Financial Inclusion

Chit funds, Nidhi Co.s :Model for success

(FS& I Presentation)

Presented by: Presented to:

Anushka Singh (PGP26065) Prof. Rohit Tondon
Abhishek Tiwari (PGP26013)
Vanshita Gaur
Jiya Khurana
What is Financial Inclusion?
Financial inclusion is an effort to make everyday financial services more affordable to a wider range of the
global population. Financial inclusion can refer to geographical regions, consumers of a particular gender,
consumers of a certain age, or other marginalised groups. Financial inclusion may result in increased overall
innovation, economic growth, and consumer knowledge.

Objectives:
Financial inclusion aims to offer essential financial services, including basic no-frills accounts for payments,
savings and pension products, simple credit and overdrafts, money transfer options, micro-insurance, and
micro-pension solutions.

Working:
Financial inclusion ensures accessible, affordable financial services for all, regardless of income or location.
- It promotes economic stability by enabling universal access to banking, credit, and insurance, empowering
individuals to participate in the formal financial system.
Types of financial inclusion:
1. Credit Inclusion
Access to loans, credit cards, and other forms of credit.
Examples: Microloans, SME loans, agricultural loans.
2. Savings Inclusion
Access to savings accounts and facilities for secure money storage.
Examples: Bank accounts, fixed deposits, and mobile wallets.
3. Insurance Inclusion
Access to affordable insurance products to mitigate risks.
Examples: Health insurance, life insurance, crop insurance, and property insurance.
4. Payment Inclusion
Access to digital and physical payment systems.
Examples: Mobile payment platforms, debit/credit cards, online payment services.
5. Investment Inclusion
Access to opportunities for wealth creation and investment.
Examples: Mutual funds, stocks, bonds, and retirement savings plans.
6. Digital Financial Inclusion
Access to digital platforms for financial services.
Examples: Mobile banking, digital wallets, and blockchain-based financial systems.
7. Financial Literacy Inclusion
Education and awareness about financial products and how to use them responsibly.
Examples: Workshops, training, and tools to enhance financial decision-making.
8. Insurance and Pension Schemes
Access to social security products for long-term financial stability.
Examples: Government pension schemes, social welfare programs.
9. Rural Financial Inclusion
Tailored financial services to address rural population needs.
Examples: Agricultural credit, cooperative banks, and microfinance.
10. Inclusive Banking
Banking services for underprivileged communities.
Examples: Zero-balance accounts, doorstep banking, and no-frill accounts.
Financial Inclusion Current State in India
India has made significant strides in promoting financial inclusion, but gaps remain. In consultation with the concerned
stakeholders, including the government, the Reserve Bank of India constructed FI-Index to capture the extent of financial
inclusion across the country.
Overall Banking: According to the World Bank Global Findex Database (2021), about 78% of Indian adults have bank
accounts.

However, account usage and access to credit continue to be low.

Digital Payment: UPI has transformed digital payments nationwide; at a compound annual growth rate (CAGR) of 129%,
UPI transaction volume increased from 92 crore in FY 2017–18 to 13,116 crore in FY 2023–24.

Gender Disparity: According to the National Statistical Office's "Women and Men in India 2023" report, women account
holders account for only 20.8%, or roughly one-fifth, of total bank deposits in India.

Presence of Informal Banking: Despite progress, disparities in financial inclusion persist, with rural and low-income
groups having limited access. Many still depend on informal, often costly financial services like moneylenders and savings
groups.
Challenges and Barriers
1. Socio-Economic Barriers:
Low Income and Irregular Earnings: Many people, especially in rural areas, struggle with low or unstable incomes,
making saving or investing difficult.
Lack of Financial Literacy: Without knowledge of financial products, people are less likely to trust or use banking
services.
High Levels of Informal Employment: People working in informal sectors often lack access to employer-provided
financial services, such as pensions or insurance.

