Section 7 : Measurement and Monitoring of Comprehensive Access to Financial Services - RBI - Reserve Bank of India
Section 7 : Measurement and Monitoring of Comprehensive Access to Financial Services
Chapter 7.1 This section provides a framework and recommends strategies for the comprehensive measurement of financial inclusion and deepening, in order to track progress towards achieving the desired outcomes by the vision statements outlined in Chapter 2.1. A systematic measurement and monitoring framework provides crucial feedback loops to fine-tune strategies and refine policy action continuously as progress is made towards enhanced access to finance and financial depth. To get a comprehensive view as mentioned in Chapter 2.2, existing supply-side data that is available is very limited. More granular data needs to be captured from every access point of the supply side. In addition, this data needs to be complemented from the demand side through representative consumer surveys to measure usage and affordability. The following table summarises the monitoring strategies to be adopted to measure the progress towards achieving the goals outlined in Chapter 2.1.
Chapter 7.2 Vision 1: Universal Bank Account: By January 1, 2016 each Indian resident, above the age of eighteen years, would have an individual, full-service, safe, and secure electronic bank account. A major drawback of the number of savings bank accounts reported by the RBI Basic Statistical Returns tables is that it does not factor uniqueness287. In order to gain a more accurate picture of universal bank account holdings, a measure of unique full service bank accounts needs to be constructed and reported at the end of each quarter. In view of the complexities associated with measuring unique accounts, there is a need to track unique accounts within banks. As a caveat, these metrics do not factor multiple account holdings across different banks. However, they represent an effective “upper bound” measure of unique bank account holdings. A nationally representative demand-side survey, as proposed in Chapter 7.7, would provide an estimate of the adjustment factor for cross-bank multiple accounts so that unique bank account holdings may be estimated. In order to obtain this data, the underlying transaction point data from individual banking institutions would need to be gathered using a geo-location collection and mapping strategy as described in Chapter 7.6 and be aggregated to report the district level penetration data for unique bank accounts. Vision 2: Ubiquitous Access to Payment Services and Deposit Products at Reasonable Charges: By January 1, 2016, the number and distribution of electronic payment access points would be such that every single resident would be within a fifteen minute walking distance from such a point anywhere in the country. Each such point would allow residents to deposit and withdraw cash to and from their bank accounts and transfer balances from one bank account to another, in a secure environment, for both very small and very large amounts, and pay “reasonable” charges for all of these services. At least one of the deposit products accessible to every resident through the payment access points would offer a positive real rate of return over the consumer price index. 1. Granular distribution: Presently available statistics of the payment access point network (which includes the bank branches, BC outlets, ATMs, and POS terminals) show significant spatial variations at the state and region levels. However, for a much more granular measurement of progress towards the vision on ubiquity of payment architecture, it would be important to track physical presence of payment points in every sq. km. with a population of at least 400 people in each district in terms of the following metrics288:
The underlying data should be collected using a geo-location collection and mapping strategy as described in Chapter 7.6. 2. Reasonableness of fees: In order to assess the reasonableness of fees associated with payment services, a representative consumer survey would need to be undertaken every year that would provide an estimate of the usage and the fees associated with usage of payment points. The representative consumer survey, as outlined in Chapter 7.7 will collect information on the following parameters:
3. Instances of denial: Physical presence of payment access points is a necessary condition for ubiquitous access, but it is also important to track whether citizens are experiencing denial of services at these points. Data on instances of denial of payment service by the provider and reasons for denial of services need to be collected using a representative consumer survey described in Chapter 7.7. Based on the survey output, the Committee recommends reporting the following data for each financial year:
In addition to the task of mandatory reporting of savings bank account data at the transaction points, reporting the following additional data can provide important insights in assessing the progress towards universal account holding (Vision 1). 1. Active accounts: Recognising the importance of usage in addition to the access to such accounts, the Committee recommends reporting and tracking “active” accounts as defined by a frequency of usage metric. Presently, the G20 Financial Inclusion Indicators as recommended by the Global Partnership for Financial Inclusion (GPFI) defines high frequency accounts as those recording 3 or more debit transactions in a month289. This data is presently captured by the World Bank’s Global Findex database, which tracks the financial inclusion data of 188 countries290. A lower frequency of transactions can also signify activity and thus active accounts may be defined as those with at least 3 debit transactions per quarter. Tracking inactive bank accounts would also be useful. 2. Accounts of Low income households and small businesses: To capture the progress of universal account holding among low income households and small businesses, banking institutions would need to report the unique account data disaggregated for low balance accounts (Rs. 1,000 or less), Direct Benefit Transfer (DBT) recipients, and Current Accounts. All of these would be tracked for every district at a quarterly frequency. 3. Additional Coverage ratios: It would also be important to measure and report coverage ratios of these metrics by the individual institutions for each district at a quarterly frequency, where the definitions of the coverage ratios are provided in Table 7.2.1.
