Financial Inclusion; The Way Forward

Financial Inclusion (FI) of masses would create greater ability of banks to provide finance to entrepreneurs and helps the economy to spur multi sectoral growth. On the contrary, exclusion of people from formal banking system keeps precious savings of public out of nation’s resources that can be an impediment in accelerating economic development.

Hence, driven by policy prescription, every country makes its best efforts to accelerate effective implementation of FI more led by Information, Communication and Technology (ICT) model. The limitation in doing so is the cost of outreach which is high when seen in the context of incremental rise in fresh business for banks. But even then the one time effort is worth undertaking keeping national priorities as uppermost.

Global perception of FI
Let us see how the global perception of FI goes. According to World Bank, FI is defined as “Broad access to financial services that implies an absence of price and non-price barriers in the use of financial services; though it is difficult to define and measure it because access has many dimensions”. Asian Development Bank defines FI as “Provision of a broad range of financial services such as deposits, loans, payment services, money transfers and insurance to poor and low-income households and their micro-enterprises”.

FI in Indian parlance
According to the Report of the Committee on FI in India (Chairman: C Rangarajan) (2008), “FI is known to be 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.”

RBI states that FI is the process of ensuring access to appropriate financial products and services needed by all sections of the society in general and vulnerable groups such as weaker sections and low income groups in particular at an affordable cost in a fair and transparent manner by mainstream institutional players. Keeping broadly the globally accepted merits of FI, RBI has initiated firm steps, more particularly visible from 2005. As a result, there has been a spurt in infrastructure that serves the cause of FI.

Status of Financial Inclusion
According to new data of World Bank (Feb-2013), the Global Financial Inclusion (Global Findex) Indicates that only 35% of adults have a formal bank account and 8% have a formal loan account. 26% of adult women have an account as against 44% men. Despite recent spurt, half of Indians do not have bank accounts. Still, account penetration in India is just below that in the rest of the developing world and is significantly lower than the average of the other BRICS economies—Brazil, the Russian Federation, China, and South Africa which works out to 61%.

Another indicator of measurement is provided by CRISIL though it’s Financial Inclusion Index (Inclusix). In June 2013, CRISIL first time published Inclusix. To measure it, CRISIL identified three critical parameters namely branch penetration, deposit penetration and credit penetration. The CRISIL Inclusix indicates that there is an overall improvement in the financial inclusion in India. CRISIL –Inclusix (on a scale of 100) increased from 35.4 in March 2009 to 37.6 in March 2010 and to 40.1 in March 2011.

Progress in Financial Inclusion
As a result of intense efforts by banks with the support of RBI and in collaboration with the various other agencies, about 2,68,000 banking outlets have been opened in villages in the last three years. About 7,400 rural branches were opened. 27,143 Urban locations have been covered through Business Correspondents. Precisely 182.06 million Basic Savings Accounts have been opened out of which BC-ICT based savings accounts were 81.27 million accounts. OD facility was extended in about 3.95 million accounts, 33.79 million KCCs and 3.63 million GCC accounts. Technology too has come to the help in accelerating FI through alternate delivery channels which substantially added to the capacity building measures in connecting people.

Why inclusion?
Besides bringing the hidden wealth of millions of people into the mainstream of economy through formal financial channels, FI, if implemented in full form, is globally established as an effective tool of social transformation as well. FI can (a) empower common man (b) eventually help reduce poverty and inequality (c) increase enterprise (d) imrove financi zal literacy/IT literacy (e) bring better identity to establish social rights (f) reduce dependency on usurious money lenders.

PMJDY–a right step
Prime Minister’s Jan Dhan Yojana (PMJDY) is very apt policy move to connect 750 million households and empower them with a formal bank account by 26th January 2015. Issue of a debit card, general insurance of Rs 1 lakh and a life insurance cover of Rs 30,000 are the added features to connect people not only with a bank account but also to make them familiar with digital channels.

Way forward, it is necessary for all stake holders to join together in harnessing the immense synergy of such a missionary initiative. The beneficiaries too need to appreciate the broad purpose of FI and should play a constructive role in realizing the end state objectives of bringing economic and social transformation.