Conference on Micro Finance held at CAB on January 12 &13, 2011

Sending Money Home, Making Finance Work for Mobile Populations - Chair: Dr. Deepali Pant Joshi, Chief General Manager, Rural Planning and Credit Department, Reserve Bank of India

In the second session, panelists discussed some issues that have prevented institutions from extending high quality financial services to India’s 100 million internal migrants and other highly-mobile populations. Mr. R.R.Kulkarni, Faculty of the College of Agricultural Banking, introduced a Centre for Micro Finance/CAB study carried out on remittances in India. The intention of the study was to inform policy through a study of the options available to migrants to transfer wages from destination (where they are earning) to source (where they have migrated from), how migrants choose one of the options and the total cost, both formal and informal, of these options. There are four channels used by migrants: banks, postal money orders, couriers (hawala and cash), carrying oneself and sending with a friend. Four routes were examined in the study: Bihar to Hoskote, Tamil Nadu to Mumbai, East Orissa to Surat and West Bengal to Delhi. Migrants were first interviewed in the location in which they were working, and then the families of these migrants were contacted and interviewed afterwards. Dr. Ajay Tannirkulam, Programme Head at Centre for Micro Finance, then presented the results of the study. The main take-away from the data is that migrants prefer to use banks to make transfers because they are safe, secure, and cheap, but are overwhelmingly unable to. One of the reasons for this is because migrants lack the required documentation to open a bank account. In hometown villages, it is costly for the families of the migrants to travel to the bank to withdraw the remittance. Moreover, there are low literacy levels among migrants creating difficulty in filling out bank vouchers. This study, along with a study carried out by the German International Cooperation (GIZ) and presented briefly by Ms. Therese Zak, point to the need for increased access to banks and other easily accessible services that provide safe, cheap, and secure methods to transfer remittances. Mr. G.C.Bandyopadhyay, Deputy General Manager of State Bank of India, presented on a new product that is helping to fill this gap in the market, “Tatkal Money,” or “Instant Money.” This product uses exciting Smart Card technology and mobile phones to make instant money transfers at the low cost of Rs. 2.5 for every Rs. 1000 (minimum cost of Rs. 25). Moreover, this service is carried out through business correspondents, which are much more easily accessible for migrants than banks. The innovation of Tatkal has greatly increased business correspondent transaction volume and value. Mr. Abhishek Sinha, Co-Founder & Chief Executive Officer of Eko India Financial Services, took the opportunity in the panel to lobby for greater integration of business correspondents in the formal banking sector. However, Dr. Deepali Pant Joshi, Chief General Manager in the Rural Planning and Credit Department at the Reserve Bank of India, maintained that the goal of the RBI’s inclusion plan is very clearly through mainstream formal options, which excludes business correspondents. Although we cannot look forward to integration of business correspondents into the regulatory framework, they are still a very important part of increasing financial access among migrants. Finally, Mr. Rajiv Khandelwal, Founder and Director of Ajeevika Bureau, broadened the discussion to look at the larger set of financial needs among migrants. There are occupational hazards that can end up being very costly for migrants, and many migrants are forced to leave the labor market early because of these hazards. There have to be instruments that help migrants plan savings for foreseeable events and provide insurance for unforeseeable events (involuntary loss of wages).

SEBI may set up SME exchanges: Bhave

The Securities and Exchange Board of India (SEBI) on Wednesday said that it is looking into the idea of setting up of Small and Medium Enterprise (SME) exchanges even though no bourses have formally approached it. “We are very keen on that (SME Exchanges)...We have initiated the process.  Finally it is in the hands of the exchanges to decide whether they want to create a separate platform for SMEs,“ Sebi chairman, C.B. Bhave, told reporters. The Securities and Exchange Board of India (Sebi) on Wednesday said that it is looking into the idea of setting up of Small and Medium Enterprise (SME) exchanges even though no bourses have formally approached it. “We are very keen on that (SME Exchanges)...We have initiated the pro cess.. finally it is in the hands of the exchanges to decide whether they want to create a separate platform for SMEs,“ Sebi chairman, C.B. Bhave, told reporters on a sidelines of a function.

