Reach the Unreached – Status of Financial Inclusion in India 1. Introduction
The focus of financial inclusion is on promoting sustainable development and generating employment for a vast majority of the population especially in the rural areas. In the first-ever Index of Financial Inclusion to find out the extent of reach of banking services among 100 countries, India has been ranked 50. Out of 19.9 crore households in India, only 6.82 crore households have access to banking services. As far as rural areas are concerned, out of 13.83 crore rural households in India, only 4.16 crore rural households have access to basic banking services. In respect of urban areas, only 49.52 per cent of urban households have access to banking services and 34 per cent of the India’s urban population with annual income less than ` 50,000 have access to banking services. The latest National Sample Survey Organisation survey reports that there are over 80 million poor people living in the cities and towns of India and they lack access to the most basic banking services such as savings accounts, credit, remittances and payment services, financial advisory services, etc. Low-income groups do not have access to the formal banking systems, as they usually do not have the documents needed to open a bank account. As a result, they depend on the informal sector for their savings and loan requirements. Thus, financial inclusion is considered to be critical for achieving inclusive growth, which itself is required for ensuring overall sustainable growth. Recognising the importance of inclusive growth in India, efforts are being taken to make the financial system more inclusive. The present paper is an attempt to examine the present status of Financial Inclusion in India and issues involved in extending banking services to weaker sections of the society. 2. Causes of Financial Exclusion in India
Access to formal banking system is affected by several barriers such as culture, financial literacy, gender, income and assets, proof of identity, remoteness of residence, and so on. Over a period of time several measures are being taken by the banks in India to improve access to affordable financial services through financial education, leveraging technology, and generating awareness. There are number of factors affecting access to financial services by weaker section of society in India. The lack of awareness, low incomes and assets, social exclusion, illiteracy are the barriers from demand side. The distance from bank branch, branch timings, cumbersome banking procedure and requirements of documents for opening bank accounts, unsuitable banking products or schemes, language, high transaction costs and attitudes of bank officials are
the barriers from supply side. Hence, there is a need for financial inclusion to build uniform economic development, both spatially and temporally, and ushering in greater economic and social equity.
3. Committee on Financial Inclusion (Chairman: Dr.C.Rangarajan) To build a structure and roadmap for Financial Inclusion, the Government of India appointed a committee on Financial Inclusion under the chairmanship of Dr.C.Rangarajan, (then Deputy Governor of Reserve Bank of India) in 2008. The Rangarajan Committee suggested that the financial inclusion should include access to mainstream financial products such as bank accounts, credit, remittances and payment services, financial advisory services and insurance facilities. Making banking and payment services available to the entire population without discrimination is the main objective of Financial Inclusion. Thus, the main focus of financial inclusion in India is on promoting sustainable development and generating employment in rural areas for the rural population.
4. What is Financial Inclusion?
The Rangarajan Committee on Financial Inclusion defines financial inclusion as “a comprehensive and holistic process of ensuring access to financial services and timely and...