Financial Inclusion Persuasive Essay Example

is argued that as banking services are in the nature of public good, it is essential that availability of banking and payment services to the entire population without as gained importance since the early 2000s, and is a result of findings about Financial Exclusion and its direct correlation to poverty. Financial Inclusion is now a common objective for many central banks among the developing nations. Financial Inclusion in India The Reserve Bank of India setup a commission (Khan Commission) in 2004 to look into Financial Inclusion and the recommendations of the commission were incorporated into the Mid-term review of the policy (2005-06).

In the report RBI exhorted the banks with a view of achieving greater Financial Inclusion to make available a basic "no- rills" banking account. In India, Financial Inclusion first featured in 2005, when it was introduced, that, too, from a pilot project in UT of Pondicherry, by K C Chakraborthy, the chairman of Indian Bank. Mangalam Village became the first village in India where all households were provided banking facilities. In addition to this KYC (Know your Customer) norms were relaxed for people intending to open accounts with annual deposits of less than Rs. 50, 000.

General Credit Cards (GCC) 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/SH6s), micro-finance institutions and other civil society organizations as intermediaries for providing financial and banking services. These intermediaries could be used as business facilitators (BF) or business correspondents (BC) 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 U. T. s like Puducherry, Himachal Pradesh and Kerala have announced 100% financial inclusion n 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 road block to financial inclusion in many states. Apart from this there are certain in Current model which is followed. There is inadequate legal and financial structure.

India being a mostly agrarian economy hardly has schemes which lend for agriculture. Along with Microfinance we need to focus on Micro insurance oo. The scope of financial inclusion The scope of financial inclusion can be expanded in two ways. a) through state-driven intervention by way of statutory enactments ( for instance the US example, the Community Reinvestment Act and making it a statutory right to have bank account in France). b) through voluntary effort by the banking community itself for evolving various strategies to bring within the ambit of the banking sector the large strata of society.

When bankers do not give the desired attention to certain areas, the regulators have to step in to remedy the situation. This is the reason why he Reserve Bank of India is placing a lot of emphasis on financial inclusion. In India minimum access to a savings bank account without frills, to all. Internationally, the financial exclusion has been viewed in a much

wider perspective. Having a current account / savings account on its own, is not regarded as an accurate indicator of financial inclusion. There could be multiple levels of financial inclusion and exclusion.

At one extreme, it is possible to identify the 'super-included', i. e. , those customers who are actively and persistently courted by the financial services ndustry, and who have at their disposal a wide range of financial services and products. At the other extreme, we may have the financially excluded, who are denied access to even the most basic of financial products. In between are those who use the banking services only for deposits and withdrawals of money. But these persons may have only restricted access to the financial system, and may not enjoy the flexibility of access offered to more affluent customers.

Steps towards financial inclusion In the context of initiatives taken for extending banking services to the small man, the ode of financial sector development until 1980's was characterized by a hugely expanded bank branch and cooperative network and new organizational forms like RRBs a greater focus on credit rather than other financial services like savings and insurance, although the banks and cooperatives did provide deposit facilities; lending targets directed at a range of 'priority sectors' such as agriculture, weaker sections of the population, etc; rate ceilings; interest significant government subsidies channeled through the banks and cooperatives, as well as through related government programmes; a dominant erspective that finance for rural and poor people was a social obligation and not a potential business opportunity.

Committee on Financial Inclusion The Committee has defined Financial Inclusion 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 . " - C. RangaraJan The major recommendations of the Committee include : a. Launching of a National Rural Financial Inclusion Plan (NRFIP) in mission mode with a clear target to provide access to comprehensive financial services, including redit, to at least 50% (say 55. 77 million) of the financially excluded rural cultivator/ non-cultivator households, by 2012 through rural/semi-urban branches of Commercial Banks and Regional Rural Banks . The remaining households have to be covered by 201 5.

For the purpose, a National Mission on Financial Inclusion (NaMFl) is proposed to be constituted comprising representatives from all frame. b. Constitution of two funds with NABARD - the Financial Inclusion Promotion ; Development Fund(FlPF) and the Financial Inclusion Technology Fund(FlTF) with an initial corpus of Rs. 00 crore each to be contributed by Gol / RBI / NABARD. The FIPF will focus on interventions like, "Farmers' Service Centres", "Promoting Rural Entrepreneurship", "Self-Help Groups and their Federations", "Developing Human Resources of Banks", "Promotion of Resource Centres" and "Capacity Building of Business Facilitators and Correspondents", while the FITF will focus on funding of low-cost technology solutions. (This recommendation has already been accepted by c.

Deepening the outreach of microfinance programme through finacing of SHG/JL6s and setting up of a risk mitigation mechanism for lending to small marginal farmers/ hare croppers/tenant farmers through JL6s. d. Use of PACSs as Business Facilitators and Correspondents e. Micro finance - Non Banking Finance Companies (MF-NBFCs) could be permitted to provide thrift, credit, micro-insurance, remittances and other financial services

up to a specified amount to the poor in rural, semi-urban and urban areas. Such MF-NBFCs may also be recognized as Business Correspondents of banks for providing only savings and remittance services and also act as micro insurance agents. f.

Opening of specialised microfinance branches / cells in potential urban centers for xclusively catering to microfinance and SHG - bank linkages requirements of the urban poor. An enabling provision be made in the NABARD Act, 1981 permitting NABARD to provide micro finance services to the urban poor. Indian Scenario 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. The rationale for creating Regional Rural Banks was also to take the banking services to poor people. The branches of commercial banks and the RRBs have increased from 8321 in the year 1969 to 68,282 branches as at the end of March 2005. The average population per branch office has decreased from 64,000 to 16,000 during the same period.

However, there are certain under-banked states such as Bihar, Orissa, Rajasthan, Uttar Pradesh, Chattisgarh, Jharkhand, West Bengal and a large number of North- Eastern states, where the average population per branch office continues to be quite high compared to the national average. As you would be aware, the new branch authorization policy of Reserve Bank encourages banks to open branches in these places a lot of emphasis on the efforts made by the Bank to achieve, inter alia, inancial inclusion and other policy objectives. One of the benchmarks employed to assess the degree of reach of financial services to the

population of the country, is the quantum of deposit accounts (current and savings) held as a ratio to the adult population.

In the Indian context, taking into account the Census of 2001 (ignoring the incremental growth of population thereafter), the ratio of deposit accounts (data available as on March 31, 2004) to the total adult population was only 59% (details furnished in the table). Within the country, there is a wide variation across states. For instance, the ratio for the state of Kerala is as high as 89% while Bihar is marked by a low coverage of 33%. In the North Eastern States like Nagaland and Manipur, the coverage was a meager 21% and 27%, respectively. The Northern Region, comprising the states of Haryana, Chandigarh and Delhi, has a high coverage ratio of 84%.