Technology financial inclusion

Implications of Technology
On Financial Inclusion
A Joint Indian Microfinance Sector Research Project
Skolkovo Moscow School of Management &
PlaNet Finance
With Special Thanks to SaDhan & YES Bank
April-September 2013

Table of Contents
• Project Overview, Executive Summary & Key Findings
• Project Objectives & Scope
• What Is Financial Inclusion?
• Microfinance Sector in India
• Technology and Financial Inclusion
• Financial Inclusion Models:
Business Correspondent Model
IMPS
Fino Paytech Case
EKO India Financial Services
Mobile Network Operators: Mobile Wallets
Airtel Money: Open and Closed mWallet
M-Pesa in India and Kenya
YES Money
Alpha Payment Services: Union Bank Money and Alpha Money
Joint Liability Group Model
• Stakeholders & Team
• Glossary
• Appendix
Financial Inclusion in India: A Market Map
Government Initiatives
2

Project Overview
• This research study ‘Implications of Technology On Financial Inclusion’ endeavors to study the various models
that use technology for Financial Inclusion . Due to the number of different models the study has endeavored to
primarily bring an understanding of the operational details of these models for those working in the
microfinance sector and it touches upon some basic questions .
• The models studied are :
Fino Paytech Case
YES Money
Phase II of the study would be to closely examine the successes and limitations of any of these models already
being operated within an MFI or alternatively seed some of these pilots within MFIs.
3

Executive Summary
4
India is one of the most populated countries in the world, and yet approximately 40% of the grassroots
population do not have access to basic banking facilities.
• The Indian government via the Reserve Bank of India (RBI) has set the goal of growing the country’s
banked population through financial inclusion via a variety of favorable models and regulations.
• In 2011 a law was passed to mandate banks to open 25% of new branches in rural areas.
• The government opened new channels for banks to allow them reach a larger population base. In
August 2010 the RBI made for-profit organizations eligible to become BC (business correspondence)
agents.
• Several organizations moved into the sector by providing no frills accounts and basic financial services
to unbanked populations (to date, almost 100 million NFAs have been opened across India).
• Other players in the for-profit sector as well as NGOs have all adapted models with the goal of pursuing
financial inclusion. These include “mobile wallets” by telecommunication providers.
• It seems that, even though all major building blocks and regulations are in place, the process of
financial inclusion is not accelerating.
• A lack of education and long term sustainable business models are the major challenges for financial
inclusion.

Key Findings (1/2)
5
• Both Indian state and private banks operate in rural areas and are obliged to meet regulatory requirements.
• At this point the BC model seems to have the largest reach but the model is still questionable in terms of
viability and sustainability.
• The economic viability of bank’s rural operations at this point is questionable.
• State banks concentrate on the volume of accounts opened (no frill accounts) for villagers, but many of these
accounts (up to 75%) remain inactive.
• Private banks concentrate on the the operational efficiency of newly opened bank accounts.
• State banks subsidize transaction fees for rural customers as well as pay BC agents fixed salary and volume
based commissions (on the other hand private banks are very accurate in BS management).
• The 2010 crisis created a setback for MFIs but now the trends are coming back to the record levels prior to
the 2010 crisis.
• Banks claim that they do not compete with MFIs and MFIs play a complementary role; however at times the
roles of the two are unclear.
• Although mBanking represents as an opportunity for Banks to reduce operational and transaction
costs, particularly to operate in rural areas, it has not really accelerated.

Key Findings (2/2)
6
• Mobile Wallets are increasingly mostly used for peer-to-peer remittances by migrant workers who send
money back to villages.
• There are two types of Mobile Wallet accounts that allow fund transfers:
 linked to bank accounts
 unlinked
• mWallets are usually ‘closed’ systems;
• mWallet coverage is restricted by cash in/cash out ability, it is directly dependent on traditional channels like
ATMs or BCs where the user can deposit/windraw money.
• Average transaction costs for users are usually very high (around 2%).
• However, informal channels are even more expensive and unsecure!
• The best way to reduce costs for financial institutions is to employ economies of scale.
• Restrictions for mobile transaction volume are 5-10 000 INR.

IMPS
Fino Paytech Case
YES Money
• Glossary
• Appendix
7

Project Objectives
3. Applying these technologies in microfinance space to help increase reach
and lower costs
Improving
financial
literacy
Bringing together all
stakeholders
Focusing on
sustainability
Regulatory
changes
2. Understanding why FI is not accelerating despite there being a fertile
environment for it
Is technology right for facilitating FI?
Assessing needs for regulatory
changes
1. Understanding technological models for financial inclusion and assessing
all technological aspects impacting the goal of FI
Understanding the policy of FI
8
Overall Objective
To build
understanding
and transparency
around the
technological
activity to
facilitate
microfinance
network to
leverage this
understanding
and play a
valuable
leadership role in
the goal of FI.

Project Scope
9
Redefine rolesAnalyze
situation
Find the
bottleneck
Where the
microfinance
sector stands
Interview all the players in the process (Banks /
Telecom companies / other Tech Providers)
Find out why the system is not accelerating
Find out what are the costs and who could/should
subsidize
OUT OF SCOPE
• People without
mobile phones
• Advising clients
how to invest
• Gathering feedback
from clients on the
technology
Find out how clients can become satisfied
PLAYERS
• Telecommunication
Providers
• Banks
• Technology Service
Providers
• Consumers
• The Government

IMPS
Fino Paytech Case
YES Money
• Glossary
• Appendix
10

What Is Financial Inclusion?
FINANCIAL INCLUSION
11
Financial inclusion is the process of
ensuring access to appropriate
financial products and services
needed by vulnerable groups such
as weaker sections and low income
groups at an affordable cost in a fair
and transparent manner by
mainstream institutional players.
Source: http://www.rbi.org.in/ , COAI
1. Ability to use formal transaction
channels
2. Ability to use value added services
Savings
Credit
Remittances
Insurance
FI Products

Life Cycle
Savings  Prepare for
Old Age
Credit Managment,
Insurance
Working Life
Remittance Facilities 
Support Others
Insurance Deal with
Emergencies
Loans  Birth,
Education, Marriage,
Acquisitions Income
Generation
12
Why the grassroots need financial products:

IMPS
Fino Paytech Case
YES Money
• Glossary
• Appendix
13

• According to BBC News (July 18, 2010) ‘There are more poor’ in India than Africa. 8 Indian states
account for more poor people than in the 26 poorest African countries combined. The Indian states,
including Bihar, Uttar Pradesh and West Bengal, have 421 million “poor” people, the study found.
This is more than the 410 million poor the study found in the 26 poorest African countries.
• The demand for microfinance services – savings, credit and insurance is apparently insatiable in
India. In that sense, India is perhaps the largest emerging market for microfinance services. The
Planning Commission in 2004-05 estimated that 27.5% of the total population in India is below
poverty line.
• Currently, a total population of 1.1 billion is being served by 50,000 commercial banks, 12,000 co-
operative bank offices, 15,000 regional rural banks and 100,000 primary agriculture societies.
Despite the density and robustness of the formal Indian financial system, it has failed to reach the
deprived segment, leaving approximately 135 million households entirely unbanked.
The Microfinance Sector in India
14
The Indian microfinance industry will cross 90 million borrowers and $10 Billion in loan portfolio by
2014 and will require a huge capital inflow both in debt and equity.

