Simplification of procedures in granting of loans to small borrowers, farmer-friendly rural bank branches and micro-financing measures that do not over-burden the borrower could accelerate financial inclusion in India, C. Rangarajan, Chairman, Economic Advisory Council to the Prime Minister said on Friday.
Inaugurating the first “Great Lakes Financial Inclusion Conference” hosted by the Great Lakes Institute of Management (GLIM)'s Union Bank Great Lakes Centre for Banking Excellence, Mr. Rangarajan said rather than adding new institutions to the banks, rural banks, cooperative societies or micro-finance agencies what was required was finding ways and means to effect improvements within the existing credit delivery mechanism.
Advocating farmer-friendly rural branches of banks, Mr. Rangarajan said these branches need to go beyond advancing credit and extend a helping hand in matters relating to agriculture and allied activities.
Mr. Rangarajan called for constitution of joint liability groups as an upgrading of the Self-Help Groups to serve the needs of segments of the poor such as share croppers and tenant farmers who are left out of credit channels and whose loan requirements are larger.
Terming the significant contribution of the SHG-bank linkage programme to financial inclusion (with an estimated 2.3 million SHG beneficiaries) as sustainable and scalable, he disagreed with the practice of governments extending interest subsidy.
Pointing out that banks did provide credit to SHGs at reasonable rates of interest, Mr. Rangarajan suggested that the financial support of State governments would be better directed towards building appropriate capabilities, technology support and marketing linkages. He also called for correcting the regional imbalances in the spread of SHGs which have remained concentrated in southern states.
Mr. Rangarajan wanted banks to adopt the business facilitator and correspondent model, where the RBI had allowed the use of services of specified institutions as intermediaries for providing banking services. However, one critical issue in the effective use of this model revolved around who would bear the additional transaction costs resulting from assignment of facilitators. “In the interests of overall expansion of financial inclusion, the cost must be shared among government, banks and customers,” he said.
Mr. Rangarajan urged micro finance institutions to keep the overall cost to borrowers at a level that was consistent with repaying capacity. He wanted institutions to separate the pure interest costs from other costs for additional services rendered.
Subir Gokarn, Deputy Governor, Reserve Bank of India (RBI) said unlike the marked migration from low productivity sectors (agriculture) to high productivity engagements (industry and services) in developing countries, the transition was not as fast in India. “We need to balance out the impact this trend has on inclusive growth,” he said.
Trust, visibility, delivery and effectiveness should be at the core of the financial inclusion strategy, Mr. Gokarn said. Advocating a lifecycle approach, he said financial inclusion programmes must address education, livelihood, income security and quality of life issues.
M.V. Nair, CMD, Union Bank of India, said the bank had integrated financial inclusion plan with its regular business strategy through measures such as issuance of biometric smart cards reaching 2.76 million customers, loan vehicles called the Kisan Chakra and customised loan products. The bank is working on a mobile-based pre-paid card and mobile-based SB account, he said.
R. Bhaskaran, CEO, Indian Institute of Banking and Finance, called for expanding the scope of Business Consultants to cover other functions in order to make the model financially viable.
Bala V. Balachandran, founder and Dean, GLIM, said the conference sought to bring innovative thinkers and policy together to advance financial inclusion, which was an important step to alleviate poverty and achieving growth.