Financial Inclusion

Financial inclusion in India

1. Department of Economics
Baba Ghulam Shah Badshsh
University Rajouri
Presented by
Aarif Mohammad Lone
Presentation on Financial
Inclusion( DeparrtmnDofE)
Subject:Indian Economy
(MAE-443)
Presented To
Dr.Irfan Ah. Sofi

2. Financial Inclusion
Topics Discussed Under Financial Inclusion
●Definition / Meaning
●History
●Objectives
●Schemes
●Operations
●Importance
●Linkage between finance and economic development
●Role of technology in financial inclusion
●The progress of financial inclusion

3. Meaning of Financial Inclusion
●Financial inclusion is where individuals and businesses have
access to useful and affordable financial products and services
that meet their needs that are delivered in a responsible and
sustainable way. Financial inclusion is defined as the availability
and equality of opportunities to access financial services.
●Financial inclusion may be defined 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
(The committee on Financial inclusion,Chairman :Dr. C
Rangarajan).

4. History
●The term “Financial inclusion” has gained importance since the early
2000s,a result of identifying financial exclusion and it is a direct
correlation to poverty according to the world bank.
●Former United Nations secretary-General Kofi Annan, on 29
Dec.2003,said:''The stark reality is that most poor people in the world
still lack access to sustainable financial services,whether it is
savings,credit or insurance. The great challenge is to address the
constraints that exclude people from full participation in the financial
sector. Together,we can build inclusive financial sectors that help
people improve their lives.”
●In the Indian context, the term “Financial inclusion” was used for the
first time in April 2005 in the Annual policy statement presented Y.
Venugopal Reddy,the then governer,Reserve Bank Of India.

5. ●The RBI first broached the topic of financial inclusion by setting up the
Khan Commission in 2004.The recommendation of the commission
were incorporated in the mid-term review of policy in 2005 and 2006.The
RBI urged banks to make available a basic “no-frills” banking account
to the masses,with a view towards achieving greater financial inclusion.
Financial inclusion was introduced by K.C Chakraborty,chairman
India Bank,in 2005.
●The nationalization of banks,Lead bank scheme,Incorporation of
Regional Rural Banks,Service area Approach and formation of Self-Help
Groups-all these were initiatives aimed at taking banking services to the
masses.
● Mangalam in Tamil Nadu became the first village in India were all
household were provided with banking facilities.
●Norms were relaxed for people intending to open account with annual
deposits of less than INR50,000.

6. Objectives of Financial Inclusion
●Main objective is to address constraints that exclude people from
participating in financial sector &make financial services available to
the, to meet their specific needs without any kind of discrimination.
●Financial inclusion intends to help people secure financial services
and products at economical prices such as deposits,fund transfer
services,loans,insurance,payments services,etc.
●It aims to establish proper financial institutions to cater to the needs of
the poor people. These institutions should have clear cut regulations
and should maintain high standards that are existent in the financial
industry

7. ●Financial inclusion aims to build and maintain financial sustainability
so that the less fortunate people have a certainty of funds which they
struggle to have.
●Financial inclusion intends to increase awareness about the benefits of
financial services among the economically underprivileged sections of
the society.
●The process of financial inclusion works towards creating financial
products that are suitable for the less fortunate people of the society.
●Financial inclusion aims to bring in digital financing solutions for the
economically underprivileged people of the nation.

8. Schemes under Financial inclusion
The Government of India has been introducing several exclusive schemes
for the purpose of financial inclusion. These schemes intend to provide
social security to the less fortunate sections of the society. After a lot of
planning and research by several financial experts and policymakers, the
government launched schemes keeping financial inclusion in mind. These
schemes have been launched over different years. Let us take a list of the
financial inclusion schemes in the country:
●Pradhan Mantri Jan Dhan Yojana (PMJDY)
●Atal Pension Yojana (APY)
●Pradhan Mantri Vaya Vandana Yojana (PMVVY)
●Stand Up India Scheme
●Pradhan Mantri Mudra Yojana (PMMY)

9. ●Pradhan Mantri Suraksha Bima Yojana (PMSBY)
●Sukanya Samriddhi Yojana
●Jeevan Suraksha Bandhan Yojana
●Credit Enhancement Guarantee Scheme (CEGS) for Scheduled Castes
(SCs)
●Venture Capital Fund for Scheduled Castes under the Social Sector
Initiatives
●Varishtha Pension Bima Yojana (VPBY)

