What is Financial Inclusion: Financial inclusion is the process of ensuring access to appropriate financial products and services needed by vulnerable groups such as weaker sections and lower income groups at an affordable cost in a fair and transparent manner by mainstream institutional players. It is to take banking services to everybody to meet their savings, credit and remittances need initially and need for other financial products and services subsequently.
All villages with a population of more than 2000 will have access to financial services through a banking outlet, not necessarily a bank branch, by March 2012. Public Sector banks have been asked to draw up their respective plans as to how they propose to achieve the objective. RBI has permitted opening of branches in the rural areas without the need for formal approval thus insisting on greater coverage of unrepresented areas.
RBI has initiated the concept of banking correspondents who would travel from village to village with hand held devices to provide basic banking services. Many local people have been permitted to discharge this rule in association with banks. No frills account, Mobile banking, Microfinance institutions, self help groups, kishan credit are part of financial inclusion which makes financial inclusion successful. Micro insurance is also being pushed to promote the benefits of insurance. Banks have initiated many social initiatives in rural sector like adoption of villages for all around development, healthcare programmes, support to education etc in order that villages also keep pace with the growth in the urban areas.
Constitutes financial inclusion: The requirements to be fulfilled by banks to qualify in achieving the objective of financial inclusion are:-
(i) Providing a savings account with overdraft facility.
(ii) Pure savings product like recurring deposit account or a variable recurring deposit account.
(iii) Remittance product to facilitate electronic banking transfer.
(iv) credit products like kisan credit card or general credit card. The eligibility criteria for business correspondents is being periodically relaxed by RBI in order that the system of doorstep banking and banking through customer services points is maximized to cover the large number of unbanked villages. Efforts are being made in right earnest but the progress is still slow as the working model and delivery system is still in the process of application and evaluation.
Financial inclusion Inevitable: Financial inclusion as a major economic policy objective is under close scrutiny and monitoring of the government of India. RBI has also directed that performance of commercial banks under this parameter would be closely observed and regular reporting by the banks has been mandated. A separate fund has been created to part reimburse the expenses of banks in promoting activities to achieve the desired progress in this area. There was no way of promoting savings and to channelize these savings in the national economic in the absence of banks.
Why need stress on Financial inclusion: Financial inclusion is necessary for financial stability of a country as coexistence is mandatory. It is well known that stability, poverty and backwardness cannot prevail simultaneously for long. World Bank development indicators suggest a strong connect between financial access and development. Research studies also point towords a distinct rise in income levels of countries with high number of branches and more deposit accounts of banks.
Benefits of Financial inclusion:-
(1) They can improve financial conditions and standard of living.
(2) They increase economic activities and correspondingly open up employment avenues.
(3) Higher disposable income and wider deposit base.
(4) Greater business opportunities for commercial organizations, by volume and range of services or products.
(5) social welfare schemes become more meaningful.
(6) Small customers make for stable markets.
The Renewed Focus:- The growth of the economy in this period had lessons for the researchers and policy makers. The huge growth story, which made everyone sing praises brought a serious issue to surface. This growth was not inclusive as bulk of the Indian population was deprived of the benefits. In fact, the disparity between the haves and have nots has become sharper and the gap wider. It is well known that economic and financial stability cannot be achieved in case of such sharp divisions. This awareness and concern brought back the focus on financial inclusion and the necessity to maximize the coverage of banking services within the country.