It is the delivery of financial services at affordable costs to vast sections of disadvantaged and low income groups
Financial inclusion involves
1) Give formal banking services to poor people in urban & rural areas.
2) Promote habit of money-savings, insurance, pension-investment among poor-people.
3) Help them get loans at reasonable rates from normal banks. So they don’t become victims in the hands of local moneylender.
Some Important initiatives for financial inclusion:
1) Lead banking scheme (LBS).
2) No frills account.
4) Business Correspondents (BC) system.
5) Swabhiman Campaign
Lead Bank Scheme
The Lead Bank Scheme, introduced towards the end of 1969, envisages assignment of lead roles to individual banks (both in public sector and private sector) for the districts allotted to them. A bank having a relatively large network of branches in the rural areas of a given district and endowed with adequate financial and manpower resources has generally been entrusted with the lead responsibility for that district. Accordingly, all the districts in the country have been allotted to various banks. The lead bank acts as a leader for coordinating the efforts of all credit institutions in the allotted districts to increase the flow of credit to agriculture, small-scale industries and other economic activities included in the priority sector in the rural and semi-urban areas, with the district being the basic unit in terms of geographical area.
No Frill Account
'No Frills 'account is a basic banking account. Such account requires either nil minimum balance or very low minimum balance. Charges applicable to such accounts are low. Services available to such account is limited. In what can be described as a watershed Annual Policy Statement, the RBI in 2005-06 called upon Indian banks to design a ‘no frills account’ – a no precondition, low ‘minimum balance maintenance’ account with simplified KYC (Know Your Customer) norms. But All the existing ‘No-frills’ accounts opened were converted into BSBDA in compliance with the guidelines issued by RBI in 2012 .
RBI in 2012 came out with fresh guidelines and asked banks to offer a ‘Basic Savings Bank Deposit Account’ which will offer following minimum common facilities to all their customers. These guidelines includes:-
(a) This account shall not have the requirement of any minimum balance.
(b) The services available in the account will include deposit and withdrawal of cash at bank branch as well as ATMs; receipt/credit of money through electronic payment channels or by means of deposit/collection of cheques drawn by Central/State Government agencies and departments;
(c ) While there will be no limit on the number of deposits that can be made in a month, account holders will be allowed a maximum of four withdrawals in a month, including ATM withdrawals; and
(d) Facility of ATM card or ATM-cum-Debit Card.
Business correspondents are bank representatives. They personally goes to the area allotted to them and carry out banking.
- They help villagers to open bank accounts.
- They help villagers in banking transactions. (deposit money, take money out of savings account, loans etc.)
- The Business Correspondent carries a mobile device.
- The villager gives his thumb impression or electronic signature, and get the money.
- Business Correspondents get commission from bank for every new account opened, every transaction made via them, every loan-application processed etc.
Recently on Financial Inclusion
The Reserve Bank of India (RBI) has constituted a committee with the objective of working out a medium-term (five-year) measurable action plan for financial inclusion. The terms of reference will include reviewing the existing policy of financial inclusion, including supportive payment system and customer protection framework, taking into account the recommendations made by various committees set up earlier.
It will also study the cross-country experience in financial inclusion to identify key learnings, particularly in the area of technology-based delivery models, that could inform policies and practices. The committee will also suggest a monitorable medium-term plan for financial inclusion in terms of its various components like payments, deposit, credit, social security transfers, pension and insurance.
Deepak Mohanty, RBI executive director, will chair the committee.
Arihant Bhandawat *
Even after 60 years of independence, a large section of Indian population still remain unbanked. This malaise has led generation of financial instability and pauperism among the lower income group who do not have access to financial products and services. However, in the recent years the government and Reserve Bank of India has been pushing the concept and idea of financial inclusion.
What is Financial Inclusion in banking ? What is meaning of Financial Inclusion in Indian context ? :
Financial inclusion is the delivery of financial services at affordable costs to vast sections of disadvantaged and low income groups (for example "no frill accounts").