All Stakeholders
15
Grassroots
RBI
BANKS
NCPI
MFIs
MNOs
GOVT.
TECHNOLOGY
SERVICE
PROVIDERS
TRAI
SADHANPLANET
FINANCE

16
Indian Microfinance Touches 90M+ Low Income People
SHG and MFI Outreach 94.3 Million Peak Loan Portfolio of SHGs and MFIs
Milllions Billions
• Microfinance Total Individuals Reached : 90 Million
• Microfinance Total Loan Portfolio : 590 Billion (Rs.57000cr) € 6.98 Bn
• SHG-Bank Linkage Outreach 60M (6crores); SHG Loan Portfolio 393M (Rs.39375cr) € 4.65 Bn
• NBFC-MFI Outreach 30M (3crores); NBFC-MFI Loan Portfolio 209M (Rs.20913cr) € 2.47 Bn
Source : Microfinance State of Sector Report 2012
Rs.590 Bn
€ 6.98 Bn
90 Mn
€ 2.47 Bn
€ 4.65 Bn

17
MFIs Are Closest to BOP Customers
• MFIs have slowly started using modern technology including
mobile and mobile internet to increase efficiency and reduce
operation costs
• Mobile applications connected via GPRS for field managers
• MFIs have taken small steps to educate customers on mobile
technology
• MFIs starts acting as BC agent for banks
Banks
Person/SHG/JLG
MFI (FP/NFP)
Average 14%
annual credit
Average
24(14+10%)
annual credit
FA (facilitator agent)
• Most customers have mobile phones and saving accounts
(NFA) in banks
• Customers are slowly moving towards using mobile banking
for their saving accounts especially their remittances
• Customers at the BOP prefer loans through MFIs
• No collateral needed
• Minimum documents and time required
• Convenient and transparent, face to face relationship
• Very difficult to get loans from banks

IMPS
Fino Paytech Case
YES Money
• Glossary
• Appendix
18

Banks & Financial Inclusion Profitability
19
Post 60 years of independence, the banking sector has only 320 million savings accounts. Over
400-700 million people are still not included in the banking process.
Almost all models need to be combined with a bank account, which means that there is a huge
market for banks in the sector.
Although several banks have taken small steps, the macro picture is that banks still see no commercial
advantage/business case in investing in FI as they see no savings potential in the rural last mile.
The importance of livelihood linkages, credit, financial literacy and capacity-building is not even on
the horizon.
Banks have large investments in old legacy systems which may not be ready to be scaled up to
incorporate the mobile banking technology for enrolling customers/merchants and scaling it up.
Banks would need to extensively train their staff to sustain the customer/merchant move towards
mobile banking – the operational cost of FI may be too high for commercial banks.
Opening of no-frill accounts is the only obsession, the active percentage of these accounts and
how many have overdraft facilities are questionable points.
Even though there is a massive market in terms of volume, banks do not see FI initiatives as profitable.

20
Why Pair Technology & Financial Inclusion?
• The RBI (Reserve Bank of India) is mandating a widening of the base that is financially included
• The microfinance sector leads the financial inclusion space, reaching out to nearly 90 million people at
the bottom of the pyramid - need to pay close attention and understand the situation of financial
inclusion ramp-up
• The microfinance sector should ask itself the questions: why hasn’t it played a larger role in leading
this topic? Is the sector not obligated to? Is it not indeed best placed to do so?
• The microfinance industry needs to speedily understand what has worked, what has not worked, what
are the lessons and how can the sector better leverage the immense effort put in by governments,
banks, and technology players such as Telcos & (TSPs)
Financial Inclusion (FI) directly impacts the microfinance space we work in

21
The Study of Technology & Financial inclusion
• FINO
• EKO
• ALPHA MONEY
• YES MONEY
• AIRTEL MONEY
• VODAFONE MPESA
• Are these models successful ?
• Do they help financially include people ? How many
people have been financially included by these models -
what are the statistics?
• Which has worked the best?
• What are our takeaways?
Pairing Technology & FI represents a good business model for several organizations to explore
Why as a sector are we ignoring all this ?
Why are MFIs not partnering and participating proactively in these launches ?

Banking Channels To Acquire & Serve Customers
22
ATMs
Branches
PoS
CSP
Direct
Banking
Channel
BC
Channel BC (TSP)
E
N
D
C
U
S
T
O
M
E
R
Internet banks
MNO’s POS
• The current regulatory framework allows MNO Banks to try different partnerships and show proof of success.
• Players in the Financial Inclusion space have to focus not on single service, but provide a number of services
instead because of decreasing margin and growth of competition.
The Only Way For FI Players To Be Profitable Is To Provide A Bouquet Of Customer Services
MFI
Channel
Brick & mortar branch
Mobile WalletMNOMNO
Channel

End-To-End Customer Banking Channels
CustomerBank
MNO
network
SMS
server
BTS
Bank-MNO interface SMS
Back-end Service Termination Front-end customer service
Back
haul
Customer
MNO
network
USSD
server
Bank BTS
Bank-MNO interface USS
D
Back
haul
Mobile
banking
model
Bank-MNO
Profit
sharing
model
CustomerBank
MNO
network
GPRS
Gateway
BTS
USS
D
Back
haul
Internet
End-to-End seamless customer service
Transparent service provision tunnel

The Evolution of MFI-NGOs/SHPIs/Societies
24
MFIs & MFI-NGOs need to re-engineer themselves or become redundant
• There are various technological options available which need to be assessed and understood by all
those working in the space of microfinance. Overall transparency in the sector needs to be increased.
• All key players can work together. This can be a win-win partnership for all and, if successful, this new
model can be replicated and scaled up to reach a larger audience. The sharing of technology can also
increase overall profitability for the players.
• MFIs/NGOs are in danger of being pushed out of the market. There could be a chance that MNOs will
replace them by linking consumers straight to no frills accounts with an overdraft of INR.
• Banks may also push MFIs out of the market if they start to see profitability in the FI sector.

IMPS
Fino Paytech Case
YES Money
• Glossary
• Appendix
25

26
Models Studied In Depth
FINO
EKO
Alpha Payment Services: Union Bank
Money and Alpha Money
Interbank Mobile Payment Service (IMPS)
YES Money

In Jan 2006, the Reserve Bank of India issued a new set of guidelines allowing banks to employ two
categories of intermediaries - Business Correspondents (BCs) and Business Facilitators (BFs) - to
expand their outreach. According to the guidelines the BCs are permitted to carry out transactions
on behalf of the bank as agents. The BFs can refer clients, pursue the clients’ proposal and facilitate
bank transactions, but cannot transact on behalf of the bank.
The BC Model is driven by the Indian government
27

The Business Correspondent (BC) model
• Technology makes serving the BOP through the BC model economically viable.
• The BC model allows for a reduction of the cost per transaction of up to Rs 5-15. (0.08 – 0.25 USD)
• Cheaper than ATM transaction costs
• The BC model allows clients to open No Frill saving accounts and execute money transfers
P2P, P2M, & G2P, and in some areas they can even receive loans.
28
The Business Correspondent (BC) model is based on modern technology. Mobile internet, secure ID
(fingerprint scans) and smart cards are paired together with agents acting as “Business Correspondents”
to bring banking services to peoples doorsteps.

