India is growing fast and trying to become a behemoth economy in next few years, but there is a risk that it may leave half of its population stuck in poverty. To make sure that all its citizens benefit from the healthy economic growth, Financial inclusion is obligatory.
Definition
In 2008, a committee headed by Dr C Rangarajan defined financial inclusion 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.
History
Financial Inclusion is not a recent phenomenon in India but can be traced back to 1904 when the co-operative movement began in the country. Nationalisation of 14 Banks in 1969 was a pivotal step in financial inclusion, which resulted in opening of numerous branches across the country. The term financial Inclusion gained popularity in early 2000 when a United Nations study revealed the direct relation between financial exclusion and poverty. Since then, the government has taken a lot of initiatives to attain financial inclusion. In 2004, the Khan committee was setup to look after financial inclusion and recommendations of the commission were incorporated into the mid-term review of the policy (200506).
Current Scenario
RBI has taken several measures to increase the rate of financial inclusion. The branches of commercial banks have increased from 8321 in 1969 to 100,277 as on December 31, 2012.
There are several benchmarks employed to assess the penetration of financial services in a country. For instance, the quantum of current and savings account (CASA) deposits held as a ratio to the adult population can be used to measure the reach of financial inclusion within a specific country, or to compare it to other countries. According to the 2001 Census, Indias CASA ratio to the total adult population was 59.
Peter Drucker once said If you cant measure it, you cant manage it hence CRISIL has started CRISIL Inclusix Index to measure the financial inclusion in India. According to the study the CRISIL Inclusix at all India level improved from 37.6 in 2010 but stood at a relatively poor level of 40.1 for 2011 (on scale of 100). Southern region leads in terms of financial inclusion in the country with a CRISIL Inclusix score of 62.2 for 2011. The Western region is a distant second, and is followed by Northern, Eastern, and North-Eastern regions respectively. All the top 5 districts with highest CRISIL Inclusix scores are from the Southern region; four of them are in Kerala.
Strategies adopted
To achieve greater financial inclusion RBI has adopted several steps such as:
- Relaxation of KYC Norms: RBI relaxed KYC norms for opening of bank accounts for small accounts. Various photo Ids and address proofs were added to the list of accepted documents required for the opening of bank account.
- Opening No Frills account: These are very basic banking accounts with nil or very minimum balance as well as free of any charges accessible to majority of population.
- Use of Technology: Banks are advised to make use of Information and Communication Technology (ICT) to reduce the transaction cost and reach the remote areas where physical credit delivery is not possible. Provision of e-commerce, e-governance, and timely information on weather, markets and disasters will make the process of financial inclusion more effective. Setting up of a Financial Inclusion Fund and a Financial Inclusion Technology Fund are attempts for up-scaling financial inclusion.
- Engaging Business correspondents: Intermediaries were allowed to provide financial and banking services. Under this model the BCs are allowed to provide door-to-door delivery of these services, especially the cash-in-cash-out transactions.
- Simplified Branch Operations: To address the issue of uneven spread of bank branches, in December 2009, domestic scheduled commercial banks were permitted to freely open branches in tier III to tier VI centres with a population of less than 50,000 under general permission, subject to reporting. In the north-eastern states and Sikkim, domestic scheduled commercial banks can now open branches in rural, semi-urban and urban centres without the need to take permission from RBI in each case, subject to reporting.
- Direct Cast Transfers: To provide the benefits of subsidy to the people at the bottom of socio-economic pyramid government started this scheme. The DBT scheme was launched in 43 districts spread across 16 states in January 2013. This scheme has also mobilised steps to strengthen the banking infrastructure, including opening new branches, installation of ATMs and facilitation of mobile banking.
Apart from these steps government has also started National Unique Identification Project and formed UIDAI (Unique Identification Authority of India) to provide unique identification to individuals. The project aims to provide a unique identification number to all Indians, thereby doing away with the necessity for multiple identity proofs. This project is also expected to help Indians in reaping the benefits of various government schemes and entitlements, and make it easier to open bank accounts, avail public subsidies, and receive timely delivery of goods and services. The brand name of the unique identification number (UID) is Aadhaar, which is a 12-digit number. Aadhaar provides the identity infrastructure for ensuring financial inclusion across the country. For instance, banks can link this unique number to a bank account for every resident, and use the online identity authentication to allow residents to access their account from anywhere in the country.
By Rishabh Diwakar
He is an electronics engineer and is currently pursuing full time M.B.A in Energy and Infrastructure (Finance) from School of Petroleum Management, Gandhinagar. In past he has been associated with Tata Consultancy services Ltd for 3 years as a system engineer. He has also done research work for Indian Oil Corporation during his Internship and helped them to understand the role of media in branding.