Tag: financial inclusion

Endorsement of G20 Policy Recommendations for Advancing Financial Inclusion and Productivity Gains through DPI and G20 FIAP 2023

 The Fourth G20 Global Partnership for Financial Inclusion (GPFI) Meeting is being held in Mumbai from September 14-16, 2023. It will involve discussions on the remaining work of the on-going three year FIAP 2020 which is in its terminal year and is being implemented by the GPFI. Discussions will take place on the deliverables related to Digital Financial Inclusion and Small and Medium Enterprises. Ahead of the meeting a Symposium on Digital Public Infrastructure for energizing MSMEs was held on September 14, 2023. This is one of the series of side events on Digital Public Infrastructure and financial inclusion that have been organised by the G20 India Presidency under the GPFI working group. Shri Ajay Seth, Secretary (Economic Affairs), Ministry of Finance, Shri T. Rabi Sankar, Deputy Governor (RBI) and Mr. Mohamed Gouled, Vice President (International Finance Corporation) and Dr. Arjun Kumar Karki, Global Coordinator-LDC Watch and Former Ambassador of Nepal to USA addressed the Symposium. 

The Symposium saw panel discussions involving international experts around two key themes “Energizing MSMEs for Higher Economic Growth through Digital Public Infrastructure” and “Credit Guarantees and SME ecosystems”. The first panel discussion on energizing MSMEs through DPI was moderated by Mr. Matthew Gamser, CEO, SME Finance Forum and the panelists were Mr. Sivasubramanian Ramann, Chairman & Managing Director, Small Industries Development Bank of India (SIDBI), Mr. Ashwini Kumar Tewari, Managing Director, State Bank of India, Mr. B G Mahesh, Co-Founder & CEO, Sahamati, Mr. Michael Jongeneel, CEO, FMO, Ms. Jane Prokop, Executive Vice President, Small and Medium Enterprises, Mastercard. The enriching discussions provided valuable insights into the role of DPI in rapidly advancing the financial inclusion of MSMEs. 

The second panel discussion on credit guarantees and SME ecosystems was moderated by Ms. Nagla Bahr, Managing Director, Credit Guarantee Company (CGC) Egypt. The panelists were Ms. Katrin Sturm, Secretary General, AECM, Mr. Sandeep Varma, CEO, CGTSME, Mr. Homam Hashem, CEO, Kafalah and Mr. Wooinn Park, Deputy Director, KODIT. 

The World Bank also presented the G20 Policy Recommendations for Advancing Financial Inclusion and Productivity Gains through Digital Public Infrastructure developed under G20 India Presidency which were recently endorsed by the G20 Leaders in the G20 Summit held in New Delhi. 

Over the course of the next two days, the GPFI members will discuss GPFI work regarding implementation of G20 GPFI High Level Principles for Digital Financial Inclusion, Update of National Remittance Plans and SME best practices and innovative instruments to overcome common constraints in SME financing. A Symposium on “Advancing Financial Inclusion through Digital Public Infrastructure: Empowering Consumers through Digital and Financial Literacy and Consumer Protection” will also be held on September 16, 2023 as part of the GPFI Meeting.

In a pre-event Press Conference, Economic Advisor, Department of Economic Affairs, Ministry of Finance, Chanchal Sarkar, stated that it is  a remarkable achievement for the GPFI working group as recently, at the G20 Leader’s Summit held in New Delhi, the leaders endorsed two significant documents produced by GPFI under the India Presidency, namely the G20 Policy Recommendations for Advancing Financial Inclusion and Productivity Gains through Digital Public Infrastructure (DPI) and the G20 Financial Inclusion Action Plan (FIAP) 2023. 

 

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G20 document prepared by World Bank lauds India’s progress

 Digital Public Infrastructure (DPI) has had a transformative impact on India, extending far beyond inclusive finance. The G20 Global Partnership for Financial Inclusion document (https://www.g20.org/content/dam/gtwenty/gtwenty_new/document/G20_POLICY_RECOMMENDATIONS.pdf) prepared by World Bank has lauded transformative impact of DPIs in India over the past decade under the Central Government.

