Financial inclusion refers to the availability to both individuals and businesses of useful and cost-effective financial goods and services, including payments, transactions, savings, credit, and insurance, that are provided in a sustainable and ethical manner.
According to The Committee on Financial Inclusion, whose chairman is Dr. C. Rangarajan, the process of ensuring vulnerable groups, such as weaker parts and low-income groups, have access to financial services and timely, enough credit when needed at an affordable cost is known as financial inclusion. The Indian government places a high premium on financial inclusion. The goal of financial inclusion is to increase access to financial services for the nation’s sizable, previously underserved population in order to maximize its growth potential.
Financial inclusion is a vital step in the growth of a culturally diverse nation like India. Since the nation’s independence, successive governments, regulatory agencies, and civil society have worked together to spread the country’s financial inclusion net.
Compared to before, financial inclusion is currently in considerably better form. Though the poorest of the poor haven’t yet benefited from financial inclusion, there are numerous obstacles and problems that require rapid response.
As a result, there is a huge requirement and the opportunity to reach out to the unbanked and bring them into the financial system.
Why is Financial Inclusion Truly necessary?
According to Franklin D. Roosevelt “The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.”
Financial inclusion improves the nation’s financial system overall. It improves the accessibility of financial resources. Most significantly, it makes saving more difficult for poverty-stricken people living across both urban and rural locations. This continually contributes to the growth of the economy.
Due to their precarious situation, many impoverished people are prone to be duped and occasionally even exploited by wealthy landlords and unlicensed moneylenders. Financial inclusion can assist to change this dire and dangerous scenario. In order to secure their meager financial resources for the future, financial inclusion involves incorporating the poor into the established banking system.
Schemes for Financial Inclusion in India
The Indian government has been adopting a number of unique programs to promote financial inclusion. The goal of these programs is to give social security to the less fortunate groups in society. These programs were introduced at various times over the years. Here is a list of the national financial inclusion initiatives:
Jan Dhan-Aadhar-Mobile (JAM) trinity
The JAM trinity (Jan Dhan, Aadhaar, and Mobile), which links Aadhaar and mobile phones to Jan Dhan accounts, is a notable advancement for financial inclusion. This has made a number of Direct Benefit Transfer (DBT) systems possible. Up till March 2020, 380 million beneficiaries had been registered for the program.
Aadhaar has fundamentally altered the idea of personal identity and created a system that is both safe and simple to verify as well as simple to obtain in order to aid in the process of financial inclusion.
The administration has also introduced other flagship programs, including the Pradhan Mantri Jeevan Jyoti Bima Yojana, Stand-Up India Scheme, and Pradhan Mantri Suraksha. Atal Pension Yojana and Bima Yojana.
Growth of financial services in rural and semi-urban areas
The National Bank for Agriculture and Rural Development (NABARD) and the Reserve Bank of India (RBI) have taken steps to encourage financial inclusion in rural areas. One of these is the opening of bank branches in outlying regions. Issuing credit cards for Kisan (KCC), Self-help groups (SHGs), and banks are inextricably linked and the proliferation of automated teller machines (ATMs).
Promoting electronic payments
The Unified Payment Interface (UPI) has been strengthened by NPCI, making digital payments safer than in the past.
An Aadhar-enabled bank account (AEBA) may be utilized everywhere and at any time by using micro ATMs thanks to the Aadhar-enabled payment system (AEPS).
Due to offline transaction-enabling technologies like Unstructured Supplementary Service Data (USSD), which enable the use of mobile banking services even on the most basic mobile devices without the internet, the payment system has become more accessible.
Increasing Financial Literacy
Project Financial Literacy is an initiative started by the Reserve Bank of India.
The project’s goal is to enlighten a variety of target groups, such as school- and college-age children, women, rural and urban poor, military people, and older citizens, about the central bank and general banking ideas.
The Securities and Exchange Board of India’s (SEBI) and National Institute of Securities Markets’ (NISM) flagship initiative, Pocket Money, aims to improve school children’s financial literacy. The goal is to aid students in understanding the value of money and the significance of financial planning, investing, and saving.
Breakthroughs in Financial Inclusion
Increased Bank Access
In comparison to the 53% estimated in 2014, 78% of Indian people now have bank accounts, according to the World Bank’s Global Financial Inclusion Database or Global Findex study from 2021.
Escalating Multiplier Effect
Major adjustments have been made as a result of these attempts to improve people connecting the unconnected to financial services. Financial inclusion offers the ability to significantly alleviate poverty and create jobs by giving impoverished and marginalized groups of society access to financial resources.
Increasing Citizens’ Active Participation
Prior to now, private institutions had little interaction with the underprivileged.
Commercial players like Paytm, airtel money, and jio money) are now actively involved in this transition since they have realized how beneficial it is for their business models to include the poor in the financial system.
Financial Services Integration
JAM Trinity’s convergence with the Direct Benefit Transfer (DBT) program has mainly been successful. This has resulted in a notable enhancement in the number of targeted and accurate payments. Additionally, it has assisted in reducing the dependency on cash payments and cleaning out duplicate entries.
The concept of saving among the poor is developed and economic resources are made more readily available as a result of financial inclusion. A significant step toward inclusive growth is financial inclusion. It aids the poor population’s overall economic development. Effective financial inclusion in India is required to improve the underprivileged and poor by offering them tailored financial services and products.