A Report on Financial Inclusion

and Inclusive Growth:

A way forward…

SMCS
Swayamshree Micro Credit Services
Centre for Youth and Social Development M-75, Samanta Vihar, Near Nalco Chhak,
E-1, Institutional Area, Gangadhar Meher Marg, Bhubaneswar -751017
Bhubaneswar- 751013,
Tel: 0674-2302646
Tel. 0674-230774,2301725, Fax: 0674-2301226

3/23/2010
Background Note:

The objective before a present day economy is to ensure growth with distributive justice, in tune with the democratic
principle of the greatest happiness of the greatest number. Growth cannot be considered as an end in itself until it
translates into income generation and empowerment of the whole population, irrespective of areas and sectors. In
other words, growth has to be an ‘inclusive’ phenomenon and not confined to a few pockets of area and people,
which makes it “exclusive”.

Since finance is universally acknowledged as the most important contributor to growth and empowerment in modern
day context, financial inclusion has emerged as a concept uppermost before Governments, Planners, Financial Sector
players, Socio-economic Organisations etc. all across the globe. A definition of financial inclusion, embracing all its
essential aspects could be like this: “It is the delivery of financial services at an affordable cost to the vast sections of
disadvantaged and low income groups”. In the Indian context, a specialty will be the coverage of rural areas as the
main target, in view of the concentration of these vulnerable groups in such areas.

The dimension of poverty in Odisha has been very large and civil societies have been working relentlessly towards
poverty alleviation and “Microfinance is barely an instrument for the alleviation of poverty”. The major concern is,
both finance and community run on completely different models. While finance operates on exclusiveness,
community runs on the basis of inclusiveness. So it is a challenge for all the stake holders, to bring together both
inclusively and exclusivity or in other words, the community and finance together. It is true that “financial inclusion
and poverty alleviation cannot be separated”, but components like savings, investment, credit, insurance, and
remittance should be included in financial inclusion.

Empirical evidence suggests that financial services to the poor have positive social impacts; nutrition, health,
education, status of women etc. are all enhanced. There is a need to further look into the structural causes that lead
to livelihood failures for the marginalized groups. Simply, including the poor in the financial system could lead to
further exclusion in rural areas.
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CYSD organized a one-day workshop titled “Financial Inclusion in Odisha: A Way Forward” on 23 March 2009 in
which Government officials, Bank Officials, Academicians, MFIs, Civil Society representatives and Media
representatives participated. The workshop after a lot of meaningful discussion, concluded with “A way forward and
future action agenda”, which is as follows:

• As financial inclusion and financial sustainability go together, the implication is that the state has to play a
bigger role and there is need for commitment of resources for capacity building etc. to make financial
inclusion a reality.
• Use of creative adult learning techniques to promote financial literacy.
• As financial literacy is in the interest of the service providers, the service providers must invest in such
literacy programs.
• MFIs need appropriate product design.
• MFIs need to be well equipped with information on various insurance products in order to pass them on to
the beneficiaries.

Following the previous years’ Workshop, CYSD proposes to conduct a follow-up workshop with the objective of:

• Taking stock of the present status, issues & challenges in Financial Inclusion and Inclusive Growth in Odisha,
particularly with regard to women entrepreneurs
• Experiences and practices being followed for financial inclusion in Odisha

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 • Collaboration between various agencies like NGOs-MFIs, Banks and Govt etc. for better Financial Inclusion.
• Strategy and approach towards total financial inclusion
• Development of a common forum to discuss the issues and challenges and connect with a way forward for
Financial Inclusion and Inclusive Growth and last but not the least
• To follow-up on the previous years’ Action Agenda

Government is aiming towards Total Financial Inclusion by 2012. However, the gap in between the overall
requirements and coverage is huge and, it is more in the case of marginalized groups. To achieve this objective, there
is a necessity to bridge the gaps focusing on the neglected areas. The proposed workshop is a small step towards
meeting this objective.

Proposed Participants – Financial Institutions, NGO Functionaries, MFIs, Marketing Agencies, Women
Entrepreneurs, State Govt. Officials and academics.

