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“We have always known that heedless self interest was bad morals, we now know that it is bad economics.”
-
Franklin D. Roosevelt
1. INTRODUCTION The prophecy of Millennium Development goals of U.N. i.e. “growth with equity”
clearly envisages that the growth spree of the globe in the 21st century has left some people behind the time. Handful of the global populace are still languishing in the vicious circle of poverty and are cast aside by those who are economically stronger & swifter in the sway of globalization and liberalization. For sustenance/better growth of the world, the deprived sections should be dragged into the mainstream of growth. This is because of the fact that poverty any where is a grave threat to prosperity everywhere. Financial services actively contribute to the humane & economic development of the society. These lead to social safety net & protect the people from economic shocks. Hence, each & every individual should be provided with affordable institutional financial products/services popularly called “Financial Inclusion”.
Financial inclusion may be defined as 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 products &
services are identified as basic banking services like deposits accounts, institutional loans, access to payment, remittance facilities & also life & non life insurance services. The following are the denotation & connotation of financial inclusion in India.
1. Affordable credit 2. Savings bank account 3. Payments and Remittance 4. Financial advice 5. Credit/debit cards 6. Insurance facility 7. Empowering SHGs (self help groups)
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An inclusive financial system facilitates efficient allocation of productive resources and thus can potentially reduce the cost of capital. An all-inclusive financial system enhances efficiency and welfare by providing avenues for secure and safe saving practices and by facilitating a whole range of efficient financial services like easy day to-day management of finances, safe money transfer etc. The govt. of India as well as the banking industry has recognized this imperative and has undergone certain fundamental changes over the last two decades. In fact, in order to address the issues of financial inclusion, the
Government of India constituted a “Committee on Financial Inclusion” under the
Chairmanship of Dr. C. Rangarajan. Not only in India, but financial inclusion has become an issue of worldwide concern, relevant equally in economies of the underdeveloped, developing and developed nations. Building an inclusive financial sector has gained growing global recognition bringing to the fore the need for development strategies that touch all lives instead of a select few.
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1.1 OBJECTIVE 1. To study about financial inclusion in detail. 2. To analyze the financial inclusion of states and compare them.
1.2 METHODOLOGY The methodology used in this project is descriptive analytical method.
1.3 SCOPE OF THE STUDY The present project is an attempt to analyze the financial exclusion and thus, the need of financial inclusion in our country, its importance for meeting the need of the people and ensuring livelihood. Also, it aims to observe the Indian scenario and compare states and their financial inclusion.
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2. FINANCIAL EXCLUSION The concept of financial inclusion and its implementation has come a long way since the last two decades and the results are also quite fair. There have been much technological advances that have transformed the banking industry from traditional brick – and-mortar infrastructure like staffed branches to a system supplemented by other channels like automated teller machines, debit and credit cards, internet banking, online money transfer etc. The moot point, however, is that access to such technology and services are restricted to only certain segments of the society. There is a growing divide, with an increased range of personal finance options for a segment of high and upper middle income population and a significantly large section of the population who lack access to even the most basic banking services. This is termed as “Financial exclusion”.
2.1 Who are excluded?
There is still a vast majority of the Indian population that is unbanked. In India individuals are mainly excluded because of these five reasonso
No assets
o
No savings
o
No account
o
No affordable credit
o
No access to financial advice (counselling) About 73% of households in India are estimated to be located in the rural areas. Among the rural households about 60% are ‘cultivator’ households. Among the urban households about 36% are ‘self -employed’ households which are their major source of
income during the last 365 days. Their income is form self-employed of the households’ members. In rural areas there are large numbers of people who have no
land and in urban areas many of them are outside the purview of formal employment.
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No doubt, this is a typical case of Financial Exclusion. The following section is excluded from basic banking o
Urban-slum dwellers
o
Marginal farmers
o
Landless labourers
o
Oral lessees
o
Self-employed and unorganized sector enterprises
o
Migrants.
o
Ethnic minorities, and
o
Socially excluded groups, senior citizens, women and disabled people.
