Financial Inclusion

The Inclusive Meaning of Financial Inclusion

Financial Inclusion or Inclusive Finance refers to the delivery of financial services (Not only Banking) at an affordable cost to the vast sections of the disadvantaged and low profile groups of the society.

So, Financial Inclusion helps vulnerable groups such as low income groups, weaker sections, etc., to increase incomes, acquire capital, manage risk and work their way out of poverty through secure savings, appropriately priced credit and insurance products, and payment services.

Financial Inclusion should not be seen as a social responsibility of the Governments and the banking system, but it is a potentially viable business proposition today which provides the poor with opportunities to build savings make investments and get credit. The upcoming Tech solutions such as UID project have a potential to make a difference.

Rangarajan Committee on Financial Inclusion

Despite of the efforts made so far by the successive governments a sizeable majority of our population; in particular the vulnerable groups continue to remain excluded from the opportunities and services provided by the financial sector.

In 2006, Government of India constituted a "Committee on Financial Inclusion" which was headed by Dr C Rangarajan, Chairman, Economic Advisory Council to the Prime Minister. The members of this committee were the stalwarts of the Finance & Banking system in the country.

The terms of reference to this committee were as follows:

1. To study the pattern of exclusion from access to financial services disaggregated by region, gender and occupational structure.
2. To identify the barriers confronted by vulnerable groups in accessing credit and financial services, including supply, demand and institutional constraints.
3. To review the international experience in implementing policies for financial inclusion and examine their relevance / applicability to India.

The committee was asked to recommend:

1. A strategy to extend financial services to small and marginal farmers and other vulnerable groups, including measures to streamline and simplify procedures,
2. Reduce transaction costs and make the operations transparent;
3. Measures including institutional changes to be undertaken by the financial sector to implement the proposed strategy of financial inclusion
4. A monitoring mechanism to assess the quality and quantum of financial inclusion including indicators for assessing progress.

Viewpoint of the Committee: (Very Important)

The committee is of the view that "while financial inclusion can be substantially enhanced by improving the supply side or the delivery systems, it is also important to note that many regions, segments of the population and sub-sectors of the economy have a limited or weak demand for financial services."

In order to improve their level of inclusion, demand side efforts need to be taken including improving human and physical resource endowments, enhancing productivity, mitigating risk and strengthening market linkages. However, the primary focus is on improving the delivery systems, both conventional and innovative.

Whose Inclusion?

The essence of Financial Inclusion is to ensure that a range of appropriate financial services is available to every individual of the country. This should include:

1. Regular financial Intermediation such as Banking which includes basic no frills accounts for sending and receiving money.
2. Saving Products which are suitable to the pattern of cash flow of the poor household.
3. Availability of the Money transfer facilities
4. Availability of small loans and overdrafts for productive , personal and other uses.