Financial Inclusion in India (Seminar)

7/27/2019 Financial Inclusion in India (Seminar)

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A

REPORT

ON

FINANCIAL INCLUSION IN INDIA

SUBMITTED TO :

SIDHHARTHA S BHARDWAJ

Asst. Prof.

SUBMITTED BY:

MUKUL BABBAR

ROLL NO. 33

MBA-A(P)

UNIVERSITY SCHOOL OF MANAGEMENT, KUK


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Financial inclusion an Introduction

The Indian economy switched gears in the early part of this century and has been growing at a

healthy pace since then. AsIndia forges ahead with the vision to become an economic behemoth

in the next few years, the average level of prosperityattained by its populace and the degree of

equitable distributionof wealth will, in no small measure, be determined by the scaleof inclusivegrowth that would have been achieved. Financial inclusion is certainly not just a recent

phenomenon.

In India, the earliest effort at financial inclusion can be traced back to 1904, when the co-

operative movement began in the country. A focal event in its evolution was the bank

nationalization programme in 1969, when 14 major commercial banks were nationalised, and

the lead bank scheme was, subsequently, introduced. As a consequence, branches were opened inlarge numbers across the nation, even in ar0eas that were until then unreached by banks. The

agenda for financial inclusion was galvanised in the early 2000s in India following the

publication of a spate of findings about financial exclusion and its direct correlation to poverty.

Varied studies have proved that exclusion from the banking system results in a loss of 1 per centto the countrys gross domestic product (GDP).Policymakers in India are acutely aware that, in a

phase of high growth, the ramifications of leaving a huge section of the people out of thedevelopment process could be disastrous and are hence designing appropriate policies for

financial inclusion. Complementing the governments efforts, the Reserve Bank of India (RBI)

has, over the years, undertaken numerous initiatives such as introduction of priority sector

lending requirements for banks, establishment of regional rural banks (RRBs), and self helpgroup-bank linkage programmes to augment the availability of financial services to the poor and

marginalized segments of society.

In the last few years, RBI also initiated the requirement that banks provide no-frills accounts,improve the outreach of banking services through the business facilitator and business

correspondent models, and set up the goal for banks to provide access to formal banking to all74,414 villages with a population over 2000. This target of covering villages with a population of

over 2000 was largely achieved as of end March 2012 (99.7 percent).The goal towards financialinclusion has accordingly been refined in June 2012; in the next Financial Inclusion Plan 2013-

16, banks are required to prepare a road map to cover all unbanked villages with population of

less than 2000 with banking services. In February 2011, the Government of India and the IndianBanks Association (IBA) jointly launched Swabhimaan, a nation wide programme on financial

inclusion, to bring the deprived sections of society under the banking network, and ensure that

the benefits of economic growth percolate to all levels. This programme targets facilitatingopening of banks accounts, providing need-based credit, remittance facilities and promoting

financial literacy in rural India.

Although the target groups may differ from country to country or region to region, financialinclusion refers, in its broadest sense, to the delivery of financial services at affordable costs toall

sections, including the disadvantaged and low-income groups. In 2008, a committee on financial

inclusion headed by Dr C Rangarajan defined financial inclusion as, The process of ensuring

access to financial services and timely and adequate credit where needed by vulnerable groupssuch as weaker sections and low income groups at an affordable cost". In a similar vein, Prof

Raghuram Rajans committee on financial sector reforms defined financial inclusion as,


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Expanding access to financial services, such as payment services, savings products, insurance

products, and inflation protectedpensions.

CRISIL defines financial inclusion as The extent of access by all sections of society to formal

financial services, such as credit, deposit, insurance, andpension services.The term formal in

this definition refers to service providers that maintain official books of accounts. It is importantto distinguish this aspect, as several non-formal channels of financing exist in the Indian rurallandscape, though these cannot be considered to be effective.

