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The Need for Financial Inclusion

Financial Inclusion is an essential requirement for ensuring equitable growth. Financial Inclusion, in the words of Dr. Subbarao, the past Governor of Reserve Bank of India (RBI),

is important simply because it is a necessary condition for sustaining equitable growth. There are few, if any, instances of an economy transiting from an agrarian system to a post-industrial modern society without broad-based financial inclusion. ….. economic opportunity is strongly intertwined with financial access. Such access is especially powerful for the poor as it provides them opportunities to build savings, make investments and avail credit. Importantly, access to financial services also helps the poor insure themselves against income shocks and equips them to meet emergencies such as illness, death in the family or loss of employment. Needless to add, financial inclusion protects the poor from the clutches of the usurious money lenders.” (Excerpts from the speech of Dr. Subbarao at the Bankers’ Club in Kolkatta, on December 9, 2009)

The level of Financial Exclusion in India can be gauged from the excerpts hereunder, from the Keynote Address of Dr. K.C. Chakrabarty, former Deputy Governor of Reserve Bank of India, at the Financial Inclusion Conclave, organized by CNBC TV 18, at New Delhi, on September 6, 2013:

“ …. the progress is far from satisfactory as evidenced by the World Bank Findex Survey (2012). According to the survey findings, only 35% of Indian adults had access to a formal bank account and 8% borrowed formally in the last 12 months. Only 2% of adults used an account to receive money from a family member living in another area and 4% used an account to receive payment from the Government. The miniscule numbers suggest a crying need for a further push to the financial inclusion agenda to ensure that the people at the bottom of the pyramid join the formal financial system, reap benefits and improve their financial well-being.”

As far as the business opportunity in extending Financial Inclusion Services to the people at the Bottom-of-the-Pyramid is concerned, Dr. Subbarao, had stated as under:

“ …. banking on the poor can actually be a rich banking proposition. Financial inclusion is a win-win opportunity for the poor, for the banks and for the nation. …. We will not be forgiven if we do not rise up to meet these aspirations, if only because of poverty of imagination. It is for the banks to convert what they see as a dead-weight obligation into an exciting opportunity and move on aggressively on financial inclusion.” (Excerpts from the speech of Dr. Subbarao at the Bankers’ Club in Kolkatta, on December 9, 2009)

Small Finance Banks (SFBs) have played a key role in expanding the reach of the formal credit system. RBI’s issuance of differentiated banking license to SFBs and Payments Banks in 2015 has also strengthened the supply of credit to small businesses and unorganised sector entities. Last mile delivery has been one of the major thrust areas in various countries. The report said, “To bridge the gap in the last mile connectivity, RBI permitted banks to engage Business Correspondents / Business Facilitators. This has resulted in cost-effective delivery of services through ICT based solutions.” Other supportive policies include the Financial Inclusion Fund (FIF), issuance of guidelines for Financial Literacy through Financial Literacy Centres (FLCs), Certified Credit Counselors (CCC) scheme and then Pradhan Mantri Suraksha Bima Yojana (PMSBY).

National Mission for Financial Inclusion

The Government initiated the National Mission for Financial Inclusion (NMFI), namely, Pradhan Mantri Jan Dhan Yojana (PMJDY) in August, 2014, to provide universal banking services for every unbanked household, based on the guiding principles of banking the unbanked, securing the unsecured, funding the unfunded and serving the un-served and underserved areas. A digital pipeline has been laid for the implementation of PMJDY through linking of Jan-Dhan accounts with Mobile Phone and Aadhaar [Jan Dhan-Aadhaar-Mobile (JAM)].

In order to move towards creating a universal social security system for all Indians, especially the poor and the under-privileged, three ambitious Jan Suraksha Schemes or Social Security Schemes pertaining to Insurance and Pension Sector were announced by the Government in the Budget for 2015-16. The schemes were launched on 9th May, 2015, for providing life & accident risk insurance and social security at a very affordable cost namely (a) Pradhan Mantri Suraksha Bima Yojana and (b) Pradhan Mantri Jeevan Jyoti Bima Yojana and (c) Atal Pension Yojana. Pradhan Mantri Vaya Vandana Yojana to protect elderly aged 60 years and above was initially opened for subscription for a period of one year i.e. from 4th May 2017 to 3rd May 2018.

CIGS’ Solution for Financial Inclusion

CIGS kick started its business initiative by introducing Commonwealth Card, an innovative, comprehensive Financial Inclusion Solution for the un-banked and under-banked segments of the society that would offer the same levels of comforts, benefits and privileges being enjoyed by the more affluent sections.

Some of the important, path-breaking features of Commonwealth Card solution, that was introduced back in 2009, include the following:

  • Universal BIN (Bankers Identification Number)
  • RFID & Magnetic Stripe Card
  • Near Field Communication (NFC) Mobile Phone as Card Reader
  • Both Bio-metric (Fingerprint and Interactive Voice Response) and PIN based authentication
  • Online, Real-time Transaction processing
  • Delivery Channels supported: Human ATM / Agents; ATM; Merchant POS
  • Cash Back on Purchase Transactions at Merchant Outlets
  • Bundling of Card, Mobile Phone and Mobile Connection with CUG facility

CIGS had also developed SMS-based Fund Transfer Solution, which was one of the most convenient and cost-effective ways for the migrant labourers to remit money to their families, through a network of Merchant Outlets, which were enrolled to render the same; for the Merchants, it was a very good way to enhance their income and also, cross-sell their products & services.

