JAIIB PPB Paper-2 Module-A Unit 16: Financial Inclusion & Financial Literacy

JAIIB Paper 2 (PPB) Module A Unit 16: Financial Inclusion & Financial Literacy (New Syllabus) 

The Institute of Indian Banking and Finance (IIBF) recently announced the updated syllabus and exam pattern for the JAIIB Exam 2023. The JAIIB 2023 will include four papers, with Paper 2 (Principles & Practices of Banking) covering Unit 16: Financial Inclusion & Financial Literacy. This unit is crucial for candidates to understand thoroughly as it will impact their performance in the exam.

To aid candidates in comprehending the topic, we will provide all necessary details related to Unit 16: Financial Inclusion & Financial Literacy of JAIIB Paper 2 (PPB) Module A: General Banking Operations. We highly recommend candidates refer to this article and use our Online Mock Test Series to improve their knowledge of Foreign Currency Accounts for Residents and Other Aspects.

For JAIIB Certification Examination 2023 candidates, understanding each unit in the syllabus, including the Marketing unit, is critical. This unit is essential in the banking industry, and candidates must prepare adequately to excel in the exam and establish a successful career in the banking sector.

Financial Inclusion

  • Financial inclusion or inclusive financing is the delivery of financial services at affordable costs to disadvantaged and low-income segments of society.
  • Growth of NGOs and Self-Help Groups (SHGs) has been significant and their linkage with banks has facilitated a higher degree of financial inclusion. Also, SHG movement has enabled social and economic inclusion of women.
  • The bouquet of services under micro finance fold has expanded from just credit and thrift products to include micro insurance, micro pension, micro remittances, digital payments, amongst others.

Business Facilitator Model

Under BF model, banks may use intermediaries, such as the following as Business Facilitators

  • Non- Government Organisations (NGOs)/ Self-Help Groups (SHGs)
  • Farmer’s Clubs
  • Community-based organisations
  • IT enabled rural outlets of corporate entities
  • Post offices
  • Insurance agents
  • Well functioning Panchayats
  • Village Knowledge Centres
  • Agri Clinics, Agri Business Centers
  • Krishi Vigyan Kendras
  • Khadi and Village Industries Commission (KVIC)/ Khadi and Village Industries Board (KVIB).

The BFs may be used for providing various facilitation services: 

  • Identification of borrowers and fitment of activities
  • Collection and preliminary processing of loan applications including verification of primary information/data
  • Creating awareness about savings and other products and education and advice on managing money and debt counselling
  • Processing and submission of applications to banks
  • Promotion and nurturing self-help groups/joint liability groups
  • Post-sanction monitoring
  • Monitoring and hand holding of self-help groups/joint liability groups/credit groups/others
  • Follow-up for recovery.

Business Correspondent Model

Scheduled commercial banks including RRBs and LABs may engage BCs subject  to compliance with the following guidelines.

To have a Board approved policy for engaging BCs; Due diligence of individuals/ entities to be engaged as BCs prior to their engagement – covering

  • Reputation/market standing
  • Financial soundness
  • Management and corporate governance
  • Cash handling ability
  • Ability to implement technology solutions in rendering financial services.

Individuals/entities permitted to be BCs are:

  • Individuals (like retired bank employees, retired teachers, retired government employees and exservicemen, individual owners of kirana/medical/Fair Price shops, individual Public Call Office (PCO) operators, individuals  who own Petrol Pumps, authorized functionaries of well-run Self Help Groups (SHGs) which are linked to  banks, operating Common Service Centres (CSCs))
  • NGOs/ Micro Finance Institutions (MFIs) set up under the Societies/Trust Acts
  • Cooperative societies registered under Cooperative Societies Acts of States
  • Post Offices
  • Companies registered under the Indian Companies Act, 1956 with large and widespread retail outlets, other than Non Banking Financial Companies (NBFCs).
  • Commercial banks (excluding RRBs) are permitted to appoint non-deposit taking registered NBFCs (NBFC-ND) as BCs.

The scope of activities of a BC may include the following activities:

  • Identification of borrowers
  • Collection and preliminary processing of loan applications including verification of primary information/data
  • Creating awareness about savings and other products
  • Processing and submission of applications to banks
  • Promoting, nurturing and monitoring of Self Help Groups/Joint Liability Groups etc
  • Follow-up for recovery
  • Disbursal of small value credit
  • Recovery of principal/collection of interest
  • Collection of small value deposits
  • Sale of micro insurance/mutual fund products/pension products/other third party products
  • Receipt and delivery of small value remittances/ other payment instruments
  • Preliminary work relating to account opening formalities.

Terms and Conditions for Engagement of BFs/ BCs

Commission/ Fee: Banks may pay a reasonable commission/fee to the BF/BC. The agreement should specifically prohibit BC/BF from charging customers directly for services on behalf of the bank.

Adopting Technology: Engaging BF/BC carries significant reputational, legal and operational risks. The transactions should normally be put through ICT devices (handheld device/mobile phone) seamlessly integrated to the CBS of the bank.

