Friday, March 13, 2015

Financial Inclusion

World Bank report shows that approx. 2.5 billion (250 crore) working-age adults globally - more than half of the total adult population of the world - have no access to the formal financial services delivered by regulated financial institutions.

Instead they depend on informal systems which bear high risks. They turn to the moneylender for credit, buy livestock as a form of savings, etc. It is evident that appropriate financial services can help improve household welfare and spur small enterprise activity.

Financial Inclusion
Financial Inclusion process is the conscious effort of the government or central bank of a country to deliver financial services to the excluded sector of the society (by including them). 

The Government of India and the Reserve Bank of India (RBI) have been making efforts to promote Financial Inclusion as a major national objective of the country. Some of the efforts -
  • Nationalization of banks
  • Building up of robust branch network of Scheduled Commercial Banks (SCBs), Co-operatives and Regional Rural Banks (RRBs)
  • Introduction of mandated Priority Sector Lending (PSL) targets
  • Lead bank schemes
  • Formation of Self Help Groups (SHGs) and Joint Liability Groups (JLGs)
  • Permitting Banking Correspondents (BCs) to be appointed by banks to provide door step delivery of banking services
  • Zero Balance accounts like Basic Savings Bank Deposit Accounts (BSBDAs), Small Accounts, Jan-Dhan Accounts, etc.
The primary objective of all above initiatives is to reach the financially excluded sector of India.

Financial Inclusion data sources
Financial Inclusion data is presented on 5 major sources, as follows -
  • National Sample Survey Organization (NSSO) survey results
  • Population Census of government (currently 2011 census)
  • CRISIL-Inclusix index
  • RBI study on 'Financial Inclusion' in India
  • World Bank 'Financial Access Survey' results

RBI Policy Initiatives
  • RBI advised all banks to open BSBDA accounts with facilities like no minimum balance, ATM facility, etc.
  • Relaxed and simplifed KYC norms - to facilitate easy opening of bank accounts, especially for Small Accounts with balances not exceeding Rs. 50,000, etc.
  • Simplified Branch Authorization Policy - Domestic Scheduled Commercial Banks (SCBs) are permitted to freely open branches in Tier-2 to Tier-6 center (population less than 1 lakh) under general permission, subject to reporting to RBI, etc.
  • Mandatory Branches in Un-banked villages - bank are directed to allocate at least 25 % of total number of branches to be opened during the year in un-banked (Tier 5 and Tier 6) rural centers
  • Opening of intermediate brick and mortar structure - for effective cash management, documentation, customer grievance redressal, etc - Micro branches to be opened in rural area, and can be operated by Business Correspondents
  • Financial Literacy Centers (FLCs) - to literate customers in financial matters, etc.
  • Licensing of New Banks - with aim to further spread the banking services

Financial Inclusion

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