AN EVALUATION OF FINANCIAL INCLUSION

Transcription

1 AN EVALUATION OF FINANCIAL INCLUSION Mary Sunita Dutto, Namratha R D, Dr. R. Himachalapathy 1 Research Scholar, St. Joseph's College of Commerce, Bangalore 2 Research Scholar, St. Joseph's College of Commerce, Bangalore 3 St. Joseph's College of Commerce, Bangalore (rhimachalapathy@gmail.com) ABSTRACT For developing countries the era is of inclusive growth and the means for inclusive growth is financial inclusion. It means providing financial services to disadvantaged and low income groups at affordable costs. There have been many complex challenges in financial inclusion areas like bringing the gap between the sections of society that are financially excluded within the realm of financial system. The main objective of this study is to highlight the recent developments that have taken place with respect to financial inclusion. The methodology used for the proposed study is based on secondary information available in several research articles prevailing in different reputed national and international journals in the area of financial inclusion. After analyzing the facts and figures it can be concluded that undoubtedly financial inclusion is playing a very important role in the economic and social development of our society but still there is long way to go to reach the desired outcome. Key words: Financial inclusions, Reserve Bank of India (RBI), Government of India (GOI). 1. INTRODUCTION Financial inclusion or inclusive financing is the delivery of financial services at affordable costs to sections of disadvantaged and low-income segments of society, in contrast to financial exclusion where those services are not available or affordable. Financial inclusion may be defined as the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost (The Committee on Financial Inclusion, Chairman: Dr. C. Rangarajan). After 67 years of independence, a large section of Indian population remains unbanked as a result of which the Disadvantaged and low income groups have lack of access to finance and this has led to financial instability. It is in this backdrop that the Government of India along with RBI has pushed the concept of financial inclusion. Financial inclusion has gained importance since the early 2000s. The Reserve Bank of India (RBI) set up the Khan Commission in 2004 to look into financial inclusion and the recommendations of the commission were incorporated in the mid of Financial inclusion first began in 2005, it was introduced by K.C. Chakraborthy. In the report RBI exhorted the banks with a view to achieve greater financial inclusion to make available a basic "no-frills" banking account. Mangalam became the first village in India where all households were provided banking facilities. Norms were relaxed for people intending to open accounts with annual deposits of less than Rs. 50,000. General credit cards (GCCs) were issued to the poor and the disadvantaged with a view to help them access easy credit. In January 2006, the Reserve Bank permitted commercial banks to make use of the services of non-governmental organizations NGOs/SHGs, micro-finance institutions, and other civil society organizations, as intermediaries for providing financial and banking services. These 32

2 intermediaries could be used as business facilitators or business correspondents by commercial banks. The bank asked the commercial banks in different regions to start a 100% financial inclusion campaign on a pilot basis. As a result of the campaign, states or union territories like Puducherry, Himachal Pradesh and Kerala announced 100% financial inclusion in all their districts. Reserve Bank of India's vision for 2020 is to open nearly 600 million new customers' accounts and service them through a variety of channels by leveraging on IT. However, illiteracy and the low income savings and lack of bank branches in rural areas continue to be a roadblock to financial inclusion in many states and there is inadequate legal and financial structure. The government of India recently announced Pradhan Mantri Jan Dhan Yojna, a national financial inclusion mission which aims to provide bank accounts to at least 75 million people by January 26, To achieve this milestone, it's important for both service providers and policy makers to have readily available information outlining gaps in access and interactive tools that help better understand the context at the district level. 1.1 OBJECTIVES Ÿ To outline the recent developments that have taken place in respect of financial inclusion in rural and backward areas in India. Ÿ To highlight the measures taken by Government of India and RBI in promoting the financial inclusion in backward and rural areas in India Ÿ To bring out different measures involved in providing financial inclusion services to the rural and other backward areas in India. 1.2 METHODOLOGY The present study is descriptive in nature. The data used for the study is secondary in nature. The data have been collected from various websites of RBI, reports of banks, reputed national and international journals, newspapers, and other websites. Secondary research is conducted to find out the various recent developments of financial inclusion in India for the rural backward areas. 2. LITERATURE REVIEW Financial inclusion, of late, has become the business world in academic research, public policy meetings and seminars drawing wider attention in view of its important role in aiding economic development of the resource poor developing economies. In the Indian scenario, the term 'financial inclusion' is popular in financial circles, especially after the Reserve Bank of India (RBI) announced a series of measures in its credit policy for to include many of the excluded groups in the banking net. 2.1 Branchless banking: Branchless banking is an initiative taken by RBI. It is an innovative concept where account can be opened and operated without going to any bank branch. This can be done with the help of banks' and other business representatives. These representatives dare local people who are appointed by the banks to act on their behalf. The profiles of business facilitators and business correspondence are prepared so that they can work as agents and directly work with the poor villagers. This helps in reaching out to the unbanked population the government has set up a target of providing financial inclusion for any village with a population of more than 2000 people there are more than villages which need banking and other services hence branchless banking has to be done in conjunction with other plans and directions of government in states districts and in taluks districts. Branchless banking is a means to take banking to customer's door step rather than the 33

