RESEARCH PAPER ON ROLE OF GOVERNMENT IN FINANCIAL INCLUSION Role of Government in financial inclusion Abstract:- This research paper contains the full information about the financial inclusion of the world’s economic. In this research paper we describe the financial inclusion basic meaning, definitions, scope & significance. Now we move towards the second phase which include role of government & role of banks in financial inclusion. we also include the reforms that has been done by the government and the other government organizations .
We also include the main article that has been given by the different ministers about financial inclusion & its reform. Financial Inclusion Meaning: Financial inclusion is a policy adopted by many countries to include more people in the financial set up of the country. It aims at tackling poverty and deprivation in the country. In simple terms financial inclusion refers to making the finance or the financial/banking sector more accessible to people. For example: Debit cards, internet banking and direct debit facilities are now common, convenient and cheap ways of paying for goods and services.
Yet there are still people who are excluded from using these services. People who are losing out as they are unable to take advantage of the benefits offered by the range of financial products available. In developing and poor countries like Bangladesh, Nepal, Afgan etc there are many people who do not even have a bank account or who are unable to take advantage of the loans and deposit benefits offered by banks due to various reasons like lack of knowledge, fear, lack of proximity etc. Today, personal debt is at a record igh and borrowing without a bank account means using high interest lenders. Many of the people in this position live in our poorest communities and find themselves without choice or access to basic financial services, making it even more difficult to find routes out of poverty. Defination: Financial Inclusion is the delivery of banking services at affordable costs to vast sections of disadvantaged and low income groups. Unrestrained access to public goods and services is the sine qua non of an open and efficient society.
It 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 discrimination is the prime objective of public policy. The term Financial Inclusion has 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-frills” 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/SHGs), micro-finance institutions and other civil society organizations as intermediaries for providing financial and banking ervices. 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 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 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 too. The scope of financial inclusion The scope of financial inclusion can be expanded in two ways. ) 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 the Reserve Bank of India is placing a lot of emphasis on financial inclusion.
In India the focus of the financial inclusion at present is confined to ensuring a bare 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 ervices industry, 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 mode 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; • interest rate ceilings; significant government subsidies channeled through the banks and cooperatives, as well as through related government programmes; • a dominant perspective 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 credit, 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 2015. For the purpose, a National Mission on Financial Inclusion (NaMFI) is proposed to be constituted comprising representatives from all stakeholders to aim at achieving universal financial inclusion within a specific time frame. b. Constitution of two funds with NABARD – the Financial Inclusion Promotion & Development Fund(FIPF) and the Financial Inclusion Technology Fund(FITF) with an initial corpus of Rs. 500 crore each to be contributed by GoI / 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 GoI. ) c. Deepening the outreach of microfinance programme through finacing of SHG/JLGs and setting up of a risk mitigation mechanism for lending to small marginal farmers/share croppers/tenant farmers through JLGs. . 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 exclusively 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 under banked states and the under banked areas in other states. The new policy also places a lot of emphasis on the efforts made by the Bank to achieve, inter alia, financial 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 7%, respectively. The Northern Region, comprising the states of Haryana, Chandigarh and Delhi, has a high coverage ratio of 84%. Compared to the developed world, the coverage of our financial services is quite low. For instance, as per a recent survey commissioned by British Bankers’ Association, 92 to 94% of the population of UK has either current or savings bank account. The Way Forward The banks should come out of inhibited feeling that very aggressive competition policy and social inclusion are mutually exclusive.
As demonstrated elsewhere, the mass banking with no-frills etc. can become a win-win situation for both. Basically banking services need to be “marketed” to connect with large population segments and these may be justifiable promotional costs. The opportunities are plenty. • In the context of India becoming one of the largest micro finance markets in the world especially in the growth of women’s savings and credit groups (SHGs) and the sustaining success of such institutions which has been demonstrated by the success of SEWA bank in Gujarat, low cost banking is not necessarily an unviable venture/proposition. • The IBA may explore the possibility of a survey about the coverage in respect of financial inclusion keeping in view the geographical spread of the banks and extent of financial services available to the population so as to assess the constraints in extension of financial services to hitherto unbanked sections and for initiating appropriate policy measures. • It may be useful for banks to consider franchising with other segments of financial sector such as cooperatives, RRBs etc. o as to extend the scope of financial inclusion with minimal intermediation cost. • Since large sections of low income groups transactions are related to deposits and withdrawals, with a view to containing transaction costs, ‘simple to use’ cash dispensing and collecting machines akin to ATMs, with operating instructions and commands in vernacular would greatly facilitate financial inclusion of the semi urban and rural populace. In this regard, it is worthwhile to emulate the example of ‘e-Choupal’ project brought forth through private sector initiative.
