AN EVALUATION OF FINANCIAL INCLUSION

1 2 3Mary Sunita Dutto , Namratha R D , Dr. R. Himachalapathy1Research Scholar, St. Joseph's College of Commerce, Bangalore2Research Scholar, St. Joseph's College of Commerce, Bangalore

3 St. Joseph's College of Commerce, Bangalore (rhimachalapathy@gmail.com)

ABSTRACT

For developing countries the era is of inclusive growth and the means for inclusive growth is financial inclusion. It means providing financial services to disadvantaged and low income groups at affordable costs. There have been many complex challenges in financial inclusion areas like bringing the gap between the sections of society that are financially excluded within the realm of financial system. The main objective of this study is to highlight the recent developments that have taken place with respect to financial inclusion. The methodology used for the proposed study is based on secondary information available in several research articles prevailing in different reputed national and international journals in the area of financial inclusion. After analyzing the facts and figures it can be concluded that undoubtedly financial inclusion is playing a very important role in the economic and social development of our society but still there is long way to go to reach the desired outcome.

Key words: Financial inclusions, Reserve Bank of India (RBI), Government of India (GOI).

1. INTRODUCTION

Financial inclusion or inclusive financing is the delivery of financial services at affordable costs to sections of disadvantaged and low-income segments of society, in contrast to financial exclusion where those services are not available or affordable. Financial inclusion may be defined 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 (The Committee on Financial Inclusion, Chairman: Dr. C. Rangarajan).

After 67 years of independence, a large section of Indian population remains unbanked as a result of which the Disadvantaged and low income groups have lack of access to finance and this has led to financial instability. It is in this backdrop that the Government of India along with RBI has pushed the concept of financial inclusion.

Financial inclusion has gained importance since the early 2000s. The Reserve Bank of India (RBI) set up the Khan Commission in 2004 to look into financial inclusion and the recommendations of the commission were incorporated in the mid of 2005–06. Financial inclusion first began in 2005, it was introduced by K.C. Chakraborthy. In the report RBI exhorted the banks with a view to achieve greater financial inclusion to make available a basic "no-frills" banking account. Mangalam became the first village in India where all households were provided banking facilities. Norms were relaxed for people intending to open accounts with annual deposits of less than Rs. 50,000. General credit cards (GCCs) 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 services. These

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intermediaries could be used as business facilitators or business correspondents 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 union territories like Puducherry, Himachal Pradesh and Kerala 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 roadblock to financial inclusion in many states and there is inadequate legal and financial structure.

The government of India recently announced “Pradhan Mantri Jan Dhan Yojna,” a national financial inclusion mission which aims to provide bank accounts to at least 75 million people by January 26, 2015. To achieve this milestone, it's important for both service providers and policy makers to have readily available information outlining gaps in access and interactive tools that help better understand the context at the district level.

1.1 OBJECTIVES

Ÿ To outline the recent developments that have taken place in respect of financial inclusion in rural and backward areas in India.

Ÿ To highlight the measures taken by Government of India and RBI in promoting the financial inclusion in backward and rural areas in India

Ÿ To bring out different measures involved in providing financial inclusion services to the rural and other backward areas in India.

1.2 METHODOLOGY

The present study is descriptive in nature. The data used for the study is secondary in nature. The data have been collected from various websites of RBI, reports of banks, reputed national and international journals, newspapers, and other websites. Secondary research is conducted to find out the various recent developments of financial inclusion in India for the rural backward areas.

2. LITERATURE REVIEW

Financial inclusion, of late, has become the business world in academic research, public policy meetings and seminars drawing wider attention in view of its important role in aiding economic development of the resource poor developing economies. In the Indian scenario, the term 'financial inclusion' is popular in financial circles, especially after the Reserve Bank of India (RBI) announced a series of measures in its credit policy for 2006-07 to include many of the excluded groups in the banking net.

