This document summarizes a study on rural finance in India. It discusses the presence of various financial institutions in rural areas, including nationalized banks, cooperative banks, microfinance institutions, and informal sources of finance like moneylenders. It also outlines some of the key challenges in rural financing such as high transaction costs, lack of collateral, and information asymmetries. The document then discusses various enabling measures to expand rural finance, including the growing application of technologies like mobile phones, ATMs, and smart cards. It provides case studies on the use of technologies by banks and on the strategies adopted by microfinance institutions to expand outreach in rural areas.

1. Rural Finance Study

2. Project: Rural finance Mission: New business development , finance Category: Research Agency: RC&M Client: Mulitple

3. Index Introduction Rural Finance – An Understanding Finance Presence in Rural India The Challenges Enabling Measures Banking Strategy - Long Term Impact Case Studies Going Forward – Next Steps Annexure I

4. Introduction In India, over 65% of the population resides in villages. And approx, 70% of the villagers do not have bank accounts. But Finance is not completely absent. Just the sources of supply are informal like moneylenders Moneylenders are said to control one third of all rural loans, and wield considerable strength, given their personal acquaintance with the local population and omnipresent distribution network.

5. Rural Finance – An Understanding

6. Rural finance- An understanding A number of banks and finance companies have begun to specialize in offering credit to farmers. Finance in this sector has the added benefit of supporting further work in regional areas. As banks and financial services continue to extend their services into rural India they are generating employment in the vicinity.

7. Rural finance- An understanding Rural finance is a line of credit specifically intended for the requirements of the agricultural industry. Ranging from mortgage assistance to land development and farming equipment, these credit plans are a significant aspect of rural and semi-urban support. In a country like India, farming finance is a service of utmost importance and closely related to the continued progress of the country, as agriculture continues to play a central role.

8. Finance Presence in Rural India

10. Private Banks

11. Credit Societies

12. Co-operative Banks

17. Under this programme, every adult member of a rural household in the selected villages would be encouraged to open a 'No Frills' account with minimum entry-level formalities.List of all RRB Banks across India – see Annexure I, at the end of the presentation

19. A one man office (known as “kendra”) in the village forms an interface between the villager and the Bank’s products and facilities. Crop loans, housing loans, automobile loans, farm equipment, seed financing and insurance policies are all on offer.

22. More or less, all the banks are using an agent-based model , as the typical branch-based model does not work here due to cost economics.

25. District Central Cooperative Banks (DCCB)

31. Financial organization such as S3IDF work together with local NGOs/SHGs to provide basic infrastructure services in rural areas and train local entrepreneurs to take charge of the projects or services.

33. Case Study – II : Example of SHG (aiding villagers’ Finance) Karunya, a woman’s self help group Can be found at the vegetable market in Santhivila, a village on the outskirts of Thiruvananthapuram. They are a group of 16 young women who have changed the local economy. They are members of Karunya, a women's self-help group registered with Kudumbasree, the state Government's Poverty Eradication Project. None of them had a job till they formed Karunya in 2007 The local gram panchayat gave the group Rs 1 lakh and space at the local vegetable market. With the seed money, they took a bank loan to start a unit making paper boards, cloth bags, office files, pens, pencils etc. Today, Karunya is one of the most popular brands in these products. There are an incredible 37 lakh poor women who are members of Kudumbasree, making it Asia's largest women's self-help and micro-credit movement.

35. BarishBimaYojana for farmers in Rajasthan

36. ICICI Lombard’s medical insurance scheme ‘Sanjeevini’ for farmers in Punjab

38. Challenges Some of the major challenges which intermediaries (Local Financial Institutions) face today in India are: The supply dilemma: The exclusion of large numbers of the rural population from the formal banking sector may be for several reasons from the supply side: Persons are un-bankable in the evaluation/perception of bankers The loan amount is too small to invite attention of the bankers The person is bankable on a credit appraisal approach but supporting the accounts and expanding branch network is not feasible and viable

40. Lack of collateral security Inability to evaluate and monitor cash flow cycles and repayment capacities due to information asymmetry, lack of data base and absence of credit history of people with small means

41. Human resources related constraints both in terms of inadequacy of manpower and lack of proper orientation/expertise

43. Lack of awareness and lack of social capital

44. Non-availability of ideal products

45. Hassles related to documentation and procedures in the formal system

46. Easy availability of timely and doorstep services from money lenders/informal sources

49. ATMs and other point of sales devices

53. Casestudy III- Technology adopted The card allows: Micro-credit, money transfer [account-to-account within the system], Micro-insurance Cashless payments to merchants SHG Savings-cum-credit accounts and attendance systems Disbursements of Government benefits like the national rural employment guarantee scheme, for equated monthly installments Utility payments, coupons, vouchers, tickets, automatic fare collection systems, etc.

54. Casestudy IV- Technology adopted The corporation bank: The Corporation Bank adopted a branchless banking model in August 2007. The bank opted for a branchless banking model based on Business Correspondents [BCs] and use of a small hand held device. This technology enabled bank to reach out the villagers by offering them savings and loan products at their door steps there by saving of customers time and cost of travel to branch. The bank is able to reach out to the hitherto unreached segments and mop up rural savings at lower transaction costs.

