Financial inclusion or inclusive financing is the delivery of financial’s services at affordable costs to sections of disadvantaged and low-income segments of society, in contrast to financial exclusion where those services are not available or affordable.
Financial inclusion has been a policy cornerstone of every government in modern India. It is a commonly accepted fact that the poor have a higher risk of financial problems due to an unstable stream of income and low savings. With very little no social security net in India, they are most vulnerable part of our society.
Let’s understand the barriers or challenges to financial inclusion:
- Distance
- Suitable and affordable products
- Lack of infrastructure
- Education
- Information Asymmetry
Financial inclusion has been a buzzword in the financial services industry for a long time mostly driven by RBI directives. Financial inclusion initiatives can take various forms but in corporate India it is usually limited to providing basic financial services to the rural poor, funding micro finance institutions and self-help groups (SHGs), and providing financial literacy.
Every organization in the financial industry likes to talk about the steps taken by them to promote financial inclusion. However, despite all the noise created by the industry, financial inclusion in India still remains a pipe dream if we consider that even after 70 years of Independence, we are still struggling to open basic Bank accounts for our masses. No body, absolutely nobody cared for poor masses who need financial intervention the most to come out of poverty for longest period of time. However, things have started changing for better after government led by Mr. Narender Modi came into power in 2014 with a massive mandate. Within months of forming the Government, Modi Govt launched the biggest financial inclusion drive in India since independence, named the Pradhan Mantri Jan-Dhan Yojana (PMJDY). The scheme was launched with the objective of enabling universal access to banking facilities. The main features of this programme include setting up of at least one basic banking account for every household, financial literacy, and access to credit, insurance, and pension facility.
Typical of his style, of doing things in mission mode, Mr. Narender Modi has galvanized the entire banking system to open bank account for masses. While the scheme was initially criticized by politicians and experts as a wasteful exercise and loss making business for banks, the experts have been proven wrong as a total of more than INR 43000 crore has been deposited in these accounts in total of 24.74 crore accounts as on September 28, 2016, which essentially means that banks are in a position to recover the cost of opening the bank accounts and servicing the customers and the business is not a loss making business as has been pointed out by some experts. Detailed status of PMJDY as on September 28, 2016 is as follows:
PMJDY status as on September 28, 2016 (All figures in Cr)
| Bank Name | RURAL | URBAN | TOTAL | NO OF RUPAY CARDS | AADHAAR SEEDED | BALANCE IN ACCOUNTS | % OF ZERO-BALANCE-ACCOUNTS |
| Public Sector Bank | 11.03 | 8.63 | 19.66 | 15.45 | 10.66 | 34550.69 | 24.27 |
| Regional Rural Bank | 3.63 | 0.59 | 4.22 | 2.84 | 1.8 | 7401.9 | 20.5 |
| Private Banks | 0.53 | 0.33 | 0.86 | 0.8 | 0.36 | 1580.08 | 36.47 |
| Total | 15.18 | 9.55 | 24.74 | 19.09 | 12.82 | 43532.67 | 24.05 |
(Source: http://pmjdy.gov.in/account)
In order to increase the usage of bank accounts and other financial products, Government has also launched insurance schemes Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and Pradhan Mantri Suraksha Bima Yojana (PMSBY). These insurance schemes are simple and affordable enough for the rural and urban poor alike and have found moderately enthusiastic takers among the corporate sector. These schemes have also proved to be successful and has resulted in bringing large population in social security net.
Government has also launched Pradhan Mantri Mudra Yojana (PMMY) to promote self-employment opportunities across India. During FY 2015-16, a total of 34880924 loans were sanctioned in PMMY so far under Mudra Scheme and total amount disbursed was 132954 crores. Micro Units Development & Refinance Agency Ltd (MUDRA) was set up by the Government of India (GoI) to promote and manage Government’s efforts under PMMY. MUDRA has been initially formed as a wholly owned subsidiary of Small Industries Development bank of India (SIDBI) with 100% capital being contributed by it. MUDRA has devised different products which have been named ‘Shishu’, ‘Kishor’ and ‘Tarun’ to signify the stage of growth / development and funding needs of the beneficiary micro unit / entrepreneur and also provide a reference point for the next phase of graduation / growth to look forward to :
- Shishu :covering loans upto 50,000/-
- Kishor : covering loans above 50,000/- and upto 5 lakh
- Tarun :covering loans above 5 lakh and upto 10 lakh
(Source: http://www.mudra.org.in/)
While a lot has been done to promote financial inclusion through the measures mentioned above, still the work has just started. Still over 30% population in India lives below poverty line and to bring them out of severe poverty, financial sector has to turn an enabler. Still the large population in India has either no access or very basic access to financial services. In order to bring our masses out of poverty, easy and affordable credit products has to reach every part of India. Since the poor population is typically high risk, innovative solution to encourage private sector participation through credit enhancement measures sponsored by Government should take place. This can in fact be as good a solution as Mudra loans, as private sector is generally more efficient and target driven when it comes to credit distribution. Government digital India mission has lot of potential to promote financial inclusion in India as digitization has significantly brought down cost of offering financial services. Government also needs to promote Fintech sector and businesses like Peer to Peer lending platforms as it would go a long way in ensuring that Gaps in demand and supply of financial services are efficiently fulfilled. Government and RBI India needs to take a lead and create policies to promote development of fintech sector in India as it would go a long way to ensure financial inclusion reaches every nook and corner of India not just in terms of basic banking services but also sophisticated financial products.
At Antworks Money, we believe that Road to financial inclusion starts with Democratization of Indian Financial system. All efforts should be taken to free financial services sectors, remove information asymmetry and bring about total transparency in dealings of financial institutions. This will encourage more participation by private sector enterprises driven by innovation and efficient business practices. The journey has just started and we are committed to contribute to bringing in Financial Inclusion for our masses and Democracy in Indian Financial System.
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