STUDY ON FINANCIAL INCLUSION

By

Miss Joycee Wilson Dolare

Professor Brindavan College,

Bangalore.

Introduction Banking in India in the modern sense originated in the last decades of the 18th century. Generally banking in India was fairly mature in terms of supply, product range and reach, even though reach in rural India and to the poor still remains a challenge.[] The government has developed initiatives to address this through the State Bank of India expanding its branch network and through the National Bank for Agriculture and Rural Development with concepts like microfinance. 

The Indian society has almost graduated from the stage of basic requirements of literacy and longevity of life to that of concern for affordable universal healthcare and financial inclusion. The latter refers to delivery of financial services at affordable cost to vast sections, particularly of disadvantaged and low income groups. This is expected to help in equitable distribution of wealth and economic fairness and provide savings opportunities for all sections of our heterogeneous society. In fact, the UNO has observed that “most poor people in the world still lack access to sustainable financial services, whether it is savings, credit or insurance”, particularly in developing countries like India.

 

An overview

Financial inclusion is considered to be a global issue. Availability of financial assistance to the rural households is expected to not only reduce vulnerability but also economic growth to elevate quality of life. Financial inclusion or inclusive financing is the delivery of financial services at affordable costs to the sections of disadvantaged and low-income segments of society. In fact, the RBI has been urging the banks to review their existing practices in order to align them with objective of financial inclusion. It has identified certain banks as lead banks for each state; for example, Syndicate Bank is a lead bank for the state of Karnataka. Also a few financial literacy programs have been developed for low-income, low educated urban populations in India, mainly through non-governmental organizations. These programs concern saving habits and debt management.

WHAT IS FINANCIAL INCLUSION

Financial inclusion or inclusive financing is the delivery of financial services at affordable costs to sections of disadvantaged and low-income segments of society, in contrast to financial exclusion where those services are not available or affordable. An estimated 2.5 billion working-age adults globally have no access to the types of formal financial services delivered by regulated financial institutions.

DEFINITION OF FINANCIAL INCLUSION

Financial Inclusion is the process of ensuring access to appropriate financial products and services needed by all sections of the society in general and vulnerable groups such as weaker sections and low income groups in particular at an affordable cost in a fair and transparent manner by mainstream institutional players.

Twin Aspects of Financial Inclusion

Financial Literacy & Financial Inclusion

Demand Side

Financial Literacy & CreditCounseling Centres

Credit Absorption Capacity

Knowledge of products

Need for total products & services

Supply Side

Financial Markets , Banks & Services

Appropriate Design of products & services

Financial Inclusion and Financial Literacy are twin pillars. While Financial Inclusion acts from supply side providing the financial market/services what people demand, Financial Literacy stimulates the demand side – making people aware of what they can demand.

Major causes for financial exclusion

a)Lack of awareness among people.b) Lack of banking facility c) Distance and branch timing.d)Financial illiteracy.e)Fear of refusal.f) Cumbersome procedures and documentation.g)Language of people.h)Uncomfortable feeling of people to visit banks.

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It is estimated that more than 560 million are deprived of financial inclusion in our country. This has prompted vigorous efforts at government and non-government levels to bring all households under the fold of banking habits. Accordingly, policy makers have been emphasizing on this aspect in order to

Create a platform for inculcating the habit to save money.

Provide formal credit avenues andPlug gaps and leaks in public

subsidies and welfare programs.

• The benefits of financial inclusion and the need for promoting the same in the Indian society are well accepted in academic circles as well as by the policy makers.

• In this setting, the governments (state and central) have initiated two types of programs:

• Educative programs to enhance the awareness and knowledge of the existing schemes by convincing people about the need and the benefits.

• Promotional programs through institutions like the banks to allow greater outreach and effectiveness.

• The Reserve Bank of India (RBI), the apex financial regulatory body in the country, has been proactively campaigning for financial inclusion through its policies and guidelines. It has been promoting an array of programs aimed at this goal.

Three good examples are:1. Initiation of ‘no frills’ account.2. Banking service at the doorsteps through business

correspondents.3. Electronic Benefit Transfer (EBT)

Need for financial inclusionFinancial exclusion is a serious concern among the low income households as well as small business, mainly located in semi urban and rural areas. Basically, it is unavailability of any banking services to the people living in poverty. Financial exclusion is the lack of access by certain consumers to appropriate, low cost fair and safe financial products and services from mainstream providers. Financial exclusion include the following people:1. People who have limited access to banks and financial

services.2. People who have no access to regulated financial

system.

Discussion and Conclusion: The efforts by banks, Financial Institutions, Regulator, Government and others are not yielding the expected result. Hence the regulator has to create a suitable regulatory environment that would keep the interest of all the concerned. The banks concern of profitability needs to be addressed by the regulator as financial inclusion is a kind of national priority and social responsibility. The concerns of the government about the reach, feasibility and implementation of government policies to every person needs to be addressed. The easy availability of financial services to the last mile user needs to be addressed.  The banks’ concerns can be solved by leveraging ICT, designing of innovative products. A structured expansion and appropriate regulatory norms addressing the banks’ concern and inclusion of NBFCs, MFI and SHG in the last mile connectivity of people to financial services could resolve the peoples’ concern. Also bank use intensive mobile banking services to deliver banking and financial services to the people.

achieve the targets of financial inclusion, it is needed to empower MSMEs through adequate and timely finance as MSMEs are the best medium for achieving inclusive growth which generate local demand and consumption, and provide employment to majority of people. Thus, Innovative products, out of the box service models, effective regulatory norms and leveraging technology together could change the landscape of the current progress of the much needed and wanted, Financial Inclusion Program The improved financial inclusion could be either positive or negative for financial stability. Positive effects include diversification of bank assets, increased stability of deposits and reducing liquidity risks. Negative effects include the erosion of credit standards and bank reputational risk of banks.