2.2 Need for Financial Inclusion The word F inancial I nclusion 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 mainstream financial services are made accessible to all sections of the population. It is a conscious attempt at trying to bring the un-banked people into banking. Financial Inclusion does not merely mean access to credit for the poor, but also other financial services 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. More importantly Financial Inclusion is imperative for creating an inclusive economy at all fronts. This attains special importance at this stage of rising food and oil prices, without an inclusive economy the country’s development will suffer. In the recently concluded
G8 meeting in Hokkaido, Japan, the World Bank chief Robert Zoellick reiterated the importance of creating an inclusive economy in an increasingly globalized World.
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3. FINANCIAL INCLUSION 3.1 What is Financial Inclusion Financial inclusion is delivery of banking services at an affordable cost to the vast sections of disadvantaged and low income groups. Unrestrained access to public goods and services is the sine qua non for an open and efficient society. Banking services are in the nature of public good, it is essential that availability of banking and payment services to the entire population without discrimination is the prime objective of the public policy.
3.2 Benefits of Financial Inclusion Financial inclusion has many benefits. Following are some of the benefits summed up. 1) It paves the way for establishment of an account relationship which helps the poor to avail a variety of savings products and loan products for housing , consumption, etc. 2) An inclusive financial system facilitates efficient allocation of productive resources and thus can potentially reduce the cost of capital. 3) This also enables the customer to remit funds at low cost. The government can utilize such bank accounts for social security services like health and calamity insurance under various schemes for disadvantaged. From the bank’s point of view, having such social security cover makes the financing of such persons less risky. Reduced risk means more flow of funds at better rates. 4) Access to appropriate financial services can significantly improve the day-today management of finances. For example, bills for daily utilities (municipality, water, electricity, telephone) can be more easily paid by using cheques or through internet banking, rather than standing in the queue in the offices of the service. 5) Transfer of money can be done more safely and easily by using the cheque, demand draft or through internet banking. · A bank account also provides a passport to a range of other financial products and services such as short term credit facilities, overdraft facilities and credit card. Further, a number of other financial products, such as insurance and pension products, necessarily require the access to a bank account.
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6) Lastly, the Employment Guarantee Scheme of the Government which is being rolled out in200 districts in the country would bring in large number of people through their savings accounts into the banking system.
3.3 Methods to achieve Financial Inclusion
To address the issue of financial exclusion in a holistic manner, it is essential to ensure that a range of financial services is available to every individual. These services are: ` (i) a no-frills banking account for making and receiving payments, (ii) a savings product suited to the pattern of cash flows of a poor household, (iii) money transfer facilities, (iv) small loans and overdrafts for productive, personal and other purposes, & (v)
micro-insurance (life and non-life)
3.4 Institutions and Financial Inclusion Financial Institutions, both large and small have an important role to play in financial inclusion. With their organized structure and effective management larger financial institutions could act as mentors for small financial services firm by ensuring a strong financial backing:
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1. COMMERCIAL BANKS: Commercial banks could act as an important part of the process to achieve full financial inclusion. Especially with simplified savings bank accounts (including no-frills account), relaxed KYC procedures, primary sector lending and even microfinance. 2. COOPERATIVE BANKS: The Urban and Rural cooperative banks could cater to populations that are generally neglected by the commercial banks. Their position allows them to reach out to the people far easier than the more formal commercial banks. Since they are operated by the members of the banks themselves, there would be more involvement from the people of such cooperatives. 3. REGIONAL RURAL BANKS: Through priority sector lending, KCCs and GCCS the RRBs could ensure a steady flow of credit to the rural poor especially the marginal farmers. The RRBs like the commercial banks can deal with the agencies like NGOs who are interested in helping out the poor and the weaker sections. 4. NON-BANKING FINANCIAL COMPANIES (NBFCS): The NBFCs could include both large and small financial firms which provide financial services. They could offer specific financial products to the poor and low income people such as micro-insurance, micro-credit, etc. The NBFCs could create financial awareness among the people by not only offering alternative financial services but also spreading financial literacy by providing financial advices. 5. MICRO FINANCE INSTITUTIONS (MFIS): Micro Finance Institutions or MFIs are created with the specific aim of extending financial services to the poor and the weaker sections of the populations. A MFI could be independent or as in most cases are promoted by NGOs, government agencies, NBFCs, commercial banks and other institutions. Micro Finance Institutions have so far been the most successful at ensuring basic financial services to the unbanked sections of the populations. Along with the SHG movement, the MFIs has enabled the wealth generation in many underdeveloped rural as well as neglected urban areas in India. 6. POST OFFICE SAVINGS BANK: These along with their extensive network could offer wide variety of small and micro financial services to the people. The Post Office Savings bank could utilise their staff to deliver door-to-door service to the people.