Financial inclusion ensures that a range of appropriate financial services are available to every

individual and that the individual understands and accesses those services. This includes a basic,no-frills banking account for making and receiving payments, a savings product suited to the

cash flows of poor households, money transfer facilities, small loans and overdrafts, and

insurance (life and non-life). Lack of awareness, low incomes, poverty, and illiteracy are among

factors that lead to low demand for financial services and, consequently, to exclusion. On thesupply side, distance from branch, branch timings, cumbersome documentation and procedures,

unsuitable products, language barriers and staff attitudes all contribute to exclusion. Due to the

procedural hassles involved in formal banking services, people feel it is easier to borrow from

informal credit sources, even though it results in compromised standards of living, higher costsdue to dependence on unethical and unregulated providers, greater incidence of crime and

increased unemployment. Financial inclusion, thus, is not just about opening of saving bank

accounts; it includes creation of awareness about financial products, and offering of advice onmoney management and debt counseling. An inclusive financial system is one of the top-most

priorities in many countries, several of whom believe that it is instrumental in achieving

equitable growth. Although India has adopted several measures to advance financial inclusion,

an estimated 40 per cent of its population is still without access even to basic financial services.Financial inclusion is, therefore, not just an economic imperative for India, but also a socio-

political one

The focus of financial inclusion is on promoting sustainable development and generating

employment for a vast majority of the population especially in the rural areas. In the first-ever

Index of Financial Inclusion to find out the extent of reach of banking services among 100

countries, India has been ranked 50. Out of 19.9 crore households in India, only 6.82 crore

households have access to banking services. As far as rural areas are concerned, out of 13.83

crore rural households in India, only 4.16 crore rural households have access to basic banking

services. In respect of urban areas, only 49.52 per cent of urban households have access to

banking services and 34 per cent of the Indias urban population with annual income less than `

50,000 have access to banking services. The latest National Sample Survey Organisation survey

reports that there are over 80 million poor people living in the cities and towns of India and they

lack access to the most basic banking services such as savings accounts, credit, remittances and

payment services, financial advisory services, etc. Low-income groups do not have access to the

formal banking systems, as they usually do not have the documents needed to open a bank

account. As a result, they depend on the informal sector for their savings and loan requirements.


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Thus, financial inclusion is considered to be critical for achieving inclusive growth, which itself

is required for ensuring overall sustainable growth. Recognising the importance of inclusive

growth in India, efforts are being taken to make the financial system more inclusive. The present

paper is an attempt to examine the present status of Financial Inclusion in India and issues

involved in extending banking services to weaker sections of the society.


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Meaning of financial inclusion

The word Financial Inclusion could be described as being the opposite of financial exclusion.

However, financial inclusion is more of a process rather than a phenomenon.

It is a process by which financial services are made accessible to all sections of the population. It

is a conscious attempt to bring the un-banked people into banking.The process of ensuring access to financial services and timely and adequate credit where

needed by vulnerable groups such as weaker sections and low income groups at an affordable

cost

Financial Inclusion does not merely mean access to credit for the poor, but also other financialservices such as Insurance. Financial Inclusion allows the state to have an easier access to its

citizens, with an inclusive population, for e.g.: the government could reduce the transaction cost

of payments like pensions, or unemployment benefits.

It could prove to be a boon in a situation like a natural disaster, a financially included population

means the government will have much less headaches in ensuring that all the people get the

benefits. It allows for more transparency leading to curtailing corruption and bureaucratic

barriers in reaching out to the poor and weaker sections. An intelligent banking population could

go a long way by effectively securing themselves a safer future.

objective of Financial Inclusion

The access to various mainstream financial services e.g. saving bank account, credit, insurance,

payments and remittance and financial and credit advisory services.

The main objective is to provide the benefit of vast formal financial market,& protect them

from exploitation of informal credit market, so that they can be brought into the mainstream a


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REASONS FOR FINANCIAL EXCLUSION

Financial Exclusion may also have resulted from a variety of structural factors such as

unavailability of products suiting their requirements, stringent documentation and collateral

requirements and increased competition in financial services. The Causes of financial exclusion

can be identify broadly in two categories, first the demand side and the second supply side.

A. DEMAND SIDE BARRIERS

The people who have the requirement\need but still not demanding\availing the financial

services\products which can be due to the following reasons:

i. Low Income: A higher share of population below the poverty line results in lower demand forfinancial services as the poor may not have savings to place as deposit in savings banks; hence

the market lacks incentives in providing financial service/products.

Most the people belonging to financially excluded group are having irregular/seasonal income.

