the

171 frequently to save. The same is also found true for agriculture labourers but usage of bank account for savings is not so prevalent among them, as they found that distance of branch from their home is too far to visit frequently for withdrawal or deposit of small sum. The construction workers mostly not found using bank account to save, as they don’t get time during banking hours to visit branch for transaction.

Santosh bai, widow, 30 years old, lives in Jaswadi village, Khandwa and works as agricultural labourer and under MGNREGA. She has 4 members in the family, her three children, 2 sons and 1 daughter. The eldest son and daughter go to school. The youngest son attends the anganwadi.

Her monthly family income is about 1000 rupees and expenditure is almost same. She earns about 60/- rupees per day from agricultural work. She also gets the widow pension of Rs. 150/- through bank. She does save money about Rs. 50 per month and keep savings at home in grocery box. She uses bank account only for receiving the wages or pension amount and as she receives, she immediately withdraws it.

At Katihar, possession of savings bank account among informal sector workers was found abysmal. Very few women were found to have bank account of their own or of their husbands. However, a good number of them found to have opened bank account recently under PMJDY but they have not started using them yet. The penetration of bank account was found least among construction workers and in comparison the penetration was found highest among the house-maids, followed by home-based workers. However, very few were found using their bank account for savings but they mostly use it for receiving remittance from their family members living in other cities.

On the question of benefits or value being attached on having a savings account either at bank or at post office, they listed down some key advantages, such as, safety of money, protection from wasteful expenditure (if money is in hand), growth of capital through interest earned, etc. When asked that why most of those who get their wages or income at frequency of fortnightly or less don’t visit banks frequently to deposit their savings, they replied that a large part of it was usually spent within a few days of receiving and they left with only a meagre amount. At Katihar, many of them, especially construction workers, carried notion that one must visit bank only when one has substantial amount to deposit. According to them, visiting banks to deposit small sum was not economically and practically feasible. They were also aware of the vulnerability / risks of keeping money at home but still did not see banks as good alternative to it, as they never found banking processes convenient to them.

Amaravati bai W/o Late Shri Mohanlal, 40 years old, Ashapur village of Khalwa block in Khandwa. She works in forest (nursery work) for plantation under MGNREGA and as agricultural labourer when she does not involve in MGNREGA work. She does get only 100 days work in forest during a financial year.

She had got opened a saving bank account in Bank of India in through CSP (Customer Service Point) in Ashapur to receive the MGNREGA payment in 2013. She receives MGNREGA payment and widow pension (from July 2014) in this account. She always withdraws amount of MGNREGA wage payment and widow pension at one go (1000 or 2000 when) from the bank and left only few rupees whether she requires or not. She told "Bank is agency of payment of my wage and pension." group gets a chance. Once a member gets a chance, he/she is not eligible to participate in lottery of names and he/she can also offer the sum (or part of it) to highest bidder among the group.

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At Khandwa, the domestic workers use the bank account saving purpose at monthly basis after keeping some saving at home for emergency. They face problem in filling in deposit/withdraw forms but they always ask help from bank employees or other customers present in the bank.

However they feel that if they first deposit the amount in bank account and then withdraw it to meet expenses (based on budget), they could save some, if not lot of money as compared to current practice of almost nil saving. When asked to provide suggestion on improvement in banking system to make it useful for them, they suggested provision of deposit collector who could visit door to door (and if possible in the morning or evening hours) or any agent residing in neighbourhood by banks that would make convenient for them to do banking. Waiting for so long in queue and frequent failure of internet linkage at banks also discouraged them to do regular transaction with bank. They felt that illiteracy was not a big challenge as usually other customers at banks helped them to fill-up their forms, but lack of financial literacy prevented them in moving out of the vicious circle of being a non saver.

Given the poor level of usage of bank account among poor mass, there is an urgent need of financial education among them on how they could use bank accounts to add value to their lives. Mere encouraging them to open bank account would certainly not result in better financial management at household level aiming at wealth creation among them. One needs to appraise them on how bank account is an important tool in improving their financial status and managing risks.

Financial Inclusion as a Corollary of Livelihoods– Santosh Kumar, Rickshaw Puller A resident of Khagaul, Patna, Santosh Kumar, 35 years, is a Rickshaw Puller. His father was labourer and in search of regular work and shifted along with family to Patna (City) when Santosh was young. Since then, they are living in a small rented house at a slum in Patna. Santosh studied till standard eight but once moved to Patna, he had to discontinue his studies. He got married at the age of 25 and since then he took rickshaw pulling as main occupation to support his family. Apart from his wife, he has two sons and a daughter in his family that he supports from his earning. His wife works as housemaid to supplement family’s income

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rickshaw pullers, as they often are migrants and carry no local residence proof. Santosh became an active member of the rickshaw-pullers union and soon he became ‘President’ of the union.

Apart from his bank account, he doesn’t use any other source to save. He feels that after putting his savings in bank account, his money is now safer than ever before and also he used to save more than what he could do earlier as he was able to cut down in wasteful expenditures. He also wants to open a recurring and fixed deposit accounts in bank to secure some savings for his daughter’s marriage. He still has no insurance or pension cover. He learnt that Sammaan Foundation is helping the co-operative to get life insurance to all its members. He is not aware of health insurance scheme (RSBY) or Swavalamban Pension Scheme, however, after being told about the NPS liet he now wants to open a pension account for himself.

6.6 Practices of Savings and Investment There are varied practices of savings and investment among them. However, mostly they do savings or make investments in informal avenues or unsecured places, that exposes them to the vulnerability to cheating, loss of life time savings and poor returns. Since most of them don’t follow any household budget, they usually do savings without any target figure in mind. Their saving is by default, what is usually left after expenditure. Very few were found disciplined, who set aside compulsory savings (goal-linked) and then make expenditure from the rest.

There is absolutely no awareness among them on segregating savings needs based on time-period – short- term, medium term and long-term and accordingly choosing the avenues of investment. When probed regarding popular purposes of savings, most of them do it to meet short-term requirements and small emergency needs. A good number of them were also found making investment for long-term life-cycle needs, especially for marriage of daughters and building new home. They mostly make such investments in schemes of unregulated institutions, livestock, land, jewellery etc. Some also use SHG and thrift and credit co-operatives. A few of them were also found invested in schemes of the LIC. Very few have invested in recurring or fixed deposit schemes of banks or post-offices. Many were not even aware that post offices also offer such services. When probed on the major determinants of selection of channel of savings among them, following points were raised by them (in order of priority): 1. Convenience and Ease of access 2. Trust on the agent or institution that given them notion of safety of their deposit 3. Ease of liquidity 4. Return offered on investment

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6.6.1 Savings in Unregulated Instruments While for reasons mentioned above, most were not making any savings in regulated environment, it was found that a lot many people were targeted by unscrupulous elements and companies towards savings at higher greedy interest rates. It was really heart-wrenching to find that a large number of them had made investments in highly attractive schemes of unregulated institutions and were also duped by them from time to time, resulting in loss of savings of their life-time. This was found common across all vocational groups. This was more prominent in Bihar rather than in MP. There were plenty of cases of fly-by-night operators run away with savings of poor families. The sad part was that many of the investors did not even know the name of institutions but they blindly trusted the words of the agents (on behalf of the dubious companies), who lived in their neighbourhood. Many of the organisations have closed their office even before maturity of the scheme. In many cases, they discontinued the scheme (stopped making further deposit) after they come to know the case of other organisations running away with the deposits. They don’t know the legal recourse to get their money back. In most of the cases, the agents were also on the run or they had declared themselves bankrupt. Most of the depositors have resigned to their fate. Now there is complete void on where they should save money for their long-term needs. Many have already resorted to old age practices that are still unsafe and lose value in real terms.

Protection Against the Frauds – A case study of Malayabai Street Vendor, Khandwa -

Malayai bai Ingle, 60 years old, widow, Roshanai village, Khandwa and has been street vending since last 35 years. Her husband was heavy drunker. His son Ramchandra studied upto class 10th. After death of her husband, Ramchandra started support in vending.

Malayai bai had invested money of Rs. 1000/- in Golden Forest Company. The agent who lives in her village, had told that the insurance will cover and you will get Rs. 2,22,000/- in 2021 (after 25 years). After long saving, she took insurance (as told by the agent) of Rs. 1000/- because her husband use all money in liquor. So, she wanted secure future of her son and she took insurance without telling of her husband. She had taken insurance in 1995.

During the FGD in the Roshanai with these street vendors, Malayai bai informed that she has an insurance policy which will mature after 5-6 years and the maturity amount will be used for marriage of –her grand-daughters.

It was not insurance policy, it was a receipt and a post dated cheque (it was also laminated by her) of Rs. 2,22,000/- of Union Bank of India against the investment in Golden Forest Company. Malayai bai was quite sure that after death of her husband she had taken a plan to secure future of her son. They were not aware that Golden Forest Company has been locked. As they came to know that this company did frauds with them, they were shocked. The agent had misinformed them and till date they were unaware this.

Given the magnitude of the problem, there is an urgent need to educate poor on how to distinguish between genuine and fake organisations and not to get lured by attractive offers. There is also pressing need of educating poor on concept of goal linked savings and selection of channels to keep their investments secure and get optimal returns.

Protection Against Frauds – The need of Hour. Case of Asha Devi – Cotton Wicks Maker Asha Devi, 45 years, is resident of Gareri Tola, Katihar (Bihar). Apart from her husband, she had five daughters and two sons in her family. She had studied up to standard five. Her husband was a worker at local Jute Mill that closed

175 down about seven years ago. After losing his job due to closure of the mill, he took trading of used gunny bags and tins to support his family. However, the income was too meager to support the family of nine persons and thus to save money for marriage of their five daughters was a far cry.

Ever since she took-up this work, her primary motive was to save money for her daughters’ marriage. At that time, neither she nor her husband had any bank account to save. Her husband once even tried to open bank account but the banker asked for an introducer (existing account holder) and he couldn’t find one. Hence he failed to open bank account and then gave-up the effort for ever. Earlier she used to keep the savings at home but when the amount became large, she decided to put her savings in an investment scheme of ‘Pearls Agro’, who promised her very attractive returns. She was lured by company’s agent, who lived in her neighborhood. Since many residents of the neighborhood had also invested in the same scheme, it gave her further trust on the scheme.

Frauds by different companies -

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Kusum bai, 38 years old, construction worker, lives at Sujapur kala, Indore Naka, Khandwa. She has four members in her family. She has LPG connection at her home.

A tea company had visited in her areas and told to provide employment of packing tea in group. But, first they have to be a member of company and they lured to deposit Rs. 250/- per person. Kusum bai along with 14 other women of her areas deposited money, the company ran away. The tea company did frauds many places in Khandwa.

One group had also lured her on the name of cleaning of Brass metal utensils. They stayed one place near Khandwa-Chhaigaon Road in tent. First, they collected brass utensils from household, cleaned, and returned back to household and built the confidence of other households. They were charging Rs. 50/- after satisfactory service otherwise no need to pay the charge. She also gave them brass pots, box, glasses and frying pan ("kadaahi" in hindi) for cleaning. They collected utensils from 15-20 households and ran away. They searched a lot, but could not find them.

The LPG subsidy was not transfer into her husband account. Her husband had asked from bank and bank told that amount not received in your account. Then, her husband went to Bharat Gas Agency and asked about LPG subsidy transfers. The gas company gave him a telephone number to call it but could not contact. Thus, she had not received any amount of LPG subsidy for 3-4 times. After it, the gas subsidy amount had stopped in transferring in the bank account. But, she had to buy LPG cylinders from Gas Company on market rate (without subsidy).

6.7 Credit Needs and its Channels During discussion, it was found that credit needs of poor households were varied, however, they mostly borrowed small sum (Rs. 5,000 – 10,000) to meet consumption or emergency needs. Most of the small borrowings were targeted to meet medical expenses or funeral expenses in the family. This was found very common among construction workers and agriculture labourers. A few of them, especially home-based workers, have also borrowed for their business expansion or to meet deficit in working capital. There were very few cases of borrowing of more than Rs 50,000. Most of these loans were taken for either marriage or house repair/construction. Most of the big sized loans were taken by home-based workers. At Khandwa, loans were mostly taken for the income generation activities, medical treatment, house repair, buying agricultural inputs, etc. Some of them were also found taken loans for domestic appliances such as electric iron press, mixer-grinder etc. A Few MFIs were also providing domestic appliances directly instead of amount (as a loan) and collecting the installments from the customers. Women workers adopted happily because they had neither these appliances at their home nor had lump-sum amount to purchase it, so they took these appliances on installments.

The popular channels of credit were traders, money-lenders, friends and relatives. This was found common at both Katihar and Khandwa. A good number of them have also borrowed from MFIs, SHGs and credit cooperatives, however, SHGs and co-operatives were not so popular source in Katihar but MFIs were equally popular sources at both the districts. The domestic workers, who have been working for long with the same employer, get advance from their employer, in case of need of small amount. Barring a few, none of them were found to have received loans from any bank. Those who got loans from banks have mostly got it

177 under Kisan Credit Card (KCC) or credit linkage of SHGs. It shows that, this segment is primarily dependent on informal or semi-formal sources and penetration of mainstream institutions is still far from desired. Moreover, this segment is also averse to go to bank for their credit needs, as its processes are not friendly to their profile.

6.7.1 Cost of Borrowing The rates of interest at which they borrow also vary widely (24% p.a. - 120% p.a.) depending on the source of loans. Overall, most of them have received loan at interest rate in the range of 24% p.a. to 36% p.a. While the MFIs and Co-operatives at both the districts were found charging around 20% p.a. to 24% p.a., the participants were more than willing to depend on the MFIs rather than the money lenders, as they found them more transparent and less expensive. While MFIs like, SKS, Share Microfin, Spandana and Aktiyaat were found popular at Khandwa, SKS and Bandhan were found most popular at Katihar. Most of the loans from employers, friends, relatives and neighbours were found of small sum (usually less than Rs 5,000) and for short-term (usually around six months) and bear no or minimal interest. Participants felt that they needed to borrow more often as they lacked proper avenues to save, on which they could fall back upon in the moment of need. If they had secured avenues to save, which was easy and cheap to access and liquid in nature, they would certainly have preferred to save for a rainy day rather than borrow.

Since there was relative ease of access to loan from informal sources, there was also tendency to borrow for lifestyle needs, which were not so desirable, such as fancy clothes, consumer durables, etc. This also highlighted the need for financial education on responsible borrowings to build capital for future. 6.8 Insurance Needs and Usage The concept of insurance among this segment was still at very rudimentary stage at both Katihar and Khandwa. At Khandwa, only a few were found to have taken any form of insurance in past but unfortunately a good number of them have not continued their policy after first few years. The situation is no different at Katihar. Most of them knew the term insurance or the name LIC only as investment scheme rather than financial risk management tool. Thanks to insurance agents, who sell insurance more as investment schemes rather than covering the risk of death, people seemed to be more interested in money backs and endowments. Unfortunately, no one was found aware of pure term insurance. They either associate concept of insurance with government schemes or the LIC.

Many at Katihar have been enrolled under ‘Parivar Labh Yojna’, which is a comprehensive life insurance scheme for families living below poverty line (BPL). Similarly, many were also enrolled under ‘Rashtriya Swasthya Bima Yojna’ (RSBY - health insurance scheme for BPL families). Since both the schemes are run by the government and require insignificant or no payment, there was common perception that insurance were offered only by government and they could not get it from any other source.

Many of the BPL card holders in Madhya Pradesh were aware that they were entitled for free treatment upto Rs. 20,000/- per year for their families from the government hospital under the Deen Dyal Upchar Yojana35 and they even had a diary for it. Many of them had taken the benefits of it. But, none was aware that they were covered under the Janshree Bima Yojana, an insurance scheme that covered the risk of death and was free of cost for them or without paying any premium. Even the construction workers

35 Respondents are known this diary as a "Laal Diary" for the treatment.

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Welfare Board insured the registered36 construction workers but the construction workers themselves were not aware of any of the benefits.

6.8.1 Credibility Issues Even the participants felt that these schemes were not reliable, as it was too difficult to get claim. They cited several cases where they themselves or some others known to them had to struggle to get the paltry claim amount. In certain cases, the claims were also denied for want of the required documents. Even in the case of RSBY, they cited several cases where doctors / hospitals had botched up the case, as a result, either the patient died or their situation got further aggravated upon treatment. They believed that that the treatment under RSBY was worthless and risky, as doctors / hospitals did not treat the patients seriously under this scheme. They still prefer to get treatment by paying money rather than taking free services of services covered under government schemes. They lost faith in such schemes after witnessing several such incidents.

Asha Devi, cotton-wicks maker, resident of Gareri Tola, Katihar, felt seriously ill with abdominal problem two years ago. Since she had enrolled under RSBY, she got herself admitted at an accredited private nursing home at Katihar. She underwent surgical operation at the nursing home but her condition turned worse instead of improving further. She felt that doctors and nursing staff were not paying proper attention to them, as they were admitted under RSBY in which payment is not made by the patient. Finally, when her condition became critical and the nursing home management continued their indifferent attitude towards her, the family members shifted her to another hospital in the town and this time they decided to use payment based service rather than treatment under RSBY. She claimed that there was sea difference in the treatment and behaviour of hospital staff this time and finally she recovered after lengthy treatment. She had to spend about Rs 1 Lakh, which she borrowed from her relatives. She claimed that since the previous nursing home had botched-up her case, it not only risked her life but also put her under heavy debt burden. She vowed that she will never use RSBY service again in her life.

At both Katihar and Khandwa, it was found that participants had little idea of process of claim settlement, as a result, they never kept the required documents safe and they were not able to produce the same at the time to support their claim. The agents also had never educated them on these aspects. Moreover, several agencies had run away with money of poor people had also made them averse to pay money to anyone, as they were not able to make distinction between regulated and unregulated agencies.

6.8.1 Absence of Adequate Knowledge In absence of adequate knowledge of concept and processes of insurance and its claims and even its sources, mostly they handle medical emergencies and death of earning members of a family either using their own savings (if they have) or by borrowing from informal sources or a combination of both. Many of the families also went into perpetual debt trap, as they either had no insurance or were unable to draw benefits of the same using any claim processes. The above narratives show that there is dire need of popularising concept of insurance and bust the myths around it by educating poor on entire chain of process involved.

6.9 Need For Pension According to the participants both at Katihar and Khandwa, there is need for Pension for everyone, but perhaps there was nothing known about its processes and systems. Like insurance, pension was also the

36 GoMP has a Madhya Pradesh Building and Other Construction Workers Welfare Board and construction workers registered with it. After registration with Board, construction workers are entitled for many social security schemes.

179 least well understood concept among poor as far as financial products were concerned. At Katihar, they still believed that government was the only pension provider and was only given to government employees and persons living BPL, who are either widow, old age or handicapped. Even at Khandwa, almost all participants were found aware of social security pension schemes, like widow, oldage and disabled pension schemes. However, the practice of savings for old age / retirement was found almost non-existent at both the districts. They were found to be saying that they would mostly depend on their children to look after them in old age. Hardly have they built savings for their old age. Even some of them, who had built such savings (mostly home-based workers), they were far too little to take care of them beyond a year or two. Retirement has never been on their horizon and savings for a pension was never throught of until the investigators introduced the concept of co-contributory pensions.

When asked, they had the desire not be dependent on their children in old age, as they knew that the government monthly old age pension is too meagre to survive beyond a week, keeping in mind the health related expenditure. However, in absence of any choice, they were left on their fate or generosity of their children or society at large.

Nutan Devi, 45 years, resident of Sarwasa village of Katihar, lives alone and work as domestic maid for her livelihood. She got married at the age of 20 years but her husband deserted her soon and he married again with some other women. She has no child and currently living at her parents’ village after being deserted by her husband. Both her parents are dead now and her brother had only given her a small piece of land to build her own home. Earlier she was working at a tobacco factory near to her village but when she turned older and not remain productive as earlier, the factory owner retrenched her and then she took the work of house-maid in the same and nearby villages. She barely manages to earn Rs 2000 a month. She manage to get Antodaya Ration Card for herself, with help of her brothers but still she has no voter ID card or Aadhar card or bank account in her name. She is constantly worried that how she will manage to live in old age, when her brothers and co-villagers are not co-operative. She also doesn’t receive widow pension as technically she is not a widow. She expressed that she want to save for her old age from her meager income but she has no place to save and can’t open bank account due to lack of KYC documents. Looking at the difficulty level to get enrolled for widow pension, she can’t even rely on it and also felt that the pension amount to too little to meet her regular and medical expenses beyond a week. When told about the Swablamban scheme, she is keen to subscribe it but has no knowledge on how and from where to get it.

Most of them have strongly put their desire to enroll in a typical NPS Lite ‘Swawalamban’ pension scheme and willing to make contribution for it, however, they don’t know if such product was also available for them. Construction workers were found to be the most interested group amongst all who showed interest in co-contributory pension scheme. A few of the carry-bag makers at Katihar were found to have taken Swablamban pension scheme through Bandhan-MFI, who is also an aggregator of PFRDA of NPS Lite scheme, however, they too were wary of such product due to the fact that many fly-by-night operators had in the past run away with the deposits of poor. Even those who were aware of the product were scared to subscribe it due to severe credibility crisis of any institution involved in collecting money from public at large. Interestingly, it also applies to agencies of government.

However, given the vulnerability of poor at old age and intense desire for such product among poor, needless to say that there is pressing need of spreading awareness on concept of pension, its sources, and related aspects among them.

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Usha Jadhav w/o Uttam Jadhav, 35 years old, lives in Shivaji Nagar, Khandwa. She sells the only Maharasthriyan bangles from her home. She has a BPL card also.

There are 5 members in her family. She earns about 1200/- per month (about Rs. 15000/- per year). The total average family income is Rs. 10200/- per month. The family has a loan (had taken for construction a pucca room in the place of kachcha room) of Rs. 1,10,000 of employer and relatives, and repaying in installments.

When the information was given about the NPS-lite (Swawlamban Yojana), she and her husband were ready to enroll their names under scheme. Her husband told, "I won't purchase cloths for myself in this Diwali and will invest in Swawlanban Pension Scheme".

6.10 Money Transfer, its Avenues and Associated Risks A large number of families at Katihar were found to have their relatives (or family members) living in other cities or even abroad. However, the number of such families in Khandwa was relatively much smaller. They remitted money to their families at regular interval, mostly monthly or quarterly, followed by other frequencies. The usual quantum of remittance falls in the range of Rs 5,000 to Rs. 15,000. Remittance through bank account of friend / neighbour was found to be the most popular route, followed by sending money through neighbours / friends. Some of them also used their own bank account to transfer money. They preferred to have their own bank account but they were not able open one for themselves due to various constraints, as described earlier. To the surprise of the investigators, money order from post-office doesn’t figure among the popular means of transfer money to their families. It is so because they think it was expensive and unsafe mode, as they also cited several cases of non-receipt or extraordinary delay in delivery.

As far as risks and costs are concerned, they feel that transfer through bank account is least risky, least expensive among all and also quickest mode. Although they have to pay some amount (varies between Rs 50 and Rs 150) for every transaction through bank, it is still the best and most efficient option than alternatives like money order. They felt that sending money through neighbours / friends was also safer, as they gave it to only trusted people. A few were using drivers / conductors to send money back home but they soon discarded them as there were several cases where the money was used by the transferors or they paid lesser sum. Moreover, they were also expensive in terms of cost.

Remittances as Part of Inclusion – The Case of Awadesh Shah Awadesh Shah, 45 years, is resident of Village Gyarhika, Block Falka, Dist: Katihar is illiterate and works as agricultural labourer. He has a family of five, including his wife and three children. His wife also works with him as agricultural labourer. For last ten years, he goes to Punjab to work in farms for nearly four to six months in year.

181 didn’t have complete documents and references required to open a bank account. Finally he resorted to sending money through bank account (of SBI) of a labour contractor (through whom he is placed at farms at Punjab), who lives in nearby village.

Since the family used to borrow from the contractor, the contractor would deduct the amount borrowed from the amount received and hand over the rest to his family. Since he and his family were illiterate they were not maintaining any accounts and were dependent on the goodwill of the contractor to do the calculations. Though he was able to send money back home, as a man full of self-respect, he always had intense desire to have his own bank account so that he didn’t have to take obligations of others. However, his lack of knowledge of the processes and requirements of bank account opening were major handicap. Two years ago, he approached an unauthorized bank agent to open his own bank account at SBI branch closest to his village. He also paid Rs 1000 to the agent for the task. The agent managed to open bank account for him and gave him the receipt of initial deposit. Soon after his account was opened, the agent migrated to some other city and was not traceable.

Since the account was opened with the help of the agent, Awadesh Shah was under impression that he can only operate his account through the agent. Living under impression that his account was now dead, the ignorant Awadesh never used his account evr since it was opened. Since the community he lived in was also of persons who were poor and financially illiterate, none were in a position to advise him on this. Moreover, he also didn’t approach the prosperous and educated community of his village, as they never liked him due to his rebellious nature. When denied of entitlements or benefits of government schemes, he was not willing to pay bribe for them. He continues using contractor’s bank account for remittance despite having his own and kept paying money transfer charges to him.

Kusum bai, 38 years old, construction worker, lives at Sujapur kala, Indore Naka, Khandwa. She has four members in her family. She has LPG connection at her home.

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Chapter 7. Quantitative Analysis

Annotation: This chapter captures the results of the quantitative analysis that was used by means of running a survey of some 600 individuals spread across two districts of Bihar and MP. The chapter is further subdivided into three sections. The first section deals with the level of awareness on financial system including the level of financial literacy and the need for creating awareness on a regulated financial environment. It also captures awareness on financial products and services on one hand and the capacities to understand and tackle risk on the other. The second section mainly deals with the level of penetration of financial inclusion including the banking penetration and the application of such inclusivity. It also probes whether people are using the products and services being offered from the supply side and what could be the possible gaps from demand side. The third section deals with various financial products that are being offered by the supply side and probes further as to what is the level of penetration vis the demand for such products at the community level.

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Section A. Awareness on Financial System

7.1 Financial Literacy The questionnaire tested the level of financial literacy amongst the individuals representing the households on various parameters. It included their knowledge about banking and other financial products and services, regulated systems and processes in the financial sector, their ideas over financial planning and budgeting and various other basic financial literacy concepts. It also identifies if there is a clear distinction known to the people between the regulated and unregulated / informal products and services in the financial system.

7.1.1 Frequency of Payment Most of the people in the micro sector including the urban and rural poor belong to the informal sector where there is no employer employee relationship and hence no fixed salary or income. For them, neither the frequency of income nor its quantum is certain and hence it becomes difficult for them to make plans for future income and expenses. While frequency and quantum of income or revenues play a predominant role in their lives and opportunities that they have for livelihoods, it is interesting to note that they are a function to the type of occupation. During the survey under the qualitative aspects it was found that the frequency of income or receipt of payment depended largely on the type of occupation including wages versus salaries as well as mode of payment that was received by the respondents. For example, persons receiving daily wages (frequency daily) could seldom hope to receive the payment using any of the regulated banking channel. All the respondents were asked about the frequency of receiving wages / income and mode of receiving the same. Table 7.1 gives the cross tabulation of frequency and mode of receiving wages / income. Table 7.1 shows that the respondents mostly receive the wages / income in cash, particularly in case of daily or weekly payment receivers in both the states. Direct transfer of wages into bank account and cheque payment is low across the states but this seems to be happening more in MP than in Bihar. The table below depicts that Cash has been the most common means of payment for workers who received their payments on a Daily and Weekly basis in both the states of MP (98% and 94%) and Bihar (95% and 95%). However, for payments that were made on a fortnightly and monthly basis, people received it directly in their bank accounts in MP (39% and 22%), probably as a follow up of the Samrudhhi model, but Bihar by and large still receives their fortnightly and monthly payments in cash (100% and 92%). Even for payment that has certain element of uncertainty and is paid on a different time basis, such as MNREGS payments people in MP largely received in their bank and postal accounts while most received this in Bihar in cash. Thus while daily payments were almost never through bank accounts, fortnightly and monthly were to certain extent paid using banking channel. Qualitative data using the FGDs suggested that construction workers as well as agricultural workers receive their payment on daily and / or weekly basis while home based workers received the same only on a weekly basis. Needless to state that shopkeepers, street vendors, barbers, tailors, cobblers receive their payments as and when they perform their finished goods and in most cases on a real time basis paid daily as part of the services that they offer. Domestic workers like the house maids receive their wages on a monthly basis which is analogous to the employed class who receive their salaries in the first week of the month.