55. Banking Strategy - long term target To tap huge rural finance potential, the RBI is considering other innovative measures like (which are being adopted by private banks for developing strong foundation in rural finance market) : Allowing banks to use village moneylenders to reach the rural populace, given their personal acquaintance with the local population and ubiquitous distribution network. Banks hope to leverage their low cost funds to lend to moneylenders, who can in turn give loans to the rural folk at far lower rates that the usual monstrous 60-70%!

56. Case Study V-Strategy Adopted by a Microfinance Institution This Institution , has a base in smaller villages and districts across India Deeper regions like Bhor, Saswad, Talegoan, Saidpur, Goasigang, Gouribazar, Deoria, Tadipatri, Nizamabad, Gadag, Davangere and Perundurai are among the more than 5,000 tehsils (also called talukas and mandals in various regions) where they are present today. In this case study, this institution promoted Reliance Money’s schemes in the villages

57. Case Study V-Strategy Adopted by a Microfinance Institution Local Partners - They realized that employing city-based managers in these areas would not be a viable option as local people would never trust and feel comfortable with a non-native person who did not speak their language. So they devised a strategy which relied heavily on local partners. Franchisee route - It was extremely important for them to work with the existing eco-system prevailing in the hinterland as opposed to trying to create a new or parallel structure. They decided to take the franchisee route and appoint at least three or four local youths as their franchisees in each tehsil. Typically, all their franchisees were people whose families have resided in the area for several generations and who know most of the people residing in the village and are also known to people in the surrounding areas.

58. Case Study V-Strategy Adopted by a Microfinance Institution How it helped: This strategy helped them to achieve financial inclusion of the rural masses while creating a new breed of local entrepreneurs who could bring financial products and services closer to the villagers. With continuous training, they converted their local partners into brand ambassadors, advising locals on financial investments and selling them appropriate financial products in an extremely beneficial manner. An interesting aspect that they noticed during this exercise was the fact that not all their franchisees were illiterates. A sizeable chunk of them were graduates and some were even MBAs

59. Case Study V-Strategy Adopted by a Microfinance Institution Like all initiatives, their rural foray also has had its share of highs and lows. However, there have been amazing lessons and insights, too. When they started their rural initiative, they had designed bright neon lit signs to be hung outside the kiosks. They thought the signs would attract attention and bring in a crowd. However, their thought process was off track. The glossy signs intimidated villagers and made them wary. They redesigned these signs to make them blend with the background of the region. Also started using traditional painting techniques used in village homes. To promote our money transfer facility, we conducted road shows in regional languages.

60. Case Study V-Strategy Adopted by a Microfinance Institution Challenges encountered and resolved in this journey: Logistics Issue - Even after two years, logistics still pose a major challenge. They had to pre-plan each and every step and schedule timelines. The first step was to ensure that the forms and the marketing material reached the villages on time. They then had to get the forms filled in and delivered to the bidding centers on time. On certain occasions the deadlines were missed because they underestimated the travel time and costs. Solution - Learning from this experience, they fine-tuned the entire operation to close two days prior to the actual closing date.

61. Case Study V-Strategy Adopted by a Microfinance Institution Challenges encountered and resolved in this journey: Success - Overall, experience in this initiative has been mixed. It was pre-recognized that the exercise will pay dividends only in the long-run. Just because 70% of the country’s population is dependent on agriculture and lives in the villages, they knew that they will not get 70% of their income in financial services from villages in two years’ time. However the 80-20 principle (that 80% of the locations give you 20% of your income) works in rural India as well and they had already seen this in operation, allowing them to sharpen their marketing and distribution strategies.

62. Going forward- Next Steps

63. Going forward- Next Steps Agricultural assistance must concentrate more on future earning power than the borrower's current position. As with any loan, the lender should reasonably demonstrate a capacity to repay the amount borrowed, but in the case of credit for farmers, providers are often dealing with lower income groups. Understanding this customer is essential. As banks and financial services continue to extend their services into rural India they are generating employment in the vicinity. This employment ensures that customers can relate to the local face of the institution. It also represents a significant basis for skill development.

64. Going forward- Next Steps Appreciated as a key impetus in poverty reduction, this type of support can greatly assist regional development and growth. The creation of a business model that takes the unique needs of non-urban India into account, along with the unique challenges, is the key to success for companies working within this field. The conditions surrounding rural business are never constant. Ruined crops, bad monsoon seasons and natural disasters are just some of the ever present, largely uncontrollable factors. Those offering services in this area must commit to supporting their customers through both turbulent and growth patch of time. If this can be achieved, rural finance has a huge market to work in.

65. Annexure-I List of Rural Banks /Co-operative Banks across India

66. Annexure-I List of Rural Banks /Co-operative Banks across India

67. Annexure-I List of Rural Banks /Co-operative Banks across India

68. Annexure-I List of Rural Banks /Co-operative Banks across India

69. Annexure-I List of Rural Banks /Co-operative Banks across India

70. Annexure-I List of Rural Banks /Co-operative Banks across India

71. Annexure-I List of Rural Banks /Co-operative Banks across India

72. Thank you