FINANCIAL INCLUSION AND

RURAL DEVELOPMENT

PRESENTED BY,
SANDRA DENNY
Financial Inclusion means providing financial
services to all sectors of the society which includes
the underprivileged, the poor and the disadvantaged
people.
 It does not only mean to open Savings Account of
people but it also includes providing financial advice,
insurance and credit services.
Financial Inclusion is important for improving the living
conditions of poor farmers, artisans and rural non-farm
enterprises.
Banks need to take bold decisions and reach out to
rural India with strategies and business models which
are beyond the realm of conventional thinking.
They need to identify the emerging opportunities in rural
India and innovate with low cost platforms, lean branch
models, low cost subsidiaries, cost effective
technologies, shared Infrastructure and build
collaborative business models to serve in Rural India.
 State Of Financial Inclusion In Rural India

Even after 6 decades of independence, banking

facilities has not reached to rural and unprivileged
sector of the society. This led to financial gap and
instability among the rural people.
 Now a days Govt. and RBI are formulating various
policies to build the financial strength in Rural India
through Financial Inclusion.
 Need For Financial Inclusion

Due to absence of proper banking avenues, people in rural India

are not able to channelize their savings.
Through Financial Inclusion saving habit can be developed by
educating people to utilize their funds in various Financial
Instruments rather than investing in building, lands etc.
 Secondly, absence of formal credit channels, farmers and deprived
section of society are dependent mainly upon the private money
lenders who charge exorbitant interest rates. This type of
money lending does not result in increase in GDP in the
country. By providing easy finance through formal channels like
banks, micro-finance institutions and co-operative credit societies
entrepreneurial spirit of the population can be developed that will
bring prosperity in the society.
 RBI Efforts Towards Financial Inclusion

RBI set up Khan Commission in 2004 to expand the

reach of financial inclusion. The significant
recommendations were implemented through midterm
policy in 2005-06 which includes Opening of a basic
“ No Frill‟ bank account. It is a type of bank account,
with low or zero balance with minimum formalities
and relaxed KYC (Know Your Customer) norms.
 RBI came up with this concept because poor people
cannot open regular bank account having requirement of
minimum balance i.e. Rs 1000/- , Rs 5000/- etc.
 Role of Banks
Commercial Banks: CBs are the main contributor of
Financial Inclusion because of their vast network.
More than 50% of India’s overall consumption comes from
rural India which account for about 70% of our population.
There are 32,600 branches in rural area, 14,400 semi-urban
branches as per report of Feb 2013,196 exclusive RRBs in
the interior of Rural India. The number of saving accounts
in rural and semi-urban branches are nearly about 60%.
 The current business model of a commercial bank has a
cost structure that is not economically viable for Rural
Banking.
Cooperative banks: These banks are managed and
organized by their own members who can very easily
help and provide the financial services in the rural
areas that are not entertained by commercial banks.
Regional Rural Banks: RRBs are set up in rural
area for providing finance to the marginal farmers.
They should take help of Non-Government
Organizations for the upliftment of poor and weaker
section of the society by providing them easy credits.
Non-Banking Financial Companies: The NBFCs
could help both large and small organizations. They
should also participate in the process of Financial
Inclusion in the country by providing Micro insurance,
Micro credit and by spreading financial education
among the weaker section of the society.
Micro Finance Institutions: The specific aim of
constituting MFIs is to provide easy finance to poor
and weaker section of the society. They should help
unbanked section of the society which are neglected by
other financial institutions.
Post-office: The Post offices are present even in the
remotest area of the Rural India. In view of their
wide network, they can provide all kinds of small and
micro-financial services in rural area by providing
door to door services, if Govt. permits.
 INNOVATIONS
Low cost Automated Teller Machines (ATMs):
ATMs are emerging as a popular banking channel in
India.
There is a requirement of around 1, 60,000 up to 1,
90,000 additional ATMs in this decade alone and most
of it is in rural India. Setting up several thousand ATMs
in rural areas is an expensive proposition for Banks.
Low cost ATMs developed by Chennai based Vortex
engineering in collaboration with IIT-Chennai
provide a cost effective solution to reach out profitably
to the unbanked and under banked regions.
Apart from being very low cost, these are highly
reliable, easy to use, eco-friendly and would help
banks significantly ramp up their presence in rural
areas. They are also locally manufactured, run
without air condition, consume less power
than conventional ATMs. It can be economically
operated using various options such as solar
power, inverter, battery and regular power.
So these could be deployed even in the remotest
parts of the rural India.
Lean Branch Models: In the budget speech of FY
2012-13, the Honorable Finance Minister had
announced that Ultra Small Branches (USBs) would be
set up at habitations in the country having population
more than 2000.
In May 2012, RBI has issued instructions advising
banks to set up USB‟s across the country. These would
be set up as lean branches model and these ultra-small
branches will be managed by a bank officer along with
minimum clerical staff and infrastructure.
Mobile Banking: About 700 million and growing
active mobile connections in the country, the mobile
phone is a potent tool to facilitate financial services,
especially in rural areas.
 The mobile phone’s appeal is increased because it
costs 1/10th of, what a bank spends for a similar
transaction through a branch.
 Mobile phones and internet access would also provide
the bases for faster and low cost communication
especially in geographically remote areas with limited
infrastructure.
Business correspondent: BC armed with a
handheld device that works as a mobile ATM
irrespective of the bank a BC is attached to, can
accept and give out cash to any villager with
Account in any public sector bank.
Banks can therefore, take advantage of this flexibility
to increase business volumes in rural areas in a low
cost manner and make financial inclusion initiatives
profitable.
 CONCLUSION

It is beyond doubt that after nationalization of banks in

1969, the reach of CBs, RRBs, Co-operative credit
institutions have remarkably increased in rural areas but a
group of society remains ignored from the financial
services.
To conclude banks should take a step forward to formulate
specific plans to enhance Financial Inclusion of unbanked
section of the society. At the same time they should device
the strategies to reduce their transaction cost to actively
participate in the process of Financial Inclusion treating it
as Business Opportunity and Corporate Social
Responsibility.