Financial Inclusion – Changing The Sector Together Brings Smiles For The Unbanked.

Financial inclusion is a key element of social inclusion, particularly useful in combating poverty and income inequality by opening blocked advancement opportunities for disadvantaged segments of the population. It focuses on providing financial solutions to the economically underprivileged. The term is broadly used to describe the provision of savings and loan services to the poor in an inexpensive and easy-to-use form. It aims to ensure that the poor and marginalised make the best use of their money and attain financial education. With advances in financial technology and digital transactions, more and more start-ups are now making financial inclusion simpler to achieve.

What Is Financial Inclusion?

Financial inclusion is the process of ensuring access to financial products and services needed by vulnerable groups at an affordable cost in a transparent manner by institutional players.

Financial Inclusion In India

The concept of financial inclusion was first introduced in India in 2005 by the Reserve Bank of India. Around 192.1 million accounts have been opened under the Pradhan Mantri Jan Dhan Yojana (PMJDY). These zero-balance bank accounts have been accompanied by 165.1 million debit cards, a life insurance cover of Rs 30,000 and an accidental insurance cover of Rs 1 lakh.

The adoption and evolution of digital technologies have enabled the democratisation of financial services for the masses. Rural employment generating programmes like MNREGA and Pradhan Mantri Jan Dhan Yojana have solved the supply-side challenges, opening millions of bank accounts. Adding consistent policy and regulatory changes to drive inclusion made the market ripe for reaching out to the unbanked and under banked.

RBI has adopted a bank-led model for achieving financial inclusion and removed all regulatory bottle necks in achieving greater financial inclusion in the country. Further, for achieving the targeted goals, RBI has created conducive regulatory environment and provided institutional support for banks in accelerating their financial inclusion. The government of India has been introducing several exclusive schemes for the purpose of financial inclusion. These schemes intend to provide social security to the less fortunate sections of the society.

After a lot of planning and research by several financial experts and policymakers, the government launched schemes keeping financial inclusion in mind. These schemes have been launched over different years. Let us take a list of the financial inclusion schemes in the country:

1. Pradhan Mantri Jan Dhan Yojana

2. Atal Pension Yojana

3. Pradhan Mantri Vaya Vandana Yojana 

4. Stand Up India Scheme

5. Pradhan Mantri Mudra Yojana (Pmmy)

6. Pradhan Mantri Suraksha Bima Yojana (Pmsby)

7. Sukanya Samriddhi Yojana

8. Venture Capital Fund For Scheduled Castes Under The Social Sector Initiatives

In the last decade, two of the critical drivers for Digital India have hit a staggering billion in number. In comparison, Jan Dhan accounts are halfway there, but the multiplier effect is now talked of as a success worldwide. The government now wants to dovetail insurance products to ride the groundswell of the opportunity. These accounts could drive micro-credit and micro-investments and raise the bar for financial inclusion.

Financial inclusion is a building block for both poverty reduction and opportunities for economic growth, with access to digital financial services critical for joining the new digital economy. While banking services is the first step, it allows access to savings, credit, insurance and other services.

The unfolding of scale for mobility, Aadhaar and no frills banking or Jan Dhan, during different timelines were consolidated by the regulator RBI shape policy changes. Its business correspondent (BC) model in 2006 took the idea of banking to the informal sector, warming up to small businesses and individuals. The BC model allowed banking service at remote locations which did not have a bank branch or an ATM facility. Programs like MGNREGA, where money transfers were later institutionalised through the banking channels only, brought about a major shift in the world of financial inclusion.

When the pandemic hit the bottom of the pyramid hardest, to provide greater operational flexibility to banks and other institution for reaching out to priority sector, a revised scheme, renamed co-lending model (CLM), was introduced in November 2020. The focus of the revised scheme was to improve the flow of credit to the unserved and underserved sectors of the economy at affordable rates.

Among the steps that RBI five-year approach enumerated for financial inclusion were differentiated banking licences – small finance banks and payments banks. The India Post Payments Bank launched in 2018 is now leveraging the 1.5 lakh post offices to push the policy. The Indian Bank Association has also been trying to identify good BCs based on their track record, with an emphasis on formal training to drive capacity building.

The bank-led model for financial inclusion also gives opportunities for micro pension and insurance products to be made available. The National Pension Scheme (NPS) is being expanded for wider reach while technology is being leveraged to improve access.

The main challenges of Financial Inclusion are mentioned below:

1. Bank services do not have enough support for scalability.

2. The technology adoption is limited.

3. The lack of the availability of documents for the purposes of banking activities.

4. Almost minimal financial literacy.

5. In the case of rural areas, telecom connectivity and infrastructure are poor.

Financial Inclusion In India Through Digitisation Of Monetary Transactions

The government of India intends to carry out crores of digital financial transactions for the present and upcoming years with the help of Unified Payment Interface (UPI), Unstructured Supplementary Service Data (USSD) banking methods, Immediate Payment Service (IMPS), National Electronic Funds Transfer (NEFT), Aadhaar Pay, debit cards, BHIM, and credit cards.

Moreover, the government wants to make it compulsory for fertiliser depots, block offices, petrol pumps, road transport offices, hospitals, colleges, universities, etc. to make arrangements for accepting payments for services and products through digital payment systems. It makes a lot of sense especially when customers are required to make high-value payments at these institutions or offices. The government intends to achieve this by issuing a mandate to the above-mentioned institutions.

Apart from this, the government also wants to make it mandatory that every government receipt is offered exclusively through any digital mode. Presently, many government operations are carried out digitally and customers receive receipts for payments in the digital form. However, this has not been completely effective in every part of the nation. To attract more and more users for digital modes of payment, the government is trying its best to remove or reduce service charges that are levied by companies on the electronic transactions.

These digital financial apps will help in eliminating corruption apart from achieving financial inclusion. These apps aim to attain financial inclusion by offering interesting and attractive bonuses for both users and merchants. Customers who make use of these cashless payment tools will be able to enjoy referral bonus schemes and meanwhile, merchants will get cash back rewards and points when they allow customers to transact through these cashless systems.

Apart from introducing digital financial systems to the poor people, a few banks have released mobile banking vans or trucks to reach the interior parts or untouched parts of the country. In these parts, people do not have access to transport, communication, or financial services.

Along with the government-owned payment apps, there are many private mobile electronic wallet (e-wallet) systems created by private companies and banks. Most of these apps allow bank fund transfers. All these e-wallets enable users to make payments digitally in a convenient manner. Individuals will not get stranded anywhere even if they are out of cash in hand. If they have money in their electronic wallet, they are safe and can carry out financial transactions successfully without having to rely on others for money. Most of these apps are available on Android and iOS smart phones. There are also some apps that are available on phones that operate through Windows.

Since many sections of the Indian Economy cannot access various formal banking services, Financial Inclusion was provided to provide them with these facilities. The introduction of Financial Inclusion has allowed banks to provide credits for project financing.