SBI Associate Clerk 2008

Read the following passage carefully and answer the question given below it. Certain words are printed in bold to help you to locate them while answering some of the question.

A large majority of the poor in India are outside the formal banking system. The policy of financial inclusion sets out to remedy this by making available a basic banking ‘no frills’ account either with nil or very minimum balances as well as charges that would make such accounts accessible to vast sections of the population. However the mere opening of a bank account in the name of every household or adult person may not be enough, unless these accounts and financial services offered to them are used by the account holders. At present, commercial banks do not find it viable to provide services to the poor especially in the rural areas because of huge transaction costs, low volumes of savings in the accounts, lack of information on the account holder, etc. For the poor, interacting with the banks with their paper work, economic cost of going to the bank and the need for flexibility in their accounts, make them turn to other informal channels or other institutions. Thus, there are constraints on both the supply and the demand side.
Till now, banks were looking at these accounts from a purely credit perspective. Instead, they should look at this from the point of view of meeting the huge need of the poor for saving. Poor households want to save and contrary to the common perception do have funds to save, but lack control.Informal mutual saving system like the Rotating Saving and Credit Associations (ROSCAs) widespread in Africa, and ‘thrift and credit group’s in india demonstrate that poor households save. For the poor household which lack access to the formal insurance system and the credit system, saving provide a safety net and help them tide over crises. Saving can also keep them away from the clutches of moneylenders, make formal institutions more favourable to lending to them, encourage investment and make them shift to more productive activities as they may invest in slightly more risky activities which have an overall higher rate of return.
Research shows the efficacy of informal institutions in increasing the savings of the small account holders. An MFI in the Philippines, which had existing account holders, was studied. They offered new products with ‘commitment features’ One type had withdrawal restrictions in the sense that it required individuals to restrict their right to withdraw any funds from their own accounts until they reached a self-specified and documented goal. The other type was deposit options. Clients could purchase a locked box for a small fee. The key was with the bank and the client has to bring the box to the bank to make the deposit. He could not dip into the savings even if he wanted to.These accounts did not pay extra money and were illiquid. Surprisingly these products were popular even though these had restrictions.Results showed that those who opted for these accounts with restrictions had substantially greater saving rates than those who did not. The policy of financial inclusion can be a success if financial inclusion focuses on both saving needs and credit needs having a diversified product portfolio for the poor but recognising that self control problems needed to be addressed by having commitment devices. The product with commitment features should be optional. Furthermore transaction costs for the poor could be cut down, by making innovative use of technology available and offering mobile vans with ATM and deposit collection features which could visit villages periodically.

Read each of the following sentences to find out whether there is any error in it.The error,if any, will be in one part of sentence.The number of that part is the answer. If there is no error (E) (Ignore errors of punctuation, if any)