Financial Inclusion in India


Ajit Kumar AJIT KUMARWISDOM IAS, New Delhi.

Questions are -
(i) What is Financial Inclusion?
(ii) Who are excluded?
(iii) Why they are excluded?
(iv) What is Status of financial inclusion?
(v) What are the measures taken for Financial Inclusion by RBI, Government, NBFCs, and Corporates ?
(1) Definition
In the Indian context, the term ‘financial inclusion’ was used for the first time in April 2005 in the Annual Policy Statement presented by Y.Venugopal Reddy,the then Governor,Reserve Bank of India.
Financial inclusion denotes delivery of financial services at an affordable cost to the vast sections of the disadvantaged and low-income groups. The various financial services include credit, savings, insurance and payments and remittance facilities. The objective of financial inclusion is to extend the scope of activities of the organized financial system to include within its ambit people with low incomes.
Financial inclusion may be defined as the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost (The Committee on Financial Inclusion, Chairman: Dr. C. Rangarajan).
- Financial Inclusion, broadly defined, refers to universal access to a wide range of financial services at a reasonable cost. These include not only banking products but also other financial services such as insurance and equity products (The Committee on Financial Sector Reforms, Chairman: Dr.Raghuram G. Rajan).
 
Recently, the RBI Governor Raghuram Rajan outlined, in conceptual terms, what inclusion should be. “Simplicity and reliability in financial inclusion in India, though not a cure all, can be a way of liberating the poor from dependence on indifferently delivered public services and from venal (open to bribery) politicians,” he said. Further, “in order to draw in the poor, the products should address their needs — a safe place to save, a reliable way to send and receive money, a quick way to borrow in times of need or to escape the clutches of the money lender, easy to understand life and health insurance and an avenue to engage in savings for the old age.”
Four kinds of Services-
- Banking
- Easy Credit
- Investment Opportunity
- Indurance- Life and Non- life

 (2) Who are the excluded ?
 
The financially excluded sections largely comprises of marginal farmers, landless laborers, self employed and unorganized sector enterprises, urban slum dwellers, migrants, ethnic minorities and socially excluded groups, senior citizens and women .The majority of the group included those people living in rural areas and inaccessible to financial services.
 
(3) Reasons for financial exclusion
There are a variety of reasons for Financial Inclusion. In remote, hilly and sparsely populated areas with poor infrastructure, physical access itself acts as a deterrent. From the demand side, lack of awareness, low incomes/assets, social exclusion, illiteracy act as barriers. From the supply side, distance from branch, branch timings, cumbersome documentation and procedures, unsuitable products, language, staff attitudes are common reasons for exclusion. All these result in higher transaction cost apart from procedural hassles. On the other hand, the ease of availability of informal credit sources makes these popular even if costlier. The requirements of independent documentary proof of identity and address can be a very important barrier in having a bank account especially for migrants and slum dwellers.
 
(3) Committees
- C. Rangarajan Committee
- Raghuram G. Rajan Committee
- Nachiket More Committee
Deepak Mohanty Committee
(2) Status of financial inclusion

(A) International

Global Findex (2014) of  World Bank
Two billion people -- or 38% of adults in the world -- do not use formal financial services, and 73% poor people are unbanked because of costs, travel distances and the often-burdensome requirements involved in opening a financial account.
A transaction or deposit account can be the stepping stone to full financial inclusion, providing a pathway to a broader range of responsible financial services provided through stronger and more diverse financial institutions.
The Global Findex database provides in-depth data on how individuals save, borrow, make payments, and manage risks. It is the world’s most comprehensive database on financial inclusion . The 2014 Global Findex consists of over 100 indicators, also shown by gender, income, and age. 
 
(B) National level

On June 25, 2013, CRISIL, India's leading credit rating and research company launched an index to measure the status of financial inclusion in India. CRISIL Inclusix index  is a one-of-its-kind tool to measure the extent of inclusion in India, right down to each of the 632 districts. The all-India CRISIL Inclusix score of 40.1 is low in 2011, though there are clear signs of progress – this score has improved from 35.4 in 2009.

