AN EVALUATION OF FINANCIAL INCLUSION

AN EVALUATION OF FINANCIAL INCLUSION 1 2 3 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 2005 06. 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

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, 2015. 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 2006-07 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 600000 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

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 1881. 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 1955. Another step in this direction was taken in 1969 when 14 major commercial banks were nationalized followed by six more in 1980. 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 2007-08 as per the recommendations of Dr. Ranagarajan Committee. Financial Inclusion In India Its Prospects And Challenges - Kumar Dhar 34

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 2014. 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 email 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

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 www.wikipedia.com and Times of India. 3. ANALYSIS AND INTERPRETATION OF DATA Table 1. State-wise progress on achievement of FIPs as on 31.3.2011. Achievement No. of BC Sl.No. Bank Total No. of Villages allotted up to 31.3.2011 agents appointed No. Total no. of F.I. Accounts opened Public Sector Banks 1 A & N Islands 9 5 5 2171 2 Andhra Pradesh 6655 2543 2295 1022521 3 Arunachal Pradesh 11 3 3 0 4 Assam 2327 337 327 4850 5 Bihar 9213 2129 658 477627 6 Chhatisgarh 1050 389 206 14353 7 D & N Haveli 30 13 10 17978 8 Daman & Diu 7 3 2 623 9 Delhi 113 47 41 10 Goa 41 39 11 2711 11 Gujarat 3502 1366 918 351126 12 Haryana 1843 1044 1485 365093 13 Himachal Pradesh 48 26 5 5984 14 J&K 795 15 Jharkhand 1541 515 503 229401 16 Karnataka 3395 1401 137 1538 17 Kerala 120 97 90 19816 18 Lakshadweep 0 0 0 0 19 Maharashtra 4298 1810 1467 519960 20 Manipur 186 23 21 227 21 Meghalaya 39 12 11 100 22 Mizoram 14 1 2 200 23 MP 2736 898 939 300523 24 Nagaland 196 18 16 240 25 Orissa 1878 776 691 168883 26 Puducherry 43 43 35 20255 27 Punjab 1576 686 28 Rajasthan 3883 1422 984 390727 29 Sikkim 43 19 18 6102 30 Tamilnaddu 4385 2077 2180 725212 31 Tripura 416 277 79 216914 32 UP 14626 5356 4356 2288195 33 Uttarkhand 216 89 86 9625 34 west Bengal 7486 3170 2239 1886589 Total: 72721 26634 19820 9049544 36

Table 2. State-wise FIP Progress as on 31.03.2012 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 9 9 9 720 0 Islands 2 Andhra Pradesh 6640 6639 1 6262 2985903 3 Arunachal Pradesh 11 11 0 4 45686 4 Assam 2319 2319 0 629 428695 5 Bihar 9213 9177 36 7097 2944040 6 Chandigarh 0 0 0 0 0 7 Chhattisgarh 1050 1050 0 802 241613 8 Dadra & Nagar 30 30 0 23 30615 9 Haveli Daman &diu 6 6 0 6 5486 10 Delhi 110 107 3 84 35810 11 Goa 41 41 0 36 6817 12 Gujarat 3502 3502 0 2712 998903 13 Haryana 1838 1838 0 1727 737641 14 Himachal Pradesh 48 48 0 41 36184 15 Jammu & Kashmir 795 726 69 618 254749 16 Jharkhand 1541 1541 0 1487 1554596 17 Karnataka 3395 3395 0 3035 1704723 18 Kerala 120 120 0 104 162421 19 Lakshadweep 0 0 0 0 0 20 Madhya Pradesh 2736 2736 0 2439 1355462 21 Maharashtra 4292 4292 0 3988 2212227 22 Manipur 186 186 0 95 48968 23 Meghalaya 39 39 0 12 62381 24 Mizoram 14 14 0 11 4886 25 Nagaland 196 196 0 73 181782 26 Orissa 1877 1875 2 1738 614090 27 Puducherry 42 42 0 34 33428 28 Punjab 1576 1576 0 1355 561948 29 Rajasthan 3883 3879 4 2779 1078613 30 Sikkim 43 43 0 41 18327 31 Tamil Nadu 4445 4445 0 4051 1888419 32 Tripura 419 419 0 414 442872 33 Uttar Pradesh 16270 16269 1 13452 7849863 34 Uttarakhand 226 226 0 202 63161 35 West Bengal 7486 7398 88 7108 3046524 Grand Total 74 398 74194 204 62468 31637553 Source: SLBC Conveners SL NO Table 3. PERCENTAGE AND RANK ANALYSIS OF 2011 FINANCIAL VILLAGES STATE INCLUSION RANK COVERED RANK Andaman & Nicobar Islands 0.002 32 100 13 0 2 Andhra Pradesh 9.438 3 99.98 27 3 Arunachal Pradesh 100 13 37

4 Assam 1.355 16 100 13 5 Bihar 9.306 4 99.61 30 6 Chandigarh 0.000 7 Chhattisgarh 0.764 18 100 13 8 Dadra & Nagar Haveli 0.097 28 100 13 9 Daman & diu 0.017 30 100 13 10 Delhi 0.113 25 97.27 32 11 Goa 0.022 29 100 13 12 Gujarat 3.157 11 100 13 13 Haryana 2.332 12 100 13 14 Himachal Pradesh 0.114 24 100 13 15 Jammu & Kashmir 0.805 17 91.32 33 16 Jharkhand 4.914 8 100 13 17 Karnataka 5.388 7 100 13 18 Kerala 0.513 20 100 13 19 Lakshadweep 0.000 20 Madhya Pradesh 4.284 9 100 13 21 Maharashtra 6.992 5 100 13 22 Manipur 0.155 23 100 13 23 Meghalaya 0.197 22 100 13 24 Mizoram 0.015 31 100 13 25 Nagaland 0.575 19 100 13 26 Orissa 1.941 13 99.89 29 27 Puducherry 0.106 26 100 13 28 Punjab 1.776 14 100 13 29 Rajasthan 3.409 10 99.9 28 30 Sikkim 0.058 27 100 13 31 Tamil Nadu 5.969 6 100 13 32 Tripura 1.400 15 100 13 33 Uttar Pradesh 24.812 1 99.99 26 34 Uttarakhand 0.200 21 100 13 35 West Bengal 9.629 2 98.82 31 Table 4. PERCENTAGE AND RANK ANALYSIS OF 2012 38

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

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, 6. 2. R Srikanth (2013), A Study on Financial Inclusion Role Of Indian Banks In Reaching Out To 40

The Unbanked And Back Ward areas, International Journal Applied Research and Studies, Vol 2 Issue No.9. 3. 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. 6. 5. Raman, Athul (2012), Financial inclusion and Growth of Indian Banking System, IOSR Journal of Business and management (IOSRJBM), vol no. 1, issue no. 3 6. Dr. Memdani, Laila, K Rajya, Lakshmi, (2013), Financial inclusions in India, International Journal of Applied Research and Studies, vol no. 2, issue No. 8. 7. timesofindia.indiatimes.com. Pradhan Mantri Jan Dhan Yojana 8. en.wikipedia.org. Pradhan Mantri Jan Dhan Yojana. 9. www.rbi.org 10. Report of the committee on financial inclusion in India (Chairman: C. Rangarajan) (2008), Government of India. 41