United Nations Development Program Consultancy 2014 / Report on “Deepening Financial Inclusion” Evidence from Two States December 2014 PREPARED BY SEWA BHARAT 1 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 2 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 3 Chapter 2. Financial Literacy as Prerequisite of Inclusion ................................................................... 63 2.1 Backdrop ................................................................................................................................................ 63 2.2 Financial Literacy Definition and Concept ............................................................................................