Accelerating Financial Inclusion in Rural India

Introduction:

• RBI under the aegis of Financial Inclusion Advisory Committee initiated the process of formulation of National Strategy for Financial Inclusion for the period of 2019-24.
• The strategy envisages providing universal access to financial services and a bouquet of basic financial facilities as its starting point.
• The report has called for increasing outreach of banking outlets of scheduled commercial banks, payments banks, among others to provide banking access to every village within a 5 km radius of 500 households in hilly areas by March 2020.

What is Financial Inclusion (FI)?

• FI may be defined 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 an affordable cost.
• As per the Census 2011, only 58.7% of households are availing banking services in the country. NSSO 70th Round Survey shows that institutional and non-institutional sources of credit have almost identical shares i.e. 49% and 51% respectively.

Approaches adopted by RBI for encouraging FI:

Regulatory approach:

• Simplified KYC forms
• Simplified branch authorization
• Simplified savings account opening
• Other rural intermediaries
• Regional Languages
• Self-regulators for MFI

Product approach:

• No Frills Account/BSBD As
• Kisan Credit Card
• General Purpose Credit Card
• Overdraft Facility

Private sector approach:

• Business facilitator/Business Correspondents

Technology approach:

• Mobile banking
• Mobile wallet

Financial literacy approach:

• Financial literacy centers
• Financial Stability Development Council

Steps Taken to Increase Financial Inclusion:

• The tectonic shift in financial inclusion came with the introduction of Pradhan Mantri Jan-Dhan Yojana (PMJDY) in August 2014. Issuing licenses for Small Finance Banks and Payment Banks by RBI gave further impetus to it.
• The Ministry of Finance and National Informatics Centre have jointly developed a mobile app called Jan-Dhan Darshak, with a view to enable common people in locating financial service touch points.
• With a clear understanding that deep penetration at affordable cost is possible only with effective use of technology, use of e-KYC to ease the account opening process, use of Aadhar-enabled payment system for interoperability, support for demonstrating banking technology (mobile-van fitted with ATM), bringing in all the cooperative banks and Regional Rural Banks on CBS platform by NABARD, and roping in financial technology players will help in completion of the mission.

Achievements:

• Almost 80% of adult Indians have bank accounts, according to the Global Findex Database published in April 2018.
• Financial Inclusion Plan (FIP) has been implemented in two phases up to August 2018.
• The first phase, until 2015, aimed at providing universal access to banking facilities, basic banking accounts for savings and remittance and RuPay Debit card with an in-built accident insurance cover of Rs. 1,00,000.
• In the second phase, banks extended overdraft facilities up to Rs. 5000 to Jan Dhan account holders and created the Credit Guarantee Fund as well.
• These are creditable achievements for the country. However, getting a unique identity, having a bank account and using digital payments are just the foundations of Financial Inclusion.

Steps needed for achieving the most important objective of true financial inclusion:

• Financial firms must understand the market and structure products accordingly. Since agricultural income is seasonal and lumpy, while lending to a farmer, they need to structure a loan
  product where the repayment cycle is seasonal and not monthly.
• Financial literacy is one area where India still needs to do a great deal work.
• Partnership between the government and providers of various financial products is the need of the hour so that risks and rewards of working with marginal populations are shared.
• Provide rural communities with additional and alternative income streams. Microcredit products, for example, have the potential to transform the financially weak into micro-entrepreneurs.
• There is a need to include FI as a mandatory subject at different levels right from school to higher levels of education.

Budget 2020-21:

• It exerts more focus on building emerging technologies to drive Financial Inclusion in the country. As part of it, knowledge transfer centres are expected to be set up across new emerging sectors.
• National Mission on quantum technology is proposed to be launched.
• The govt.’s vision is to provide 100% digital access to all public institutions. Fibre-to-the-home through BharatNet will link 100,000 Gram Panchayats in the FY 2020-21.
• Another step proposed towards combating financial exclusion is mobilizing more and more SHGs.
• Under Deen Dayal Antyodaya Yojana for alleviation of poverty, 58 lakh SHGs have been mobilized.
• Through Dhaanya Laxmi Scheme, more and more SHGs will be assisted by NABARD. Women SHGs in villages will distribute seeds to farmers with help of MUDRA scheme.
• Certain amendments to the Banking Regulation Act are proposed for increasing professionalism, enabling access to capital and improving governance and oversight for sound banking through the RBI.
• A 16-point formula has been proposed to revive agriculture and link it with allied sectors better than before to double the income of farmers in the next two years.
• The incentive to boost the adoption of fintech by MSME and SME segment is of course a welcome move to enable them to get easy access to banking and financial services.
• The refinance scheme of NABARD has been extended to NBFCs that are into agri-related lending. However, the mega challenges are around credit growth and the resultant liquidity crisis, which has not been addressed.

Conclusion:

• At 4-5% growth now, problems appear aplenty but given our favorable demographics and with the significant reforms of the past few years such as GST, Insolvency code, and the thrust on formalization and digitalization of the economy, we have a solid framework to build on.

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Courtesy: Kurukshetra