Table 7.1 : Frequency of Receiving Wages / Income and Mode of Receiving Payment (%) Frequency Bihar MP Cash Through Directly in In Total Cash Through Directly in Total

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Cheque Bank Kind N Cheque Bank N Account Account Daily 95 0 0 5 100 98 2 0 62 Weekly 95 0 0 2 43 94 1 4 142 Fortnightly 100 0 0 0 7 61 0 39 18 Monthly 92 0 8 0 53 69 8 22 36 Half-Yearly 83 6 6 6 18 100 0 0 3 Uncertain/Anytime 95 0 0 5 21 57 0 43 14

7.1.2 Household Budget Household or personal budget is a routine finance plan that allocates future personal income towards expenses, savings and debt repayment. Past spending and personal debt are considered when creating a personal budget. There are several methods and tools available for creating, using and adjusting a personal budget however, it works on the premise of having certain level of financial literacy. At the micro sector, while on a qualitative basis it was found that very few respondents had some idea of planning and budgeting their finances, even lesser were found to be actually practicing. All the respondents were asked whether they used to fix up their HH budget for month or any specific period or week. Fig 7.1 below indicates that most of the males and females did not have any idea on how and why to prepare Household budget in both the states. Mostly respondents (69 percent in MP and 81 percent in Bihar) did not know how to prepare household budget. While, 6 percent respondents in MP and 5 percent respondents in Bihar were preparing the budgets in some or the other crude form. It was clearly made to understand that a budget allocated or distributed expected income to expected expenses and intended savings. Gender wise the figure below depicts that women (84% in Bihar) were less aware of the process of planning and budgeting than their men (62% in Bihar) counterparts. The state of MP was not different either and showed that 71% women and 62% men were unable to plan their incomes and expenses.

Fig 7.1 : Planning for Money Management including Expenditure Accounting by Households in %

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100% 90% 80% N=8 70% 60 70 68 64 71 60% N=4 85 85 84 80 72 50% 40% 30% 27 N=5 20% 27 28 28 22 23 10% N=1 11 11 14 16

0% 4 5 13 3 4 N=1 2 3 8 6 6

All (N=95) All

All (N=110) All (N=190) All (N=205) All

Male (N=5) Male

Male (N=30) Male (N=14) Male (N=39) Male

Female (N=81) Female

Female (N=105) Female (N=160) Female (N=166) Female Urban Rural Urban Rural Bihar MP

Yes Know the concept of budget but never prepared it Don’t know how to prepare household budget

All the respondents were asked whether they keep account of their daily HH expenditure. Less than one fourth of the respondents do the same (Fig 7.2).

Respondents who kept account of the daily HH expenditure, mostly remember only the major expenses. Mostly (86 percent in Bihar and 64% in Madhya Pradesh) of the respondents who prepared the budget or knew the concept of budget, had some level of education. The persons who were illiterate but knew the concept of budget, belonged to slightly better income group than others and had more than Rs. 3000 monthly income.

Thus education and income level had a direct correlation with household budgets. All the respondents were asked whether they keep account of their daily HH expenditure. Less than one fourth of the respondents do the same (Fig 7.2).The proportion of respondents who keep account of daily expenditure is higher in urban areas of MP than both the rural and urban areas of Bihar and rural areas of MP. This was another area for improvement through communication activities. The respondents who keep account of the daily HH expenditure, mostly remembered only the major expenses.

Fig 7.2 :Percentage of Respondents who Keep Account of Daily HH Expenditure

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40 N=5 35 30 24 23 25 N=1 20 22 16 18 20 15 15 14 15 15 10 5

All (N=95) All

All (N=110) All (N=190) All (N=205) All

Male (N=5) Male

Male (N=30) Male (N=14) Male (N=39) Male

Female Female (N=81)

Female (N=105) Female Female Female (N=160) Female (N=166) Urban Rural Urban Rural Bihar MP

Qualitative discussions and the FGDs suggested that while women were doing some unplanned savings, they were unable to actually identify quantity of money that they could either save every month or could target to save. They only could save what was left out of their incomes after making unplanned expenses, if at all. Else, they were unable to even quantify what potentially they could have saved during the next few months or future. Thus there is a very strong need for women to be taught about managing their money including some preliminary exercises to identify the heads of expenditure and plan a budget for their incomes and expenses. There was also a need felt to create awareness amongst women towards planning their incomes and expenses and managing their accounts. All the respondents who reported that they plan a monthly / weekly amount for HH expenditure or they have knowledge to do the same, but were unable to dos so do were also asked the source from where they got information on this. In most of the cases, the information / knowledge came from their own understanding. The other sources mentioned include: respected person of village / mohalla, friend, neighbour, relative, and NGO.

7.2 Awareness on Financial Products Awareness of financial products is crucial and to this extent, all the respondents were asked about awareness of different financial products and the same is classified as poor, medium and good. Table 7.1.1 presents the percentage of respondents who had a good or medium level of awareness on products. It also indicates that the general awareness in fact very low. Level of awareness on most of the financial products was higher in MP than Bihar with few exceptions. The respondents have highest good or medium awareness about ‘Bank account opening’, irrespective of residents. Good or medium awareness of Account opening with Post office was reported by 17 (rural) to 24 percent (urban) in Bihar and 21 (rural) to 29 percent (urban) in MP. Awareness of ’ATM / Debit card’ was reported by 21 (rural) - 26 percent (urban) in Bihar and 18 (rural) and 28 percent (urban) in MP which is more or less similar. Awareness of ‘Fixed deposit in bank / PO’ was good or medium in case of rural (34) and urban(44 percent) in Bihar and rural (34) and urban(50 percent) in MP. Again, while rural was almost similar, MP had better understanding in the urban areas. As regard the Recurring Deposits both in the banks as well as Post offices, 33% in rural and 26% in Urban Bihar were aware of it. Indeed, in Mpadhya Pradesh this proportion was lower at 13% in rural and 21% in urban. It therefore reinforces the fact that

187 despite the supply side being improved upon in MP, the demand side is yet to be generated. The demand side could only be generated by means of furthering the cause of financial literacy. Good or medium awareness on ‘Life Insurance’ was reported by 32 (rural) and 39 percent (urban) in Bihar while the numbers for MP were 30 in rural and 43 percent in urban MP meaning thereby almost similar level of understanding. ‘Good or medium awareness of General Health Insurance’ is was much higher Bihar (34% rural) and (44 percent urban) than compared to MP (11% in rural and 18 percent in urban). Same trend was noticed in case of ‘Money order at PO’ (11% rural and 15 percent urban in MP and 27 percent each in rural and urban Bihar). This also brings us to the conclusion that people in Bihar are using Post Offices more regularly than in MP. The qualitative side proved the fact that since there was greater mobility of workforce in Bihar, more and more people were using money orders to transfer money in Bihar. ‘Zero balance account - PGMJDY’ recorded moderate and good awareness among 27 (rural) and 43 percent (urban) in Bihar while it was recorded at 34% (rural) and 51 percent (urban) in MP. Awareness is very low in case of PGMJDY Rupay Card, PGMJDY life insurance, General Credit Card, Kisan Credit Card, Swawblamban Pension etc. in rural areas when compared to urban. Under the PMJDY the people in MP were certainly more aware than that of Bihar. For example, the Life insurance component of PMJDY was better perceived (18% rural and 24% urban) in MP than in Bihar (4% in rural and 19% in urban). Accident Insurance too was better understood in rural MP (19%) as against rural Bihar of 5%, while urban in both the states were similar. Thus the analysis indicates that there is a strong need for creation of awareness regarding the financial products in both the states.

Table 7.1.1 : Respondents having Good Awareness on Financial Products (%)

Bihar MP Urban Rural Urban Rural Male Female Total Male Female Total Male Female Total Male Female Total (N) (N) Bank account opening 3 51 52 77 46 51 12 73 75 85 72 75

A/c opening in Post Off. 1 24 24 37 13 17 7 26 29 46 16 21

Debit/ATM Card 2 26 26 40 17 21 9 22 28 51 10 18 Bank Recurring Deposit 1 14 15 47 14 19 3 7 9 26 3 7 RD in Post Office 0 11 11 37 9 14 3 10 12 21 3 6 Fixed deposits in bank 2 27 27 47 17 22 9 21 27 54 13 20 Fixed deposits in P.O. 1 17 17 27 9 12 8 17 23 38 8 14

Kisan Credit Card 2 6 7 30 11 14 2 5 6 28 4 9 General Credit Card 1 2 3 13 3 5 1 1 2 0 1 0 Life Insurance 3 38 39 57 27 32 12 36 43 59 23 30 General/Health 2 44 44 47 31 34 5 15 18 36 5 11 Insurance Money Order at P.O. 2 27 27 60 21 27 7 9 15 23 8 11 Swablamban Pension 0 15 15 27 13 15 1 4 4 0 4 3 Postal Life Insurance 0 13 13 17 8 9 1 6 6 21 1 5 Bank - Money transfer 2 29 29 50 24 28 6 11 16 38 10 16 Zero balance a/c 2 43 43 40 25 27 8 49 51 56 29 34 PMJDY

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Bihar MP Urban Rural Urban Rural Male Female Total Male Female Total Male Female Total Male Female Total (N) (N) PMJDY – Rupay Card 2 6 7 13 3 4 2 2 4 8 1 2 PMJDY – Life 1 19 19 13 3 4 5 22 24 41 12 18 Insurance PMJDY – Accident 1 23 23 13 3 5 5 21 23 41 13 19 Insurance PMJDY – Overdraft 0 4 4 10 1 2 1 5 5 3 1 1 facility on Rupay Card Total N 5 105 110 30 160 190 14 81 95 39 166 205

Basic banking account happens to be the first stage of financial inclusion and hence it is important for people to understand the need and processes to open a banking account. During the FI drive it is usually observed that the bankers open bank accounts en masse in a typical camp mode and never informs the customers the intricacies of having the accounts. In most cases it was found that the customers did not even have an idea that they had a bank account, despite holding a passbook in the hands. Qualitative survey has also suggested that there exist a strong need for creating awareness amongst the people over the ways in which they could use their banking accounts.

Similar efforts are also required by the appropriate agencies including banks to inform the account openers regarding the KYC requirement in due course of time. This was so necessary in case of people opening accounts under the PMJDY.

Awareness Level of Savings Bank Account Opening

90 81 76 80 68 70 60 49 50 40 34 30 25 18 21 20 9 11 Percent of Respondents of Percent 7 10 3 0 Bihar MP Bihar MP Bank Post office

Poor Medium Good

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The above chart shows that the awareness level of account opening in bank and post offices. Almost half (49%) of the respondents of Bihar and One-fourth of the respondents of Madhya Pradesh reported that they had very poor information about opening of bank accounts. More than three-fourth (81 percent in Bihar and 76 percent in MP) of the respondents of both states were not aware that savings account may also be opened in post offices. However, MP was better in having information about utilities of post offices compare to Bihar (24% Vs. 20%). In general, it was found that people were much less aware about the financial products and services being offered by the post offices. It clearly indicates the need for awareness on financial system both for banks in general and post offices in particular.

Bank Madhya Pradesh Bihar Account Opening Male (%) Female (%) Total (%) Male (%) Female (%) Total (%) Poor 8 15 68 28 76 25 9 26 136 52 145 49 Medium 31 58 172 70 203 68 4 11 49 19 53 18 Good 14 26 7 3 21 7 22 63 78 30 100 34 Total 53 100 247 100 300 100 35 100 263 100 298 100

Bank a/c opening literacy level 80 70 70 63 58 60 52 50 40 28 30 30 26 26 19 15 20 11 10 3 0 Percent of respondents of Percent Male Female Male Female Madhya Pradesh Bihar

Poor Medium Good

The above table also shows that the financial literacy level in bank account opening for female was less compared to male respondents in both states Madhya Pradesh and Bihar ( 52% Vs. 26% in MP and 28% Vs 15% in Bihar). It is also illustrated from the table that the respondents of the Madhya Pradesh were having greater information or knowledge about the bank account opening processes compared to Bihar.

Almost half of the respondents were not aware about the bank account opening processes such as fulfill the KYC norms, photo, etc. in Bihar, and one-third of the respondents having good knowledge about it. . Two-third of the respondents who had very poor knowledge, were actually illiterate and 64 percent who

190 had poor knowledge were from the rural areas in Bihar. If we see the gender wise classification, 94 percent female had very poor information in Bihar.

It was also known that the One-fourth of the respondents were having very poor information about the processes on opening of bank accounts in Madhya Pradesh and two-third respondents had medium level of knowledge over it. A slightly more than half respondents (51 percent), who had poor knowledge on bank accounts were illiterate and 68 percent who had poor knowledge were from the rural areas in Madhya Pradesh. If we see the gender wise classification, 89 percent females had very poor information in MP.

Khandwa district of Madhya Pradesh was selected for the DBT (Direct Benefit Transfers) in first phase, and government of Madhya Pradesh has also implemented the Samrudhdhi Model. However, despite having implemented the Samruddhi model, neither the government nor the bankers have ever taken up financial literacy in the state and hence it was important to note that one-fourth respondents had very poor information about the bank account opening process.

7.2.1 Levels of Literacy and Awareness on Financial Products The respondents were asked about awareness of different financial products and the awareness was categorised as poor, medium, and good. Table 7.1.1 below provides the cross classification of awareness of different financial products and literacy level of the respondent in terms of good or medium level of awareness. Respondents who had any formal education or were literate without any formal education have been considered as literate. In both the states, there is sizeable difference in the awareness of all the products between literate and illiterate groups.

Table 7.1.2 : Awareness on Financial Products Viz Literacy Level (%) Bihar MP Aware of Illiterate Literate ALL Illiterate Literate ALL Bank account opening 33 69 51 67 80 75 A/c opening in Post Off. 7 32 19 19 27 24 Debit/ATM Card 7 38 23 6 31 21 Bank Recurring Deposit 3 32 17 3 11 8 RD in Post Office 2 23 13 3 12 8 Fixed deposits in bank 8 39 24 8 32 23 Fixed deposits in P.O. 1 26 14 5 25 17 Kisan Credit Card 1 22 11 3 12 8 General Credit Card 0 8 4 0 2 1 Life Insurance 17 52 34 18 45 34 General/Health Insurance 28 47 37 3 19 13 Money Order at P.O. 8 46 27 3 18 12 Swablamban Pension 7 23 15 2 5 4 Postal Life Insurance 1 20 11 0 9 5 Bank - Money transfer 8 49 29 7 21 16 Zero balance a/c PMJDY 21 44 33 26 48 39 PMJDY – Rupay Card 1 9 5 1 4 3 PMJDY – Life Insurance 5 15 10 10 26 20 PMJDY – Accident Insurance 5 18 11 12 25 20 PMJDY – Overdraft facility on Rupay Card 0 5 3 1 3 2 Total N 149 151 300 118 182 300

The above table shows that Education has a big impact on having information about the financial products either on banks or post offices in both the states. Literacy amongst the literate respondents of Bihar was

191 higher than the literate respondents of Madhya Pradesh about the banking and financial products like FD (24% Vs. 23%), RD (17% Vs. 8%), KCC (11% Vs. 8%), health insurance (37% Vs. 13%), money order (27% Vs. 12%), Swawlamban pensions (15% Vs. 4%), postal insurance (11% Vs. 5%) and Bank money transfers (29% Vs. 16%) etc. have reasons to be so. For example, a lot of companies like Bandhan etc. have penetrated into Bihar with NPS Lite Swawalamban scheme etc. whereas in MP this area is still untouched by any aggregator. Despite this there is a greater awareness on bank accounts and inclusion level of more accounts in MP. There is very poor knowledge or information on the financial products amongst the illiterate population in both the states. Thus there a rigorous need of financial literacy training programs in both the states.

To test the Statistical significance of the association between awareness and literacy, the Chi Square test was used.  Awareness of bank account opening and literacy are significantly associated in both the states (p value : Bihar – 0.00, MP – 0.015)  Awareness of post office account opening and literacy are significantly associated in Bihar (p value = 0.00) but not in MP (p value = 0.167)  Awareness of Debit / ATM card and literacy are significantly associated in both the states ( p value = 0.00)  Awareness of Bank Recurring Deposit and literacy are significantly associated in both the states (p value : Bihar – 0.00, MP –0.017)  Awareness of RD in post office and literacy are significantly associated in both the states (p value : Bihar – 0.00, MP – 0.004)  Awareness of Bank Debit / ATMcard and literacy are significantly associated in both the states ( p value = 0.00)  Awareness of fixed deposit in Bank as well as Post Office and literacy are significantly associated in both the states ( p value = 0.00)  Awareness of Kisan Credit Card and literacy are significantly associated in both the states (p value : Bihar – 0.00, MP – 0.004) but the awareness of General Credit Card is not associated with literacy in MP (p value = 0.282)  Awareness of Life insurance, General Health Insurance and Money Order at PO are not associated with literacy in both the states (p value < 0.05)  Awareness of Swablamban Pension is associated with literacy in Bihar (p value = 0.00) but not in MP (p value = 0.211)  Awareness of Zero Balance Account PMJDY, Bank Money Transfer and Postal Life Insurance are significantly associated with literacy in both the states (p value < 0.05)  Awareness of PMJDY Rupay Card and literacy are significantly associated with literacy in Bihar (p value = 0.003) but not in MP (p value = 0.154)  Awareness of PMJDY Life Insurance and Accident Insurance are significantly associated with literacy in both the states (p value < 0.05)  Awareness of PMGDY Overdraft Facility on Rupay Card and literacy is significantly associated with literacy in Bihar (p value = 0.007) but not in MP (p value = 0.252) As a summary in most of the cases awareness of the financial products is associated with literacy level.

Although the PMJDY is a flagship program of the GoI, the knowledge and information about Life insurance, accident insurance, and overdraft facility on RuPay cards amongst the illiterate respondents in both states was almost negligible. There were illiterate respondents (7% in Bihar and 6 percent in MP) who had information about the bank ATM / debit cards. This also brings us to another question as to how and how- much RuPay card will be used by them, specially in the context of the fact that the usage of RuPay card is linked with insurance and overdraft facility. Most of respondents (more than three-fourth) of both states had very poor information about the ATM / Debit cards and prominent amongst them were mostly women. Many of the rural women respondents had

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never seen an ATM card or Machine in their lives. Mostly respondents did not have any information about the bank and post office products such as recurring deposits (RD) and fix deposit (FD). More than one-third respondents (mostly men) were found to have knowledge and information about the PMJDY (Pradhan Mantri Jan Dhan Yojana) account on zero balance. People in Madhya Pradesh were more aware about it when compared to Bihar. Only 20 percent in MP and 13 percent in Bihar had information about the accidental and life insurance coverage under the PMJDY. Respondents had mostly misinformation about the overdraft facility of Rs. 5000/- and heard that government will deposit the money of Rs. 5000/- after opening an account under PMJDY. A very small percent of the respondents had the correct information about it. None of the respondents in both states had any information that the Rupay Cards must be used to be entitled for the overdraft facility, and insurance. Thus the fate of the PMJDY would largely depend on the level if financial literacy that could be imparted to them.

7.2.2 Awareness of Financial Products by Occupation Table 7.1.3 below gives the cross tabulation between awareness of financial products and occupation by presenting ‘good / medium’ level of awareness of the financial products. Occupation has been categorised keeping the similar occupations in one group and the groups are as follows.

 Agriculture / Agriculture related  Construction work/Daily wage worker/ carpenter /loading – unloading work  Home based worker /mala packing / Flute making  Livestock and animal husbandry  Domestic worker, Street Vendor, Grocery shop / Tailor / Barber / Potter/ Coaching / and all Business Related  Service  Homemaker / Housewives

Table 7.1.3 Awareness (Good / Medium) of Financial Products by Occupation (%)

Bihar MP

– –

mal husbandry mal

others others

Service Service

related’ related’

Home based Home based Home

unloadingwork unloadingwork

Homemaker Housewives / Homemaker Housewives /

worker/ carpenter worker/ /loading carpenter worker/ /loading

Constructionwork/Daily wage Constructionwork/Daily wage

Groceryshop / tailor barber / Groceryshop / tailor barber / /

Agriculture Agriculture agriculture / related Agriculture agriculture / related

Livestockand husbandry animal Livestockand ani

worker/malapacking/flutemaking worker/malapacking/flutemaking potter/coaching and business / all potter/coaching and business / all ALL ALL Bank account 38.79 50.00 75.00 61.11 47.69 92.31 59.26 50.00 51.00 72.52 78.13 77.27 75.00 75.00 83.33 63.64 75.00 74.67 opening A/c opening in 12.93 20.00 30.00 22.22 13.85 46.15 25.93 50.00 19.33 16.79 23.44 18.18 0.00 40.38 33.33 45.45 25.00 24.00 Post Off. Debit/ATM 17.24 20.00 35.00 16.67 16.92 69.23 27.78 25.00 22.67 12.98 15.63 31.82 25.00 32.69 50.00 36.36 50.00 21.33 Card Bank Recurring 15.52 20.00 25.00 16.67 9.23 69.23 14.81 25.00 17.33 .76 7.81 13.64 25.00 13.46 25.00 27.27 25.00 8.00 Deposit RD in Post 11.21 10.00 25.00 5.56 7.69 38.46 12.96 25.00 12.67 1.53 6.25 13.64 0.00 13.46 33.33 27.27 25.00 8.00 Office Fixed deposits 17.24 20.00 30.00 16.67 20.00 84.62 25.93 50.00 23.67 14.50 25.00 22.73 25.00 34.62 33.33 27.27 50.00 22.67 in bank

193

Bihar MP

– –

mal husbandry mal

others others

Service Service

related’ related’

Home based Home based Home

unloadingwork unloadingwork

Homemaker Housewives / Homemaker Housewives /

worker/ carpenter worker/ /loading carpenter worker/ /loading

Constructionwork/Daily wage Constructionwork/Daily wage

Groceryshop / tailor barber / Groceryshop / tailor barber / /

Agriculture Agriculture agriculture / related Agriculture agriculture / related

Livestockand husbandry animal Livestockand ani

worker/malapacking/flutemaking worker/malapacking/flutemaking potter/coaching and business / all potter/coaching and business / all ALL ALL Fixed deposits 7.76 10.00 25.00 11.11 12.31 53.85 14.81 50.00 14.00 7.63 20.31 18.18 0.00 30.77 25.00 36.36 25.00 17.00 in P.O. Kisan Credit 8.62 0.00 15.00 16.67 7.69 38.46 14.81 0.00 11.33 4.58 10.94 4.55 25.00 11.54 25.00 0.00 0.00 8.00 Card General Credit 2.59 0.00 5.00 0.00 3.08 23.08 5.56 0.00 4.00 0.00 1.56 0.00 0.00 1.92 8.33 0.00 0.00 1.00 Card Life Insurance 24.14 10.00 50.00 44.44 27.69 76.92 46.30 75.00 34.33 26.72 29.69 45.45 50.00 48.08 50.00 36.36 50.00 34.33 General/Health 27.59 50.00 30.00 27.78 44.62 76.92 42.59 50.00 37.33 6.87 10.94 27.27 25.00 23.08 8.33 27.27 0.00 13.00 Insur. Money Order 18.97 20.00 25.00 22.22 24.62 76.92 35.19 75.00 27.00 6.11 10.94 18.18 25.00 15.38 41.67 27.27 25.00 12.33 at P.O. Swablamban 12.07 0.00 30.00 11.11 13.85 46.15 11.11 50.00 15.00 3.82 0.00 4.55 0.00 1.92 16.67 0.00 50.00 3.67 Pension Postal Life 4.31 20.00 20.00 5.56 9.23 61.54 11.11 0.00 10.67 4.58 6.25 4.55 0.00 1.92 16.67 18.18 0.00 5.33 Insurance Bank - Money 19.83 20.00 35.00 38.89 20.00 92.31 37.04 50.00 28.67 12.21 12.50 18.18 25.00 17.31 41.67 27.27 25.00 15.67 transfer Zero balance 20.69 20.00 60.00 44.44 44.62 61.54 27.78 25.00 33.00 32.82 31.25 68.18 50.00 48.08 41.67 54.55 50.00 39.33 a/c PMJDY PMJDY – Rupay 3.45 10.00 20.00 0.00 4.62 15.38 3.70 0.00 5.33 2.29 1.56 0.00 0.00 5.77 0.00 0.00 25.00 2.67 Card PMJDY – Life 3.45 10.00 25.00 11.11 12.31 38.46 7.41 0.00 9.67 16.79 15.63 27.27 0.00 30.77 16.67 18.18 25.00 19.67 Insurance PMJDY – 3.45 10.00 25.00 16.67 18.46 38.46 7.41 0.00 11.33 17.56 15.63 18.18 25.00 30.77 25.00 18.18 25.00 20.00 Accident Insurance PMJDY – .86 0.00 5.00 0.00 3.08 15.38 3.70 0.00 2.67 .76 0.00 4.55 0.00 5.77 0.00 9.09 25.00 2.33 Overdraft facility on Rupay Card Total N 116 10 20 18 65 13 54 4 300 131 64 22 4 52 12 11 4 300

Above Table gives the cross tabulation of occupation and awareness on financial products. In both the states, as expected, ‘Service’ occupation category recorded the maximum awareness on the financial products. Awareness on bank account opening was found to be 92% in Bihar and 83% in MP in case of service class people. The minimum awareness was recorded in case of agriculture related occupation in Bihar (39%) and home maker / house wife in MP (64%). Awareness about Life insurance is highest among service people in both the states and the lowest was recorded among wage workers /carpenter in Bihar and people involved in agriculture in MP. Awareness of bank money transfer is highest among the service people in both the states and lowest in people involved in agriculture. Awareness of Kisan credit card (KCC) is lower among the people involved in agriculture in both the states- 8% in Bihar and 4% in MP. However, this could be due to the fact that this category is inclusive of Agricultural Workers who are not the owners of the agriculture land and hence do not categorise as eligible for KCC. Simplifying it further, the sample in Bihar had 32% Agricultural workers and only 7% Farmers (Owners) while that of MP had 33% Agricultural

194 workers and only 10% Farmers (Owners). Thus within the category, while the non owners are dominant, the knowledge of KCC is bound to be low.

7.2.3 Awareness of Financial Products by Age Table 7.1.4 below provides for the cross tabulation of awareness of financial products and age of the respondents to see whether there was any variation in awareness by age. Age has been categorised in to two categories ‘upto35 years’ and ‘greater than 35 years’. Table 7.1.4 indicates that there is no sizeable difference in awareness between the two age groups. To test the significance of the association, Chi Square test was used and the results indicate that there is no significant association between age and awareness level. This is applicable for all the products and both the states.

Table 7.1.4 below indicates that about most of the financial products, awareness was higher among the older respondents (35+years) compared to the younger respondents (up to 35 years)

Table 7.1.4: Awareness of Financial Products by Age (%)

Bihar MP ≤ 35 >35 ≤ 35 >35 Awareness of Product Years Years ALL Years Years ALL Bank account opening 49 54 51 73 77 75 A/c opening in Post Off. 16 24 19 21 28 24 Debit/ATM Card 23 22 23 23 19 21 Bank Recurring Deposit 15 20 17 8 8 8 RD in Post Office 12 14 13 8 8 8 Fixed deposits in bank 77 74 76 79 75 77 Fixed deposits in P.O. 12 17 14 14 20 17 Kisan Credit Card 10 14 11 8 8 8 General Credit Card 4 4 4 1 1 1 Life Insurance 31 39 34 34 35 34 General/Health Insurance . 36 39 37 12 15 13 Money Order at P.O. 23 33 27 12 12 12 Swablamban Pension 13 18 15 3 4 4 Postal Life Insurance 10 12 11 5 6 5 Bank - Money transfer 27 31 29 16 15 16 Zero balance a/c PMJDY 29 39 33 39 40 39 PMJDY – Rupay Card 4 7 5 1 4 3 PMJDY – Life Insurance 9 11 10 18 22 20 PMJDY – Accident Insurance 10 13 11 18 22 20 PMJDY – Overdraft facility on Rupay Card 2 4 3 2 3 2 Total N 182 118 300 163 137 300

7.3 Use of Financial Products The use of various financial products is one area that needs to be understood so that necessary strategies are designed and implemented. Towards this, all the respondents were asked about the financial products that they currently use. Table 7.2 indicates that use of bank account is frequent while very few use products, other than bank account. Some use general / health insurance as well. Respondents who have bank account mostly use SBI. However some have account in United Commercial Bank, Punjab National Bank, Central Bank, and Grameen Banks.

