Financial inclusion is primarily providing financial services and products to everybody at an affordable price. The idea gained strength in 2000 when it was first effectively used by India’s ex-RBI Governor Y.V. Reddy in 2005. This article focusses on introducing the concept of financial inclusion and brings attention to the issues in India that can be solved by ensuring financial inclusivity. It introduces the efforts taken by the Indian Government to cater to them and at the same time wants to inform the readers’ that these efforts not sufficient to achieve the goal of blanket financial inclusion.
C. Rangarajan, one of India’s ex-RBI Governor headed a committee formed on ‘Financial Inclusion’ which defined it as ‘the process of ensuring access to financial services and timely and adequate credit needed by vulnerable groups such as weaker sections and low-income groups at affordable cost’. However, providing these services and products is just the first step towards the inclusivity. It was given a wider dimension by defining it as ‘ease of access, availability and usage of financial services’ (Sarma, 2008) and ‘Financial Inclusion is now about ensuring end to end and timely delivery of financial products and services which includes providing adequate credit too’ (Rangarajan, 2008). These definitions indicate that financial inclusion should be about people having access to financial products and services in a sustainable way within a safely regulated market.
India could manage problems such poverty and income inequality by ensuring that its citizens are financially included as expected by the United Nations Development Program under its sustainable development goals for India. Eminent researchers have already stated that having a bank account and increasing financial access to saving instruments have a positive impact on the average saving rate of a household (Aportela, 1999). Financial inclusion can reduce income inequality by increasing the income of poor. It also helps individuals by means of a basic savings account to save, invest for their future, smoothen their consumption and manage unforeseen financial risks (Demirgüç-Kunt and Levine, 2007).
Poor socio-economic conditions have been a much debated topic in India; in fact, many elections in India in the past have been fought on the promise of improving these conditions. Improving access to individually held saving product can have a positive impact on the social and economic condition of women and at the same time improve her decision making powers within the household leading to her empowerment (Ashraf, Karlan and Yin, 2010). Wide recognition to importance of gender in financial inclusion has been given but challenges still exist as female headed households were less likely to have access to formal finance (Ghosh and Vinod, 2017). Unavailability of formal saving channel can cause constraints to women micro-entrepreneurs (Dupas and Robinson, 2013).
Studies recognize the problems for financial inclusion in the Indian demographic environment because of two barriers- price and non-price (Ranjani and Bapat, 2015), lack of integration in microfinance and banking (Graham, 1997), NPAs as well as rigid services and banking hassles. Raghuram Rajan has suggested ways in 2014 that financial inclusion should be simple and reliable if India wants to ensure a blanket financial inclusion
. Efforts have been initiated by the Government of India and the Central Bank but unfortunately India still has a 50% score on CRISIL Inclusix report in 2013. Humongous efforts taken by different stakeholders which have had direct or indirect impact on financial inclusion such as nationalization of banks in 1969, Swabhiman in 2011, Pradhan Mantri Jan Dhan Yojna in 2014, Jan Dhan Aadhar Mobility in 2015, KCC, GCC, Atal Pension Yojana, Pradhan Mantri Suraksha Bima Yojna, Jeevan Jyoti Beema Yojna and demonetization in 2016.
India, despite the efforts has just crossed half way mark towards its goal according to the Global Financial Inclusion/Global Findex, World Bank, 2014. The reasons cited were low demand due to illiteracy, low investment opportunity, difficult loan contracts (Base 2006), refusal to access by service provider (Connolloy and Hajaj, 2001) (Kampson, Casey, Whyley and Collard, 2000), unsuitable products (K.S. Ranjani and Varadraj, 2015), impaired visibility of branches (Thorat, 1999), bureaucratization and politicization (Thorat, 1999), lack of integration of micro finance and banking (Graham 1997), social distance between staff and poor customers (Baydas, 1997), dormant bank accounts (World Bank 2015) and so on.
In the Indian context, we do have success stories of Goa, Meghalaya and Kerala to start with, but there is need to identify and measure the efficacy of the role of banking and beyond banking efforts to achieve a blanket financial inclusion. Issues like inoperative and dormant accounts still prevail coupled with challenges like covering the cost of insurance, overdraft facility, low bank penetration and social stigma. There is also a need to identify and measure the ill effects on methods of financial inclusion. Benami deposits are on a rise after demonetization; amount worth three billion dollars have been deposited into accounts opened under Pradhan Mantri Jan Dhan Yojna.
Despite decades of efforts for financially inclusive country Economic survey of 2013-14 states that only 58% have access to banking facility, only 12.3 lakh people used the overdraft facility till 2016 under PMJDY, despite a 65% increase in bank accounts, 23% accounts are dormant, there is disparity in rural and urban banking services, poor financial literacy as 76% Indian adults failed S&P Global FinLit Test conducted 2015 which measures people’s financial concepts. The World Bank too has estimated that India accounts for 20.6% of unbanked population which is approximately a third of total unbanked population.
It is evident from the above facts that the efforts taken by the Indian Governments has proven to be a partial success in ensuring financial inclusion of Indian citizens. The world’s seventh largest country by area and second largest by population is still grappled with several problems creating hindrances in achieving the vision of a financially inclusive nation. It is therefore important that India finds additional and alternate solutions to ensure that each citizen of this great nation has access to formal financial products and services in a sustainable and cost effective manner.
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