Why Financial Inclusion in India is Important ?
The policy makers have been focusing on financial inclusion of Indian rural and semi-rural areas primarily for three most important pressing needs:
1. Creating a platform for inculcating the habit to save money – The lower income category has been living under the constant shadow of financial duress mainly because of the absence of savings. The absence of savings makes them a vulnerable lot. Presence of banking services and products aims to provide a critical tool to inculcate the habit to save. Capital formation in the country is also expected to be boosted once financial inclusion measures materialize, as people move away from traditional modes of parking their savings in land, buildings, bullion, etc.
2. Providing formal credit avenues – So far the unbanked population has been vulnerably dependent of informal channels of credit like family, friends and moneylenders. Availability of adequate and transparent credit from formal banking channels shall allow the entrepreneurial spirit of the masses to increase outputs and prosperity in the countryside. A classic example of what easy and affordable availability of credit can do for the poor is the micro-finance sector.
3. Plug gaps and leaks in public subsidies and welfare programmes – A considerable sum of money that is meant for the poorest of poor does not actually reach them. While this money meanders through large system of government bureaucracy much of it is widely believed to leak and is unable to reach the intended parties. Government is therefore, pushing for direct cash transfers to beneficiaries through their bank accounts rather than subsidizing products and making cash payments. This laudable effort is expected to reduce government’s subsidy bill (as it shall save that part of the subsidy that is leaked) and provide relief only to the real beneficiaries. All these efforts require an efficient and affordable banking system that can reach out to all. Therefore, there has been a push for financial inclusion.
Why is financial inclusion needed in India? - (A Graphical Representation )
What are the steps taken by RBI to support financial inclusion?
RBI set up the Khan Commission in 2004 to look into financial inclusion and the recommendations of the commission were incorporated into the mid-term review of the policy (2005–06) and urged banks to review their existing practices to align them with the objective of financial inclusion. RBI also exhorted the banks and stressed the need to make available a basic banking 'no frills' account either with 'NIL' or very minimum balances as well as charges that would make such accounts accessible to vast sections of the population
Of the many schemes and programmes pushed forward by RBI the following need special mention.
A. Initiation of no-frills account – These accounts provide basic facilities of deposit and withdrawal to accountholders makes banking affordable by cutting down on extra frills that are no use for the lower section of the society. These accounts are expected to provide a low-cost mode to access bank accounts. RBI also eased KYC (Know Your customer) norms for opening of such accounts.
B. Banking service reaches homes through business correspondents – The banking systems have started to adopt the business correspondent mechanism to facilitate banking services in those areas where banks are unable to open brick and mortar branches for cost considerations. Business Correspondents provide affordability and easy accessibility to this unbanked population. Armed with suitable technology, the business correspondents help in taking the banks to the doorsteps of rural households.
C. EBT – Electronic Benefits Transfer – To plug the leakages that are present in transfer of payments through the various levels of bureaucracy, government has begun the procedure of transferring payment directly to accounts of the beneficiaries. This “human-less” transfer of payment is expected to provide better benefits and relief to the beneficiaries while reducing government’s cost of transfer and monitoring. Once the benefits starts to accrue to the masses, those who remain unbanked shall start looking to enter the formal financial sector.
What more is to be done for financial inclusion?
Financial inclusion of the unbanked masses is a critical step that requires political will, bureaucratic support and dogged persuasion by RBI. It is expected to unleash the hugely untapped potential of the bottom of pyramid section of Indian economy. Perhaps, financial inclusion can begin the next revolution of growth and prosperity.
*Mr Arihant Bhandawat, is a Freelance content developer. He has BBA( Finance) to his credit and can be contacted at email@example.com
Some other Relevant links for this Subject :
Financial Inclusion - An Overview (from NABARD)
Financial Inclusion - Implementation in India
Financial inclusion: India scores poorly on global stage
Financial inclusion still key challenge in India: N Murthy
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