Conducting a Baseline Study on the State of Financial Inclusion and Provide detailed recommendations towards improving the same in the SECURE Himalaya project landscapes in selected districts of Sikkim

Submitted to

Submitted by

BASIX Consulting and Technology Services Ltd

3rd Floor, Surabhi Arcade, Bank Street, Troop Bazar, Koti, 500 001 , Tele Fax: 040 66585800, 66585801 Website: www.basix-consulting.com, www.basixindia.com

November 2018

Contents

Executive Summary ...... 3 Chapter I: Background ...... 4 Chapter II: Objective ...... 5 Scope of the assignment ...... 5 Chapter III: Methodology ...... 5 3.1 Secondary research ...... 6 3.2. Sample Design, Size and Selection ...... 6 3.3. Research Tools: ...... 9 Chapter IV: Team Structure ...... 12 Chapter V: Execution Plan ...... 12 Chapter VI: Deviations from Terms of Reference ...... 13 Chapter VI: Tasks and Deliverables-Timelines ...... 13 Annexure -1 Work Plan ...... 14 Annexure -2 Baseline Report Format ...... 17

Executive Summary

The Ministry of Environment, Forest and Climate Change (MoEFCC), along with UNDP is implementing a new Global Environmental Finance (GEF) funded project: SECURE Himalaya (Securing livelihoods, conservation, sustainable use and restoration of high range Himalayan ecosystems) in the states of Jammu and Kashmir, Himachal Pradesh, Uttarakhand and Sikkim.

One of the six outcomes of the project envisages “Improved and diversified livelihood strategies and improved capacities of community and government institutions for sustainable natural resource management and conservation”. While creating sources of income is one aspect, it is equally important for all citizens to be included in the mainstream economy, the primary step towards which involves inclusion in the formal banking and financial systems. This not only includes access to financial services, but also their acceptance by the local communities, and their ability to offer economic security to the in the long run. With this background, it is important to gauge the current extent of financial inclusion in the SECURE Himalaya project landscapes and suggest mechanisms to boost the same. To assess the current extent of financial inclusion in the selected landscapes, UNDP has called for interested agencies to submit their proposals to conduct the assignment. BASIX Consulting and Technology Services Ltd (BASIX Consulting) expressed interest and was selected by UNDP to undertake the assignment in Sikkim. The duration of the assignment is six months.

The objective of the assignment is to conduct a “Baseline Study” on the State of Financial Inclusion and provide detailed recommendations towards improving the same in SECURE Himalaya project landscapes Khangchendzonga and Upper Teesta of Sikkim. As part of the assignment a secondary research will be conducted to understand the current status of financial inclusion in Sikkim. In the context of the project landscapes financial inclusion will be defined. The depth of definition will be used as a benchmark with focus on specific and measurable parameters including access, quality, usage, welfare etc.

Primary Research will be conducted with important stakeholders such as the Community, Financial Institutions (including community based financial institutions), Mobile money operators, State Government. Community Sensitization Workshops also will be conducted to raise awareness on the importance of financial inclusion of the local communities. After completion of market research, a draft report will be submitted for the input from working committee, project steering committee, Landscape Level Project Management Unit and UNDP. A final report will be submitted by incorporating the inputs/suggestions.

The final report will explain the current status of financial inclusion in the project landscapes, key challenges to financial inclusion including social factors, literacy, logistics, physical connectivity and telecommunications etc. The report also suggests appropriate solutions including policy/ regulatory mechanisms and on-ground activities to enhance awareness and adoption of financial services along with a comprehensive 5-year strategy to enhance financial inclusion in the project landscapes.

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Chapter I: Background

The Ministry of Environment, Forest and Climate Change (MoEFCC), Government of India along with UNDP is implementing a new GEF funded project: SECURE Himalaya (Securing livelihoods, conservation, sustainable use and restoration of high range Himalayan ecosystems) in the states of Jammu and Kashmir, Himachal Pradesh, Uttarakhand and Sikkim. The project has the following major outcomes: (1) Improved management of high range Himalayan landscapes for conservation of Snow Leopard and other endangered species and their habitats and sustaining ecosystem services; (2) Improved and diversified livelihood strategies and improved capacities of community and government institutions for sustainable natural resource management and conservation; (3) Enhanced enforcement, monitoring and cooperation to reduce wildlife crime and related threats; (4) Effective knowledge management and information systems established for promotion of sustainable management practices in the High range Himalayan ecosystems.

