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TRANSCRIPT
Chapter: 4
Financial Inclusion There is intrinsic relationship of financial literacy with inclusion,
hence, understanding is essential. It is an elaborate task. There is this
story, often repeated to describe coordinated co-existence of diverse
perceptions amongst human beings. It is regarding an elephant being
described by five blind man having access to its different body parts e.g.
Trunk, Teeth, Legs, Tail and Torso. They understood the elephant being
what part they held. ‘‘Financial Inclusion”, similarly can be understood
only with reference to sector wise different perceptions in different
countries by different people, yet it has a thread of unity running through
different sets of perceptions, which applies and makes it a dynamic
concept. A concept needs to be defined, for its own development. The
available literature on the subject makes it clear, that no well cut or
universally accepted -definition of ‘Financial Inclusion’ has been found.
One of the reasons inter-alia is difficulties in measurement of real
inclusion, hence it is defined often, in terms of Financial-Exclusion i.e.
exclusion from the financial system. Review of Literature suggest that
the most operational definitions are context-specific, originating from a
specific country, Country –specific problems of Financial Exclusion and
Socio- Economic conditions. Thus, the context-specific dimensions of
financial exclusion assume importance from the public policy
perspective. Further more, the definitions have witnessed a shift in
emphasis from the earlier ones, which defined Financial Inclusion and
Excl usion largely in terms of physical access, to a wider definition
covering access to and use and understanding of products and
services. The operational definition of Financial Inclusion, based on the
access to financial products and services, also underscores the role of
Financial Institutions or service providers , involved in the process”. The
issues of Financial Inclusion /Exclusion ,have been engaging attention
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of Researchers/Academicians/International bodies/ Governments & its
agencies for long time .As mentioned above ,there is no direct definition
of Inclusion ,which has been developed ,due to difficulties of its
measurement, its indirect definitions have been given in terms of
“Exclusion”. Necessarily, it is necessary to understand the word
‘Exclusion’ and in which context its user has been done. Discussions on
financial exclusion were preceded by earlier discussions in which the
focus was on issue of Geographical access to financial services.
According to Leyshon and Thrift, it was realized that geographical
factors alone can not be responsible for Financial Exclusion (within the
ambit of Social Exclusion). According to Ford & Rowbingson and
Kempson and Whyley, the debate has now broadened to include all
types of people who make little or no use of financial services, and the
processes of Financial Exclusion. As the further review of other
literature suggests, depending upon socio-economic and Financial
developments in different countries and Geographies, the definitions of
Financial Inclusion also vary as it depends on nature of Exclusion which
may include structure of stakeholders in the financial sector, social &
economic status and position occupied by those, who get financially
excluded and response of concerned authorities and Governments to
the problem of Exclusion etc.
“Broadly, financial exclusion is construed as the inability to
access necessary financial services in an appropriate form due to
problems associated with access conditions, prices, marketing or self –
exclusion, in response to discouraging experiences or perceptions of
individuals/entities”. Academic work of Leyshon and Thrift, Meadows et.
al, Kempson et. al, Rogaly bring out following catagorisation in
definitions of Financial exclusion, called as Dimensions- and named as
”Breadth “,”focus” and “Degree” of Exclusion.
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All definitions covering widest of area linking financial exclusion to
social exclusion as well as identifying those processes which prevented
“poor” and “disadvantaged” social groups from gaining access to
financial system, fell in the category having ‘Breadth’ as dimension. The
narrowest of all definitions of financial exclusion which described it as
exclusion from “particular sources” of credit and other financial services
including Insurance, Bill-payment services and accessible and
appropriate deposit Accounts, fell in the category having “Degree”
dimension. The “Breadth” & “Degree” dimensions formed two extremes
of the spectrum. There emerged the third dimension in the middle of the
spectrum named as “Focus” dimension. It linked Financial Exclusion to
other dimensions of Exclusion. According to definitions falling within
ambit of “Focus” dimension, Exclusion is the bundle of potential
difficulties, faced by some segments of population, in accessing main
stream financial services like Bank accounts /home Insurance etc. The
different segments identified as subject matter of exclusion are-
Individuals / Households, communities/Businesses; the difficulties
varying according to their own circumstances. Besides above
‘dimensions’ based definitions, there are definitions which vary based
on ‘Concept of Relativity’ i.e financial exclusion defined relative to some
“standard”. Curiously the ‘Inclusion’ (Which itself gets defined in terms
of ‘Exclusion‘), also itself becomes such a ‘standard’. Kempson etc.
point out in the studies done by them that in developed countries the
phenomena observed with reference to their high degree of financial
development is that there is duality of Hyper Inclusion. There are some
having very good access to a range of financial products, while
simultaneously some segment of population lacks even the basic
Banking services.
This line of thought sees financial exclusion being a consequence
of ‘increased Inclusion’ because while inclusion is occurring for some
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segments yet some “individuals” and “households” etc. are left behind in
their regards and get excluded. Often the operational or working
definition of financial exclusion concentrates the attention on “ownership
of”, or “access to”, particular financial product and services provided by
main stream financial service providers. Bridgeman’s work identifies
such product / services as ‘money transmission, home insurance , short
and long term credit and saving. Publication of H.M (i.e. his / her
majesty) Treasury have indicated that many operational definitions get
evolved from the public policy concerns that certain segments e.g. low
income Group are unable to have access to mainstream Financial
products such as Bank Accounts /Low cost loans and their exclusion
imposes real costs on such poor people, which are most vulnerable.
Developments in India:
According to R.B.I., following a multipronged approach, several
policy initiatives have been under taken to promote ‘financial inclusion’
in India from time to time, although the term ‘financial inclusion’ was not
in vogue until 2005. Bringing the larger population within the structured
and organised financial system has explicitly been on the agenda of the
Reserve Bank since 2005, unlike many central banks in developed
economies (who focus on Inflation), India’s central bank viz Reserve
Bank focuses on growth also. India is an emerging economy –emerging
from poverty. It is an obvious fact that there are large sections of
population which include marginal farmers, landless labourer, oral
lessees, self-employed, unorganised sector enterprises, migrant
workers, slum dwellers ethnic minorities Tribal Area population, Areas
affected by insurgency & Terrorism, socially excluded groups, senior
citizens and woman individually as well as entrepreneur etc. These are
all either financially excluded or may not have adequate access to
financial services. In a fast growing economy, like India, where need for
growth is almost essential one, due to its unchecked population growth,
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it is all the more necessary that not only the growth should be
adequately sustained, but even dangers to growth processes i.e. “Risk”
should be diversified, otherwise plunging back into situation of poverty
(as existing in latter part of 20th century), may become a probability,
once again. United Nations set 2015 as the year by which poverty
removal all over the Globe was fixed as one of the Goals of M.D.G
(Millennium Development Goals) set at the turn of this century (21st).
The concept of Financial Inclusion and its need for poverty alleviation
got recognition in these goals.
Reserve Bank took note of this and for the first time this term
featured in 2005 in its Annual policy statement 2005-2006, in which the
concern about such banking practices that tend to exclude rather than
attract vast sections of the population (as afore said) was openly
brought out and the monetary policy exhorted banks to review their
existing practices to align them with the objective of financial inclusion.