The document highlights the groundbreaking measures taken by Central Government and the pivotal role of government policy and regulation in shaping the Digital Public Infrastructure (DPI) landscape.

  • Financial Inclusion: Lauding India’s DPI approach the World Bank document notes that India has achieved in just 6 years what would have taken about five decades.
    • JAM Trinity has propelled financial inclusion rate from 25% in 2008 to over 80% of adults in last 6 years, a journey shortened by up to 47 years thanks to DPIs.
    • The document categorically notes, “While DPIs’ role in this leapfrogging is undoubtable, other ecosystem variables and policies that build on the availability of DPIs were critical. These included interventions to create a more enabling legal and regulatory framework, national policies to expand account ownership, and leveraging Aadhaar for identity verification.”
    • Since its launch, the number of PMJDY accounts opened tripled from 147.2 million in March 2015 to 462 million by June 2022; women own 56 percent of these accounts, more than 260 million.
    • The Jan Dhan Plus programme encourages low-income women to save, resulting in over 12 million women customers (as of April 2023) and a 50% increase in average balances in just five months, as against the entire portfolio in the same time period. It is estimated that by engaging 100 million low-income women in savings activities, public sector banks in India can attract approximately Rs 25,000 crore ($3.1 billion) in deposits.
  • Government to Person (G2P) Payments:
    • In the last decade, India has built one of the world’s largest digital G2P architectures leveraging DPI.
    • This approach has supported transfers amounting to about $361 billion directly to beneficiaries from 53 Central government ministries through 312 key schemes.
    • As of March 2022, this had resulted in a total savings of $33 billion, equivalent to nearly 1.14 percent of GDP.
  • UPI:
    • More than 9.41 billion transactions valuing about Rs 14.89 trillion were transacted in May 2023 alone.
    • For the fiscal year 2022–23, the total value of UPI transaction was nearly 50 percent of India’s nominal GDP.
  • DPIs’ Potential Added Value for the Private Sector:
    • The DPI in India has also enhanced efficiency for private organizations through reductions in the complexity, the cost and the time taken for business operations in India.
    • Even some NBFCs have been enabled 8% higher conversion rate in SME lending, a 65% savings in depreciation costs and 66% reduction in costs related to fraud detection.
    • According to industry estimates, banks’ costs of onboarding customers in India decreased from $23 to $0.1 with the use of DPI.
  • Lower Cost of Compliance for Banks for KYC
    • India Stack has digitised and simplified KYC procedures, lowering costs; banks that use e-KYC lowered their cost of compliance from $0.12 to $0.06. The decrease in costs made lower-income clients more attractive to service and generated profits to develop new products.
  • Cross-Border Payments:
    • The UPI-PayNow interlinking between India and Singapore, operationalised in February 2023, aligns with G20’s financial inclusion priorities and facilitates faster, cheaper, and more transparent cross-border payments.
  • Account Aggregator (AA) Framework:
    • India’s Account Aggregator (AA) Framework aims to strengthen India’s data infrastructure, enabling consumers and enterprises to share their data only with their consent through an electronic consent framework. The framework is regulated by RBI.
    • Total of 1.13 billion cumulative accounts are enabled for data sharing, with 13.46 million cumulative number of consents raised in June 2023.
  • Data Empowerment and Protection Architecture (DEPA):
    • India’s DEPA grants individuals’ control over their data, enabling them to share it across providers. This promotes tailored product and service access without requiring new entrants to invest heavily in pre-existing client relationships, fostering innovation and competition.

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Financial Literacy

What Is Financial Literacy?

Financial literacy is the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing. Financial literacy is the foundation of your relationship with money, and it is a lifelong journey of learning. The earlier you start, the better off you will be, because education is the key to success when it comes to money.