Later, with the advent of RuPay Card and Aadhaar Enabled Payment System and streamlining of the Financial Inclusion solution, a majority of the above features have become available to the target customers, through the National Payments Corporation of India (NPCI) and the Unique Identification Authority of India (UIDAI). CIGS, since then, has transformed itself into rendering the Business Correspondent Services, in the most efficient manner, to the customers of Partner Banks.

CIGS has put in place sound systems and processes, to efficiently & effectively monitor the extensive network of Agents and Field Staff and also, scale the services at very quick notice.

CIGS, as a Business Correspondent Organization, has been servicing over five million Financial Inclusion customers of Partner Banks, besides servicing numerous general customers of Partner Banks and other Banks, at about 30,000 villages and urban locations, spread across some 20 States & Union Territories, through a large network of Agents, who have successfully been handling several million financial transactions, thereby bringing succor to the customers and partner Banks.

The Need for Deeper Insurance Penetration

The insurance penetration in India is still abysmally low, at a mere 4.2% (projected, for FY 2021), with Life Insurance at 3.2% and Non-Life Insurance, 1%

However, the Government’s policy of insuring the uninsured, through PMJJBY (Pradhan Mantri Jeevan Jyoti Bima Yojana – Life Insurance Scheme) and PMSBY (Pradhan Mantri Suraksha Bima Yojana – Accident Insurance Scheme) has gradually been increasing the Insurance penetration and its proliferation. The Government’s great thrust to provide Social Security to the unorganized sector, through APY (Atal Pension Yojana), has also started having the desired results.

The gross premiums of Non-Life Insurers reached US$ 26.52 billion in FY21 (between April 2020 and March 2021), from US$ 26.49 billion in FY20 (between April 2019 and March 2020), driven by strong growth from General Insurance Companies. The General Insurance industry is expected to increase by 7-9% in terms of gross direct premium income in FY22, backed by healthy growth from the health and motor segments.

In March 2021, Health Insurance Companies in the Non-Life Insurance sector increased by 41%, driven by rising demand for health insurance products amid COVID-19 surge.

Duly taking cognizance of the importance of deeper Insurance penetration, the Government of India has taken a number of initiatives to boost the insurance industry, as could be observed from the Union Budget for 2019-20.

As per Union Budget 2019–20, 100% Foreign Direct Investment (FDI) was permitted in Insurance intermediaries. In September 2018, National Health Protection Scheme was launched under Ayushman Bharat to provide coverage of up to INR 500,000 (US$ 7,723) to more than 100 million vulnerable families. The scheme is expected to increase penetration of Health Insurance in India from 34% to 50%. The Insurance Regulatory and Development Authority of India (IRDAI) plans to issue redesigned initial public offering (IPO) guidelines for Insurance companies in India, which are to looking to divest equity through the IPO route. IRDAI has allowed Insurers to invest up to 10% in Additional Tier 1 (AT1) bonds that are issued by Banks to augment their Tier 1 capital, in order to expand the pool of eligible investors for the Banks.

CIGS’ Foray into the Insurance Business

In order to promote the culture of Insurance amongst its target customers, CIGS has become an IRDAI (Insurance Regulatory and Development Authority of India) registered Corporate Agent (Composite), which would enable CIGS to represent three Insurance Companies each, under Life, General and Health Insurance segments.

CIGS has since entered into Corporate Agent Agreements with SBI Life Insurance Co. Ltd., (Life Insurance), The New India Assurance Co. Ltd. & IFFCO-TOKIO General Insurance Co. Ltd. (General – Non-Life & Health)

The future looks promising for the Life Insurance industry, with several changes in regulatory framework, which will lead to further change in the way the industry conducts its business and engages with its customers. The Life Insurance industry in the country is expected to increase by 14–15% annually for the next three to five years, beginning with FY 2020. Demographic factors, such as growing middle class, young insurable population and growing awareness of the need for protection and retirement planning, will support the growth of the Insurance business in India.

Market Intelligence

‘Data’ in the current century, and the times to come, would displace oil / fossil fuel as the most valued asset, a position enjoyed by oil since the 18th century. Data is going to have a profound impact on the globally connected world.

CIGS is planning a new service that would conduct primary and secondary Market Research, capitalizing on its established network and understanding of the rural consumer behavior, thereby creating a new line of lucrative business.

Digital Kendra

‘CIGS Digital Kendra’ would offer a range of services in areas, such as, Banking & Financial Services, Insurance, Assisted e-Commerce, Health Care, Education, Agriculture. It shall also foray into Market Research, as the Data it could collect would be invaluable for a whole lot of Companies.

Tech Innovations

India is already home to one of the world’s largest & fastest-growing bases of digital consumers and is digitizing faster than many mature and emerging economies. CIGS’ goal is to build a large organization, by acquiring & nurturing a series of high growth emerging tech companies through a publicly listed vehicle.