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FINANCIAL INCLUSION

MEANING

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. Financial inclusion is now a common objective for many central banks among the developing nations. The Committee on Financial Inclusion headed by Dr. Rangarajan has defined Financial Inclusion as "the process of ensuring access to financial services and Timely & adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost”. The Committee suggested several measures to accelerate the pace of financial inclusion. The various financial services include access to savings, Loan, insurance, payments and remittance facilities to the entire population Without discrimination of any type.

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  Landless Farmers who are unemployed  Self Employed .Steps to ensure Financial Inclusion 1. Granting Overdraft facilities in SB accounts 4. Reserve Bank of India advised banks to provide banking outlet in villages. Opening No-frills SB accounts 2. Banks decided to extend banking services to these allotted villages through Smart Card Banking with the use of Business Correspondents (BC). Issuing General Purpose Credit Cards 3. Providing banking services at the door step of villagers through Smart Cards. Smart Card Banking (SCB) Financial inclusion is just opposite of financial exclusion where people are deprived of banking services they are:Marginal Farmer for whom farming is a major livelihood activity suffered neglect by policy makers.

cumbersome documentation/procedures. illiteracy • Distance from bank branch. low income. social exclusion. hilly & sparsely populated areas with poor infrastructure and difficult physical access • • Lack of awareness. branch timings. unsuitable . Urban slum developers  Migrants  Minorities  Social excluded groups  Senior citizens  Women Reasons for financial exclusion Remote.

No-Frill Accounts 3. 7. Liberalized policy for ATM 5. Overdraft in Saving Bank Accounts 4. staff attitude reasons – Higher transaction cost • Ease of availability of informal credit are common • KYC – documentary proof of identity/ address RBI’s contribution towards Financial Inclusion Liberalized branch expansion 1. Mobile Banking etc. Financial Literacy Program . Introducing technology products and services 6. Allowing RRBs’ / Co-operative banks to sell Insurance and Financial Products 8. pre-Paid cards.products. language. 2.

9. Creation of Special Funds Challenges • Enrollment of large numbers • Wide geographic spread • High maintenance costs for accounts • Small ticket size of transaction • Illiteracy and use of vernacular • Product & service pricing • Trust and acceptance • Lack of electricity • Poor telecommunications .

When bankers do not give the desired attention to certain areas. The scope of financial inclusion The scope of financial inclusion can be expanded in two ways.4. the regulators have to step in to remedy the . (b) through voluntary effort by the banking community itself for evolving various strategies to bring within the ambit of the banking sector the large strata of society. (a) through state-driven intervention by way of statutory enactments ( for instance the US example. the Community Reinvestment Act and making it a statutory right to have bank account in France).

to all.. In India the focus of the financial inclusion at present is confined to ensuring a bare minimum access to a savings bank account without frills. those customers who are actively and persistently courted by the financial services industry.situation. In between are those who use the banking services only for deposits and withdrawals of money.e. Having a current account / savings account on its own. This is the reason why the Reserve Bank of India is placing a lot of emphasis on financial inclusion. it is possible to identify the ‘super-included’. But these persons may have only restricted access to the . At one extreme. i. the financial exclusion has been viewed in a much wider perspective. and who have at their disposal a wide range of financial services and products. we may have the financially excluded. Internationally. is not regarded as an accurate indicator of financial inclusion. who are denied access to even the most basic of financial products. There could be multiple levels of financial inclusion and exclusion. At the other extreme.

More broadly. Due to the broad range of microfinance services. Microfinance Microfinance is the provision of financial services to lowincome clients or solidarity lending groups including consumers and the self-employed. it is difficult to assess impact. and very few studies have tried to assess its full impact . including not just credit but also savings. Microcredit is provision of credit services to poor clients. Critics often attack microcredit while referring to it indiscriminately as either 'microcredit' or 'microfinance'. which includes microcredit. and may not enjoy the flexibility of access offered to more affluent customers. Although microcredit is one of the aspects of microfinance. Those who promote microfinance generally believe that such access will help poor people out of poverty. Microfinance is a broad category of services. conflation of the two terms is endemic in public discourse. insurance.financial system. it is a movement whose object is "a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services. who traditionally lack access to banking and related services. and fund transfers.

 Disasters: such as fires. homebuilding. But circumstances often arise in their lives in which they need money or the things money can buy. cyclones and manmade events like war or bulldozing of dwellings.Financial Needs Of The People In developing economies and particularly in the rural areas. Common substitutes for cash vary from country to country but typically include livestock. improving housing. jewelry. floods. money is not used to carry them out. primarily through creating and exchanging different forms of non-cash value. old age. etc. he cites several types of needs:[ Lifecycle Needs: such as weddings.  Personal Emergencies: such as sickness. and precious metals. childbirth. injury. many activities that would be classified in the developed world as financial are not monetized: that is. securing a job (which often requires paying a large bribe). harassment or death. funerals.  Poor people find creative and often collaborative ways to meet these needs. poor people have very little money.  Investment Opportunities: expanding a business. widowhood. In Stuart Rutherford’s recent book The Poor and Their Money. unemployment. . education. buying land or equipment. grains. Almost by definition. theft.