10. Operations of Financial Inclusion
Under financial inclusion, the main aspect is access to financial sources. This can be
broadly divided into credit, wealth creation, and contingency planning.
●According to the concept of financial inclusion, under the credit aspect, a low-
income individual needs proper access to emergency loans, consumer loans, housing
loans, and business livelihood loans at affordable rates.
●Under the wealth creation aspect, a poor individual should be able to make excellent
savings and have access to reliable investment options that generate good returns.
Every low-income household should also have basic financial literacy and
understand the concept of risk in finance clearly.
●Under the contingency planning segment of the financial inclusion system, a poor
person should have access to funds that can be utilised exclusively in the future. It is
not enough if these people have only means to improve their income and enhance
their lifestyle. They should also have the right resources to be prepared for the
future, especially when they get old. Many of the poor people may not be aware of
retirement plans. They should be provided with affordable retirement plans that will
give them good returns in the later stages of their lives.

11. ●They should also be given insurable contingencies to keep themselves safe and
secure. Many less fortunate people do not even think of taking a life insurance
policy or a vehicle insurance policy due to the high costs involved. Insurers should
offer insurance options at subsidised premiums to the economically weaker sections.
These insurance policies will give them coverage and prevent them from paying
exorbitant compensation costs when something unforeseen or unfortunate happens
to them or their family.
●They should also be given buffer savings in order to be prepared and ready for
unforeseen or emergency expenses. This way, they would not have to go to their
relatives or friends or moneylenders for monetary support. They can be financially
ready always.
●The Reserve Bank of India is promoting the establishment of Financial Literacy
Centres (FLCs). It has made many modifications and revisions regarding the
functioning of Financial Literacy Centres (FLCs). The rural branches of various
scheduled commercial banks and financial literacy centres are now required to
improve financial awareness on a larger scale and enhance their financial literacy
activities by organising catchy and simple financial literacy camps. These camps can
be held outdoors under a tree or in some other open space by having financial
awareness camps on a monthly basis or more frequently. Financial literacy camps
work towards imparting financial literacy and offering convenient financial access
to low-income people of the society.

12. ●With the objective of distributing the branches of scheduled commercial banks
(SCBs), the RBI has instructed banks to establish their branches in Tier 2 to Tier 6
centres that have less than 1 lakh people. These branches can be opened with a
general permission from the RBI. In Sikkim and North-Eastern states, scheduled
commercial banks can set up branches without even getting any approval from the
RBI. They are free to open any branch in these states. The RBI is also working to
liberalise the functioning of commercial banks apart from regional rural banks
(RRBs) so they can open branches in Tier 1 centres with a general permission.
●The central bank of the nation also asked banks to discuss and create Financial
Inclusion Plans (FIPs). These plans will include details about staff employed,
branches opened, facilities offered in each of these branches, steps being taken to
convert the unbanked sections of the society to individuals with basic access to
banking services, etc. The plan will also include information about no-frills
accounts opened with each public or private bank. The RBI has been checking each
bank’s FIP with full dedication and providing them with constructive feedback.

13. Importance
The policy makers have been focusing on FINANCIAL inclusion of Indian rural and
semi-rural areas primarily for three most important pressing needs.
●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.
●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.
●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.

14. Linkage between finance and economic
development
●Economically week participants can now borrow money from banks
easily at low interest rates which will help them to improve their
living standard.
●Small industries can increase their output by investing more money.
That extra money can be borrowed from banks at affordable rates and
within less time.
●Poverty can be eradicated to some extent by financial inclusion.
●By introducing more banks in rural areas savings and investment will
increase.
●Financial inclusion can manage the financial liquidity to avoid
inflationary pressures and to flush out enough liquidity to sustain the
growth.

15. ●It can manage the risks faced by business and firms.
●It creates new employment opportunities.
●It leads to increase in aggregate demand.
●It Improves education,health and nutrition of weaker
sections of economy.

