Are Formal and Semi Formal Financial Institution Partnerships a Viable Option for Serving the Underserved in India

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Are formal and semi formal financial institution partnerships a viable option for serving the underserved in India

Xavier Institute of Management Bhubaneswar

Indu Paramita Mahapatra and Malay Harsh

The essay tries to identify the potential problems with financial sector and does a gap analysis that leads to potential opportunities in the sector. It also takes a look at the challenges faced by the different financial institutions, the goals achieved, the targets to be achieved and how the partnership between the different formal and semi formal institutions can create a synergy for serving the underserved of the country.


The reach and availability of finances determine the growth and development of any enterprise. Then how could the development of a nation be any different from it? It must be duly noted that majority of the country’s populace is out of the purview of the financial services which means more than half of our nation lacks access to savings and credit facilities among other financial securities and services such as investment options and insurance policies. Where we the urban literati state ourselves to be heavily hassled by the innumerable calls and emails trying to sell us a loan or investment options, these very same options are visibly amiss in the large rural pockets, places where they might be actually be needed. The fact is, there is a gap between the financial services needed and what is available.

Problem With financial services in India: Current scenario

India’s Economy Growth rate has been around 8.5% - 9% (last 5 years). Our growth primarily has been in the industry & services sector which has grown by about 16.8 percent. Even though agriculture is the principal means of livelihood for over 58.4% of India's population, the growth in this sector is limited to around 2.8%. Of the many factors that attribute to poor growth in agriculture, a major reason is lack of access to proper finance. Limited access to savings, loans, remittance & insurance in rural/ unorganized sector are major constraints to agricultural and SME growth. Financial access enlarges livelihood opportunity & empowers the poor. And empowerment in turn aids socio-political stability. Financial inclusion provides formal identity, access to payments system & deposit insurance. Types of Financial Exclusion: (i) exclusion from payment system: not having access to bank accounts (ii) exclusion from formal credit markets leading to approaching informal/ exploitative markets The marginal farmers, the landless labour, the self employed, the unorganized sector, urban slum dwellers, migrants, ethnic minorities, socially excluded groups, senior citizens and women are often not covered under the financial services. The North Eastern Region and the eastern & central regions are most excluded. Financial Inclusion and RBI’s role:

For the past few years one of the important new objectives of the Reserve Bank of India has been financial inclusion. Financial inclusion is the delivery of financial services at affordable costs to vast sections of disadvantaged and low income groups. Unrestrained access to public goods and services is the sine qua non of an open and efficient society. It is argued that as banking services are in the nature of public good, it is essential that availability of banking and payment services to the entire population without discrimination is the prime objective of public policy. The movement towards financial inclusion rose to a crescendo in the current year, partly because of the Platinum Jubilee Celebration of RBI and partly because the demand for financial inclusion has become a national and a governmental imperative.

According to Annual Policy Statement of RBI, 2004-05 “…banks should be obliged to provide banking services to all segments of population on equitable basis.” In 2005 RBI advised banks to provide basic bank “no...
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