Concept of Financial Inclusion:- Financial inclusion refers to efforts to make financial products and services accessible and affordable to all individuals and businesses, regardless of their personal net worth or company size. Socio-economic inequalities and gender inequalities can hinder financial inclusion, with women and marginalized groups potentially facing greater barriers to access and control of financial resources. Financial inclusion seeks to remove barriers that prevent people from participating in the financial sector and using these services to improve their lives. Financial inclusion is the process of ensuring that all individuals, especially disadvantaged and marginalized populations, have access to affordable and appropriate financial services. It aims to empower people by providing access to tools such as savings accounts, credit, insurance and digital payment options, enabling them to participate in the formal financial system, manage their finances and become financially self-reliant.
Financial Inclusion in the Indian Context: Definition of Financial Inclusion: “The process of ensuring timely availability of financial services and adequate credit to vulnerable groups such as weaker sections and low-income groups at affordable costs”.
(Financial Inclusion Committee – Chairman: Dr. C. Rangarajan, RBI, 2008).
According to the National Strategy Document, the vision of the Financial Inclusion Strategy is to make financial services available, accessible and affordable to all citizens in a secure and transparent manner to support inclusive and resilient multi-stakeholder led development.
Following are the strategic objectives/pillars of the National Strategy for Financial Inclusion:
1. Universal access to financial services: Offering affordable and accessible banking services ensures that the unbanked and underbanked can participate in the formal financial system. Offering no-frills savings accounts and low-cost transaction accounts enables financial inclusion at the grassroots level. According to Women’s World Banking, women are 31% more likely than men to have inactive bank accounts. By focusing on gender-specific financial inclusion initiatives, financial inclusion can help empower women economically and reduce the gender gap in financial services. These efforts include customized financial products, financial literacy programs and initiatives to promote women entrepreneurship. Traditional credit scoring metrics may alienate or discriminate against people with limited credit histories. Financial inclusion seeks to explore alternative credit scoring methods that can increase credit access to people with limited credit histories while considering non-traditional data sources. Targeting the delivery of financial services in hitherto inaccessible areas, it set the following goals:
- Access to remote areas: The first objective is to provide access to formal financial services to every village within a 5 km radius/hamlet of 500 households in hilly areas by March 2020.
- Less cash society: To create necessary infrastructure in all Tier II to Tier VI centers to move towards a less cash society by March 2022.
- Every adult can access financial services through mobile devices: To encourage financial service providers to provide virtual modes including mobile apps so that every adult can access a financial service provider through a mobile device by March 2024.
- Rapidly move to digital and consent– based architecture for customer onboarding by March 2024.There will be complete integration of the financial sector and basic service providers for better delivery of financial services and products. Apart from traditional banking outlets; Co-operative banks, payments banks, small finance banks and other non-bank institutions like fertilizer shops, fair price shops, offices of local government bodies, panchayats, common service centres, educational institutions etc. are to be included in this. Better networking of bank branches, BC outlets, micro ATMs, POS terminals and stable connectivity with electricity etc. is to be ensured.
2. Providing a basic bouquet of financial services: RBI aims to provide some basic services to every adult. Every interested and eligible adult should be provided with a basic bouquet of financial services that includes:
- A basic savings bank deposit account,
- credit,
- A micro life and non-life insurance product,
- A pension product and
- A suitable investment product.
Under the strategy, an action plan to provide a bouquet of services has also been prepared.
3. Access to livelihood and skill development will be provided to new account holders: All relevant details related to ongoing skill development and livelihood generation programs through RSETI, NRLM, NULM, PMKVY will be provided to new account holders at the time of account opening.
4 Financial Literacy and Education: Financial education and financial literacy refers to equipping the general public with the necessary financial knowledge and skills. Audio-videos/booklets will be made available with financial literacy modules to specific target audiences (e.g. children, young adults, women, new employees/entrepreneurs, family persons, retirees, retirees, etc.). The activities of Center for Financial Literacy (CFL) are to be expanded to every block of the country by March 2024.
5. Customer Protection and Grievance Redressal: Financial Inclusion in Banking, this also includes protecting customers within the business. Financial inclusion seeks to implement safeguards to protect the interests of economically weaker individuals. For this, customers will be made aware of the options available to resolve their complaints. For the storage and sharing of customer’s biometric and demographic data, adequate security measures are to be ensured to protect the customer’s right to privacy.
6. Effective coordination among various stakeholders: There is a need for a focused and sustained coordination among key stakeholders. Government, financial services regulators, financial service providers, telecom services regulators, skill training institutions etc. should ensure that customers are able to access services in a sustainable manner.
The progress of financial inclusion in India has two distinct pillars: (a). More participation of women and (b) advances in digital technology (fintech). As of December 15, 2021, 24.54 crore bank accounts were opened for women beneficiaries under PMJDY, which is 55.6 percent of the total account holders under the scheme.