Hence opening of a bank account and operating it i.e. deposit and withdrawal in very smalldenominations with high frequency will increase the cost of transaction, adding to that they also

anticipate that bank will refuse if they transact with so small amount.Further provided that, as they have low earning they cannot maintain minimum balance

requirements of a normal saving bank account which ranges from Rs. 500 to Rs 5000(Rs. 500 in

case of PSB and Rs. 5000 for Pvt. Sector Banks) and various annual maintenance charges(AMC)

levied by banks.

ii. Transaction cost: Vast number of rural population resides in small villages which are often

located in remote areas devoid of financial services. Consequently, the overall transaction cost tothe customer in terms of both time and money proves to be a major deterrent for visiting

financial institutions. The excluded section of the society find informal sector more reachabledue to proximity and ease of transaction.

iii. Financial Services Being Very Complex In Nature: excluded sections of the society find

dealing with organized financial sector cumbersome.

iv. Easy access to alternative credit: For a good amount of low income people, the alternative

credit provided by the money lenders and pawn shop owners are far more attractive and hassle

free compared to getting a loan from a commercial bank.Some of the poor that do not have property find it impossible to get credit without the collateral.

The uneducated poor would rather put their trust in moneylenders who provide easy non-

collateral credit than on the well established commercial banks. There might also be culturalreasons for trusting a moneylender rather than a bank.Distance from bank branch, branch timings, cumbersome documentation/procedures, unsuitable

products, language, staff attitude are common reasonsHigher transaction cost

v. Low literacy level: The lack of financial awareness about the benefits of the banking and alsoilliteracy act as stumbling blocks to financial inclusion. The lack of financial awareness maybe


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the single most risk in financial inclusion as those who are newly included in the financial sector

have to maintained within the formal financial sector.

vi. Legal identity: Lack of legal identities like identity cards, birth certificates or written records

often exclude women, ethnic minorities, economic and political refugees and migrant workers

from accessing financial services.

vii. Sophisticated Financial Terminologies: Bankers often use complex financial

terminologies, which the masses are unable to comprehend and hence do not approach for

financial services voluntarily.

viii. Terms and conditions: Terms and conditions attached to products such as minimum

balance requirements and conditions relating to the use of accounts as in the case of saving bank

account often dissuade people from using such products/servicesFurther, term and conditions and its framework is generally so tedious and detailed that

understanding it is not possible for those who cannot even write their name or are less literate

and do not understand English or Hindi(in case of some regional rural areas).

ix. Psychological and cultural barriers: The feeling that banks are not interested to look into

their cause has led to self-exclusion for many of the low income groups. However, cultural and

religious barriers to banking have also been observed in some of the countries.

x. Disincentives for the consumer: The cost of maintaining an account (non-zero balance

accounts) and procedural problems in accessing formal credit act as disincentives for consumerswith weaker financial background.

The bank would rather give smaller number of large credits to middle and upper class individuals

and institutions, due to the lower cost involved in banking with them. The banks and other

financial service firms have fewer financial products which are attractive to the poor and thesocially disadvantaged. All these act against the interest of a consumer from a poor background.

B. Supply side barriersSome of the important causes of relatively low extension of institutional credit in the rural areas

are risk perception, cost of its assessment and management, lack of rural infrastructure, and vast

geographical spread of the rural areas with more than half a million villages, some sparselypopulated

i. Perception among banks about rural population: Generally, there exists a perception among

banks that large number of rural population is un-bankable as their capacity to save is limited.

Therefore, they do not look favourably at small loans often required by marginalized section.Such loans are considered to be non-productive.

ii. Miniscule margin in handling small transactions: As the majority of rural population

resides in small villages that too in remote areas, banks find small transactions cost ineffective.


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iii. KYC requirements: The KYC requirements of independent documentary proof of identity

and address can be a very important barrier in having a bank account especially for migrants and

slum dwellers.

iv. Unsuitable products: One of the most important reasons for the majority of rural population

not approaching the formal sector for financial services is the unsuitability of products andservices being offered to them. For example, most of their credit needs are in form of small lumpsums and banks are reluctant to give small amounts of loan at frequent intervals. Consequently,

they have to resort to borrowing money from moneylenders at uxorious rates.

v. Staff attitude: As public sector banks(PSBs) cater to more than 70% of banked population

and about 90% of rural banked population, a majority of staffs in these PSBs remain insensitive

to needs of customer and shirk away from duty. The situation is even worst in rural branches

where they behave with rural poor in a condescending manner.