Banking institutions should report these ratios at the branch level so that the district level aggregated data can be generated using the geo-location collection and mapping strategy as described in Chapter 7.6. Chapter 7.3 Vision 3: Sufficient Access to Affordable Formal Credit: By January 1, 2016, each low-income household and small-business would have “convenient” access to formally regulated lenders that have the ability to assess and meet their credit needs, and offer them a full-range of “suitable” credit products, at an “affordable” price. By that date, each District and every “significant” sector (and sub-sector) of the economy would have a Credit to GDP ratio of at least 10 per cent on January 1, 2016. This ratio would increase every year by 10 per cent with the goal that it reaches 50 per cent by January 1, 2020. 1. Physical presence of formal lenders: To assess the progress of extending the network of formal lenders (Bank and NBFC branches) in every Gram Panchayat and urban centre with a population of 10,000, the Committee recommends the tracking of the physical presence of formal and active credit providers in every contiguous 25 sq. km. patch291 for each district in every quarter. An “active” credit provider should have disbursed at least one loan per month. The following metrics need to be tracked:
The underlying data should be collected using a geo-location collection and mapping strategy as described in Chapter 7.6. 2. District-level Credit Depth: In order to assess the depth of credit, the following credit depth metrics for each district based on total credit outstanding statistics (from the Basic Statistical Returns data of the RBI) and the respective GDDP data (to be obtained from the data reported by State Planning Commissions) and should be reported in the form of the following metrics:
3. Sectoral Credit Depth: In order to assess the depth of credit outstanding to the various sectors/sub-sectors of the economy, the Committee recommends the following sectoral metrics be tracked and reported:
The statistics published by the Planning Commission of India will be the source of the sectoral GDP data. The underlying credit data should be collected using a geo-location collection and mapping strategy as described in Chapter 7.6. It is noteworthy that the sectoral disaggregation as presently reported by the RBI does not match with the sectoral disaggregation as followed by the Planning Commission. Hence, to resolve the issue of non-comparability, it is desirable that RBI should adopt the Planning Commission’s sectoral break up for reporting sectoral credit data. 4. Cost of credit: In addition to ensuring convenient and sufficient access to formal credit, it is also important to ensure that the formal credit is available at a rate which is affordable to low income households and small businesses. The metrics recommended for assessing the cost of formal credit are as follows:
A nationally representative consumer survey should be undertaken to collect the underlying data, as described in Chapter 7.7. The following additional data should also be reported so as to gain deeper insights on the penetration of formal credit into low income households and small businesses. 1. Distribution of credit accounts: In order to assess the distribution of credit accounts as a measure of access to credit, it should be required that the following metrics aggregated at the district level be tracked for every quarter:
2. Types of products offered: For tracking whether formal lenders are offering credit products to cater to various needs of the customers, the following metrics aggregated need to be tracked at the district level for every quarter:
The underlying data should be collected using a geo-location collection and mapping strategy as described in Chapter 7.6. 3. Performance of credit: In order to assess the performance of credit, the following metrics should be tracked and reported across bank branches and NBFC outlets in each district and each sector (and sub-sector):