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NON-GOVERNMENTAL
ORGANIZATIONS
(NGOS): NGOs
could
provide financial assistance to the poor and the weaker sections through NGO promoted MFIs or by providing financial advice. NGOs working the poor and the economically deprived can more closely analyze their spending patterns and credit requirements. Commercial banks and other large financial agencies can work closely with NGOs to ensure that the dealings with the poor and the weaker sections turn out to be a fruitful activity not only for the people but also for the lending agencies.
In India the focus of the financial inclusion at present is confined to ensuring a bare minimum access to a savings bank account without frills, to all. Internationally, the financial exclusion has been viewed in a much wider perspective. Having a current account / saving account on its own, is not regarded as an accurate indicator of financial inclusion. There could be multiple levels of financial inclusion and exclusion. At one extreme, it is possible to identify the ‘super -included’, i.e., those
customers who are actively and persistently courted by the financial services industry, and who have at their disposal a wide range of financial services and products. At the other extreme, we may have the financially excluded, who are denied access to even the most basic of financial products. In between are those who use the banking services only for deposits and withdrawals of money. But these persons may have only restricted access to the financial system, and may not enjoy the flexibility of access offered to more affluent customers. The Indian economy is characterized a heavy dependence on agriculture as industries are concentrated mainly in the urban areas and a highly skewed distribution of income and wealth. A high percentage of the working population depends on agriculture and related activities. Rural people have a poor base of resources, a low level of capacity and limited access to financial and other support services. Especially women and young people are affected. Financial inclusion has proved to be the best intervention in removing chronic poverty amongst women and enabling them to participate in economic activity by raising their income levels.
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4. INDIAN SCENARIO
The bank nationalization in India marked a paradigm shift in the focus of banking as it was intended to shift the focus from class banking to mass banking. The rationale for creating Regional Rural Banks was also to take the banking services to poor people. The branches of commercial banks and the RRBs have increased from 8321 in the year 1969 to 68,282 branches as at the end of March 2005. The average population per branch office has decreased from 64,000 to 16,000 during the same period. However, there are certain under banked states such as Bihar, Orissa, Rajasthan Uttar Pradesh, Chattisgarh, Jharkhand, West Bengal and a large number of North-Eastern states, where the average population per branch office continues to be quite high compared to the national average. As you would be aware, the new branch authorization policy of Reserve Bank encourages banks to open branches in these under banked states and the under banked areas in other states. The new policy also places a lot of emphasis on the efforts made by the bank to achieve, inter alia, financial inclusion and other policy objectives. One of the benchmarks employed to assess the degree of reach of financial services to the population of the country, is the quantum of deposit accounts (current and savings) held as a ratio to the adult population. In the Indian context, taking into account the Census of 2001 (ignoring the incremental growth of population thereafter), the ratio of deposit accounts (data available as on March 31, 2004) to the total adult population was only 59% (details furnished in the table). Within the country, there is a wide variation across states. For instance, the ratio for the state of Kerala is as high as 89% while Bihar is marked by a low coverage of 33%. In the North Eastern States like Nagaland and Manipur, the coverage was a meagre 21% and 27%, respectively. Northern Region, comprising the states of Haryana, Chandigarh and Delhi, has a high coverage ratio of 84%. Compared to the developed world, the coverage of our financial services is quite low. For instance, as per a recent survey commissioned by British Bankers' Association, 92 to 94% of the population of UK has either current or savings bank account. Table – 1 No. of accounts per 100 population region-wise
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Region
No.
of
Accounts
Population
No. of Accounts
(in ‘000)
per 100 population
(current+saving) 2001
2005
2001
2005
2001
2005
50944
58777
132679
141599
38
42
N.Eastern 7536
7729
34495
411083
20
19
Eastern
47838
51888
227617
242920
21
21
Central
63498
69424
255714
272906
25
25
Western
48120
55178
149073
159095
32
35
Southern
79531
94725
223437
238459
36
40
All India
297467
337721
1027015
1096063
29
31
Northern
4.1 Delhi The Reserve Bank of India is on a “mission mode” to carry forward the financial
inclusion drive that has been initiated by the government to bring in more under banked and unbanked people under its fold. With furthering financial inclusion in a mission mode through a combination of strategies ranging from relaxation of KYC regulatory guidelines, provision of new products and supportive measures to achieve sustainable and scalable Financial Inclusion.
