RBFI REFLECTION MEMO 1 23rd June,2019

‘2008 Financial Crisis’, taught many things to the student doing an MBA, our 1st financial inclusion
class also start with the same case discussion. This time the learning objective was pretty much
different. The case discussion showed how even if your cause is noble, providing subprime loans to
empower house owners but how that lead to a crisis which shattered the whole world. This created a
need for planning any financial inclusion program systematically. From that, we discussed why
identity, collateral, and transaction trial plays an important role in financial inclusion and there
absence can keep poor people from financial services. Although class were aware of different type of
collateral, the introduction of social collateral, which is one of the key factors frequently used in
financial inclusion of the poor, was new. Next question was if an individual has an identity, collateral
and transaction trails will bank include him their system? The answer was no, as there is transaction
cost involved which determined by transaction of the customer. The poor customer has low deposits
and frequent transaction, which increases the transaction cost; hence, they are motivated to
incorporate them in the system. This gives rise to the moneylender system in such areas. Due to the
ease of access and customisation of product (very short-term loan, lowest amount of loan availability,
social/nuisance collateral) moneylender can charge as high as 1% per day which is way much higher
than what a traditional bank have charged. The moneylender system helped to understand the needs
of the financially excluded individual (availability of small ticket size loan, collateral simplification) and
why poor people preferred moneylender over a financial institution. It was a shocking realisation for
me that what interest rate I am paying for my education loan, a poor farmer is paying much more than
that when the need for farmer probably is more. This model also helped me to understand why
moneylender not able to expand in their operations, as the transactions are social collateral or
personal knowledge based and the negative perception about moneylender. This gives rise to many
micro-finance institution and co-operative banks to have such operational benefit without any
negative attitude to it. The case study of Bandhan Bank and Grameen Bank helped to understand the
operation model of co-operative and step forward in the mission of financial inclusion by merely
providing the actual needs of the people. Grameen Bank model describes the real importance of social
ties and need of social acceptance of human by group lending mechanism, in which each borrows is
tagged to a group, and they are responsible for payment of loan without giving any collateral. In this
money is lend to only one member and other group members make sure that the borrower does not
default on the loan, even the group provide help in repayment of the loan. Such a system helps a
community, especially micro business/farmers help to get out from vulnerability.

Fifth session introduced very interesting term called ‘Laid Back Model’ which helped to understand
how and why bank worked in their particular manner and how Bandhan/Asha like financial institution
revolutionised the way orthodox banking system works. Self Help Group system caught my special
attention as it was very familiar from my school time because of my mother. She used to save small
amount of money for the self-help group (locally called as Bishi). And I used to ask her why you don’t
put money in the bank instead, as that will give you some interest rate also which she never answered.
But the session on SHG gave me one. It’s because it gave her and other similar members to have
flexible flatform to submit the token as per their convenience (some days here and there) and also to
have a get together. SHG discussion was followed by chit funds which is more formalised comparing
SHG system in selecting whom the money will go and how much. But I also understood that this SHG
and chit fund groups are not enough to achieve complete financial inclusion as there will be minority
groups which can have 3-4 members which won’t be able to form such structure. Hence more efforts
are required towards India’s financial inclusion goal. One question from the last session intrigue me
which sir asked, does financial inclusion really eradicate poverty or does it reduce vulnerability? This
changed by view how I look at the subject now. And curious to find the answer of the same in next 14
session

Submitted by: Harshal Wankhede Roll No: 1811368 Word Count: 748