Chapter 7.4 Vision 4: Universal Access to a Range of Deposit and Investment Products at Reasonable Charges: By January 1, 2016, each low-income household and small-business would have “convenient” access to providers that have the ability to offer them “suitable” investment and deposit products, and pay “reasonable” charges for their services. By that date, each District would have a Total Deposits and Investments to GDP ratio of at least 15 per cent. This ratio would increase every year by 12.5 per cent with the goal that it reaches 65 per cent by January 1, 2020. 1. Investment Depth: In order to assess investment depth, the provider specific total deposit and investment data needs to be aggregated at the district level and collated against the GDDP data to produce the following metrics:
Deposit and investment data be collected using a geo-location collection and mapping strategy as described in Chapter 7.6 and the GDDP data be collected from the State Planning Commissions. 2. Costs of Investment products: In order to assess whether the formal financial services providers are offering investment products at a “reasonable cost”, it is essential to collect data on various costs that consumers incur while investing in mutual funds, pension funds, endowment products offered by insurance providers, equity, and bonds. These metrics related to the cost of investment products should be reported using a representative consumer survey as described in Chapter 7.7. Vision 5: Universal Access to a Range of Insurance and Risk Management Products at Reasonable Charges: By January 1, 2016, each low-income household and small business would have “convenient” access to providers that have the ability to offer them “suitable” insurance and risk management products which, at a minimum allow them to manage risks related to: (a) commodity price movements; (b) longevity, disability, and death of human beings; (c) death of livestock; (d) rainfall; and (e) damage to property, and pay “reasonable” charges for their services. By that date, each District would have a Total Term Life Insurance Sum Assured to GDP ratio of at least 30 per cent. This ratio would increase every year by 12.5 per cent with the goal that it reaches 80 per cent by January 1, 2020. 1. Term Life Insurance depth: In order to assess the sufficiency of term life insurance access, the following metrics should be aggregated at the district level from each access point of each service provider:
The underlying insurance sum assured data should be collected using a geo-location collection and mapping strategy as described in Chapter 7.6, while the GDDP data should be collected from the State Planning Commissions. 2. Insurance costs: In order to assess costs of accessing insurance products, the following data needs to be collected in the representative customer survey:
The following additional data should also be reported so as to gain deeper insights on the penetration of deposit and investment products: 1. Types of deposit and investment products offered: For tracking whether the formal financial services providers are offering deposit and investment products to cater to various short, medium and long term goals of the customers (Vision 4), there is a need for quarterly tracking of the following metrics aggregated at the district level:
This data should be collected using a geo-location collection and mapping strategy as described in Chapter 7.6. 2. Types of products offered: For assessing whether the formal financial services providers are offering insurance products sufficient to cater to various risk management needs of the customers and businesses (Vision 5), there is a need for quarterly tracking of the following metrics aggregated at the district level:
Chapter 7.5 Vision 6: Right to Suitability: Each low-income household and small-business would have a legally protected right to be offered only “suitable” financial services. While the customer will be required to give “informed consent” she will have the right to seek legal redress if she feels that due process to establish Suitability was not followed or that there was gross negligence.
In order to gain a more comprehensive perspective of customer protection, there is a need to measure and monitor the following grievance redressal metrics from the Banking Ombudsman, SEBI, and IRDA. Based on the approach of Australia’s Financial Ombudsman Service (FOS), Table 7.5.1, while not exhaustive, illustrates the kind of information that needs to be tracked and reported by the respective regulator292.
Chapter 7.6 All formal providers of financial services to households and small businesses should report the following data on a quarterly basis about every access point i.e. branches, outlets, BCs, ATMs, and POS terminals, as applicable.