The outcome 2 of the project envisages “Improved and diversified livelihood strategies and improved capacities of community and government institutions for sustainable natural resource management and conservation”. While creating sources of income is one aspect, it is equally important for all citizens to be included in the mainstream economy, the primary step towards which involves inclusion in the formal banking and financial systems. This not only includes access to financial services, but also their acceptance by the local communities, and their ability to offer economic security in the long run. With this background, it is important to gauge the current extent of financial inclusion in the SECURE Himalaya project landscapes and suggest mechanisms to boost the same.

The project identified Khangchendzonga – Upper Teesta Landscape, Sikkim for the project implementation as this falls within biogeographic province 2C and 1C of India (Rodgers & Panwar 1988), located in North Sikkim District. This landscape spans over an area of about 3600 km2. In the north, the landscape forms international boundary with Tibetan Autonomous Region of China while in the east and west it is bordered by Bhutan and Nepal respectively.

The landscape includes Khangchendzonga National Park and Singba Rhododendron Sanctuary as Protected Aras and also the Tso-Lhamu Plateau in the northern Trans-Himalayan zone as a proposed conservation area. Mount Khangchendzonga, the third highest peak in the world, and adjacent Singalila range strongly govern the relief features on the western part of the landscape while Chola range plays prominent role in determining physiography on the eastern part. The entire landscape is above 4000m and the highest point is the summit of Mount Khangchendzonga at 8586m.

The chief ridge of Khangchendzonga range is aligned in north-south inclination with west- east running transverse spurs. The major valleys in the southern and south-eastern part of the park are oriented north-south thereby creating east and west aspects. On the other hand, the valleys in the central and northern portions of the park are east west oriented having mostly north and south aspects. The landscape is the major catchment of river Teesta that originates from Tso Lhamu lake in the north. Together, these ranges strongly influence the atmospheric circulation and regional climate in the region but also affect the climate of adjacent regions. The varying aspects and slopes have led to the occurrence of different climatic zones in Sikkim, however, the

4 predominant features of this landscape are only alpine (4,000-5,000m) and cold deserts (>5,000m).

The rainy season extends from May to September in the summers and from November to March in the winters. Spring and autumn occur for a very short time during the months of April and October respectively. The successive west-east ridge formations obstruct the monsoon winds blowing from the south-westerly direction causing heavy precipitation and as a result the amount of rainfall decreases towards the north.

Chapter II: Objective

The objective of the assignment is to conduct a Baseline Study on the State of Financial Inclusion and provide detailed recommendations towards improving the same in SECURE Himalaya project landscapes in selected districts (Khangchendzonga – Upper Teesta Landscape) of Sikkim.

• Assess the current status of Financial Inclusion in the project landscapes through primary and secondary data collection including its impacts upon overall rural economy and livelihoods

• Identify key challenges to Financial Inclusion including social factors, literacy, logistics, physical connectivity and telecommunications among others

• Establish correlation between financial inclusion and conservation utilizing both qualitative and quantitative tools

• Suggest appropriate solutions including policy/ regulatory mechanisms and on-ground activities to enhance awareness and adoption of financial services

• Prepare a comprehensive 5-year strategy to enhance financial inclusion in the project landscapes

Chapter III: Methodology

The methodology for the study will consist of the following steps.

1. Secondary Research to understand the current status of Financial inclusion in Sikkim

2. Primary Research with important stake holders such as the Community, Financial Institutions, Mobile money operators, State Government

3. Conducting Community Sensitization Workshops to raise awareness on the importance of financial inclusion

4. Prepare draft report including synthesis of the baseline studies performed and outcomes of consultations with communities and industry experts.