Financial Inclusion Efforts in India:
1.Financial Inclusion Schemes in India: The Government of India has launched many special schemes aimed at financial inclusion. The objective of these schemes is to provide social and economic security to the exploited and resource-less section of the society. After much research by many financial experts and policy makers, the government has launched these schemes keeping financial inclusion in mind. These schemes have been launched in different years. Let us take a list of financial inclusion schemes in the country:
- Pradhan Mantri Jan Dhan Yojana (PMJDY)
- Atal Pension Yojana (APY)
- Pradhan Mantri Vaya Vandana Yojana (PMVVY)
- Stand Up India Scheme
- Pradhan Mantri Mudra Yojana (PMMY)
- Pradhan Mantri Suraksha Bima Yojana (PMSBY)
- Sukanya Samriddhi Yojana
- Jeevan Suraksha Bandhan Yojana
- Credit Enhancement Guarantee Scheme (CEGS) for Scheduled Castes (SC)
- Venture Capital Fund for Scheduled Castes under Social Sector Initiatives
- Senior Pension Insurance Scheme (VPBY)
2. Financial Inclusion through Digital Payment Systems: The Government of India has launched several electronic wallet systems through smartphone apps such as Bharat Interface for Money (BHIM), Aadhaar Pay and many more! Many digital financial products offer attractive offers and discounts when people use these tools. These are very helpful for the economically deprived sections of the society. People get all products and services at competitive prices
3. Impact of demonetization on financial inclusion: With the implementation of the demonetization process in India since the year 2016, the need for digital financial services has increased. The ban on the use of Rs 500 and Rs 1,000 notes led to increased demand for alternative methods of payment for goods and services which still exists. Therefore the number of digital wallets in the country increased on a large scale. The Indian government aims to make the country cashless and hence, the high number of digital wallets is helping the government to achieve its goal. Additionally, the transaction limit for electronic wallets was increased to Rs 20,000. This is great news for both users and e-wallet companies.
Many people from the lower-income group also started using electronic wallet options as they had no other option. It is true that many of them had to struggle initially because of the demonetization process. However, the introduction of many digital banking and financial services has proved to be a huge boon for all economic sections of the society.
4. Financial Inclusion Programs conducted by the Reserve Bank of India (RBI): The Reserve Bank of India works on special programs and schemes to effectively carry out financial inclusion in the country. It implements a strategy led by commercial banks to smoothly implement financial inclusion. The rules of the Central Bank of India are also strict which every bank has to follow.
Importance of financial inclusion in economic growth: Financial inclusion is increasingly being considered as a key factor for economic growth and poverty alleviation. Access of the common man to banking services (formal finance) can promote employment creation, reduce the sensitivity of the economy to economic shocks and increase investment.
The importance of financial inclusion is reflected in the fact that to achieve the goal of financial inclusion in a coordinated and time bound manner, a National Strategy for Financial Inclusion (NSFI) has been formulated. NSFI has been prepared by RBI following the recommendations of the Financial Inclusion Advisory Committee. In addition to the recommendations of the Committee, inputs were received from several stakeholders including the Government of India, financial sector regulators such as Securities Exchange Board of India (SEBI), Insurance Regulatory and Development Authority of India (IRDAI) and Indian Funds Regulatory and Development Authority (PFRDA). Were. Financial inclusion comprehensively enhances the financial system of the country. It strengthens the availability of economic resources. Most importantly, it hardens the concept of savings among the poor people living in both urban and rural areas. In this way, it continuously contributes to the progress of the economy.
They are exploited by rich landlords as well as unlicensed moneylenders. This serious situation can be changed with the help of financial inclusion. Financial inclusion involves involving poor people in the formal banking industry with the intention of securing minimum finance for future purposes. There are many families (farmers or artisans) who do not have proper facilities to save the money earned after hard work.
There are very broad and common reasons why financial inclusion is important for economic growth. Some major reasons include:
- Financial inclusion reduces poverty and inequality: Financial inclusion provides opportunities for marginalized and low-income individuals to access formal financial services such as savings, credit and insurance. By empowering them to manage their finances and invest in income-generating activities, financial inclusion can help lift people out of poverty and reduce economic inequalities.
- Financial inclusion promotes economic growth: A common argument is that when more people have access to financial services, they can actively participate in the economy. Increasing financial inclusion leads to higher levels of savings, investment, and entrepreneurship, thereby promoting economic growth and stability in both local communities and national economies.
- Financial inclusion promotes small businesses: Small businesses often face challenges in obtaining loans from traditional banking sources. Financial inclusion through innovative lending models and online platforms can provide entrepreneurs with the funds they need to grow their businesses.
- Financial inclusion empowers otherwise marginalized demographics: For example, financial inclusion initiatives targeted at women can promote gender equality and women’s economic empowerment. By providing access to financial services, women gain greater control over their finances, which can lead to improved educational opportunities, better health outcomes, and increased autonomy within households.
- Financial inclusion promotes innovation: Financial inclusion promotes innovation in the financial sector, leading to the development of new technologies and fintech solutions that meet the needs of underserved populations. These innovations can benefit the broader financial ecosystem and drive advancements in financial services.
- Financial inclusion can promote digital inclusion: Since technology plays a key role in financial inclusion, promoting access to digital financial services also contributes to digital inclusion, ensuring that more people can participate in the digital economy.
Although evidence on the relationship between financial inclusion and bank stability is limited. The banking literature points to several potential areas through which financial inclusion may affect banking stability. A recent study in the journal Economic Behavior and Organization reports a strong positive relationship between financial inclusion and bank stability.
The authors point out that this positive association is more pronounced with banks that have higher retail deposit fund shares and lower marginal costs of providing banking services; And also with those who work in countries with strong institutional quality. Research results on the effectiveness of financial inclusion programs in improving economic, social, behavioral and gender-related outcomes in low- and middle-income countries have been favorable, and programs to improve access to financial services often have large impacts on incomes.
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