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Financial Inclusion in India
Financial Inclusion in India
Financial inclusion is the delivery of financial services at affordable costs to sections of disadvantaged and low income segments of society. Unrestrained access to public goods and services is the sine qua non of an open and efficient society. It is argued that as banking services are in the nature of public good, it is essential that availability of banking and payment services to the entire population without discrimination is the prime objective of public policy. The term "financial inclusion" has gained importance since the early 2000s, and is a result of findings about financial exclusion and its direct correlation to poverty. Financial inclusion is now a common objective for many central banks among the developing nations.
In its platinum jubilee year, the Reserve Bank of India (RBI) wants to connect every Indian to the country s banking system.
RBI is currently working on a three-year financial inclusion plan and is discussing this with each bank to see how to take this forward, KC Chakrabarty, deputy governor, RBI said. "Nearly forty years after nationalization of banks, 60% of the country's population does not have bank accounts and nearly 90% do not get loans," he pointed out . Despite heightened focus on financial inclusion, Indian banks still somewhat failed to bring the under- and un-banked into the mainstream banking fold. India has currently the second-highest number of financially excluded households in the world. Approximately, 40% of India s population have bank accounts, and only about 10% have any kind of life insurance cover, while a meager 0.6% have non-life insurance cover. According to UNITED NATIONS, "A financial sector that provides 'access to credit for all "bankable " people and firms and to savings and payments services for everyone . Inclusive finance does not require that everyone who is eligible use each of the services , but they should be able to choose use them if desired. REPORT OF THE COMMITTEE ON FINANCIAL INCLUSION IN INDIA (Chairperson : C. Rangarajan ) (2008) "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." As per " TREASURY COMMITTEE , HOUSE OF COMMONS , UK , (2005) " Ability of individuals to access appropriate financial products and services . "
Access financial markets Access credit markets Learn financial matters (financial education )
Savings facility Credit and debit cards access Electronic fund transfer All kinds of commercial loans Overdraft facility Cheque facility Payment and remittance services Low cost financial services Insurance (Medical insurance) Financial advice Pension for old age and investment schemes Access to financial markets Micro credit during emergency Entrepreneurial credit
Oral lessees Self employed and unorganised sector enterprises Urban slum dwellers Migrants Ethnic minorities and socially excluded groups Senior citizens Women The North East, Eastern and Central regions contain most of the financially excluded population.
Legal identity : Lack of legal identity like voter id , driving license , birth certificates ,employment identity card etc Limited literacy : Particularly financial literacy and lack of basic education prevent people to have access from financial services . Level of income : Level of income decides to have financial access . Low income people generally have the attitude of thinking that banks are only for rich. 'Terms and conditions : While getting loans or at the time of opening accounts banks places many conditions , so the uneducated and poor people find it very difficult to access financial services . Complicated procedures : Due to lack of financial literacy and basic education , it is very difficult for those people who lack both to read terms and conditions and account filling forms . Psychological and cultural barriers : Many people voluntarily excluded themselves due to psychological barriers and they think that they are excluded from accessing financial services . Place of living : As the name suggests that commercial banks operate only in commercially profitable areas and they set up branches and main offices only in that areas .People who lived in under developed areas find it very difficult to go to areas in which banks are generally reside . Lack of awareness : Finally , people who lack basic education do not know the importance of the financial products like Insurance , Finance , Bank Accounts , cheque facility ,etc.
Losing opportunities to grow : In the absence of finance , people who are not connected with formal financial system lack opportunities to grow. Country's growth will retard : Due to vast unutilized resources that is in the form of money in the hands of people who lack financial inclusive services.
Other Consequences :
Business loss to banks : Banks will loss business if this condition persists for ever due to lack of opening of bank accounts. Exclusion from mainstream society : The people who lacks financial services , presumed that they are excluded from mainstream society .
All transactions cannot be made in cash : Some transactions can be made in cash . In this technological world everybody wants to have electronic cash system like debit and credit cards and also EFT . Loss of opportunities to thrift and borrow : Financially excluded people , may lose chances to save their some part of livelihood earnings and also to borrow loans . Employment barriers : Nowadays all salary and other financial benefits from various sources like Governments scholarships , any compensation , grants , reliefs , etc are paid through bank accounts. Loss due to theft : Banks provide various schemes of safety locker facility . It mitigates the risk due to thefts . Other allied financial services : People who do not have bank accounts may not go to bank as for as possible . So they lack basic financial auxiliary services like DD ,Insurance cover and other emergency need loans Etc .
Growth with equity : In the path of super power we the Indians will need to achieve the growth of our country with equality . It is provided by inclusive finance. Get rid of poverty : To remove poverty from the Indian context all everybody will be given access to formal financial services . Because if they borrow loans for business or education or any other purpose they get the loan will pave way for their development . Financial Transactions Made Easy : Inclusive finance will provide banking related financial transactions in an easy and speedy way . Safe savings along with financial services : People will have safe savings along with other allied services like insurance cover , entrepreneurial loans , payment and settlement facility etc, Inflating National Income : Boosting up business opportunities will definitely increase GDP and which will be reflected in our national income growth . Becoming Global Player : Financial access will attract global market players to our country that will result in increasing employment and business opportunities .
Economic growth follows financial inclusion. In order to achieve the objective of growth with equity, it is imperative that infrastructure is developed with financial inclusion. savings and credit accounts - indicators of financial inclusion. per capita income - indicator of economic development Electricity consumption
All the above influence economic development which follows adequate financial and credit facilities
Expectations of poor people from financial system Taking into account their
Migration from one place to another, Seasonal And Irregular Work Availability And Income; the existing financial system needs to be designed to suit their requirements. Security and safety of deposits Low transaction cost Convenient operating time Minimum paper work Frequent deposits Quick and easy access Product suitable to income and consumption