5. Prepare the final report with comments and suggestions by Working committee, Project Steering Committee, Landscape Level Project Management Unit and UNDP

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3.1 Secondary research

The consultants will study the following documents as part of the Secondary Research. The objective of the secondary research is to understand the strategic context of financial inclusion, regulatory framework for the financial sector as well as the cooperative sector, Demand Side of Financial Services, Supply side of Financial Services and Livelihoods Scenario

i. Project documents of the project: Securing livelihoods, conservation, sustainable use and restoration of high range Himalayan ecosystems (SECURE) Himalayas

ii. CRISIL, Inclusix-Vol I (2013), CRISIL Inclusix - Vol II (2014), CRISIL Inclusix - Vol III (2015), CRISIL Inclusix - Vol IV (2018)

iii. The Global Findex Database 2017

iv. Financial Inclusion data: Indicators and parameters used to define FI in Sikkim, database used, periodicity of its compilation, including details of accounts opened under Jan Dhan Yojana

Vii. Reports published by state level banker’s committee v. District credit plans vi. Reports published by NABARD and RBI vii. Annual Reports of Banks with headquarters in Sikkim viii. Reports of Mobile money operations and Alternative Delivery Channels ix. Publications of State Government and District Administration on Employment, Livelihoods x. Livelihood based Agri Business and Market Studies for North East Rural Livelihood Project Final report, Sikkim

BASIX Consulting will assess various factors in Sikkim impacting the level of financial inclusion/exclusion such as income, employment, bank charges, quality services, level of complexity, required identification, financial education, and level of physical access including access points per 1000/2000 population as per the RBI policy. Based on the assessment the problem statement for the study will be finalized.

Market research will be conducted in North Sikkim District of Sikkim as the landscapes selected (Khangchendzonga National Park and Singba Rhododendron Sanctuary as Protected Areas and also the Tso-Lhamu Plateau in the northern Trans-Himalayan zone as a proposed conservation area) for the study are located in North Sikkim district. The sample size for the study is large enough to give statistically significant and robust estimates for key areas of information. The study envisages having enough respondents to be able to generate estimates with certainty.

Multi-stage sampling (stratified) will be adopted to select the samples. Because the sampling area (The Khangchendzonga – Upper Teesta Landscape includes Khangchendzonga National Park,

6 Singba Rhododendron Sanctuary and Tso-Lhamu Plateau in the northern Trans-Himalayan zone as a proposed conservation area) is large and in addition to that the targeted group is not mentioned.

In the first stage, the villages will be selected purposely. We will select 25% of total villages in the district (total villages in the district are 56) from different areas typically in a manner that they are representative of the whole population. In the second stage, households from the 25% of the villages (14 villages) will be selected randomly, i.e. randomization will be done at the household level and not village level.

The sampling steps are detailed below-

Stage 1

The first stage of sampling will be to prepare and finalize the list of villages (purposively) after discussion with UNDP. The criteria based on which the villages will be categorized and selected are - the number of households from each village, socio-economic characteristics like occupation, land size, number of working members, financial literacy, access to financial institutions, their remoteness from the urban locations, etc.

Stage 2

In the second stage, household sample will be drawn in proportion to the population (as per Census 2011; 43345 population in North Sikkim) from the landscapes selected for the study. We propose to have sampling error margins of ±5% for household selection. We will interview at least 30 families from each of the selected village (total villages selected 14). Aside from geographical disaggregation, the results will be classified based on gender, age group, educational attainment and socio-economic class. Samples will be collected from Khangchendzonga National Park, Singba Rhododendron Sanctuary and Tso-Lhamu Plateau. Following table shows samples collected from different stakeholders which includes:

Stakeholders Type Number of samples Primary Individual One person from each of the sample HH with equal stakeholders representation from women will be ensured. Group of people 1 FGD in each area in the district as segregated by remoteness of socio-economic characteristics (approx. 8 FDGs will be conducted) Secondary Business Interview with BC Agents in that area to understand stakeholders Correspondent (BC) the banking services offered to community and (institutions) constraints in offering such services Community based Eight to Ten financial institutions

(SHGs, SHG- Federations, Cooperatives etc.) Bank At least three banks (based on availability)

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Stakeholders Type Number of samples Telecom service Two service provider providers Corporate BC of the Two Corporate BC companies banks One SFB One MFI Institutions Insurance company One to two insurance companies Rural Development Secretary department and or IT Forest Department PCCF State Livelihood PD/senior staff involved in Financial Mission etc. Inclusion/Alternative delivery channels Secondary stake Lead Bank Manager 1 holder (individual) DDM, and CGM 2 NABARD

Household sample size

The sampling distribution across the different villages is illustrated table below:

