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How can micro finance play a more important role in promoting financial inclusion, particularly in states where its spread is low as of now?

Postby chanana.ak@nic.in » Mon Feb 21, 2011 8:37 am

How can micro finance play a more important role in promoting financial inclusion, particularly in states where its spread is low as of now?
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Re: How can micro finance play a more important role in promoting financial inclusion, particularly in states where its spread is low as of now?

Postby ankitratan@gmail.com » Mon Feb 21, 2011 1:56 pm

I would be more concerned with implications of higher interest rates on micro-finance. Higher interest rates on micro-finance makes little sense. By increasing the cost of capital, to those who need it most, we will simply decrease there profitability. So one, if micro-finance has to be seen as a tool of promoting financial inclusion, the interest rates have to be rained in.

Cooperative banks run by villagers themselves can be a good choice. This aids in two major ways. 1) it reduces cost of capital, as the interest rate are controlled by villagers. 2) Cooperatives themselves are accountable for loss/gain. Hence they can better manage risky loan giving.

How can govt. aid them is by providing subsidy to the cooperative on cost of capital. Basically to keep the interest rates on loan low. Subsidy on capital makes far more sense then electricity or seeds, as it does not lead to overuse of subsidized commodity. No one will ever over use money. Dolling out the subsidy to cooperative introduces a kind of screening where only the worthy get the benefit.
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Re: How can micro finance play a more important role in promoting financial inclusion, particularly in states where its spread is low as of now?

Postby dkjain49709@rediffmail.com » Tue Feb 22, 2011 12:25 am

In seventies and eighties there was huge pressure from government of India and Reserve Bank of India on Public sector banks for opening of branches in rural areas so as to cover all villages. As per policy of Service Area Approach introduced by RBI each branch of a bank had to serve 15 villages and cover 10000 of population. At that time Social Banking was the slogan of bankers as against Financial Inclusion in the recent days. There used to be Block Level Banker’s Committee (BLBC) constituted by Lead Bank Manager, Branch Managers of all banks in the block and block level officials to prepare an annual credit outlay plan for the year for the service area and monitor its implementation. Thereafter District Level consultative Committee (DLCC) and State Level Banker’s Committee (SLBC) were constituted to monitor the quality and quantity of progress.

But unfortunately this entire exercise in the real field proved formal and futile during last thirty years of its existence. Village level, District level and State level plans formulated by BLBC, DLCC and SLBC proved a futile exercise so far as the real welfare of villages, elimination of poverty and idea of social welfare is concerned. This is a bitter truth that all these plans failed miserably and position of villagers did not improve despite several poverty alleviation program undertaken by PSU banks in one name or the other during last for decades.

Officials of banks and state government offices still complete these formalities of conducting meetings, formulating annual plans and then submitting the report to Banking Division and RBI but there is absolutely no such sincere officials at field level branches of banks or at block offices to take care of the above mentioned service area plans formulated at various levels and practically there were a very few bankers ready for their honest and corruption free execution.

In the year 1991 government of India adopted the path of economic reformation in line with global policy of liberalization, privatization and globalization (LPG). Banking reformation also was also planned and put into action under the leadership of the then Finance Minister Mr. Manmohan Singh. Banks were given huge freedom, rates were deregulated, licensing policy was reframed, private banks were opened and gradually banks changed their working style from traditional social banking and mass banking to Class banking, from social service entity to profit making unit and from social banking to profit banking.
In view of the fact that various rural branches were running in loss and since branches were not found to be economically viable , several branches of banks were closed in later part of nineties or turned into satellite branch only because there was no scope for improvement and no idea to earn profit. Villagers, who lived in the service area of closed branches were forced to contact other branch of that bank at farther place or to contact some other nearby bank for financial assistance or for any banking operation. During this period not only poor villagers were discarded and left at the mercy of traditional money lenders for exploitation, but even banks were also constrained to write off huge amount of loans and advances disbursed in the villages.

It is also true that more than 50% of branches of all PSU banks are situated in rural areas and in remote villages to serve the villagers .But is is a bitter truth that more than 60% of the advances made by rural branches are Non Performing assets in the bank and unfortunately there is neither a will to recover the money lent by bank nor bankers have the capacity to recover the NPA from recalcitrant borrowers in views of various local or legal constraints.