Technology Makes Serving BOP Economically Viable
Number of
villages
The Business Correspondent (BC) model based on using
modern technology: mobile internet, secure ID (fingerprint
scan) and smart card together with agents allow to reduce
cost for transaction up to Rs 5-15 which is cheaper than
ATM’s transaction cost and makes serving rural and poor
customers economically viable
BC opens No Frill saving accounts and execute money
transfers P2P, P2M, G2P, in some areas they issue loans to
customers.
Fino is best example of BC model with 60 mln customers across India
0.00
50.00
100.00
150.00
200.00
250.00
300.00
2010 2011 2012 2013 2014 2015 2016 2017
millions
No-ICT NFA (m) ICT-accounts (m)

Sustainability of the BC Banking model
30
Organizations or
individuals that
organize and offer one
or more points of
transaction outside of
bank branches. The
BCs organize and
manage a network of
such transaction points
in partnership with a
bank.
Business
Correspondents
Individuals, shops or
other outlets that are
responsible for direct
contact with the clients.
CSPs open bank
accounts, conduct KYC,
cash out withdrawals,
receive payments and in
some cases extend
credit. Include ATMs &
Mini- ATMs.
Customer Service
Points (CSPs)
1 2 3
Technology Vendors
There are three major components contributing to the sustainability of the BC banking model
Provide a range of
hardware and
processing capacity
and connectivity
which can link
clients to BCs and
BCs to the bank
The bank’s revenue may come from the extension of services: accounts, savings, credit and
payments
• For the channel to become financially viable, regulations require that all revenue from the services
be collected by the bank.
• The Tech Vendors, BCs and CSPs are not permitted to charge fees to clients

Bank Perspective: Challenges to the BC Model
31
• Cash Handling - Allowing BCs to handle cash is the biggest challenge. 99% of the financial transactions are in
cash, warranting high-cost cash-handling operations and added operational risks
• Irregular Accounting - Irregularities have been observed in accounting of clients’ withdrawals and deposits by BCs
and as a result there are delays in accounting the banking transactions with the Bank by the BC.
• Client Profile - Recipients of BC services are mostly illiterate and unfamiliar with technology rendering them
susceptible to misguidance by the BCs.
• Fraud & Misappropriation - Since the BCs’ staff operate individually without any line supervision, the risk of fraud
and misappropriation is higher.
• Inactive ‘No Frills Accounts’ – The majority of No Frill Accounts opened by BCs are not operational. In some
locations that have achieved 100% financial inclusion, the accounts in use have been less than 25%.
• Model Viability -There’s a shortage of funding to BCs for meeting the group promotion costs in the case of SHG-
Bank linkage models.
• BCs Losing Money - Initial losses are forcing many BCs to shut their operations. Business continuity risk in such
cases is impacting banks adversely.
• Interest Capping- Reaching unbanked areas warrants higher delivery costs and the rate cap doesn’t allow much
room for banks to recover the costs necessary to extend credit to hard-to- reach areas and in small amounts.
• Distance Criteria – Banks do not always find it easy to get service area waivers from District-level Committees
which are necessary to operate in certain areas.
• Cash Settlement - Current regulations mandate BCs to complete accounting and settle cash with bank branches
within 24 hours of transaction.
Operational Issues
Viability Issues
Regulatory Concerns

32
• Better than bank branches - Normally a rural bank branch can serve 3,000 to 4,000 families in 12 to 15
villages within a radius of 15kms. A Public Sector Bank branch may require more than 5 years to
breakeven in unbanked areas in India, while a private sector & foreign bank with IT connectivity may
require about 5 times more. Further, obtaining permission to open a branch is a long and protracted
process
• Doorstep banking - Disbursement and loan recovery at the doorsteps of the beneficiary
• Better quality of assets - Target clients are well known to local NGOs, Post Offices, BDOs and similar local
social bodies, thus loan facilitation by the NGOs/BCs (who are the promoter/ builder of the groups)
enhances quality of assets
• Scaling up of this model is possible within a short span of time.
Bank Perspective: Advantages of the BC Model
The model enables banks to extend financial services to the unreached clients beyond their branch
network.

Revenue Potential
Participant Source of revenue
BANK Account opening
Transaction fee
Interest on credit
BUSINESS CORRESPONDENT Bank/MNO commissions: enrollments, maintenance
of active accounts, marketing and promotion
TECHNOLOGY SERVICE PROVIDER Recurring technology licensing fee
Enrollments
Transaction fees
Device/equipment
MOBILE NETWORK OPERATOR Transaction fee/revenue sharing with Bank
33
All value chain participants take very small pieces of the revenue ‘pie.’
In situations with rural poor, supply costs are bigger than revenues & government subsidies
Although the market requires upfront investments, there is potential for very high revenue

USSD Technology
MMIDs number reached 50 million as of April 2013 and the number grows at 42% per annum.
Number of transactions per month reached 350.000 as of April 2013 and showed 1000% growth per annum.
56 Banks participate in the system so far.
Choice of USSD technology will eventually meet network capacity limitations so further scalable growth is doubted by
MNO’s who are looking forward not to invest in rudimentary technology without native language support.
GPRS technology could be a possible win-win solution only when smartphones become commodity in India.
There is definitely a dispute between MNO and Banks and NPCI in terms of sharing profits for such service provision.
MNO #2
network
MNO #1
network
Customer 1
Customer 2
IMPS USSD
server
Bank #1 CBS
Bank #2 CBS
IMPS USSD
Servers
IMPS USSD
Servers
Someone’s going to pay for it, and MNOs are not willing to.
34
Significant Delays in Discussions Between NPCI and Telcos

IMPS
Fino Paytech Case
YES Money
• Glossary
• Appendix
35

Scalability May Become A Problem For IMPS
Experts question scalability as an issue, as currently the number of transactions is very low to date. The
question is whether it can it handle all transactions of several hundred million people.
IMPS applauds USSD Technology, however the MNOs have several concerns over USSD:
Technology is old fashioned - it was appropriate 3 years ago when IMPS was started but is no longer
relevant.
MNOs say they have to significant investment for USSD and for which NPCI is not remunerating them
adequately and it is better to stay with SMS or internet and cloud.
USSD has not yet been tested out as a mainstream commercial service - access for financial services has
remained only in pilot stages. There is insufficient evidence of the results and the challenges from the
experiences to date.
MNOs feel that the TRAI-stipulated requirement of a dedicated nation-wide interoperable platform for
banking services, with a quality of service—a transaction response time of 2 seconds—without affecting
the quality of other services requires a more detailed consideration of network planning and support
infrastructure.
There has been insufficient discussion on demand scenarios, customer mapping, rollout schedules, and
infrastructure requirements to roll out USSD, while ensuring that the MNOs’ internal signaling bandwidth is
not clogged.

IMPS
Fino Paytech Case
YES Money
• Glossary
• Appendix
37

The FINO BC Model
38
• The first mover in the wide world of financial inclusion business was FINO
• Formed in Mumbai in 2006 with the mission to solve the problem of financial exclusion
• FINO entered into the market using biometric smartcards & hand held device technology
and has grown exponentially.
• Today it serves more than 53 million end customers all across India adding one million (net
average) new customers to the formal financial system every month.
• FINO’s uniqueness comes from factors such as diversified product offerings (ranging from
savings, credit, payment services, remittances, insurance and financial literacy etc), a robust
technology, a dedicated channel of bandhus (banking agents) and mature processes.
Source: http://www.developmentoutlook.org/2012/12/rockstar-of-financial-inclusion.html
FINO Pay Tech Ltd is the world’s largest banking agent manager

39
The FINO BC Model
FINO is the best example of a Business Correspondent model with more than 50 million customers
across India
0.00
50.00
100.00
150.00
200.00
250.00
300.00
2010 2011 2012 2013 2014 2015 2016 2017
No-ICT NFA (m) ICT-accounts (m)
millions

FINO’s Network
• Over 5000 employees
• 26 Banks
• 26 States, 439 Districts
• 12 Govt. entities
• 6 Insurance companies
• 60m Subscribers
• Annual transactions equal to 4 billion INR
• More than 31000 transaction points
• 3 investments rounds so far. Main investors are Corporation Bank, ICICI Bank, ICICI
Lombard, Indian Bank, IFC, Intel Capital, Life Insurance Corporation of India, The
Blackstone Group, Union Bank of India
40
FINO’s network covers most of India

FINO’s Network Growth
41
2004
• Provides technology for
MFI’s
2006
• Regulation Institutional investors
still just providing technology for
MFI’s
2007
• Development of BC part of
business Starts to work with
7-8 banks
2009
• Government payment
programs (NREGA. SSP etc.)
1 3
5
10
14
20
26
36
50
55
60
0
10
20
30
40
50
60
70
Customers,m
FINO Customers
FINO’s network has grown exponentially since 2008

