2. Financial market..
• Comprises of:
a) Banks
b) Microfinance institutions
c) Insurance.
Currently rural India has
32,000 rural bank branches, 46,000 rural and semi-
urban branches of MFIs, more than 96,000
cooperative institutions and over 135000 post offices.
Average annual household savings Rs 22,960
(2010, MART)
3. • 85% of household save cash at home
• 25% invest in gold
• Critical question before financial institutions
a) Micro savings
b) Frequent withdrawals.
4. Banking services..
• There are approx 185 million potentially bankable
people in rural India who don’t use formal banking
services because of reasons like poor access or usage
of services.
• Only 7% indian villages have banks and more than 80%
villages don’t have a bank branch within 2 km radios.
• Critical challenge before bankers are:
a) Low deposits
b) Low credit penetration
c) Low average value.
5. • Cost of opening and operating is high in
formal banking system on account of
additional costs incurred in reaching the bank
and the opportunity costs of low wages.
• Mostly people inclined towards informal
banking system which were risky, involve
lower transaction cost.
7. Business correspondent model(BC)
• Introduced in Jan 2006, provides no frill account
with 0 balance.
• The intermediaries chosen to spread banking
services are called business facilitator(BF) and
Business correspondent(BC)
• Facilitators identify borrowers , processes loan
application and create awareness about savings
and banking products
• Correspondents handle money directly collecting
deposits, disbursing loans, accepting loan
repayments, selling MF, LI, pension policies.
8. • Under BF model, banks utilize the network of
intermediaries such as non profit
organisations, MFIs, post offices, NBFCs and
retired bank employees
• Now a days banks are also using petrol
pumps, provision stores, pharmacies and fair
price shops in this model.
9. • Banks have also initiated credit plus services
under which it provides training facility for
small enterprises, farmers club, knowledge
centers, credit counseling centers,
10. Micro finance and credit services..
• Rural consumers need credit not only for
productive purposes but also for their
consumption needs.
• Microfinance is defined as the provision of
thrift, credit and other financial services and
products of very small amount to poor people
enable them to improve their quality of life.
11. Microfinance lending operates using
two models..
1) SHG-Bank linkage model
SHG financed directly by commercial banks(both
public and private), regional rural banks and
cooperative banks
2) MFI-Bank linkage model-This model covers the
financing of MFIs by banking agencies for on
lending to SHGs and other small borrowers
covered under microfinance sector.
The Microfinance industry grew from 8.1 billion in
2005 to Rs 215 billion by 2010.
12. • Kisan credit card:
• Introduced by the Govt in 1998-99 aims to
provide adequate and timely financial support
from the banking systems to farmers for their
short term credit needs, primarily for agriculture.
• By august 2010, 96 million KCCs had been issued
by commercial banks, cooperative banks, RRBs
and an amount of rs 437 billion had been
sanctioned under this scheme.
• As per KCC norm 20% of the credit limit can be
used for the purchase of non agricultural product.
14. Insurance..
• Life insurance: 41 billion
• Low penetration (25%) and high awareness (73%
) offers a great opportunity to grow.
• Currently we have one public sector company
and 22 private players.
• Penetration is expected to scale up to 35-42% by
2012.
• Rural and social obligation set up by the IRDA has
ensured that new players would serve the rural
market to improve penetration.
16. Distribution of insurance products..
• Non life insurance-direct mail, direct sales
force, insurance agents, agreement with the
corporations, banks, real estate companies etc
• Life insurance- Usually via agents. LIC has a network of
1.4 million agents.
• MFIs are important distribution channel for insurance
companies.
• Many companies are selling term group insurance
policies
• A few insurance companies have also toed up with
consumer goods companies like HUL, ITC etc to
leverage on the latter’s distribution network.