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An analysis of Table 7.2 indicates that opening bank account is the most mentioned usage and application as one third in Bihar and more than half in MP reported so. Not many respondents reported to be having other products. Whatsoever be the level of penetration of financial products, having financial products was higher in MP than Bihar and that also owes to certain extent the Samrudhhi model and the time period in which MP has achieved it financial inclusion, while the state of Bihar is a comparatively new player in the field. Opening of account in post office and having Debit / ATM card was mentioned in urban areas of both the states, while the rural were certainly suffering for obvious reasons. About one tenth of the urban respondents reported having a life insurance policy which was more prominent in Bihar than that of MP. More than one fourth of the urban respondents and one tenth of their counterparts in Bihar reported to be having general health insurance policy. Use of bank for money transfer was reported by about 5 percent of the respondents in urban and rural Bihar. On further exploring the issues of remittances, it was found that the population of Bihar was more migrant and mobile in nature than that of MP. The use of money transfers were certainly more in Bihar than that of MP. More than 60% of respondents in both urban and rural areas of MP are using at least one financial product. Use of at least one product is 57% and 43% in urban and rural areas of Bihar respectively. It also indicates that use of financial product is low among the females of rural areas of Bihar. This also calls for an aggressive financial literacy modules to be run for women in Bihar towards the applications of regulated financial products.

Table 7.2 : Use of Financial Products (%) Bihar MP Products Urban Rural Urban Rural Male Female All Male Female All Male Female All Male Female All Bank account opening N=2 35 35 50 31 34 N=10 56 58 64 61 62 A/c opening in Post Off. N=0 7 6 3 1 2 N=4 15 17 0 3 2 Debit/ATM Card N=0 3 3 7 1 2 N=4 4 7 10 2 4 Bank Recurring Deposit N=0 2 2 0 1 1 N=0 0 0 0 1 0 RD in Post Office N=0 1 1 3 0 1 N=0 1 1 0 0 0 Fixed deposits in bank N=0 1 1 7 1 2 N=1 0 1 0 1 0 Fixed deposits in P.O. N=0 1 1 0 1 1 N=1 1 2 0 0 0 Kisan Credit Card N=0 0 0 10 1 3 N=0 0 0 8 0 1 General Credit Card N=0 0 0 3 1 1 N=0 0 0 3 0 0 Life Insurance N=0 11 11 17 6 8 N=3 7 9 18 2 5 General/Health Insur. N=2 27 27 10 9 9 N=0 0 0 0 1 0 Money Order at P.O. N=0 3 3 3 3 3 N=1 1 2 3 0 0 Swablamban Pension N=0 2 2 0 0 0 N=0 0 0 0 1 0 Postal Life Insurance N=0 1 1 0 0 0 N=1 0 1 0 0 0 Bank - Money transfer N=0 5 5 7 4 5 N=1 1 2 8 2 3 Respondents using at least N=4 56 57 60 39 43 N=12 64 67 67 63 63 one product Respondents using none of N=1 44 43 40 61 57 N=12 36 33 33 37 37 the products Total N 5 105 110 30 160 190 14 81 95 39 166 205

The above table also shows that about 35 percent respondents (35% in urban and 34 percent in rural) respondents were having bank accounts in Bihar and 60 percent (58% in urban and 62 percent in rural) in MP were having back accounts. But a very low percent of respondents had the postal account i.e. 3% in Bihar and 10 percent in MP.

A very low percent (2% in Bihar and 5% in MP) of the respondents had ATM / Debit cards that they were using. Amongst the users, Female percentages was lower than that of males. The rural respondents were using ATM / Debit cards much less when compared to their urban counterparts in both states (2% Vs. 3% in Bihar and 2% Vs. 7% in MP)

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7.3.1 Information on Savings Bank Account The respondents were asked whether they received important information on the savings bank account when they opened the same. Fig 7.3 indicates that most of the respondents in Bihar still have no savings bank account and that proportion of respondents having savings bank account is much higher in MP than that of Bihar. Among the males and females who had savings bank account, a sizeable proportion of them were not provided with any information by the bankers or their agents about the related benefits and costs associated with bank accounts and any other important information. This category of people were higher in proportion in case of rural than urban. Among those respondents who have savings bank account, a sizeable proportion was not provided with the related important information about opening of bank account. This proportion was higher in case of rural than urban areas. A sizeable proportion of the respondents who opened savings bank account were not informed or partially informed. This needs attention to ensure that all the people who open savings bank account receive the relevant and important information. Similarly, for people opening up their bank accounts under the PMJDY too have not been fully briefed that they were supposed to be providing their full KYC within a stipulated period. Manu under the PMJDY were found to be carrying half baked information only. While this could be hampering the financial inclusion drive, this could also create problems for the bankers at a later stage since many were misinformed about the benefits.

Fig 7.3 : Whether Received Important information related to savings account (%) 100%

90% N=4 33 33 33 80% 36 35 47 70% N=3 58 58 69 65 N=2 9 9 60% 15 7 8 50% 21 22 17 N=4 40% 7 6 26 37 35 30% 6 16 15 7 12 20% N=2 37 11 37 36 N=4 26 10% 19 20 20 21 14 17

All (N=95) All

All (N=110) All (N=190) All (N=205) All

Male (N=5) Male

Male (N=30) Male (N=14) Male (N=39) Male

Female (N=81) Female

Female (N=105) Female (N=160) Female (N=166) Female Urban Rural Urban Rural Bihar MP

Informed Not informed Complete information was not provided Don’t have savings account

197

7.3.2 Lack of Interest in Graduating from Savings Account The Basic bank account (No frill) that is the most basic and fundamental account and is also the simplest and first level of financial inclusion has been attained in Khandwa district of MP to a large extent (90%) and Katihar district in Bihar to a certain (59%) extent as per the sample survey. However, it is interesting to note that people in either of the two districts shy away from graduating to the second level of inclusion namely, fixed and recurring deposits. One of the reasons explained further is ‘lack of knowledge’ about the banking products that emanates from poor financial literacy and awareness. Another reason for non usage of banking products including the FD/RD that was corroborated from the qualitative aspects was that people specially in MP where G2P are issued, used their savings account only a means of Payment Account, a channel to receive their payments from G2P. They have never even thought nor were they ever told by the BCs / Bankers that the same basic bank account could also be used for further savings into FD/RD. Same was true for the post offices accounts where again, people were receiving their NREGS payments or pensions and were treating them as channel of payment rather than a full fledged account. With efforts in MP, some of the people had started using their basic bank accounts for putting up their surpluses into the FD / RD but the numbers were seldom worth mentioning. Thus there is a strong need for the people to be aware on the multiple use of basic banking accounts towards savings and investments. There was negligible percentage (almost none) of the recurring deposits, both in banks and post offices in the two states. The major reason that was found out by the qualitative analysis was that there was very poor information and knowledge about the financial inclusion of post offices. The same situation was with the FD account in bank (2% in Bihar and 1 percent in MP) and in post office (2% in Bihar and 1 percent in MP) using by the respondents.

The respondents that were having information about the KCC were found to be in the range of about 12 percent in Bihar and 8 percent in MP. Amongst the sample in both the states taken together, there were only 6 percent of agricultural and allied work i.e. farmers who were using the KCC (9% were farmers out of 600 sample size). The percentage is low as probably these are marginal farmers and mostly sowing during the Kharif crop only because of non-irrigated land.

There was minimal information about the General Credit Card (4% in Bihar and 2%in MP) and total 3 respondents (2 in Bihar and 1 in MP) out of 600 sample size were using the general credit cards. Nearly one-third (35%) of the respondents were having information about the life insurance products in both states but insurance product have been purchased by only 9 percent in Bihar and 7 percent in MP. The life insurance was purchased in the name of the female was very less compared to male members in both the states (14% Vs. 8% Bihar and 19% Vs. 4% in MP). However, as the qualitative survey informs us, the insurance products were seen only as Investment vehicles with returns on regular intervals. The purpose was seldom to cover the risk of death. About 37 % of Bihar respondents and 13 percent of MP respondents had knowledge of health insurance and 16 percent of Bihar respondents had health insurance while the percent of MP is negligible. About 28% respondents had information in Bihar and 13 percent in MP about the money-order from the post office and only 3 percent of Bihar and 1 percent of MP respondents had used such facility. Bihar percentage was higher because of the higher migration to other states compare to Madhya Pradesh. The postal life insurance awareness was minimal at both states (11% in Bihar and 6 % in MP), and only 2 respondents out of 600 sample size were found to have known that they were covered under the postal insurance. There was a very poor knowledge of NPS-Lite Swawlamban scheme (16% in Bihar and only 4% in MP) and only 3 respondents out of 600 had purchased the Swawlamban scheme. At many places in Bihar and in MP, the respondent had never heard the name of such scheme, nor were they aware of the concept.

198

There were 29 percent respondents in Bihar and 16 percent in Madhya Pradesh who had the knowledge that the money may be transferred by using the bank accounts. There is a nominal percent of the respondents who had used this facility and stood at 5% in Bihar and 3% in MP. While from the supply side there is a bunch of financial products but they are not being used by the people for various reasons including lack of knowledge, lack of savings, low income, and so on. This clearly indicates that there is a strong need for financial literacy and training about the product usage.

7.3.3 Chit Fund All the adult males and females were asked whether any chit-fund tried to lure them . Fig 7.4 indicates that such Chit-Funds were widely prevalent in Bihar and were significantly higher than that of MP. One in three urban as well as rural respondents from Bihar reported this.

Fig 7.4 : Whether Any Chit-Fund Tried to Lure (%)

45 N=2 39 39 40 40 34 35 33 30 25 20

15 10 10 N=1 5 5 4 5 5 0 Male Female(N=5) (N=105)All (N=110) Male (N=30)Female (N=160)All (N=190) Male (N=14)Female (N=81)All (N=95) Male (N=39)Female (N=166)All (N=205) Urban Rural Urban Rural Bihar MP

The respondents who replied that they were lured by chit-fund were also asked whether they put money in chit-fund and Fig 7.5 gives the proportion of respondents replied affirmatively. More than 40% of the respondents replied that they had put their money in chit-fund. Respondents who put the money in chit- fund did not get back the money as per the promise in most of the cases. Data for MP has not been presented due to the low base. (Only about 5 percent respondents were lured by such people/companies in Madhya Pradesh). Respondents who put the money in chit-fund did not get back the money as per the promise in most of the cases. This again needs attention so that people don’t get lured and cheated by the chit fund agencies. The key lies in creating awareness among the people about the reliable and trust worthy financial products and investment/saving schemes.

199

Fig 7.5 : Whether Put Money in Chit-Fund (%) – Bihar

120 N=2 100

80 56 60 54 47 46 N=5 40

0 Male (N = 2) Female (N=41) All (N=43) Male (N=12) Female (N=53) All (N=65) Urban Rural Bihar

7.3.4 Differentiation Between Regulated and Unregulated Products

One of the major reasons of frequent frauds and financial mishaps both in Bihar and MP owes to the fact that people do not understand the difference between a regulated and non regulated product due to lack of consumer education and financial literacy. It was found in certain cases that even in MP the customer was under the impression that she had a life insurance policy, whereas on checking the document it was found to be a receipt and a post dated cheque issued by a plantation company that was closed decades ago. Many were lured by the agents who provided door step services to collect money in the form of micro sums (Rs. 10/- to Rs. 50/- per day) and offer supernormal returns. Having no other option in the form of regulated products and being lured by the higher returns and door step services, people were more vulnerable in Bihar to put in their money in the unscrupulous hands. Bihar, being geographically close to West Bengal also was exposed to such financial frauds. For, Bengal has had a history of such misgivings with the latest being ‘Sharda Chit Fund Scam’. The unscrupulous elements have been on a cross border spree and take the advantage of illiteracy and poor financial knowledge amongst the population of Bihar and have decamping with their hard earned money. The state of MP has not seen as much financial frauds as the state of Bihar though the frauds have been reported in parts of the district of Khandwa. However, with G2P setting up its roots in Mp and people having more liquidity than ever before including the bank accounts, the population is MP is fast being exposed to such frauds. This could be the right time for MP to start working towards consumer protection and keep the people away from such financial frauds as prevention could be better than the Cure.

200

7.3.5 Use of Financial Products by Literacy Using Cross Tabulation Table 7.2.1 below is the cross tabulation between use of different financial products and literacy level. Literacy level has been categorised as above and respondents who use the products are reported here. Table 7.2.1 below indicates that Bank Account and General / Health / Life Insurance are the most used products. Use of the financial products is higher among the literates.

Table 7.2.1: Use of Financial Products by Literacy Level (%)

Bihar MP Used Illiterate Literate ALL Illiterate Literate ALL Bank account opening 24 44 34 54 65 61 A/c opening in Post Off. 3 4 3 7 7 7 Debit/ATM Card 0 4 2 3 6 5 Bank Recurring Deposit 1 1 1 0 1 0 RD in Post Office 0 1 1 1 0 0 Fixed deposits in bank 1 3 2 0 1 1 Fixed deposits in P.O. 0 2 1 0 1 1 Kisan Credit Card 0 3 2 0 2 1 General Credit Card 0 1 1 0 1 0 Life Insurance 3 15 9 3 9 7 General/Health Insurance 15 17 16 0 1 0 Money Order at P.O 1 4 3 1 1 1 Swablamban Pension 1 0 1 0 1 0 Postal Life Insurance 1 0 0 0 1 0 Bank - Money transfer 3 6 5 1 4 3 Total N 149 151 300 118 182 300

Chi Square test was applied to test the significance of association.  Use of bank account opening and literacy are significantly associated in Bihar but not in MP (p value : Bihar – 0.00, MP – 0.071)  Use of post account opening and literacy are not significantly associated with literacy in both the states (p value > 0.05)  Use of Debit / ATM card and literacy are significantly associated in Bihar but not in MP ( p value : Bihar – 0.030, MP – 0.419)  Use of Bank Recurring Deposit and literacy are not significantly associated in both the states (p value > 0.05)  Use of RD in Post Office and Fixed Deposit in Bank, Fixed deposit in PO, Kisan Credit Card, General Credit Card are not significantly associated in both the states (p value > 0.05)  Use of Life insurance is significantly associated in both the states (p value < 0.05)  Use of General / Health Insurance, Money Order at PO, Swablamban Pension, Bank Money Transfer and Postal Life Insurance are not significantly associated with literacy in both the states (p value > 0.05)

There is significant association between literacy and use of Life insurance in both the states.

7.3.6 Use of Financial Products by Occupation Using Cross Tabs Table 7.2.2 below gives the cross classification of occupation and use of different financial products. Occupation has been categorized as indicated earlier. Opening and usage of Bank Account, the most basic and fundamental level of financial inclusion is higher among the persons who are in the service class in both the states. The same is the lowest among people involved in agriculture in Bihar and home maker / house wives in MP. Having kisan credit card was reported by about 3 percent of people involved in agriculture in Bihar and one percent in MP out of the total sample hence indicating very low level of

201 utilisation of this facility among the farming community. Since the respondents were asked about their Primary occupation, most of the marginal farmers who reported agriculture as their primary occupation were also involved in other occupations and livelihoods depending on different factors and circumstance including their need and availability.

Table 7.2.2: Use of Different Financial Products by. Occupation (%)

Bihar MP

– –

ALL ALL

others others

related related

Service Service

making making

husbandry husbandry

Home based based Home based Home

unloading work unloading work unloading

business related’ business related’ business

vestock and animal animal and vestock

Li animal and Livestock

Agriculture / agriculture agriculture / Agriculture agriculture / Agriculture

potter/ coaching / and all and / coaching potter/ all and / coaching potter/

worker/malapacking/flute worker/malapacking/flute Housewives / Homemaker worker/malapacking/flute Housewives / Homemaker

worker/ carpenter /loading /loading carpenter worker/ /loading carpenter worker/

Construction work/Daily wage wage work/Daily Construction wage work/Daily Construction Grocery shop / tailor / barber / / barber / / tailor shop Grocery / barber / / tailor shop Grocery Bank 26. 40. 40. 44. 36. 69. 33. 25. 34. 60. 57. 68. 75. 55. 83. 54. 75. 60. account 72 00 00 44 92 23 33 00 33 31 81 18 00 77 33 55 00 67 opening A/c 1.7 0.0 10. 0.0 7.6 0.0 1.8 0.0 3.3 3.8 4.6 0.0 0.0 13. 16. 36. 0.0 7.0 opening in 2 0 00 0 9 0 5 0 3 2 9 0 0 46 67 36 0 0 Post Off. Debit/AT 1.7 0.0 5.0 0.0 1.5 0.0 3.7 0.0 2.0 3.0 4.6 4.5 25. 7.6 8.3 0.0 25. 5.0 M Card 2 0 0 0 4 0 0 0 0 5 9 5 00 9 3 0 00 0 Bank .86 0.0 0.0 0.0 0.0 7.6 1.8 0.0 1.0 0.0 0.0 0.0 0.0 0.0 8.3 0.0 0.0 .33 Recurring 0 0 0 0 9 5 0 0 0 0 0 0 0 3 0 0 Deposit RD in Post 0.0 0.0 0.0 0.0 1.5 7.6 0.0 0.0 .67 0.0 0.0 0.0 0.0 1.9 0.0 0.0 0.0 .33 Office 0 0 0 0 4 9 0 0 0 0 0 0 2 0 0 0 Fixed 1.7 0.0 0.0 0.0 1.5 0.0 3.7 0.0 1.6 0.0 3.1 0.0 0.0 0.0 0.0 0.0 0.0 .67 deposits in 2 0 0 0 4 0 0 0 7 0 3 0 0 0 0 0 0 bank Fixed 0.0 0.0 0.0 0.0 1.5 7.6 1.8 0.0 1.0 0.0 0.0 0.0 0.0 1.9 8.3 0.0 0.0 .67 deposits in 0 0 0 0 4 9 5 0 0 0 0 0 0 2 3 0 0 P.O. Kisan 2.5 0.0 0.0 5.5 1.5 0.0 0.0 0.0 1.6 .76 3.1 0.0 0.0 0.0 0.0 0.0 0.0 1.0 Credit 9 0 0 6 4 0 0 0 7 3 0 0 0 0 0 0 0 Card General .86 0.0 0.0 0.0 1.5 0.0 0.0 0.0 .67 0.0 0.0 0.0 0.0 1.9 0.0 0.0 0.0 .33 Credit 0 0 0 4 0 0 0 0 0 0 0 2 0 0 0 Card Life 5.1 0.0 20. 5.5 12. 7.6 9.2 50. 9.0 5.3 4.6 9.0 0.0 9.6 16. 0.0 25. 6.6 Insurance 7 0 00 6 31 9 6 00 0 4 9 9 0 2 67 0 00 7 General/He 10. 30. 30. 11. 27. 7.6 11. 0.0 16. 0.0 0.0 4.5 0.0 0.0 0.0 0.0 0.0 .33 alth Insur. 34 00 00 11 69 9 11 0 00 0 0 5 0 0 0 0 0 Money .86 0.0 5.0 0.0 3.0 0.0 5.5 25. 2.6 0.0 3.1 0.0 0.0 1.9 0.0 0.0 0.0 1.0 Order at 0 0 0 8 0 6 00 7 0 3 0 0 2 0 0 0 0 P.O. Swablamba 0.0 0.0 5.0 0.0 0.0 0.0 1.8 0.0 .67 0.0 0.0 4.5 0.0 0.0 0.0 0.0 0.0 .33 n Pension 0 0 0 0 0 0 5 0 0 0 5 0 0 0 0 0 Postal Life 0.0 0.0 5.0 0.0 0.0 0.0 0.0 0.0 .33 0.0 0.0 0.0 0.0 0.0 8.3 0.0 0.0 .33 Insurance 0 0 0 0 0 0 0 0 0 0 0 0 0 3 0 0 Bank - 3.4 10. 15. 0.0 1.5 7.6 7.4 0.0 4.6 3.0 4.6 4.5 0.0 0.0 0.0 0.0 0.0 2.6 Money 5 00 00 0 4 9 1 0 7 5 9 5 0 0 0 0 0 7 transfer Total N 116 10 20 18 65 13 54 4 300 131 64 22 4 52 12 11 4 300

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7.3.7 Use of Financial Products by Age Table 7.2.3 gives the cross tabulation of use of different financial products and age of the respondent. Age has been categorized as mentioned above. There is no sizeable difference in use between the two age groups but the younger age group reported lower use of the financial products. The younger respondents (upto 35 years) reported lower use of the financial products, compared to their older counter parts (35+ years).

Table 7.2.3 : Use of Different Financial Products by Age (%) Bihar MP ≤ 35 >35 ≤ 35 >35 Used Years Years ALL Years Years ALL Bank account opening 34 35 34 56 66 61 A/c opening in Post Office 2 5 3 3 12 7 Debit/ATM Card 2 2 2 4 7 5 Bank Recurring Deposit 1 2 1 1 0 0 RD in Post Office 1 0 1 0 1 0 Fixed deposits in bank 1 3 2 0 1 1 Fixed deposits in P.O. 2 0 1 1 1 1 Kisan Credit Card 1 3 2 1 1 1 General Credit Card 1 1 1 1 0 0 Life Insurance 9 8 9 7 7 7 General/Health Insurance 15 17 16 1 0 0 Money Order at P.O. 3 3 3 0 2 1 Swablamban Pension 1 1 1 1 0 0 Postal Life Insurance 0 1 0 0 1 0 Bank - Money transfer 3 7 5 1 4 3 Total N 182 118 300 163 137 300 Results of Chi Square test indicate that there is no significant association between use of the products and Age except the Bank and PO Account opening in Bihar (p value < 0.05). 7.4 Tackling Financial Risks Financial risk is an umbrella term for multiple types of risk associated with financing, including financial transactions that include personal loans in risk of default. Risk is a term often used to imply downside risk, meaning the uncertainty of a return and the potential for financial loss. The survey targeted people from the micro sector with an objective to identify if the poor had any idea of perception of the term risk in their minds. It was also to identify if they could identify some of the potential risks and had ever attempted to tackle such risks as part of their everyday lives. While in the qualitative discussions, various hypothetical situations were provided to the respondents, in the quantitative survey, all the respondents were asked about the ways they tackled or planned to tackle the risks. Risks for them included the downside of being in the state of unemployment, untimely death of earning family members, inflation, serious accident etc. More than half of the respondents reported that in case of risks / exigencies like unemployment, untimely death of earning family members, inflation, serious accident etc. they were unsure to tackle it or have no plan to mitigate it. When asked about the ways adopted to tackle the risk of unemployment, two fifth to more than half of the respondents reported to be doing nothing. No efforts have been taken up by the respondents in tackling the risks. The proportion was certainly higher in Bihar, however, qualitative discussions revealed that even in MP people were not taking any preventive measures. Having ‘more

203 savings’ was mentioned by 33 (rural) and 45 percent (urban) of the respondents in Bihar and 42 (rural) and 49 percent (urban) in MP. This was cited more in urban areas in both the states and in MP than in Bihar. Most of the respondents reported that they would leave the risks to their Luck and considered it as a matter of fortune and hence believed that nobody could do anything to mitigate such risks. To them, whatever would happen, would be taken up as their destiny. About 40 percent reported that they could mitigate their risk by doing more savings and very few thought it could be from insurance. While many of the respondents were saving at home to counter the vagaries of risk by stacking the cash under the mattresses or in their ration boxes, very few had the option to save the same in a regulated manner to mitigate risk. This again was owed to the fact that there was no awareness amongst the people in both the states regarding risks and how to mitigate risks. This also gets corroborated by the fact that despite having consumable surpluses and having stacked cash at home, people were unwilling to put up their savings into the regulated banking channels such as fixed and recurring deposits. Lack of information, lack of awareness to mitigate risk and unable to differentiate between their risk taking abilities and fortunes also added to the issues. Some respondent reported that they would borrow money in case of such exigencies, which would then lead to them to trap of poverty. Although more than 40 percent reported that they would mitigate it from more savings but due to lack of information / knowledge and planning, they did not reply for more suitable plans to tackle it. If the people would depend on luck and would not be ready for any risk / exigency, they might get into the poverty trap in case of such incidences. Fig 7.6 – 7.11 provide for the analysis. Many of the males and females were found to be dependent on luck. Mostly savings and Insurance were the common ways to tackle the risks as reported by the respondents. In case of unemployment risk, inflation risk and natural disaster risks, risk of a serious ailment etc. ‘higher savings’ was the most preferred option to them. Insurance is a way to tackle the risks in case of ‘untimely death of family member’, ‘natural disaster’ and ‘serious illness’. People were also tested if they were saving any money to mitigate their future risks. For, asset (Savings) backed risk is the one that changes in one or more assets or savings that support an asset-backed security, like an investment in insurance etc. and would significantly impact the value of the supported security.

204

Fig 7.6 : Ways to Tackle / Plan to Tackle Risks (%) – Unemployment

100% 4 4 3 9 8 6 8 3 4 8 13 12 90% 2 2 N=1 N=3 80% 37 33 33 70% N=1 46 N=3 51 51 45 49 40 42 60%

50%

40% N=6 30% N=3 57 57 57 48 48 47 46 20% 41 43 39 10% N=2 0% Male Female All Male Female All Male Female All Male Female All (N=5) (N=105) (N=110) (N=30) (N=160) (N=190) (N=14) (N=81) (N=95) (N=39) (N=166) (N=205) Urban Rural Urban Rural Bihar MP

Nothing to do More savings Insurance Any other way

Any other way’ includes ‘loan / borrow’, ‘agricultural land as an alternative’, ‘land on lease’ etc. Fig 7.7 : Ways to Tackle / Plan to Tackle Risks (%) – Untimely Death Earning Member of Family

205

100% 1 1 3 1 2 5 5 3 N=1 11 10 90% 24 25 21 22 14 80% N=2 41 41 33 N=4 33 18 70% 5 5 16 15 60% 25 25 N=1 3 50% N=1 23 28 27 40% 69 68 30% N=8 58 58 62 50 48 20% N=2 40 30 31 10% 0% Male Female All Male Female All Male Female All Male Female All (N=5) (N=105) (N=110) (N=30) (N=160) (N=190) (N=14) (N=81) (N=95) (N=39) (N=166) (N=205) Urban Rural Urban Rural Bihar MP

Nothing to do More savings Insurance Any other way

When asked about the ways adopted to tackle the risk of untimely death of earning family member, one third to two fifth of the respondents from Bihar and more than half to more than two third from MP reported to be doing nothing and this proportion was higher in MP than in Bihar and in rural areas than in urban areas. Having ‘more savings’ was mentioned by one fourth of the respondents in Bihar and 5 to 15 percent in MP. This was cited more in urban areas in both the states and in Bihar than in MP. Insurance was mentioned as a way to tackle this event by 25 to 41 percent in Bihar and 18 to 22 percent in MP.

Fig 7.8 : Ways to Tackle / Plan to Tackle Risks (%) – Inflation 100% 3 3 4 4 2 4 90% N=1 3 4 7 4 3 N=2 1 1 15 27 29 80% 30 32 70% 32 43 60% 63 63 N=7 57 56 45 50% N=3 54 40% 30% 63 61 61 20% N=5 40 39 48 44 10% N=1 31 31 31

All (N=95) All

All (N=110) All (N=190) All (N=205) All

Male (N=5) Male

Male(N=30) Male(N=14) Male(N=39)

Female (N=81) Female

Female (N=105) Female (N=160) Female (N=166) Female Urban Rural Urban Rural Bihar MP

Nothing to do More savings Insurance Any other way

206

When asked about the ways adopted to tackle the risk of inflation, one third in urban and three fifth in rural Bihar and about two fifth in urban and rural MP reported to be doing nothing. This proportion was slightly higher in MP in case of urban areas and significantly less in MP in rural areas. Having ‘more savings’ was mentioned by more than half in urban MP and more than three fifth in urban Bihar and one third in rural Bihar and more than two fifth in rural MP. The rural- urban differentials are significant in Bihar but in MP, the gap narrowed down. Perhaps, the people need to be educated about the ways to tackle inflation with focus in rural areas.