vi. Poor market linkage: It is often argued that we may have been growing second fastest in the

world, but still our 40-55% of people living in rural and semi-urban areas do not have access tobasic necessities of life. 75% of villages in rural areas have no electricity arrangement, so it can

be imagined that how much penetration market would be having especially when it comes to

providing financial services/products, this may be that they are reluctant or there is no

institutional as well as physical. Therefore there is no institutional infrastructure available in therural area. Poor market linkage or say penetration of service providers also constitutes the major

factors of financial exclusion.

vii. Lack of interest from Commercial Banks: There is a lot of criticism on the commercial

banks because of their inherent tendency to think that poor people are not worthy of being

banked on. Banks are in business to make profit and would like to only indulge in activities that

give them profit. Due to high transaction costs on smaller transactions and the speculated highrisk in lending credit to the lower strata of the society, they see banking with poor as unviable.

Even if banks are concerned at the poor, they do it in a manner of corporate social

responsibility or social service and treat them differently instead of trying to bring them into themainstream. Unless banks see any incentive in banking with the weaker sections of the society,

they would not be willing to do so.

xi. Poor credit record: Areas with poor credit record, bad past experience, socially unstable and

poor recovery of previous loan/credit given are observed to be highly financially excluded, as

banks blacklist such areas as the part of their risk management strategy.


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INITIATIVES TAKEN BY RBI

a) No-Frill AccountsIt is a basic saving fund account having all the features of a normal saving fund account which it

differs in the following aspects

1. The holder is not required to maintain any minimum balance requirement and also nothing ischarged for opening this type of account

2. KYC norms have been simplified so that everyone can have this account

3. Transaction are limited to 5-10 free transactions per month

4. ATM facility is provided free of cost

5. There is no account maintenance cost

Similar types of accounts, though with different names, have also been extended by banks invarious other countries with a view to make financial services accessible to the common man

either at the behest of banks themselves or the respective Governments

b) Overdraft in Saving Bank Accounts

Bank were advised to give credit in form of overdraft on saving bank account to its customer so

that in case of small credit need like medical bill, any accidental charges etc. can be met in.

c) KYC norms

The Know Your Customer (KYC) norms were revised in order to make it easy for people toavail financial services on February 18, 2008. These guidelines include

1. In case of close relatives who find it difficult to furnish documents relating to place of

residence while opening accounts, banks can obtain an identity document and a utility bill of therelative with whom the prospective customer is living, along with a declaration from the relative

that the said person (prospective customer) wanting to open an account is a relative and isstaying with him/her. Banks can also use any supplementary evidence such as a letter received

through post for further verification of the address;

2. banks have been advised to keep in mind the spirit of the instructions and avoid undue

hardships to individuals who are otherwise classified as low risk customers;

3. Banks should review the risk categorization of customers at a periodicity of not less than once

in six months.

4. Further, in order to ensure that persons belonging to low income group both in urban and rural

areas do not face difficulty in opening the bank accounts due to the procedural hassles, the KYCprocedure for opening accounts has been simplified for those persons who intend to keep

balances not exceeding rupees fifty thousand (Rs. 50,000/-) in all their accounts taken togetherand the total credit in all the accounts taken together is not expected to exceed rupees one lakh(Rs.1,00,000/-) in a year.

d) SHG ModelA Self Help Group (SHG) is a group of about 15 to 20 people from a homogenous class who join

together to address common issues. They involve voluntary thrift activities on a regular basis,

and use of the pooled resource to make interest-bearing loans to the members of the group. In the


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course of this process, they imbibe the essentials of financial intermediation and also the basics

of account keeping. The members also learn to handle resources of size, much beyond their

individual capacities. They begin to appreciate the fact that the resources are limited and have acost.

Once the group is stabilized, and shows mature financial behavior, which generally takes up to

six months to 1 year, it is considered for linking to banks. Banks are encouraged to provide loansto SHGs in certain multiples of the accumulated savings of the SHGs. Loans are given without

any collateral and at interest rates as decided by banks. Banks find it comfortable to lend money

to the groups as the members have already achieved some financial discipline through their thrift

and internal lending activities. The groups decide the terms and conditions of loan to their own

members. The peer pressure in the group ensures timely repayment and becomes social collateral

for the bank loans.

Generally, the SHGs need self-help promoting institutions (SHPIs) to promote and nurture them.

These SHPIs include various NGOs, banks, farmers clubs, government agencies, self-employed

individuals and federations of SHGs. However, some SHGs have also been formed without anyassistance from such SHPIs. There are three different models that have emerged under the

linkage programme-

I. Model I: This involves lending by banks directly to SHGs without intervention/facilitation by

any NGO.