Data verification: In addition, this data should be verified periodically by the RBI using standardised quality control and follow up visits conducted by trained enumeration field teams within randomly selected sub samples. Coordination among various regulators for collecting data: The task of reporting additional granular level of supply side data require systematic coordination among various regulators such as the RBI, SEBI, IRDA, PFRDA etc. The RBI should take the initiative to ensure that the reporting requirements of various entities under these regulators are smoothly met and the relevant data be shared seamlessly. Geo-spatial mapping: The geo-location data for every financial services access point should be additionally presented in the form of an interactive national map293. The presence of every financial services access point will allow the regulator to gain a spatially granular sense of the number of payment points and formal lenders in every sq.km. of the country. Furthermore, this data can be overlaid with a population density layer which can be obtained readily using sources such as AsiaPop294 or created using demographic data from the latest Census, thus enabling the creation of a picture of the density of access points relative to population. The district-level depth of credit, investment, and insurance should also be presented using the mapping framework. Chapter 7.7 There is a need for the collection of data through nationally representative surveys of consumers to gain a more accurate picture of progress towards achieving the desired outcomes outlined by the vision statements. While this strategy seeks to measure access, usage, and affordability of financial services, the measurement and assessment of financial outcomes of households is beyond its scope. The Committee recommends undertaking two types of consumer surveys: 1. Financial Access & Usage Survey: A nationally representative survey of consumers undertaken annually to collect data on access and usage of financial services 2. Cost & Return Survey: A nationally representative survey of consumers undertaken triennially to collect data on
Financial Access & Usage Survey: It is envisaged that the bulk of the monitoring data will be based on the granular data to be shared by the financial institutions. However, it is also useful to collect information on access and usage of formal financial services from the consumers to complement supply side statistics. Specifically, the Committee recommends that the following metrics need to be captured from the demand side at an annual frequency. 1. Universal bank accounts:
2. Access and usage of payments points:
3. Access to formal lenders and usage of formal loan
4. Access to formal savings and investment and usage of savings & investment product:
5. Access to formal insurance products and usage of insurance products:
Strategies for Undertaking Financial Access & Usage Survey: One strategy for collecting the nationally representative demand side data on access and usage of financial products at an annual frequency could be to incorporate additional modules in nationally representative surveys that are being undertaken for other purposes by institutions such as the National Sample Survey Organisation (NSSO) and the Centre for Monitoring Indian Economy (CMIE). The NSSO adopts a robust sampling strategy to undertake representative sample surveys for collecting data on various socio economic indicators. However, NSSO does not generally undertake a sample survey every year, and thus, might not be an ideal source for monitoring annual progress. CMIE, on the other hand, undertakes a survey of over 150,000 households every quarter covering 312 cities and 98 rural regions in India collecting data on household income, household expenses, pattern of expenditure, household savings and investments, the pattern of investments, borrowings and the sources and uses of the borrowings. Given that this survey (known as Consumer Pyramids295) has a fairly extensive coverage, and undertaken every quarter, it could become a potential source for implementing the annual financial access surveys as recommended by the Committee. Cost & Return Survey: Affordability of formal financial services plays a critical role in ensuring that low income households and small businesses can adopt formal financial products that are made available to them by financial inclusion initiatives. Assessing the price that customers pay to avail various formal financial products should thus become an integral part of the monitoring framework. However, the task of assessing the cost of various financial products from the consumers requires undertaking in-depth surveys designed to understand affordability of formal finance including the sticker price, transaction costs and other fees and charges. At the same time, it is also important to track whether low income households and small businesses have access to formal investment products that offer them real returns. Thus, it is also essential to collect data on the real (inflation adjusted) return on investment that low income households and businesses gain from formal investment using demand side data. Towards these objectives, the Committee recommends undertaking an in-depth demand side survey which will assess the cost of financial products as incurred by low income households and small businesses and estimate the returns offered by the available formal investment products. It is suggested that the methodology adopted for collecting the data on costs of formal financial services and returns offered by investment products should be academic in rigour to produce data of highest quality. Specifically, the Committee recommends that the following metrics need to be captured from the demand side at a triennial frequency: 1. Affordability of formal finance:
