NATIONAL STRATEGY FOR FINANCIAL INCLUSION FOR INDIA 2019-2024

Definition of financial inclusion?

            Financial inclusion has been defined as “the process of ensuring access to financial services,

timely and adequate credit for vulnerable groups such as weaker sections and low-income groups

at an affordable cost.

Why financial inclusion?

            Financial inclusion is increasingly being recognized as a key driver of economic growth

and poverty alleviation the world over.

            Access to formal finance can boost job creation, reduce vulnerability to economic shocks and increase investments in human capital. Without adequate access to formal financial services, individuals and firms need to rely on their own limited resources or rely on costly informal sources of finance to meet their financial needs and pursue growth opportunities.

            At a macro level, greater financial inclusion can support sustainable and inclusive socio-economic growth for all.

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            There has been a growing evidence on how financial inclusion has a multiplier effect in  boosting overall economic output, reducing poverty and income inequality at the national level. Financial inclusion of women is particularly important for gender equality and women’s economic empowerment.

            With greater control over their financial lives, women can help themselves and their families to come out of poverty; reduce their risk of falling into poverty; eliminate their exploitation from the informal sector; and increase their ability to fully engage in measurable and productive economic activities.

            An inclusive financial system supports stability, integrity and equitable growth. Therefore,financial exclusion because of several barriers likephysical, socio-cultural and psychological, warrants attention from the policy makers. Some of the key reasons resulting in involuntary exclusion are:

Why financial inclusion strategy?

1)seeks to address the inherent barriers of access to a gamut of financial products and services. 

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2)financial inclusion as a key enabler for achieving sustainable development worldwide by improving the quality of lives of poor and marginalized sections of the society.

3)An inclusive financial system (ably supported through sound financial inclusion policies, focus on financial education and customer protection) is not only pro-growth but also pro-poor with the potential to reduce income inequality and poverty, promote social cohesion and shared economic development.

Status of financial inclusion in India :

            India began its financial inclusion journey as early as in 1956 with the nationalisation of Life Insurance companies. This was followed by nationalisation of banks in 1969 and 1980. The general insurance companies were nationalised in 1972. A review of the status of financial inclusion in India indicates that a host of initiatives have been undertaken over the years in the financial inclusion domain.

            Under PMJDY, 34.01 crore2 accounts have been opened with deposits amounting to ₹89257 crore upto January 30, 2019 within a short span of five years.

            Under Pradhan Mantri Suraksha Bima Yojana (PMSBY) a renewable one- year accidental death cum disability cover of ₹2 lakhs is offered to all subscribing bank account holders in the age group of 18 to 70 years for a premium as low as ₹12/- per annum per subscriber.

            Under APY, a subscriber (in the age group of 18 to 40 years) will receive fixed monthly pension in the range of ₹1,000 to ₹5,000 after completing 60 years of age, depending on the contributions made by the subscriber.

Also various measures that have been undertaken by various stakeholders in strengthening financial inclusion in the country, there are still critical gaps existing in the usage of financial services that require attention of policy makers through necessary co-ordinationand effectivemonitoring. 

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1.     Inadequate Infrastructure: Limited physical infrastructure, limited transport facility, inadequately trained staff etc., in parts of rural hinterland and far flung areas of the Himalayan and North East regions create a barrier to the customer while accessing financial services.

2.     Poor Connectivity: With technology becoming an important enabler to access financial services, certain regions in the country that have poor connectivity tend to be left behind in ensuring access to financial services thereby creating a digital divide. Technology could be the best bridge between the financial service provider and the last mile customer. Fintech companies can be one of the best solutions to address this issue. The key challenge that needs to be resolved would be improving tele and internet connectivity in the rural hinterland and achieving connectivity across the country.

3.     Convenience and Relevance: The protracted and complicated procedures act as a deterrent while on-boarding customers. This difficulty is further increased when the products are not easy to understand, complex and do not meet the requirements of the customers such as those receiving erratic and uncertain cash flows from their occupation.

4.     Socio-Cultural Barriers: Prevalence of certain value system and beliefs in some sections of the population results in lack of favourable attitude towards formal financial services. There are still certain pockets wherein women do not have the freedom and choice to access financial services because of cultural barriers.

5.     Product Usage: While the mission-based approach to financial inclusion has resulted in increasing access to basic financial services including micro insurance and pension, there is a need to increase the usage of these accounts to help customers achieve benefits of relevant financial services and help the service providers to achieve the necessary scale and sustainability. This can be undertaken through increasing economic activities like skill development and livelihood creation, digitising Government transfers by strengthening the digital transactions’ eco-system, enhancing acceptance infrastructure, enhancing financial literacy and having in place a robust customer protection framework.

6.     Payment Infrastructure: Currently, majority of the retail payment products viz., CTS, AEPS, NACH, UPI, IMPS etc. are operated by National Payments Council of India (NPCI), a Section (8) Company promoted by a group of public, private and foreign banks. There is a need to have more market players to promote innovation & competition and to minimize concentration risk in the retail payment system from a financial stability perspective.

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National Strategy for Financial Inclusion for India 2019-2024

            The vision for financial inclusion as, “convenient access to a basket of basic formal financial products and services that should include savings, remittance, credit, government-supported insurance and pension products to small and marginal farmers and low-income households at reasonable cost with adequate protection progressively supplemented by social Cash transfers, besides increasing the access of small and marginal enterprises to formal finance with a greater reliance on technology to cut costs and improve service delivery.

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Pillars of National Strategy for Financial Inclusion for India 2019-2024:

 

Measuring Finacial inclusion :