District Landscapes No. Of Total Sample Total HH Total Sample Total Population Villages families HH Villages (family for sample (1/4 of size -4.7) 14 villages (at least the total 30 villages) families from each village ) North Khangchendzonga 56 43435 14 9241 2310 420 District National Park, Singba Rhododendron Sanctuary, and the Tso-Lhamu Plateau in the northern Trans- Himalayan zone - a proposed conservation area 420 Focus Group 8 (around 8 to 10 64 Discussions respondents per FGD)

8 Total 484 Primary Stakeholders No. of Individuals interviewed from secondary key 28 stakeholders through key informant interviews Total Stakeholders will be covered through market 504 research

The research will be conducted by using both quantitative and qualitative tools to assess the current status of financial inclusion, key challenges in financial inclusion, understand the correlation between financial inclusion, livelihoods and conservation, various programmes of financial inclusion and their impact on ground, impact of policy/regulatory mechanisms on ground capture.

The consultants will review the following documents for preparing the toolkits/questionnaires for baseline study in Sikkim.

1. Project documents of the project: Securing livelihoods, conservation, sustainable use and restoration of high range Himalayan ecosystems (SECURE) Himalayas

2. UNCDF - Financial Inclusion Roadmap Exercise (FIRE): Diagnostic Tool and Action

3. Principles and Report on Innovative Financial Inclusion from the Access through Innovation Sub-Group of the G20 Financial Inclusion Experts Group

4. Financial Inclusion Data: Assessing the Landscape and: Country-level Target Approaches: IFC / Global Partnership for Financial Inclusion

5. ILO’s tool to track the impact of financial inclusion on job creation, protection against vulnerability and formalization.

6. CRISIL, Inclusix-Vol I (2013), CRISIL Inclusix - Vol II (2014), CRISIL Inclusix - Vol III (2015), CRISIL Inclusix - Vol IV (2018)

7. The Global Findex Database 2017

S No Research Tool Purpose

1 Household Individual interviews with adult family members both Questionnaire husband and wife (it is a household level interview, husband and wife and even other family members support the individual member in sharing the informaton) to understand their current dependency on natural resources for livelihoods, their life cycle needs, financial services they need to satisfy their life cycle needs, challenges in accessing

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finanicial services from mainstream financial institutions, current status of financial inclusion, available employement/income generating opportunities especially in non-farm sector. The interview will also focus on financial literacy, use of bank accounts, mobile phone usage in general and particularly to access financial services (savings, loans and insurance both and formal and informal), current infrastructure available to access banking services and products inlcuding bank’s BC points, appropriateness of current bank products and services and their suggestions. Also on how the livelhihood finance needs and emergency cash requirements are met. 2 Focus Group To understand the purpose for which the community Discussion Guide members save, borrow, and the sources from where they borrow to meet their credit requirements. Challenges they face in accessing financial services from mainstream FIs. Understand the correlation betwen financial inclusion and livelhood activities that positively/negatively influence coservation. Influcene of curent government financial inlcusion programmes on the ground their suggestions on current policies/regulations related to financial inclusion. Current gaps in the community members‘ capacity to make use of financial inclusion programmes (to enhance demand- side capability). We will select discussion groups according to demographic characterstics to avoid dominance by few people of higher economic status, education, political power etc.

3 Key Informant The interviews will be conducted with selected government Interview (KII) officials (including forest department) responsible for Questionnaire implementing the financial inclusion, livelihood programmes inclding micro-enterprises, bankers, corporate BCs and Business Correspondent Agents of banks, MFIs and NGO staff. Intereviews will also be conducted with the key officials of apex bodies and policy/regulation formulating agencies like NABARD, RBI, high level state Government officials etc. Other stakeholders who will be interviewed include MNOs (Mobile Net Work Operators) who are offering/involved in financial inclusion services.

4 Case Studies Based on discussions with community members and KIIs, few case studies (one or two) will be developed to undersand the Financial Inclusion status, positive effect of financial

10 inclusion on livelihoods and conservation, successful efforts to enhance financial inclusion.

Pilot test of study tools: To ensure that questionnaires are properly administered and results are accurate, a pilot test will be carried out by administering to following respondents:

• Five individuals from different households (HH survey format)

• One FGD from a village (FGD guide)

Feedback from pilot test will help to modify questions and explanations of technical words if required. This will also ensure tools are linguistically and culturally appropriate.