Fig 7.9 : Ways to Tackle / Plan to Tackle Risks (%) – Serious Ailment

100% 9 90% 12 18 23 22 27 28 28 N=4 27 25 80% N=2 21 22 70% 16 17 33 60% 17 14 14 17 20 N=4 32 50% 32 16 16 40% 15 N=2 50 50 40 36 37 30% N=4 20% 38 35 33 40 39 10% N=1 22 21 10 11 17 N=2 0% Male Female All Male Female All Male Female All Male Female All (N=5) (N=105) (N=110) (N=30) (N=160) (N=190) (N=14) (N=81) (N=95) (N=39) (N=166) (N=205) Urban Rural Urban Rural Bihar MP

Nothing to do More savings Insurance Any other way

When asked about the ways adopted to tackle the risk of serious ailment, one tenth to one fifth in Bihar and more than one third in MP reported to be doing nothing. This proportion was slightly higher in MP in urban as well as rural areas. The rural- urban differentials are wide in Bihar and narrow in MP. Having ‘more savings’ was mentioned by half in urban Bihar and about one third in urban MP and more than one third in rural Bihar and one tenth in rural MP. Insurance was mentioned by one tenth in Bihar and one fifth in MP irrespective of residence. This indicates the need to educate the people regarding insurance as a way to tackle serious ailment.

207

Fig 7.10 : Ways to Tackle / Plan to Tackle Risks (%) – Loss due to natural disaster

100% 5 6 3 4 3 12 12 13 90% N=1 16 15 N=2 12 14 23 17 19 80% 15 15 27 20 21 N=3 8 8 70% 25 23 10 60% N=2 N=2 21 21 50% 47 46 20 40% 71 64 70 30% 58 57 N=7 20% N=2 40 44 43 10% 26 26 0% Male Female All Male Female All Male Female All Male Female All (N=5) (N=105) (N=110) (N=30) (N=160) (N=190) (N=14) (N=81) (N=95) (N=39) (N=166) (N=205) Urban Rural Urban Rural Bihar MP

Nothing to do More savings Insurance Any other way

When asked about the ways adopted to tackle the risk of loss due to natural disaster, one fifth to two fifth in Bihar and more than half to more than one third in MP reported to be doing nothing and this proportion was higher in MP in urban as well as rural areas. Having ‘more savings’ was mentioned by two fifth in urban Bihar and about one fifth each in urban MP and rural Bihar and less than one tenth in rural MP. Insurance was mentioned by one tenth each in urban Bihar and urban MP and about one fifth each in rural MP and rural Bihar. The proportion of respondents who mentioned about insurance as away to tackle disasters is higher in rural areas of both the states. Thus there is a need to educate the people regarding insurance as a way to tackle natural disasters.

208

Fig 7.11 : Ways to Tackle / Plan to Tackle Risks (%) – Serious accident / illness

100% 13 N=2 6 7 15 90% 21 20 23 21 25 23 80% 20 22 23 70% N=3 28 29 26 N=5 36 60% 27 23 22 26 28 50% 30 N=2 8 10 40% 25 26 15 30% N=1 36 35 51 48 20% N=5 40 39 33 26 27 33 10% N=1 15 15 0% Male Female All Male Female All Male Female All Male Female All (N=5) (N=105) (N=110) (N=30) (N=160) (N=190) (N=14) (N=81) (N=95) (N=39) (N=166) (N=205) Urban Rural Urban Rural Bihar MP

Nothing to do More savings Insurance Any other way

When asked about the ways adopted to tackle the risk of loss due to serious accident/illness, more than one tenth to one fourth in Bihar and about two fifth to half in MP reported to be doing nothing and this proportion is significantly higher in MP in urban as well as rural areas. Having ‘more savings’ was mentioned by more than one third in urban Bihar and one fifth in urban MP, one fourth in rural Bihar and one tenth in rural MP. Insurance was mentioned by about one fourth each in urban and rural Bihar and rural MP while one fifth reported so in urban MP. One fifth each of the urban and rural Bihar and rural MP reported about other ways to tackle the risk of serious accident and illness.

7.5 Issues Relating to Insurance Claim All the respondents who or whose family member had an insurance cover were asked whether they were aware of the processes and issues relating to the insurance claim. Table 7.3 indicates that a sizeable number were not aware of the issues.

Table 7.3 : Awareness on Different Issues of Insurance Claim (%)

Bihar MP Urban Rural Urban Rural Female Male Female All Male Female All Male Female All (N=14) (N=7) (N=16) (N=23) (N=5) (N=18) (N=23) (N=11) (N=20) (N=31) Make a claim 9 6 7 13 2 5 7 4 7 11 within given period (N) Attach Policy 11 4 8 12 3 7 10 5 12 17 documents / payment receipts related to the policy (N) Death certificate 10 5 8 13 3 11 14 9 12 21 in case of life insurance (N)

209

Bihar MP Urban Rural Urban Rural Female Male Female All Male Female All Male Female All (N=14) (N=7) (N=16) (N=23) (N=5) (N=18) (N=23) (N=11) (N=20) (N=31) Hospital bills, 8 2 6 8 4 9 13 5 9 14 medicine bills etc. in case of health insurance (N) Documents 7 2 5 7 4 8 12 5 9 14 related to discharge form hospitals (N)

Nearly two-third of the surveyed households were holding the below poverty cards (BPL cards) but they had no information that they were covered under the Janshree Bima Yojana or any other insurance scheme. Out of the respondents who had an insurance of her / his own family member, more than 50 percent were not having any information as to how they could make a claim within the time period. They also had no information regarding where and when to log such claims to the insurance companies or any other authority. Similar status of ignorance was found in case of medical claims where people were not conversant with the processes. Though people had an insurance policy for one or the other member of the household, but they also had no proper or complete information regarding making the claims.

210

Section B. Level of Financial Inclusion

7.6 Financial Inclusion This section tests the level of financial inclusion amongst the members who were interviewed through the structured questionnaire.

7.6.1 Savings Bank Account The respondents were asked whether they or any of their family members had a savings account in the bank or post office or co-operative or any other financial institution. Figure 7.1 B indicates that while there were 89% bank account holders in urban MP, there were 92% accounts in urban Khandwa district. However, gender wise, the bank accounts with women were marginally less than their men counterparts. The situation in Bihar was different with only 51% urban respondents having a bank account in their households. The rural situation in Bihar was even worse with only 49% HHs having bank accounts. Here too, women were marginally lower than their men counterparts.

Fig 7.1 B: Whether have Savings Account (%)

100 93 89 89 94 92 90 82 80 70 60 60 51 51 48 49 50 40 40 30 20 10

All (N=95) All

All (N=110) All (N=190) All (N=205) All

Male (N=5) Male

Male (N=30) Male (N=14) Male (N=39) Male

Female (N=81) Female

Female (N=105) Female (N=160) Female (N=166) Female Urban Rural Urban Rural Bihar MP

The whopping figure of 91 percent accounts being opened in MP owes to its financial inclusion model Samrudhhi where a banking facility has been provided within a distance of 5 kms from any given village. Moreover, Khandwa has been a district where most of the financial inclusion pilots have been held. It was covered in first phase of DBT (Direct Benefit Transfer) scheme towards payment of LPG subsidies. While MP government has implemented the Samrudhdhi Model in the entire state with most schemes under the G2P model, Khandwa also has the recent distinction of full inclusion. The rest 9 percent households would be covered in due course of time.

The respondents who did not have savings account were asked whether they had ever attempted to open one at any given point of time. Fig 7.2 B shows that people who had no savings account, tried to open the

211 same without any success. It also indicates that proportion of people attempted to open savings account was higher in urban areas than in the rural areas. Data for MP has not been presented due to small base. The state of MP clearly indicates that despite having several savings bank accounts opened, the transaction in these accounts has been very low. While most accounts are being opened as part of the FI drive including facilitating the G2Ps, the accounts have been used by the people only as a medium of passing the money to them. Thus, to them a savings bank account only provides them a channel at their doorstep that offers them a mechanism of receiving payments from the Government. There is a complete lack of awareness amongst them that these basic bank accounts could also be used for a variety of other purposes including picking up a loan / credit at one hand and channeling their savings to the FDs and RDs on the other.

Fig 7.2 B: Whether Attempted to Open Savings Account (%) – Bihar

35 N=1 30 27 28 25 20 15 11 10 10 N=1 5 0 Male (N=3) Female (N=51) All (N=54) Male (N=12) Female (N=84) All (N=96) Urban Rural Bihar

Males and females who did not attempt to open savings account were asked about the reasons for not attempting the same. Poverty and lack of knowledge on how to open savings account were two major reasons cited for not attempting to open savings bank account. While the lack of knowledge can be supplemented by means of financial literacy, poverty is being tackled at the macro level by various social sector schemes involving the G2P

All the respondents were asked about the number of savings account they have in their family presently. Table 7.1 B indicates that mean number of savings bank accounts in family is ‘1’ in Bihar and ‘2’ in MP which again reveals that savings account is more prevalent in MP than Bihar, presumably due to the Samrudhii and G2P effect. Mostly, these accounts belonged to women.

Table 7.1 B : Number of Savings Account in Family – Mean

Bihar MP Urban Rural Urban Rural Male Female All Male Female All Male Female All Male Female All Number of Accounts in Family Mean 1 1 1 1 1 1 2 2 2 2 2 2 SD 0.8 0.7 0.7 0.9 0.8 0.8 1.0 1.3 1.3 1.5 1.6 1.6 No of Accounts that Belong to Women

212

Mean 0 1 1 1 1 1 2 1 1 1 2 2 SD 0 0.4 0.4 0.5 0.3 0.3 0.7 0.6 0.6 0.6 0.9 0.9 N 5 105 110 30 160 190 14 81 95 39 166 205

All the respondents who were found to have a savings bank account were asked the name of the institution with which they have had the savings bank account. Fig 7.3 B indicates that SBI is a common bank where they have savings account. In urban areas, a sizeable proportion have savings account in PNB. Grameen Bank and Central Bank were two other options in Bihar. BOI is mentioned in rural areas of MP. Results for Males and Females are not presented separately due to small base. ‘Post office’, ‘Co-operative society’, ‘Other financial institution’ were dropped here onwards due to small base.

Fig 7.3 B: Institution Where have Savings Account – Bank (%)

70 58 60 50 38 40 34 31 30 22 22 19 20 16 16 17 9 8 9 10 5 5 5 6 7 2 2 0 Urban (N=44) Rural (N=64) Urban (N=55) Rural (N=121) Bihar MP

SBI PNB NJGB Grameen State Bank United Bank Central Bank BOI

The respondents were asked whether they opened the account to get benefit of the Govt. schemes. Most of the males and females in Bihar responded that they did not open the account to receive the benefits of Govt. schemes whereas most of the respondents in MP (especially in rural) opened the same to receive benefit of Govt. schemes. The schemes for which the account was opened included : LPG subsidy, MGNREGA, Widow Pension, Janani Suraksha etc. Thus the cash transfer scheme of the GoMP seemed to be founded on hard rock.

The respondents were asked when they or their family members opened the first savings account in bank. Table 2b gives the analysis in terms of mean number of years. On an average, the accounts were opened 3- 4 years back in Bihar and 5-6 years back in MP.

Table 7.2 B: Time of Opening the First Savings Account – Bank

Bihar MP Urban Rural Urban Rural Mean (years) 4 3 5 6 SD 5.7 4.0 7.7 5.9 Total N 55 92 76 177

213

The respondents who have an account were asked about the person who influenced them in doing so. The respondents were influenced by self to open the savings bank account. Other persons who influenced to open the savings bank account were the employees / agent of the bank, Govt. officer, Friends, neighbors, relatives.

The respondents were asked about the way they opened their latest savings bank account. Fig 7.4 B provides the analysis and indicates that in most of the respondents visited the institution for opening the bank account. ‘Others’ includes Panchayat, School, Neighbor, NGO etc.

Fig 7.4 B: Way of Opening the Savings Account – Bank (%)

90 78 77 75 80 72 70 60 50 40 30 20 13 9 7 7 8 6 8 6 6 7 10 5 4 5 3 4 0 Urban (N=44) Rural (N=63) Urban (N=55) Rural (N=119) Bihar MP

Visiting to institution By visiting camp held by the FI in native / nearby village By travelling to agent of FI Employee of the FI visited home Others

The respondents who have savings bank account were asked (wherever applicable) about the number of days it took in stages for opening the account and Table 7.3 B provides for the mean number of days taken for the same. It indicated that it took 1-2 days to procure the application form and 1-2 days to arrange necessary documents after getting the application form. After submission of application form, it took 10 – 14 days to get the passbook / smart card and 9-12 days to activate the account. Effectively, it took about 21 – 29 days to open an account.

Table 7.3 B: Number of Days Took to Open Savings Account – Bank (%)

Bihar MP Urban Rural Urban Rural To get The Application Form Mean (days) 2 1 1 1 SD 5.6 0.5 1.4 1.4 Total N 27 40 53 113

214

To Arrange The Documents Mean (days) 1 2 2 2 SD 0.3 3.3 3.1 1.1 Total N 27 39 52 107 To Get Passbook / Smart Card Mean (days) 10 10 11 14 SD 10.1 15.0 9.6 13.3 Total N 25 32 47 91 To Activate The Account Mean (days) 9 10 11 12 SD 10.2 15.3 9.3 9.5 Total N 22 31 37 72

The respondents who could remember when they made the first transaction after opening the account were asked about the same. Table 7.4 B gives the mean number of days when they made the first transaction after opening the account. Table 7.4 B indicates that the respondents in MP made the first transaction after one month of opening the account where as the same for Bihar is about 15 days.

Table 7.4 B: First Transaction After Opening The Account – Bank (%)

Bihar MP

Urban Rural Urban Rural

Mean (days) 14 16 31 40

SD 14.2 24.9 22.7 97.3

Total N 18 33 34 71

The respondents who have savings bank account were asked whether they faced any problem in opening the account. Fig 7.5 B indicates that few of them faced problem.

Fig 7.5 B: Faced Problem in Opening Savings Account (%)

14 13 12 10 8 7 6 5 4 2 2 0 Urban (N=42) Rural (N=61) Urban (N=55) Rural (N=114) Bihar MP

215

Main problem faced by the respondents in opening the account pertains to rescheduling of the process to some other day.

7.7 Availability of Financial Institutions Respondents (wherever applicable) were asked about the availability of FI services in their village. Fig 7.6 B indicates availability of bank / post office / cooperative and agents was much higher in MP than that of Bihar. Thus, the reach of FI services need improvement across the locations.

Fig 7.6 B: Availability of Bank / Post Office / Cooperative Services and Agents (%) 100% 90% 80% 36 70% 55 60% 71 73 50% 40% 30% 64 20% 45 10% 29 27 0% Urban (N=31) Rural (N=51) Urban (N=56) Rural (N=121) Bihar MP

FI branch is in the village or agent visits the village Neither the brach is in th evillage nor the staff / agent visits the village

The availability of FI in Madhya Pradesh owes to its approach of Sub Service Area (within 5 km) and the recent availability of few MFIs like SKS, Spandana, etc. and credit cooperative societies in urban areas. Males and females who neither have any FI in their village nor the staff/ agents of FI visits their village were asked about the distance to the nearest FI service from their village, approximate cost and time needed to reach the nearest FI facility and cost. Fig 7.7 B – 7.9 B provide the analysis for the same. In Bihar, the distance to the nearest FI facility was within 3 KM in most of the cases whereas the same was more than 3 km in case of MP.

216

Fig 7.7 B: Distance to The Nearest FI Facility – Bank (%)

100% 2 11 90% 28 80% 13 N=7 37 70% 23 60% 14 50% N=5 40% 70 30 30% 53 20% N=8 10% 19 0% Urban (N=40) Rural (N=55) Urban (N=20) Rural (N=67) Bihar MP

1 - 3 KM 4 - 6 KM 7 - 9 KM > 9 KM

Although there is a Sub Service Area approach in Madhya Pradesh, popularly known as ‘shadow area’ and the provision (of FI ) to be available within 5 km of the radius, but there were about 25 rural villages which were having distances that were very far more than 5 km. mostly this was due to internet connectivity.

Fig 7.8 B: Travel Time to The Reach Nearest FI Facility – Bank (%)

100% 2 3 N=2 3 90% 22 13 80% 24 N=6 70% 36 60% 45 33 50% 40% N=7 30% 36 20% 33 38 10% N=5 0% Urban (N=40) Rural (N=55) Urban (N=20) Rural (N=67) Bihar MP

< 15 min 15 – 30 min 30 – 60 min 1 hr - 2 hrs > 2 hrs

217

Fig 7.9 B : Cost to Reach The Nearest FI Facility – Bank (%)

100% 90% 22 16 31 80% N=8 3 3 70% 13 5 60% 13 N=2 43 50% 25 40% 30% N=8 51 20% 40 35 10% N=2 0% Urban (N=40) Rural (N=55) Urban (N=20) Rural (N=68) Bihar MP ≤ Rs. 25 Rs. 26 – 50 Rs. 51 – 100 > 100 No cost, visit branch by foot

7.8 Purpose of Opening Bank Account

The respondents (wherever applicable) were asked about the primary purposes (s) of opening the savings account. Fig 7.10 B indicates that ‘To deposit and withdraw money’, ‘To receive government benefits’ and ‘To keep money safe’ are the three main reasons of opening the savings account.

In Bihar, the rural – urban differentials are visible as for depositing and withdrawing, for keeping money safe, for getting benefit of PMJDY and for getting loan were mentioned more in the urban areas, while for receiving money from other cities and for receiving Govt benefits were reported more in the rural areas. In MP, for receiving Govt benefits was mentioned more in rural as well as urban areas, compared to Bihar. This perhaps indicates the greater prevalence of cash transfer in this state.

One would observe at the state wise figure with 50 percent of respondents of Madhya Pradesh having opened saving accounts in order to receive the government benefits, followed by one-third who wanted to put their deposits and withdrawal of money. About 70 percent of women got their bank accounts opened on account of receiving the government benefits in MP.

218

Fig 7.10 B: Primary Purposes of Opening The Savings Account – Bank (%)

70 58 61 60 56 52 48 50 45 40 34 28 28 30 30 25 20 12 12 11 11 13 11 7 7 9 6 10 3 2 0 Urban (N=43) Rural (N=62) Urban (N=61) Rural (N=123) Bihar MP

To deposit and withdraw money To keep money safe To receive money from other city To receive government benefit To get benefit of PMJDY To get loan

The respondents (wherever applicable) were asked about the problems they faced in operating the account. Fig 7.11 B indicates, ‘Difficulty in filling form’, ‘Standing for a long time in queue’, and ‘Frequent link failure’ were the main problems indicated by the respondents. However in most of the cases in MP and many cases in Bihar, the users seldom faced any problem in operating the account.

In Madhya Pradesh, about two-third respondents of rural areas and 72 percent in urban areas did not face any problem in operating their bank accounts. The main problem faced by urban and rural respondents included standing for long time in queue and loss of wages in urban areas. The problem in filling up the withdrawal and deposit forms was also reported by the respondents.

As opposed to it, 35 percent in urban area and 42 percent in rural areas of Bihar did not face any problem in operating bank accounts. About 42 percent of rural respondents faced problem in filling up the deposit and withdrawal forms of bank, followed by 39 percent in frequent link failure and 34 percent in standing for long time in queues. The 30 percent urban respondents faced problems in filling up the deposit and withdrawal forms of bank, followed by 23 percent owing to frequent link failure and 23 percent for standing long time in queue.

219

Fig 7.11 B: Problems Faced in Operating Bank Account – Bank (%)

11 68 Rural (N=119) 8 13 11 22 8 14

MP 72 7 22 Urban (N=54) 7 9 20 4 19 35 5 10 Rural (N=62) 3 39

34 6 42

Bihar 42 9 14 Urban (N=43) 23 23 9 30 0 10 20 30 40 50 60 70 80

Nothing Loss of wage / income Branch is located far from home Often ask to come other day Frequent internet link failure Standing for long time in queue Difficulty in depositing or withdrawing money Difficulty in filling form

7.8.1 Account Operation The respondents who had savings bank account were asked as to how did they operate their savings account. In more than 80% cases in both the states, the users operate their accounts by visiting the branch of the bank. This was reported less in MP. It was also observed that the percent of the rural population using the CSP/USB/BCA was much higher in MP than that of Bihar, and about 14 percent were using the USB/CSP/BCA in rural areas while only about 6 percent in urban areas.

220

Fig 7.12 B: Way of Operating Savings Account – Bank (%)

100% 2 2 2 80%

60% 84 97 93 92 40%

20% 14 0% 3 5 6 Urban (N=33) Rural (N=42) Urban (N=49) Rural (N=112) Bihar MP

Through agent of institution/bank/USB present/visiting village By visiting branch of the Bank Through both mode

When asked about the interval of transaction in the savings account, most of the users do transactions in one / three months interval and they do the transaction by visiting the branch in most of the cases.

7.8.2 SHG Membership All the respondents were asked whether they were members of any Self-Help Group (SHG). Fig 7.13B below indicates that SHG membership is higher in case of females. Membership is also higher in rural areas of Bihar and urban areas of MP. One tenth of the urban women and one third of the rural women in Bihar reported to be the SHG member. More than one fourth of urban women and one tenth of their rural counterparts in MP reported so. Fig 7.13 B: SHG Membership (%)

40 36 35 31 30 28 24 25 20 15 13 13 11 10 10 7 5 5 0 0 0 Male Female All Male Female All Male Female All Male Female All (N=5) (N=105) (N=110) (N=30) (N=160) (N=190) (N=14) (N=81) (N=95) (N=39) (N=166) (N=205) Urban Rural Urban Rural Bihar MP

221

Those who had an SHG membership, in most cases they had already started savings / started internal lending / bank account for SHG had been opened. In most cases SHG account was opened in bank of which they were not aware.

Section C Financial Products

7.9 Savings All the respondents were asked about their monthly family income, expenditure and savings. Average monthly family income was found to be in the range of Rs. 5139 and Rs 5252 in urban and rural Bihar and Rs. 4999 and Rs 4126 in urban and rural MP respectively. Mean Income was higher in rural areas in case of Bihar while in MP, urban areas recorded higher income. Same trend was observed in case of monthly expenditure and monthly savings also.

Table 7.1 C: Income, Expenditure and Savings

Bihar MP Urban Rural Urban Rural Male Female All Male Female All Male Female All Male Female All Monthly Family Income Mean 3900 5199 5139 5450 5215 5252 5928 4838 4999 5444 3816 4126 SD 1817 2109 2107 3001 2731 2769 2695 2394 2456 7588 2279 3916 Monthly Expenditure Mean 3540 4454 4412 4703 4896 4866 4843 4378 4447 4590 3431 3651 SD 1747 1832 1831 2995 6362 5953 1524 2164 2081 6033 1976 3185 Monthly savings Mean 360 738 721 747 912 886 1086 470 561 854 386 475 SD 378 644 638 701 1851 1721 1744 662 917 1748 705 1002 Total N 5 105 110 30 160 190 14 81 95 39 166 205

The respondents who reported to be saving were asked about the frequency with which they do so. It was reported that 21% households in Bihar and 51% households in Madhya Pradesh were unable to save the money due to various reasons. Table 7.1 C presents the analysis of this data. In most of the cases, they kept the money at home. Bank and SHGs were the other ways adopted to have savings.

As far as stocking cash at home is concerned, 81 percent urban and 78 percent rural respondents of Bihar reported that they kept savings at their home while in MP the percentage was 46 percent in urban and 83 in rural. The savings were kept in bank at a higher rate in Madhya Pradesh when compared to Bihar (35% vs. 31% in urban areas and 30% vs. 20% in rural areas).

About 4% in Bihar and 12% respondents in MP also reported that they used local and informal ways of savings funds called (BEECEE). There is also a good percent of respondents who saved money in SHGs through MFIs and cooperative societies in both states (38% rural and 11% urban in Bihar and 16% rural and 31% urban in Madhya Pradesh).

222

Fig 7.1 C: Frequency of Income (%)

100% 5 4 5 4 13 90% 22 15 80% 70% 60% N=3 67 50% 92 91 N=22 85 87 N=10 95 96 69 40% 74 30% 20% 10% N=1 20 10 9 16

0% 4 4 5 4 4

-10%

All (N=89) All (N=52) All (N=93) All

All (N=148) All

Male (N=4) Male

Male (N=22) Male (N=10) Male (N=23) Male

Female (N=85) Female Female (N=42) Female (N=70) Female Female (N=126) Female Urban Rural Urban Rural Bihar MP Weekly Monthly Others

Note: Others include fortnightly, annually, daily, etc.

The respondents who have some savings were asked about the ways that they had adopted to do so. Table 7.2 C presents the analysis of this data. In most of the cases, they keep the money at home. Bank and SHGs are the other ways adopted to have savings.

223

Table 7.2 C: Distribution of Respondents by Way of Saving (%)

Bihar MP

Urban Rural Urban Rural

Male Male Male Male Female All Female All Female All Female All (N) (N) (N) (N) Bank savings 1 32 31 9 17 20 5 31 35 10 26 30 account Bank FD / RD 0 0 0 2 0 1 1 0 2 0 1 1 Post office 0 7 7 1 1 1 4 7 13 0 1 1 savings account Post office RD / 0 0 0 0 1 1 1 2 4 0 0 0 FD Chit fund 0 2 2 0 2 2 0 0 0 0 0 0 SHGs 0 12 11 2 43 38 0 38 31 1 20 16 Mutual fund 0 6 6 1 0 1 0 0 0 0 0 0 Bought gold 0 0 0 1 0 1 0 0 0 2 4 5 Purchased land 0 7 7 1 3 3 0 0 0 1 7 6 / house Keeping it at 3 81 81 16 79 78 4 48 46 21 80 83 home Bee cee / local 0 2 2 1 5 5 1 24 21 0 9 6 fund Cooperative 0 1 1 1 1 1 0 10 8 0 4 3 society Total N 4 85 89 22 126 148 10 42 52 23 70 93

The respondents who have been into the saving mode were asked about purpose of savings. Fig 7.2 C indicates that they mostly save for planned requirement for short term followed by medium term requirement like child’s education and long term requirements such as marriage, house, pension etc. In Bihar, about two-third of urban respondents saved money for short term duration including their planned requirement while 46% respondents in rural areas did so. There were 20% urban and 30% rural respondents who saved money for unplanned and unexpected requirements such as medical treatment or to meet any other exigencies. There were also a good number of percentage i.e. 40% in urban and 34% in rural who saved money for medium term requirements like children education while 40% urban and 37% in rural saved money for long term requirements.

In Madhya Pradesh, nearly three-fourth (74%) of rural and half of urban respondents save money for the short term planned requirements, followed by 52 percent for the medium term requirement in both areas. There were 31% urban and 25% rural respondents who were saving for long term requirements such as house, marriage of children etc.

Here onwards the analysis has not been shown gender wise due to the small base.