Read on to discover how you can become financially literate and able to navigate the challenging but critical waters of personal finance. And when you have educated yourself, try to pass your knowledge on to your family and friends. Many people find money matters intimidating, but they don’t have to be, so spread the news by example.

Understanding Financial Literacy

In recent decades financial products and services have become increasingly widespread throughout society. Whereas earlier generations of Americans may have purchased goods primarily in cash, today various credit products are popular, such as credit and debit cards and electronic transfers. Indeed, a 2019 survey from the Federal Reserve Bank of San Francisco showed that consumers preferred cash payments in only 22% of transactions, favoring debit cards for 42% and credit cards for 29%.

Other products, such as mortgages, student loans, health insurance, and self-directed accounts, have also grown in importance. This has made it even more imperative for individuals to understand how to use them responsibly. Although there are many skills that might fall under the umbrella of financial literacy, popular examples include household budgeting, learning how to manage and pay off debts, and evaluating the tradeoffs between different credit and investment products. These skills often require at least a working knowledge of key financial concepts, such as compound interest and the time value of money. Given the importance of finance in modern society, lacking financial literacy can be very damaging to an individual’s long-term financial success.

Being financially illiterate can lead to a number of pitfalls, such as being more likely to accumulate unsustainable debt burdens, either through poor spending decisions or a lack of long-term preparation. This in turn can lead to poor credit, bankruptcy, housing foreclosure, and other negative consequences. Thankfully, there are now more resources than ever for those wishing to educate themselves about the world of finance. One such example is the government-sponsored Financial Literacy and Education Commission, which offers a range of free learning resources.

Strategies to Improve Your Financial Literacy Skills

Developing financial literacy to improve your personal finances involves learning and practicing a variety of skills related to budgeting, managing and paying off debts, and understanding credit and investment products. Here are several practical strategies to consider.

Create a Budget—Track how much money you receive each month against how much you spend in an Excel sheet, on paper, or with a budgeting app. Your budget should include income (paychecks, investments, alimony), fixed expenses (rent/mortgage payments, utilities, loan payments), discretionary spending (nonessentials such as eating out, shopping, and travel), and savings.

Pay Yourself First—To build savings, this reverse budgeting strategy involves choosing a savings goal (say, a down payment for a home), deciding how much you want to contribute toward it each month, and setting that amount aside before you divvy up the rest of your expenses.

Pay Bills Promptly—Stay on top of monthly bills, making sure that payments consistently arrive on time. Consider taking advantage of automatic debits from a checking account or bill-pay apps and sign up for payment reminders (by email, phone, or text).

Greed vs Generosity: Which Gives a Better Competitive Advantage?

Many people think that in the professional world, selfishness and greed are the characteristics that pay dividends. But the truth is, excepting win-lose situations, that the most successful people in the medium and long term are those who are the most generous in their business and personal lives.

Ambition is a desire to take on more than you can realistically accomplish, to constantly strive for improvement, to grow both personally and professionally, and, of course, the desire to generate more income. However there comes a time when ambition crosses a line, and when that happens it becomes greed. Greed is the desire to chew more than you can eat, a desire that distracts you from realistically possible goals. Greed is wanting to get more than what you have actually earned, obtaining maximum profit at minimum cost, or as an old adage has it: “Grasp all, lose all.”

Today there is an abundance of courses and books on finance, limitless knowledge on hand with a simple click. But to know what is right, to subdue the pirates of greed and to follow your trading plan- this is another story. People who look for easy money invariably find that there is no such thing, paying a heavy price for this lesson. Ego, vanity, and revenge play a part, causing people to fail on their trading accounts. This is one of the factors that explains why people might not fall into the exclusive 10% that ‘win’, and find themselves one of the 90% that lose.