Of the 24.67 crore households in India, 10.19 crore do not have access to banking services. In rural areas, 44 per cent households and in urban areas 33 per cent still do not have a bank account.

Extent of Exclusion – NSSO Survey 59th Round

 - 51.4% of farmer households are financially excluded from both formal / informal sources.
 -  Of the total farmer households, only 27% access formal sources of credit;

 (3) Measures Taken

(A) RBI Measures

- Opening of no-frills accounts
- Relaxation on know-your-customer (KYC) norms
- Engaging business correspondents (BCs)
- Use of technology ( use of payment gateways i.e. VISA, RuPay, etc.)
- Adoption of Electronic Benefit Transfer (EBT)


- Revised General Credit Card (GCC) intended to cover all entrepreneurial credit, e.g. Artisan Credit Card, Laghu Udyami Card, Swarojgar Credit Card, and Weaver’s Card etc


- Simplified branch authorization
- Opening of branches in unbanked rural centres
- A smart card (RuPay card)
- Tapping technology platforms- Mobile banking,  Adhaar Enabled Payment Systems (AEPS)
- Payments Banks and Small Finance Banks - Bandhan, IDFC
 
Measures taken by Government

-  Nationalization of banks,
- Co-operatives banks
- Rregional rural banks,
- Iintroduction of mandated priority sector lending targets,
 - lead bank scheme
- Formation of self-help groups,
- Post office bank
- KCC
- National Mission on Financial Inclusion/ CFIP or Sampoorn Vittiya Samaveshan
- Financial Inclusion Funds
- JDY
- Pahal
- Swabhimaan"- the Financial Inclusion Campaign
- Wages to MGNREGA workers through BC model
- Convergence of  UIDAI Aadhaar Number with Financial Inclusion
- Direct transfer of subsidy on LPG, Kerosene and Fertiliser etc. to the beneficiaries through their bank accounts
- Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY)
- Pradhan Mantri Suraksha Bima Yojana (PMSBY)
- Atal Pension Yojana (APY)
- G2P payments
Corporate Sector Efforts –
- White ATMs
- - NBFCs
 
Advantages of Financial Inclusion
- DBT
- Access to finance by the poor and vulnerable groups is a prerequisite for poverty reduction and social cohesion.
- This has to become an integral part of our efforts to promote inclusive growth.
- Providing access to finance is a form of empowerment of the vulnerable groups.
- Financial inclusion enables good financial decision making through financial literacy and qualified advice as also access to financial services for all, particularly the vulnerable groups such as weaker sections, minorities, migrants, elderly, micro entrepreneurs and low income groups at an affordable cost so as to enable them to-
a) manage their finances on day to day basis confidently, effectively and securely;
b) Plan for the future to protect themselves against short term variations in income and expenditure and for wealth creation and gaining from financial sector developments; and
c) deal with financial distress effectively thereby reducing their vulnerability to the unexpected.
 
-  Financial Inclusion has the ability to generate positive externalities: it leads to increase in savings, investment and thereby, spurs the processes of economic growth.
 
- It also provides a platform for inculcating the habit of saving money, especially amongstv the lower income category that has been living under the constant shadow of financial duress, mainly because of absence of savings, which makes them a vulnerable lot.
 
-Financial Inclusion has now been viewed as a remedy to plug gaps and leaks in distribution of government benefits and subsidies through direct benefit transfers to beneficiaries’ bank accounts rather than through subsidizing products and making cash payments.
- Social harmony
- Women empowerment
 
- On the whole, Financial Inclusion has the potential to bring in the unbanked masses into the formal banking system, channelize their savings, stoke their entrepreneurial ambitions by making available credit and thus give a fillip to the economy.


Wednesday, 10th Feb 2016, 10:39:28 AM

Add Your Comment:
Post Comment