The role of the Government Financial Inclusion Taskforce The Financial Inclusion Taskforce was established by the Treasury to advise Government and others on progress towards tackling financial exclusion and was launched in February 2005. The Taskforce’s terms of reference, defined by HM Treasury, cover three priority areas identified by the Government. These are: access to banking, affordable credit and free face-to-face money advice. The terms of reference of the Taskforce are to: Report to HM Treasury and the banking industry on progress towards the shared goal of halving the number of adults in households without a bank account, and having made significant progress in that direction within two years; • Monitor provision of banking services to the financially excluded, including access,and report to the banks and HM Treasury on findings; • Consider ways in which the capacity and skills of volunteers and staff within third sector lenders can be enhanced; Monitor the increase in provision of affordable credit by third sector institutions. This information could then be used by HM Treasury and the DWP to inform the distribution of financial support to third sector lenders and evaluate outcomes; • Monitor the scheme whereby, under certain circumstances, loan repayments could be made by deduction from benefits and make recommendations to HM Treasury and the DWP following the outcome of the evaluation of the scheme; • Identify areas of best practice, and gaps, in the provision of free face-to-face money advice.
This information could then be used by HM Treasury and the DTI to inform the distribution of financial support for face-to-face money advice and evaluate outcomes; • Monitor the progress of the debt outreach pilots, and consider the outcomes of the evaluation of the scheme; • Make recommendations to HM Treasury on tackling financial exclusion in areas not covered by PBR proposals. ROLE OF BANKS IN PROMOTING FINANCIAL INCLUSION The Indian economy is growing strongly which ensures better recovery and asset valuation.
Progressive bank reforms and low interest rates will increase borrowing activity to meet their financial targets. Banking industry is making rapid strides with Information technology driven initiatives and has led to expansion of products (i. e. ) expansion of financial services giving birth to the concept of Financial Inclusion. Financial Inclusion is the availability of banking services at an affordable cost to the disadvantaged and low income groups. In India, the basic concept of financial inclusion is having a saving or current account at any bank.
In reality, it includes loans, insurance services and much more, for all members of an economy. An inclusive financial system has several merits. It facilitates efficient allocation of productive resources and thus can potentially reduce the cost of capital. In addition, access to appropriate financial services can significantly improve the day to day management of finances. An inclusive financial system can help in reducing the growth of informal sources of credit such as money lenders, which are often found to be exploitative. Thus, an all inclusive inancial system enhances efficiency and welfare by providing avenues for secured and safe saving practices and by facilitating a whole range of efficient financial services. In line with the above, after liberalization, the banking environment in India had grown more competitive with the relaxation of restrictions and adoption of International standards banks are forced to adopt measures to survive. The recent financial reforms and greater competition in the banking industry have made it necessary for banks in India to concentrate towards the excluded mass.
Successful banks in India focus on the rural sector by providing Financial Inclusion service. The importance of an inclusive financial system is widely recognized in the policy circle and recently Financial Inclusion has become a policy priority in many countries. Legislative measures have also been initiated in some countries. Further more, in recent years, Indian Banking System has become dynamic and there is an increasing trend in the number of depositors in Banks.
The quest of financial inclusion is indispensable for the well being and growth of any country, more for a developing country like India with large sections of population in the unorganized sector. The Government of India as well as Reserve Bank of India has been taking steps over the years to make financial services accessible to all . It is in this context, it is worth to mention the perils of financial exclusion.. Financial exclusion not only hurts the excluded by keeping them trapped in a vicious circle of poverty but also has ramifications for the entire country.
Financial empowerment leads to economic and social empowerment. There is empirical evidence on the critical role of finance in economic growth. Therefore financial inclusion, financial literacy and inclusive growth are the themes of modern banking in India It is found that, the commercial banks in India work broadly through three segments namely,. Corporate, retail and treasury. In India, the Reserve Bank of India has initiated several measures to achieve greater financial inclusion, such as facilitating “no frill” accounts and “General Credit Cards” for low deposits and credits.
The German Bankers’ Association introduced a voluntary Code in 1996 providing for an “everyman” banking transactions. In South Africa, a low cost bank account called “Mzansi” was launched for financially excluded people in 2004 by the South African Banking Association. Alternative financial institutions such as micro finance institutions and Self Help Groups have also been promoted in some countries in order to reach financial services to be excluded. Financial Inclusion is a key dimension of the overall strategy envisaged in the Approach Paper for the Eleventh Plan entitled “Towards Faster and More Inclusive Growth”.
