Gausing the Potential of Financial Inclusion- Evidence from Indian Scenario

Abstract

Financial inclusion refers to the process of extending financial products and services at an affordable cost to the weaker and vulnerable sections of the society in a visible and fair manner. Financial inclusion envisages low-cost banking services to the financially excluded population and regions of the country. Financial Inclusion is the process of ensuring access to appropriate financial products and services needed by all sections of the society in general and vulnerable groups such as weaker sections and low income groups in particular at an affordable cost in a fair and transparent manner by mainstream institutional players. The objective of financial inclusion is to extend the scope of activities of the organised financial system to include within its ambit people with low incomes. It attempts to lift the poor from one level to another so that they come out of poverty. In India, the basic concept of financial inclusion is having a saving account or current account with any bank. In reality it includes loans, insurance services and much more. Financial Inclusion in developing countries is different than that of developed countries. In latter where inclusion implies a minority whereas in case of former it means a majority. In advanced economies, Financial Inclusion is more about the knowledge of fair and transparent financial products and a focus on financial literacy. In emerging economies, it is a question of both access to financial products and knowledge about their fairness and transparency. Bank nationalization in India marked a paradigm shift in the focus of banking as it was intended to shift the focus from class banking to mass banking. It has proved a major breakthrough in accessibility of banking services to the vast rural population of the country. This was a significant effort towards financial inclusion, which led to the spread of bank branches in unbanked rural and semi-urban areas. Revamping of cooperative banking structure, directed credit policy like priority sector lending and the micro-finance effort taken by National Bank for Agriculture and Rural Development, Kisan Credit Card Scheme and Swarnajayanti Gram Sworozgar Yozna scheme of subsidised finance are some of the measures taken in the direction of financial inclusion. Unfortunately, in spite of enhanced outreach of banks in rural and semi-urban areas and the implementation of direct credit, farmers & rural artisans still did not receive adequate credit from banks during post-liberalisation period. Financial inclusion is a great step to alleviate poverty in India. But to achieve this, the government should provide a less perspective environment in which banks are free to pursue the innovations necessary to reach low income consumers and still make a profit. Financial service providers should learn more about the consumers and new business models to reach them. Financial exclusion is not the just an Indian centric problem- this is a global conundrum as well. On 29th December, 2003,