2. Geographical Barriers:
Rural and Remote Areas: Poor infrastructure and limited access to financial institutions hinder people in remote locations.
Poor Infrastructure: Issues like bad roads, lack of electricity, and unreliable internet further complicate access to financial
services.
3. Technological Barriers:
Digital Divide: Limited access to smartphones, internet, and digital literacy prevent people from using online banking.
Lack of Digital Literacy: Even with internet access, many people lack the skills to use digital financial services effectively.
4. Institutional Barriers:
Stringent Documentation Requirements : Lack of formal identification or required documents prevents many from accessing financial
services.
High Transaction Costs : Banking fees are often too high for low-income individuals, discouraging them from using these services.
Limited Financial Service Points : Insufficient number of bank branches or ATMs in rural and underserved areas makes access difficult.

5. Societal and Cultural Barriers:

Gender Disparities : Women, especially in conservative regions, face additional hurdles like cultural restrictions and lack of access to
financial services.
Cultural and Language Barriers : Financial services may not be available in local languages, and cultural norms may discourage formal
banking.
Trust Issues with Financial Institutions : Past experiences with fraud or financial instability lead to distrust in formal financial services.

6. Economic Barriers:
Economic Instability : High inflation, currency instability, or economic downturns can reduce people's trust and engagement with financial
systems.
Unemployment and Underemployment : Without steady income, many people cannot participate fully in the financial system.
Role of technology and innovation
1. Digital Payments
What it does: Apps like Paytm and UPI let people send and receive money easily without using cash.
Why it helps: Even small shops or people in villages can use these to make payments quickly and securely.

2. Mobile Banking
What it does: Mobile banking apps let people do things like check balances, transfer money, or apply for loans using their phones.
Why it helps: You don’t need to visit a bank branch, so even people in far-off places can use banking services.

3. Small Loans and Lending Apps

What it does: Apps and websites allow people to borrow small amounts of money even if they don’t have a credit history.
Why it helps: Small business owners and farmers can get funds to grow their work.

4. Fintech Startups
What it does: New companies make banking easier with services like digital wallets, online loans, and money management tools.
Why it helps: People get modern financial services without needing to visit a bank.
5. Blockchain Technology
What it does: Blockchain keeps financial transactions secure and transparent, even for people without ID.
Why it helps: It allows safe and low-cost international money transfers.
6. Artificial Intelligence (AI)
What it does: AI tools analyze data like mobile usage or spending habits to decide if someone can repay a loan.
Why it helps: People without a formal credit score can still get loans.
7. Biometric Systems
What it does: Fingerprint and eye-scan systems like Aadhaar in India let people easily access their bank accounts or
government benefits.
Why it helps: It ensures only the right people get benefits or access their money.
8. Teaching Digital Skills
What it does: Programs teach people how to use phones and apps for banking and payments.
Why it helps: Helps people feel confident about using digital financial services.
9. Testing New Financial Ideas
What it does: Governments allow companies to try out new banking or payment tools in a safe testing zone called a
"sandbox."
Why it helps: New ideas can grow without causing problems for users.
10. Lower Costs
What it does: Technology reduces the cost of banking services, like setting up branches.
Why it helps: Banks can offer services at lower prices, making them affordable for everyone.
Schemes
Pradhan Mantri Jan Dhan Yojana (PMJDY)
The purpose behind it is that goal to expand affordable access such as like Bank Accounts of peoples, Credits, Insurance and pension.
Pradhan Mantri Jan Dhan Yojana was launched on 28th of August 2014 by our honourable Prime minister Shri Narendra Modi.
This scheme comes under the ministry of finance of India.
On inauguration day itself i.e., on 28th of August 2014, 15 million bank accounts were opened on the very first day and by the end of the
first week of this scheme, there were 18 million accounts were opened.
The main purpose of this scheme is that females have to chance to open a bank account freely and become financially independent.

