Financial Inclusion Conference 2012 - Summary of Day One

Financial Inclusion Conference

2012

"The First Mile Walk into the Financial System"

7 - 8 August 2012

Hotel Ashok, New Delhi

The tenth edition of the Financial Inclusion Conference, jointly organised by Sa-Dhan and FICCI opened today in New Delhi. Welcoming the participants, Mr Mathew Titus, Executive Director, Sa-Dhan said that there are challenges in fulfilling the mandate of financial inclusion, which need to be addressed. To view the session plan for Day One, click here.

Mr Amiya Sharma, Chair, Sa-Dhan said that this year’s conference will look at the nuances of the three main streams working in the financial inclusion arena - SHG Bank Linkage, Microfinance Institutions and the BC Model. This conference aims to highlight the dilemmas and challenges of these institutions and the clients they service. Consequently it seeks to deliberate upon the need for appropriate policy interventions to make financial inclusion a reality.

Ms Naina Lal Kidwai, Vice President - FICCI and Country head, HSBC-India, in her address said “inclusive growth is a priority for the government, regulators and the industry and it is important that we take a look at how to take this forward”. Over the last few years, RBI has taken several steps for achieving financial inclusion but there is need to measures outcomes. She also identified four enablers for achieving financial inclusion -

•        Simple processes and procedures
•        Use of technology
•        Financial literacy and
•        Focus on customer service and consumer protection 

Dr KC Chakraborty, Deputy Governor, RBI, in his inaugural address appreciated the theme of this year’s conference - “The First Mile Walk in to the Financial System”, which focuses on customers rather than the suppliers. “The extent of Financial Exclusion in India in mammoth”, he said. He further said that financial inclusion will require well functioning and efficient financial markets.

He identified the following essential conditions of achieving full financial inclusions -

·       Provision of full range of financial services, credit, deposit, remittance as well as pensions and insurance

·         Meeting requirements of credit for consumption such as education and health

·         Meeting the needs of enterprise finance

·         Provision of services in remote markets

Key delivery channels currently offering financial inclusion services such as MFIs, organisations providing payment and remittance services, SHGs and Business Correspondents are built around the Banking Ecosystem, therefore, banks are key to financial inclusion efforts.

He further said that the institutions which have the ambition to offer full range of financial services should aim to become banks. They should create governance and management structures which allow them to get banking licenses. He also emphasised the need to focus on technology to bring down transaction costs. Session One has been described exclusively here.

The second session on the first day discussed the measures of success or learnings for microfinance. Microfinance sector has been and continues to be one of the important delivery channels in providing much needed financial services to the poor. Further, this intervention has led to empowerment of women, financial education, livelihood creation and overall impact in the lives of the poor households. While many of these positive changes are attributed as the success of the microfinance movement as a whole, criticisms and challenges to the movement have peaked in recent times. The tradeoffs between social and commercial objectives are being questioned. Larry Reed, Director, Microcredit Summit Campaign said that the ultimate measure of success has to be the success of client. Thus number of people moving out of poverty is one of the most important measure of success. We need to see the success in the lives of the clients as the success of the MFIs.

The panel in the third session of the day discussed the significance and sustainability of the SHG Federations. Role of the SHGs in achieving financial inclusion has been widely acknowledged. Concerns over self reliance, sustainability of the SHGs have led to promotion of SHG Federations. Kalpana Pant, Joint Director, Chaitanya presented some models which may lead to financial sustainability for the federations.  Some of these models include SHG Federations acting as financial intermediaries.  Dr BS Suran, GM of NABARD was, however, of the opinion that the Federations can play important role in capacity building of the SHGs but financial intermediation requires evolved financial management skills which may become difficult for the federations to obtain. Dr CS Reddy of APMAS, emphasised the need to have suitable legal framework for SHG Federations for their sustainability.

Members of SHG federations present in the conference mentioned the difficulties they encounter while trying to open bank accounts. The panel discussed three possible solutions.

One emerging from the Jeevika model in Bihar, which uses the services of facilitators or Mitras, drawn from the community and trained for the purpose, to make it convenient for SHG members to transact with banks and another emerging from SHG members themselves - who suggested that banks should have dedicated counters at branches for SHG members so that  it is convenient for them to transact with banks. The third was regarding simplification of identification documentation requirement for SHG members.