If the intention is to promote ‘more inclusive growth’, then the definition of Financial Inclusion cannot stop at opening a short-duration account in the name of a hitherto marginalised individual or group. Growth cannot be achieved by transferring a lumpsum of money into this account as proof of one loan given, closing both the account after the loan is drawn (or letting it remain dormant) as well as the file itself after the loan is repaid and the subsidy adjusted.
Financial inclusion is not a one-off event. In terms of finance provision, it means that hitherto excluded people – either as individuals or as groups – now have access to credit on a regular basis for as long as they continue to abide by the terms of such a credit relationship. For Financial inclusion to promote growth, it has to move from “opening an account” in the Bank, to regular savings and finally to a relationship which enables the borrower to access loans on a regular basis.
If this definition is accepted, it follows that despite the plethora of schemes that have been promoted by various governments from pre-IRDP days to the current SGSY, the SHG-Bank Linkage Programme is the only formal-sector scheme till date that regards excluded people as regular customers who can take loans again and again, as against being one-time beneficiaries who have to fall back on their own resources once their turn to benefit from the government scheme is over.
Table 1 gives a picture of the progress of the SHG-Bank Linkage movement. It must be noted however, that the number of SHGs formed and functioning is far greater than the number of SHGs linked to Banks and Financial Institutions (FIs). Many SHGs have not approached the Bank or have not been able to access Bank finance for one reason or the other. Others are new and have to go through a period of training and functioning to build their credibility. A rough guess would put the number of SHGs in the country at around 3 million, of which 1. million have had access to credit through the SHG Bank Linkage programme. It must also be noted that the source of data on the SHG-Bank Linkage Programme is NABARD, and is based on the refinance that Banks have claimed; there are many more SHGs financed where the banks have not claimed refinance and hence, the numbers do not make it to NABARD data sheets. SHGs financed by micro-finance institutions are also excluded from NABARD’s data. Table 1: Breakdown of the number of SHGs financed agency wise Agency |During 2005-06 |Cumulative upto March 31, 2006 | | |SHGs |Bank Loan |SHGs |Bank Loan | | |No. |% |Amount |% |No. |% |Amount |% | |CBs |344,567 |56 |28,284. 30 |63 |1,188040 |53 |69,874. 50 |61 | |RRBs |176,178 |28 |12,226. 2 |27 |740,024 |33 |33,221. 50 |29 | |Coops |99,364 |16 |4,480. 54 |10 |310,501 |14 |10,879. 50 |10 | |Total |620,109 |100 |44,990. 86 |100 |2,238,565 |100 |113,975. 50 |100 | (Amount in Million Rupees) What is also interesting to note is that in addition to the 539,365 SHGs financed for the first time in 2004-2005, NABARD’s data also indicates that 258,092 SHGs received repeat finance in 2004-2005, to a tune of Rs. 2,676 million. One of the major concerns was the slow progress of the SHG Bank Linkage movement in the North-east and Central parts of the country. It was even claimed in some quarters that the SHG strategy was not suitable to the social configurations that prevailed in the North East. NABARD made special efforts through its network to rectify this situation. As a result, progress in these States has picked up considerably, as the following Table indicates: RBI to host international meet on financial inclusion Articles on Financial Inclusion Bartronics bags SBIs financial inclusion project
Customers who would be coming under the purview of financial inclusion would be provided with a biometrically configured contactless smart card . New Delhi: Bartronics India, the leading provider of end-to-end-solutions based on AIDC technologies has been awarded a smart card based financial inclusion project by five associate banks of State Bank of India. The bank includes: State Bank of Bikaner and Jaipur, State Bank of Indore, State Bank of Mysore, State Bank of Patiala, and State Bank of Travancore. The project has been targeted to cover villages in the operating area of the banks and is expected to reach a volume of 6. 0 lakhs customers by March, 2010. Customers who would be coming under the purview of financial inclusion would be provided with a biometrically configured contactless smart card. Incorporated in 1990, Bartronics India is a Hyderabad based company that started with providing solutions in bar coding; one of the oldest automatic identification and data capture (AIDC) technologies. Subsequently the company has forayed into smart cards, biometrics, RFID, RFDC, EAS and point of sales technologies, creatin g a niche for itself across industries.