Risk Mitigating Measures: The arrangements with BC shall specify the following:

  • Suitable limits on cash holding, individual customer payments and receipts.
  • Cash collected to be acknowledged by a receipt on behalf of the bank.
  • All agreements with the customer to clearly specify the bank is responsible to the customer.
  • Ensure preservation/ protection of security/ confidentiality of customer information with BC.
  • Periodic block level meetings be held with members of public
  • To have Business Continuity Plan (BCP) to ensure uninterrupted service in case the arrangement with BCs/sub-agents is terminated.
  • A company engaged as BC by more than one bank, the customer database and account details of both should be kept separate.

Redressal of Grievances: Services rendered by BCs/ BFs

  • Banks should have a grievance redressal machinery for redressing complaints about services rendered by BC/BF. The name and contact number of designated grievance redressal officer should be widely publicized.
  • The procedure and the time frame fixed for responding to the complaints should be placed on the bank’s website.
  • If a complainant does not get satisfactory response from the bank within 60 days from the date of his lodging the compliant, he will have the option to approach the office of the Banking Ombudsman for redressal of his grievance/s.

Setting Up of Payment Banks

The objectives of payments banks (PBs) are to further financial inclusion by providing

  • Small savings accounts and
  • Payments/remittance services to migrant labour workforce, low income households, small businesses, other unorganized sector entities and other users.

Scope of activities of PBs: 

  • Accepting demand deposits: Upto maximum balance of Rs. 2 lakh per customer
  • Issue of ATM/debit cards, PPIs
  • Internet banking services
  • Payments and remittance services
  • Distribution of simple financial products (MFs, Insurance)
  • Utility bill payments etc

PB operate in remote areas mostly through BCs, ATMs and other networks. They need to have at least 25% of physical access points including BCs in rural centres.

Use Of Mobiles/ Tablets In Financial Inclusion Drive

  • Banks have introduced a personal/ retail banking product, and product to promote financial inclusion. This has been hastened by low-cost smartphones and faster and cheaper internet connections.
  • Banks use mobile phones/ tablets to open Small Accounts/ Basic Savings Bank Deposit Accounts in unbanked villages and offer banking services through Points of Sale (POS) instruments handled by agents of BCs.
  • There are genuine concerns about security aspects of mobile banking and have to be address. Different mobile operating systems and diversity of devices add to complexity.
  • In November 2012, National Payments Corporation of India (NPCI) launched a “Common USSD Platform” for all banks and telcos for Mobile Banking using USSD based Mobile Banking. NPCI offers a common USSD Code *99# for all Telcos. In December 2016, USSD 2.0 based on UPI was launched along with BHIM. It has made UPI available for non-internet based mobile devices (smartphone as well as basic phones) in the form of dialing option (*99#).
  • Two broad areas in digital onboarding are: (i) improving accessibility of financial platforms using FinTech; and (ii) analysing potential risks that may arise out of FinTech adoption.
  • Designing suitable financial products for specific needs of the financially excluded population, digital onboarding and increasing investments are vital. Effective utilisation of Aadhaar eco-system is one avenue to adopt digital platforms as in case of DBT.
  • The RBI Working Group on Digital Lending including Lending through Online Platforms and Mobile Apps recognizes the increasing significance of ‘digital lending’ in the financial ecosystem.
  • Flexible regulations ensure that unauthorised digital lenders are weeded out without affecting the growth of legitimate lenders.

Financial Literacy

  • Financial Literacy is the process by which people improve their knowledge and understanding of the use of financial products and services.
  • Financial literacy can help illiterates prepare ahead of time for life cycle needs and deal with unexpected emergencies without assuming unnecessary debt.
  • RBI has directed banks to establish Financial Literacy Centres (FLC). The centres are disseminating information on the general banking concepts to diverse target groups.
  • The National Centre for Financial Education (NCFE) was set up in 2013 with support from all the financial sector regulators for implementation of the National Strategy for Financial Education (NSFE).
  • RBI launched a pilot project in 2017 involving select banks and NGOs to spread financial literacy through community led participatory approach by setting up Centres for Financial Literacy (CFL). CFLs are being set up at every block in the country in a phased manner.

Rural Self Employment Training Institutes

  • RSETI are initiatives of Ministry of Rural Development (MoRD) to provide dedicated infrastructure in each district for imparting training and skill upgradation of rural youth aimed at entrepreneurship development.
  • RSETIs are managed by banks with active cooperation from the Government of India and the State Governments.
  • This initiative is based on the model of Rural Development and Self Employment Training Institute of 1962. Replication of this model was recommended to tackle the unemployment problem successfully and developing entrepreneurship through establishment of RSETIs across the country.
  • Each RSETI is expected to offer 30 to 40 skill development programs in a financial year of 1 to 6 week duration, covering various areas: Agricultural Programs, Product Programs, Process Programs, and General Programs.

Objectives Of RSETIs

The purpose of RSETI is that rural BPL youth are identified and trained for self-employment. The objectives are:

  • The trainings offered to be demand driven.
  • Area in which training to be provided to the trainee to be decided after assessment the candidate’s aptitude.
  • Hand holding support to be provided for assured credit linkage with banks.
  • Escort services to be provided for at least for two years soon to ensure sustainability of micro enterprise trainees.
  • The trainees to be provided intensive short-term residential self-employment training programmes with free food and accommodation

JAIIB PPB Module A Unit 16 Financial Inclusion & Financial Literacy (Ambitious Baba) PDF

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