07 January, 2019 Financial & Technical
Financial Inclusion is said to have happened when a society is successful in bringing the marginalised section of society into the formalised financial system.
Financial Inclusion is said to have happened when a society is successful in bringing the marginalised section of society into the formalised financial system. Can we say that Financial Inclusion has been achieved in India? Well not 100%, but we seem to have made some progress in the last decade or so. But the fact that there have been talks of financial inclusion in India makes it quite clear that there is a portion of the population who has been financially excluded. A big portion, unfortunately.
Findings of the World Bank’s Global Findex Database revealed that until as recently as 2011, only 40% of adult Indians had a bank account. This meant that a majority of Indians, mostly rural, had no interaction with the formal financial system – which significantly improved in the seven years since then and 80% of adult Indians now have bank accounts. The problem is that the poor remain poor in every sense because they don’t get access to the means that can uplift them. Access to a formal financial system can be seen as one such means. Hence the recent importance of the socio-economic concept of Financial Inclusion.
At the onset, we must acknowledge the efforts of successive governments in financial inclusion. In the last few years, the Pradhan Mantri Jan Dhan Yojna is being driven as the government’s national financial inclusion mission. It has relaxed the Know-your-customer norms, promoted the use of technology, opened branches in unbanked rural areas, simplified branch authorisation and taken many other steps to achieve its aim of “banking for all”.
The introduction of Business Correspondents is one such positive step that used technology as a tool for financial inclusion. Banks have engaged business correspondents and business facilitators to work as the face of the bank while dealing with rural and suburban end-users. Use of hand-held terminals like GSM tablets along with the biometric scanner, Bluetooth printer, smart card swipe machines etc. have equipped these business correspondents to give and entire banking experience on the go.
It is not just a formal banking system that is making the waves, India’s population is now getting closer towards in financial inclusion in various parameters. Almost 90% of the population have been assigned unique IDs i.e. Aadhar, which is exemplary, considering that 90% of our population is a huge number.
The private sector has also added to a generic growth in financial inclusion, with mobile phone usage and phone banking increasing massively and the use of internet and digital transactions also witnessing a significant rise in recent times.
On-boarding of the previously excluded Indians into the formal financial system is only one part of the solution. The onus now lies largely on the banks and the financial institutions to create and sell financial products that are tailor made to suit the rural and suburban population’s requirements. It is only when this population becomes a “regular” part of the financial system that we can say that financial inclusion in India has been successful. Special emphasis on the word “regular” because opening a one-off bank account cannot alone bring financial inclusion, just as one swallow doesn’t make a summer.
By bringing the unbanked section of the society into the financial mainstream, all-round economic growth of a country receives a shot in the arm. As the marginalised section of the society gains access to the financial system, they avail microcredit products and loans which help them to generate additional income and create wealth. They utilise their savings and income to acquire investments and assets, which uplifts their returns and worth. With greater financial strength they are able to meet health and education expenses better with the help of insurance and saving schemes. That can be defined as a well-rounded financial growth of an entire society.
Even at a more micro-level, there are some obvious and apparent benefits of financial inclusion that cannot be denied. With financial inclusion, a previously untapped rural population gets banking facilities like cash receipts, cash payments, balance enquiry and statement of account. They will also be able to enjoy the ease of facilities like the ATM, direct fund transfers to beneficiary bank accounts, online bill payments etc. The huge dependency on cash economy would also eventually subside as more and more money are driven through the banking system. We can hope for more saving propensity among people due to the financial inclusion, which in turn would help the nation to build more and more capital. Most importantly, suitable and convenient credit products will become available to everyone through formal banking channels. Simultaneously, better credit data and overall financial information will become available as a previously untapped population is documented for the first time. All this will uplift business and economic growth of individuals as well as the nation.
Financial Institutions must take various steps and make necessary adjustments in ensuring Financial Inclusion.
To cater to the needs of the Indian rural population, financial institutions have been trying to understand the market and structure their products accordingly. For example, in a region which is predominantly agricultural, the repayment of a loan product cannot be designed in line with urban areas. In such cases, lenders have tried to consider the convenience and income pattern of the borrower before deciding a repayment structure (“Pay as you earn” models).
Financial institutions have understood the importance of adding a local flavour to ensure better personal connect with the masses by recruiting locally. Financial Institutions have reduced the distance between themselves and the un-catered population by covering more grounds in rural India. New establishments have been opened which brought the institutions closer to the customer.
India has, so far, moved in the right direction to ensure that the entire population is gradually brought under the ambit of the formalized financial structure and financial inclusion is a reality. To achieve it, a nation requires continued political impetus, administrative support and regular monitoring by the central bank. There is immense untapped potential among the bottom-of-pyramid section of the Indian population and financial inclusion is the key to this potential.