3 traditional step of taking the customer to the bank. Financial Inclusion In India Its Prospects And Challenges - Kumar Dhar 2.2 Initiation of no-frills account: These accounts provide basic facilities of deposit and withdrawal to accountholders which makes banking affordable by cutting down on extra frills that are no use for the lower section of the society. These accounts are expected to provide a low-cost mode in order to access bank accounts. RBI also eased KYC (Know Your customer) norms for opening of such accounts. An Analytical Study: Relevance of Financial Inclusion For Developing Nations - Dr. Sharma, Ms. Kukreja 2.3 Banking service reaches homes through business correspondents: The banking systems have started to adopt the business correspondent mechanism to facilitate banking services in those areas where banks are unable to open brick and mortar branches for cost considerations. Business Correspondents provide affordability and easy accessibility to this unbanked population. Armed with suitable technology, the business correspondents help in taking the banks to the doorsteps of rural households, engaging business correspondents (Bcs). In January 2006, RBI permitted banks to engage business facilitators (BFs) and BCs as intermediaries for providing financial and banking services. The BC model allows banks to provide doorstep delivery of services, especially cash in-cash out transactions, thus addressing the last-mile problem. The list of eligible individuals and entities that can be engaged as BCs is being widened from time to time. With effect from September 2010, for-profit companies have also been allowed to be engaged as BCs. An Analytical Study: Relevance of Financial Inclusion For Developing Nations authors - Dr. Sharma, Ms. Kukreja 2.4 Role of banking system in extending banking services for financial inclusion Indian banking system has exhibited tremendous growth in extending its reach, coverage & delivery of financial products to the mass ever since The All India Rural Survey committee in 1954 recommended the creation of a state sponsored bank to promote rural penetration. Accordingly, SBI was established in Another step in this direction was taken in 1969 when 14 major commercial banks were nationalized followed by six more in This strengthened the concept of socialistic & welfare state stature of the country. Lead bank scheme was launched in 1970 to increase banking penetration with special focus on the districts. The emergence of RRBs in 1976 blended the skills of commercial banks with the grass root presence of the cooperative banks helped the mass to access to institutional credit. NABARD established in 1982 regulated institutional credit for agriculture & rural development. Talwar committee & Goiporia committee in the early eighties have made many recommendations to improve the customer services in India. Role Of Micro Finance And Self Help Groups In Financial Inclusion -Dr. D. Aravazhi. 2.5 NABARD in financial inclusion: The scheduled commercial banks have contributed to the roll of NABARD in financial inclusion NABARD continued to manage two dedicated funds they are that is Financial Inclusion Fund (FIF) for meeting the cost of developmental and promotional interventions and Financial Inclusion Technology Fund (FITF) for meeting the cost of technology adoption for financial inclusion. These Funds were instituted in NABARD by GOI in as per the recommendations of Dr. Ranagarajan Committee. Financial Inclusion In India Its Prospects And Challenges - Kumar Dhar 34