One may inhale and exhale without knowing or calling it the process of
“Breathing”.Like that only, India had been in the process of increasing
“Financial Inclusion” in the country since its Independence or even
earlier. However, It is after 2005-2006, that academic discussions in this
regard erupted in India too, which were smouldering till then silently in
different academic forums; and Government too took notice of its
need . Many important economists and top R.B.I officials tried their
hand on defining / describing the term ‘Financial Inclusion’, before a
formal committee was set up viz. The Committee on financial inclusion
under chairmanship of Dr. C. Rangrajan, Former Governor of RBI has
been setup to tackle the issues. However, a bird’s eye view of history of
banking in India brings up following scenario , in the perspective of
which efforts at Financial Inclusion are clearly visible from the efforts of
Government and R.B.I., although the term ‘Financial Inclusion’ may not
have been in vogue in India, till 2005.
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As already mentioned in ch. 1 of this thesis, the western pattern
of banking came with advent of entrenchment of East India company in
India in last quarter in 18th century and since then the history of banking
takes root in India. Banks did serve only private interest initially but with
its development and the public service it performed what and how of
Banking environment becomes a concern of any Government. Even
without formalisation or visibility of any definition the essential elements
of Financial Inclusion were being placed in the Indian scenario too.
Right from the Independence of India in 1947, the effort at Institution(s)
building and changing motivation of banks, of giving help to the vested
interest only, had been started. R.B.I., which started in 1935 as a
shareholders’ bank, though incorporated under R.B.I. Act,1934, is a
prime instrument of achieving Economic and banking development
besides being a central bank. It was nationalized in 1948. Then came
nationalization of Imperial Bank in 1955 to form it into S.B.I. followed by
take over of state banks of 8 princely states in 1959, by renaming them
as Associate Banks of S.B.I. It had given the Government and state, a
public sector arm of Banking through which the Government & R.B.I.
could increase the reach of Bank finance into rural areas to alleviate the
poverty in India and by 1960, thus, the Indian Banking system had
become an important tool for economic development (and by corollary
agency for propagating financial inclusion) as part of the public sector
under central Government. In 1966 co. op. banks were put under R.B.I.
to have uniformity of application of banking policies in the country. In
1967 the commercial banks were brought under social control
measures taken by Government of India. In 1969, 14 commercial banks
were nationalized to meet the credit needs of rural & urban poor. In
1971, lead banks scheme was started. In 1976 a new institution – a
hybrid of commercial bank’s structure and co. op. banks philosophy was
created called Regional Rural Banks (RRB(s)). This was done to
increase access to banking in for flung and interior rural areas. In 1980
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again 6 more commercial banks were nationalized to increase the reach
of banking. There after it has been reform process which was set in
1984 onwards under the thinking and philosophy of socialist mind set.
But 1991 saw banking and payment crises which led to massive reform
process under recommendation of Narsimham committee and the
nineties saw emergence of Private sector banks as well as emergence
of market economy and it was said that period was of liberalization,
privatization and Globalization (L.P.G.), of banks. A new experiment,
creating a new set of banks called local area banks, was also done but
it did not gain popularity enough.
On the co-operative side there was emergence of urban co-op
banks. In non-Banking financial sector , consolidation process took
place and Micro finance companies started becoming visible to finance
the below poverty level population. At the turn of century, United
Nations came up with millennium development goals and one of that
was removal of poverty by the year 2015 and for that Financial Inclusion
was identified as an important Goal in which micro finance was
considered important for the purpose and experiments with Self Help
Groups (S.H.G.) came to light; specially the success of Gramin Bank of
Bangladesh was a news for everybody, when world over this topic was
flagged. Western economies were aware about problems of exclusion
and developed quite effective conceptual network of ideas & Research.
While in India efforts were on without any ‘conceptual’ ideology behind
it post Independence, but its need was felt and the word Financial
Inclusion / Exclusion were borrowed from Global thought process . The
concept and Definitions etc. in India cannot be said to be emanating
from any original research but have been adopted from west &
remodelled to Indian conditions. Thus, we were late in starting the
discussion on the topic of Financial Inclusion/ Exclusion which was
under discussion world over actively since beginning of 1990(s), but
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surely India was also on track under stewardship of its central bank i.e.
R.B.I. Hence, there is nothing very new in development of the concept
of financial Inclusion here, yet it is a matter of picking up one or more of
the definitions with respect to removal of particular kind of mischief of
non availability of financial service to a particular type of segment.
Having discussed International and Indian scenario regarding
concept of Financial Inclusion we can now have an overview of some
important but select definitions of Financial Inclusion/ Exclusion as
accepted in Global as well as Indian context….
United Nations- Inclusive financial sector is “A Financial sector
that provides ‘access’ to credit for all ‘Bankable’ people and firms, to
Insurance for all Insurable people and firms, and to savings and
payments services for ‘everyone’. Inclusive finance does not require
that everyone, who is eligible use each of the services, but they should
be able to choose to use them, it desired”. It is observed on close
scrutiny that the above definition is regarding Inclusion, specifying that
bankable persons / entities should not be excluded from credit , and
Insurable persons/ entities should not be excluded from Insurance.
Each and everyone, must have access to savings and payment
services . Actual user of each and every financial service available is
not essential by each person/entity, who is eligible to use such services,
but they must have option to choose, whenever they wish to do so. It
means that those who voluntarily exclude them selves, by not using
financial services available and their abilities have not been put under
any restraint in this regard , they need not be counted in ‘excluded’
category measurement of “Exclusion/Inclusion” remains a problem and
here U.N gives a norm for measurement also, in this definition.
Thus following ingredients are clearly visible-
Financial service providers for purposes of Financial Inclusion are
“Banks” predominantly who should give access to credit (subject to
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bank ability) , savings and payments services (to everyone) while
Insurance sector should provide Insurance services (subject to
Insurability).
Measurement of Inclusion / Exclusion is an issue. It is often seen
that apparently there are no barriers for access to people, but they do
not wish to use the financial services available. These are called
voluntarily excluded persons. These can be called as “included” for the
purpose of “access” of course, this argument has peripheral
weaknesses e.g. if someone can use but does not use the service
because he is lazy or egoist or simply abhorrent to it or for any other
reason with absence of any slur on the service provider , then of course
it is really voluntary exclusion by self and can be added/ substracted to/
from Inclusion /Exclusion measure; but if there is probability of
existence of certain circumstance emanating from service provider or
due to any law/rules /Regulation/ public policy statement that becomes
a reason (explicit/Implicit) for someone to avoid using the financial
service then it cannot be called ‘voluntary’ exclusion (It has to be treated
as “ exclusion” only in the opinion of author of this thesis and victims of
subtle malpractices /misbehavior in the bank often suffer from this
syndrome).
(i) Such reasons can be pricing /fees/charges for a financial
service which makes it unaffordable for a person who otherwise has
“access” to that financial service;
(ii) Cost of using such service being excessive e.g. keeping
minimum balance requirement on very high side , will dissuade
someone from keeping a savings a/c.,
(iii) The service made available is “unsuited” for the user e.g. a
debit card issued to someone who does not understand how to use an
A.T.M .or is mortally afraid of technology or when there are no points of
sale (P.O.S) in the vicinity where the card holder resides.