224

Fig 7.2 C: Distribution of Respondents by Purpose of savings (%) 80 74 70 66 60 50 52 52 50 46 40 40 37 40 34 30 31 30 25 20 21 20 13 9 9 10 11 10 0 Urban (N=89) Rural (N=148) Urban (N=52) Rural (N=93) Bihar MP

Planned requirement for short term duration Unplanned expernses like treatment of diseases Medium term requirement like children education etc Long term requirement like marrige, house, pension etc No reason

The respondents who don’t have any savings were asked about the reasons for the same. Insufficient income was found to be the main reason for not saving. As mentioned elsewhere, out of a 300 sample size in Bihar, 237 were found to be saving in one or the other form including regulated and unregulated saving avenues. Interestingly, this number was only 145 in MP and hence the savings in MP were much lower than that of Bihar. However, approximately 80% of people saving in Bihar were savings in the informal and unregulated instruments while in MP, approximately 70% of unregulated savings existed. One of the reasons of not saving in regulated formal finance structures was also lack of awareness and lower financial literacy. Again, this point testifies the fact that there is a strong need to create awareness on regulated and unregulated savings that could be done by financial literacy. 7.10 Loans All the respondents were asked whether they / their family have ever taken any loan. They were also asked about the source, loan amount, annual interest, and present status of the loan. Fig 7.3 C indicates that proportion of respondents who have ever taken loan was higher in Bihar (62% in rural and 74% in urban ) than MP (25% in urban and 36% in rural). In Bihar, the loans were mainly taken to meet the medical expenses (42%), followed by business and income generation activities (21%) and marriage (12%) purposes. In the state of Madhya Pradesh, the loan was taken for the purpose of investment in business (48%), followed by repair / purchase of house (19%) and for marriage of children (10%).

225

Fig 7.3 C :Percentage of Respondents who Have Ever Taken Loan

120 N=5 100 74 77 80 72 59 62 60 46 34 36 40 N=3 26 25 20

All (N=95) All

All (N=205) All All (N=110) All (N=190) All

Male (N=5) Male

Male (N=39) Male Male (N=30) Male (N=14) Male

Female (N=81) Female

Female (N=166) Female Female (N=105) Female (N=160) Female Urban Rural Urban Rural Bihar MP

Relative, Friends, Neighbours, and Money lenders, bank, SHG were the main sources of loan.

Table also indicates high difference between rural and urban in the amount of loan. Also there is sizeable difference in the interest rate between urban and rural areas. Fig also indicates that insufficient sources of savings and less income are the main reasons for taking loan in MP.

Fig 7.4 C: Distribution of Respondents by Purpose of Taking Loan(%) 60 51 50 45

40 37 N=9 N=7 30 22 19 20 16 14 N=3 11 11 10 9 9 8 N=2 N=2 8 7 10 4 4 N=1 5 2 1 1 2 3 0 Urban (N=81) Rural (N=118) Urban (N=24) Rural (N=74) Bihar MP

Marriage Hospital / medicine expenses Expenses on death / funeral Education HH expenses Business purpose or increasing income Repairing of house or buying new house Others

Note: ‘Others’ include purchase of agricultural land, live stock, car etc.

226

Relative, Friends, Neighbors, Money lenders, banks and SHG were the main sources of loans. In Bihar, the loans were taken from friends and neighbors (31%), followed by money lenders (24%) and relatives (22%). In MP, the main sources of the loan taken were banks (38%) followed by SHGs (21%) of banks and cooperatives, and relatives (12%). In the state of Bihar the main reason of taking loans was the medical treatment and hence the respondents took loan mainly from the informal institution while in MP the main reason for taking loan was the investment in business or income generation activities for which the formal institution were preferred. Many groups and SHGs are operational through banks, MFIs and cooperative societies and hence in MP the respondents were able to take loan from such formal institutions as well.

Fig 7.5 C: Distribution of Respondents by Source of Loan (%) 45 39 40 35 35 N=8 N=8 29 30 27 25 25 21 20 20 17 16 N=3 N=3 15 12 12 12 9 N=2 8 10 6 4 5 1 3 2 2 0 Urban (N=81) Rural (N=118) Urban (N=24) Rural (N=74) Bihar MP

Relative / family Friends / neighbour Money-lender MFIs Bank Cooperative Society SHGs Others

Quantum wise, Table below also indicate high differences between rural and urban in the amount of loan. In Bihar, the average loan amount in urban was Rs. 11,670 and in rural areas was Rs. 24917. In the state of Madhya Pradesh the average amount of loan in urban and rural areas was Rs. 30,333 and Rs. 68,106 respectively. The average loan amount in rural areas was higher than that of urban areas in both the states. The average amount in Madhya Pradesh was also higher when compared to the state of Bihar.

The money lenders usually charge interest on loan at 120% and 60% annually and semi annually respectively in Bihar while in Madhya Pradesh the interest rate charged by the money-lenders was 60% and 36% respectively.

In Bihar, nearly one-fourth (24%) of the households had taken loan from the money lenders on 120% and 60% annual and semi annual interest rate. As mentioned, the interest rate charged by the money-lenders in MP was 60% and 36% in Madhya Pradesh and only 9 percent households had taken loan from the money lenders.

227

Most households in MP (38%) had taken loan from the banks. However, more than half of them were not aware about the interest rate being charged by the bank. While those who knew about the interest rates charged by the banks erroneously reported it at 7 percent, 9 percent and 12 percent pa.

Table 7.3 C: Loan Amount and Annual Interest Rate on Loan Bihar MP Urban Rural Urban Rural Amount of Loan Mean 11670 24917 30333 68106 SD 17681 65804 36703 93769 Annual Interest Rate Mean 20% 33% 23% 29% SD 15.0 22.7 16.2 23.8 Total N 81 118 24 74

Note : Others include ‘difficulty in withdrawing the invested money in emergency’, ‘agricultural inputs’, ‘no savings’ etc.

Fig 7.6 C below indicates that insufficient sources of savings and little income were the main reasons for taking loan. In rural and also urban areas of MP the main purpose of taking loan was insufficient sources of income (43%) and lower savings which that remained insufficient to fulfill the requirements. In rural Bihar, although people did some savings but the same were again insufficient to fulfill the requirements (29%) and lower income (32%) in urban areas.

228

Fig 7.6 C: Distribution of Respondents by Reason for Taking Loan (%)

5 9 Rural (N=74) 43 35

7 MP N=3 Urban (N=24) N=8 N=9 N=4 14 22 13 Rural (N=118) 16 29 9

Bihar 11 20 32 Urban (N=81) 17 12 9 0 5 10 15 20 25 30 35 40 45 50

Others No response Very less income Insufficient sources of savings Sufficient sources of savings but can not fulfill the requirements due to less income Sufficient sources of savings but saving are small for unexpected expenses

7.11 Money Transfer All the respondents were asked whether any member of their HH lived outside to whom they needed to send or from whom they used to receive money. There are about 20 percent of households who received or sent the money from migrated family members in Bihar while in Madhya Pradesh the percent of households was very low (only 5 percent).

Fig 7.7 C indicates that the proportion of males and females who need to receive / send money is low across the different categories except the rural areas of Bihar where around one fourth of the respondents need to send or receive money and only 10 percent in urban areas.

229

Fig 7.7 C : Percentage of Respondents who Send / Receive Money to / from HH Member

30 26 25 23 25 20 15 10 10 10 N=1 8 5 5 4 4 5 N=0

All (N=95) All

All (N=110) All (N=190) All (N=205) All

Male (N=5) Male

Male (N=30) Male (N=14) Male (N=39) Male

Female (N=81) Female

Female (N=105) Female (N=160) Female (N=166) Female Urban Rural Urban Rural Bihar MP

The respondents who were involved in remittances were asked about the system they used for money transfer. Bank account seemed to be the first preference followed by ‘migrant persons bring money themselves’. The respondents who were involved in remittance were asked about the risks of money transfer. The respondents felt that as such there was no risk but ‘excessive charges / fees’ and ‘loss of money during transfer’ were the two risks. No one reported to have become victim of such risks. 7.12 Insurance All the respondents were asked whether they or any of their family members were insured with the schemes such as Janshree Bima, any other Life Insurance and Non-Life Insurance such as accident / health / crop insurance etc. Life insurance coverage was found to be higher than that of non life insurance across the two states. MP recorded higher life insurance coverage than Bihar and in both the states, urban areas had higher insurance coverage. Although about two-third of households had the BPL / Antyodaya cards and ideally would have been covered under the Janshree Bima Yojana, but they were not aware about either the scheme of its coverage. Again, for want of literacy, awareness and penetration, Insurance as a tool to cover the risk of death has not penetrated into the rural areas.

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Fig. 7..7 C : Percentage of Males and Females who have Insurance for himself / herself or their family member

All (N=205) 1 12

2 Female (N=166) 1

1 10 Rural 3

Male (N=39) 8 23 MP All (N=95) 3 22

Female (N=81) 1 22 Urban Male (N=14) N=2 N=1 N=3

All (N=190) 5 8

Female (N=160) 5 7 Rural

Male (N=30) 7 17

Bihar All (N=110) 17

Female (N=105) 18 Urban Male (N=5)

0 5 10 15 20 25

Non -Life insurance Life Insurance Janshree Insurance

All the respondents who reported that they or their family members were covered under any of the insurance scheme were further asked about their possession of insurance documents, details of nominee, credit insurance etc. Most of them were found to be possessing the insurance documents (87% in MP and 95% in Bihar) wherever they had purchased Insurance on their own. In most of the cases the respondents (68% in MP and 88% in Bihar) knew the nominated person and nominee were also knowing that he / she is nominated. A sizeable proportion of the respondents shared information relating to the knowledge on insurance policy with anybody other than the nominee. This proportion was higher in urban than in rural areas. Credit insurance was very low across the locations. All the respondents who reported about insurance coverage of self or family members were asked about the person who influenced them for buying the insurance. In most of the cases, agents had influenced them to buy Insurance. Some were even influenced by their relatives while few others were influenced by themselves. The respondents were further asked whether he / she had ever made any claim for any of the insurance products and most of them replied that they had never made any claim. Whatever meager Males and females who had made any claims for the insurance had actually received the full amount. The respondents who reported non insurance coverage for them or family members were asked about the reasons for the same. Fig 7.8 C indicates that lack of awareness was the main reason for not having insurance.

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Fig 7.8 C :Distribution of Respondents by Reasons for Not Having Insurance (%) 60 56 50 43 45 40 32 32 27 30 24 22 22 20 13 14 11 10 10 8 9 10 5 5 8 10 2 3 2 4 0 Urban (N=91) Rural (N=165) Urban (N=72) Rural (N=175) Bihar MP

No need Lack of basic information about insurance Don't know the process of receiving claims Dont save Let him come Others

Others include ‘no reimbursement of the amount’, ‘fake organisations’ etc.

Less than half of rural respondents in both the states (43% in Bihar and 45% in MP) reported that lacked the basic information about the insurance schemes and hence they did not take any insurance.

7.13 Pension All the respondents aged below 60 years were asked about their planning for their old age through a few probing questions and Fig 7.9 C presents the percentage of respondent who agreed with the same. In most of the cases, the males and females agreed that in old age income will get reduced and expenditure will increase and hence they would need support. They also mentioned that they wanted to save for the pension or else the Govt. ought to provide the pension. On being asked whether they wanted to live independently in old age, most of the males and females in MP responded affirmatively. A small proportion wanted to depend on their children in old age. It was also qualitatively pointed out that there was a universal need for pension but there was no demand for the same as the people had no idea if pension products such as NPS Lite Swawalamban could be bought of the shelf. Hence there is a strong need of financial literacy to create awareness about the schemes as well its utilities and applications.

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Fig 7.9 C :Distribution of Respondents by Planning for Old Age (%)

54 All (N=205) 4246 26 95 52 Female (N=166) 42 24 45 Rural 95 63 Male (N=39) 42 50 32 95

MP 63 All (N=90) 57 63 22 93 62 Female (N=77) 59 22 62

Urban 92 N=9 Male (N=13) N=6 N=9 N=3 N=13 56 All (N=188) 26 65 35 87 55 Female (N=159) 64 26 33 Rural 85 59 69

Male (N=29) 21 41 97

Bihar 68 All (N=110) 38 56 32 90 68 Female (N=105) 55 33 37

Urban 90 N=4 Male (N=5) N=3 N=4 N=5 0 20 40 60 80 100 120

Wants to save the pension Government shall provide pension Wants to live independently in his / her oldage Children will take care in case of no pension Earning capacity and income will be reduced and expenditure will increase

Males and females (wherever applicable) were asked whether he / she or his / her family had ever invested in any of the pension scheme. Fig 7.10 C below indicates that almost none of the respondents or their family members had ever invested in pension scheme.

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Fig 7.10 C: Percentage of Respondents who Invested in Pension Scheme 3 2

2 2

2 1 1 1 1 1 1 1 0 0 0 0 0 0 Male Female All Male Female All Male Female All Male Female All (N=5) (N=105) (N=110) (N=29) (N=159) (N=188) (N=13) (N=78) (N=91) (N=38) (N=164) (N=202) Urban Rural Urban Rural Bihar MP

All the respondents who did not report about investment in pension scheme were asked about the reasons for the same. Fig 7.11C indicates that lack of information and knowledge (86% in Bihar and 44% in MP) and low income (55% in Bihar and 36% in MP) were the main reasons for not investing money in the pension schemes. An insignificant proportion of respondents (10% in Bihar and 14% in MP) said that they did not need pension as they would have support for old age.

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Fig 7.11 C: Distribution of Respondents by Reason for Not Investing Money for Pension Scheme (%)

38 25 1 25 Rural (N=179) 2 1

1 8

MP 30 10 21 Urban (N=71) 4 3 4 24 54 40 6 46 Rural (N=174) 3 10 10 5 9

Bihar 57 52 2 33 Urban (N=103) 2 6 2 3 0 10 20 30 40 50 60 70

Due to less income No information at all Don't know the process for receiving pension Lack of basic information about pension Afraid, because many organisations do frauds Need but many aspects of scheme are unclear Need but not clear that how-much pension will be received No need because he / she has support for oldage No need

On the NPS Lite Swawlamban scheme, it was asked from the respondents whether they would like to join the same after getting information about it. About 63% of respondents in Bihar and 72% of respondents in Madhya Pradesh showed keen interest to join this scheme since they now were more aware and informed about the Swawlamban. They were keen to join the scheme as their confidence in a Government scheme was higher and that the government was also co-contributing the amount. Respondent who did not show the interest to join the scheme was those who were either ultra poor of had very low income. Very few even considered that there was no need of pension because they had support for old age from their childern etc. Thus there is a strong need of creating awareness about the government’s NPS and Swawalamban pension scheme amongst the community.

7.14 Direct Benefit Transfer People were asked whether they received any amount of wage of government scheme or subsidy in bank or post office account under Direct Benefit Transfer. About 37 percent of respondents in MP and 9% in

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Bihar directly got benefits of welfare schemes / subsidy in their own account. This was because of G2P in Madhya Pradesh. Fig 7.12 C indicates that a sizeable proportion of respondents in MP have been receiving the same but in Bihar this proportion was very low.

Fig 7.12 C: Percentage of Respondents who Receive Wage / Subsidy under Direct Benefit Transfer

45 38 40 40 40 N=5 35 31 32 30 23 25 N=1 20 15 11 8 10 5 5 5 0 Male Female All Male Female All Male Female All Male Female All (N=5) (N=105) (N=110) (N=30) (N=160) (N=190) (N=14) (N=81) (N=95) (N=39) (N=166) (N=205) Urban Rural Urban Rural Bihar MP

People who had received wage / subsidy were further asked as to when and how many times they were withdrawing the money of wage / subsidy. Mostly, they are withdrawing the money immediately after receiving and in one go. These people consider the bank accounts as medium of get payment through the government and not treat them like their own savings bank account. This also brings us to the conclusion that people were getting money in their account but the account were used purely as means of ‘payment accounts’ where accounts were seen as a channel to receive money rather than as an instrument to save, invest and expand the horizon and coverage of regulated financial products and services.

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Chapter 8. Conclusions and Recommendations

This chapter covers the conclusions of the report. It is based on the primary and secondary survey where primary includes qualitative and quantitative surveys at the field and institutional surveys at the various institutions. The chapter also carries out a critical note on the Insurance factor in the PMJDY. The chapter also comprises the different levels of models that could be suggested to be implemented for FI and FL drive in the post PMJDY.

Section ‘A’ Financial Literacy

8.1 Financial Literacy Converts Needs into Demand States like Bihar and MP, just like other states in India are under the transformation phase from a non banked population towards attaining banking inclusion. However interestingly, both the states are at different levels of inclusion and that of financial literacy. While states like MP are marching towards a complete solution to inclusive growth including the availability of liquidity through the G2P and supply of financial products and services, there are states like Bihar where inclusion is at a little early stage. However, even in state like MP which has undergone banking inclusion to a larger extent, the banking applications based on banking habits of the people are yet to be developed.

In most cases, and especially after the onset of the PMJDY, the supply side of products and services are likely to be ready to be offered, while the demand generation shall remain dormant and would require further articulation and sensitization. The demand could only be generated if there is money to buy products and enough knowledge and information to do so. Experience shows, and the same has been corroborated in this study of primary survey, that while the G2P model of FI provides for supply of money into the banking accounts of the beneficiaries, lack of knowledge and financial literacy prevents them to participate in the inclusive ecosystem of the financial savings and investments.

Together with Financial Inclusion and Consumer Protection, Financial Literacy forms a triad, which is necessary for ensuring financial stability. Not only do the three have a bearing on financial stability, they also have a strong interplay among each other, with each having a vital impact on the other. Thus, financial literacy has significant relevance for financial inclusion and consumer protection. Without financial literacy, one cannot expect to make major headway in either financial inclusion or consumer protection. Basic knowledge and regular habits on banking, its utility and benefits could be inculcated into them only by means of a pragmatic approach towards money. The state of MP would do well to imbibe the same as ‘Teachable Moments’ while transferring the G2P payments and apprising the benefits of the same for future.

Challenges of money management are never static, nor are the solutions. Therefore a prudently designed financial literacy should be tailored to the client’s specific context, helping them to understand how financial instruments, formal or informal, can address their daily financial concerns, from the vagaries of

237 daily cash flow to risk management. Its power lies in its potential to be relevant to anyone and everyone, from the person who contemplates moving savings from under the mattress to a community savings group, to the saver who tries to compare account choices offered by competing MFIs and banks. As such it spans the informal and formal financial sectors, innovatively supporting clients’ access to, and more importantly, ‘use of’, diverse financial services. The ‘use’ factor is an element of innovative and effective financial education because when the client applies new knowledge and skills, she increases her chances of retaining them. Therefore, some of the best opportunities for financial literacy occur when the target group faces new financial situations or decisions. These are ‘teachable moments’; the learner might be in transition from the familiar to the unfamiliar, or have an opportunity that will be enhanced with relevant information and skills on a more permanent and sustainable basis.

8.1.1 Target for Financial Literacy All Users of Financial Products and Services: Everyone who is associated with the financial system and FI need to be financially literate ranging from the model designers up to the providers of the last mile connectivity. This includes all users of financial services, be it the financially excluded resource-poor, the lower and middle income groups or the high net worth individuals; the providers of services; and even the policy makers and the regulators. However, the focus under the model ought to be population of low income informal sector workers and women. For the resource-poor population, which operates at the margin, vulnerability can be acute due to constant financial pressures. Household cash management can be daunting under difficult circumstances, with few resources to fall back upon. Financial literacy efforts, in case of such population groups that target the G2P model, essentially, involves educating them about the benefits of being part of the formal financial system and managing short term volatility in incomes and meeting unexpected emergencies without getting trapped in unnecessary debt.

Sewa UNDP Primary Survey Secondary Reference: NCAER and MNYL (Khandwa and Katihar – 2014) Current Study Suggest that the 79% Respondents A study by NCAER and Max New York Life has at Katihar district were Saving in some of the other shown that in India, around 60 per cent of sort, however Only 20% of such Savers were saving labourers surveyed stored cash at home, while in a formal and regulated financial product like borrowing from moneylenders at high interest banks etc. rates; a pattern of saving money that is bound to Respondents at Khandwa district were no better aggravate financial vulnerability of these and while only 48% of them were saving in some or labourers. The process of educating these excluded the other way, only 16% of the savers were sections would involve addressing deep entrenched actually saving in Bank accounts. behavioural and psychological factors that are A Majority (69%) of Savers are still saving in the major barriers to participating in the financial form of Cash at Home despite having a bank or system. postal savings account.

8.2 Field Survey – Conclusive Evidence In conclusion, the study presents evidence that financial literacy is an important predictor of financial behavior. While its an established fact that financial literacy stimulates demand side of financial inclusion – making people aware of what they can and should demand – the study also finds a strong co-relation between level of awareness of processes and availability of mainstream financial products and their sources among poor households and level of usage of these product among them.

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Furthermore, financial illiteracy level was found to be particularly low among the key demographic groups: women; less educated; low income; and older respondents. The overall analysis reveals that not only low income households have poor access to important financial products and remain outside of the financial mainstream but deficient record keeping practices, poor cash management, improper saving habits, and less awareness regarding different financial products and instruments are also common place among them. These constraints make them ill equipped in using their resources well and become contributing factors in affecting their income as well as growth. There is general perception that lack of literacy is the main hurdle in expanding the coverage of financial services to low income segment. However, during our interactions with the illiterate people during the course of this study, it was revealed that they felt that illiteracy was not a big challenge to operate a savings account, but lack of financial literacy prevented them in moving out of the vicious circle of being a non saver. Needless to say that poor need prudent money management more than anyone else. Household cash-flow planning and budgeting is stepping stone towards it. Unfortunately, the survey found that such practice is almost non-existent, as they were mostly unfamiliar with the concept of planning and budgeting and their benefits. Typically they save money for future needs but the approach was to save surplus money without preparing household budgets, without prioritising financial goals, without properly allocating investments in different asset classes. However, many of the women with whom the study team interacted have shown strong interest in knowing the nuances of household budgeting, financial planning and investments. As mentioned earlier, the lack of financial literacy was tied to lack of access to financial products or failure to use them even when they were available. The survey also indicated lower household savings, as well as higher over-indebtedness. The respondents mostly found storing cash at home, while borrowing from informal sources at relatively high rates of interest. Many of these families lack the basic knowledge and resources required to save and invest, build wealth, and avoid excessive debt. Despite a wide network of regulated institutions offering investment products, their reach among poor and awareness among them about such products are still far from desirable. Most of the poor still make investments in informal avenues or unsecured places that leave them susceptible to fraud and abuse that increases their financial fragility. We found rampant cases of poor duped of their life-time savings by unscrupulous firms. It is common knowledge that poor lack resources to cushion themselves from lost savings or enable them to rebound from adversity and having access to safe savings products and social security products such as, insurance and pension could greatly affect their financial future. However, the concept of insurance and pension among this segment was also found to be rudimentary level, hence their coverage among them is also extremely poor. There were lot of misconceptions found on insurance and some bad experiences of claim settlement that also kept them away from taking insurance. The penetration of pension product is even worse than of insurance among this segment. It was also found that there is intense desire for pension product among poor. The general awareness among this segment on the features of PMJDY was also found to be abysmal. There are also lot of misconceptions found about purpose of the scheme and benefits under it. This is due to the fact that not much effort of the government has gone into unfolding the benefits of the scheme, while popularizing it. As we have seen from the past that a majority of the bank accounts opened under financial inclusion drive remain unused as they don’t see value or utility of the account. Demand for such services can only be generated if such drives (of bank account opening) are ably assisted through financial education programmes. In addition to lack of financial literacy, there were also several operational challenges that contributed to financial exclusion of poor mass. Procuring documents pertaining to KYC norms of banks had always been a handicap for most of the poor. The situation is worse in Bihar and among women in particular. Issues with KYC as reported in the survey also included misspelling, photo mismatch and wrong address on one hand and

239 change of name in case of married women on the other. Date of birth is usually captured on the first day of the year, if not conclusively evident. Despite several attempts by RBI to relax KYC norms for basic savings accounts to achieve the goal of financial inclusion, the situation on the ground remains largely unchanged much and the bankers often found rigid on strict KYC norms. There was also a poor knowledge among poor mass on flexibility in KYC norms, hence they were not able to exercise their rights to open bank account. Teachable Moments: The quantitative and qualitative study including the field survey clearly points out to the fact that there is a strong need for financial literacy that should be targeted towards learning from the ‘teachable moments’ as well as from building up the financial capabilities as referred in chapter 2 of this report.

Half Baked Knowledge: The survey indicates that while the respondents to certain extent were aware about some of the financial products like the PMJDY etc. but the information at best was half baked. This could be extremely dangerous as they were unable to even differentiate between a regulated and unregulated financial products and services just as they failed to differentiate between insurance and plantation (fraud) companies.

Expenditure Anticipating and Monitoring: As mentioned in the chapter on quantitative evidence, most of the respondents did not have the idea of either visualizing and anticipating their daily or monthly expenditures or even accounting for the same. They has absolutely no idea as to how to prepare household budgets and keep an account of the expenditures and until the household budget or accounting was prepared it was very difficult to identify wasteful and discretionary expenses and start saving on such heads. Similarly, there was no concept of need, necessity and unnecessary/unproductive expenditures.

Budgeting and Planning: At both the districts, not many of the participants were found aware of the concept of household budget or accounting. Many of them were not even aware of their regular monthly household expenditure. It shows that most of them were making expenses, as and when they felt the need for it without making any plans or allocating resources for the same. Though they agreed that such practices often lead to wasteful expenditure, they were unable to control the same for lack of knowledge and awareness. Very few were found aware of the concept of budget, but were not following it at their household as they considered that they were already living on too little income and they did not see any scope of further cutting down of expenditure. When the basic concept of budgeting and planning were shared with them in brief, it was much appreciated and liked as the idea to be learnt and implemented and were keen to know how they could also do for their own household. They could sense great merit in budgeting and planning as it was a great tool to control their expenditure and enhance their savings.

Having a bank account does not mean financial inclusion: While most in MP and many in Bihar had a bank account, they were seldom aware of its utility and application. The accounts were either never used or used only for the purpose of collecting G2Ps. It was used as a pure payment outlets where the money could be withdrawn as full and final within days of its arrival. In fact, in the states of Bihar and Madhya Pradesh almost half and one-fourth of the respondents respectively, had extremely poor information about even opening up of bank accounts. Their bank accounts were opened just because there was an FI drive in the state or in camps where the peer pressure brought them.

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Post Offices: Similarly, the perception about post offices is only confined to the posts and telegraph and to certain extent money orders. The fact that post offices could also offer financial services was unknown and the empirical evidence suggests that in both the states, more than three-fourth of the respondents reported that they did not have an idea if there could be saving accounts even in the post office. For lack of knowledge on PO deposits, people usually use the agent medium to deposit the money in cash and hence the same could be disastrous as during the qualitative interviews it was revealed that the passbooks of PO were usually held by the agents and not with the account holder which again is exposed to great risk. Many of the women in Bihar reported that they did not even know where a nearest PO is situated. Women, specially widows receiving pension and older men and women receiving NSAP had greater knowledge about the Post Offices as in most cases, their pension was delivered from these outlets.

Financial Awareness: Evidence suggests that the awareness level about the bank accounts and post office account is extremely poor and the usage of such accounts seldom exist in its meaningful and logical efficiencies. Unless regular dosages of financial literacy is imparted to the public, the accounts can not be meaningfully utilized by the masses for saving or other purpose. There is a need to create financial literacy awareness amongst poor people, women by using various means such as IEC (information, educational and communication) materials, trainings, camps, street plays, etc.

Knowledge on ATM / Debit Card: Most of respondents (more than three-fourth) in the both states had very poor information about the ATM / Debit cards. Many of rural women respondents reported that they had never seen the ATM card in their lives. While the success of accounts opened under the PMJDY largely depends on the brand ‘RuPay’ card, the utility and application of the same need to be concertedly conveyed to the masses by means of the financial literacy. In most case, people had either never seen a debit card, or never used it. Thus teaching them how to use the RuPay card itself requires a lot of literacy as they are also exposed to leakage of PIN.

Basic Financial Products: Mostly respondents did not have the basic information about the bank and post office products such as the most basic products of recurring deposits (RD) and fix deposit (FD). Unless people park their surplus savings into such regulated products there could never be a meaningful inclusion and hence they need to be told about these products as ‘teachable moments’

The Madhya Pradesh government has already implemented the Samrudhdhi Model in the state and Khandwa is one of the DBT (Direct Benefit Transfer) district, which was in first phase, so mostly households have savings account. But, if people do not use other banking services and products, they will not be able to make full use of the FI model and use bank and post offices for savings and withdrawal of amount. Only treating it like a medium of payments received from government as transfers such as – wages, LPG subsidy, scholarship, welfare schemes, etc. carries little meaning in FI drive. The Madhya Pradesh is a step ahead from the Bihar so there is rigorous need to design and conduct financial literacy training programs at the level of the rural and urban poor people to aware about the various banking products and services meant for them.