RBI has also relaxed the KYC norms to open bank accounts under Pradhan Mantri Jan Dhan Yojana by allowing acceptance of only one of the documents — proof of address or proof of identity. “Two separate documents were required earlier but now there is clear instruction
from RBI that any one of the documents is necessary. The Aadhaar card is sufficient proof of identity even if the current address is changed.”
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Pradhan Mantri Jan-Dhan Yojna, (PMJDY) is National Mission for Financial Inclusion to ensure access to financial services, namely Banking Savings & Deposit Accounts, Remittance, Credit, Insurance, Pension in an affordable manner.This financial inclusioncampaign was launched by the Prime Minister of India Mr. Narendra Modi, on 28 August 2014. He had announced this scheme on his first Independence Day speech on 15 August 2014. Run by Department of Financial Services, Ministry of Finance, on the inauguration day, 1.5 Crore (15 million) bank accounts were opened under this scheme.1 Guinness World Records Recognises the Achievements made under PMJDY, Guinness World Records Certificate says "The most bank accounts opened in 1 week as a part of financial inclusion campaign is 18,096,130 and was achieved by Banks in India from 23 to 29 August 2014". By 05 August 2015, 17.45 crore accounts were opened, with around ₹22032.68 crore (US$3.3 billion) were deposited under the scheme. Delhi has become the first city to achieve 100 per cent enrolment under Prime Minister Jan Dhan Yojana (PMJDY), according to a top Delhi government official. Bank accounts of more than 31.63 lakh families have been opened under the scheme in the national capital. “Bank accounts of 31,63,579 households have been opened in the national capital so far ever since the PMJDY was launched. With this, Delhi has completed 100 per cent enrolment under Pradhan Mantri Jan Dhan Yojana, becoming the first territory in the country to achieve so,” S N Sahay, secretary of Revenue Department, said. The scheme envisages universal access to banking facilities with at least one basic account for every household with focus on financial literacy, access to credit, insurance and pension facility. Government also claimed that it has also completed 100 per cent enrolment under AADHAAR in the national capital. According to the department, it is currently working on e-refund model under which money can be returned via online. “Government will soon launch e -refund scheme in Delhi. Under this scheme,
Delhiites, who have paid stamp duty and later wanted to get it back, can now be
1
ET Bureau (28 August 2014). "PM 'Jan Dhan' Yojana launched; aims to open 1.5 crore bank accounts on first day". The Economic Times. Retrieved 28 August 2014.
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able to recover their paid money through online. This scheme will be launched in the next few days,” said a senior official of the Revenue Department.