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A predominant reason for such apparent “voluntary” (but actually
forced) is also definite perception of the potential user that they are not
welcome in the branch of a bank e.g. a poorly clad low income group
person .or the potential user’s fear that his/her request is likely to be
declined in any case; or problems of personal conflict with employees of
service provider; or problems of security- personal/ money related, in
the venue where service is to be utilized; or general law & order
situation inside/outside venue of financial service provider and /or
adverse reputations of service provider. Due to malpractices indulged
by the service provider, REASONS for voluntary exclusion,( which really
make it ‘involuntary’) can be multiplied and if they are there then surely,
such people cannot be called as ‘financially included. On the other hand
, there have to be ‘involuntary’ exclusions (in spite of the concerned
person having access to the financial services like “CREDIT” And
“INSURANCE”), because, these services, according to definition can be
only for bankable and insurable persons / entities, which such excluded
persons are not; due to credit risk being associated with them or
concerns being there with regard to their good faith (which is absolute
necessity for insurability).
World Bank-“Broad access to financial services implies an
absence of price and non-price barriers in the use of financial services.
It is difficult to define and measure because access has many
dimensions”. Apparently, above definition is an apology for a definition.
It does not give any standard to apply to the set of events and
situations, to come to some conclusion regarding inclusion / exclusion.
It reflects only recognition of the fact that defining & measuring financial
inclusion and exclusion, both is difficult. One more aspect appears to be
apparent that in the eyes of world bank, there should be absence of
price and non price barriers. Absence word is an indicator of strong
apathy to said barriers. It is well known fact that these international
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institutions and entities, belonging to the western world, do not
encourage free services. If so, how come World Bank is advocating
‘absence’ of pricing of financial services? Apparently the explanation is
that world bank is saying that price “as a barrier” should not be there i.e.
the services can be priced up to the extent and manner, that these do
not become barrier in broad access to the financial services. Non price
barrier are similar in nature and discussed above. It is not really
possible to have zero presence of these factor but these should not
become barriers even if present. In other words price / non price
situation which cause problems, can be minimal in quantity and should
not be allowed to become a barrier through which one cannot really
pass through.
In this regard it may be worthwhile to reproduce contents of R.B.I.
report relevant to this definition. “Access covers a range of institutions
from more formal to less formal. At one end of the spectrum are banks
or near banks which are often defined as formal financial institutions,
which can provide multiple financial services to their clients, including
deposits, payments and credit services. The attribute of banks and near
banks are broadly comparable across countries. Other formal financial
service providers are all other legal entities licensed to provide financial
services. They are registered and subject to some reporting
requirement. Thus in the case of credit, this may include consumer
finance companies, credit card companies or credit union. Informal
providers of financial services are other organised provider of financial
services that are not registered as financial intermediaries and not
subject to any oversight. Moneylenders and cheque cashing outlets,
which are not regulated financial institutions, belong to their category.
Core and headline indicators place a given population along a
continuum of access depending on its usage of formal, semiformal and
informal financial services and those excluded from the use of financial
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services. The access to finance could be divided into four segments (i)
the proportion of population that uses a bank or bank like institution; (ii)
the population which uses services from non-bank other formal financial
institutions, but does not use bank servisces. (iii) The population which
uses services from informal service providers only. (iv) percentage of
population transacting regularly through formal financial services. (v)
The population which use no financial services.
The second group of core indicators looks in greater details at the
kinds of the financial services offered. This functional perspective
enables a focus on specific service needs and their gradation in order of
priority, from less to more developed financial environment. These
additional core indicators provide augmented understanding of nature
and depth of financial services. The financial service functions identified
to be used as basic for indicators are-(1) transaction or payment
services. (2) saving (Deposit) and investment; and (3)loan or credit
services. Risk transformation services such as insurance could arguably
be added. However it is conceptually similar to a sophisticated saving
and credit investment”. It may be seen that above line and thought
process reported by R.B.I. in its report, is in context of definition given
by world bank. Nothing in these lines indicate that world bank even
remotely indicates towards giving free of cost service; hence the words
in the definition i.e. absence of price and non price barriers appear to
mean (as indicated by the author of the thesis above) that price / non
price situation (while may not be free of cost), indicates that cost should
not be such as to act as barrier. Asean Development Bank (A.D.B.) -
“Provision of a broad range of financial services such as deposits, loan,
payment service money transfer and insurance to poor and low income
household and their micro-enterprises”.
The definition reflects Asian economic condition and brings out
the necessary ingredients of financial inclusion i.e. deposit, credit,
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Payment services, Money transfer, and insurance to poor / low income
groups and small enterprises other definitions discussed above have
also zeroed to similar ingredients. ‘Ability’and ‘appropriate’ both
indicate towards adequate financial literacy, The definition is very short,
with individuals in focus. Enterprises appear to have been over looked
in this Definition. However, One more thing is noticeable when one
looks at the title of this particular report of the relevant session. It
mentions about 3 broad financial products (Credit, Savings, Insurance)
and fourth is “Advice” which is nothing more or less than initiative of
financial literacy and education, which has been made as an essential
element of financial inclusion, Which is distinct departure from other
definitions. In this regards it may not be out of place to mention the
definition adopted by Scotish govt. in 2005 as well as views of Bank
Scotland, in 2007. It states “Access for individuals to appropriate
financial product and services. This includes having Capacity, Skills,
Knowledge, and Understanding to make the best use of product and
services. Financial Exclusion by contrast is the converse of it. The
definition clearly bring out importance and inalienable place of financial
literacy and education, in the concept of financial Inclusion- when it
states, highlighting the entire gamut of financial literacy by use of word
‘capacity, skills, knowledge and understanding. Typically the definitions
of financial inclusion/ exclusion coming out from British soil, make
financial literacy an important ingradient and essential element of
movement of financial inclusion- very overtly; while in other Definitions,
it is implicit.
Chant Link And Associate (Australia) - Their definition is “financial
inclusion is lack of access by certain consumers to appropriate low cost,
fair and safe financial products and services from main stream
providers. Financial exclusion becomes a concern in the community
when it applies to lower income consumers and / or those in financial
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hardship.” Analysing the above Definition it can be seen that it is a
definition of exclusion and converse of it will be indicative definition of
financial inclusion. The functional services which will make elements of
such definition are not enumerated within the definition but the contents
of reports broadly indicate similar products as every body else with few
addition / deletion in the spectrum; the service provider being mentioned
as ‘main stream’ it is indicative of formal financial system having banks /
insurance and investment institutions. Thus the list of services include –
deposite account, loans-Home and personal, credit cards, insurance-
Home and building and direct investments. It does not emphatically
bring out payments machenism and personal insurance and does not
show concerns for small business and enterprise, which other
definitions have been emphatic in pointing out. However, the
exclusion / inclusion is conceptualized in terms of ‘access’ like everyone
else. Also the words ‘appropriate’ ‘low cost’ , ‘fair’ and ‘safe’, used as
adjectives of financial products and services, indicate towards some
level of knowledge and awareness on part of all stake holder in the
event of financial inclusion / exclusion-which is indicative towards
financial literacy and education. Obiously, no one can assess the
appropriateness or safety element until and unless one is aware about
environment surrounding within and without the main stream financial
institutions as well as once own need. Besides ‘cost’ and “fairness” of
any product can be ascertained only when certain level of comparative
information is used. Thus awareness is must.
Stephen P. Sinclair-The academician’s definition is “financial
exclusion the inability to access necessary financial services in an
appropriate form. Exclusion can come about as a result of problem with
access, condition, prices, marketing or self-exclusion in response to
experience or perception. The definition is reflective of work of an
academician focusing on exclusion per se and financial exclusion as a
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consequence. Exclusion per se has been seen as a response to
negative experience or perception; reasons for which are enumerated
as access, conditions under which an event takes place, price and cost
of any transaction i.e. affordability and marketing of a product / services.
