Financial Inclusion - the Scope and Effect in Indian Economy

Topics: Bank, Financial services, Insurance Pages: 8 (1853 words) Published: October 6, 2012
Financial inclusion in India – The way forward

The government of India & RBI has out with a major initiative towards ensuring the inclusive growth through financial inclusion so that the access of financial service will reach to the mass population. The main theme of this paper is to highlight the requirement of financial inclusion and to estimate the social benefit from these initiatives. As Reserve Bank of India data shows that as many as 139 districts suffer from massive financial exclusion, with the adult population per branch in these districts being above 20,000 and only 3 percent with borrowings from banks. On the assumption that each adult has only one bank account (which does not hold good in practice, so that actual coverage is likely to be worse) on an all India basis, 59 percent of the adult population in the country has bank accounts. 41 percent of the population is, therefore, unbanked. In rural areas the coverage is 39 percent against 60 percent in urban areas. The unbanked population is higher in the poorer regions of the country, and is the worst in the North-Eastern and Eastern regions.

This paper seeks to provide evidence on impact of financial inclusion in India, the various issues of financial exclusion, and present status of financial services of India. This paper studied secondary data to draw the conclusion. The study found that with this initiative the poorer section of the society will get benefit for their development and growth.

Objective of the Paper

• Highlight the issue of financial exclusion
• Impact on Indian economy of financial inclusion
• RBI initiatives & guideline
• Scope & challenges of financial inclusion in India
• Further suggestion

Meaning of Financial Inclusion

“The process of ensuring access to appropriate financial products and services needed by vulnerable groups such as weaker sections and low income groups at an affordable cost in a fair and transparent manner by mainstream Institutional players.”

Financial Inclusion should include access to financial products and services like-

No frill Bank accounts – check in( account
Micro Credit(
Savings products(
Remittances( & Payment services
Insurance - Healthcare(
Financial advisory( services
Entrepreneurial credit
Pension for old age(
Business( correspondence & self help group
Branchless banking(
Micro finance( & micro credit facility
Investment plan for child's( education

General equation

NFA + BC = FI Where, BC = Banks + OFIs + MFI + IT

NFA = No Frills Saving Bank Account
BC = Banks + Other Financial Institutions + Micro Finance Institutions + Information Technology OFI = Insurance Companies, Mutual Funds, Pension Companies

Pre-requisites For The Success of Financial Inclusion

Appropriate Technology(
Appropriate and Efficient( Delivery model
Mainstream banks’ determination and involvement(
Strong( Collaboration among Banks, Technical Service Provider, BC Services ( Especially the state administration at grass-root level
Liberalization of( BC model

Financial Exclusion

Financial exclusion could be looked at in two ways:
Lack of access to financial services which could be due to several reasons such as:

Lack of sources of financial services in our( rural areas, which are popular for the ubiquitous money lenders but do not have (safe) saving deposit and insurance services. High information barriers and( low awareness especially for women and in rural areas . Inadequate access( to formal financial institutions that exist to the extent that the banks couldn't extend their outreach to the poor due to various reasons like high cost of operations, less volume and more number of clients, etc. among many others. Poor functioning and financial history of some beleaguered( financial institutions such as financial cooperatives in many states which limit the...
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