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Executive Summary:
Celebrating the annual day of the organization, CYSD in association with Swayamshree Micro Credit Services (SMCS)
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arranged a workshop on 23 March, 2010 on Financial Inclusion and Inclusive Growth. The workshop was attended
by Government representatives, researchers, academicians, bankers, NGO and MFI personnel, SHG leaders and
members, media representatives, etc.

The workshop began with lighting of the lamp for the day and defining the basic objectives

• To redefine the terms Financial Inclusion and Inclusive growth.

• To highlight on factors associated with the implementation of the terms and the barriers midway.
• To clarity the respective roles of all the stake holders and pattern of execution in future.

The first session on “Financial Inclusion and Inclusive Growth in Odisha; a key note address” sited focus on the basic
issues of the topic and a responsible discussion by the participants. Shri Kaza Sudhakar, Regional Director Reserve
Bank of India in his key note address categorized Financial inclusion into two heads such as:

• Supply chain in the entire lending process

• Improvement of human resource endowment and reduction of financial risk.

Shri C.H. Narasimha Rao, Chief General Manager, State Bank of India stated that a drastic change is necessary in the
spoon feeding mechanism which is a leaning backward process followed today in financial inclusion and advocated
mobile banking as a solution step forward which can provide a drastic change in the present scenario.

Smart cards” as a solution to inclusion process was the idea behind the words of Shri K.K. Soni Chief Regional
Manager Indian Overseas Bank to expand the accessibility of customers.
The second session “Presentation on last year work shop way forward and Concerns/Issues/Challenges of women
entrepreneurs with regard to financial inclusion and inclusive growth” witnessed a discussion among the two
groups formed with respective members from bank, MFIs and NGO personnel and that of the women entrepreneurs
jotting down the important issues to be focused in the next session. A presentation by Shri Ajit Bastia, Shri Ramesh
Jena and Shri Benudhar Sahu were made which focused on:

The State’s role towards Financial Inclusion

Use of creative adult learning techniques

Focus on financial literacy

Provide Business Development Services (BDS)

The third session “Sharing of group work on progress and recommendations” was led by Shrimati Damayanti
Mohanta representing women entrepreneurs and Shri Bibhu Prasad Mohanty representing Banks, MFIs and NGO
personnel. Several issues regarding financial literacy, capacity building and product modification were raised. The
session was chaired by Shri Prasanna Kumar Mishra IAS (Rtd.) Former Secretary Got. Of India and views presented by
Prof. Benudhar Bhuyan.

The fourth session “Financial inclusion and inclusive growth; role of various stake holders and way forward and
future strategy for inclusive growth” was presided over by Dr. Anup Kumar Dash, Chairman SMCS, Shri. Sanatan
Sethy, General Manager, RBI, Shri. M.K. Mudgal, General Manager, NABARD, Shri. Srikant Das, Assistant General
Manager SIDBI and Prof. Benudhar Bhuyan, Academic Head, MBA, Agri Business, Utkal University were in the panel.
Shri Sanatan Sethy, General Manger RBI focused on the financial literacy as well the dilemma between barriers and
lacunae from both shores of financial inclusion.
Shri. M.K. Mudgal, General Manager, NABARD categorized the entire inclusion initiative under the following heads:
• Saving
• Credit
• Insurance and
• Remittance

Dr.B. Bhuyan, Head Agri-business Centre for Agri-Management, Utkal University, Bhubaneswar stated that Inclusive
growth can be achieved only when the rural poor undertakes any micro enterprise for his livelihood.

Shri Srikant Das, AGM, SIDBI emphasized on the Prime Lending Rate (PLR) reduction as a initial measure towards the
reduction of the interest rates by the respective MFIs.

In the “way forward and future strategy for inclusive growth” agenda, Shri. Parashuram Nayak, Director, SMCS,
noted the following aspects:

Introduction of no-frills accounts with low or nil minimum stipulated balances as well as charges to expand
the outreach of such accounts.

A simplified mechanism for settlement of loans.

The need for expansion of formal banking structure to the un-banked areas with SHGs and NGO/MFIs
working as vehicle of communication either Field Facilitator or Business Correspondents.

