Presentation on Deepening and Widening Financial Services: Policy Options and Strategies

This presentation states that the formal financial sector is unable to cover large parts of the Indian population. For this, both the supply and the demand side factors are responsible:

• On the supply side:
  • The banker's perception is that certain persons are unbankable;
  • A large number of small accounts increase transaction costs;
  • There is information asymmetry;
  • There is a lack of extension services.
• On the demand side:
  • Ideal service products are not available;
  • Informal channels are more user friendly;
  • Experiences with the formal banking system are unsatisfactory.

The presentation highlights the learnings for overcoming these factors of exclusion.

• On the supply side:
  • Making optimal use of available infrastructure and resources;
  • Smoothening the adverse factors that limit inclusion;
  • Providing a facilitating policy framework.
• On the demand side:
  • Recognizing the need for specialization;
  • Institutionalizing an outreach framework to overcome the factors of exclusion.

The presentation concludes that formal financial institutions require the following support in order to include the excluded:

• Standardized information;
• Specialized institutions to house the relevant data;
• A broad-based microfinance development and equity fund;
• Better rural banking using technology and funds;
• Research and evolution of best practices;
• Risk analysis and mitigation strategies;
• Special focus on backward areas;
• Acceleration and promotion of existing models.