think of the image of a daily wage earner owning a deposit account in a bank. Charges applicable to such accounts are low. the RBI in 2005-06 called upon Indian banks to design a ‘no frills account’ – a no precondition. In what can be described as a watershed Annual Policy Statement. The idea is to have a level playing field in its absolute meaning. To understand the ramifications and the sheer magnitude of possibilities. low ‘minimumbalance maintenance’ account with simplified KYC (Know Your Customer) norms. Services available to such account is limited. the equally important savings . Such account requires either nil minimumbalance or very low minimum balance.No Frills Account 'No Frills 'account is a basic banking account. Low income groups having no access to formal banking systems can well be brought under the umbrella of credit & savings – key factors which form the basis of the idea of financial inclusion. While there is no shortage of credit programs.

you can maintain this account without any minimum or average balance requirement. students.aspect can rightly be dubbed as the ‘forgotten half of microfinance’. to cater to the small and also irregular income flows of the poor.e. bank staff zero minimum balance requirement i. No frills account: Eligibility: Pensioners. rural folk etc. member of SHG. ‘No frills’ savings accounts appear capable. Features & Benefits : . the product was lost among a myriad of financial offerings and most banks have shown little verve and vitality in marketing it. self-employed person. However. employees of unorganized sector. agriculture laborers. The no-frills savings bank account introduced by several commercial banks a few months ago had all the potential to revolutionise India's rural agricultural economy. at least on paper. Not eligible-Institutions. as well as usher in the banking habit amongst a large number of the less privileged population. organization. NRI.

The following guidelines reinforce our earlier instructions on the subject with a view to safeguarding banks from being unwittingly used for the transfer or deposit of funds derived from . You also have an option to receive EStatement. Gists of the past circulars issued on the subjects under reference are listed in the Annexure. RBI has issued several guidelines relating to identification of depositors and advised the banks to putin place systems and procedures to help control financial frauds.Internet Banking and Phone Banking facility each available Keep track of your account with Free quarterly statements. Simplified KYC norms As part of ‘Know Your Customer’ (KYC) principle. Taking into account recent developments. Instructions have also been issued by the RBI from time to time advising banks to be vigilant while opening accounts for new customers to prevent misuse of the banking system for perpetration of frauds. identify money laundering and suspicious activities. it has been decided to reiterate and consolidate the extant instructions on KYC norms and cash transactions. and for scrutiny/monitoring of large value cash transactions. both domestic and international.

etc. the person prefers not to come to the bank and goes to the local moneylender who does not ask for such documentation Simplified KYC Norms . address proof. or for financing of terrorism.criminal activity (both in respect of deposit and borrowal accounts). For rural people it is very difficult to provide these details as a number of them are not literate especially not in English and documents are generally maintained in English. it is a tedious job to prove his address. PAN card above a certain amount. If a rural person does not have his own residence. In that case. The guidelines are also applicable to foreign currency accounts/transactions KYC norms deter rural clients Another reason is Know Your Client (KYC) norms where every account holder has to disclose relevant detail like photo identity.

e.50000/. in rural areas customers cannot be expected to come to branches in view of opportunity cost and Time and hence banks will have to reach out through a variety of technology driven delivery channels such as Micro ATMs. However.Opening of account is an Herculean task for common man since it warrants to fulfill KYC norms i. Photograph and address of the customer who proposes to open the account need to be certified by the introducer. where as majority of rural/urban poor do not possess them. Smart Cards. RBI introduced simplified norms (with out documentary proof) to open accounts for those persons who intend to keep balances not exceeding Rs.in a year.in all their accounts taken together and the total credit in all the accounts taken together is not expected to exceed Rs. submission of address proof and identity proof. Mobile ATMs. e-seva etc. To facilitate persons belonging to low income group both in urban/ rural areas. Biometric ATMs. Mobile Banking.100000/. However. UID number. . Post offices. Opening “No frills accounts” with simplified KYC norms is only the first step in building the relationship which would require sustained efforts on the part of Banks and Customers to achieve the objective of Financial Inclusion. these accounts requires introduction of existing KYC complaint account holder.

Technology for financial inclusion  Extremely large target population current Banking systems service merely 33% of total population Customer profile different Very low Literacy levels and Awareness Business Processes need reengineering Existing processes cannot produce desired results Independent Delivery Agencies Deployment of Business correspondents/ Facilitators    Latest trends in Technology .

Cost-effective state-of-the-art technologies are available today Capture Customer details and facilitate Unique Identification Provide non-repudiable and userfriendly authentication mechanism Ensure reliable connectivity upto the last mile Offer Financial products tailored for the target group Support comprehensive Credit Information System Support use of multimedia and innovative User Interfaces Work in rural environmental conditions Low Capital and Maintenance costs .