Financial Inclusion

Financial Inclusion Plan of RBI

Financial inclusion is the process of ensuring access to appropriate financial products and services needed by vulnerable groups such as weaker sections and low-income groups at an affordable cost in a fair and transparent manner by mainstream institutional players. Financial inclusion has become one of the most critical aspects in the context of inclusive growth and development.

The importance of an inclusive financial system is widely recognized in policy circles and has become a policy priority in many countries. Several countries across the globe now look at financial inclusion as the means to more comprehensive growth, wherein each citizen of the country is able to use earnings as a financial resource that can be put to work to improve future financial status and adding to the nation�s progress.

Financial Inclusion Initiatives in India

The social and economic imperatives for broader financial inclusion have been well recognized in India for a long time. We have made an enormous contribution to economic development by finding innovative ways to empower the poor. Star ting with the nationalization of banks, priority sector lending requirements for banks, lead bank scheme, establishment of regional rural banks (RRBs), service area approach, self-help group-bank linkage programme, etc., several steps have been taken by the RBI over the years to increase access to the poorer segments of society. RBI has encouraged expansion of bank branches, especially in rural areas, resulting in multifold increase in branch network from around 8,000 in 1969 to more than 89,000 today, spread across the length and breadth of the country.

Despite all these efforts, a significant proportion of the households, especially in rural areas, still remain outside the coverage of the formal banking system. It is estimated that about 40% of Indians lack access even to the simplest kind of formal financial services.

The major barriers to serve the poor, apart from socio-economic factors such as lack of regular income, poverty, illiteracy, etc., are the lack of reach, higher cost of transactions and time taken in providing those services. Products designed by the banks are not tailored to suit the needs of low-income families. The existing business models do not pass the test of scalability, convenience, reliability, flexibility and continuity.

The term financial inclusion first emerged In India in 2005, when RBI, in its annual policy statement of 2005-06, while recognizing the concerns in regard to the banking practices that tend to exclude rather than attract vast sections of the population, urged banks to review their existing practices to align them with the objective of financial inclusion.

Moving towards universal financial inclusion has been both a national commitment as well as a public policy priority for our country. To achieve the goal of reaching banking services to all the 600,000 villages, financial inclusion has to become a viable business proposition for the banks.

For this to happen, the delivery model needs to be devised carefully so as to move from a cost-centric model to a revenue-generation model. This will help in providing customers with quality banking services at their doorstep and at the same time generating business opportunities for the banks. For this to sustain delivery of banking services, at the minimum, should include the following four products:

  • A savings-cum-overdraft
  • A remittance product for electronic benefits transfer (EBT) and other remittances
  • A pure savings product, ideally a recurring deposit scheme
  • Entrepreneurial credit in the form of a Kisan Credit Card (KCC) or a General Credit Card (GCC)

Written by princy

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