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While the most basic and fundamental step to financial inclusion, namely opening up of banking accounts have been achieved, the next step of using the same and putting money in the fixed or recurring deposits is yet to be seen.

PMJDY: More than one-third respondents (mostly men) had knowledge and information about the PMJDY (Pradhan Mantri Jan Dhan Yojana) account on zero balance. People in Madhya Pradesh were more aware about it compared to Bihar. Only 20 percent in MP and 13 percent in Bihar had information about the accidental and life insurance covered under the PMJDY. Respondents were mostly found to be misinformed about the scheme. The level of misinformation was huge such as the overdraft facility of Rs. 5000/- was treated as a dole out by the government as free deposit after opening an account under PMJDY. A very small percent of the respondents had near accurate information about it. None of the respondents in both states had any information that the RuPay Cards must be used to be entitled for the overdraft facility and insurance. The literacy level about the PMJDY was very low and respondents had misinformation about it. Although the advertisement in print and electronic media is creating awareness but not achieving expected outputs amongst them for whom the PMJDY is meant. The misconception that the PMJDY is valid only upto 26th January 2015 was widespread in Bihar as a result of which people flocked to the camps and created a law and order issue. Men were found to be more aware of the scheme as compared to women. There is need to bring awareness amongst poor who still have no information about it and for whom the PMJDY was launched.

Protection against Frauds: The Chit-Fund companies were widely prevalent in Bihar and were significantly higher than that in MP (20% in Bihar and 5% in MP). These companies have been trying to lure people by offering attractive and high interest returns. Many of the respondents in Bihar were found to be the victims of such companies. There are many cases even in Madhya Pradesh where many people were trapped in the name of livelihoods and employment, SHGs, loan and other policies. There seemed to be a great need to protect people from such frauds.

Underprepared for Exigencies: More than half of the respondents reported that they were not prepared to face any type of risks and such exigencies in life. In case of risks / exigencies like unemployment, untimely death of earning family members, inflation, serious accident etc. they were unsure as to how to tackle it and had no plans to mitigate such risk. They considered it is a matter of luck and chance that nobody could do anything and would happen whatever be in destiny. Although, about 40 percent reported that they could mitigate it by higher savings but very few found insurance to mitigate the risk. Some respondent reported that they would be compelled to borrow money in case of such exigencies, which would again lead them to the trap of poverty. Although more than 40 percent reported that they might want to mitigate it by greater savings but lack of information / knowledge prevented them from doing so. They could not reply for more suitable plans to tackle it. If the people would depend on luck and would not be prepared for facing any risk / exigency, they may get trapped into the cycle of poverty and hence there is a strong need for financial literacy to prepare them reduce their risks.

Poor Insurance Penetration: Nearly two-third of the surveyed households possessed below poverty cards (BPL cards) but they were lacking information regarding coverage under the Janshree Bima Yojana. Amongst the respondents who had insurance within their family members, more than 50 percent were

242 lacking the information regarding claims. They had no idea as to whom to approach in case of medical claims or even in case of death claims. Although very less percent of households (13 percent in Bihar and 18 percent in MP) had an insurance of household member but they also did not have proper or complete information regarding making claims. In such cases, they needed to have more information which could be provided through training, so that they could claim within given time period and produce proper documents to get benefits from the insurance policies.

8.3 Need for Financial Literacy in FI Model – Survey Based Recommendations As a corollary of the field work both in the form of qualitative and quantitative surveys, it emanates that there is a strong need for creating awareness on the following areas:

a. Opening up of Banking Accounts with Proper Understanding of its usage and KYC. b. Usage of Banking Accounts for Purpose Other than Payment Channels for G2P. c. Understanding the Full Implications of PMJDY including the use of RuPay Card that is Linked to other Benefits like the Life and Accident Insurance as well as Procuring Credit at Low Cost. d. Opening and Use of Postal Accounts including using the vast network of Post Offices for Financial Services, other than merely P&T and Money Orders. e. Application of Banking Accounts towards SCRIPT (Savings, Credit, Remittances, Insurance, Pension and Transfers) f. Differentiate Between Regulated and Unregulated Financial Products and Services and Subsequent Identification and Suspects of Frauds and Financial Crimes. g. Need Based Assessment of Requirement of Different Financial Products and Services including the Life Cycle Needs of Products. h. Understanding on Planning and Budgeting the Cash Flows towards Income and Expenses in Near and Medium Term (Futuristic Planning) i. Understanding and Planning for Financial Risks in Lives including Risk of Being Unemployed (Savings and Liquidity), Risk of Death (Life Insurance), Risk of Longevity (Pensions and Annuities), Risk of Credit Default due to Death (Gap / Credit Insurance) Risk of Health Hazard (Medical Insurance), Risk of Weather on Agriculture (Crop Insurance) etc. in that order. j. Remittances using Regulated Mechanism including Bank and Post Offices. k. Consumer Protection against Financial Frauds

This could only be achieved by means of financial literacy that is targeted to resolve such issues. The existing modules of FL prescribed by the RBI may fall short of attaining a complete inclusion since the process is dynamic and requires updating the modules. Even the RBI documents are to be Used properly as the field survey found that the financial literacy modules, work books etc. were only distributed to the end user without even opening a single page, what to make them understand. Similarly, the institutional survey found that the FLCCs established by the LDMs in the districts only serve a limited purpose as it largely caters to the walk-in customers rather than holding regular camps et al in the field. Even where the camps were held, it becomes imperative to impart the financial literacy in the ‘teachable moments’ rather than in a class room mode.

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Since a complete Financial inclusion, essentially, involves two elements, one of ‘access’ and the other of ‘awareness’, unless both are achieved simultaneously, the results would remain incomplete. From the perspective of FI, it is a macro issue, and the relative emphasis on the two elements varies from region to region. However, even for relatively more developed regions with widespread financial infrastructure, the access to financial products /services is still a matter of concern. It is more of a financial literacy issue in that market player / consumers are required to be educated about the characteristics of the available financial products / services, including their risks and returns. In lesser developed regions like Bihar et al, however, the access to products itself is lacking. Therefore, here, both the elements, i.e. access and awareness need to be emphasized, with improving access assuming greater priority. Few states like MP have already achieved and to certain extent in the process of achieving the phenomenon of ‘Access’ by means of G2P model and money has been seamlessly reaching to the rural population. However, the state still requires to create ‘Awareness’ in a big way and provide for a handhold support to the beneficiaries by building their capacities to better understand the importance of such financial products in their lives.

Middle and Lower – Middle Income Group: For the middle and lower-middle income groups that are participating in financial markets as either savers or borrowers or both, i.e. the financially included, financial literacy efforts should aim at enhancing their knowledge about the market and new products / services. For instance, there is a large section of Madhya Pradesh’s population comprising shopkeepers and petty businessmen that has a bank account but refrains from participating in the banking products and capital market on account of lack of knowledge. Financial literacy, in such cases, would focus on creating awareness about the way the money and capital market functions and also about the fact that the equity market provides relatively higher returns as compared to other investments, over a longer time horizon.

Banks and Financial Institutions: While the need for financial literacy for the users of financial products / services is a well accepted fact, one would emphasize that even banks, financial institutions and other market players need to be financially literate and be fully aware of the risk and return framework. It might include understanding the risks involved in their businesses and products they offer to customers. As market players, they need to understand risks inherent in complex financial products and choose wisely while committing funds. For service providers, financial literacy also involves understanding the needs of existing and potential customers and creating products and services suited to those needs.

Opinion / Policy Makers: Finally, financial literacy is also relevant for opinion makers and policy makers. Literacy is a must to gauge the needs of the population and financial institutions; to understand the risks inherent in products and markets; and to create a policy environment conducive to attainment of the national goals. Only such an approach would ensure that physical and financial resources are put to their optimum use to generate higher economic growth, while minimizing the financial stability risks.

8.3.1 Customizing Financial Literacy for Financial Inclusion The qualitative survey also points out that there could be a potential need to customize the financial literacy to match the need for current requirement. While the earlier literacy modules concentrated more on banking inclusion, the need of the hour and specially after the implications of the PMJDY would shift from banking inclusion to financial deepening. The effective financial education can be customized to become more relevant and address issues of critical and immediate importance to the learners and users in

244 a way that acknowledges and incorporates their specific financial realities. While the secondary research and experience suggest that the value of investing in some form of client-focused research to identify existing individual behavior and community practice should be the starting point for financial education, the aim however, should be to move from the existing behaviors to desired behaviors, from passivity born of lack of confidence, information and opportunity to pro-active, informed decisions. The ‘use’ factor can become an element of effective financial education because when the consumers apply new knowledge and skills, she increases her chances of retaining them. Therefore, some of the best opportunities for financial education occur when the target group faces new financial situations or decisions. These are ‘teachable moments’ that the learner might be in transition from the familiar to the unfamiliar, (e.g. the widow who loses her assets to her in-laws), or have an opportunity that will be enhanced with relevant information and skills (e.g. the student who joins an after-school savings club).

For different occupational groups, there could be requirement for customization. For example, migrant workers have different needs and solutions as under pressure to send regular remittances, migrants often have to borrow at high interest rates in order to survive in their host country. Thus designing financial education for migrant workers requires careful selection of target groups and solid understanding of how each confronts different financial stresses. Similarly, increased use of mobile banking and debit cards (RuPay) as a means for dispersing cash including G2P as well as direct deposits in the new bank accounts of these ‘unbanked’ will require training to ensure participants’ use of not only the technology, but also the bank services to which it provides access. New program opportunities for financial education are emerging as policymakers explore the potential of CTs to enhance economic inclusion through linkages to bank accounts and opportunities for asset accumulation.

It is therefore recommended as an outcome of the qualitative and quantitative surveys that identifying these ‘teachable moments’ for financial education when someone first opens a bank account, transitions to mobile banking, or becomes a recipient of a government cash transfer program certainly makes the education relevant, immediately useful and reinforces behavior changes. Though the existing research study had its limitations in testing these recommendations, these are time tested ones elsewhere in other parts of the world.37

Cash Transfer Programs offer Teachable Moments. Cash Transfers exist in more than 50 countries across the globe including India are and largely targeting women –as heads-of-household, caregivers, and elderly pension recipients. Their core purpose is to raise the income of the poor and protect vulnerable households. Sewa’s recent experience38 on CTs has been very positively encouraging and could be used in this context as a recommendation towards attaining financial literacy based financial inclusion. The key findings of the research showcases the fact that the poor took rational decisions to increase their well being through the cash and did not splurge away the funds in wasteful activities like liquor as suspected by the critics of Unconditional Cash Transfer. The cash transfers led to the overall well being in the lives of the poor. Basic income grants were associated with an improvement in children’s weight-for-age, with the

37 Monique Cohen and Candace Nelson, “Financial Literacy: A Step for Clients towards Financial Inclusion” - 2011 Global Microcredit Summit, November 14-17, 2011 – Valladolid, Spain. 38 Sewa Conducted UCT program in Twenty villages of Indore, near Khandwa with the assistance from UNICEF in 2011 – 12 as a pilot to test if UCTs can help alleviate living standards and provide for financial inclusion

245 main effect being among young girls, and the recipients of cash transfers were significantly more likely to make improvements to their dwellings. UCTs led to more varied diets, with greater relative consumption of fruit and vegetables rather than simple reliance on subsidized staples;. led to accessing timely medical treatment and taking medicines with greater regularity; they were associated with more regular school attendance, with 29% of cash transfer households reporting an improvement, (compared with 13% in control villages) and increased spending on essentials for school, including stationery, shoes, uniforms and basic equipment. Also notable is the fact that UCTs led to an increase in own-account work, and a switch from wage labor to own-account farming and small-scale business. UCTs were associated with a significant reduction in indebtedness, both because recipients used the money to reduce existing debt and avoiding going into further debt. UCTs led to a significant increase in savings and assets. This only proves that infusion of cash into the village economy has several multiplier and growth effects and literally transforms the lives of the recipients. Moreover, the positive impacts were experienced more by the most vulnerable sections of the rural society such as the tribal, disabled, women, senior citizens, and girl children.

8.3.2 Know the Target Group The study shows that different occupational groups including varied income levels and mode of payment may require different solutions as their issues too are largely different. The typical case of a migrant worker has been mentioned earlier in this section. This is also true for not only banking habits but also for an outlook towards money management itself. The basic tenets of money management-- save often, spend carefully, borrow cautiously and invest wisely -- may be universal, but to be meaningful to a given audience, they must be nuanced to respond to the specific needs or stresses that group faces. For example, the value of saving is foundational to many of the lessons of money management. However, for someone operating outside the financial system, the relevant educational message may focus on the benefits of saving in a safe and regulated place. For someone who already saves, the relevant content may target the difference between a passbook savings account and a certificate of deposit and how to use each to meet different savings goals. Another group might require understanding over the basic difference between investment and insurance and so on.

Relevance: Ensuring the relevance of financial education necessitates understanding the financial behaviors of the target audience. It may range from one to many or all such questions:

 What are their sources of income?  How do they spend their money?  What influences these expenditures?  Who controls them?  What beliefs or cultural practices shape their financial decisions?  What is the context and what are the possibilities for changing behaviors that contribute to financial stress? Market research has been used effectively to gather data that sheds light on these questions; findings have been invaluable in informing the curriculum design of specific financial education programs. The current study has probed most of these questions and recommends different solutions for different audiences. Everywhere, the poor are vulnerable to unexpected events that unleash pressure to find a lump sum of money, but vary how they prefer do this. For potential insurance customers, a significant misunderstanding

246 lies in the need to renew the policy if no claims were made during the policy year. Some customers expect to get their premium refunded in the event of a no claim. Curriculum to impart information about insurance therefore targeted the concept of pooled risk, starting with local mutual aid practices that operate on similar principles but may be more familiar to potential clients.

8.3.3 Technology Technology is creating perhaps the most widespread teachable moment. Around the world, cell phones are replacing landlines and substituting for bricks and mortar bank branches. Yet, older customers, intimidated by the technology, give their children access to their accounts and report theft or fraud. Young people, in contrast, are quick to master the technology’s functionality, but understand little about the management decisions that the keypad contains. Though the study at the two districts did not find any conclusive evidence of people using mobile money transfers, it certainly found people using their cards at micro ATMs being established by the bankers. New access to convenient debit cards (RuPay) and ATMs presents challenges to those trying to control their spending. Despite their great potential, the introduction of electronic cards and mobile banking without information, orientation, and education presupposes knowledge and experience that many a low income families do not have. This may explain why the level of bank transactions by the previously unbanked has not met expectations, with providers of cell phone banking reporting active usage rates of less than 30% over a 90 day period39. The PMJDY in India offers opportunities to use the RuPay card by means of PIN and many of the mobile companies have already issued money transfer using mobiles. While the of take might be hampered by low usage include mistrust of ‘faceless’ banking, confusion over the PIN, and a lack of knowledge of banking functions, off and on the cell phone etc. they need to be taught right from the beginning. To date use of cell phone ‘banking’ is largely limited to money transfers and adding airtime. Financial education can bridge the gap between product marketing and effective product use.

Section B – Inclusion The experience in the field of financial inclusion reveals that left on their own, neither the bankers nor the Government could bring the community to ‘use’ the approach to its optimum, despite having the best of structures at the supply side. Even the ‘Samruddhi’ report strongly recommends the need of a external (third) agency to create awareness and financial literacy so that the meaningful financial inclusion could be achieved that shall bridge the gap between the supply and demand side and shall generate demand at the community level. On the other hand in states like Bihar where the structures are yet to be established and the FI drive lacks institutionalization there is a strong need to begin work at both, the supply side as well as demand side. Whatever is the level and quantum of financial inclusion in these states, Sewa clearly understands that the challenge in states like MP and Bihar is that without the third element, ‘use’, the first two, despite the best efforts of the Central Bank as well as the Governments, shall fail to leave an impression in financial inclusion space. SEWA therefore recognizes that Financial Education is an important tool to address this imbalance and help consumers both ‘accept’ and ‘use’ the products to which they increasingly have access as a consequence of the multipronged efforts of Government and central bank.

39 CGAP 2010

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8.4 Conclusions on Madhya Pradesh Financial Inclusion Status Sustainable economic growth requires inclusive growth, a concept adopted in Madhya Pradesh that advances equitable opportunities for economic participants during the process of economic growth with benefits incurring to every section of society. GoMP has created direct links between the macroeconomic and microeconomic determinants of the economy and economic growth. The microeconomic dimension in MP has captured the importance of structural transformation for economic diversification and competition, while the macro dimension is in the process of changing economic aggregates such as the state gross domestic product (GSDP), total factor productivity, and aggregate factor inputs.

8.4.1 Global Best Practices (G – 20) on Financial Inclusion MP has been following the Global Best Practices (G – 20) on implementing financial inclusion to attain an inclusive growth. MP works on the principle of using financial inclusion as a tool to attain deepening amidst inclusive growth by providing liquidity in the ecosystem through G2P (Government to Persons) transfers and a supply of regulated financial products ranging from banking to Insurance and pensions. The initiative of, "Towards Inclusive Growth Development through SAMRUDDHI in the State of Madhya Pradesh" rests on three pillars namely; Common database of all the citizens, Creation of network of financial point of dispensation in shadow area and Conduit in the form of Electronic Fund Management System (e-FMS). All three of them are integrated and woven by different stakeholders including the government line departments, development functionaries and the bankers where all of them are synchronized prudently by the nodal department.

With the advent of “Samruddhi” – Prosperity, linked with Financial Inclusion the model has geared up as a technically feasible and financially viable tool to offer G2P services and benefits at the doorsteps. It provides for listing of all social sector schemes under one roof cutting across various departments and schemes, avoid double dipping and provide the benefits keeping a track of each and every family as well as individual in context of the benefits provided to them under various schemes. From the supply side i.e. manufacturer of product and services, the model strives to make the USB / CSP a sustainable business model for banks in attaining the overall objectives of Financial Inclusion including offering regulated financial products.

8.4.2 Integrated Social Security Missions To expedite the disbursement of social security benefits and G2P payments, GOMP has created a common data base covering both the family and individual details. It initiated an integrated approach towards creating dynamic database encompassing all the social security schemes under one umbrella through its Samagra Samajik Suraksha Mission (SSSM) cutting across the schemes and departments. Database of more than 7 crore persons were prepared, broadly grouped into three groups i.e. A. Social Justice: Pension, Insurance, Marriage, Death assistance. B. Health: Janani Surksha and other health schemes. C. School Education: Scholarships SC/ST/OBC/Minority/ Disabled/Merit/ General Category poor. Various social security payments can now be worked out or calculated at the press of a button. Under the integrated social security mission data can be viewed online and benefits transferred directly into their bank accounts.

Madhya Pradesh Prior to Samrudhhi Madhya Pradesh’s Samrudhhi in 2014

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There are 54,903 villages in the state of Madhya For every five kilometer area financial points of Pradesh. Out of which, 50,396 villages were dispensation has been created in Madhya Pradesh identified as unbanked villages under the Financial to banking services and other G2P payments Inclusion program, way back in year 2009-10. leading to Financial Inclusion and financial deepening in the State. This meant more than 91% of the villages in the state were not having the banking facilities. Existing financial institutions with beneficiaries accounts such as nationalized banks, post offices, This calculation however did not include the Post RRB’s were mapped district-wise and bank-wise. Office network, which was also offering some of The banks were mandated to provide services in the basic banking services in villages. their respective service areas. Even if we consider the 7,200 odd rural Post The areas which did not fall under 5 km radius Offices (without discounting the overlaps), the were further identified as "shadow area". outreach of the banking and post office network, together, was still not reaching out to more than Out of 52000 habited villages in the state, 14767 79% of the villages in the state. villages were found which did not have any financial dispensation point. Similarly, if we also consider the branch networks of Cooperative Banks, PACS, LAMPs, etc., the total To cover these un-banked areas USBs are opened branch network in the State reaches out to 15,018 in the brick and mortar form in the rural and far branches in the rural and urban areas (without flung areas at identified 3000 locations. discounting the overlaps). Till now 2415 USBs have been opened in the State, This still means that more than 72% of the villages remaining are under process of opening. in the state have just no financial-dispensation network. There were a huge number of unbanked Out of these USBs 33 have been upgraded into full-fledged Rural Bank Branches by the respective villages and a large number of unbanked banks. The Govt of Madhya Pradesh has provided populations. one room in the Panchayat Bhavan Buildings Given in the above scenario, the beneficiaries of equipped with fixtures and furnitures to house the various schemes in Madhya Pradesh useed to run USBs which have generated tremendous response from pillar to post to receive their due benefits on among the rural people. time. For different schemes implemented by different departments, they had to apply The aim of the Government of Madhya Pradesh is separately to various departments and hence to ensure inclusive growth through Financial Inclusion thereby bringing SAMRUDDHI for one there were also issues of multiplicity of benefits being taken by a single person. Several pensioners and all. and labourers had to travel 20-50 kms to avail the This model of Madhya Pradesh Government is a banking facilities in order to draw their Social step towards bringing transparency and good Security benefits/wages. There were huge number governance in the developmental process bringing of delays and complaints regarding delayed excluded, disadvantaged and rural poor in the payment/ nonpayment. Instances of wrong mainstream of the inclusive growth. payments were also common. The system lacked

249 transparency as it involved huge paper works and A foolproof and permanent solution has been officials at multiple stages. The image of the provided that was the need of the hour in the Government was getting battered. The plight of State of Madhya Pradesh so that respectable and widow and destitute pensioners, poor wage access free banking facilities with local resident earners were common sight near the bank preferable one among them could provide them branches as long lines were common sight waiting banking facilities in their vicinity/ within 5 km for hour's together, sometimes whole day to radius saving precious time and drudgery of receive their money from the bank. travelling and waiting at bank branches.

8.4.3 Electronic Fund Management System (E- FMS) There are number of agencies engaged in payment of wages like Nationalized Banks, Regional Rural Banks, Cooperative Banks, Post Offices and Private Banks. These agencies effect payments through e-FMS by integrating it with NREGAsoft. the funds are transferred through FTOs directly into the account of the beneficiaries. At present more than 15000 branches of these financial institutions are engaged in issuing FTOs and disbursing the payments. Under the system delays in disbursement have been cut down drastically. The SAMRUDDHI Model is implemented in all 50 districts in the State covering all 23006 Panchayats and more than 52000 villages.

Before the introduction of e-FMS and Payment through FTOs, the funds under MGNREGS were held in more than 33000 various accounts and nearly Rs. 500 to 600 crores were always in the pipeline which could not be used productively. Now funds are always available with the district. This has become possible with the implementation of the Electronic Fund Management System (e-FMS). The system has brought about transparency and good governance by doing away with multiple channels and agencies involved from preparation of payment papers till final disbusement. At present 67 lacs families in MGNREGA alone have been networked with the e-FMS platform. The system created in the State will now be used for other beneficiary oriented schemes like housing, pension etc. This move of the Government of Madhya Pradesh is a step towards not only transparency, good governance but a giant step towards induction of technology and subsequently moving towards paperless and green technology.

8.4.4 Common Database The purpose of the initiative was to have common database of all the citizens including households to work out common entitlements cutting across the departments and schemes. To expedite the disbursement of social security benefits and G2P payments with speed and transparency taking advantage of available

250 technology was the priority area under the project. Social Security payments and other G2P benefits can now be worked out or calculated at the press of a button. Under the integrated social security mission data can be viewed online and benefits transferred directly into their bank accounts.

The Madhya Pradesh (MP) Model of Financial Inclusion ‘Samruddhi’ also strives towards creating a network of Financial Institutions in a systematic manner especially those areas which are excluded from inclusive banking, taking on board Banks/RRBs/Post Offices/ Cooperative Banks to create a point of financial dispensation within every 5 km. radius. This Model is a paradigm shift from population norm to geographical norm with a focused approach towards “Having Access” to that of “Gaining Access” as the state with low density would not have had financial inclusion based on population norms. It also ensures sufficient transactions to make the BC (Business Correspondent) financially viable. MP Model of Financial Inclusion has resolved the complex issue of delayed payments to various beneficiaries of MGNREGA, Social Sector schemes, scholarships and other G2P payments.

The use of technology in transmitting the funds electronically into respective accounts of beneficiaries was made possible by integrating CBS platforms of various banks enabling the Government to credit funds directly in the account minimizing the paper works and multiple stages/ channels with move towards Green Technologies. The NREGAsoft was integrated with CBS platforms to create a network of e-FMS channel. Making it possible to transmit money not only in the bank branches but also in the accounts standing at USBs, Cooperative banks and post offices. Out of proposed 3000 USBs a network of 2414 USB is created and facilitated exclusively in the un-banked or shadow area, the work of establishing USBs is still on.

8.4.5 Innovations The model is innovative in many senses like building up institutions, harnessing the existing institutions to their fullest in interior and shadow area of the State. The people living in financially excluded areas gained access to the banking institutions in their vicinity. The toil and drudgery in availing banking facilities were got avoided as now they don’t have to travel beyond 5 km. The model is easy to use and follow and is ready for being scaled up and replicated by other states and governments. its replicability it It may be should not be out of place to mentioned here that the PMJDY has taken many leaves from SAMRUDDHI-The Madhya Pradesh Model of Financial Inclusion. The model is ideally suited for the States which have large rural and tribal areas and lower density of population. The model speaks for Good Governance and ensures transparency in various G2P payments.

8.5 Conclusions on Bihar Model of Financial Inclusion When compared with the MPFI model, Bihar is still at a primitive stage of inclusion. Though an early starter it has so far not been able to attain a meaningful inclusion. In fact, Bihar is among the pioneer state in India that initiated the ICT based Financial Inclusion initiative for its citizens in February 2009. While the Rural Development Department, Govt. of Bihar (GoB), launched ‘e-Shakti’ project it has remained confined only to Patna and that too has not covered even half of the beneficiaries. It was originally meant to convert the entire process of MGNREGS implementation, like beneficiary registration, job demand, receipt, attendance, calculation and disbursement of wages etc. from manual to electronic to bring effective coordination in execution, better targeting of beneficiaries and establish transparency and accountability.

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8.6 Financial Inclusion: Evidence and Conclusions from Survey As has been mentioned earlier, the two districts of Khandwa and Katihar were found to be at different levels of financial inclusion. While survey at Khandwa district suggested a 90% banking inclusion level, it was around 50% in Katihar. More recently, and post survey at the filed in the current report, Khandwa district in MP has been declared as a 100% financially included by the government of MP. The institutional evidence in the survey found that almost 90% of the USBs / BCs were in place and that the accounts were being opened using the Samrudhhi model at the last mile. Bihar however, during the field work reported massive camps being organized in different villages to offer banking accounts to the unbanked population. The Institutional survey in Katihar district revealed at least Seventeen banks including the private banks working in the field to accomplish banking inclusion. The focus was on opening up of bank accounts, at least one in each of the household.

The primary survey at the field was conducted with the respondents in both the states and interestingly revealed that while more (237/300) respondents were saving in Katihar than that of Khandwa (145/300), the savings in institutional mechanism including banks and post offices witnessed a higher proportion (54/147) in MP than that of Bihar (66/237). Thus while more than one third of the Savers in MP were saving in regulated mechanism, almost one fourth respondent in Bihar were doing so. This could be attributed to the fact that more regulated channels are available in MP than that of Bihar. The survey had focused both the account holders as well as non account holders.

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Non Account Holders: Poverty and lack of knowledge on how to open savings bank accounts were two major reasons cited for not attempting to open savings bank account. While the lack of knowledge could be supplemented by means of financial literacy, poverty ought to be tackled at the macro level by various social sector schemes involving the G2P. There is also a need to create awareness amongst the non account holders regarding the utility and implications of opening up of bank accounts. The inclusion would certainly be required to be precipitated by financial literacy and awareness campaigns rather than merely organizing bank account opening camps.

