as they are well capitalized, they are not dependent on scarce and volatile donor resources unlike ngos and mfis. banks offer savings, remittance, loans and other financial products that are prima facie attractive to the hitherto unserved micro finance clients. on the downside, however, banks lack key ingredients, most of all, the financial methodologies to reach the low income population. there are several issues trammeling banks. the issue of commitment is fairly significant. the commitment of commercial banks ( particularly the larger banks ) to micro enterprise lending is often fragile and generally vests on the direction provided by one or two board members rather than it being rooted in their institutional mandate. secondly, they are hampered by their organizational structures. programs for the poor or microfinance programs need to be inserted into the larger bank structure while retaining flexibility, operational independence and autonomy. banks need an appropriate financial methodology to work with efficiency. for gains in the penny economy, they need suitable financial methodology to service the micro enterprise sector and financial innovations that enable cost effective analysis of credit worthiness, the monitoring of relatively poor clients and acceptance of effective collateral substitutes. human resources also need attention given that microfinance programs differ so radically from traditional banking. banks need to recruit and retain specialized staff to manage these programs. issues of recruitment, training and performance linked incentives for bank personnel need special consideration. cost effectiveness is a critical issue. micro finance programs are costly to administer given the overheads of banks. despite these apparent disabilities, if banks work on this, they are ideally suited to microfinance provision. the targeted interventions of the swarn jayanti shahri rozgar yojana and the district industries centres which are designed to impart vocational training to the target group of this program as also the prime minister rozgar yojana have enjoyed only limited success ratios attributable not so much to infirmities in policy design issues as to faulty implementation and poor targeting, lack of predisbursement credit assessment, coupled with poor post - disbursement credit supervision and no space for capacity building and handholding in between. the clear winner is financial inclusion. savings credit extended to the urban poor by the banks can help grow the micro enterprises and power economic growth. let me begin with a simple example. micro enterprises like the ubiquitous street - corner paan wallah who runs a small self - sustaining enterprise, if extended credit by banks, can expand his business, can

k c chakrabarty : the first mile walk into financial inclusion – thinking differently address by dr k c chakrabarty, deputy governor of the reserve bank of india, at the inaugural session of the financial inclusion conference 2012 “ the first mile walk into the financial system ”, organized by ficci and sa - dhan, new delhi, 7 august 2012. * * * assistance provided by smt. sushma vij and shri bipin nair in preparation of this address is gratefully acknowledged. mrs. naina lal kidwai, vice president, ficci and country head, hsbc india ; dr. amiya sharma, chair, sa - dhan ; mr. mathew titus, executive director, sa - dhan, delegates to this financial inclusion conference organized by ficci and sa - dhan, ladies and gentlemen. i am pleased to be here with you all for the financial inclusion conference 2012 that is being organized jointly by sa - dhan and ficci. the theme this year “ the first mile walk into financial inclusion ” is both innovative in its concept and significant in its new approach to furthering financial inclusion. i was told that the objective of the conference is to deliberate upon the issues that the customer faces in his first walk to the financial system. clearly, this is a customer centric approach and i congratulate the organizers for coming up with the idea. we are changing our thinking perspective from last mile ( service provider perspective ) to first mile ( customer perspective ). this change in thinking needs to be reflected in our actions also. financial inclusion efforts are not new ; both the government and the reserve bank have been pursuing this goal over the last several decades through building the rural cooperative structure in the 1950s, the social contract with banks in the 1960s and the expansion of bank branch networks in the 1970s and 1980s. these initiatives have paid off in terms of a network of branches across the country. yet, the extent of financial exclusion has been staggering. out of the 600, 000 habitations in the country, only about 30, 000 had a commercial bank branch. just about 40 per cent of the population across the country had bank accounts. the proportion of people having any kind of life insurance cover was as low as 10 per cent and proportion having non - life insurance was an abysmally low 0. 6 per cent. people having debit cards comprise only 13 per cent and those having credit cards only a marginal 2 per cent. the national sample survey