2. Cost of investment products:
3. Returns from investment products:
Strategies for Undertaking Cost & Return Survey: Given that for assessing various costs associated with formal financial products and returns from investment products one needs to undertake rigourous primary data collection following a very well executed survey design, this must be undertaken as a standalone nationally representative consumer survey. Given the complexities involved in designing the survey and analysing the survey outputs, the Committee recommends that this survey be delegated to institutions which have appropriate capacity and expertise in conducting such nationally representative surveys with the required academic rigour. Institutions such as the National Council of Applied Economic Research (NCAER) and the Centre for Microfinance, IFMR Research, which have expertise in undertaking rigourous primary survey, can be considered for the task of undertaking the cost and return survey. The sampling plan for such a survey and the coverage required need to be determined based on the targeted level of representation and nature of the data required. If a district level representation is preferred over a State level representation, a large sample is required which calls for significantly more funding296. Also, as the cost and returns are less likely to change frequently, the Committee recommends that the survey should be undertaken at a triennial frequency. Chapter 7.8 In conclusion, this section makes the following recommendations: 7.1 RBI should mandate all formal providers of financial services to households and small businesses to report data on a quarterly basis at the level of each one of their access points such as branches, outlets, BCs, ATMs, and POS terminals, as applicable. This includes data on geo-spatial location, access, services offered, quantum of transactions, depth of penetration, and application of Suitability process. This data should be verified periodically by the RBI using standardised quality control and follow up visits conducted by trained enumeration field teams within randomly selected sub samples. 7.2 In order to measure access, usage, and affordability of financial services, RBI should mandate two surveys of consumers to gain a more accurate picture of progress towards achieving the desired outcomes outlined by the vision statements. The Financial Access & Usage Survey should be a nationally representative survey of consumers undertaken annually to collect data on access and usage of financial services and can be incorporated as additional modules in nationally representative surveys that are being undertaken for other purposes by institutions such as the National Sample Survey Organisation (NSSO) and the Centre for Monitoring Indian Economy (CMIE). The Cost & Return Survey should be a nationally representative survey of consumers undertaken triennially to collect data on costs of credit, insurance and investment products, as well as returns on deposits and investment products. For this survey, RBI should commission institutions which have appropriate capacity and expertise in conducting such nationally representative surveys with the required academic rigour. 287 Source: RBI BSR Table No. 3.1, see: /en/web/rbi/-/publications/table-no-3.1-state-and-population-group-wise-deposits-of-scheduled-commercial-banks-according-to-type-of-deposits-15076 288 It is important to recognise that there may exist a great variation in the spread of a given population which makes population density more salient than the actual population for the purpose of measurement. Accordingly, for measuring the progress towards ubiquity of payment network, the suggested metric combines area and density (patches of 1 square KM with population density of 400 or more). 289 Source: G20 Financial Indicators, GPFI, see: http://www.gpfi.org/sites/default/files/G20 Set of Financial Inclusion Indicators.pdf 290 Demirguc-Kunt & Klapper (2012). 291 The vision statement refers measuring density of formal credit providers per 10,000 people. However, given the possible variation in the spread of the reference population of 10,000, it is important to combine area and density. The referred benchmark (25 sq. KM with population of 10,000 or more), however, is kept less conservative than the average measure. 292 Source: Australia FOS Annual Report, 2012-13, see: http://www.fos.org.au/centric/home_page/publications/annual_review.jsp 293 One example of this approach is the FSP (Financial Services for the Poor) Maps produced by the Gates Foundation, see: http://fspmaps.com/ 294 Source: AsiaPop, see: http://www.worldpop.org.uk/data/summary/?contselect=Asia&countselect=India&typeselect=Population 295 Source: CMIE Consumer Pyramids, see: http://www.consumer-pyramids.com/ 296 For making precise & robust estimates at the district level, a large sample size is required (e.g. the District Level Household and Facility Survey (DLHS-3) undertaken by the Ministry of Health and Family Welfare, Govt. of India sampled approximately 7,20,000 households for generating district level estimates on health outcomes), which necessitates employing great deal of financial and human resources. However, it is possible to derive reliable district level estimates from a sample similar to the size of NSSO (which produces robust state level estimates) based on Small Area Estimation (SAE) technique as mentioned in Chandra et al, 2010. The SAE technique uses auxiliary information available at the district level (from the Census and other sources) and utilises a model based approach to estimate the district level statistics from the state level representative sample such as the NSSO. |
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