Banking Penetration: Most of the males and few females in MP had a savings account. While the banking penetration amongst the households was as high as 91%, about 9 percent of the households did not have any saving account in the name of any family member. As Khandwa district was covered under DBT scheme therefore, most of the households had savings account. However, the situation in Bihar was different and in fact, it was a significant discovery that despite various FI drives and even in the middle of the PMJDY, about half of the respondents in rural and urban areas of Katihar district did not have a savings account in their families. Proportion of respondents having a savings account was slightly higher in urban areas in Bihar and rural areas in MP.

Access to Products and Services: Most of households that had a bank account needed further information to use their accounts and access banking products and services in MP. Half of the households in Bihar had no bank accounts in the family, so they were not able to use the financial services and products with zero accessibility.

At Khandwa, a good number of respondents were savings at banks or some institutional form, Khandwa- Account in Bank including Co-operative but substantial number of 100 91 them still saved money at their home despite 90 having savings account with bank. Some of them 80 also found using SHG and popular local form called 70 66 40 61 60 "Bishi" . Interestingly, most of the street vendors 60 and house-maids, who operate from town, have 50 bank account of their own and they also use it Percent 40 frequently to save. The same is also found true for 30 agriculture labourers but usage of bank account 20 for savings is not so prevalent among them, as 10 they found that distance of branch from their 0 home is too far to visit frequently for withdrawal HH account Repondents Male Female or deposit of small sum. in Bank account Respondent Respondent

40 Bishi is informal and local form of merry-go-round where money is pooled by a group of persons. The group consists of 10-20 members and they pool a fixed sum every month. On each day of collection, a person from the group is chosen by lottery system and the entire sum collected for the month is given to him/her. The same process continues every month till each member of the group gets a chance. Once a member gets a chance, he/she is not eligible to participate in lottery of names and he/she can also offer the sum (or part of it) to highest bidder among the group.

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MP was more advanced on the matter of financial inclusion and needed to take further steps ahead for the deepening of financial inclusion, the penetration of financial literacy training is a must to create demand from the grassroot level for using the financial products. Most of the bank account users perform transactions in one or three months interval by either visiting the branches, or the CSP / USB in their own villages.

Credit Needs: It was found that credit needs of poor households varied mostly between Rs. 5,000 – 10,000 to meet consumption or emergency needs. Most of the small borrowings were targeted to meet medical expenses or funeral expenses in the family. The need also depended on the occupation of the people as for instance, home-based workers borrowed for their business expansion or to meet deficit in working capital while for many, loans were mostly taken for the income generation activities, medical treatment, house repair, buying agricultural inputs, etc. A Few MFIs were also providing domestic appliances directly instead of amount (as a loan) and collecting the installments from the customers. Women workers adopted happily because they had neither these appliances at their home nor had lump-sum amount to purchase it, so they took these appliances on installments. The popular channels of credit were traders, money-lenders, friends and relatives while good number borrowed from MFIs, SHGs and credit co-operatives, however, SHGs and co-operatives were not so popular source in Katihar but MFIs were equally popular sources at both the districts. The domestic workers, who have been working for long with the same employer, get advance from their employer, in case of need of small amount. Since there was relative ease of access to loan from informal sources, there was also tendency to borrow for lifestyle needs, which were not so desirable, such as fancy clothes, consumer durables, etc. This also highlighted the need for financial education on responsible borrowings to build capital for future.

Unregulated Investments: It was really heart-wrenching to find that a large number of them had made investments in highly attractive schemes of unregulated institutions and were also duped by them from time to time, resulting in loss of savings of their life-time. This was found common across all vocational groups. This was more prominent in Bihar rather than in MP. There were plenty of cases of fly-by-night operators run away with savings of poor families. The sad part was that many of the investors did not even know the name of institutions but they blindly trusted the words of the agents (on behalf of the dubious companies), who lived in their neighbourhood. Many of the organisations have closed their office even before maturity of the scheme. Given the magnitude of the problem, there is an urgent need to educate poor on how to distinguish between genuine and fake organisations and not to get lured by attractive offers. There is also pressing need of educating poor on concept of goal linked savings and prudent selection of channels to keep their investments secure, and get optimal returns.

254 accounts belonged to women. However, as MP has the accounts it should now be looking for providing further deepening on the inclusion drive. Respondents were found to be making investments in informal avenues or unsecured places that exposes them to the vulnerability to cheating, loss of life time savings and poor returns. Since most of them did not follow any household budget, they usually did savings without any target figure in mind. Their saving was by default, what was usually left after expenditure. Very few were found disciplined, who set aside compulsory savings (goal-linked) and then make expenditure from the rest. It was also found that there was no awareness among them on segregating savings needs based on time-period – short-term, medium term and long-term and accordingly choosing the avenues of investment. When probed regarding popular purposes of savings, most of them did meet short-term requirements and small emergency needs. Any step towards financial deepening shall resolve all these issues.

G2P leads to Inclusion: Most of the males and females in Bihar did not open the account to receive the benefits of Govt. schemes because there were very few DBT schemes, whereas most of the respondents in MP (especially in rural) opened the same to receive benefit of Govt. schemes because state government has implemented the Samrudhdhi model in the state. Many woman oriented welfare schemes were being operated by the GoMP, so women also were obliged to open bank accounts to receive benefits of welfare schemes. The schemes for which the account was opened included: LPG subsidy, MGNREGA, Widow Pension, Janani Suraksha etc. The primary purposes(s) of opening the savings account is ‘To deposit and withdraw money’, ‘To receive government benefits’ and ‘To keep money safe’ were the three main reasons of opening the savings account. As many as 50 percent of respondents of MP opened saving accounts to receive the government benefits, followed by one-third to deposit and withdrawal of money. About 70 percent of women opened an account in bank to receive the government benefits in MP. These women use these accounts only as a medium of receiving the government payments/benefits.

FLCC: The financial literacy initiative by Banks through FLCC has remained by and large ineffective, as most of the existing centres were actually working as institutions of sponsor banks. They are mostly manned by retired bankers and they serve mostly walk-in clients. Moreover, all such centres are located in urban and semi-urban areas and not in rural areas, where most of the financially excluded population resides. The awareness of such centres among people is also very low. There were indeed some outdoor campaigns carried out by banks but given the magnitude of the population to be covered, the figure was highly insignificant.

As evident from the narratives above, the lack of financial literacy among low income segment has contributed to financial exclusion as much as the inherent limitations in the systems, orientation and structure of the mainstream financial institutions. Sadly there is disproportionate attention towards the

255 former. Most of the efforts initiated by the government to improve the status of financial inclusion have gone into addressing the limitations in design and processes of the intuitions involved. There is urgent need to work on the both the fronts if the objectives of financial inclusion have to be achieved. The efforts of overcoming structural limitations to improve access to financial markets and services should go hand in hand with imparting financial literacy and both should complement each other, as financial literacy is the bedrock of financial inclusion.

Section C. – Products and Services

8.7 Need for Knowledge on Financial Products – Field Evidence The survey at the two districts included the institutional survey as well as filed survey at the grass-root level and also corroborated with the qualitative survey. The status in MP as well as Bihar were not different as at neither of the locations there was a demand for regulated products. However, there was typically a difference at the supply side of the products. While MP was fully geared to offer the products and services from the supply side, Bihar is yet to reach at that level. However, since there is seldom any demand and application envisaged by the people, the demand side remains dormant. As a result of which the gearing up of supply side in MP remains inconsequential and both states sail in the same boat. It is a well known fact that under the PMJDY, even after having a bank account if people do not use it for savings they would not be able to save or demand credit.

If the banking accounts are not used for Awareness and Use of Financial Product 70 66 purpose other than payment channels of 57 60 G2P, the whole purpose of financial 43 50 40 40 inclusion would be defeated. Thus there is a 36 40 30 strong need for the people to learn as to 25 25 28 30 21 15 17 where and how they should keep their 20 11 11 7 8 6 9 money so that their money will remain safe 10 4 5 4 3 3 0 0 1 1 1 0 1 1 0 and also multiply. They need to know the 0

avenues as to where could they park their Percnt of the respondents the of Percnt savings for short or long term and where they could invest money for higher returns. Male Female Using of products

Thus there is a strong need to generate the demand for such financial products that are being offered from the supply side. The study finds that while people were getting money in their account by means of G2P but the account were used purely as means of ‘payment accounts’ where accounts were seen as a channel to receive money rather than as an instrument to save, invest and expand the horizon and coverage of regulated financial products and services.

The survey found that mostly, people were withdrawing the money immediately after receiving and at one go. These people considered the bank accounts only as medium to get payment for the government schemes and never treated them like their own savings bank account. This also brings us to the conclusion that people were getting money in their account but the accounts were used purely as means of ‘payment

256 accounts’ where accounts were seen as a channel to receive money rather than as an instrument to save, invest and expand the horizon and coverage of regulated financial products and services.

The survey also suggests that in both the states, people knew their priorities well and also that there were few who were saving money for their short, medium and long term planned requirement. Empirical evidence also suggest that people, though very few, were saving for unplanned / exigencies, however they were unaware as to the proper avenues for saving or covering their risks. They were not using the various regulated financial products and services that usually serve specific purposes because of lack of knowledge, which they acknowledged that something was amiss and that this gap could only be fulfilled by creating awareness on financial products by means of financial literacy training programs that allows them to take informed decisions.

8.7.1 Evidence from Survey Supply does Not Create Demand: One of the interesting findings of the survey point out to the fact that income is not a constraint in accessing financial products and services. Similarly, the ‘supply does not create its own demand’, as far as poverty and access to financial services is concerned. While the average monthly family income was found to be in the range of Rs. 5139 and Rs 5252 in urban and rural Bihar, it was Rs. 4999 and Rs 4126 in urban and rural MP respectively. Mean Income was higher in rural areas in case of Bihar while in MP, urban areas recorded higher income. Same trend was observed in case of monthly expenditure and monthly savings. However, the availability of products from the supply side was much higher in MP when compared to Bihar and the off take of such products also was higher in MP refuting to the fact that the higher income persons only could afford a financial products.

Non savers: About 21% households in Bihar and 51% households in Madhya Pradesh were unable to save the money due to various reasons like lower incomes, zero savings, repayment of loan etc. People were aware about the benefits of savings but did not know how to save the money from their meager incomes. As already mentioned above mostly these people did not prepare the household budgets, and were unable to track their expenses too, they need to learn how to save money and how could they cut on their expenses in order to save. Again, as mentioned earlier, this could be brought in only by means of financial literacy.

Stacking at Home: It was found that out of the people who were saving the money, 81% in urban and 78% in rural areas of Bihar and 46% in urban and 83% in rural areas of MP were keeping the savings at their home. The savings that was kept in bank was higher in Madhya Pradesh compared to Bihar (35% vs. 31% in urban areas and 30% vs. 20% in rural areas), as the savings accounts were more in MP of both male and female. The value of money would decline with time was perhaps unknown. It was amply realized that it was also unsafe to keep the money at home but they are neither aware of it nor were aware of the solutions.

Informal and Unregulated Savings: There were about 4% respondents in Bihar and about 12% in MP who were using the informal way of savings funds called (BEECEE). They usually put money in installment and collect a lum-sum amount but without any interest. Although this is risky and unregulated but they use it because of lack of awareness about the RD (recurring account) of bank or post office.

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Credit Products: In both states loans were taken by the respondents but they were mostly taken from the informal sources like money lenders, friends and relatives on high interest rates. One of the most common causes for easy loans was medical treatment In Bihar. While in MP, the loan was taken to make investment in business (48%), from the formal institutions like bank, MFIs, SHGs etc. on low interest rate, this was not the situation in Bihar. This is probably because of more and easy availability of MFIs in the MP. The mean loan amount in Bihar was Rs. 18,293 and in MP was 49,219 rupees.

Remittances: The migration of members in Bihar was high compared to MP. Hence the family members living in Bihar usually receive remittances from within and outside the country. There were about 20 percent of households who received or sent the money from migrated family members in Bihar while in Madhya Pradesh the percent of households are very low (only 5 percent). In Bihar, Bank account seemed to be the first preference followed by ‘migrant persons bring money themselves’. The respondents who were involved in remittance felt that as such there was no risk in money transfer but ‘excessive charges / fees’ and ‘loss of money during transfer’ were the two major risks. No one reported to have become victim of such risks. A large number of families at Katihar were found to have their relatives (or family members) living in other cities or even abroad. They remitted money to their families at regular interval, mostly monthly or quarterly, followed by other frequencies. The usual quantum of remittance falls in the range of Rs 5,000 to Rs. 15,000. Remittance through bank account of friend / neighbour was found to be the most popular route, followed by sending money through neighbours / friends. Some of them also used their own bank account to transfer money. They preferred to have their own bank account but they were not able open one for themselves due to various constraints, as described earlier.

Risk of Death – Life Insurance: It was found that Life insurance coverage was higher than that of non life insurance across the two states. MP recorded higher life insurance coverage than Bihar and in both the states urban areas had higher level of insurance coverage. Although about two-third of households had BPL / Antyodaya cards and were by default covered under the Janshree Bima Yojana but they were not aware about it. Again, there is a string need of literacy, awareness and penetration, Insurance as a tool to cover the risk of death has not penetrated into the rural areas. It was found that (about 32% in MP and 12 % in Bihar) were not even knowing as to who was the nominated person. In case a nominee was known to the policy holder, the nominee was not aware of the same. The nominee was not knowing that he / she was nominated in case of Bihar. This proportion was higher in rural areas than in urban areas. Again, for want of literacy, awareness and penetration, Insurance as a tool to cover the risk of death has not penetrated into the rural areas. Thus there is a strong need to create awareness amongst the masses on insurance and its usage by means of financial literacy. The success of insurance for the poor – whether compulsory, subsidized or voluntary – depends largely on how well the concept is valued by the consumers. The ultimate objective of microinsurance is to provide financial protection to those who need it the most in times of peril. For this, it is essential that masses are persistently educated about the concept, its utility, the options available and equally important the process to be followed in the event of a claim. All this is possible only if a holistic consumer education strategy is adopted at the macro, meso and micro levels and the same is implemented by all the stakeholders in the insurance value chain. The need for effective consumer education thus remains a common factor regardless of the delivery model adopted.

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Bihar – Parivar Labh Yojana MP – Deendayal Upchaar Yojana Many at Katihar have been enrolled under ‘Parivar Labh Many of the BPL card holders in Madhya Pradesh were Yojna’, which is a comprehensive life insurance scheme aware that they were entitled for free treatment upto for families living below poverty line (BPL). Rs. 20,000/- per year for their families from the Similarly, many were also enrolled under ‘Rashtriya government hospital under the Deen Dyal Upchar Swasthya Bima Yojna’ (RSBY - health insurance scheme Yojana and they even had a diary for it. for BPL families). But, none was aware that they were covered under the Since both the schemes are run by the government and Janshree Bima Yojana, an insurance scheme that require insignificant or no payment, there was common covered the risk of death and was free of cost for them perception that insurance were offered only by or without paying any premium. government and they could not get it from any other Even the construction workers Welfare Board insured source. the registered construction workers but the They believed that that the treatment under RSBY was construction workers themselves were not aware of any worthless and risky, as doctors / hospitals did not treat of the benefits. the patients seriously under this scheme.

Risk of Longevity – Pension: Most of the respondents agreed to the fact that in their old age their income would be substantially reduced and that their expenditure would increase. They also realized the fact that they would need support for multiple decades as longevity was on the rise. However, what they never realized was the fact that they could start saving as little as Rs. 100.oo pm and can create a corpus for the retirement. They also mentioned that they wanted to save for the pension or else the Government ought to provide them the pension. On being asked whether they wanted to live independently in old age, most of the males and females in MP responded affirmatively. A small proportion accepted the fact that they could depend on their children in old age. There was thus a need of pension but people did not know how and what to do for saving for their old ages and therefore, there is a need of financial and pension literacy.

According to the participants both at Katihar and Khandwa, there was a need for Pension for everyone, but perhaps there was nothing known about its processes and systems. Like insurance, pension was also the least understood concept among poor as far as financial products were concerned. At Katihar, they still believed that government was the only pension provider and was only given to government employees and persons living BPL, who were either widow, old age or handicapped. Even at Khandwa, almost all participants were found aware of social security pension schemes, like widow, oldage and disabled pension schemes. However, the practice of savings for old age / retirement was found almost non-existent at both the districts.

NPS Lite and Swawalamban: On the issue of NPS Lite Swawlamban scheme, the knowledge about the same was almost non existing in MP and was lesser known in Bihar. During the Qualitative surveys, when the scheme was apprised to the people their reaction to subscribe the same was positive. About 63% of respondents of Bihar and 72% of respondents of Madhya Pradesh showed keen interest to join this scheme as the Swawlamban had also put in the government co-contribution. Respondent who did not show interest to join NPS Lite was because of lesser income, and non requirement of pension due to other support in old age. Thus there is a strong need to create awareness about the NPS Lite pension scheme. When asked, they had the desire not be dependent on their children in old age, as they knew that the government monthly old age pension is too meager to survive beyond a week, keeping in mind the health related expenditure. However, in absence of any choice, they were left on their fate or generosity of their

259 children or society at large. Construction workers were found to be the most interested group amongst all who showed interest in co-contributory pension scheme of the GoMP as there was a top up from both, the GOMP as well as GoI. This was not the situation in Bihar.

Section D. Recommendations Having analyzing both the supply and demand side findings, the following recommendations are provided in order to increase the financial capabilities of low income households in India to enable them to benefit from increased access to diverse financial products and services in the market. Most of these recommendations have already been discussed with the respective state governments and have not only found interest but in principle, an agreement over the same in case of GoMP.

8.8 Policy Level Recommendations

8.8.1 Develop Baseline on Financial Literacy and Mechanism for Monitoring Impact It is recommended to carry out base line survey of financial capability to create a baseline on current levels of financial literacy among different income group. Baseline surveys can serve as a catalyst for raising awareness on the topic and for a dialogue on what are the key aspects or skills people need to be financially capable. Simultaneously, a mechanism also needs to be developed for monitoring advancement in levels of financial literacy by using baseline data. In addition, also perform impact evaluations of financial literacy programs to enhance understanding of what works and what doesn’t, including costs and benefits of different programmatic approaches. The baseline data will provide a reference point for impact evaluations.

8.8.2 Create an oversight mechanism for financial literacy The rationale of establishing an oversight body is to create a focal point of developing national financial literacy strategy and operationalising it. The body should also foster continuous learning among the various stakeholders by promoting the exchange of information on financial literacy between public and private sectors and across institutions such as NGOs and financial institutions. It should also serve as a nodal point of initiatives supporting financial education. The oversight body must include all sorts of financial institutions and other key stakeholders, like, commercial banks, NBFCs, MFIs, insurance companies etc.

8.8.3. Create a Financial Inclusion Innovation Fund The purpose for creating an innovation fund is to encourage both private and public sector institutions to conduct research, innovate and pilot test new approaches to financial literacy. The fund could support activities such as:

 Design, development, and launch of social marketing of financial products/financial behaviour change campaigns;  To explore alternative delivery channels and produce alternative financial education toolkits that use other engaging formats such as comic books, video clips played on tabs or computers or mass media channels. Currently most of the financial literacy programmes are training based programmes;

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 Support financial services providers in their effort to develop tactics to reinforce uptake and usage of financial products and services;  Promote technology solutions to reinforce positive financial behaviour, like, SMS reminders to encourage regular savings.

8.9 Implementation and Programmatic Recommendations

8.9.1. Expand the content base of financial literacy programmes Most of the financial literacy modules currently in use cover basic budgeting, savings and investment in their curricula. However, the topics like debt management, risk management & insurance, consumer protection, bank services, financial negotiation, and remittances are currently under represented or not properly addressed in currently used financial education curricula. The study found following areas in financial education for poor that requires special attention and to be incorporated in financial education curricula:

 Given the poor level of usage of bank account among poor mass, it prominently highlights the need of basic financial education among them on how they could use bank accounts to add value to their lives. Mere encouraging them to open bank account would certainly not result in better financial management at household level aiming at wealth creation among them. One needs to appraise them on how bank account is an important tool in improving their financial status and managing risks.  Given a lot of misconceptions and poor awareness of features of PMJDY among the segment, the programmes should prominently the features of the scheme in their curricula.  There is a strong need of popularising post-offices among poor mass, as an alternative safe place to save.  There is a pressing need of education on KYC norms and rights of a bank customer and how to avail them.  Considering that the practice of budgeting at household level is almost non-existent among the target segment and adoption of budgeting by them will help to reduce their wasteful expenditure and save more money to help their capital grow faster, such concept should be popularised and the practice should be encouraged through financial literacy and counselling.  Given rampant cases of poor being duped of their life time savings by unscrupulous organisations, there is an urgent need to educate poor on how to distinguish between genuine and unscrupulous organisations and not to get lured by attractive offers. There is also pressing need of educating poor on concept of goal linked savings and selection of channels to keep their investments secure and get optimal returns.  Given the vulnerability and lack of access to social security measures, there is dire need of popularising concept of insurance and pension and bust the myths around it by educating poor on entire chain of process involved.

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8.10 Recommendation for Model When a major portion of the country’s people cannot open the doors because of financial exclusion, there arise an imminent need to include them and bring them into the mainstream. And to this, the first and most important action is to tell them and teach them what may be called financial literacy. But the process of financial literacy is not as easy as it sounds. With vast population, different languages and cultures, with illiteracy as a major stumbling block this is indeed a challenge.

The study identifies the need and necessity of different approaches towards attaining financial inclusion. While the financial inclusion model remains the same that offers G2P and various other regulated products and services, the model remains par excellence if it adopts a holistic approach. However, there has to be a slow and gradual process to reach to that level f efficiencies. While the first and initial stage could be financial literacy based basic banking inclusion, leading to the understanding about money and banking and opening up of banking accounts for the household members, the second stage could be a little more advanced on consumer protection. The second stage ideally should educate customers so that they don’t fall easy prey to the unscrupulous elements who decamp with the hard earned money of the community. It should also provide a ‘preventive’ model as well as ‘curative’ model that provides for grievances redressed. The third model could be a model of financial deepening where availability of liquidity is matched with the availability of regulated products and services. The liquidity in the ecosystem could be part of the G2P or the livelihoods opportunities that are being created as part of the overall welfare schemes of the Governments. At the third (deepening) level financial literacy and integrity as a multidimensional, pro-client concept, encompassing ‘improved and increased access’, ‘better products and services’, and ‘better use’ has to be provided.

8.10.1 First level of Approach – Basic Banking and Literacy This is the very fundamental and basic approach towards attaining banking inclusion and creating an atmosphere of overall financial inclusion which has to be literacy based. Just in case of PMJDY, it may not actually matter if financial literacy comes before financial inclusion or vice versa, however, what matters is the ‘Use Factor’ of the banking accounts that may precipitate only from the financial literacy that emanates from the ‘teachable moments’ of learning. Typically, a Cash Transfer Programs offer Teachable Moments has been amply proved by the MPUCT project largely targeting women –as heads-of-household, caregivers, and elderly pension recipients. Their core purpose is to raise the income of the poor and protect vulnerable households. Conditional cash transfers (CCTs) use incentives and program conditions to link immediate economic assistance to long term behavior changes. Increased use of mobile banking and debit cards as a means for dispersing cash transfers as well as direct deposits in the new bank accounts of these ‘unbanked’ will require training to ensure participants’ use of not only the technology, but also the bank services to which it provides access. New program opportunities for financial education are emerging as policymakers explore the potential of CCTs to enhance economic inclusion through linkages to bank accounts and opportunities for asset accumulation.

The first level approach identifies that the policy objective of inclusive growth with financial stability can only be achieved by ensuring universal financial inclusion and bridging the gap between the supply and demand. A paradigm shift is being observed in the micro space globally that is shifting the attention from the financial institution ‘back to the client’. Indicators of a renewed concern for clients include research to

262 quantify the ‘unbanked’, rallying calls for consumer protection, and efforts to better meet customer needs with diversified products. A key driver of this change in focus is the now widely embraced goal of ‘financial inclusion’. Governments have recognized financial inclusion and consumer protection as integral to achieving financial stability and integrity as a multidimensional, pro-client concept, encompassing ‘improved and increased access’, ‘better products and services’, and ‘better use’.

The first level identifies that without the third element, ‘use’, the first two, despite the best efforts of the Central Bank as well as the Government, at best are worthless. Technological innovations are bringing both new customers, potentially including millions of unbanked cell phone owners, and new service providers – a diverse array of retail outlets, telecoms and others into the market. Diversification of products and services has already started resulting in rich, and complex, choices for consumers, especially compared to the early days of one-size-fits all working capital loans. Yet, increased access and better choices do not automatically translate into ‘effective use’. The path from uptake (i.e. opening an account) to usage is still an uncharted course. For, ‘effective use’ is hampered by asymmetries of information / literacy and power between financial institutions and poor consumers, an imbalance which grows as customers are less knowledgeable, illiterate and inexperienced while the products they can choose could be more sophisticated. Financial education is an important tool to address this imbalance and help consumers both ‘accept’ and ‘use the products’ to which they increasingly have access. As it facilitates effective product use, financial literacy becomes critical to financial inclusion and can help clients to both to develop the skills to compare and select the optimum combination of products for their needs and empower them to exercise their rights and responsibilities in the consumer protection equation. Current developments in microfinance sector including RBI’s concurrence to allow NBFC MFIs to be BCs are both exciting and potentially perilous. To take advantage of the former and protect against the latter, those placing the client at the center of their efforts have to be embracing financial literacy.

8.10.2 Second Level of Approach – Prevention and Protection Against Frauds The second level of approach assumes that banking accounts for every household exists and a certain level of financial literacy has already been attained. However, at this level there is a huge need for ‘Customer Protection’ which actually weaves across into the basic fabric of financial inclusion. At this level as the banking accounts get opened and the community start using them though sparingly, there is a need for protecting them against frauds. As prevention is better than cure, the authorities would do well to start working on the protection modules right from the beginning rather than realizing the same at a later stage when it might become out of control.

The qualitative survey in both the states have revealed one or different kinds of fraud with the rural and urban populations. While the quantum and specification of frauds might vary from state of state, the net result is that one out of three in Bihar and one of ten in MP have been subject to some kind of fraud. The frauds in Bihar is entirely related to financial frauds where the unscrupulous elements have picked up cash from the gullible population. People have been duped and decamped with their money on the pretext of receiving higher rates of returns and or doubling their money in short times. Such frauds are seldom reported in MP, but have faced different types of fraud where they were offered jobs and livelihoods opportunity for which they paid a marginal amount. The frauds that could be seen in states like Bihar precipitated due to the following systemic issues:

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1. Lack of education and awareness on financial sector 2. Lack of knowledge on differentiating between regulated and unregulated products and services. 3. Non availability of Regulated Products at doorsteps. 4. Lack of redressal mechanism at the rural or district level. While the first issue could have been resolved by means of financial literacy itself, the second would have required financial inclusion while the third is a major issue which is systemically spread across the country. The regulators of financial sectors namely, the RBI for Banks, IRDA for Insurance, SEBI for MFs and Capital Markets and PFRDA for Pensions are all situated at metros and have literally no presence in the urban and semi urban belt, what to talk about the rural belt.

As mentioned elsewhere, the G – 20 Global Best Practices pay an emphasis towards customer protection, there is a need for the Governments and the Regulators in India to work hard on it. Even if one endorses the views of G 20 over financial inclusion and recognize financial inclusion and consumer protection as integral to achieving financial stability there is a herculean task ahead of our authorities. Even in case of Samrudhhi model of MP Financial Inclusion, as on date there is no word of caution or clue with the authorities on the ‘Customer Protection’ per se. However, as the G2P increases, there would be more and more money at the banking accounts of the people and hence chances of scavengers to decamp them with their cash would increase.

8.10.3 Third Level of Approach – Financial Deepening Financial deepening usually refers to the improvement or increase in the pool of financial services that are tailored to all the levels in the society. While it also refers to the increase in the ratio of money supply to GDP / Other price index41 which ultimately postulates that the more liquid money is available in the economy, the more opportunities exist in that economy for continued and sustainable growth. It basically supports the view of: Development in Financial sectors leads to development of the economy as a whole. However from the point of view of the Welfare State, It also plays an important role in reducing risk and vulnerability for disadvantaged groups, and increasing the ability of individuals and households to access basic services like health and education, thus having a more direct impact on poverty reduction.