Literature and film are full of greedy and stingy characters, and the moral of films like ‘A Christmas Carol’ or ‘The Wolf of Wall Street’ is always the same: the fate of the greedy is heartbreaking. Their addiction to work means that they live a lonely life, and their search for wealth means that at the end of their lives, they have only the sober memory of their friends from the Stock Exchange.

GIVE AND TAKE

People do not realize that giving without expecting something in return could be a competitive advantage, as well as making ones outlook more positive. Studies have shown that the most successful people are generous. At least this is the affirmation of Adam Grant, a psychologist and professor at Wharton and author of “Give and Take”.

A generous person builds bigger and stronger networks, improves communication with their existing contacts, and also finds it easier to interact with people outside of their core network- this gives them access to new contacts and valuable sources of information. Generous people inspire in others a predisposition, or positive receptivity, to reconnect with them, as well as a greater willingness to collaborate.

Moreover, being a giver encourages persistence because givers are able to enthusiastically motivate people, inspiring confidence, because they are liberal with praise. They create a generally positive environment. Talent is important, but the most important factor in success is persistence. And what’s even more interesting is that being a giver has an energizing effect that increases levels of happiness.

According to Bill Williams, famous trader and writer of “Trading Chaos”, people with a ‘giving’ mindset enjoy more happiness and success. For example, later in his career Bill always traded two accounts, one for himself and one for his charities. The charity account always made more money, even though he traded using the same method with both accounts. In the charity account he never veered from his strategy, while in his own account he would sometimes take a trade based on a “feel”, or get in a trade before the actual signal. This shows us the importance of sticking to a plan, but also the importance of being a ‘giver’.

Giving distracts us from our problems, adds meaning to our lives and helps us feel valued by others. This explains why avidity and egoism are the trader’s worst enemy. Having a benevolent mindset while trading helps the trader to increase performance. Happy people earn more money on average, score higher yields, make better decisions and contribute more to their organizations. Furthermore, traders who are givers are at the top of the most successful trading operations.

THE GREED EFFECT

Focusing only on money results in the ‘greedy effect’, something that all professional traders know. In fact, one of the most common pieces of (rarely followed) advice that newbies receive is to shift their focus from trade results to the trading process, analyzing and following the rules of their trading system. Another suggestion is to start reasoning in pips and ticks instead of dollars. This reduces the greedy mindset and develops a more reliable attitude.

However we can make a further effort to improve our performance by shifting our focus to be more generous. One example is trading for charitable purposes like the aforementioned Bill Williams, another could be simply committing a small part of your monthly or annual profit to microcredits, which promote a world of stability and self-sufficiency, key to overcoming poverty.

Material things can be recovered, but feelings of guilt, helplessness and loneliness cannot be solved with money. If humans would be more understanding of and generous to others, the world would be a very different place. And that is why those who practice generosity, making it part of their daily lives, experience an uplifting of their mental and emotional state, and are generally filled with more satisfaction in their professional and personal lives.

In conclusion, we see that generous people are the most successful in their daily trading performance for the reasons described above. Having a giving mindset helps professionals become part of that exclusive group, the 10% of winners.

Financial Inclusion by Indian Public sector banks

In today’s world, where the main focus of private banks is to earn profits, it is important to understand the role and need for public-sector banks especially in a heavily populated country like India.

What are Public-sector banks?
Public sector banks are those banks in which the government has majority shareholding at least 51 percent.
In other words, we can say that the government controls such banks to protect the interests of the people and regulate the supply of money in the economy.

This article is based on one such role or function of Public-sector banks, i.e., financial inclusion. Financial inclusion is an effort to make every day financial services available to more of the world’s population at a reasonable cost. The objective is to make financial services or products accessible and affordable for all citizens irrespective of their professions, level of income, location etc.