II. Model II: This envisages lending by banks directly to SHGs with facilitation by NGOs and

other agencies.

III. Model III: This involves lending, with an NGO acting as a facilitator and financing agency.

Model II accounted for around 74 per cent of the total linkage at end-March 2007, while ModelsI and III accounted for around 20 per cent and 6 per cent, respectively.

e) KCC / GCC Guidelines

A. GCC SCHEME

With a view to providing credit card like facilities in the rural areas, with limited point-of-sale(POS) and limited ATM facilities, the Reserve Bank advised all scheduled commercial banks,

including RRBs, in December 2005 to introduce a General Credit Card (GCC) Scheme for

issuing GCC to their constituents in rural and semi-urban areas, based on the assessment of

income and cash flow of the household similar to that prevailing under a normal credit card.The Reserve Bank also advised banks to classify fifty per cent of the credit outstanding under

loans for general purposes under General Credit Cards (GCC), as indirect finance to agriculture

under priority sector. The Reserve Bank further advised banks in May 2008 to classify 100 per

cent of the credit outstanding under GCCs as indirect finance to agriculture sector under thepriority sector with immediate effect.

B. KCC Scheme


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Eligible farmer will be provided a Kishan Credit Card and a Pass Book or a Card-cum-Passbook.

Revolving cash credit facility allowing any number of withdrawals and repaymentswithin the limit.

Entire production credit needs for full year plus ancillary activities related to cropproduction to be considered while fixing limit. In due course, allied activities and non-farm short term credit needs may also be covered.

Limit to be fixed on the basis of operational land holding, cropping pattern and scales offinance.

Seasonal sub limits may be fixed at the discretion of banks. Limit of valid for 3 years subject to annual review. Conversion /re-schedulement of loans also permissible in case of damage to crops due to

natural calamities. As incentive for good performance, credit limits could be enhanced to take cares of

increase in costs, changing in cropping pattern etc.

Security, margin and rate of interest as per RBI norms. Operations may be through issuing branch / PACS or through other designated branchesat the discretion of bank.

Withdrawals through slips /cheques accompanies by card and passbook. Personal Accident Insurance of Rs. 50,000 for death and permanent disability and Rs.

25,000/- for partial disability available to Kishan Credit Card holder at an annual premia

of Rs. 15/- per annum.

f) Financial Literacy Program

Recognizing that lack of awareness is a major factor for financial exclusion, the Reserve Bankhas taken a number of measures towards imparting financial literacy and promotion of credit

counseling services. The Reserve Bank has undertaken a project titled Project Financial

Literacy.The objective of the project is to disseminate information regarding the central bank and general

banking concepts to various target groups, including, school and college going children, women,

rural and urban poor, defense personnel and senior citizens. The banking information would bedisseminated to the target audience with the help of, among others, banks, local government

machinery, schools/colleges using pamphlets, brochures, films, as also, the Reserve Banks

website.

Various initiatives taken by the Reserve Bank in order to promulgate Financial Literacy:A multilingual website in 13 Indian languages on all matters concerning banking and the

common person has been launched by the Reserve Bank on June 18, 2007.

Comic type books introducing banking to schoolchildren have already been put on the website.

Similar books will be prepared for different target groups such as rural households, urban poor,defence personnel, women and small entrepreneurs.

Financial literacy programs are being launched in each state with the active involvement of thestate government and the SLBC. Each SLBC convener has been asked to set up a credit


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counselling centre in one district as a pilot project and extend it to all other districts in due

course.

The Financial Inclusion and Financial Literacy Cell has been established the college of

Agricultural Banking, which would act as a resource centre in this field.


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Financial Inclusion- Need

It is now widely acknowledged that financial exclusion leads to non accessibility, non

affordability and non availability of financial products. Due to lack of access to a bank accountand remittance facilities, the individual pays higher charges for basic financial transactions.

Prolonged and persistent deprivation of banking services to a large segment of the populationleads to a decline in investment. To prevent this some of the objectives and models are there,which are as follows:

Economic objectivesEquitable growth

Mobilization of savings

Larger market for the financial System

Social & political objectives

Poverty eradicationSustainable livelihood

Wider inclusion in society

Effective direction of government programs

Business modelsBank-SHG linkage

Branchless banking

Delivery through mobile phones

Micro finance organizations

Thus, financial inclusion is an explicit strategy for accelerated economic growth and isconsidered to be critical

for achieving inclusive growth in the country.