Government of India had to infuse capital several times to make PSU banks to make them strong enough to compete with global banks. Merger of banks were point of debate at all level so that their lending capacity may increase and they may be able to finance to bigger and bigger project .Consolidation of banks was the idea of Ministers and top bankers in the era of reformation to compete with foreign banks. In brief the choice of bankers became top industrialists and top traders and not poor villagers. Banks now consider wholesale and bulk lending instead of retail lending. Ambiance of most of the branches have been changed and decorated to suit rich society and to make it comparable with private and foreign banks which were by birth made to serve rich class people.

It is worthwhile to mention here that Banks were nationalized in 1969 by Late Indira Gandhi to make banks accessible for poor villagers and to enable poor villagers to come out of clutches of local money lenders who were exploiting villagers by charging exorbitant rate of interest.. Unfortunately, poor villagers have again been thrown out of bank’s branches during last twenty years of reformation in banking. In the new set up poor villagers are directed towards Micro Finance Institutes (MFI) or advised to come through newly formed broker called as NGO or form their own Self Help Group (SHG).

Banks gradually turned to non banking business like insurance, and demat services to earn more and more non- interest income and to stop erosion in profit. They reduced manpower and opened hundreds of new branches to sustain profit .Banks are exploiting bank employees as private banks are used to since the pre nationalization era. PSU banks realized that it is better to indulge in bulk lending than to spoil time in rural lending.PSU banks are working with less and less staff because they have realized that profit earning by PSU banks competing with private banks is not easy .

In this process they have left monitoring part and increased operation and financial risk. NPA has been increasing year after year though hidden in balance sheet to a great extent. Still more than 90% of rural branches of all banks are having more than 60% of their advances as NPA. In the changed situation banks are trying to show false and cooked profit by hiding their bad assets or selling their bad assets to ARCs or by imposing service charges for every banking operation they do in the bank.

Banks are trying to earn Non Interest Income because their Interest Income has sharply come down due to unwarranted rate war declared by government under the frame work of reformation policy. Profits of PSU banks are facing continuous erosion due to increase in Non Performing Assets and hence bankers are least interested in rural lending which involves comparatively more manpower and enlarged network of branches.

Now after twenty years of reformation RBI has once again realized that need of the hour is to serve the villagers. New word called as Financial Inclusion has become the slogan of bankers. Old wine in new bottle .Earlier it was social banking and now it is financial Inclusion. But as a matter of fact that all activities undertaken by top banks indicate that banks are trying to achieve the targeted purpose of Financial Inclusion by merely opening No Frill saving accounts of poor villagers but in true sense , poor villagers are facing Financial exclusion as because they are being directed by bankers towards MFI or to NGO or to form SHG for getting bank finance. Poor people in villages and towns have now to depend on ATM and biometric cards for cash deposits and cash payment and on MFI, NGOs and local money lenders for availing loan facilities. Banks as also government of India think it wise to make finance to MFI and NGOs in hundreds of crores of rupees at higher rate as much as 18% and then allow MFI to make finance to poor people at higher rates i.e. upto 36% .

Financial Inclusion is used merely for opening of No Frill accounts and to serve the purpose of UID (Uniform Identity Number).The word ‘Financial Inclusion’ is frequently used by political leaders and government officials along with bankers. But in fact no real improvement of poor people has taken place during last twenty years of reformation policy initiated by the government in the year 1991. It will not be an exaggeration to say that poor people were better served during the period 1971 to 1990 (after nationalization of banks in 1969).

To add fuel to fire RBI is again putting thrust on bank management to open more and more new branches to reach the level of each Panchayat. As per new directive all PSU banks have to ensure that there is one branch or BC in each village or in cluster of 2000 population.

Bankers have burnt their fingers in large scale expansion program under Service Area Approach plan of seventies and again they are committing the same blunder by opting unwarranted expansion of branch network to spread it upto Panchayat level without increasing manpower to suit the need of branch expansion. The new word ‘Financial inclusion’ is nothing but is old wine in new bottle and this continue to make mockery of poor people.