Self exclusion is also mentioned (Discussion on which is already
done in previous paragraph). Important thing is that any of the reasons
mentioned, is a form of response to negative experience / or a negative
perception. Apparently this exclusion per se can have relevance for Any
field of activity relevant in society and not only field of “finance”. It can
be education, Entertainment, any other economic activity like Industry /
business etc. Of course “finance” is one of those. The financial
exclusion has been identified with inability to access all necessary
financial services in an appropriate form. This word ‘Appropriate’ as
Discussed earlier require determination about acceptable Ingredients /
product / services And implies certain level of knowledge and
awareness i.e. financial literacy and Education.
Thus, important Ingredients / indicator of financial inclusion which
come out of this definition, based on converse interpretation (because
definition is focused on elements of exclusion) are basic banking
services i.e. Saving, Credit, Money transmission, Debt and Debt
assistance, Insurance & financial literacy .This definition does not talk
about investment Function as a necessary financial services as
essential element of Financial Inclusion.
Definition of Financial Inclusion In Indian Context:
According to R.B.I. “financial Inclusion in Indian context implies
the provision of affordable financial services viz, access to payment and
remittance facilities, saving, Loan, and insurance services by the formal
financial system, to those who tend to be excluded. Besides access,
emphasis is also placed on affordability (low cost) financial services
such as saving / loan and remittance to underprivileged segment of
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population”. The annual policy Statement for the year 2005-2006 of
R.B.I. for the first time used the term financial inclusion and it was
stated that “Although there had been expansion, greater competition
and diversification of ownership of banks leading to both enhanced
efficiency and systematic resilience, there were legitimate concerns
with regard to the banking practices that tended to exclude vast
sections of population, in particular pensioners, self-employed persons
and those employed in un-organised sectors. The statement further
observed that while commercial considerations were important, the
banks had been bestowed with several privileges, especially of seeking
public deposits on a highly leveraged basis and therefore (Banks)
should be obliged to provide banking services to all segments of the
population on the equitable basis”.
Leela Dhar, Dy Governor of R.B.I is of the view that “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 nine qua non of an open and
efficient society. As bank 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 object of public policy”.
The definition purports to define financial Inclusion (As against converse
of exclusion); And this tend to equate “Banking services with financial
services” normal trend of other definitions is to talk about financial
services but elements of such services included almost all important
banking services like saving/ lending / remittance. Stating financial
inclusion in terms of banking services alone, excludes Insurance; which
is normally included in all other definitions, mostly. The definition and its
application may lack force because the reason stated by Leeladhar in
term of access to public goods as sine-qua-non of an open and efficient
society raises debatable issue like, whether banking service provided by
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private bankers / foreign bankers is also in the nature of public goods. If
this concept is forced then whether ours is an open and efficient society
& how much, so as to make it ‘sine qua non.’The definition has been
criticized as being applicable only to public sector banks & not other
banks including co. op. banks. Hence at best it is only a very restrictive
definition.
Thorat, Dy. Governor R.B.I maintained that “Financial Inclusion
means the provision of affordable financial services viz. access to
payment and remittance facilities ,savings ,loans and insurance
services by the formal financial system to those who tend to be
excluded.” This definition is also of “Inclusion” directly and here word
‘Financial services’ has been used and elements have been brought out
clearly . Which are most of basic banking services, but insurance is also
included here as part of financial services.
Mohan the Economist Dy. Governor of R.B.I. is of the view that
“Financial Exclusion signifies lack of access by certain segments of the
society to appropriate low cost , fair and safe financial product and
services from main stream providers. Financial exclusion is thus a key
policy concern because the option for operating a household budget, or
a micro / small enterprises, without main stream financial services can
often be expensive. This process becomes self re-enforcing and can
often be an important factor in” social exclusion, especially for
community with limited access to financial product, particularly in rural
areas”. This definition of financial inclusion is in term of exclusion,
specially because, it is modelled on same line as the definition given by
chant link And Associate in 2004, in Australia. With few modifications
and changes in peripheral words to suit Indian conditions, it conveys the
same meaning. However in this definition also, The retention of word
‘Appropriate’’ and “fair”, indicate needs towards financial literacy &
education, which other Indian definitions appear to ignore, while
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insurance appears to be included. It can be observed, very peculiarly
that almost all definition being quoted, are from Deputy. Governors of
R.B.I., in the same year i.e. 2006, after monetary policy statement in
2005-2006 and yet do not bear stamp of uniformity or R.B.I.’s set
approach towards the financial inclusion and financial literacy etc.
Dr. Y. V. Reddy, Economist and Former Governor of R.B.I. is of
the view that “the process of financial inclusion consists of seeking each
household and offering their inclusion in the banking system.” Here
Reddy does not mention ‘financial system”, but says banking system
very clearly, besides leaving the onus of achieving financial inclusion on
the banking system, by identifying households and including them into
system. Notably efforts as achieving financial inclusion as spear
headed by R.B.I. , bore the stamp of definition given by Reddy, which
came in end of 2007.
The Committee on Financial Inclusion- Chairman Dr. C. Rang
Rajan, Former Economist and Governor of R.B.I., Deputy Chairman
Planning Commission of India and Chief Economic Adviser to Prime
Minister has defined financial inclusion is the process of ensuring
access to financial services and timely and adequate credit where
needed by vulnerable groups such as weaker section and low income
groups, at an affordable cost”. This definition too, like Reddy’s talks of
Financial service in term of it being a process. While Reddy said about
seeking the household and including these in banking system, The
definition given by committee brought in following elements as
essential Ingredient of the said process – Ensuring access to financial
services (not only in banking and thus keeping door open to other
financial sectors, Process of giving credit (Directon to banks) which has
to be (1) Timely (2) Adequate (3) At affordable cost, if needed by
vulnerable groups (e.g. weaker section / lower income group). Some
further explanations are needed in a pointed manner.
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Banking is part of “financial system”, which also include insurance
and investment i.e. raising capital and all incidental sectors & markets
etc. including hybrid financial services which come about as
combination of these 3 primary sectors e.g. mutual funds, units,
Pension, Investment related services. Banking is also a business,
where banking services do not come for free. Certain costs are involved
in providing these services on one hand and the provider do have a
profit motive. That is commercial banking. When there are certain
members of a group and run the business of banking on co-operative
principles- it is co-op banking; but this too is for earning income and
profit. The peculiar aspect associated with this business is, that since
banks provide finance for running other commercial / Industrial /
Business ventures etc., growing business of banks means growth of
economy around the bank and increasing prosperity of its clients. Thus
a good running bank creates a win-win situation for itself and its clients
too. Prima facie Increasing the number of clients for the bank is, thus,
the “Inclusion” of people in banking activity / system.
