Financial Inclusion in India

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INANCIAL INCLUSION - A path towards India’s future economic growth by Dr. K. Ravichandran, Dr. Khalid Alkhathlan Assistant Professor, King Saud University, Saudi Arabia SYNOPSIS: Though our country's economy is growing around 9 percent, still the growth is not inclusive with the economic condition of the people in rural areas worsening further. One of the typical reasons for poverty is being financially excluded. Though there are few people who are enjoying all kinds of services from savings to net banking, but still in our country around 40% of people lack access to even basic financial services like savings, credit and insurance facilities. So an inclusive sector should not only serve the bankable clients, but also integrate the "unbankable" clients by making them "bankable". Many actions taken by the government like Nationalizing of Banks, 40% of credit targets to priority sector, opening of RRBs and LABs, etc for past three decades are one form of financial inclusion, but still around 80 % of rural households do not have access to credit from a formal source. So as a last door step to Financial Inclusion, RBI came up with an initiative of launching National pilot project on Financial Inclusion in Puducherry in 2005. The specialty of this Financial Inclusion project is that accounts are opened by the bank officials at the doorsteps of households without insisting on any minimum balance or deposits. Let us analyze in depth that whether bringing people under banking category by this financial inclusion project helps in achieving the ultimate goal of lifting the standard of living of The Poor and reduce poverty in our country.

Introduction to Indian Economy

India is a country with diverse socio-economic condition along with diverse agro climatic situation. The growth trend of the Indian economy over the last few years appears to indicate the beginning of a new phase of higher growth. Though few decades ago, our country' economy was agricultural dependent one, now it more of service dependent and growth rate of agriculture is just above 2% and it contributes less than 22% to our country's GDP with 60% of the population depend 1 Electronic copy available at: http://ssrn.com/abstract=1353125

on agriculture. Further, this development or growth is not an even one, throughout the country, while urban regions are growing at greater rate; rural areas are still remaining stagnant. Further the Gini Index shows, the gap between the rich and the poor households keeps on increasing, thereby condition of the poor worsening further. As per the statistical data, around 26% of the population are below the poverty line, but let us first try to understand what poverty is and how it is measured in India and Internationally.

Statistics of Banks in Tamilnadu: Total Banks in Tamilnadu Total Bank Offices State Bank Group Nationalized Banks Other Scheduled Banks (Commercial) Regional Rural Banks Foreign Banks Source: RBI

No.

of

Number Branches 71 8 19 27 3 14 4880 728 2822 1093 215 22

What is Financial Inclusion?

Financial Inclusion is about delivery of banking services at an affordable cost to vast sections of disadvantaged, first step in FI is to facilitate people in getting basic facilities like food, shelter and clothing to the people and then comes the provision of bank account, wherein they can save whatever little they can. Financial Inclusion can be thought of in two ways. One is exclusion from the payments system –i.e. not having access to a bank account. The second type of exclusion is from formal credit markets, requiring the excluded to approach informal and exploitative markets.

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Electronic copy available at: http://ssrn.com/abstract=1353125

FINANCIAL SOURCES & SERVICES ACCESSIBLE TO A COMMON MAN

BANKS
State Bank & its associates Public Sector Banks Private Sector Banks RRB & LAB

Co-operative societies

MFI

Post offices

NBFC

Govt.

Money Lenders

Loans

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