Here are some strategies and initiatives taken by Indian public sector banks for Financial Inclusion:

  • SMALL ACCOUNTS: Those persons who do not have any of the ‘officially valid documents can open “Small Accounts” with banks. A “Small Account” can be opened on the basis of a self-attested photograph and putting his/her signatures or thumb print in the presence of an officials of the bank. 
  • BUSINESS CORRESPONDENT AGENTS (BANK MITRAS) are retail agents engaged by banks for providing banking services at locations where opening of a brick-and-mortar branch / ATM is not viable. Scope of activities of Business Correspondents / Bank Mitra are as under:
    a) Creating Awareness about savings and other products and
    education and advice on managing money and debt counselling.
    b) Identification of potential customers.
    c) Collection and preliminary processing of various forms for
    deposits including verification of primary information /data.
  • LOANS AND ADVANCES TO WEAKER SECTIONS: It offers advances to weaker sections, consisting of beneficiaries belonging to scheduled castes/scheduled tribes, small and marginal farmers, landless labourers, rural artisans, beneficiaries under Govt. Sponsored schemes.
  • CREDIT FLOW TO WOMEN BENEFICIARIES
    Women are assuming greater responsibilities and playing an active role in the economic growth of the nation but remain under-represented while receiving the credit delivery from the financial institutions of the
    country. So, for strengthening of credit flow to women, OBC has implemented 14-points action plan as advised by the government of India. Banks have designated 10 branches as specialized branches for women entrepreneurs. Credit schemes like Oriental Mahila Vikar Yojana, Loan scheme for Professional & Self-employed women, Loan scheme for Beauty parlour/Boutiques/Saloons/Tailoring, Oriental Swaran Yojana etc. are designed by the bank especially for women.
  • SWARN JYANTI GRAM SWAROJGAR YOJANA
    The scheme is operative in rural areas of the country and covers the aspects of self-employment such as organisation of rural poor into Self- Help Groups (SHGs) training, Credit technology, infrastructure and marketing.
  • PRADHAN MANTRI JAN DHAN YOJANA: The Pradhan Mantri Jan Dhan Yojana under the National Mission Mode envisages provision of affordable financial services to all citizens within a reasonable distance. It comprises of the following six pillars: –

1.1 Universal access to banking facilities: – Mapping of each district into Sub Service Area (SSA) catering to 1000-1500
households in a manner that every habitation has access to banking services within 5 km.

1.2 Providing Basic Banking Accounts with overdraft facility and RuPay debit card to all households: – To all households, efforts should be made to first cover all uncovered household with banking facilities. Facility of an overdraft of Rs.10,000/- through RuPay debit card.

1.3 Financial Literacy Program: Financial literacy would be an integral part of the Mission in order to let the beneficiaries make best use of the financial services being made available to them.

1.4 Creation of Credit Guarantee Fund: Creation of Credit Guarantee Fund would be to cover the defaults in overdraft accounts.


1.5 Micro Insurance: To provide micro-insurance to all willing and eligible persons by 14th August, 2018, and then on an ongoing basis.

1.6 Unorganized sector Pension schemes like Swavlamban: By 14th August, 2018 and then on an ongoing basis.

Conclusion

We can say that Public-sector banks are playing an active role in making financial services and products available and
affordable for various groups/categories of people. These schemes and their implementation help in bridging economic
opportunities with outcomes in the following ways-

  • Access to credit enables businesses to expand, creating jobs and reducing inequality.
  • Providing access to financial services opens doors for families, allowing them to smooth out consumption and invest in their futures.
  • By increasing consumption level of households and investment level of private sector, it leads to increase in opportunities for economic growth.
  • Direct cash transfers to beneficiary bank accounts, instead of physical cash payments against subsidies will become possible.
  • This also ensures that the funds actually reach the intended recipients instead of being siphoned off along the way.
  • It also helps in bridging the wage gap between the rich and the poor and reducing poverty rates.

To conclude, these schemes and efforts by Public-sector banks and the government of India have led to a substantial increase in availability of various financial services for various people divided into categories like- farmers, small rural organisations and businesses, self-employed and working women (rural and urban areas), SCs, STs and the general public.