Financial Inclusion-Need and Initiative

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.

The essence of financial inclusion is to ensure delivery of financial services which include - bank accounts for savings and transactional purposes, low cost credit for productive, personal and other purposes, financial advisory services, insurance facilities (life and non-life) etc.

Why Financial Inclusion?

Financial inclusion broadens the resource base of the financial system by developing a culture of savings among large segment of rural population and plays its own role in the process of economic development. Further, by bringing low income groups within the perimeter of formal banking sector; financial inclusion protects their financial wealth and other resources in exigent circumstances. Financial inclusion also mitigates the exploitation of vulnerable sections by the usurious money lenders by facilitating easy access to formal credit.

Financial Inclusion – RBI Policy Initiatives

RBI has adopted a bank-led model for achieving financial inclusion and removed all regulatory bottle necks in achieving greater financial inclusion in the country.

Financial Inclusion Initiatives-

1-Advised all banks to open Basic Saving Bank Deposit (BSBD) accounts with minimum common facilities such as no minimum balance, deposit and withdrawal of cash at bank branch and ATMs, receipt/ credit of money through electronic payment channels, facility of providing ATM card.

2- Relaxed and simplified KYC norms to facilitate easy opening of bank accounts, especially for small accounts with balances not exceeding Rs. 50,000 and aggregate credits in the accounts not exceeding Rs. one lakh a year.

3- Compulsory Requirement of Opening Branches in Un-banked Villages, banks are directed to allocate at least 25% of the total number of branches to be opened during the year in un-banked (Tier 5 and Tier 6) rural centers.

Licensing of New Banks The present round of licensing new banks is essentially aimed at giving further fillip to financial inclusion efforts in our country.

Kisan Credit Cards (KCC)

Banks have been advised to issue KCCs to small farmers for meeting their credit requirements.

General Credit Cards (GCC)

Banks have been advised to introduce General Credit Card facility up to Rs. 25,000/- at their rural and semi-urban branches.

ICT Based Accounts - through BCs

In order to provide efficient and cost-effective banking services in the un-banked and remote corners of the country, RBI directed commercial banks to provide ICT based banking services – through BCs. These ICT enabled banking services have CBS connectivity to provide all banking services including deposit and withdrawal of money in the financially excluded regions.

Financial Literacy Initiatives

Financial education, financial inclusion and financial stability are three elements of an integral strategy of financial inclusion. 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.

SHG-Bank Linkage

This model helps in bringing more people under sustainable development in a cost effective manner within a short span of time.

Issues with financial inclusion

SHG-Bank Linkage - Penetration: Although SHG-Bank Linkage model is successful in rural areas, it has not spread evenly throughout India, and the spread is poor especially in the financially excluded regions namely central and north-eastern.

Languages constraint: Financial inclusion efforts should necessarily be done in vernacular languages. In this context, the need for vernacularisation of all forms (including legal forms) is an absolute must, at least in major languages.

Infrastructure bottlenecks: For up-scaling financial inclusion, adequate infrastructure such as digital and physical connectivity, uninterrupted power supply etc is prerequisites.

Ultra Small Branches: Ultra Small Branches may be set up between the base branch and BCs to provide support to about 8-10 BC units at a reasonable distance.

Poor penetration of commercial bank in rural area: Commercial banks have shown reluctantance in opening branches in rural area due to high operating cost and low profit.