What is Financial Inclusion In India, RBI initiative to achieve Financial Inclusion in India(RBI Policies), need of Financial Inclusion in India

What is Financial Inclusion / What is financial inclusion in Indian Context?

Financial inclusion is delivery of banking services at an affordable cost to the vast sections of disadvantaged and low income group. The concept of Financial inclusion is not new. Nationalization of Banks, Priority sector lending, Lead Bank scheme, establishment of Regional Rural banks, Self Help Group, all are part of RBI initiative to provide financial access to low income group. But, the movement gathered momentum after 2005, when the RBI highlighted the need for Financial inclusion in its Annual Policy Statement.

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RBI initiative to achieve Financial Inclusion in India / RBI Policies to provide Financial Inclusion to Indian:

Opening of no-frills accounts: Basic banking no-frills account is with nil or very low minimum balance as well as charges that make such accounts accessible to vast sections of the population. Banks have been advised to provide small overdrafts in such accounts.

Relaxation on know-your-customer (KYC) norms: Persons belonging to low income group both in urban and rural areas do not face difficulty in opening the bank accounts due to the procedural hassles. For this, the 'KYC' procedure for opening accounts for those persons who intend to keep balances not exceeding rupees fifty thousand (Rs. 50,000/-) in all their accounts taken together and the total credit in all the accounts taken together is not expected to exceed rupees one lakh (Rs. 1,00,000/-) in a year has been simplified to enable those belonging to low income groups without documents of identity and proof of residence to open banks accounts. In such cases banks can take introduction from an account holder on whom full KYC procedure has been completed and has had satisfactory transactions with the bank for at least six months. Photograph of the customer who proposes to open the account and his address need to be certified by the introducer.

Rural Intermediaries: In January 2006, The RBI permitted Banks to appoint the following organizations as business intermediaries:

·         Non Governmental Organizations

·         Self Help Group

·         Micro Finance Institutions

·         Other Civil Society Organizations

In January 2006, RBI permitted banks to engage business facilitators (BFs) and Business Correspondents (BCs) as intermediaries for providing financial and banking services. NGO, SHG, MFI can be employed as BFs and BCs. The BCs model allows banks to provide doorstep delivery of services, especially cash in-cash out transactions, thus addressing the last-mile problem. BFs provide education regarding financial products and collect documents on behalf of Bank.

Simplified branch authorization: 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.

Use of technology: Recognizing that technology has the potential to address the issues of outreach and credit delivery in rural and remote areas in a viable manner, banks have been advised to make effective use of information and communications technology (ICT), to provide doorstep banking services through the BC model where the accounts can be operated by even illiterate customers by using biometrics, thus ensuring the security of transactions and enhancing confidence in the banking system.

Electronic Benefits Transfer (EBT): 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.

What is the need of Financial Inclusion in India:

The need of Financial Inclusion in a country like India is because of following reasons:

·         As we all know, Majority of the population in India resides in rural areas. Thus development of rural India is a key step towards economic development of India which can be achieved by Financial Inclusion.

·         Credit is one of the very important inputs of economic development. The timely availability of credit at an affordable cost has a big role to play in contributing to the well being of the weaker sections of the society.

·         Financial awareness is absent in rural sections of the society. Non institutional credit givers like money lenders still continue to give credit to rural sections. These money lenders take undue advantage of the ignorant people and they fall in debt trap that lasts for not only their life but for generations to come. This can be reduced by Financial Inclusion.

·         Inclusive financial system allows poor households to save and manage their money in a secure manner, decreases their exposure to economic shocks in the form of drought, floods or any calamity of the kind which affects people dependant on agricultural activities.

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