Vodafone, Bharti Will Offer Mobile-Phone Banking in India to Woo Customers

Vodafone Group Plc’s Indian unit and Bharti Airtel Ltd. formed partnerships with the nation’s largest banks to offer phone-banking services in a bid to boost revenue after competition pushed call rates to half a cent a minute. Vodafone Essar Ltd. will tie up with ICICI Bank Ltd., India’s second-largest lender, to offer electronic payments, the companies said in a statement today. Bharti and State Bank of India, the nation’s biggest lender, said separately they will form a venture to provide money transfer and other banking services on mobile phones. Mobile operators in India, in the world’s second-biggest wireless-phone market, are offering new services after call charges plunged with the entry of players including NTT DoCoMo Inc. and Telenor ASA. Through the mobile-phone partnership, the banks will be able to reach more customers including those in remote areas. “Telecom today by far is the most powerful tool available for financial inclusion anywhere in the world,” Bharti Chairman Sunil Bharti Mittal said at a briefing in New Delhi. “In our country we have seen the advent of mobile-phone telephony from a rich man’s tool to now a facility that is available for all classes of society.” Almost half of India’s population has no access to banking services, Dr. K.C. Chakrabarty, Deputy Governor of the Reserve Bank of India had said on Nov. 27.

Malegam panel for loan rate cap, RBI regulation

The Malegam committee, set up by the Reserve Bank of India (RBI) to chalk out a framework within which microfinance institutions (MFIs) in India should operate, is set to recommend an upper ceiling for interest rates chargeable to poor borrowers, two persons familiar with the development said. The panel also seems to be in favour of bringing in all for-profit microlenders under RBI regulations. The committee is in the process of finalizing the report and may submit it to the central bank next week. What the ceiling on the lending rate for MFIs could be is not immediately known, but persons familiar with the matter said it will be “reasonable”. The panel, they said, is basing its recommendations on a Basel committee report that tweaks principles of banking supervision to suit regulation of MFIs. It also offers a view of the policies which banking supervisors of some countries have adopted with respect to microfinance.

RBI seeks wealth management details post Citibank scam

The Reserve Bank of India (RBI) has asked select banks to share details of their wealth management businesses following the 400-crore fraud perpetrated by a Citibank employee. The regulator has asked each bank to spell out its policy, procedures and size of the business which involve banks managing the money of wealthy individuals who do not have the time to do it.

Focus on RBI as growth slumps

Growth of factory output plunged to an 18-month low of 2.7% in November, triggering concerns about a phase of slower industrial activity and resurgent inflation. Even as analysts were surprised at the extent of the slowdown, the growth numbers have served a poser to the Reserve Bank of India (RBI) ahead of its key monetary policy meeting on 25 January: Will RBI keep its eye on the poor industrial growth numbers or on containing growing inflationary pressures in the economy? While growth was expected to slow down in the post-Diwali month especially because of a high base last year, the data surprised analysts and policymakers on the lower side. Finance minister Pranab Mukherjee said the deceleration in the Index of Industrial Production (IIP) and high inflation could adversely impact the economy, and promised to take corrective steps to push up factory output.

Right size of a bank remains a debate for industry: Gokarn

The Reserve Bank of India (RBI) has decided to give new banking licences to create more capacity and competition in the Indian banking space but the right size is yet to be determined. “The right size of a bank remains a debate for the industry,” said Deputy Governor Subir Gokarn. Gokarn said new banks in the system would help achieve financial inclusion. “As we are moving further down the inclusion agenda, which is to try and get banking services at a very basic level, perhaps new banks are one way of achieving that,” he added. While bigger banks would be able to deliver services more efficiently, they aren’t necessarily safe banks and the larger they get, the more of a risk they pose to the system as a whole, he pointed out. The RBI had placed in the public domain a discussion paper in August 2010 on issuing a limited number of new bank licences.  In December, the apex bank said the issues the paper addressed on the entry of new private banks failed to get any consensus from the various stakeholders. Gokarn was speaking at a conference organised by Federation of Indian Chambers of Commerce and Industry on corporate finance in Mumbai today. In his inaugural speech on infrastructure funding, he mentioned the banks’ increasing exposure to infrastructure had raised concerns. This is because infrastructure lending is over long periods while banks mainly depend on short-term deposits for funds. This leads to asset-liability mismatches. He said persistent lending to infrastructure goes against the basic banking model. He said there were concerns on why alternative channels of funding were not emerging. It is projected that infrastructure will need financing of up to Rs 10,000 billion by the financial year 2016-17. Bank financing to infrastructure in the year 2007 was 5 per cent of GDP, while it rose to 8 per cent in 2010. Hence, it is important for other funding options to open up for infrastructure. “If you need foreign money in infra, then flows have to be oriented towards this,” Gokarn said. He said in his presentation that Foreign Direct Investment in infrastructure in the financial year 2009-10 was 0.3 per cent of GDP. He also mentioned that the domestic corporate bond market should be developed to meet the funding needs of infrastructure. “This can be done by encouraging insurance companies and provident funds to invest in low-rated bonds by facilitating credit enhancements,” said Gokarn.