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ISSUES AND CHALLENGES

India currently faces several issues and challenges in the area of Financial Inclusion for Inclusive

growth. Salient among them are stated here below;

1. Spatial Distribution of Banking Services: Even though after often emphasized policyintervention by the government and the concerted efforts of Reserve Bank of India and the public

sector banks there has been a significant increase in the number of bank offices in the rural areas;

but it is not in tune with the large population living in the rural areas. For a population of 70%only 45% of bank offices provide the financial services.

2. Regional Distribution of Banking Services: The analysis by the authors brings to the fore

that there has been uneven distribution of the banking services in terms of population coverageper bank office in the six regions viz; Northern, North-eastern, Eastern, Central, Western and

Southern regions of the country.

3. Bank Branches are required to be increased as it has a direct impact on the progress offinancial inclusion. It is clearly established that as the bank branches increase number of bank

accounts also increase significantly.

4. Poverty levels are having direct relationship with the progress of financial inclusion. The

authors have established in their study that as the poverty levels decrease financial inclusion also

increase. As such, there should be multi fold strategic approach in such poverty dominated areasfor financial inclusion.

5. SC/ST population: It is ascertained by the authors study that in the areas of ScheduledCastes/Scheduled Tribes population the progress of Financial Inclusion is slow which indicates

that the efforts for Financial Inclusion has to be increased significantly in such areas in order tobring in social and economic equity in the society.

6. Overcoming Bankers Aversion for Financial Inclusion Even though no banker openly

expresses his aversion for the financialinclusion process, overtly it can be noticed that they are

averse to it in viewof the cost aspects involved in opening of no frill accounts.


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RECOMMENDATIONS AND POLICY CHOICES

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Step 1: A New Financial Architecture to Suit the Needs of Inclusive Growth Keeping in view

the dynamics of the changing economy, there is a strong need to restructure the financial system

particularly the rural financial system. The present system which was enshrined in the late 70sgreatly needs a rigorous relook.

Step 2: Coordination with UIDAI Government of Indias ambitious programme of issuance ofmulti-purpose Unique Identity Cards by UIDAI should be of great help for achieving financial

inclusion. There needs to be proper systematic coordination with UIDAI in order to make the

best use of it for the purpose for financial inclusion.

Step 3: Formation of National Financial Inclusion Mission The authors recommend formation of

National Financial Inclusion Mission on the lines of National Literacy Mission to carry out

systematic and coordinated drive for financial inclusion.

Step 4: Involvement of Education Sector for furthering Financial Inclusion Involving educational

institutions, particularly college students for financial inclusion drive would not only be costeffective but also would create wide public awareness.

Step 5: Establishment of Financial Counseling Centres Financial Inclusion drive should not be

short-lived; instead a systematic effort should be structured by establishing FCCs (FinancialCounseling Centres) on the lines of e-Seva centres in Andhra Pradesh for providing financial

services.

Step 6: Building Client Capacities As the saying goes teach him to fish instead of giving him

fish, it should be the effort of all the concerned (particularly the financial institutions) todevelop these poor people as prospective customers. Building client capacities would definitely

help all the stakeholders and would to a vibrant financial system

9Step 7: Partnership with Dedicated NGOs and MFIs Partnering with trustworthy and acclaimed

peoples organisations would definitely accelerate the process of financial inclusion especially inthe rural areas. Specific financial as well as non-financial incentives have to be designed for the

spirited involvement of such organisations

Step 8: Financial Inclusion as a Part of Course Curriculum in High Schools Financial Inclusion

should be imbibed into the course curriculum in high schools so that the students would

understand the importance of financial inclusion for inclusive growth in the economy which inturn would motivate them to automatically participate in the financial system.

Step 9: Digitise the Documentation Process for Opening of Bank Accounts One of the often

stated reasons for slow pace of financial inclusion has been the hassles involved in opening of

bank accounts and availing of loans from financial institutions due to the long process ofdocumentation. To overcome this, there is a need to digitise the public records for dual purpose

of easy accessibility and storage.