It can be said that banking being part of the over all financial
system, when one gets into or gets included in that group of people who
commonly get banking services, one get financially included as per
extant concept of Financial Inclusion (F.I.) in India.Simple Insurance
products are already part of it. But Investment/ capital market and
related sectors are not presently essential to F.I.in India( which will be
the next level of F.I.here. Internationally, as evidenced from mission of
Financial education/ Literacy being carried on by O.E.C.D., Financial
Sectors Other Than Banking, are also part of F.I.,now. i.e.” the next
level is already in progress). All the definitions selected above for
discussion appear to be using ‘banking services’ and ‘financial
services’, interchangeably .However it may be pertinent to note and
distinguish once more, at this juncture that Banking Services (B.S.) are
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included in Financial Services (F.S.). F.S. is a wider concept and
include services related to 2 other sector i.e. insurance and capital
related investment, as well as incidental sector e.g. mutual funds /
venture funds / pension funds etc.
But banking remains Basic financial service, where cash and
money covert in other financial product / services and process of
intermediation take place as well as final benefits of other 2 sectors and
many more such sectors be it insurance / Investment / value of capital &
stock market / M.F. / Pension etc. i.e. hard cash and money, once again
get distinguished, stored and utilized through banks only. Hence
“Banking Services” become basic services which are must, to be linked
with any sector of finance / economy. That is why basically all
definitions talk about banking services. Reserve banks report on
currency and finance identifies following Institutions and financial
products and services, which are subject matter of financial inclusion.
Institutions are (1) Commercial / co. op. banks / credit union (2)
postal deptt. (3) micro finance institution and N.G.O. (4) Insurance
company. Their product of services are :Saving A/C, loan / credit
account, payment and remittance services, Postal saving A/C, Postal
remittance, small value loan, credit (Given by M.F./N.G.O.),Insurance
product by insurance company(Through banks); and ‘Financial Advise’
is also mentioned as product. In view of this, it can be conclusively said
that whenever in any definition Banking Services is mentioned, or
Financial Services is mentioned, for the purpose of determining
Financial Inclusion, the set of services mentioned by R.B.I. are definitely
included. In addition certain definitions as discussed aforesaid and
Internationally recognised, have mentioned investment and debt & debt
assistance services as well as “Financial literacy” also as essential to
F.I.. Those definition which define financial inclusion in terms of
‘Exclusion’ basically focus on “Lack of access” to above Financial
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Services/Banking Services. ‘Access’ can have many dimensions, which
must be understood. One may not have ‘’access’’ to banking or other
formal financial Institutions as identified above, because these may not
exist in adequate numbers and at appropriate places.
If these Institutions exist, then, one may not have access to its
product and services for the enumerated reasons elsewhere earlier,
including voluntary or involuntary self- exclusion.. Also, the question as
to who has access and who has not, also becomes important. All the
existing customers of the bank have already the access. There may be
other potential customers, who may be ‘able & informed’, or ‘able &
ignorant’, about banking facilities or its usefulness. If such potential
customers are not yet included, it is a business loss for banks/F.I.s and
the Institutions have to put their Marketing wing on alert to generate this
new business. Such exclusion of such persons, is not the real concern
of entire movement for the “Financial Inclusion” in India (or any other
similarly placed emerging nation), in the present phase. Notably, certain
definitions and almost majority of definitions stated above, talk about
disadvantaged sectors (poor / low income groups / weaker
sections).Only when these sectors get excluded from gaining access, it
becomes concern for the Government, and public policies have to be
devised to see that such a situation is avoided or ameliorated. Reason
is obviously linked to cost and consequences, which results, when one
is financially excluded. Actually, Researches have already established
that “finance” as a resource, aids economic growth and development.
Banks are not only provider of banking services but also agent of
growth as well as creator of secondary money in the system. Access to
credit and other financial services for the poor and vulnerable groups,
disadvantaged areas and lagging economic sectors/ enterprises -
specially small and marginal ones, has been recognized broadly
helping in accelerating the growth in economy as well as source of
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reduction of poverty. Such access if available, to well-functioning
financial system, it creates equal opportunities, integration of socially
excluded persons (due to financial exclusion), with economy, thus
enabling them to contribute in development process, besides enabling
them to meet the challenge of economic shocks, which is becoming a
recurrent affair during last 50 years.
In this regard it may not be out of place to mention about United
Nation’s efforts at removing poverty. There is the broad International
consensus that access to finance is a crucial poverty alleviation tool. In
this regard for achieving United Nations Millennium Development Goals
(MDG), there was held a world summit in 2005 and critical importance
of Micro-finance was highlighted (which is one of ways, interalia for
accessing finance). This was endorsed by the summit for monetary
consensus of the International conference on Financing for
development “The final declaration of the monetary consensus put lot of
emphasis on strengthening domestic financial sectors to include
underserved segments such as rural areas and women. It is also a fact
that in the year 2006, according to estimate of U.N., over 2 Billion
people did not have access to financial services. Even in developed
countries approx. 20% population did not have access, while in L.D.C s
(Low Developing Countries) it may be around 90%. Even in India more
than 50% households do not have “access “for various reasons. The
consequences of “Lack of Access” with reference to credit from formal
sources are that the poor individuals and small and micro enterprises
usually have to rely on their personal savings or internal resources to
invest in Housing, health and education as well as entrepreneurial
activities, if they wish to use the available growth opportunities .The
‘exclusion’ has cost in terms of loss of opportunities to grow. At macro-
level the national economy suffers because a vast segment of
population, which may be financially excluded, cannot grow to their
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combined potential. Other consequences may relate to cost and
scarcity issues related to cash management (as banks’ A/cs. are not
available), lack of smooth payment mechanism, low level of living
standard and if sources of informal credit viz. money lenders etc. are
used, the cost goes up multi- fold and not only financial disaster await
the poor man but even social disaster does not remain for away for
such excluded persons. Even banks lose their business opportunity,
while government may lose because of cost of welfare measures and
due to corruption in society which goes up. The poor man having no
access to banking not only falters on planning of his finances, but also
loses opportunity to save, even if he had some extra cash which could
be of help to growing banking and Economy , when aggregated for
large number of people so “excluded” for known and unknown reason.
The studies of World Bank, Asian Development bank and ‘kempson et
all’ pinpoint the following factors which affect access to Financial
Services in various and different countries (including India ). All may not
be applicable in all countries uniformly but one or the other will apply to
any country.
Gender Issues: women quite often are not allowed access to
financial services-specially credit, if they do not hold title to assets like
land or property or where they need guarantee from ‘males’ to borrow. It
applies in India too.
Age Factor: Financial service providers, often target middle
aged economically active population often ignoring development of
products for older and younger population. In India people above 60-65
years called senior citizens are deliberately kept away from credit
products as well as Insurance products appropriate for them including
health insurance, though they may have adequate sources of funds to
repay the loans etc. For a poor man & old man – it is often no.
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Legal Identity: Woman, ethnic minorities, economic/ political
refugees / migrant workers and similarly disadvantaged groups of
people including unregistered enterprises and unlicensed business,
tend to get excluded due to absence of legally acceptable identity cards/
birth certificates / certificates of incorporation for commencement of
business / written record etc.
Limited Literacy / No Literacy- absence of financial literacy i.e.
basic mathematics, business finance skill, and lack of understanding the
financial system, is cause of exclusion / lack of demand for financial
services.
Place of Living – physical distance from the service provider
venue, density of population, Rural & remote area, mobility of
population (affecting a fixed address), law & order, and Insurgency at
particular location etc. affect the process of accessing the financial
services.
Psychology and Cultural Barriers – Segment of population
having perception of hostile approach of bankers towards themselves
as well as cultural & religious barriers to banking in some countries are
major cause of self- exclusion.
Social security payments- If such payments are linked to
banking system, banking exclusion or financial exclusion is less.