FINO Business Model
42
Banks
Services:
• Savings
• Loans
• Remittances
• DBT
TPP
Services:
• Insurance
• Utilities
• 3rd party
services
FINO Customer
Customer Access
Channels:
• Smartcard
• Mag-strip card
• Mobile
• Card-less
• Authentication
Biometric / PIN
Channels:
• POS & BC
Merchant
• PC/Laptop
& Branch
• ATM
• MDM
• Kiosk
Backend Frontend
Interfaces:
• Transaction
& Service
aggregation
• CBS
Interface
• Interbank
settlement
system
• 3rd party
system
• Data
warehouse
FINO has an integrated business model for extensive coverage

FINO Payment System
Smartcard
Java
SCOSTA
Contact/ contact-less
Mag-stripe card
Mobile
Card-less
Authentication:
Biometric/PIN
POS & BC Merchants
Ingenise
FINO PoT
Mobile
PC/Laptop & Branch
ATM
MDM
Kiosk
Transaction aggregation
server
Service aggregators
CBS interfaces
Interbank Settlement
Systems
Other 3rd party system
Data warehouse & MIS
43
Front end Back end
Service delivery
channels
Customer access
channels
Interfaces

FINO BC Model: SWOT Analysis
Strengths
Largest BC in India (Economies of scale)
Tech Smart
Umbrella of financial services for the BOP
Unlike MFIs, FINO is able to take deposits from customers
FINO owns ALPHA payments
POD machines reduce fraud and function both off-line
and on-line, so money can get transferred to areas
without any network
Not dependent on banks to loan money (FINO bought
Intrepid Finance Service, a non-banking financial
company)FINO is lending to groups to reduce risk of
default
Weaknesses
Hard to wean people away from informal ways of saving
Poor people are saving small amounts
High operational costs
Small margins
In-active accounts
Delays in working capital: Commission that FINO gets from
the banks is often delayed; sometimes month after the
money has been disbursed.
Threats
Changes in government regulation, e.g. prohibition of BC
model
Banks accounts lying dormant due to lack of usuage
Opportunities
Sell insurance, loans, remittances an savings
Become a bank
90 million potential customers
Use ALPHA payments to pay for utility bills or transfer
money
Sell financial services to the APL (above poverty line)
segment
SWOT
44

IMPS
Fino Paytech Case
YES Money
• Glossary
• Appendix
45

EKO Combines The BC Model With USSD Technology
EKO
46
Eko, a Delhi-based company, is deploying a banking solution
for low income people in India. The functions available on
the product are specifically geared towards people at the
bottom of the pyramid and are distributed through
informal retail outlets. Customers can access the service
with cheap phones (making use of USSD technology) and
perform transactions that they typically need on a day-to-
day basis.
Source: http://www.rbi.org.in/

Understanding the EKO model
47
CustomerCSP
CustomerCSP
Super CSP
Airtel
transaction
Cash management
Transaction connectivity
EKO is a Business Correspondent and Technology Service Provider to multiple banks. It has
partnerships with some of the biggest banks in India like State Bank of India (SBI), ICICI Bank & Yes
Bank. EKO leverages existing retail outlets, telecom connectivity and banking infrastructure to extend
branchless banking services to the common man.
EKO’s bouquet of products and services includes Banking and Money
Transfers, Payments, the SimpliBank Platform as well as phone recharge service
for every Indian MNO.
EKO offers cash management services, namely cash collection and cash disbursal
services to government enterprises, MFIs and Large, Medium and Small Scale
Enterprises. EKO uses its network of EKO counters, SimpliBank platform, mobile
user-interface, authentication (OkeKey) mechanism to enable these services.

How EKO Works
• The ELO SimpliBank platform is a hosted and managed
by a low-cost, abridged Core Banking System.
SimpliBank supports multiple features:
• A standard double entry accounting system
• Multiple types of accounts- savings, current, money
transfer, loan, etc.
• Customer and network management modules
• Definable interest accrual and posting systems
based on Indian banking guidelines
• Configurable limits and fees as per RBI’s AML/CFT
requirements
• Secure signature (OkeKey) booklet
• Real-time transactions through a three factor
authentication system
• User/system management and audit trails
• Integration with multiple interfaces like
mobile, internet etc.
48

EKO SWOT Analysis
Strengths
Quickly and secure send money anywhere in the
country
Value for customers, banks and agents
Strong relationship with banks
Strong technical infrastructure
Weaknesses
Tiny margin
Dependents of transaction volume
Dependents of agent’s network
Threats
Government changes
Competition with other TSP
Opportunities
Great amount unbanked population = potential
customers
Increasing mobile penetration
Increasing literacy penetration
Demand from banks under government pushing
Demand from customers
SWOT
49

IMPS
Fino Paytech Case
YES Money
• Glossary
• Appendix
50

Even though mobile banking is still in its early stages in India, with huge domestic remittance
channels, ever- growing mobile networks, and increasing financial inclusion mandates, banks and
MNOs are increasingly looking to partner with each other. Bank-led and MNO-led models each
have specific advantages:
• The bank-led model can more easily integrate mobile channels with existing offered financial
services, including a combination of savings, credit, insurance, and/or remittances.
• Furthermore, in order to ensure that consumer financial protections expand to mobile banking
services, regulators often see clearer parallels with existing banking regulations.
• The MNO-led model usually leverages a more extensive distribution network, and in many
countries, including India, mobile penetration is much higher than banking penetration.
Although a model like M-PESA may have been meant for money transfers, there is increasing
evidence that users do use M-PESA as a store for their money.
51
Mobile Banking in India
A key mobile banking issue in India is finding the right partnership between Banks and MNOs

Mobile Wallets: High Potential to Reach BOP (1/2)
• Over the last few years, mobile phones have become an essential communication tool for almost every
individual.
• The overall penetration of banking services in India is very low compared to the telecom service
penetration. The contrast is even starker in low income and rural segments.
• Infrastructure for cash in/cash out is much better for BC networks and MNO agents and outlets
• Demand for mobile remittances increase in tandem with migration processes from rural to urban areas.
Migrant workers need affordable instruments to transfer money to their families in villages.
• Banks and MNOs have launched several mobile money pilot projects: Airtel Money & Axis
Bank, Vodafone & ICICI.
• Technology service providers have also launched projects: Alpha Money (FINO), SBI Money (EKO)…
52 Source: Cellular Operators Association of India
There are currently more than 900 million mobile subscriptions in India and about 100 million mobile
subscriptions are added every year.