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Step 10: Strategize the Provision of Bank Credit Need is felt to strategize the provision of bank

credit to the rural farmer households. Majority of the marginal farmer households are not at allcovered by the formal finance. As such public sector banks and the co-operative banks in the

rural areas have to sensitize about the need for provision of timely and cheaper credit to these

segments. Reserve Bank of India in consultation with NABARD should come out with acomprehensive strategy for revitalizing the quiescent rural credit mechanism.

Step 11: Exclusive Focus on the Socialyl Excluded and the Poor It is imminent to encompass the

socially excluded sections and the poor like, tenant farmers, oral lessees and share croppers,marginal farmers with small uneconomical land holdings, agricultural laborers, rural artisans and

people involved in making handicrafts and also majority of weavers in handloom Sector.

Step 12: Extensive use of Co-operatives PACS (Primary Agricultural Cooperative Societies)could provide valuable services to their members with a sense of belongingness. Accordingly,

there is a need to revitalize these cooperatives as per the Vaidyanathan Committee

recommendations and use them extensively for financial inclusion in the rural areas.

Step 13: Undoubtedly a Greater Role for NABARD has to play a pro-active role by partnering

with the rural credit institutions in the field and identify new initiatives that will contribute to

effectively improving the extent of financial inclusion involving SHGs, MFIs, etc.

Step 14: Procedural / Documentation Changes It is inevitable on the part of the regulators to find

out an easy way of procuring the documents for opening of bank accounts and availing loans.The present guidelines are more tedious and result in huge costs for the poor in accessing the

banks for any kind of services. Simplifying Mortgage Requirements, Exemption from Stamp

Duty for Loans to Small and Marginal Farmers, Saral Documentation for Agricultural Loans.

Step 15: Proactive Role of Government State Governments should be asked by the Central

Government to play a proactive role in facilitating Financial Inclusion. Issuing official identity

documents for opening accounts, creating awareness and involving district and block levelFunction aries in the entire process, meeting cost of cards and other devices for pilots,

undertaking financial literacy drives are some of the ways in which the State and district

administration have involved themselves.

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Step 16: A Role for Rural Post Offices Post Offices in rural areas can be asked to provide their

services in accelerating the financial inclusion activity. In view of the postmans intimateknowledge of the local population and the enormous trust reposed in him post offices can be

good use in the process of financial inclusion

Step 17: Effective Use of Information Technology Solutions The use of IT enables banks tohandle the enormous increase in the volume of transactions for millions of households for

processing, credit scoring, credit record and follow up. The use of IT solutions for providing

banking facilities at doorstep holds the potential for scalability of the Financial Inclusioninitiatives.


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Step 18: Adequate Publicity for the Project of Financial Inclusion In a huge country like India,

there needs to be huge publicity for popularizing the concept and its benefits to the commonman. In this direction, a comprehensive approach has to be developed involving all the

concerned at all levels to impress upon the need for financial inclusion for accelerating the

economic growth in the country.

Step 19: Financial Inclusion as a Corporate Social Responsibility of all the Banks and Financial

Institutions It should be the endeavour of all the financial institutions to adopt financial inclusion

as a corporate social responsibility and chalk out strategies in tune with the national policy onfinancial inclusion.

Step 20: Role of RBI Reserve Bank needs to take a pro-active role in the accelerating financial

inclusion by involving all the stake holders in the financial system by using its power of moralsuasion as well as regulatory powers.

Step 21: Political Will Political will is an all important aspect in any developmental effort.Political leadership should accord adequate importance for financial inclusion in order to

motivate and mobilise all the weaker sections of the society in favour of financial inclusion for

their economic upbringing.


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CONCLUSION

Importance of financial inclusion arises from the problem of financial exclusion of nearly 3

billion people from the formal financial services across the world. With only 34% of populationengaged in formal banking, India has, 135 million financially excluded households, the second

highest number after China. Further, the real rate of financial inclusion in India is also very lowand about 40% of the bank account holders use their accounts not even once a month. FinancialInclusion has far reaching consequences, which can help many people come out of abject

poverty conditions. Financial inclusion provides formal identity, access to payments system &

deposit insurance. The objective of financial inclusion is to extend the scope of activities of theorganized financial system to include within its ambit people with low incomes. Through

graduated credit, the attempt must be to lift the poor from one level to another so that they come

out of poverty. There is a need for coordinated action between the banks, the Government and

others to facilitate access to bank accounts amongst the financially excluded.

Documents

Financial Inclusion in India (Seminar)