4 2.6 Micro finance Microfinance programmes are intended to reach poor segments of society as they lack access to financial services. It, therefore, holds greater promise to develop financial inclusion as it seeks to reach out to the excluded category of population from the banking system. The predominant micro finance programme namely SHG bank linkage programme has demonstrated across the country its effectiveness in linking banks with excluded category of poor segments of population. In this process, the role of development in NGOs is quite important in providing the last mile connectivity as enablers and catalyst between the SHGs / Village level co-operatives and the banks. Since 1992 SHG's is being implemented. The SHG's movement is popular one and since then financial inclusion has been achieved to a great extent. Role Of Micro Finance And Self Help Groups In Financial Inclusion -Dr. D. Aravazhi. 2.7 Self-Help Group - Bank Linkage Programme An SHG is a group of about 15 to 20 people from a homogenous class who join together to address common issues. They involve voluntary activities on a regular basis, and use of the pooled resource to make interest bearing loans to the members of the group. In the course of this process, they take in the essentials of financial intermediation and also the basics of account keeping. The members also learn to handle resources of size, much beyond their individual capacities. They begin to appreciate the fact that the resources are limited and have a cost. Once the group is stabilized, and shows conventional financial behavior, which generally takes up to six months, it is considered for linking to banks. Banks are encouraged to provide loans to SHGs in certain multiples of the accumulated savings of the SHGs. Loans are given without any collateral and at interest rates as decided by banks. Banks find it comfortable to lend money to the groups as the members have already achieved some financial discipline through their savings and internal lending activities. The groups decide the terms and conditions of loan to their own members. The peer pressure in the group ensures timely repayment and becomes social collateral for the bank loans Generally, the SHGs need self-help promoting institutions. Financial Inclusion In India An Analysis - Dr Singh and Tandon 2.8 Pradhan Mantri Jan Dhan Yojana: Objective of Pradhan Mantri Jan-Dhan Yojana (PMJDY) is ensuring access to various financial services like availability of basic savings bank account, access to need based credit facility, insurance and pension to the excluded sections i.e. weaker sections & low income groups. This deep penetration at affordable cost is possible only with effective use of technology. Prime Minister's People Money Scheme is a scheme for comprehensive financial inclusion launched by the Prime Minister of India, Narendra Modi on 28 August 2014 He had announced this scheme on his first Independence Day speech on 15 August with a target to provide 'universal access to banking facilities' starting with Basic Banking Accounts with overdraft facility of Rs.5000 after six months and RuPay Debit card with inbuilt accident insurance cover of Rs. 1 lakh and RuPay Kisan Card & in next phase, micro insurance & pension etc. will also be added. In a run up to the formal launch of this scheme, the Prime Minister personally mailed to CEOs of all banks to gear up for the gigantic task of enrolling over 7.5 crore (75 million) households and to open their accounts. In this he categorically declared that a bank account for each household was a "national priority". Run by Department of Financial Services, Ministry of Finance, on the inauguration day, 1.5 Crore (15 million) bank accounts were opened under this scheme. By September 2014, 3.02 crore accounts were opened, with around 1500 crore (US$240 35

5 million) were deposited under the scheme, which also has an option for opening new bank accounts with zero balance. Around Rs 5,400 crore have been deposited in banks in over seven crore bank accounts opened under Pradhan Mantri Jan Dhan Yojana of which 74 per cent accounts are with zero balance, according to an RTI reply. The data provided by department of financial services says that as on November 7, 2014 a total of 7.1 crore bank accounts have been opened of which 5.3 crore were accounts with 'Zero balance. Excerpts from and Times of India. 3. ANALYSIS AND INTERPRETATION OF DATA Table 1. State-wise progress on achievement of FIPs as on Achievement No. of BC Sl.No. Bank Total No. of Villages allotted up to agents appointed No. Total no. of F.I. Accounts opened Public Sector Banks 1 A & N Islands Andhra Pradesh Arunachal Pradesh Assam Bihar Chhatisgarh D & N Haveli Daman & Diu Delhi Goa Gujarat Haryana Himachal Pradesh J&K Jharkhand Karnataka Kerala Lakshadweep Maharashtra Manipur Meghalaya Mizoram MP Nagaland Orissa Puducherry Punjab Rajasthan Sikkim Tamilnaddu Tripura UP Uttarkhand west Bengal Total:

6 Table 2. State-wise FIP Progress as on S No Name of State Total No. of Villages Allotted No. of Villages covered No. of Total No. of villages yet to BCs be covered Appointed Total No. of FI accounts opened 1 Andaman & Nicobar Islands 2 Andhra Pradesh Arunachal Pradesh Assam Bihar Chandigarh Chhattisgarh Dadra & Nagar Haveli Daman &diu Delhi Goa Gujarat Haryana Himachal Pradesh Jammu & Kashmir Jharkhand Karnataka Kerala Lakshadweep Madhya Pradesh Maharashtra Manipur Meghalaya Mizoram Nagaland Orissa Puducherry Punjab Rajasthan Sikkim Tamil Nadu Tripura Uttar Pradesh Uttarakhand West Bengal Grand Total Source: SLBC Conveners SL NO Table 3. PERCENTAGE AND RANK ANALYSIS OF 2011 FINANCIAL VILLAGES STATE INCLUSION RANK COVERED RANK Andaman & Nicobar Islands Andhra Pradesh Arunachal Pradesh

7 4 Assam Bihar Chandigarh Chhattisgarh Dadra & Nagar Haveli Daman & diu Delhi Goa Gujarat Haryana Himachal Pradesh Jammu & Kashmir Jharkhand Karnataka Kerala Lakshadweep Madhya Pradesh Maharashtra Manipur Meghalaya Mizoram Nagaland Orissa Puducherry Punjab Rajasthan Sikkim Tamil Nadu Tripura Uttar Pradesh Uttarakhand West Bengal Table 4. PERCENTAGE AND RANK ANALYSIS OF