Contribution in sharpening the contradiction between the financially and socially excluded mass and the
representatives of financial capital.

Fulfilling the aspirations of the masses for genuine financial and social inclusion.

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INTRODUCING THE WORKSHOP:

The workshop begins:

Introducing the guests and the purpose of the programme, Shri. Parashuram Nayak, Director, SMCS,
facilitated the commencement of the workshop proceedings. The concept note on the workshop was
shared with the participants. The welcome address was delivered by Shri P.K. Sahoo, Chairman, CYSD, who
portrayed the fair picture of CYSD along with the diversified projects undertaken by them. He laid emphasis
on the following aspects:

• Importance of financial inclusion and inclusive growth in the context of Odisha.

• Healthy viable and sustainable voluntary action promotion.
• Micro-Entrepreneurship facilitation and Income augmentation.
• Enhancement of the rising power of women SHGs.
• Preparation of a road map for Odisha for coming loyears.
• Emphasis on Contribution at the individual level.
• Role of policy makers in the entire context.
• Regular follow up and continuous nurturing of the process.
THE SESSIONS OF THE WORKSHOP:

Shri. Parashuram Nayak, Director, SMCS discussed the pattern of the day long workshop which was
composed of IV sessions altogether.

Session I : Financial Inclusion and Inclusive Growth in Odisha; a key note address and
special address.

Session II : Presentation on last year Workshop - Way forward and

Concerns/Issues/Challenges of women entrepreneurs with regard to financial
inclusion and inclusive growth.

Session III : Sharing of group work on progress and recommendations

Session IV : Financial inclusion and inclusive growth; role of various stake holders and way
forward and future strategy for inclusive growth.

Shri Nayak mention that in the first session key note address will be delivered by Shri Kaza Sudhakar,
Regional Director, Reserve Bank of India and special address will be delivered by Shri C.H. Narasimha Rao,
Chief General Manager State Bank of India and Shri K.K. Soni, Chief Regional Manger Indian Overseas Bank.
In the second session the recommendations of last year workshop will be presented by CYSD representative
Shri Ajit Bastia and Shri Benudhar Sahu of SMCS. In the third session the recommendation of the last year
and progress so far will be discussed in two groups and in the forth session the recommendation of both the
groups will be presented and discussed in the general assembly. At the end the summary of this workshop
will be arrived at.
Session I :
Financial Inclusion and Inclusive Growth in Odisha; a key note address

The esteemed guest on the panel for this session comprised of Shri Kaza Sudhakar, Regional Director, RBI,
Shri C.H. Narasimha Rao, Chief General Manager, State Bank of India, BBSR Circle, and Shri K.K. Soni, Deputy
General Manager, Indian Overseas Bank, Regional Office, BBSR. Shri. Parashuram Nayak, Director, SMCS
facilitated the entire session.

Shri Kaza Sudhakar, Regional Director, RBI, in his key note address describing financial inclusion and its
importance spoke about the banking correspondent policy, 2006. He also mentioned about the sole
acceptance by AP govt. regarding the SBI pilot projects all over the country. “Some farmers of Ganjam
district never entered a bank branch” were the words expressed by him and the reason being the distant
location of the bank branches from the farmer’s nativity. Remittance is hampered as the money comes
home by all informal means whatever possible. A minimum bank account does a lot as a solution to this
problem as explained by him. 1/3 of the entire lending is formal in Indian context and the rest being
informal and this gets worse off in the North and North East states as stated by him. The formal lending
scenario is better in western region of India and exemplary in the southern region.

Financial inclusion can be categorized into two heads according to him:

• Supply chain in the entire lending process

• Improvement of human resource endowment and reduction of financial risk
He gave prior importance to rural infrastructure as building block for financial inclusion as well as broad
basing of Banking Correspondents/Banking Facilitators model.
He further focused on the following aspects:

• Vocational training and financial literacy for all poor people.

• Relaxation of norms and regulations regarding lending procedure by Banks/Government.
• Total cost of burden on a customer for availing the loan as a backdrop for financial inclusion.
• Differential cost analysis on the interest rate as a clear picture to the customer.
• >2000 population in a village is a problem regarding the establishment of a bank branch in Odisha
context.
• Reliance on technology is needed.
• Ground reality has to be adjudged as a permanent solution to the inclusion process.
• Role of farmers has to come into play for making policies conducive.