4.2 Maharashtra Bank of Maharashtra provided services ever since the government’s ascent to the centre, PM Modi, FM Jaitley, and the Cabinet have worked relentlessly towards promulgation of new schemes that make financial security for the common man. The first step towards achievement of social security was the rollout of the Pradhan Mantri Jan Dhan Yojana (PMJDY). With Phase I being declared a major success and 1.8 crore accounts having been opened across the country, the government had flagged off three new schemes on 9 May 2015 – two insurance schemes (Pradhan Mantri Jeevan Jyoti Bima Yojana, and Pradhan Mantri Suraksha Bima Yojana), and a pension scheme (Atal Pension Yojana). This is called Phase II of the PMJDY, since it was important to get people into mainstream banking before any benefits can be extended to them. Atal Pension Yojana is a fixed pension scheme (different from NPS Lite in which pension amount was not fixed) for all the Saving account holders of the Bank who are not covered under any social benefit scheme. Eligible age group is 18 to 40 Years old. Govt. will contribute Rs. 1000/- every Year for the next five years. The contribution from the subscribers will be based on fixed pension amount opted for and age. For e.g.to get a fixed monthly pension of Rs. 1000/- per month and Rs. 5000/- per month , the subscribers has to contribute monthly Rs. 42/- and Rs. 210/- if he joins at the age of 18 Year. For the same pension level, the contribution amount will be Rs. 291/- and Rs. 1454/- if the subscribers join at the age of 40 Years. The Atal Pension Scheme will bring security to ageing Indians while at the same time promote a culture of savings and investment among the lower and lower middle class sections of society. One of the greatest benefits of the scheme may be enjoyed by the poorer sections of society. The Government of India has decided to contribute 50 percent of the user’s contribution or INR 1,000 a year
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(whichever is lower) for a period of five years. This contribution will, however, be enjoyed only by those who are not income tax payers and those who join the scheme before December 2015. SWA B H I MAN – State F inancial I nclusion Plan – Maharashtra
Swabhiman is path-breaking initiative by Govt of India and banks in state to cover the economic distance between rural and urban India. It promises to bring basic banking services to all unbanked villages in the country with population above 2000. The swabhiman movement facilitate opening of bank accounts, provide need based credit, remittance facilities and help to promote financial literacy in rural India using various models and technologies including branchless banking models through Business correspondents. RBI on the basis of recommendations of High Level Committee on Lead Bank Scheme directed lead banks to draw a road map by March 2010 to provide banking services through a banking outlet in every village having a population of over 2000, by March 2012 and further stated that such banking services may not necessarily be through a brick and mortar branch but can be provided through any of the various forms of ICT based models with the help of hand held machines, smart card & Business Correspondents.
4.3 Chhattisgarh
Financial Inclusion is one of the top priorities of GoI, RBI and Banks too. The aim is to provide access to basic financial products and services to all households in the country. In Chhattisgarh State Bank of India has worked for financial inclusion of such un(under) privileged households. Initially the target was to cover 2000+ population villages, SBI was allotted 196 villages out of 1050villages in Chhattisgarh and the task of providing Banking coverage to these FIP villages was successfully completed on March 2012.
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In second Phase of Financial Inclusion Plan, villages with population above 10001999 were to be covered. SBI was allotted with 741 villages out of 4122 villages in Chhattisgarh. All the villages were financially included on March 2013.
In Third Phase of FIP, Villages with population below 1000 are to be financially included. The task is to be done in phased manner from 2013-2016, in three financial years. SBI is allotted with 2616 villages and plan is to cover 860 villages in FY 2013-14.The mapping is in progress for implementation of FIP.
Aadhaar - The focus of issuing Aadhaar number is well flow in Chhattisgarh. The process of seeding of Aadhaar in respective accounts is in progress.
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5. CONCLUSION Financial Inclusion has been a catch phrase for the past few years. Delivering financial services to all sections of the population will remain a challenge that central banks around the world will face over the next few years. Increasing educational level means more financial inclusion; therefore a literate population must be created in order to create a meaningful financially included population. Innovation and out-of-the-box thinking are what has made the World what it is today. We can never be complacent with what we have or what we have achieved, the human life is an endeavour for progress and a better life. This should be the case with Financial Inclusion; we cannot become complacent and become victims of our own success. Not only should people have access to basic financial services but should also actively use them. A modern and a globalize economy cannot be successful unless it is inclusive. With enthusiasm and foresight this challenge would be overcome rather simply. We should not lose the enthusiasm with which we started and that mediocrity or partial success cannot considered as same as success.
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6. REFERENCES www.scribd.com/doc/29443419/Research-Paper-on-Financial-Inclusion Financial Inclusion – Issues and Challenges – Article by Dev http://www.bankofmaharashtra.in/Atal-Pension-Yojana.asp http://www.bankofmaharashtra.in/SLBC-Financial-Inclusion.asp http://www.newindianexpress.com/business/ https://en.wikipedia.org/wiki/Pradhan_Mantri_Jan_Dhan_Yojana Poor Financial Inclusion in Rural Areas of Chhattisgarh: Causes and Remedies Ms.Manjeet Kaur Bal, Faculty, TPIPRD, Raipur, Chhattisgarh