MUDRA Yojana
The Government of India launched a flagship scheme called Prime Minister Mudra Yojana (PMMY) on 8th April 2015 in order to boost
the economy.
This scheme helps bring affordable loans to the non-corporate, non-farm micro and small enterprises to fund their needs.
Another goal of this scheme was to bring the target audience into the recognised financial fold, i.e., Financial Inclusion.
MUDRA (Micro Units Development and Refinance Agency Limited) is a refinancing group providing loans up to Rs ten lakhs to the
eligible enterprises at lower interest rates.
This has been achieved through the Commercial Banks, RRBS, Cooperative Banks, NBFC and MFI.
PM Jeevan Jyoti Bima Yojana
Its objective is to provide affordable life insurance to people.
Life Insurance continues to provide cover even after one has retired.
Pradhan Mantri Jeevan Jyoti Bima Yojana is one such kind of insurance scheme that offers insurance for people between
18-50 years with a bank account.
Launched on 9th May 2015by Prime Minister Narendra Modi, the scheme was availed by more than5 crore people by 2018.

PM Suraksha Bima Yojana

Pradhan Mantri Suraksha Bima Yojanais a Government scheme launched on 9th May 2015 by Prime Minister Narendra
Modi for India.
It is a scheme introduced for accidental death proposed by finance minister Arun Jaitley during his budget speech in
February 2015.
Pradhan Mantri Suraksha Bima Yojana (PMSBY) gives an insurance policy and financial aid to the people belonging to the
lower section of the society in case of any mishap or accident.
All the Insurance companies from both the Private and Public sectors control this scheme.
Atal Pension Yojana (APY)
Atal Pension Yojana is a government-initiated pension scheme for workers employed in the unorganized sector in India.The Atal Pension
scheme is an attempt to provide old-age security to the blue-collar workers like street vendors, rickshaw pullers, rag pickers, cobblers,
workers in the agricultural sector and construction, landless labourers etc.
Launched on 9th May 2015, the scheme replaces a government-run previous scheme named “Swavalamban Yojana” and is implemented
and controlled by the Pension Fund Regulatory and Development Authority through NPS (National Pension System).
Under the scheme, the government also offers a contributory amount of 50% of the total funds deposited by a worker.

Stand Up India Scheme

The Stand-Up India scheme aims to provide bank loans ranging from 10 lakh to 1 Crore to at least one Scheduled Caste (SC) or
Scheduled Tribe (ST) borrower and at least one woman borrower per bank branch.
This business could be in manufacturing, services, agriculture-related activities, or trading.
In the case of non-individual enterprises, at least 51 percent of the shareholding and controlling stake must be held by a SC/ST or female
entrepreneur.

Pradhan Mantri Vaya Vandana Yojana (PMVVY)

Pradhan Mantri Vaya Vandana Yojana (PMVVY)is a pension scheme for elderly citizens above the age of 60 years or above, which
provides a fixed monthly pension for a span of 10 years.
Available for investments up to ₹15 lakh.
Available through Life Insurance Corporation of India (LIC).
Launched in 2017 by the Ministry of Finance.
Sukanya Samriddhi Yojana
Sukanya Samriddhi Yojana (SSY) was launched on 22 January 2015 by Prime Minister Narendra Modi as part of the Beti Bachao Beti
Padhao campaign, with the primary goal of securing the future of a girl child.
The Sukanya Samriddhi Yojana scheme aims to improve the lives of girls in the country.
The Sukanya Samriddhi scheme was launched to provide a means of saving for every family's girl child.
The SSY is valid for 21 years from the date of opening the account or until the girl reaches the age of marriage after reaching the age of 18.

National Strategy for Financial Inclusion

The Reserve Bank of India (RBI) has devised a National Strategy for Financial Inclusion (NSFI) for the period 2019-2024.
It is an ambitious strategy that aims to strengthen the ecosystem for various modes of digital financial services in all Tier II to Tier VI
centres in order to build the infrastructure needed to transition to a cashless society by March 2022.
RBI identified six strategic objectives of a national strategy for financial inclusion:
• universal access to financial services
• providing basic bouquet of financial services
• access to livelihood and skill development
• financial literacy and education
• customer protection and grievance redressal
• effective coordination.
What is chit fund ?
A chit fund is a savings and borrowing scheme where a group of people contribute a fixed amount regularly into a pool. The
pooled money is given to one member each cycle, either through an auction (lowest bid wins) or a lottery. It serves as a
financial tool for savings and loans. While regulated under the Chit Funds Act, 1982, informal chit funds carry higher risks.