Shri. C.H. Narasimha Rao, Chief General Manager, State Bank of India, described the role of banks for
inclusive growth. He mentioned that the existing 625 branches of SBI in the State are in the service of
Odisha. He
distinguished between
inclusive growth and
inequitable growth. He
stated that the
institution of Joint
family was a booster
for asset creation in the
past in India which
lacks today due to the
nuclear family concept.
Hence financial
inclusion will have to
include all families.

He justified that a
drastic change is
necessary in the spoon
feeding mechanism
which is leaning
towards backward
process. A distant branch is barrier towards financial inclusion of the families. The village banking/mobile
banking are immediate solution for the problems. This would ensure financial inclusion to a handsome
extent as per his words.

Mobile banking as a solution step to the existing issues can provide a drastic change in the present scenario.
Quoting the example of Nigeria, he stated that almost all financial transactions are being carried out via
mobile banking. India on the other hand has a long way to go forward on the similar track. For all these,
need for financial literacy was advocated by him strongly for both educated and uneducated person as even
educated persons are not aware of various banking facilities available for them.

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Shri. K.K. Soni, DGM IOB stressed on the banking correspondent model as an important tool for financial
inclusion. He also agreed to the problems faced by villagers and the customers regarding the distant
branches of banks for opening of bank accounts.

“Smart cards” as a solution to inclusion was the idea which he said could strengthen accessibility
enhancement. Access to a larger base of customers is possible through smart card introduction. Financial
literacy was another aspect for utmost consideration which he stressed and was of the firm view that it is a
better mode of transaction with the existing as well as the upcoming customers in the process of financial
inclusion. The panel answered a few question from the SHG members and Federation representative mostly
on the difficulties in opening a bank account.

Session II: Presentation on last year work shop way forward and Concerns/Issues/Challenges of women
entrepreneurs with regard to financial inclusion and inclusive growth.

The action summary of the workshop of the previous year and way forward was presented by Shri. Ajit
Bastia CYSD, Shri. Ramesh Jena, MART and Shri Benudhar Sahu, SMCS highlighting the following aspects:

The State has to play a bigger role to make Financial Inclusion a reality
• Poverty alleviation and micro Finance cannot be separated
• All should promote Community Driven Financial Institutions (CDFI) for larger financial inclusion
• State should create platform for capacity building programmes

Use of creative adult learning techniques to promote financial literacy

• Increasing financial literacy initiatives
• Capacity building of women members of SHGs on credit planning, micro insurance, financial
management vis-à-vis resource and time management
• Promote and sustain SHG led micro-enterprises

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Service providers in micro finance sector should focus on financial literacy

Financial services must be backed by financial literacy

• People should know ‘why to take loan and how to utilize it’
• Promote change makers and role models
• Disseminate best practices
• MFIs should come to people with appropriate product design

Provide Business Development Services (BDS) and backward and forward linkages to the
entrepreneurs

Focus on land based cash income options in agriculture, horticulture and allied sectors

Review interest and repayment terms in reference to gestation period

 Banks need to partner with CDFIs

 Soft loan/capital to be available to CDFIs at lower rate of interest
 Special assistance from central ministries and agencies should be leveraged for vulnerable
groups.

After this the assembly was divided into two groups and they were to present and update on the last year’s
proceedings to the assembly in the next session.