Economists have long held the view that the development of the financial system (financial deepening) and economic development are closely intertwined. Goldsmith (1969), McKinnon (1973), and Shaw (1973) are among the earlier contributions, although the ideas date back to Adam Smith and Knut Wicksell.42 The literature, however, contains relatively few formal models—presumably because it has proved hard to integrate money and financial intermediation into a standard dynamic general equilibrium framework of macroeconomics and growth.

According to the Kenesian paradigm, financial deepening occurs due to autonomous spending by the government. In the McKinnon-Shaw paradigm, financial deepening occurs with high interest rates, credit expansion and removal or reduction in statutory reserve requirement (SRR). It advocates financial liberalization policies in order to achieve economic objectives, particularly in the developing countries. Neo

41 Financial deepening generally means an increased ratio of money supply to GDP or some price index. It refers to liquid money. The more liquid money is available in an economy, the more opportunities exist for continued growth. 42 For more recent contributions, see, e.g., Bordo and Jonung (2003), and Demirguc-Kunt and Levine (2001).

264 structuralists argue that in the presence of unorganized money markets (UMM), financial liberalization leads to a reduction in investment, as the credit available in the system declines. This decline in credit is a result of substitution of loans of the UMM for deposits in the organized market.

8.11 Madhya Pradesh Model: Financial Deepening Can Foster Inclusive Growth Promoting well-managed financial deepening in low-income states like Madhya Pradesh can enhance resilience and capacity to cope with shocks, improve macroeconomic policy effectiveness, and support solid and durable inclusive growth. Financial deepening fosters inclusive growth as more varied and accessible financial services also support growth and reduce poverty and inequality. Financial development enables bigger investments and more productive allocation of capital, which lead to higher income growth. At the same time, better and cheaper services for saving money and making payments allow firms and households to avoid the cost of barter or cash transactions, cut the costs of remitting funds, and provide the opportunity to accumulate assets and smooth income.

Financial system in low income state like MP has is growing and becoming more inclusive over the past few years, but they still remain relatively small and undiversified. Encouragingly, although they have much lower levels of financial depth than high - and middle-income states, MP is likely to be experiencing financial deepening at rates far faster than higher income states. But financial deepening will be of low quality if financial services are available to only a few households or individuals. Access to finance is as pivotal as the depth of the financial system. Here again, there are encouraging signs, but more has to be done.

In the state of Madhya Pradesh and specially in the past couple of years it has been amply realized that mere banking inclusion would not serve the purpose of inclusive growth and hence the State has to move beyond opening of banking accounts. While banking accounts could be the first and foremost step of financial inclusion, it is certainly not the end all of the process. Again, from the side of the supply, it can offer various social benefits to the underprivileged by proper targeting the means as well as prop the benefits directly into their accounts. On the demand side, creation of awareness by means of financial literacy is the key to success in deepening. This would create a demand for various financial products like the need for credit, savings, term and recurring deposits, remittances, insurance and finally contributory pensions. According to certain preliminary indications in MP, it is not only the interest rate that affects financial deepening but also, various other factors such as government activities, external sector activities, and bank branch expansion and communications development. These prima facie results are in line with various empirical studies across developing countries confirming that there is a positive relationship between these variables and financial deepening indicators and that of savings and investment.

8.11.1 Possible Challenges for Financial Deepening in MP and Life Cycle Needs While it is evident that from the ‘Demand side’ Financial literacy is the key challenge to financial deepening in MP, the supply side has been well taken care by the stakeholders like the GoMP, Banks including the lead bank and RRBs, DCCBs etc.

How far can and should a state like Madhya Pradesh go in promoting financial deepening? How realistic is it to expect MP to deepen and diversify their financial system to the levels observed in emerging economy?

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Technically speaking, structural characteristics of state, policy factors, and exogenous influences (e.g., the technology available, sociopolitical conditions and political will) determine the environment within which financial deepening may either flourish or stagnate.

 High fixed costs in financial provision explain why larger low-income state economy like MP can sustain more diversified financial systems and why, for instance, small state like Mizoram’s economy tend to have shallow systems.  Similarly, low national incomes, a high degree of informality, and low population density are factors that increase the costs and risks for financial institutions.  These structural factors work to exclude large segments of the population from formal financial services and explain why many states including the hitherto MP have underdeveloped financial system. On the supply side of financial deepening, the state of Madhya Pradesh tends to loose due to lack of awareness on the financial markets side. Products such as savings, credit, remittances, insurance and even co contributory pensions are seldom known and demanded in the state. Lifecycle Needs: People’s financial needs change throughout their lives. While there is a typical financial life cycle pattern that applies to most people, every family and individual might be faced with unexpected events at any time that are difficult to predict if and when they might occur, and are not planned for in the financial life cycle.

Typical Life Cycle Model

There are certain

commonalities in a typical financial life cycle such as the need to protect one’s family against risk; accumulate wealth; and distribute one’s wealth and provide for an orderly

transition of one’s tion and Deaccumulation and tion assets. Lifestyle situations will affect one’s financial situation and requirements at different stages in life.

Wealth Accumula Wealth Age in Years

The lifestyle situations include but are not limited to the following:  Marital Status – single, married, divorces, widowed  Employment Status – employed, unemployed, facing unemployment  Age  Number of Dependents – children, spouse, parents, other family members  Economic Outlook – interest rates, employment level  Education – education level of family members, tuition needs for children

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 Health Status

The Personal Financial Management Pyramid: The financial management pyramid shows the levels that contribute to a well-managed and balanced financial strategy recommended for individuals.

The Personal Financial Management Pyramid

The pyramid follows typical individual’s life cycle, starting with basic financial requirements at the bottom of the pyramid to establish strength and stability for a healthy financial foundation, and moving up the pyramid to the top where distribution of wealth to one’s chosen beneficiaries is the final financial strategy.

• A confluence of demand and supply factors constrains financial deepening in low income state. For example, low mobilization of deposits, financial illiteracy, and high fees and documentation requirements can limit financial intermediation. Similarly, for a wide variety of state’s persistent macroeconomic instability, weak collateral regimes, limited completion, and regulatory restrictions often act as barriers to the deepening and diversifying of their financial systems.

These impediments not only affect macro-financial stability but also reduce the growth dividends from deepening. At the same time, unsustainable expansion of financial systems can pose risks for stability. Weak and limited supervisory and regulatory frameworks and capacity, deficient early warning and resolution systems, and governance problems in low income states increase the risks of such fragility.

The considerable heterogeneity among low income state like MP, however, suggests that there is no "one- size-fits-all" solution. Different areas and approaches may be needed to promote financial deepening generally.

Policies Matter: Various effects of the financial deepening came to the centre of academics as well as policy-makers discussions during last four decades especially in relation to the financial sector development. Together with financial liberalization and international financial integration economists focus their attention to the financial deepening especially due to its potential effects on the real economy.

Research in cross-country experiences in emerging market and low-income developing countries suggest that targeted and balanced initiatives to encourage competition, put in place information and market infrastructure, address collateral issues, limit excessively intrusive public sector interventions and dominance, maintain macroeconomic stability, and exercise appropriate macro-prudential oversight to

267 avoid creating new sources of instability can help overcome specific impediments to increasing the depth, breadth, and inclusion of financial systems.

India being a welfare state it provide for its citizens certain welfare oriented schemes that are targeted to the marginalized section of society. All departments of both central and state governments provision for welfare schemes but the implementation of these welfare schemes are the responsibility of the various departments of the state government. As the implementation of welfare schemes vest with the various departments providing benefits in/directly to the beneficiaries even though citizen has to criss-cross these departments to avail these benefits. For example, for scholarship for a student studying in a school has to go to different departments to avail these benefits related to their eligibility. The targeted beneficiaries of these departments have to run from pillar to post to avail these benefits. Since these departments do not directly deal with beneficiaries they have to verify the genuineness of the application, this cause delay and duplication and harassment to the beneficiaries and the basic purpose of providing these welfare schemes get defeated.

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Annexure 1. Questionnaire for Quantitative Survey at Field

A Study on Level of Financial Literacy and Inclusion in Bihar and Madhya Pradesh

(by UNDP and Sewa Bharat)

Name of Surveyor______Date of Interview _____/_____/_____ (date/month/year) Village/Mohalla______Population of Vill./Mohalla _____ Panchayat/Ward_____ Block ______

A. General Information

1) Name of Respondent: ______2) Age ____ years 3) Mobile No. ______4) Gender: 1 – Male 2 – Female 5) Caste (Please write the actual name of caste) ______1 – Schedule Caste 2 – Schedule Tribe 3 – Other Backward Classes 4 – General 6) Educational Qualification: 1 – Never went to school, Illiterate 2 - Never went to school but literate 3 – Informal Education 4 – Up to Primary school (upto class 5) 5 – Middle School (Class 6 – 8) 6 – High School (Class 9 – 10) 7 – Higher Secondary (Class 11 – 12) 8 – Technical/Agriculture/Industrial/Professional education 9 – Graduate and Post Graduate 10 – Other (Specify) 7) Marital Status 1 – Unmarried 2 – Married 3 – Widow/Widower 4 – Divorced 5 – Married but living separately 6 – Any Other (Specify) ______8) Occupation of Respondent: Primary Occupation: Secondary Occupation: 1 – Agriculture Labour 2 – Agriculture and allied work 3 – Construction Worker 4 – Street Vendor 5 – Home-based Worker (Bidi worker, stitching worker, etc.) 6 – Domestic Workers (working at other houses) 7 – Forest Worker 8 – Livestock and Animal Husbandry including fodder and wood stock 9 – Service (Employed) 10 – Tailor, Barber, Carpenter, Ironsmith, Potter, Mechanic etc. 11 – Home maker/housewife 12 – Other (Specify) ______

9) Frequency of receiving wages/income 1 – Daily 2 – Weekly 3 – Fortnightly 4 – Monthly 5 – Half-Yearly 6 – Uncertain/Anytime 7 – Not Applicable 8 – Other (Specify) ______10) How is your income/wage paid to you (there could be more than one option. Please provide ranking from maximum to minimum) 1 – Cash 2 – Through Cheque 3 – Directly in Bank Account 4 – In Kind 5 – Other (Specify) ______(Ranking number 1 shall mean medium of maximum amount) 11) Your monthly average income: Rs. ______

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12) Total number of members in your family ______13) Total number of adults in your family ______14) What type of Ration Card is possessed by your family? 1 – Above Poverty Line (APL) 2 – Below Poverty Line (BPL) 3 – Antodaya Card/Extremely Poor 4 – No Ration Card

B. Financial Literacy Level

1) Have you stipulated/fixed amount for a month or week for your recurring household expenditure (or do you prepare household budget)? 1 – Yes 2 – I know the concept of budget but never prepared it 3 – Don’t know how to prepare household budget 2) If answer to question B1 is option 1 or 2, then from where you got this information/knowledge? 1 – From own understanding 2 – From respected person of village/mohalla 3 – From friend/ neighbour/relative 4 – From an NGO 5 – From Bank Officer 6 – Other (Specify) ______3) If answer to question B1 is option 3, then can you tell that which are the three major recurring expenditures of your household and on an average how much you incur on them each month? 1 – Yes 2 – No 4) Do you keep accounts of your daily household expenditure? 1 – Yes 2 – No 5) If yes, then how? 1 – Note all expenditure in a specified book 2 – Note only major expenses in specified book 3 – Note only major expenses anywhere 4 – Remember only major expenses 5 – Any other method (Please specify) ______6) Awareness and usage of Financial Products :

Awareness Level If yes, then Do you also from where? Sl. Particulars have it Poor Medium Good Name the 1 – Yes 2 – No Institution 1 Bank account opening 2 A/c opening in Post Off. 3 Debit/ATM Card 4 Bank Recurring Deposit 5 RD in Post Office 6 Fixed deposits in bank 7 Fixed deposits in P.O. 8 Kisan Credit Card 9 General Credit Card 10 Life Insurance 11 General/Health Insur.

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12 Money Order at P.O. 13 Swablamban Pension 14 Postal Life Insurance 15 Bank - Money transfer 16 Zero balance a/c PMJDY 17 PMJDY – Rupay Card 18 PMJDY – Life Insurance 19 PMJDY – Accident Insurance 20 PMJDY – Overdraft facility on Rupay Card

7) If you have opened any savings account in your name then were you informed by officer or agent of the institution/bank on important information related to your account? 1 – Yes 2 – No 3 – Complete information was not provided 4 - Don’t have savings account 8) Does any chit-fund or any private institution ever tried to lure you by offering high returns in less time? 1 – Yes 2 – No 9) If yes, 1. Have you put your money in such offers? 1 – Yes 2 – No 2. If yes, then had the company/organisation returned money as per their promise to any person known to you? 1 – Yes 2 – No 10) How do you tackle or plan to tackle following risks/exigencies? (Please register right code against each risk using the response code given below) Risk Response Code 1. Unemployment 2. Untimely death of earning members of a family 3. Inflation (Price Rise) 4. Serious ailment/operation that requires admission in hospital 5. Loss of assets/property due to natural disaster 6. Serious accident or illness Response Code: 1 – Can’t do anything as it is fate/luck 2 – More savings 3 – Insurance 4 – Any other way (specify) ______

Ask next question only when the respondent or any member of his/her family has insurance cover, else go to section C 11) Do you know what to do in case of making insurance claim? (Tick correct response)

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Particulars Yes No 1. Make a claim within a given time period 2. Attach policy documents/payment receipts related to the policy 3. Death certificate in case of life insurance 4. Hospital bills, medicine bills etc. in case of health insurance 5. Documents related to discharge from hospitals

C. Financial Inclusion

1) Do you or any member of your family has savings account in any bank or post-office or cooperative or any financial institution? 1 – Yes 2 – No Ask next question only when then the response to question C1 is ‘No’, else go to question C4 2) Have you ever attempted to open savings account in past? 1 – Yes 2 – No Ask next question only when then the response to question C2 is ‘No’, else go to question C24 3) What is/are the prime reason(s) for never attempting to open a savings bank account? (Tick all correct options)

(1) Bank branch located very far off (2) Have no idea on how to open a bank account (3) Don’t have sufficient money to save (4) Banking is difficult for illiterate (5) Don’t have valid KYC documents (6) Rude behaviour of bank officers (7) Any other (Please specify) ______Ask questions in the following section only when the response to question C1 was ‘Yes’, otherwise go to question C24 4) How many savings account you have in your family at present? ______5) How many of these accounts belong to women? ______Particulars Bank Post- Co- Other office operative Financial society Institution 6) Please specify the name of institution in which you have savings account (joint or single)? 7) Have you opened the account to

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receive benefit of any government’s scheme? 1 – Yes 2 – No If yes, then tell the name of the scheme? 8) How long ago the first savings account was opened by any of your ___/__ ___/__ ___/__ ___/__ family member? (Years/Months) 9) Who influenced you to open your savings account? (could be more than one option) 1 – Employee/agent of Institution 2 – Govt. Officer 3 – Respected person of village/mohalla 4 – Friend/ neighbour/ relative 5 – Need of Own 6 – an NGO 7 – Others (please specify) ______10) How did you open your latest savings account? 1 – Visiting to institution of my own 2 – By visiting camp held by the F.I. in your or nearby village 3 – By travelling to agent of F.I. 4 – Employee of the F.I. visiting to me 5 – Through an NGO 6 – Through unofficial agent 7 – Others (Specify) ______11) How many days it took to open your savings account? a) To get application form: 1 - ___ days 2 – Don’t know b) To arrange documents: 1 - ___ days 2 – Don’t know c) To get pass-book/smart card: 1 - ___ days 2 – Don’t know d) To activate the account: 1 - ___ days 2 – Don’t know 12) After how many days you made the first transaction after opening the savings account? (please write exact no. of days) 1 - ___ days 2 – Don’t know 13) Have you spent any amount in opening the account? a) Minimum balance to open a/c:

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Rs._____ b) Bribe paid in the process: Rs. _____ c) Indirect cost in the process (loss of wage, travel exp. etc): Rs. _____ 14) Did you face any problem in opening your savings account? 1 – Yes 2 – No 15) If yes, then what problems you faced? (could be more than one option) 1 – Non availability of application form in the bank 2 – The Financial Institution demanded for introduction by any other account holder 3 – Bank officer regularly postponing the process on some other day 4 - KYC document related (specify) 5 – Any other (specify) ______16) Roughly how far is the bank/cooperative/financial institution/post office from your house? How much time and cost you incur to visit branch of the Financial Institution? 1 – The F.I.’s branch is in your village or its staff or agent visit your village 2 – The F.I.’s neither has any branch in your village nor its staff/agent visit your village If answer to the above question is option 2, then: a. Approximate total distance: (1) 1 – 3 KM (2) 4– 6 KM (3) 7 – 9 KM (4) more than 9 KM b. Estimated time in travel (in minute): (1) Less than 15 min. (2) 15 – 30 min. (3) 30 – 60 min. (4) 60 – 120 min. (5) more than 120 minutes c. Estimated cost in travel (in Rs.): (1) Less than Rs. 25 (2) Rs. 26 – 50 (3) Rs. 51 – 100 (4) More than Rs.

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100 (5) No cost, visit branch by foot 17) You use your savings account primarily for which purpose(s) (could be more than one option) 1 – To deposit and withdraw money 2 – To keep money safe 3 – To receive money from other city 4 – To receive government benefit 5 – To get benefit of PMJDY 6 – To get loan 7 – Not interested, pressurised by others 8 – No need, just followed others 9 – Proud feeling of higher social status 10 – Any other (specify) ______18) Do you face any problem in operating your bank account? (Please tick maximum three) 1 – Difficulty in filling form 2 – Difficulty in depositing or withdrawing money 3 – Standing for long time in queue 4 – Frequent internet link failure 5 – Often ask to come other day 6 – Unauthorizedly demand money for various services 7 – Branch is located far from home 8 - Lack of transport facility 9 – Loss of wage/income 10 – Family don’t allow to go outside 11 - Rude behaviour by bank staff 12 – None 13 – Other (Specify) ______19) How do you operate your savings account (joint or single)? 1 – Through agent of institution/bank/USB present/visiting village 2 – By visiting branch of the Bank 3 – Through both mode 20) At present, at what interval you perform transaction in your savings account? (Tick against the correct option) Frequency Through CSP/BCA/USB By visiting Branch Once a week Two times in a month Once a month

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Once in three months Once in six months Rarely or never 21) If the frequency of transaction is once in six months or rarely or never then provide the reason(s) for the same. (Tick against the correct option) 1 – Government benefit or remittance from other city comes after long interval 2 – Not sure of safety of deposit 3 – Don’t want to share details of deposit with others 4 – Don’t have sufficient savings 5 – Bank is located very far from home 6 – Rude behaviour by bank officials 7 – Any Other (Specify) ______Ask next two questions only if the savings account is operated through CSP/BCA/USB, else directly go to question C24 22) If your savings account is operated through CSP/BCA/USB, do you face any problem in operating your account? 1 – Yes 2 – No 23) What are the major problems you face while operating through CSP/BCA/USB? 1 – Erratic internet connectivity 2 – Non-availability of CSP/BCA at the time of need 3 – CSP/USB is located at distant 4 – CSP has left and new CSP is not appointed yet 5 – POS machine is often out of order 6 – Often the daily cash limit of CSP get exhausted 7 – Often face problem in authenticating finger prints by scanner 8 – No transparency in transactions 9 – CSP/BCA is not trust-worthy 10 – No problem as such 11 - Any Other (Specify) ______24) Are you a member of any Self-Help Group (SHG)? 1 – Yes 2 – No Ask next question only if the respondent is member of any SHG, else directly go to next section ‘D’ 25) If yes, what is the stage/level of your SHG? 1 – Savings has already started 2 – The SHG has already started internal lending 3 – Bank account of the SHG is already opened 4 – Credit linkage from bank has already started 26) Where is your SHG bank account opened? 1 – At Bank 2 – At Co-operative 3 – Bank account not opened 4 – Don’t know

D. Financial Product

D.1 Savings

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1) What is your family monthly Income ...... Monthly expenditure...... savings......

If respondent does any savings, then ask next questions otherwise go to D1 (5).

Please keep in mind that the savings to be recorded of respondent, not for the family members.

2) What is the frequency of savings? 1 - Daily 2 - Weekly 3 – Fortnightly 4 – Monthly 5 - Annually 6 – Any other (please specify...... )

3) Where do you keep your savings? i. Bank savings account 1 – Yes 2 – No ii. Bank FD/RD 1 – Yes 2 – No iii. Post office savings account 1 – Yes 2 – No iv. Post office FD/RD 1 – Yes 2 – No v. Chit fund 1 – Yes 2 – No vi. SHGs 1 – Yes 2 – No vii. Mutual Fund 1 – Yes 2 – No viii. Bought gold 1 – Yes 2 – No ix. Purchased land/house 1 – Yes 2 – No x. Keeping it at home 1 – Yes 2 – No xi. Bee Cee/Local fund 1 – Yes 2 – No (local and informal way) xii. Cooperative Society 1 – Yes 2 – No xiii. any other------1 – Yes 2 – No 4) For what purpose, do you save the money? 1. Planned requirement for short term duration 1 – Yes 2 – No 2. Unplanned expenses like treatment of diseases etc 1 – Yes 2 – No 3. Medium term requirement like children education etc. 1 – Yes 2 – No 4. Long term requirement (marriage, house, pension etc.) 1 – Yes 2 – No 5. Saving for without any specific reason 1 – Yes 2 – No

If respondent does not save money then ask the following question, otherwise go to D2.

5) Why don't you save money (Multiple responses possible) 1 - Insufficient income 2 - Banks/Other MFIs are not available easily 3 - I want to save money, but don't know how to save money and where to deposit it. 4 - Any other (Please specify...... )

D.2 Loan

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1. Do you or any member of your family have/had taken any loan earlier or still have any loan? 1 – Yes 2 – No 3 – Don't Know

Please ask the following questions if respondent has taken any loan in last one year or even an older loan currently being repaid, otherwise go to D3. 2. If yes, please fill the following table (Please mention correct code)

Sr. No. Purpose of Source of Loan Annual Interest Present status loan (code) Loan (code) Amount Rate of loan (code)

Code - Purpose of Loan 1 - Marriage 2 - Hospital/medicine expenses 3 - Expenses on death/funeral 4 – Education 5 - To meet household expenses 6 - Business purpose or increasing income 7 – Repairing of house or buying new house 8 – Pay old loan 9- any other (please specify...)

Source of Loan 01 - Relative/family 02 - Friends/neighbour 3 - Money-lender 04 – MFIs 05 - Bank 06 - Cooperative Society 07 – Assistance from employer 08 – Supplier/Businessman 09- SHGs 10 - Any other (please specify...)

Status of Loan 1 – Loan completed 2 – Not completed yet

3) Why do you need loan? (Please tick of correct options) 1. Sufficient sources of savings but saving are small for unexpected expenses. 2. Sufficient sources of savings but can not fulfill the requirements due to less income. 3. Not sufficient sources of savings so can not do more savings. 4. Very difficult to withdraw the invested money in emergency 5. The requirement was small so did not liquidated investments. 6. Any Other (Please specify...... )

D.3 Money Transfer (Remittance) 1) Does any member of household live outside your town/village to whom you send money or from whom you receive money? 1 - Yes 2 - No

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If yes, please ask next questions, otherwise go to D4.

2 ) What medium do you use for remittance? (Please tick on correct option and give rank on the basis of utilization such as most usage give 1, then 2, then 3 etc.)

Source of money transfer Please Give rank tick if of using it use 1. Migrated persons bring money themselves. 2. From own bank account 3. Through other's bank account 4. Through Post office (money order) 5. Through friends or relatives 6. Through private agencies 7. Any other unauthorized medium

3) According to you, what are the main risks for using in the source of money transfers? 1. Excessive charge/fees 1 – Yes 2 – No 2. Loss of money during transfers 1 – Yes 2 – No 3. Money stolen by agent 1 – Yes 2 – No 4. Not transfer on time 1 – Yes 2 – No 5. Any Other (please specify.....) 4) Did you become a victim of such risks? 1 – Yes 2 – No

D.4 Insurance 1) Are you or any member of your family insured under any of below insurance scheme? 1 - Yes 2 - No Sr. Insurance Code No. 1. Janshree Insurance 2. Life Insurance 3. Non-Life Insurance such as accident/health/crop insurance

If respondent or any other member of family is insured under any of above insurance scheme, the please ask next 4 questions, otherwise go to D4 (12). Code - 1-Yes 2 - No 3 – Don't Know

Sr. Particulars Code No. 2. If you or any member of your family have taken life or general insurance, then do you have any documents? 3. If you have life insurance, do you know that who is nominee?

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4. Does nominee know that he/she is nominee of your life/general insurance policy? 5. If yes, has nominee goy any document/policy of insurance scheme from you? 6. Have you provided any information to anybody other than the nominee, regarding insurance policy? 7. Do you have any credit insurance?

8) Who influenced you for buying the insurance? 1 - Agent 2 - Government officials 3 - Village head/renowned persons 4 - Friends/neighbour/relatives 5 - On my own requirement 6 - NGO 7 - Any Other (Please Specify...... )

9) Have you ever made any claim under any insurance policy/scheme? 1 - Yes 2 - No 10) If yes, have you received full amount of the claim? 1 - Yes 2 - No 11) If yes, then what is the time frame in which you received the claim? 1 – Within a month 2 - Within 2 months 3 - Within 3 months 4 – 3 months to 6 months 5 - More than 6 months 6 – Don't know

12) Why didn't get you any insurance? 1 – No need 2 - Lack of basic information about insurance 3 – Don't know the process of receiving claims 4 - No reimbursement of paid amount 5 - Complicated and slow process to get claim 6 - Claims are rejected often so not sure about receiving claims 7 - Afraid because many institutions do frauds 8 - Any other cause (Please specify...... )

D.5 Pension Please ask this section to persons below 60 years of age.

1) What do you think when you will become old - (Please enter code according to responses) Code - 1-Yes 2 - No 3 – Not thought of Sr. Particulars Code No. 1. My earning capacity and income will reduced while my expenditure will increase 2. Children will take care of me if I don't have a pension 3. I want to live independently in my oldage 4. Government shall provide the pension 5. I want to save for my pension

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2) Did you or your family invest for any pension scheme?

1-Yes 2 - No 3 – Don't Know If yes If No 3) Who influenced/explained you for the 5) If not invested in pension, why? investment in pension (may be more than one (may tick more than one response) responses) 1. No need 1. Agent 2. No need because I have support 2. Government officials for oldage 3. Village head/renowned persons 3. Need but not clear that how- 4. Friend/neighbour/relatives much pension will be received. 5. It was my own requirement 4. Need but many aspects of 6. NGO scheme are unclear. 7. Influenced by any other (Please 5. Afraid, because many Specify...... ) organisations do frauds 6. Lack of basic information about pension 7. Don't know the process for receiving pension 8. Need, but don't have required documents (KYC) 9. Enjoy today, why bother about oldage 10. No information at all 4) Where did/do you invest for pension? 1. Government 2. Private 3. Other Financial Institutions 4. Any other (Please Specify...... )

6. Government of India has implemented Swawlambhan Pension Scheme. If anyone deposites in this pension account Rs. 1000/- per year, GoI will co-contribute another Rs. 1000/- per year in the same account, and in the oldage the pension will be received.

1. If you are part of Swawlamban Pension Scheme, then are you depositing amount regularly in this account? 1-Yes 2 - No 2. If you are not part of Swawlamban Pension Scheme by now, then would you like to join Swawlaban and open a pension account? 1 - Yes 2 - No

D.6 Direct Benefit Transfer of government schemes through Bank/Post Office

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1. Did you receive any amount of wage or government scheme or subsidy (such as MGNREGA, Pension, Scholarship, LPG etc.) in your bank or post office account under Direct Benefit Transfers? 1 – Yes, 2 – No

Please ask next questions, if she/he receives government money transfer in her/his bank/postal account.

2. If yes, after how-many days of receiving it, the amount was withdrawn? 1 – Immediately after receiving 2 - later, when needed 3 - Any Other (Please specify..) 4 - Don't know 3. How-many times did you withdraw the received amount from bank/post office? 1 – Full amount at one go 2 - Full amount in two or more go 3- Don't Know

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