Converse is equally true.
Bank charges- For a low Income group person-bank charges for
services provided are material factor to get included or remain
excluded.
Terms and conditions- When banking products have terms and
conditions e.g. minimum balance in A/C, frequency or operation, etc.,
dissuade people from going to bank.
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Level of income- Low income itself is barrier to the inclusion.
poorer the person harder to get included. Type of occupation:-Banks’
lack of knowledge about certain professions /enterprise /occupation
develops a tendency amongst banks to reject the loan applications from
related clients.
Attractiveness of product- If not advertised properly or not
marketed properly then also people specially the poor, tend not to
choose such product and if that is the only reason for approaching a
bank then it makes him/ her turn away from banks. As per survey and
study done (by author of the thesis), following factors also act as barrier
to Inclusion:
Bribery
Corruption (In branch)
Misconduct by employees of bank
Mall practices in the bank
Law and order situation
Bad reputation of bank.
Another set of factor which came out in the said study are from
bankers’ point of view:
Risk perception with regard to rural people.
Cost of credit assessment and management.
Lack of staff.
Lack of basic infrastructure.
Vast geographical distances.
Above factors inhibit bankers from actively involving in financial
inclusion drive. For a poor man, how the access problem presents
itself, has been described by (A.D.B.- 2007) as follows:
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Amongst the low income households and their micro and small
enterprises, majority have no access to finance, while a small minority
may have access to it. Those who have such access, their large
proportion is underserved while very small proportion may have full
access.
From amongst the underserved proportion—
Significant numbers depend upon services of unsustainable
Institutions, by paying high transaction cost.
Many have access to deposit related services of state owned
financial Institutions and co – operatives, where withdrawing
funds is not easy besides transaction cost being high.
A significant proportion has access only to credit from micro credit
institutions, where quality of credit is poor.
Proportion with access to banking services is very limited, but
here also client transactions carry high cost and time taken for
processing is long. Here also, the minimum loan requirement is
high and banks are geared to serve high income groups (rather
than low income groups).
Access to Insurance services is extremely limited, and that too
with high product incompatibility and low transparency.
To summaries the concept of financial inclusion as it emerges in
our country, it is ensuring provision of affordable financial services
which means (i) Access to payments & remittance facilities and financial
advice (ii) savings (iii) Loans and (iv) Insurance services; and in general
the Banking system and public policy as operated by the Government of
the day , should ensure that there is least ‘Financial Exclusion ‘ i.e. lack
of access to a range of financial services (as afore said). Such
Exclusion can be due to (1) Geographical and locational reasons (ii)
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Depth of Banking institutions and its branches (iii)The cost of banking
services available to the community in the form of ‘charge’ and ‘pricing’
of various services (iv) Exclusion from marketing efforts done by
Financial Institutions and Self – Exclusion . This broad effort at avoiding
Financial Exclusion has to be spearheaded by Government /Public
Authority /Banks generally and specially for the vulnerable /weaker
sections of the society (Including woman & aged and very young
population) , and in general for the low income group persons and micro
& small enterprises .(of course ,banks and other Financial Institutions,
must in their own interest & for better business must not leave
economically /financially better of population and business entities,
which may be financially excluded at any point of time. Those, who
have to spearhead this movement must remember that it is not for some
charity that, this is being done, to help the poor. There are
consequences if financial exclusion is not avoided and inclusion is not
promoted. Consequences of financial exclusion can be summarised as
below –
Increased travel requirement for any one not heaving access to
banking as one himself/herself has to become agent of payment
mechanism as well as remittance of funds etc.
Higher security related issues involved in cash movement,
leading to high incidence of crime.
General decline in investment opportunity for such excluded
persons. On an aggregated basis the economy of nation suffers.
For such person credit from moneylender and other informal
sources comes at high cost monetarily and when repayment
issues crop up there are social adversities caused by money
lenders for such people, making them poorer.
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Potential enterprises do not happen and hence technically
unemployment rises.
Children of poor, are poor too, and hence financial exclusion is
cause of child poverty.(As well as for child marriages, as found
out in survey )
The welfare and social payments/ benefits system operated by
government becomes costly with actual delivery problems. The
social consequences are that bribery and corruption in the
system increases, besides certain category of white colour
crimes.
Financial exclusion also causes social exclusion due to social
status being downgraded.
Financially excluded people are often fodder of
extremists/terrorists and insurgents.
Such persons are more prone to addiction of alcohol/drugs and
aides like illness – as per survey.
As against above the benefits of financial inclusion are-
Increasing propensity to save has been observed once one is
acquainted with bank and banking facilities. Specially, when a
person maintains an account in a bank.
Demand for loan products for consumption, livelihood and
housing, increases provided these are seen as affordable.
Remittance facilities by various modes, increase economic
vibrancy in the system.
Purchases and payment being done by using credit/debit cards,
online etc. helps in growth of economy.
Payment of social security benefits given by Government/others,
reducing possibilities of corruption.
135
Identifications and removal of forged currency from circulation
with the help of banks.
Increase in financial literacy and education.
Also the persons responsible for spread of financial inclusion
should keep in mind that “credit” is an important thing and In terms of
report of Dr. Rangrajan committee “credit” to vulnerable sections of
society once identified as needed, should be made available timely and
at affordable cost, besides being adequate, and as a ’package’ it is an
essential element in financial inclusion.
Linkage with Financial Literacy:
This topic has been dealt with in detail in previous chapter. At this
point suffice to say that financial literacy and education have been
identified as an essential element of Financial Inclusion and many
definitions discussed above clearly bring out this fact. The words like
“financial advice” skill “knowledge” “adequate” “appropriate”
“understanding” etc., cannot be operationalised without adequate
financial literacy and education and hence it is an essential element of
Financial Inclusion, as has been emphasised more than once in
aforesaid discussion. Rather, present thinking, after OECD workshops,
in the mind of RBI is that Financial Literacy/Education must operate side
by side , on its own legs, along with Financial Inclusion.
Status of Financial Inclusion:
The large section of population below the expenditure curve also
points to a worrying inequity in incomes, something that should concern
planners as the government looks to target benefits for those who need
them through initiatives like food security and employment guarantees
(Sunday Times, 2012). India’s schemes might be off target, or suffering
from poor reach while benefits of economic growth are not meeting the
government’s objectives of “inclusive growth” as it is evident from the
136
data (Table 4.1) that there is a concentration of buying power in the top
30 per cent-35 per cent of the population. The 60-plus per cent of
population below the average monthly spending is clearly not
progressing as fast as the segment whose income and expenditure is
disproportionately influencing the statistical mean (Sunday Times,
2012).
Table: 4.1
Position of Households Availing Banking ServicesAs per Census 2001 As per Census 2011
Households Total number of
households
Number of households
availing banking services
Percent Number of households
availing banking services
Number Percent
Rural 138,271,559 41,639,949 30.1 167,826,730 91,369,805 54.4
Urban 53,692,376 26,590,693 49.5 78,865,937 53,444,983 67.8
Total 191,963,935 68,230,642 35.5 246,692,667 144,814,788 58.7
Source: Census of India 2011,
Among the states, there is not much to choose between those
often stigmatized as “backward” like UP and Bihar, Gujarat and
Maharashtra. Even in the better off states, the per centage of rural
populations below the average monthly expenditure line is above 60 per
cent. In urban areas, it is a shade under 60 per cent for Gujarat, but
almost 70 per cent for Maharashtra (Sunday Times, The extent of
financial exclusion in India is (Khan, 2012) found to be higher as
compared with many developed and some of the major emerging
economies. The wide extent of financial exclusion in India is visible in
the form of high population per bank branch and low proportion of the
population having access to basic financial services like savings
accounts, credit facilities, and credit and debit cards.