8 Interpretation On the basis of the availability of data for the year 2011 and percentage analysis and ranking of the same data, it is found that Uttar Pradesh stands first among all the states with regard to financial inclusion followed by West Bengal, Andhra Pradesh, Tamil Nadu, and Madhya Pradesh whereas Maharashtra, Nagaland and Meghalaya are the states which stands last in the queue as per financial inclusion is concerned As per the villages covered under financial inclusion is concerned, Pondicherry stands first followed by Goa, Kerala, Tripura, and Haryana, whereas Meghalaya stands last in the queue on this respect. On the basis of availability of data for the year 2012 and percentage analysis and ranking of the same data, it is found that Uttar Pradesh stands first among the states followed by West Bengal, 39

9 Andhra Pradesh, Bihar, Maharashtra, and Madhya Pradesh. Whereas Daman & Diu, Mizoram, and Andaman and Nicobar Islands stands last in the queue. As per the villages covered under financial inclusion is concerned, there are 25 out of 35 states Which have covered 100% villages that are assigned for financial inclusion. Jammu and Kashmir stands last in the queue on this respect. 3.1 FINDINGS As per our findings, 25.28% of financial inclusions have taken place in Uttar Pradesh alone when compared with all the 35 states of India during 2012 whereas Arunachal Pradesh, Delhi, Jammu and Kashmir, Lakshadweep and Punjab have not shown any progress in the direction of financial inclusion. It is evident that 24.81% of financial inclusions have taken place in Uttar Pradesh alone when we compare with all the 35 states of India during 2011 whereas Chandigarh and Lakshadweep have not shown any progress in the direction of the financial inclusion. 3.2 SUGGESTIONS Ÿ There are many programs and concepts which have been implemented but people are unaware due to illiteracy and communication hence The Government should take a step in giving awareness to the people of different financial services provided to them. Ÿ If the progress continues then corruption, illiteracy might reduce in the country, which intern leads to economic development. Ÿ Apart from these measures and programs which have been implemented by the government the banks should also take up initiatives to provide financial services. Ÿ They should also provide assistive services to the intermediaries and give directions to them Ÿ They should focus on the welfare of the family as the whole and not on individual basis. Ÿ The banks should also have a friendly attitude towards people so that many more people may be influenced and make the best uses of the services provided to them. 3.3 CONCLUSION Financial inclusion plays a vital role in the economic development of our country. This concept mainly benefits the people of rural and other backward areas, by the introducing of the new program Pradhan Mantri Jan Dhan Yojana by our Prime Minister Mr. Narendra Modi financial inclusion has taken a step forward in improving the backward sectors of our country. Financial inclusion has provided a lot of opportunities and facilities for the people living in backward areas in order to have better standard of living. Various programs and concepts have been started like Micro financing, Branchless banking, etc. which helps to get easy access to finance According to the report released on November 7th by times of India the department of financial services has revealed that 7.3 crore bank accounts have been opened of which 5.3 crores are of zero balance on account of the program introduced by our Prime Minister Mr. Narendra Modi (Pradhan Mantri Jan Dhan Yojana). 3.4 REFERENCE 1. Dr. Singh, Anurag B and Tandon, Priyanka (2013), Financial Inclusion In India: An Analysis, International Journal Of Marketing, Financial Services & Management Research, Vol 1 Issue no, R Srikanth (2013), A Study on Financial Inclusion Role Of Indian Banks In Reaching Out To 40

10 The Unbanked And Back Ward areas, International Journal Applied Research and Studies, Vol 2 Issue No Kumar, Sujay Dhar, Financial inclusion in India its prospects and challenges 4. DR. Sharma, Anupaama, MS. Kukreja, Sumita (2013), An analytical study: relevance of financial inclusion for developing nations, Research inventory: International journal of Engineering and science, Vol N0. 2, Issue No Raman, Athul (2012), Financial inclusion and Growth of Indian Banking System, IOSR Journal of Business and management (IOSRJBM), vol no. 1, issue no Dr. Memdani, Laila, K Rajya, Lakshmi, (2013), Financial inclusions in India, International Journal of Applied Research and Studies, vol no. 2, issue No timesofindia.indiatimes.com. Pradhan Mantri Jan Dhan Yojana 8. en.wikipedia.org. Pradhan Mantri Jan Dhan Yojana Report of the committee on financial inclusion in India (Chairman: C. Rangarajan) (2008), Government of India. 41