APEX’10 Summit to Discuss Role of Venture Capital in Financial Inclusion [pic][pic]Financial Services, especially Microfinance, has been among the few sectors that has witnessed rising investor interest even during the period in which the global financial system went through a major upheaval. With the bounce back in the overall economy and the Indian government and regulators making a strong push for financial inclusion, the opportunities for partnerships between PE/VC investors and growth-oriented entrepreneurs in this sector is only set to grow further.
The panel will also include PE/VC investors focused on the sector as well as advisory firms. “Financial Services, especially Microfinance, has been among the few sectors that has witnessed rising investor interest even during the period in which the global financial system went through a major upheaval. With the bounce back in the overall economy and the Indian government and regulators making a strong push for financial inclusion, the opportunities for partnerships between PE/VC investors and growth-oriented entrepreneurs in this sector is nly set to grow further,” said Arun Natarajan, Managing Director & CEO of Venture Intelligence. As with the past three summits, APEX’10 will witness the coming together of about 200 participants from leading PE & VC Funds, Entrepreneurs and Top Executives from across sectors and related Service Providers. “APEX’10 presents a unique platform where institutional investors in PE/VC funds, fund managers, entrepreneurs and sector experts will share their predictions on trends that will shape the investing landscape over the next several months,”
Promoting Financial Inclusion through Innovative Policies ADBI organized this four day workshop on “Promoting Financial Inclusion through Innovative Policies” in partnership with: (i) Advisory Group on APEC Financial System Capacity-Building; (ii) APEC Business Advisory Council; (iii) Alliance for Financial Inclusion; (iii) Foundation for Development Cooperation; (iv) Inter-American Development Bank; and (v) International Finance Corporation. This event brought together more than 80 policy makers and experts on financial inclusion from Asia and the Pacific.
It included a half-day field visit tothe Japan Finance Corporation and PLANET Finance Japan. The workshop discussed approaches to and exchange country experiences on financial inclusion, focusing on the following six key areas. i. Agent Banking. Innovative policies and regulations can facilitate partnerships with non-bank agents like post offices. They can deliver financial services to unbanked customers at lower costs, and with greater convenience. Case studies from Russia, Mexico and Eurogiro were discussed. ii. Mobile Banking.
With the explosive growth of mobile phone usage around the world, particularly among the low income and rural group, a range of operations, such as deposit taking, withdrawal, payment transactions, and other conventional banking services, can be offered through mobile technologies and services. This would however require close collaboration between banking and telecommunications regulators. There were case studies from the Philippines, Cambodia, Japan and Mobile Money for the Unbanked Initiative. iii. Diversifying Providers.
Regulatory reform can lower barriers for start-up institutions which can develop various financial products geared toward low-income clients. Policy instruments should be designed to promote new entrants without distorting the market. Case studies from Uganda, Cambodia and Indonesia were discussed, along with a special case study on micro-insurance. iv. Reforming Public Banks. Two successful cases were presented: Union Bank of India, a public bank which promotes financial inclusion yet remains commercially viable; and he Khan Bank of Mongolia, which had been privatized, re-nationalised and re-privatised, and now successfully provides microfinance services to the whole country. v. Financial Identification. Many poor people lack personal identity (such as birth record) or financial identity (such as credit or transaction history) which constrains their access to formal financial services. Various options were discussed for developing identity, taking advantage of IT innovations and statistical analysis. vi. Consumer Protection.
The key elements are education, transparency, disclosure, fairness, responsibility and fair recovery practices. Case studies from Peru, Malaysia and South Africa on consumer protection and financial education were discussed. BIBLOGRAPHY 1) www. wikipedia. com . 2) www. livemint. com. 3) www. myrada. com 4) www. ventureintelligence. com 5) www. google. com Conclusion In this research paper we are totally discussed the financial inclusion. Here we are focusing totally on how the government and other organizations try to solve the problem through financial inclusion.
It contains the impact of financial inclusion on the market. Here we put many articles on financial inclusion given by banks and by many authors . we described the role of government in financial inclusion The main impact of financial inclusion is that it help the government to reshape the economic policy for the betterment of the countries future. As the quote given by the kofi annan on the financial inclusion we can understand how much is financial inclusion is important for the worlds economy.
On 29th December 2003,Former UN Secretary-General Kofi Annan said: ”The stark reality is that most poor people in the world still lack access to sustainable financial services, whether it is savings, credit or insurance. The great challenge before us is to address the constraints that exclude people from full participation in the financial sector. Together, we can must build inclusive financial sectors that help people to improve their lives. ” So, Now we can say that financial inclusion is the need of the hour. so we all try to revamp our country as well as world economic conditions at its best. [pic]