Procedure: Computer Assisted Personal Interviewing (CAPI) technology will be used for data collection. The data collectors use tabs for data collection which will be uploaded to the MIS on daily basis. Data quality will be checked on daily basis and data collectors will be given feedback on daily basis if there are any errors. The qualitative data collected through qualitative tools including FGDs will be analysed separately by using excel.

Data Analysis: The quantitative data will be automatically transcribed in to tables and further will be analyzed with the help of a wide range of appropriate statistical technique such as: Mean, Standard Deviation, correlation and coefficient of variance. We will also conduct the hypothesis testing and Chi-Square test to establish the correlation between variables. Later on, Kaiser-Meyer- Olkin and Bartlett‘s tests will be conducted to test sample adequacy and sphericity of collected data. To diagnose the problem of multi-collinearity, degree of correlation will be estimated. Factor analysis may be required as a tool of dimension reduction if the results will show problem of co- linearity. The results will be further analyzed through regression and ANOVA to establish the relation of RGER scores with overall satisfaction level of customers.

Before proceeding with the proper analysis, first test reliability of the instruments will be used, correlation coefficient, r, signifies the strength of relationship between two variables and how much variation in the dependent variable can be explain by the independent variables.

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Chapter IV: Team Structure

Girija Srinivasan Team Leder

B.V. Raghuram Ballem Anjaneyulu Expert - Banking Biswaranjan Financial Inclusion and Financial Study Coordinator Inclusion Expert

Enumarator -1 Enumarator -2

Ms. Girija Srinivasan will be the team leader for the overall assignment, she will review and finalize the overall work plan of the study approach, methodology, activity plan along with time line and expected outcomes. She will guide the team members in accomplishment of the objectives of the study. Ms. Girija will review all the reports (inception report, mid-term and final reports) before they are submitted to UNDP. Mr. Raghuram will take the lead role in secondary research and conducting interviews with some of the key stakeholders like bankers and government officials regarding the financial inclusion current status, constraints and their future plan and suggestions on financial inclusion. Mr. Ballem as a digital financial inclusion and market research expert will develop both qualitative and quantitative market research tools including guides for conducting focus group discussions and conduct training to the other team members especially to enumerators on use the research tools. Mr. Biswaranjan will coordinate both qualitative and quantitative data collection with the help from other team members and enumerators.

Chapter V: Execution Plan

• Inception Report including a detailed action plan with a detailed framework of activities, methodology to be applied, schedule etc.

• Extensive literature review

o To understand the RBI policies on financial inclusion, efforts of both central and state governments in financial inclusion, efforts made by various financial institutions in financial inclusion and the status, studies done by various agencies to understand the status of financial inclusion in Sikkim.

o Best practices from around the world in areas including but not limited to

12 community based finance, microfinance, micro-insurance, mobile and digital banking that can inform policymakers on emerging models and practices to improve financial inclusion in remote areas

o Prepare a Convergence Strategy to enhance financial inclusion in the project landscapes

• Market Research

o Develop market research plan and market research tools (qualitative and quantitative tools) and share with UNDP for feedback.

o Collaborate with Technology Company for data collection and analysis.

o Pilot test market research tools in the filed before finalization.

o Community Sensitization Workshops to raise awareness on the importance of financial inclusion

• Mid-term Progress Report: showing progress of the tasks carried out such as primary and secondary data collection, community and stakeholder consultation

• Draft Report : This report will include the synthesis of the baseline study findings and outcomes of consultations with communities and industry experts and give tangible recommendations towards assessing and improving the state of Financial Inclusion in the landscapes

• Final Report incorporating the comments and suggestions by Working committee, Project Steering Committee, Landscape level project management unit

Chapter VI: Deviations from Terms of Reference At this stage there are no deviations from the Terms of Reference. Chapter VI: Tasks and Deliverables-Timelines

Tasks and deliverables Timelines Inception Report 25th November Community sensitization workshop plan with schedule, agenda, budget, timelines etc. 5th December Secondary Research 31st December Develop market research plan and market research tools, Conduct Pilot test 31st January market research tools 2019 Conduct Market Research 28th February Community Sensitization Workshops to raise awareness on the importance of financial inclusion 15th March Mid-term Progress Report 15th February Draft Report 15th April Final Report 15th May