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Session III : Sharing of group work on progress and recommendations

Shri P. K. Mishra, IAS (Retd.) Former Secretary Govt. of India presided over the session. Panelists were Dr. B.
Bhuyan, Head Agri-business Centre for Agri-Management, Utkal University, Bhubaneswar and Shri Sanatan
Sethi, General Manger Reserve Bank of India. The group comprising of women entrepreneurs from different
districts discussed the issue. This was facilitated by the Ms Dharitri Divedi of RGVN, Ms Kalpana Mohapatra
of CYSD, Ms Amiyabala Patnaik of SMCS & Ms Chapala Patnaik of AHWAN. Shrimati Damayanti Maholl from
Karanjia presented the report. She listed out the following points on behalf of the groups for
reconsideration and adequate focus:

• Problem of raw material procurement and the issue of where from to procure.
• Marketing of produce as a major dilemma for the SHGs.
• No funds are available as of now for ensuring a sustainable business.
• Relationship among NGOs and MFIs having a positive approach to some SHGs in comparison to the
rest and the existing ideology of favouring some.
• Lesser emphasis on previously formed SHGs as compared to the ones recently registered.
• Clashes in views of groups on the approach towards financial inclusion.
• Inadequate training being a major barrier towards the SHG capacity building.
• ICDS promoted groups are being favoured by the Govt. Department at the block level and other
SHGs promoted by NGOs/MFis are being discriminated.
• Repayment schedule is un-realistic and has to be aligned to ensure easier repayment.
• Insurance claims not being settled efficiently & promptly.
• Govt. and NGO coordination has to be ensured for the overall development of SHGs.
Shri Sanatan Sethi, General Manager Reserve
Bank of India stated that there are difficulties in
the process of financial inclusion from various
sectors. However Reserve Bank of India has been
facilitating the process and senior officials of RBI
are visiting villages to find out the real situation
and are explaining the real benefit of financial
inclusion and their lifestyle. RBI also has published
a lot of literature in local language for the benefit
of the poor. He stressed that financial literacy and
financial inclusion must go hard in hard to have
inclusive growth in the Country.

Dr.B. Bhuyan, Head Agri-business Centre for Agri-Management, Utkal University, Bhubaneswar mentioned
from his practical experience from Tripura that
financial inclusion and inclusive growth is
possible only when the person undertakes any
livelihood activities and earns some income.
Hence he led emphasis on rural micro-
enterprises which will help the poor to be
attracted towards financial inclusion.

The other group representing the Banks, MFIs and NGO discussed the issue and their report was presented
by Shri Bibhu Prasad Mohanty of Mission Shakti, Orissa. He stated the following points:

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Problems of opening of no frill bank accounts

Skill development for all stakeholders

• Identification of sub-sector
• Production and services
• Value chain analysis
• Innovations, science and technology, awareness on entitlement,
• Market driven approaches

Education on investment

• Use of appropriate medium of literacy

• Reactivation and revitalization of Block level and District level Coordination by administration-
Mission Shakti Mandate
• Emphasis on Business Correspondent models
• Emphasis on forest and agri- horti interactive systems with packages
• Product design should also include capacity building and market as the key components
• Risk Management should include relevant science and technology , traditional methods of storage,
packaging, networking, marketing etc in addition to insurance
• Promotion of SHG products under Collective marketing
• Capacity building of service providers
• Linking with Mission Shakti
• Ensuing policy of WSHG empowerment should spell clearly the role of SHGs, Federations, NGOs,
MFIs, CDFIs, etc.
• Documentation of Best practices and sharing those among MFI practitioners and Govt.
• Enforcement process with clear role delineation should be promoted among all the stakeholders
• Marketing strategy to be built up as per the product requirement and market establishment.
• Interest rates to be altered.
• Ground level implementation.

Shri P. K. Mishra while summarizing

the session’s proceedings
mentioned that for sustainable
development of the poor, while
financial inclusion is a step forward,
financial literacy, coordination
amongst various stake holders in the
field, capacity development of all are
essential. He narrated some of his
personal experiences while he was
Collector Sundargarh and mentioned
that weeding out money lenders
from the village is a task which the
development personnel, volunteers,
MFIs , NGOs and local line
department officials of the Govt.
must whole heartedly pursue. The recommendation of the group was then adopted to be followed by all
the actors.

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Session IV : Financial inclusion and inclusive growth; role of various stake holders and way
forward and future strategy for inclusive growth.