53
B. INTRODUCTION
1. Over the last few years, mobile phones have become an essential communicat
almost every individual. There are currently more than 900 million mobile subscript
and about 100 million mobile subscriptions are added every year.
2. The overall penetration of banking services in India is very low compared to the telec
penetration. The contrast is even starker in the low income and rural segments.
Source: ICRIER Thinktank, Clent Consultancy
45%
5% 7%
168.84%
38.04%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
Banking
penetration in
mid-high
income group
Banking
penetration in
low income
group
Banking
penetration-
Rural
Urban
teledensity
Rural
teledensity
Banking and Telecom Penetration in India
Cellular Operators Association of India
3. The primary reason for low banking penetration is that banking has been traditionally br
based thus restricting the access to unbanked. The costs incurred by the bank to serve peop
very high when branch network is used instead of alternate channels, this makes serving the
income and rural populations an unviable business proposition.
Source: ICRIER Thinktank
48
28
18
8
4
0
10
20
30
40
50
60
Branch Call Center ATM IVR Internet
INR
Cost per Transaction for Indian Banks
Source: Cellular Operators Association of India
Mobile Wallets: High Potential to Reach BOP (2/2)
• 20 mln MFI clients who repay credit 4 times per
month with an average amount of Rs 250 (4 USD)
• Approximately Rs 240 bln (3.8 bln) USD cash flow
annually
• Customers spend time and money to deliver cash
to MFI branches
• Managers spend time and money to deliver cash
• It is not secure to physically deliver cash
500 million Rs (8 million USD) could cover
operational costs. Case: money discernment and
collection in MFIs
The transaction cost of Mobile Banking is
approximately:
• 2% of the cost of branch banking
• 10% of the cost of ATM transactions
• 50% of the cost of internet banking

The Regulatory Environment
• Government regulation for MNOs has caused hyper competition, which allowed India to have the lowest
mobile tariffs in the world. This has increased MNO’s reach immensely without the need for government
intervention.
• Banks are not interested in FI from a profitability point of view, because they are regulated by
government. If new players could receive a banking license, there would be more competition, and FI
could spread easily even to unbanked areas.
• RBI is very conservative, e.g. the use of mobile wallets is very limited in transaction volume and the
amount of money that can be kept in wallets. “Lighter touch” regulation is required – not onerous or
complicated.
• The BC Model in its current policy design & operationalization is sub-optimal because it makes most of
its money on enrollments. Accounts, however, may remain inactive. To increase the model’s efficiency,
banks’ earnings from transactions have to be increased.
• Regulatory guidelines have to go hand in hand with cutting-edge technology. Let the marketplace
(customers) decide what channel, form, factor, product or service provider to use.
The Regulatory environment needs to allow for more competition between players for FI to work

Mobile Microfinance: Partner Models
55
Source: http//planetfinancegroup.org

Mobile Money Models Comparison
Name System
type
Customers Products CSP’s Model specifics Transaction
point
Airtel Money Semi-
closed
E-payment, remittance 1.5m MNO dependent Mobile
Airtel Money Super
account with AXIS bank
Open 100000 E-payment, cash-out, savings,
remittance
1.5m MNO dependent Mobile
YES Money Open 500000 E-payment, cash-out, savings,
remittance
MNO independent Mobile
EKO Open 180000 E-payment, cash-out, savings,
remittance
MNO independent Mobile
Alphamoney closed E-payment 31000 MNO independent Mobile
FINO Open 60m E-payment, cash-out, savings,
remittance
31000 CSP
Vodafone M-PESA with
ICICI bank
Open E-payment, cash-
out, savings, remittance
MNO dependent Mobile
56

IMPS
Fino Paytech Case
YES Money
• Glossary
• Appendix
57

Airtel Money: Open mWallet
• These include transferring funds to another bank account
through NEFT and accessing other banking services like
RDs, FDs and micro-insurance products.
• However the obvious upside to the initiative is the fact that it
will allow banking services to percolate down to the roots of
the Indian population.
• As Airtel and Axis Bank add more services and expand the
Super Accounts footprint, the currently unbanked population
could very well be queuing up to sign up.
58
Airtel Money Super Accounts promise to be a boon in many ways. Customers can make cash
deposits, receive remittances, transfer and withdraw money anytime. These transactions can be done
from authorized Airtel Money-Axis Bank outlets only.

Airtel Money: Closed mWallet
• Once the user loads up his phone with prepaid cash he can
walk into specified merchant locations and purchase goods
and services.
• Semi-closed wallet are prepaid payment instruments that
are redeemable at a group of clearly-identified merchant
locations/ establishments which contract specifically with
the issuer to accept the payment instrument. These
instruments do not permit cash withdrawal or redemption
by the holder.
• Essentially, what this implies is that operator subscribers
cannot use the ‘currency’ to buy talk time (RBI has
mandated that the prepaid currency needs to be kept
separate from talk time currency).
59
The "semi closed wallet” service will enable Airtel subscribers to exchange physical cash for virtual
money, which can be stored on mobile phones to pay for goods and services for transaction value less
than Rs. 5,000 (80 USD)

Airtel Money SWOT Analysis
Strengths
Ability to cash in/cash out in wide network of Axis
ATM and outlets
Instant, secure payments and money transfer –
P2P, P2M to any mobile number/bank account in
India
Weaknesses
Restriction on amount of transaction
Cash out available in special outlets only
Dependent of bank partner
Threats
Regulation changes
Competition with many other mWallets
Opportunities
More and more merchant tie-ups
Increasing knowledge on customer behalf about
using mobile transactions
SWOT
60

IMPS
Fino Paytech Case
YES Money
• Glossary
• Appendix
61

Kenya: An M-Pesa Success Story
• A study conducted in Kenya to evaluate M-PESA’s community-level
impact found (1) easier circulation of money allowed clients to
remit money in times of financial distress; (2) conducting business
transactions became easier and safer; and (3) vendors were able to
reduce the transaction costs and apply savings towards business
expansion.
• M-PESA’s phenomenal success has prompted Indian policy makers
and private partners to consider using similar applications to
achieve financial inclusion objectives and to provide a cost-effective
alternative to brick-and-mortar bank branches.
62
Safaricom launched M-PESA in 2007; by 2009, nearly 40% of Kenya’s adult population used M-
PESA services; and by 2011-12 Safaricom estimated that over 14 million Kenyans use the service.

ICICI And Vodafone Mobile Wallet: M-Pesa in India
• On applying for M-Pesa, customers get a mobile wallet issued
by MCSL called "MCSL Wallet" and also a Mobile Money
Account with ICICI Bank. The Wallet and the Mobile Money
account are completely inter-operable and the customers
have an option to transfer money into the Mobile Money
account.
• The mobile wallet can be used as a open wallet for
transactions.
• Minimum amount that can be deposited: 200 rupees, of
which 100 rupees is deducted as a one-time account
activation fee and the remaining balance is credited to the
account balance.
• Maximum daily limit: 5,000 rupees.
• Maximum account balance: 10,000 rupees, while Mobile
Wallet and Mobile Money accounts can have a maximum
account balance of 50,000 rupees.
63
M-Pesa
Cash
Deposits
Money
Transfer to
any Bank
Account
Money
Transfer to
another M-
Pesa
Account
Top-up
Credit for
Vodafone
Utility Bill
Payments
Source: http://www.icicibank.com/mobile-banking/mpesa/m-pesa.html
ICICI Bank and MCSL (a Vodafone group) have launched "M-Pesa" a mobile money transfer service

IMPS
Fino Paytech Case
YES Money
• Glossary
• Appendix
64

YES Bank Introduced Remittances Services
65
FLOW OF FUNDS
Migrant
Worker
Shopkeeper
BCA
Business
Correspondent
YES Bank
IMPS
Recipient
Banks
Recipient
person with a
bank account
YES Bank has linked up with various partners as Business Correspondents, leveraging their existing retail
outlets, telecom connectivity and banking infrastructure to extend branchless banking services to the
common man and facilitate remittances services closer to home, effectively at anytime of the day and most
importantly, into any bank across the country.
In addition, last year Yes Bank launched a mobile point of sale (mPOS) that allows GPRS enabled mobile
phones to be converted into Point of Sale terminals.