137
State wise per centage of households (GoI-FM, 2012), availing
Banking Services in 2011 (Table 4.2), clearly show that there still
remain a large number of households which do not avail banking
services, resulting to financial exclusion.
Table: 4.2
State-wise per centage of Households Availing Banking Services in 2011
States Percentage of Households availing Banking services
Andhra Pradesh 53.1Arunachal Pradesh 53.0
Assam 44.1Bihar 44.4
Chandigarh 80.1Chhattisgarh 48.8
Delhi 77.7Goa 86.8
Gujarat 57.9Haryana 68.1
Himachal Pradesh 89.1Jammu & Kashmir 70.0
Jharkhand 54.0Karnataka 61.1
Kerala 74.2Madhya Pradesh 46.6
Maharashtra 68.9Manipur 29.6
Meghalaya 37.5Mizoram 54.9Nagaland 34.9
Odisha 45.0Punjab 65.2
Rajasthan 68.0Sikkim 67.5
Tamil Nadu 52.5Tripura 79.2
138
Uttar Pradesh 72.0Uttarkhand 80.7
West Bengal 48.8All India 58.7
Source: Census of India 2011.
About half of the of farmer households are financially excluded from
both formal/ informal sources. Of the total farmer households, only 27
per cent access formal sources of credit; one third of this group also
borrowed from non-formal sources. Overall, 73 per cent of farmer
households have no access to formal sources of credit. Across regions,
financial exclusion is more acute in Central, Eastern and North-Eastern
regions. All three regions together accounted for 64 per cent of all
financially excluded farmer households in the country. Overall
indebtedness to formal sources of finance of these three regions
accounted for only 19.66 per cent. However, over the period of five
decades, there has been overall improvement in access to formal
sources4 of credit by the rural households (Table 4.3).
Table: 4.3
Access of Credit by Rural HouseholdsYear Formal Sources Informal Sources
1951 3.9 69.7
1961 9.5 60.8
1971 22.3 36.9
1981 56.6 16.9
1991 47.6 15.9
2002 57.0 29.6
Source: RBI, 2013.
As per census 2011, only 58.7 per cent of households are
availing banking services in the country. However, as compared with
previous census 2001, availing of banking services increased
significantly largely on account of increase in banking services in rural
139
areas. Sadhan Kumar8 (2011) worked out an Index on financial
inclusion (IFI) based on three variables namely penetration (number of
adults having bank account), availability of banking services (number of
bank branches per 1000 population) and usage (measured as
outstanding credit and deposit). The results indicate that Kerala,
Maharashtra and Karnataka has achieved high financial inclusion (IFI
>0.5), while Tamil Nadu, Punjab, A.P, H.P, Sikkim, and Haryana
identified as a group of medium financial inclusion (0.3 <IFI<0.5) and
the remaining states have very low financial inclusion (Table 4.4).
Table: 4.4
Availing of Banking Services2001 2011
Rural 30.1 54.4
Urban 49.5 67.8
Total 35.5 58.7
Source: Department of Financial Services, Government of India.
Region-wise population per branch and share in credit is shown
in Table 4.5. Population per bank branch has been reported
significantly high in north-eastern region followed by eastern and central
region while low population per bank branch was recorded in southern
region. Western region has witnessed lion’s share in credit while north-
eastern region received credit least.
Table: 4.5
Region-wise Population Per Bank Branch Region-wise 2010-11 Share in Credit
Central Region 17260 6.8
Eastern Region 18328 7.5
North Eastern Region 19255 0.7
Northern Region 10077 23.8
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Southern Region 10043 26.6
Western Region 12096 34.6
Source: RBI, 2012
Banks have, up to June 2011, opened banking outlets in 1.07
lakh villages up from just 54,258 as on March 2010. Out of these,
22,870 villages have been covered through brick-&-mortar branches,
84,274 through BC outlets and 460 through other modes like mobile
vans, etc. Basic banking no frills account with nil or very low minimum
balance requirement as well as no charges for not maintaining such
minimum balance, were introduced as per RBI directive in 2005. As on
June 2011, 7.91 crores No-frills accounts have been opened by banks
with outstanding balance of Rs. 5,944.73 crores. Banks have been
asked to consider introduction of a General Purpose Credit Card (GCC)
facility up to Rs. 25,000/- at their rural and semi-urban braches. The
credit facility is in the nature of revolving credit entitling the holder to
withdraw up to the limit sanctioned. Interest rate on the facility is
completely deregulated. As on June 2011, banks had provided credit
aggregating Rs. 2,356.25 crores in 10.70 lakh General Credit Card
(GCC) accounts. Kisan Credit Cards to small farmers have been issued
by banks. As on June 30, 2011, the total number of KCCs issued has
been reported as 202.89 lakh with a total amount outstanding to the
tune of 1, 36,122.32 crores (Table 4.6).
Table: 4.6
Data Related to Number of Villages Covered, No Frill Account, GCC and KCC
Year Coverage of Villages
No Frill Accounts (Crores)
Number of GCC
Accounts (Lakh)
Number of KCC
Accounts (Lakh)
March 2010 54,258 4.93 4.73 176.3
June 2011 1, 07,000 7.91 10.70 202.89
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Target March 2012
218574 11.25 37.34 276.59
Source: RBI, 2012
Financial education, financial inclusion and financial stability are
three elements of an integral strategy, as shown in the diagram below.
While financial inclusion works from supply side of providing access to
various financial services, financial education feeds the demand side by
promoting awareness among the people regarding the needs and
benefits of financial services offered by banks and other institutions.
Going forward, these two strategies promote greater financial stability.
Financial Stability Development Council (FSDC) has explicit mandate to
focus on financial inclusion and financial literacy simultaneously. RBI
has issued revised guidelines on the Financial literacy Centres (FLC) on
June 6, 2012, for setting up FLCs. This model helps in bringing more
people under sustainable development in a cost effective manner within
a short span of time. As on March 2011, there are around 7.46 million
saving linked SHGs with aggregate savings of Rs.70.16 billion and 1.19
million credit linked SHGs with credit of Rs. 145.57 billion (Source:
NABARD, Status of Microfinance in India). Though RBI has adopted
the bank-led model for achieving financial inclusion, certain NBFCs
which were supplementing financial inclusion efforts at the ground level,
specializing in micro credit have been recognized as a separate
category of NBFCs as NBFC-MFIs. At present, around 30 MFIs have
been approved by RBI. Their asset size has progressively increased to
reach Rs. 19,000 crore as at end Sept 2013. MSME sector which has
large employment potential of 59.7 million persons over 26.1 million
enterprises, is considered as an engine for economic growth and
promoting financial inclusion in rural areas. MSMEs primarily depend on
bank credit for their operations. Bank credit to MSME sector witnessed
a CAGR of 31.4 per cent during the period March 2006 to March 2012.
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Of total credit to MSME, public sector banks contributed the major share
of 76 per cent, while private sector banks accounted for 20.2 per cent
and foreign banks accounted for only 3.8 per cent as on March 31,
2012.