Prof. Anup Kumar Dash, Chairman SMCS presided over the session. The panelists were Shri. M.K. Mudgal,
GM, NABARD, Shri Srikant Das, Assistant General Manager, SIDBI and Shri S.C. Sahoo APD Mission Shakti.
Shri Mudgal focused on the ground level implementation of financial inclusion as a whole. Hence he
categorized the entire inclusion initiative under the following heads:

• Saving
• Credit
• Insurance and
• Remittance

He mentioned that Odisha stands fourth in financial exclusion with a 60 – 70 % of the population being
excluded. Talking about the Zero balance account he focused on the minimal transaction in the entire
financial year associated with it. Banking correspondent model has to be implemented in all panchayats and
he said that investment of Rs.100 crores in the coming 2 years has been planned to be spent for this training
by NABARD. Stress on financial literacy was a definite solution to the inclusion process and has to be given
proper focus.

Pilot project and data Sheet on financial exclusion strategy for opening of for bank account for all has to be
carried out. Regular market for street vendors can be a serious option of the elevation of this segment of
the society in financial inclusion.

He advocated that short sighted approach of today will not last long for the future. It will ultimately result in
the harsh policies affecting the bottom of the pyramid to come.

He therefore advocated for a revised lending norm having a long term vision. Asset creation is difficult with
lending of small amounts. He stressed that the verge amount which is provided is just enough for a hand to
mouth and not enough asset creation.

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He said that about the relevance of the repayment of the loan by simply going for another loan is a costly
solution and will end up in the vicious cycle of poverty.

Enterprise creation is an issue associated with marketing facilities and requested all stake holders to work in
this direction to bring in inclusive growth. He also expressed a generous thought of publishing a book on
financial inclusion in vernacular language and assured all support in this respect by NABARD.

Shri Srikant Das, AGM, SIDBI mentioned prime

lending rate (PLR) reduction as a initial measure
towards the reduction of the interest rates by the
respective MFIs as the poor women are paying
higher interests to the MFIs. Any sole effort
cannot significantly change the entire existing
scenario of financial inclusion according to his
point of view & all actors must come together to
bring in inclusive growth.

He also supported the notion of accelerating the

financial literacy aspect for the ultimate cause of
ground implementation of the issues raised in the
workshop.

Shri S.C. Sahoo APD TRIPTI mentioned that TRIPTI is trying to bring in financial inclusion of the poor in the
coastal districts of Orissa. The development of self help group of the poor women for their sustainable
livelihood.

Shri Sahoo mentioned from his field

experience as BDO that people are
reluctant to go to the Banks because of
complying with algid formalities and the
distance of bank branches. He also
mentioned TRIPI Project is trying to help
the poor women in the coastal districts of
Orissa to organize them selves into real
vibrant self help groups which will bring in
real benefit to them. This will pave way for
inclusive growth.

Participating in the discussion by Shri. Parashuram Nayak, Director, SMCS noted the following aspects:

Introduction of no-frills accounts with low or nil minimum stipulated balances as well as charges to
expand the outreach of such accounts.

A simplified mechanism for settlement of loans.

The need for expansion of formal banking structure to the unbanked areas with SHGs and NGOs
working in a parallel mode of communication.

Contribution in sharpening the contradiction between the financially and socially excluded mass
and the representatives of financial capital.

Fulfilling the aspirations of the masses for genuine financial and social inclusion.

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Dr. Anup Dash in his observation mentioned that
all the programmes meant for poor should be
implemented in a systematic manner with focus
on economic and social development of the
beneficiaries. The community must participate
and own the programme for their development.
All the stake holders should be oriented to
accept the poor and their community as
partners of development. The requirement of
social needs like housing, health, education,
marriage and a little bit of consumption request
should be taken into account while assessing
need of the poor and addressing the issue as a
whole so that inclusive growth can be a
possibility.

VOTE OF THANKS

Ms Amiyabala Patnaik of SMCS summarized the days proceedings and requested all the participants to
please take note of the views The day long
discussion came to end with a new hope of
beginning of a completely fresh initiative to
actually realize some of the conclusion of the
day’s discussion on Financial Inclusion and
Inclusive Growth. She promised that, the
proceedings of the workshop will be forwarded
to all the participants. She profusely thanked on
behalf of CYSD and SMCS to all the panelists,
participants, researchers, practitioners,
academicians and media persons for their
valuable contribution to the workshop and
finally closed the day.

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