YES Money SWOT Analysis
66
Strengths
YES BANK Money is YES BANK’s Domestic Remittance Service
which is leveraging the existing technologies and
infrastructure designed to meet the remittance need of
migrants, unbanked and under-banked population in India .
This product brings technology to the end user through the
Business Correspondent Agents and simultaneously ensures
a technology oblivious experience for the end user
Weaknesses
BC agents serve as a bank representatives and non ethical
behavior may damage bank’s reputation
Access to the bank account in rural areas by recipients
Dependence of this on customized devices such as Nokia
mobile and printers
Currently the entire supply chain is too long
Threats
Development of similar models by competition and
relatively low entry barrier
Financial literacy of rural population and reluctance to use
formal banking channels to remit funds may be an issue for
future penetration of rural customer base
ICICI Bank model of funds remittance may potential be a
threat to “YES MONEY” once ATM replaced by BCs
Opportunities
Capitalize on opportunity to provide credit to JLB (joint
liability group) and SHG (self help group) once this model
becomes self sustainable, banks establish trust with local
communities, and rural population adapt mobile
technology
White Label ATM (WLAs) – non-bank entities that intend to
setting up, owing,, and operating ATMs. Services provided
based on the cards (debit/credit/prepaid) issued by bank
SWOT

IMPS
Fino Paytech Case
YES Money
• Glossary
• Appendix
67

Alpha Payment
Alpha
Payment
Person-to-
person
Payments
Bank Teller
Functions
Expedited Bill
Payment
Money
Transfer
68
Account
Opening
Cash
Withdrawal
Cash
Deposit
Alpha money is a FINO subsidiary which allows customers to have a closed (Alpha
Money) or open (Union bank money) mobile “wallet” for money transactions.
Source: http://www.medianama.com/2013/03/223-fino-alpha-payment-mobile-money/
http://www.alphamobilemoney.com
• Union Bank Money, the pioneer in digital wallet is introduced by Alpha Payment Services India Pvt. Ltd. (APSIPL) in
association with Union Bank of India. UBM enables people to carry digital money instead of physical cash in wallet, thus
removing dependency on physical modes of payment. In addition to wide variety of services, customer can also avail
withdrawal facility through ATM Card.
• Alpha Money is the mobile based payment solution designed to cater to various payment needs of enterprises. It offers
both standard and customized enterprise payment solutions in the domain of cashless disbursement, remote
payments, remote collection, order management and cashless insurance.

IMPS
Fino Paytech Case
YES Money
• Glossary
• Appendix
69

The Joint Liability Group Model
• Groups of 5 poor women guarantee each other’s
loans.
• Loans used to start and expand simple businesses and
increase families’ incomes. Their micro-enterprises
range from raising cows and goats in order to sell their
milk, to opening a village tea stall.
• Borrowers undergo financial literacy training and must
pass a test before they are allowed to take out loans.
• Weekly meetings with borrowers follow a highly
disciplined approach. Repayment rates on collateral-
free loans are more than 99% because of this
systematic process.
• SKS, the best-known JLG model in India, offers micro-
insurance to the poor as well as financing for other
goods and services that can help them combat poverty.
70Source: http://www.sksindia.com/know_sks.php

JLG Model: SWOT Analysis
Strengths
Client tracking system  total transparency.
Model based on peer pressure and joint liability  very
effective (99% payback rate).
Financial literacy taught to clients  sustainable.
Marketing is done by word and mouth  cheap
marketing.
Connectivity: if one family from the village joins the
system, others want to join.
Employees tend to stay with a company for 5+ years 
strong relationship with clients.
SWOT
71
Threats
Changes in government regulation, e.g. funding being
cut off or FIs not being allowed to collect money.
Rogue members.
Weaknesses
Volume business  high internal costs.
High operational costs.
Long training time needed to train employees properly.
Duplication of data entry (paper files + software).
Opportunities
Technological help to create a mobile payment system,
which would save branch managers valuable travel time
and fuel, costs. (Big BUT – this might also compromise the
human relationship managers have with the clients).
Technological help to minimize data entry time and other
operational costs.
Improve communication: a more holistic approach and
more transparency is needed from the governments’ side,
specifically 1. A proper regulatory framework, 2. Proper
guidance and 3. Soft approach to institutions.

IMPS
Fino Paytech Case
YES Money
• Glossary
• Appendix
72

73
Project Leaders : PlaNet Finance & Skolkovo
Shibani Sachdeva : Regional Director PlaNet Finance
ssachdeva@planetfinance.org
Petr Kosikhin : Team Leader : Petr_Koshikin@mba.skolkovo.ru
Alina Solotarov : Communications Leader
Dennis Yudchits : Team Member
Rolf Diepeveen : Team Member
Ruslan Smirnov : Team Member

Major Stakeholders & Partners
74
• PlaNet Finance India, the representative office of PlaNet Finance International in
India, is a non-profit and tax-exempt organization that works for sustainable social and
economic development in India by supporting and promoting the microfinance sector.
PlaNet Finance India has been involved in the Indian microfinance sector since 2001.
Thanks to its mixture of highly motivated Indian and French corporate leaders, an
extremely well qualified international staff supported by passionate Indian social
developmental professionals the organization over this last decade has implemented
served activities in rural and urban India, and has served more than 160+local
microfinance programs, NGOs and financial institutions across India.
• The Skolkovo Moscow Business School, is one of the world’s most renowned business
schools sponsored by many affluent industrialists including Russia's Prime Minister
Dimitri Medvedev. Its international advisory board includes Yuanqing Yang, CEO of
Lenovo Group, Dennis Nally, Chairman of PricewaterhouseCoopers International
Ltd., The First Prime Minister of the Republic of Singapore and one of the authors of
the “Singapore Miracle”; John V. Farac Chairman and Chief Executive Officer of
International Paper; Brady W. Dougan, Chief Executive Officer of Credit Suisse
Group; Ajay Banga, President and Chief Executive Officer, MasterCard Worldwide.
• Sa-dhan is the designated national association of Community Development Finance
Institutions (CDFIs) represents a “rapidly growing sector”. Sa-Dhan’s MFI membership
240 Institutions with a collective loan outstanding and outreach in excess of Rs. 20,913
Crores and 2.68 crore (26Million) poor, respectively. Given the nascent nature of the
sector, Sa-Dhan has a crucial role to play in increasing capacities, affecting the
evolution and adoption of best practices, increasing the number of service providers
and contributing to improving the policy and operational context for Microfinance in
India.

IMPS
Fino Paytech Case
YES Money
• Glossary
• Appendix
75

Aadhar/UID:
ATM: Automatic Teller Machine
BC: Business Correspondent
BCS:
BOP: Bottom of the Pyramid
BTS:
CBS: Core Banking Solution
CRAR: Capital to Risk Weighted Assets Ratio
CSP: Customer Service Point
FDs: Fixed Deposits
FI: Financial Inclusion
FP:
G2P: Government to person
GPRS: General Packet Radio Service
ICT: Information and Communications Technology
IMPS: Immediate Payment Service
INR: Indian Rupee
JLG: Joint Liability Group
MDM:
MF: Microfinance
MFI: Microfinance Institution
MMID: Mobile Money Identifier
MNO: Mobile Network Operator
Glossary
76
NABARD: National Bank for Agricultural & Rural Development
NEFT:National Electronic Funds Transfer
NFP:
No frills account: No minimum balance needed
NPA: Non-performing asset
NPCI: National Payments Corporation of India
NREGA: National Rural Employment Guarantee Scheme
P2M:
P2P Person to Person
POS: Point of Sale
RBI: Reserve Bank of India)
RDs:
RRB: Regional Rural Banks
SCB: Scheduled Commercial Banks
SHG: Self Help Group
SSP:
Swabhimaan:
Telco: Telecommunications Provider
TPP: Third Party Provider
TRAI: Telecom Regulatory Authority of India
TSP: Technical Service Provider
USB: Ultra Small Branches
USSD: Unstructured Supplementary Services Data

IMPS
Fino Paytech Case
YES Money
• Glossary
• Appendix
77

KOFI ANNAN
”The stark reality is that most poor people in the world still lack access to sustainable financial
services, whether it is savings, credit or insurance. The great challenge before us is to address
the constraints that exclude people from full participation in the financial sector. Together, we
can and must build inclusive financial sectors that help people improve their lives.”
78

Government Initiatives for FI in India 1960s -
Present Day
79Source: Central Bank of India FI Initiatives: http://119.82.71.21/
fi/download/INTRODUCTION_TO_FINANCIAL_INCLUSION.pdf
Post1960s
Post1990s
CurrentInitiatives
Setting up of financial
literacy centers and credit
counseling
Launching national
financial literacy
campaigns
Forging linkages with
informal sources with
suitable safeguards
through appropriate
Legislations
Evolving industry-wide
standards for IT solutions
Facilitating low cost
remittance products
Establishment of a wide
network of financial
institutions:
Commercial Banks
Regional Rural Banks
Urban Co-operative Banks
Primary Agricultural Credit
Societies
Post Offices
MFIs
Self-Help Groups
Recent Initiatives:
The National Rural Financial
Inclusion Plan
The Financial Inclusion
Fund
The Financial Inclusion
Technology Fund
Nationalization
of banks
Prescription of
priority sector
targets
Lending to
weaker sections
at concessional
rates
Initiation of the
lead bank
scheme.