Under the umbrella of reformation banks have stopped recruiting fresh staffs to save staff cost and to earn more and more profit in line with other capitalists who are exploiting Indians by way of labour exploitation and by indulging in large scale profit making. Business of banks have multiplied ten times during last five years but number of staff working in banks have come down compared to what it was five years ago inspite of addition of new branches and new businesses in banks. Obviously banks in general have discarded taking adequate care of their assets due to which NPA is in rising trend. Not only this, employment opportunities available to educated youth are also shrinking in the era of reformation.

Obviously we need to debate whether banks are serving poor people, whether policy of capitalism adopted by Government of India in the name of economic reformation suits to Indians environment and whether growth of five percent of population of Indian is the real motto of the government and the real purpose of GDP growth. We Indian have to ponder over the prevailing policy of capitalism and discuss whether it is more important or we have to revert back to the policy of socialism or to adopt a middle path in unison with the policy of Mixed economy. Poor and middle class of Indians who constitutes 95% of population cannot even afford quality education, quality health care services, quick justice in court and quality food in our country because rich and affluent class have been given complete freedom to exploit consumer and earn profit without any fear of administrative action under the policy framework of reformation called as LPG ( Gas fuel when used without care may cause huge damage by fire ).As such this large segment of society have to depend on bank’s loan even for all their essential needs food, health care, education and so on.

Last but not the least PSU banks in general are running in acute manpower shortage but still management of the bank is least inclined to recruit fresh manpower to keep cost of establishment at the lowest. Besides there is complete lack of devoted, talented and honest workers due to increasing number of corrupt officers sitting at top post who discourage good workers and hence the assets of the bank are undoubtedly at stake and the health of the banks has to face is in way sound. As such large scale expansion undertaken by branches may prove to be suicidal activity. It is undoubtedly true that the word Financial Inclusion has already become a laughing stock for common men. Neither bankers nor poor people are happy and safe. Even banks are not safe but more confused because they are unable to decide which path they are actually to go when government changes policy so frequently and in a impractical way. However top bankers are doing good show business by organizing Loan Melas in the name of financial Inclusion or by adopting a few girl children or by adopting a few villages during their visit to big towns to celebrate Financial Inclusion. It is undeniable truth that the amount spent on such dignitaries by bankers with the support of bank’s customers is many times more than what is actually spent on poor villagers in the name of fanatical inclusion. Even RBI governor or CMDs of various banks are doing such show businesses and ultimately all at the cost of common men.
It is necessary to first understand what is going on in the country in the name of banking reformation .When banks are healthy they can enhance the capacity for growth. Banks may be healthy when politicians and other controlling officers are honest in their actions and in their behavior. Banks will do their real job when top bankers are not corrupt and when they stop lending by taking bribe or costly gift. Banks will be healthy when discretionaly powers of top bankers are taken back and transparency is restored in banks. In the name of merit and enhancement of efficiency and to compete with private banks, top bank officials in PSU banks are now-a-days earning money by way of fresh recruitment, transfers of existing staff to choice places and promotions to juniors. Honest workers in banks are not at all happy with the treatment they get from their corrupt senior officers. Flattery has become the key of success in banks. The more one is corrupt the more he is promoted and elevated to powerful post. Lobbying has become the master key of success. And to add fuel to fire the role of WWW has become more powerful .In such environment, it will be foolish to expect good results from PSU banks, it is like dreaming in day light. Financial Inclusion has become a totally Bakwas (non-sensical talks) as hitherto was the fate of the term Social Banking.
Planning without proper execution is of no use. To learn from past experience is necessary to stop recurrence of mistakes in the name of welfare of poor people of India. None can stop widening of gap between the rich and the poor until Indian politicians and officials are honest from the core of their heart.
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Re: How can micro finance play a more important role in promoting financial inclusion, particularly in states where its spread is low as of now?

Postby kaibalya@gmail.com » Thu Feb 24, 2011 3:20 pm

Major part of rural India aren't accessible by bank and some places where bank is available people aren't using the service. More or less literacy is major fact for above situation.

Particularly MFI have good relation with rural people because of Self help group. They have better access with people as compare with bank. So it obvious MFI can play good role in Financial inclusion. Following are few point how MFI can promote financial inclusion .

1. Work as banking corespondent.
2. Making strategy alliance with bank.
3. Bank mayn't go to individual but MFI can reach from individual to villiage.
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