Key Features of Chit Funds:

1. Members/Subscribers: A group of individuals form the chit fund. Each member contributes a fixed amount regularly.
2. Chit Amount: The total amount collected in a single cycle is called the chit amount.
3. Auction or Lottery:
 In an auction-based chit fund, members bid for the pooled money, and the one who bids the lowest amount (i.e., agrees to
take the least) gets the money. The difference between the total amount and the bid is distributed among all members as a
dividend.
 In a lottery-based chit fund, the pooled money is given to a randomly selected member.
4. Duration: The chit fund runs for a fixed period, equal to the number of members, so every member gets a chance to
receive the pooled amount once.
5. Organizer/Foreman: The person or entity managing the chit fund, who may charge a fee for their services.
Advantages:
· Encourages savings among participants.
· Provides access to funds for those in need without the formalities of banks.
· Acts as both a saving and borrowing mechanism.

Risks:
· Lack of regulation in some cases can lead to fraud.
· Mismanagement by organizers can cause financial losses. In India, chit funds are
regulated under the Chit Funds Act, 1982, but informal chit funds also exist outside
regulatory oversight.
Case Study: Saradha Chit Fund Scam
The Saradha Chit Fund Scam was one of India’s largest financial frauds, occurring in West Bengal and neighboring states.
The scam unraveled in 2013, involving the Saradha Group, a consortium of over 200 companies , which duped lakhs of
investors of around ₹2,500–₹4,000 crores.

How the Scam Worked

1. Ponzi Scheme Model: The Saradha Group collected money from small investors, promising high returns
(15–50%) through chit funds, recurring deposits, and investment schemes.
2. Diversion of Funds: Instead of investing the money, it was used to pay off earlier investors, fund lavish
lifestyles, and invest in unrelated businesses like media, real estate, and tourism.
3. Massive Expansion: Aggressive marketing, endorsements by celebrities, and political backing helped the
group grow rapidly.
Collapse and Impact
By 2013, the company couldn’t sustain payouts as new investments dried up.
Thousands of investors, mostly small-income individuals, lost their life savings.
Several suicides were reported due to financial losses.

Legal and Political Fallout

The scam exposed regulatory loopholes in India’s financial system.
Authorities arrested key figures, including Sudipta Sen (Chairman of Saradha Group).
Allegations of political involvement led to investigations by the CBI and ED.

Lessons Learned
1. Importance of stricter regulation for chit funds.
2. Public awareness about the risks of Ponzi schemes.
3. Need for financial literacy among investors.
This scam highlighted the vulnerability of unregulated financial schemes and the need for robust oversight.
What are Nidhi Companies?
Non-Banking Financial Companies (NBFCs) that promote savings and provide financial
support to members.
Meaning: "Nidhi" means treasure, symbolizing wealth and prosperity.
Regulation: Governed by Section 406 of the Companies Act, 2013.
Purpose: Focus on mutual benefit rather than profit-making.

Key Features of Nidhi Companies

Member-Only Operations: Services only for members.
Promotes Savings: Encourages regular savings habits.
Simple Loans: Offers collateral-free loans with low interest.
Community-Focused: Operates for the welfare of its members.
Role of Nidhi Companies in Financial Inclusion
Serves people in semi-urban and rural areas.Provides affordable credit to members.
Reduces dependence on informal moneylenders.Encourages financial literacy and disciplined saving habits.

Successful Models for Nidhi Companies

Transparency: Clear communication builds trust.
Strong Membership Base: Expansion ensures growth.
Efficient Management: Prevents financial mismanagement.
Technology Adoption: Digital platforms enhance efficiency.
Customer-Centric Approach: Tailored services for members.
 Conclusion
• Financial inclusion drives economic growth by making financial services accessible to all.

• India's progress includes government schemes (PMJDY, MUDRA Yojana) and digital innovations.

• Challenges remain, such as socio-economic disparities, digital literacy gaps, and infrastructure limitations.

• Chit funds & Nidhi companies help underserved communities but require stronger regulations.

• Technology (UPI, AI, blockchain) is transforming financial access and lowering costs.

• Future focus should be on better regulation, innovation, and financial education for full inclusion.