RBI Initiatives For FI
• The RBI has permitted Scheduled Commercial Banks (SCBs) to open branches in areas
with a population of up to 100,000.
• Domestic SCBs have been advised that while preparing their Annual Branch Expansion
Plan (ABEP), they should allocate at least 25% of the total number of branches proposed
to be opened during the year in unbanked Tier 5 and Tier 6 centers i.e. (population up to
9,999) centers which do not have a SCB brick and mortar structure for customer based
banking transactions.
• Regional Rural Banks (RRBs) are also allowed to open branches in Tier 2 centers (with
population of 50,000 -100,000), provided they meet the following conditions:
• (i) CRAR of at least 9%; ii) Net NPA less than 5%;
• (iii) No default in CRR / SLR for the last year;
• (iv) Net profit in the last financial year; (v) CBS compliant.
• RRBs have also been advised to allocate at least 25 percent of the total number of
branches proposed to be opened during a year in unbanked rural centers.
80
Source: Indian Government.
http://financialservices.gov.in/banking/Overviewofefforts.pdf

Government Strategy For FI
A roadmap for providing banking services covering villages in a structured way. In the first
phase villages with populations above 2000 were targeted. The focus has now shifted to
villages with population less than 2,000.
Introduction of New Products – Introducing a minimum of four banking products through
the ICT based BC model.
Creation of an ecosystem comprising of a combination of branches and ICT based BC
outlets to develop an effective financial inclusion delivery model.
Interoperability at the retail outlets or sub-agents of BCs (i.e. at the point of customer
interface), provided the technology is available with the bank that has appointed the BC
supported interoperability.
Banks have been advised that they may set up intermediate brick and mortar structures (in
rural areas) between the present base branch and BC locations. Such branches should have
minimum infrastructure, such as a Core Banking Solution (CBS) terminal linked to a passbook
printer and a cash-safe retention for operating large customer transactions. It would have to
be managed full time by the bank’s own employees. Such an arrangement is expected to
lead to efficiency in cash management, documentation, resolving customer grievances and
close supervision of BC operations.
81
Source: Reserve Bank of India
http://www.rbi.org.in/scripts/BS_SpeechesView.aspx?id=749
Stage 1
•Mobile Business
Correspondents
Stage 2
•Fixed Location Business
Correspondent Outlets
Stage 3
•Low Cost Intermediate
Brick & Mortar
Structures (Ultra Small
Branches)
Stage 4
•Full Fledged Brick &
Mortar Branches

82
Progress Towards FI
Nevertheless, India’s advance towards financial inclusion is showing progress

Reasons For Financial Exclusion
Financial
Exclusion
Remote
geographical
location
Low income,
little or no assets
Ease of
availability of
informal credit
Financial
illiteracy, lack of
awareness
Documentation
(none,
incomplete)
Inefficiency of
the financial
Institutions.
83Source: http://119.82.71.21/fi/download/INTRODUCTION_TO_FINANCIAL_INCLUSION.pdf

84
The Economics of Financial Inclusion
CONSEQUENCES OF EXCLUSION
• Affects individuals and the economy alike
• Households, micro and small enterprises
dealing entirely in cash are susceptible to
irregular cash flows
• Limits options for providing for old age
security
• Recourse to informal lenders
• Exposed to higher interest rates charged by
informal lender
• Highest risk as loans are often secured against
the borrower’s property
• Banking with informal sources does not
provide interest benefit and tax advantages
and are far less secure
BENEFITS OF INCLUSION
• The regulator benefits from the audit trail
which is available as transactions are
conducted transparently in supervised
environment.
• The economy benefits, as greater financial
resources become transparently available for
efficient intermediation and allocation, for uses
that have the highest returns.
Source: Central bank of India , World Bank 2012
http://119.82.71.21/fi/download/INTRODUCTION_TO_FINANCIAL_INCLUSION.pdf

Constraints to the Spread of FI
LOW LITERACY LEVELS, lack
of awareness and/or
knowledge/understanding
of financial products.
IRREGULAR
INCOME, frequent micro-
transactions.
LACK OF TRUST in formal
banking institutions.
CULTURAL OBSTACLES
(e.g., gender and cultural
values).
OUTREACH, low density areas and low
income populations are not attractive for the
provision of financial services and are not
financially sustainable under traditional
banking business models.
REGULATION, frameworks are not always
adapted to local contexts.
BUSINESS MODELS, high fixed costs; limited
number & type of service providers
ADAPTABILITY, products and services that are
not adapted for low income populations and
the informal economy.
AGE, financial service providers usually target
the middle of the economically active
population, often overlooking the design of
appropriate products for older or younger
potential customers.
BANK CHARGES too expensive for BOP
clients.
DEMANDSIDECONSTRAINS
SUPPLYSIDECONSTRAINTS
85
Source: http://www.rbi.org.in/scripts/BS_SpeechesView.aspx?id=749

Market Growth & The Banked Population
86
Sources: http://economictimes.indiatimes.com/economic-survey-2013-live-update/liveblog/18705924.cms
http://defenceforumindia.com/forum/politics-society/30771-indias-population-2012-a.html
http://rbidocs.rbi.org.in/rdocs/Speeches/PDFs/FICHI121011S.pdf
548,16
683,33
846,42
1,028,74
1,210,19 1,223,58 1,268,96
0.00
200.00
400.00
600.00
800.00
1000.00
1200.00
1400.00
1971 1981 1991 2001 2011
Forecast
2013
Forecast
2016
Millions
Indian population
Source: Population Projection Report 2006 by RGI
66,96
77,08 79,05 82,00
0
20
40
60
80
100
Literacy 2001
- Census
Literacy 2011
- Census
Forecasted
Literacy 2013
Forecasted
Literacy 2016
% Literacy Rates
Literacy 2001 - Census Literacy 2011 - Census
Forecasted Literacy 2013 Forecasted Literacy 2016
• India’s market has been growing rapidly (around 6%) in the past
10 years. It has been amongst the top 10% of the world’s
countries in terms of economic growth since 1991.
• Current population is at 1.22 billion, increasing at a rate of 1.64%
per annum It is the second most populous country in the world
after China, representing 17% of world’s population.
• The literacy rate of India as per the 2001 Population Census is
66.96%, and reached 77.08% in 2011 showing growth of 0,9% per
annum. With current growth the literacy rate will hit 82% in
2016.
• A significant proportion of households, especially in rural
areas, still remain outside the coverage of the formal banking
system. It is estimated that about 40% of Indians lack access even
to the simplest kind of formal financial services.
Despite rapid market growth and population increase, 40% of India’s population remains unbanked

India’s Banked Population By Region
18%
2%
16%
21%
16%
27%
% Number Of Bank Accounts Per Region
North
North East
East
Central
West
South
87
Source: National Sample Survey Organisation (2012).
Http://www.ijmds.com/admin1/adminsettings/upload/5826Paramasivan.
• South India has the largest % of bank accounts per
region, followed by Central India.
• North-East India is the most unbanked region in
India, with only 2% of the population having bank
accounts.
• In 2012, there were 32,902,390 total current account
and savings accounts in India.

