Dr. Pabitra Kumar Jena and Suhasini Gupta
Since independence, Government of India is working towards social, economic and financial inclusion by launching various schemes and programs. Micro Finance and Self-Help Groups have played its own role in ensuring financial inclusion of weaker sections of the society. The Government of India has evolved strategies to ensure financial inclusion of excluded people from formal banking system and the same is figured in Government’s approach to the 12th Five Year Plan. However, in reality, the challenges to ensure inclusion of SCs and STs within the folds of formal banking and financial services have been manifold. Financial Inclusion is the delivery of financial services at affordable costs to sections of disadvantaged and low income segments of society. The main objective of financial inclusion is to promote sustainable development and generating employment in the rural areas for rural population. According to the Planning Commission (2009), Financial Inclusion refers to universal access to a wide range of financial services at a reasonable cost. The meaning of Financial Inclusion is delivery of financial services to the low income groups especially the excluded sections of the population with the provision of equal opportunities. The main target is the access to financial services for better standard of living. It is argued that as 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 public policy. Even after 69 years of independence, most of the Indian population still remain unbanked and many of them do not even have bank accounts. As the majority of the rural population is still not included in the inclusive growth, the concept of financial inclusion becomes a challenge for the Indian economy. This malaise has led generation of financial instability among lower income segments of society who do not have access to financial products and services.
The penetration of financial services in the rural areas of India is still very low. The factors responsible for this condition can be looked at from both supply side and demand side and the major reason for low penetration of financial services is, probably, lack of supply. Access to financial products and services is constrained by several factors which include lack of awareness about the financial products, unaffordable products, high transaction costs and products which are inconvenient, inflexible and not customized. It means there were problems from supply as well as demand side. As a measure towards financial inclusion of the poor in the national mainstream, the Government of India launched the “Pradhan Mantri Jan-Dhan Yojana” (PMJDY) in August 2014.
The reasons for low demand for financial services could be low income level, lack of financial literacy, other bank accounts in the family, etc. On the other hand, the supply side factors include no bank branch in the vicinity, lack of suitable products meeting the needs of the poor people, complex processes and language barriers. Financial Inclusion has become a buzzword now but in India it has recently came into practice. RBI has made a lot of efforts to make commercial banks open their branches in rural areas. Various national level institutions like NABARD, SIDBI etc have been set up by the Government. Moreover, various special banks were set up in rural areas like Rural Cooperative Banks, Regional Rural Banks etc. Several countries across the globe look at financial inclusion as the means of inclusive growth. However, in the recent years the Government and RBI have focused on concept and idea of financial inclusion. With the progress of the Indian economy, especially when the focus is on the achievement of sustainable development, there must be an attempt to include maximum number of participation from all the sections of the society. But the lack of awareness and lack of “financial literacy” among the rural population of the country is hindering the growth of the economy as majority of the population do not have access to formal credit. This is a serious issue for the economic progress of the country. In order to overcome such barriers, the banking sector emerged with some technological innovations such as automated teller machines (ATM), credit and debit cards, internet banking, etc. Though introduction of such banking technologies brought a change in the urban society, a majority of the rural population is still unaware of these changes and is excluded from formal banking.
Financial Inclusion is a relatively new socio-economic concept in India that aims to change this dynamic by providing financial services at affordable costs to the underprivileged, who might not otherwise be aware of or able to afford these services. Global trends have shown that in order to achieve inclusive development and growth, the expansion of financial services to all sections of society is of utmost importance. As a whole, financial inclusion in the rural as well as financially backward pockets of cities is a win-win opportunity for everybody involved – the banks/NBFC’s intermediaries, and the left-out urban population. Financial Inclusion enables improved and better sustainable economic and social development of the country. It helps in the empowerment of the underprivileged, poor and women of the society with the mission of making them self-sufficient and well informed to take better financial decisions. Financial Inclusion takes into account the participation of vulnerable groups such as weaker sections of the society and low income groups, based on the extent of their access to financial services such as savings and payment account, credit insurance, pensions etc. Also the objective of financial inclusion exercise is easy availability of financial services which allows maximum investment in business opportunities, education, save for retirement, insurance against risks, etc. by the rural individuals and firms.
Since 2005, the Reserve Bank of India (RBI) and the Government of India (GOI) have been making efforts to increase financial inclusion. Measures such as SHG-bank linkage program, use of business facilitators and correspondents, easing of Know Your Customer (KYC) norms, electronic benefit transfer, separate plan for urban financial inclusion, use of mobile technology, bank branches and ATMs, opening and encouraging ‘no-frill-accounts’ and emphasis on financial literacy have played a significant role in increasing the use of formal sources for availing loan/ credit. Measures initiated by the government include, opening customer service centers, credit counseling centers, Kisan Credit Card, Mahatma Gandhi National Rural Employment Guarantee Scheme and Aadhar Scheme. These renewed efforts are more focused than the earlier measures which were more general in nature having a much wider scope. Though the measures were initiated earlier, their impact on the rural population needs to be analyzed and reframed in order to understand the present scenario in the rural areas. Only then Financial Inclusion can begin the next revolution of growth and prosperity.
(The authors are Assistant Professor and M. Sc. (Economics) Student, Department of Economics, Shri Mata Vaishno Devi University, Katra, Jammu & Kashmir.)
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