financial sector – and mf has demonstrated how to make lending to this sector a viable proposition. however the rates of interest charged are quite high, typically 24 to 30 per cent, mainly on account of the high transaction cost for the average loan size that can be quite small. compared to the informal sector, perhaps the rates are lower, but issues are raised whether these rates are affordable – in the sense whether they would leave any surplus in the hands of the borrowers and lead to higher levels of living. for commercial banks, the lower cost of funding, advantages of size and scale gives scope for cross subsidization and their interest rates are more competitive compared to the mfis, but they have not been as successful in dealing with the last mile issue. the partnering with shgs and mfis with reasonable cost of funding by the banks has been seen as a more optimal approach till now. as indicated earlier, a recent important regulatory measure is the permission given to banks to use post offices, cooperative societies, non government organisations set up as trusts or societies, as business correspondents ( agents ) for doing branchless banking after conducting due diligence on such intermediaries. agency risk is sought to be minimised by using well respected local organisations and use of it solutions for tracking transactions in the bank accounts. many banks are exploring the use of this model to increase their outreach and deliver doorstep banking services at lower cost. the viability and scalability of the model would require some flexibility in charging of interest rates or services charges to cover costs. it solutions for financial inclusion the use of it solutions for providing banking facilities at doorstep holds the potential for scalability of the fi initiatives. pilot projects have been initiated using smart cards for opening bank accounts with bio metric identification. link to mobile or hand held connectivity devices ensure that the transactions are recorded in the bank ’ s books on real time basis. some state governments are routing social security payments as also payments under the national rural employment guarantee scheme through such smart cards ( see pictures below ). the same delivery channel can be used to provide other financial services like low cost remittances and insurance. the use of it also enables banks to handle the enormous increase in the volume of transactions for millions of households for processing, credit scoring, credit record and follow up. initiative of a state government – pictures of technology at work pensioners with bio - metric cards line - up to receive payments biometric validation of smart card transaction confirmation receipt role of

employed and those employed in unorganised sector. while commercial considerations are no doubt important, the banks have been bestowed with several privileges, especially of seeking public deposits on a highly leveraged basis, and consequently they should be obliged to provide banking services to all segments of the population, on equitable basis. ” pursuant to this, the reserve bank has undertaken a number of measures with the objective of attracting the financially excluded population into the structured financial system. in november 2005, banks were advised to make available a basic banking “ no - frills ” account with low or nil minimum balances as well as charges to expand the outreach of such accounts to vast sections of the population. banks are required to make available all printed material used by retail customers in the concerned regional language. in order to ensure that persons belonging to low income group, both in urban and rural areas do not encounter difficulties in opening bank accounts, the know your customer ( kyc ) procedures for opening accounts has been simplified for those persons with balances not exceeding rs 50000 / ( about gbp 600 ) and credits in the accounts not exceeding rs. 100000 / - ( about gbp 1200 ) in a year. the simplified procedure allows introduction by a customer on whom full kyc drill has been followed. banks have been asked to consider introduction of a general purpose credit card ( gcc ) facility up to rs. 25000 / - at their rural and semi urban braches. the credit facility is in the nature of revolving credit entitling the holder to withdraw upto the limit sanctioned. based on assessment of household cash flows, the limits are sanctioned without insistence on security or purpose. interest rate on the facility is completely deregulated. a simplified mechanism for one - time settlement of overdue loans up to rs. 25, 000 / - has been suggested for adoption. banks have been specifically advised that borrowers with loans settled under the one time settlement scheme will be eligible to re - access the formal financial system for fresh credit. in january 2006, banks were permitted to utilise the services of non - governmental organisations ( ngos / shgs ), micro - finance institutions and other civil society organisations as intermediaries in providing financial and banking services through the use of business facilitator and business correspondent ( bc ) models. the bc model allows banks to do “ cash in – cash out ” transactions at the location of the bc and allows branchless banking. other measures include setting up pilots for credit