The first breakaway session after lunch discussed the benefits of the credit bureau and some of the challenges that currently remain. The session presented the view of the microfinance practitioners as well as of the bureau. Mr Colin Raymond from IFC began the session by giving a perspective on why many MFIs do not report to credit bureaus. Some of the key issues include lack of awareness, cost and aversion to changes required in systems for reporting. Mr Suresh Krishna of Grameen Financial Services and Mr VS Radhakrishnan  of of Janalakshmi Financial Services representing MFIs highlighted the benefits of the credit bureau that they have experienced which included improvement in repayment rate and defaulters coming on their own to repay. The credit bureaus have also made the overall credit process more robust. Mr Radhakrishnan highlighted that bureau reports have the potential to be used much beyond just the credit appraisal but also for management decision making. Mr Suresh Krishna mentioned some of the current challenges with credit bureau such as reporting formats across MFIs not being standardized, lack of standard KYC documents, delay in reporting to credit bureau by different MFIs and lack of data sharing among credit bureaus. He also mentioned that currently SHGs, banks involved in microfinance and NGOs are also not reporting to credit bureaus.

From the credit bureau side Mr Sriram Kalyanaraman and Mr Ajay Kohli from Equifax and Highmark lauded the achievement of the sector in operationalizing the credit bureau particularly within a very short timeframe. They also mentioned that the cost of reports in India is one of the lowest globally. However, they said that there is a significant need for improving the quality of data that is currently being reported by MFIs, which can greatly improve efficiency. They also mentioned the tremendous potential that credit bureaus offer for the future. With data available, bureaus can come out with a variety if industry reports, risk reports and customized reports for MFIs, which will further strengthen the sector. However, the first priority is to improve the quality and accuracy of data which is also important to gain the confidence of the regulators.   

The second breakaway session discussed the issues relating to microenterprise and livelihood finance. Bhagirath Iyer, Partner, IFMR Capital quoting research from IFC said that Micro Small and Micro Enterprises (MSMEs) constitute an important segment of the economy. It contributes to 85% of the non-farm employment and 8% of GDP but the credit requirement of this segment is not completely fulfilled. Total demand for credit for microenterprises is estimated to be Rs6.5 million of which only 7 trillion is being met from the formal sources. The microfinance model currently being practiced by the MFIs do not effectively serve the need for the microenterprises. There is need for a MSME finance model which is proven and widely understood. Mr NV Ramana, former CEO of the BASIX group said that livelihood finance concerns increasing income levels and generating employment and often requires long-term finance. MFIs, with weekly or monthly repayments are not geared towards livelihood finance. Dilip Chenoy, CEO&MD Natinal Skills Development Corporation said that the finance is not sufficient , we need to work with the entire ecosystem concerning the livelihood.

There were deliberations on wider financial inclusion which includes, social security for the poor, in the third breakaway session. Mr Arman Oza CEO Vimo Sewa, in his opening remark said that there is a need to include financial education to complete the set of services necessary for wider financial inclusion. Mr V Sathya Kumar, Executive Director - Microinsurance, LIC stated that, lapse of policies is one of the key challenges. This happens because agents involved in microinsurance are not able to continue servicing policies. He further stated that collaborative relationships with BC model have the potential to make distribution and servicing of microinsurance policies economically viable. Mr A G Das of PFRDA informed the audience about the Swabhiman and Swavalamban schemes of the government and stated that the participation in these schemes is improving which is encouraging. Mr Yogesh Gupta of Bajaj Allianz Life Insurance said that insurance is a complex product. For microinsurance to succeed there is a need to simplify the product as well as the associated procedures and documentation. Mr Kumar Sialabh, CEO - Vima Sewa, spoke about the challenges in providing health insurance, which include claim rejection or reduction as well as non-renewal of policies. He further emphasized the need to have a long term relationship between the insurer and the insured so that trust builds up on both sides.

The last session of the day focused on the old age income security for the unorganised sector. Mr AG Das, Chief General Manager and Mr RK Sharma, General Manager of PFRDA presented details of National Pension Scheme (NPS)-Swavalamban which is a pension scheme for the unorganised sector.  They also emphasised that MFIs and NGOs can act as aggregators for servicing the pension accounts. Organisations like Bandhan, ESAF and BWDA are already acting as aggregators and have helped in increasing the outreach of the Swavalamban scheme.