Financial inclusion is one of the biggest challenges facing the
banking sector today. The Reserve Bank has been encouraging the
banking sector to expand the banking network both through setting up
of new branches and also through BC model by leveraging upon the
information and communication technology (ICT). As a result of all
these efforts the status of financial inclusion improved in 2010-11 over
the previous year (Table 4.7). Various indicators mentioned below in the
table are showing growth in year 2010-11 when compared with the
previous year 2009-2010. Still the extent of financial exclusion is
shocking.
Table: 4.7
Progress of Financial InclusionIndicators 2009-10 2010-11Credit-GDP 53.40 54.60
Credit-Deposit 73.60 76.50
Population Per Bank Branch
14000.00 13466.00
Population Per ATM 19700.00 16243.00
Percentage of Population Having Deposit Accounts
55.80 61.20
Percentage of Population Having Credit Accounts
9.30 9.90
Percentage of Population Having
Debit Cards
15.20 18.80
Percentage of Population Having
Credit Cards
1.53 1.49
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Branches Opened in Hitherto Unbanked
Centre’s as Per Cent of Total New Bank
Branches
5.60 9.70
Source: RBI, 2012.To strengthen the financial inclusion drive, almost all banks have
made financial inclusion plans (FIPs) to cover villages with population
more than and also less than 2000 and Reserve Bank is closely
monitoring the implementation of these plans. The progress made
under FIPs is provided in Table 4.8. The total number of villages
covered by at least one banking outlet grew at 82 per cent in 2010-11
over the previous year. Importantly, in 2010-11, 47 per cent of the total
villages covered under FIPs were villages with population less than
2,000. It can be understood from the table that banks have been heavily
relying on BCs to expand the banking network in the unbanked areas
under FIPs. In 2010-11, almost 77 per cent of the total villages covered
were through BCs. The number of 'no-frills' accounts recorded a growth
of 50 per cent in 2010-11 over the previous year. The share of 'no-frills'
accounts with overdrafts in the total 'no-frills' accounts improved from
0.3 per cent in 2009-10 to six per cent in 2010-11. The number of Kisan
Credit Cards (KCCs) and General Credit Cards (GCCs) witnessed
growth of 15 per cent and 49 per cent, respectively in 2010-11 over the
previous year.
Table: 4.8
Progress Made Under Financial Inclusion PlansParticulars End-March Progress
2010 2011Total number of customer service points
deployed33042 58361
Total Villages Covered 54757 99840
Villages Covered – with Population>2000 27743 53397
Villages Covered – with Population<2000 27014 46443
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Villages covered through Branches 21499 22684
Villages covered through BCs 33158 76801
Villages covered through other modes (Mobile van and ATM)
100 355
Urban Locations covered through BCs 423 3653
Number of No-Frill Accounts (in millions) 50 75
Number of KCCs outstanding (in millions) 20 23
Number of GCCs outstanding (in millions) 6 1
Source: RBI, 2012.Financial Inclusion has got momentum in the recent past in India.
In order to promote the accessibility and outreach of banking and
financial services to the masses, banking sector reforms have been
introduced by RBI besides implementing regulatory framework for
financial inclusion (Singh and Rastogi, 2014). As per RBI Report (2012),
India had over 900 million deposit accounts. Of these, over 770 million
accounts were in the names of individual. However, census data (2011)
show that only 144 million households have access to banking services,
indicating that many have multiple accounts. Prosperous states include
Tamil Nadu and Gujarat reported fewer households accessing banking
services than the national average while Kerala, Delhi, Uttarakhand and
Himachal Pradesh were the better performing states. More than 1.8
crore bank accounts were activated as the government stepped up its
financial inclusion efforts on 29th August, 2014, setting a record of the
mega programme of Jan Dhan Yojana. This is one of the most
ambitious financial inclusion programmes undertaken by any
government. The scheme is open for 7.5 crore bank accounts as the
target expected to be achieved by January 26, 2015. The account
holders get a basic account with Rs. 1 lakh personal accident insurance
and Rs. 30,000 in life insurance cover. After the accounts operate for
more than 6 months and bank review the credit history, an overdraft
facility of Rs. 5,000 could be added. Despite the progress on the
opening of bank accounts, access to credit still lags. India has over 130
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million credit accounts, which deal with loan, within average of Rs. 3.7
lakh outstanding in each account. However, credit is highly skewed
towards big cities. Personal loan accounts, the single largest category
of credit accounts, outnumber agricultural loan accounts and the vast
majority of these accounts are in metropolitan cities. There is also a
significant gender gap in banking. Chhattisgarh, West Bengla, Madhya
Pradesh, Maharashtra and Gujarat were even worse than the national
banking sex ratio, while Delhi and the southern states were better.
The analysis of micro credit programmes on women
empowerment simply demonstrate that government’s policies for
empowering weaker sections articulate focus on forward and backward
linkages to make them economically independent and self-reliant. The
micro credit strategy for economic empowerment laid out in the Tenth
Five Year Plan while Government of India started SHG based micro
credit programmes viz. Swashakti, Swayamsiddha, RMK and SGSY for
economic empowerment of rural poor women. Moreover the term loan
and micro credit programmes and schemes are also being implemented
by Apex bodies of the Ministry of Social Justice and Empowerment,
Ministry of Tribal Affairs, Ministry of Minority Affairs and the financial
institutions such as SIDBI and NABARD. These programmes have no
doubt created opportunities for starting of income generating activities,
convergence of schemes and programmes and social empowerment for
women.
Poverty and exclusion continue to dominate socio-economic and
political discourse in India as they have done over the last six decades
in the post-independence period. Poverty reduction has been an
important goal of development policy since the inception of planning in
India. Various anti-poverty, employment generation and basic services
programmes have been in operation for decades in India. The ongoing
reforms attach great importance to removal of poverty and to
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addressing the wide variations across states and the rural-urban divide.
Though the Indian economy recorded impressive growth rates until
recently, its impact has sadly not fully percolated to the lowest deciles.
Despite being one of the ten fastest growing economies of the world,
India is still home to one-third of the world’s poor. Further analysis
shows that poverty is getting concentrated continuously in the poorer
states. The importance of financial inclusion has been emphatically
underlined in the wake of the financial crisis. As we all know, the crisis
has had a significant negative impact on lives of individuals globally.
Millions of people have lost their livelihoods, their homes and savings.
One of the prominent reasons for the crisis was that the financial
system was focused on furthering its own interests and lost its linkage
to the real sector and with the society at large. The crisis also resulted
in a realization that free market forces do not always result in greater
efficiency in the financial system, particularly while protecting the
interests of the vulnerable sections of society. This is due to the
information asymmetry working against these sections, thereby placing
them at a severe disadvantage. In wake of the Crisis, therefore,
Financial Inclusion has emerged as a policy imperative for inclusive
growth in several countries across the globe. However, though much lip
service has been paid to Financial Inclusion, the actual progress has
remained far from satisfactory. As I always mention, it is regrettable that
the entire debate surrounding financial inclusion has generated
significant heat and sound, but little light. Financial inclusion is the main
agenda which India needs to achieve for becoming a global player.
Financial access will attract more global market players in our country
which will result in increasing employment and business opportunities.
Moreover, financial inclusion will lead to reduction in poverty and
empowerment of marginalized, backward and weaker sections of
society. However, India needs to address the supply side factors
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