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Annexure -1 Work Plan

S. No. Output Activity Nov Dec Jan Feb March Apr May

Consultant team meeting Inception Report including a detailed plan of action with a Prepare inception report and submit to UNDP 1 detailed framework of activities, methodology to be applied, Discussion with UNDP and reconfirmation of scope of work, methodology and timeline in New schedule etc. office

Define financial inclusion in the context of the project landscapes and determine the depth of

definition to be used as a benchmark with focus on specific and measurable parameters

Conduct desk research on different financial inclusion policies of Govt of India and State Govt of Sikkim and Financial inclusion status report of Sikkim. Evaluate relationship between policy and change in levels of financial inclusion

Compile a list of best practices from around the world in areas including but not limited to community based finance, microfinance, micro-insurance, mobile and digital banking that can 2 Literature review inform policymakers on emerging models and practices to improve financial inclusion in remote areas

Identify key points of financial exclusion including parameters from global methodologies like the World Bank Financial Access Survey as well as domestic data sources including but not limited

to NSSO Results, Government of India Population Census, CRISIL-Inclusix, RBI Working Papers among others

Measure the extent of financial exclusion of women in the project landscapes and identify reasons

for gender-based skewness, if any

Prepare questionnaires for relevant stakeholders and define appropriate sample size Orientation to local enumerators to interact with HHs

Finalize the Market research tools Piloting of questionnaires 3 and initiate market research Improvement of tools based on the pilot test Initiate both qualitative and quantitative market research study Interviews with key informants (banks, government officials, community based institutions Mid-term Progress Report of the Analysis of data collected after coverage of half of the sample and also analysis the information 4 baseline study showing collected from FGDs, and through interviewing key informants

14 S. No. Output Activity Nov Dec Jan Feb March Apr May

advancement of the tasks carried Synthesize the key learnings/outcomes from the literature review out including current status of Financial Inclusion in the project Prepare mid-term report and submit to UNDP for input landscapes through secondary Incorporate inputs of UNDP on the midterm and submit the mid-term report data collection including its Make required changes in the market research study if needed (only if needed) based on input from impacts upon overall rural economy and livelihoods UNDP Complete market research both qualitative and quantitative and establish correlation between

data collected Complete the key informant interviews

Analyse data and compile policy relevant data that would allow policymakers to assess the quality of Financial Inclusion

Penetration of relevant schemes (like Jan Dhan) and give better insights on the numbers. 5 Complete Market Research To move beyond simply measuring social sector outcomes and also understand their determinants

To Assess the current penetration of all types of insurance services and the reasons for their

success/ failure

Assess the potential of improvement in quality of life due to Financial Inclusion in the local socio-

economic and geographic scenarios

Inform POS, Ward member and one SHG leader from each of the 15 villages mobilise the logistics

Community Sensitization Conduct sensitization workshops with local communities to raise awareness on the importance of Workshops to raise awareness on financial inclusion (1.one workshop for a cluster of 15 villages. From each village POS service 6 the importance of financial provider, respective SECURE project staff, ward member and one SHG leader from each village will inclusion be involved 2. The workshop should be of 1 day duration and preferably be held at the landscape/ village level with max participation of 50 people.) 10 Community sensitization workshops would be conducted to raise awareness on the importance of Financial Inclusion.

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S. No. Output Activity Nov Dec Jan Feb March Apr May

Draft Report including all the given components need to be submitted. This report will include the synthesis of the baseline studies performed and outcomes of Assess all government schemes bearing an impact on financial inclusion and prepare a Convergence 7 consultations with communities Strategy to enable translation of policy mechanisms into tangible on-ground actions. and industry experts to give tangible recommendations towards assessing and improving the state of Financial Inclusion in the landscapes Final Report incorporating the comments and suggestions by Working committee, Project 8 Prepare a comprehensive 5-year strategy to enhance financial inclusion in the project landscapes Steering Committee, Landscape Level Project Management Unit and UNDP

16 Annexure -2 Baseline Report Format

• Title page

• Acronyms

• Executive Summary

• Table of Contents

• Introduction and background

• Methodology (and methodological limitations)

• Analysis of the findings

• Conclusions

• A comprehensive 5-year strategy to enhance financial inclusion in the project landscapes

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