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. A, B, C of Financial Inclusion: Advice, Banking & Credit

There are 4 pillars of Financial Inclusion:

• A pure savings product with inbuilt overdraft facility
• A Recurring Deposit product
• A Remittance product and
• Entrepreneurship credit in the form of Kissan Credit Card (KCC) / General Credit Card( GCC)

Objective of Financial Inclusion

• Extending formal banking system among the less privileged in urban & rural India
• Weaning them away from unorganized money markets and moneylenders
• Equipping them with the confidence to make informed financial decisions

The United Nations defines the goals of financial inclusion as follows:

• Access at a reasonable cost for all households to a full range of financial services, Including savings or deposit services, payment and transfer services, credit and insurance;
• Sound and safe institutions governed by clear regulation and industry performance standards;
• Financial and institutional sustainability, to ensure continuity and certainty of investment;
• Competition to ensure choice and affordability for clients.

Alliance for Financial Inclusion (AFI) Executive Director Alfred Hannig highlighted on 24 April 2013 progress in financial inclusion during the IMF-World Bank 2013 Spring Meetings: “Financial inclusion is no longer a fringe subject. It is now recognized as an important part of the mainstream thinking on economic development based on country leadership.”AFI uses a “polylateral development” model to contrast and compare successful financial inclusion policies, focusing on a peer-to-peer system rather than a top-down or North-to-South learning model.

The National Bank for Agriculture and Rural Development, the UN aims to increase financial inclusion of the poor by developing appropriate financial products for them and increasing awareness on available financial services and strengthening financial literacy, particularly amongst women. The UN’s financial inclusion product is financed by the United Nations Development Programme.

Reserve Bank of India has planned Aadhaar-linked bank accounts for all adults of India by January 2016 to meet its commitment on financial inclusion. It will greatly transform India by preventing the poor people falling into debt-traps of unlawful money-lenders, cashless transactions, elimination of poverty and corruption.

In India, RBI has initiated several measures to achieve greater financial inclusion, such as facilitating no-frills accounts and GCCs for small deposits and credit. Some of these steps are:

Opening of no-frills accounts, Relaxation on know-your-customer (KYC) norms, Engaging business correspondents (BCs), Use of technology, Adoption of EBT, General credit cards  (GCC), Simplified branch authorization and, Opening of branches in unbanked rural centres.

Financial education, financial inclusion and financial stability are three elements of an integral strategy. While financial inclusion works from supply side of providing access to various financial services, financial education feeds the demand side by promoting awareness among the people regarding the needs and benefits of financial services offered by banks and other institutions. Going forward, these two strategies promote greater financial stability.

The Government of India and the Reserve Bank of India have been making concerted efforts to promote financial inclusion as one of the important national objectives of the country.  Some of the major efforts made in the last five decades include – nationalization of banks, building up of robust branch network of scheduled commercial banks, co-operatives and regional rural banks, introduction of mandated priority sector lending targets, lead bank scheme, formation of self-help groups, permitting BCs/BFs to be appointed by banks to provide door step delivery of banking services, zero balance BSBD accounts, etc. The fundamental objective of all these initiatives is to reach the large sections of the hitherto financially excluded Indian population.