16. Channels to financial inclusion and
economic growth

17. Role of technology in financial inclusion
●Technological improvements lower transaction costs.
●For banks, technology has a critical role to play in reducing
transaction and operation cost component for the banks in providing
financial services to its poorest customers, reducing these costs shall
lead to reduction in lending costs.
●For addressing the problem of long distance and poorest transport
linkages in rural areas,communications technology could pay an
important role by bridging the last mile between the customer and the
provider and thus facilitate transactions
●One of the biggest challenges of financial inclusion is financial
literacy. No matter how many banks you open and how many boots
you have on the ground, if a person does not know about the financial
options that are open to him, policies, schemes and financial
instruments will mean little. It is important for a person to firstly know
what to look for and only then think of the benefits that he can obtain
from it? The digital economy can be strongly leveraged to spread
financial literacy.

18. Mobile banking-potent instrument for
increasing outreach
●Mobile phones present an ideal platform to increase outreach of
financial services to the rural population as their penetration is already
large and growing. For a bank to reach its customers as well as to
widen its customer base without investments in physical infrastructure
like branches and ATMs, mobile banking presents a fantastic
opportunity to undertake branchless banking.
●Mobile Banking is the ability of a person to conduct most transactions
that one would normally perform, like cash withdrawals, paying utility
bills etc through a mobile phone rather than through bank’s ATM or
branch.
● A branchless banking channel using mobile phones is far more
preferable to poor people than the available options of traveling to and
queuing at distant branches or saving in cash and physical assets.

19. ● Banks can develop new products that target unmet needs of existing
customers. These new services could exploit the new functionality
available through a mobile phone (e.g. location awareness, under the
“new functionality” view) or its value as a personal technology (the
“new way to interact” view).The mobile phone acts as a service
“presentation” and delivery channel, its main utility no different than
an Internet machine.
●Mobile banking allows the banks to offer their customers quality and
breadth of service. Usually, it is difficult for banks to provide
personalized individual services but with mobile banking this is
relatively easier, they can provide unique customer experience even if
the nature of the service offered is non unique.

20. ● Banks can develop new products that target unmet needs of existing
customers. These new services could exploit the new functionality
available through a mobile phone (e.g. location awareness, under the
“new functionality” view) or its value as a personal technology (the
“new way to interact” view).The mobile phone acts as a service
“presentation” and delivery channel, its main utility no different than
an Internet machine.
●Mobile banking allows the banks to offer their customers quality and
breadth of service. Usually, it is difficult for banks to provide
personalized individual services but with mobile banking this is
relatively easier, they can provide unique customer experience even if
the nature of the service offered is non unique.

21. Main benefits derived from using mobile
phones to
banks’ strategic drivers

22. Three mobile banking scenarios

23. The progress of financial inclusion
Faster implementation of FIPs is seen after 2010-11. Commercial banks
opened new rural branches, increased coverage of villages, set up ATMs
and digital kiosks, deployed BCs, opened no-frills accounts, and provided
credit through KCCs and GCCs. The introduction of core banking
technology and proliferation of alternate delivery channels aided the
process of inclusion on a larger scale. The statistics on key banking
network give a sense of the pace of progress of banking outreach as part
of FI.

24. Progress of financial inclusion at a glance

25. The tectonic shift in financial inclusion
The biggest change came with the roll out of ‘Pradhan Mantri Jan Dhan
Yojana (PMJDY)’ in August 2014. PMJDY has been designed to ensure
accelerated access to various financial services like basic savings bank
accounts, affordable, need-based credit, remittances facilities, and
insurance and pension for excluded sections. Such deep penetration at
affordable cost can only be possible with effective use of technology.
Hence, the banking ecosystem operating on core banking mode, and
ability of NPCI to scale-up issue of debit cards has enabled effective
implementation of PMJDY. As a result, the number of new savings
accounts opened by the banking system has been phenomenal under the
scheme. The progress since its inception is interesting to observe

26. Progress of PMJDY up to 9 May 2018

27. Examination Type Questions
●Q.1: What is financial inclusion? Write down its
objectives and importance.
●Q.2:How Financial inclusion is important for
Economic Development?
●Q.2:What is the role of Technology in Financial
inclusion,and how can technology be used as a tool
to promote financial product to masses.
●Q.3:What is the role of Financial institutions in
Financial inclusion?
●Q.4:Write down the schemes under Financial
Inclusion.