Banking facilities: India & The World
Number of Bank Branches
0
5
10
15
20
25
30
35
40
45
50
Number of ATMs
0
20
40
60
80
100
120
140
160
180
88Source: http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/0TPB021112FLS.pdf
India has few banking facilities compared to other countries
All data per 0.1 million adults.
No data available for nr. of ATMs in USA and Korea.

Access to Financial Services: India & the World
89
India World
Share with an account at a formal
financial institution
All adults 35 50
Poorest income quintile 21 38
Women 26 47
Adults saving in the past year Using a formal account 12 22
Using a community-
based method
3 5
Adults originating a new loan in the
past year
From a formal financial
institution
8 9
From family or friends 20 23
Adults with a credit card 2 15
Adults with an outstanding mortgage 2 7
Adults paying personally for health insurance 7 17
Adults using mobile money in the past year 4 7
Source: Asli Demirguc - Kunt and Klapper, L.
(2012): ‘Measuring Financial Inclusion’, Policy Research Working Paper, 6025, World Bank, April, RBI
Annual Report 2011-12
*Data
indicated
as %
India is still falling behind the world on key financial statistics

Income Level & Access to Financial Services
Agricultural wage labour
Wage labour - non agricultural
Own account worker
Street vendor
Other self-employed workers
Self-employed in primary production
Part-time earner
Shopkeeper
Private salaried workers
Government salaried workers
Self-employed professionals
Business people
14
25
25
39
45
49
50
67
68
86
90
95
% of People with Bank Account
21,295
31,676
33,100
37,300
59,687
60,078
64,507
100,044
105,670
140,001
319,555
478,985
Agricultural wage labour
Wage labour - non agricultural
Own account worker
Street vendor
Other self-employed workers
Self-employed in primary production
Part-time earner
Shopkeeper
Private salaried workers
Government salaried workers
Self-employed professionals
Business people
Average Annual Income (INR)
90
In India, access to financial services correlates closely with income. Although the majority of households do
save, close to 40% of Indians do not have a bank account and choose to save money in other ways
Source: Planning Commission, Government of India, Broadening Access to Finance
http://planningcommission.gov.in/reports/genrep/rep_fr/ch3_fr.pdf
India’s population at the bottom of pyramid is largely excluded from the formal financial system

Indian Regulatory Initiatives Favoring FI
91
Aadhaar Campaign
• Aadhaar is a 12-digit individual
identification number issued by the
Unique Identification Authority of India to all
residents of India on a voluntary basis. The
number can be used as identification for
opening a bank account or to get social
benefits from both the Central and State
Governments, such as the Direct Benefit
Transfer.
USSD Based Mobile Banking
Offers basic banking services such as:
• Money Transfer, Bill Payments, Balance
Enquiries, Merchant payments etc.
• All on a simple GSM based Mobile
phone, without the need to download an
application.
Swabhimaan Campaign: Opening of Bank
Branches
• At Least 1 Bank Account Per Household
• Setting up of Ultra Small Branches (USBs)
• Banking Facilities in Unbanked Blocks
• (Roll out Direct) Benefits Transfer 2013
• Geographical Information System (mobile
app that allows the identification of areas to
open new branches. )
BC Model
• BCs represent the bank concerned and enable
a bank to expand its outreach and offer a
limited range of banking services at a low cost
• Particularly used where setting up a brick and
mortar branch is not viable.

92
Banking Outlet and No-Frills Account Growth
54258
100183
14753433042
57329
95767
0
50000
100000
150000
200000
250000
300000
2010 2011 2012
Total number of banking outlets in villages BCs/BC agents deployed
0
50
100
150
200
250
300
2010 2011 2012 2013 2014 2015 2016 2017
No-frills accounts ICT-accounts
actual forecast
• During the last 3 years the growth of banking
outlets in rural areas slowed from 84% to 47%
per annum.
• The slowdown in rural outlet expansion could be
explained by BC agent enrollment.
• The No. of opened no-frills account growth is also
experiencing a slowdown, but still growing at 39%
per annum.
• ICT accounts are enrolling at faster pace than No-
Frills accounts, increasing by 76% during last year.
• Current growth trends indicate ICT accounts will
dominate No-Frills accounts by 2017.
Source: RBI Annual report 2011-2012 part 4 – Credit Delivery and Financial Inclusion
http://rbidocs.rbi.org.in/rdocs/AnnualReport/PDFs/IVCDFIN230812.pdf
millions

Rural Mobile Penetration
93
2009 2010 2011 2012
No mobile access 636.06 594.96 535.99 501.44
Inactive rural
subscribers 27.91 47.72 68.39 80.89
Active wireless rural
Subscribers 61.28 104.79 150.17 177.64
Beyond the poverty line 22.44 38.37 54.98 65.04
0.00
100.00
200.00
300.00
400.00
500.00
600.00
700.00
800.00
900.00People, m
Rural area penetration
87.93
79.24
70.99
43.30
18.29
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
100.00
2008 2009 2010 2011 2012
%
Percentage Growth Per Annum
Percentage Growth Per Annum
Mobile penetration in rural areas of India is still growing. However, the growth rate has suffered a
decline from 87,93% to 18,29 % per annum. The rural mobile market is starting to saturate. The rural
penetration rate has reached 39,2% with the rural penetration growth rate decreasing from 62,69% to
16,07% during the last 3 years.
The growth rate of rural mobile penetration has declined over the past 5 years

94
FI & Poverty
26.6
35.2
39.6
55.9
63.8
66.2
68.5
72.7
26.6
29.8 31.5
21.4
2.8 3.8
8.9 8.1
0
10
20
30
40
50
60
70
80
Philipines India Bangladesh Brazil China Malasiya Sri Lanka Thailand
%
Composite index of FI Poverty
The correlation between composite FI index and poverty ratio in developing countries shows that
India still has a way in leveraging FI to decrease poverty

MFIs Taking Banking to the Doorsteps of the Poor
1. Group
Formation
2. Sangam
Formation
And
Borrowing
3. Member
Invests In
Enterprises
4.
Repayment
Of Loans
5. Sangam
Size
Increases
95
Witnessing the
success of members,
more women join
the Sangam
Five member groups are formed
after they undergo compulsory
training.
Loans are repaid in
weekly installments by
members.
4-10 groups together form
a centre or sangam and
loans are given to individual
members.
A member invests the loan for
income generation.
Source: http://www.sksindia.com/downloads/methodology.gif
GROWTH

ATMs in Rural Areas
7%
38%
33%
22%
Share of Population Groups in
Increment of ATMs
Rural
Metropolitan
Urban
Semi-Urban
20%
17%
2%17%
12%
32%
Share of Regions In Total
Number Of New ATMs Opened
Northern
Central
North-Eastern
Western
Eastern
Southern
96
• Metropolitan areas accounted for the maximum
number of newly opened ATMs. The southern
regions had the highest number of newly opened
ATMs, followed by the northern region.
However, the share of rural areas in the total
number of ATMs continues to remain small
(7%).
• Off-site ATMs play an important role by
providing basic banking services like cash
withdrawals & transfers of funds even without
the presence of full-fledged brick-and-mortar
branches.
• During 2011-12, there was an addition
of 14,365 new off-site ATMs.
Source: http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/0TPB021112FLS.pdf
The share of rural areas in the total number of newly launched ATMs remains small

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