2.1 Branchless banking:

Branchless banking is an initiative taken by RBI. It is an innovative concept where account can be opened and operated without going to any bank branch. This can be done with the help of banks' and other business representatives. These representatives dare local people who are appointed by the banks to act on their behalf. The profiles of business facilitators and business correspondence are prepared so that they can work as agents and directly work with the poor villagers. This helps in reaching out to the unbanked population the government has set up a target of providing financial inclusion for any village with a population of more than 2000 people there are more than 600000 villages which need banking and other services hence branchless banking has to be done in conjunction with other plans and directions of government in states districts and in taluks districts. Branchless banking is a means to take banking to customer's door step rather than the

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traditional step of taking the customer to the bank. “Financial Inclusion In India Its Prospects And Challenges”- Kumar Dhar

2.2 Initiation of no-frills account:

These accounts provide basic facilities of deposit and withdrawal to accountholders which makes banking affordable by cutting down on extra frills that are no use for the lower section of the society. These accounts are expected to provide a low-cost mode in order to access bank accounts. RBI also eased KYC (Know Your customer) norms for opening of such accounts.“An Analytical Study: Relevance of Financial Inclusion For Developing Nations”- Dr. Sharma, Ms. Kukreja

2.3 Banking service reaches homes through business correspondents:

The banking systems have started to adopt the business correspondent mechanism to facilitate banking services in those areas where banks are unable to open brick and mortar branches for cost considerations. Business Correspondents provide affordability and easy accessibility to this unbanked population. Armed with suitable technology, the business correspondents help in taking the banks to the doorsteps of rural households, engaging business correspondents (Bcs). In January 2006, RBI permitted banks to engage business facilitators (BFs) and BCs as intermediaries for providing financial and banking services. The BC model allows banks to provide doorstep delivery of services, especially cash in-cash out transactions, thus addressing the last-mile problem. The list of eligible individuals and entities that can be engaged as BCs is being widened from time to time. With effect from September 2010, for-profit companies have also been allowed to be engaged as BCs. “An Analytical Study: Relevance of Financial Inclusion For Developing Nations authors”- Dr. Sharma, Ms. Kukreja

2.4 Role of banking system in extending banking services for financial inclusion

Indian banking system has exhibited tremendous growth in extending its reach, coverage & delivery of financial products to the mass ever since 1881. The All India Rural Survey committee in 1954 recommended the creation of a state sponsored bank to promote rural penetration. Accordingly, SBI was established in 1955. Another step in this direction was taken in 1969 when 14 major commercial banks were nationalized followed by six more in 1980. This strengthened the concept of socialistic & welfare state stature of the country. Lead bank scheme was launched in 1970 to increase banking penetration with special focus on the districts. The emergence of RRBs in 1976 blended the skills of commercial banks with the grass root presence of the co-operative banks helped the mass to access to institutional credit. NABARD established in 1982 regulated institutional credit for agriculture & rural development. Talwar committee & Goiporia committee in the early eighties have made many recommendations to improve the customer services in India.“Role Of Micro Finance And Self Help Groups In Financial Inclusion”-Dr. D. Aravazhi.

2.5 NABARD in financial inclusion:

The scheduled commercial banks have contributed to the roll of NABARD in financial inclusion NABARD continued to manage two dedicated funds they are that is Financial Inclusion Fund (FIF) for meeting the cost of developmental and promotional interventions and Financial Inclusion Technology Fund (FITF) for meeting the cost of technology adoption for financial inclusion. These Funds were instituted in NABARD by GOI in 2007- 08 as per the recommendations of Dr. Ranagarajan Committee. “Financial Inclusion In India Its Prospects And Challenges”- Kumar Dhar

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2.6 Micro finance

Microfinance programmes are intended to reach poor segments of society as they lack access to financial services. It, therefore, holds greater promise to develop financial inclusion as it seeks to reach out to the excluded category of population from the banking system. The predominant micro finance programme namely SHG bank linkage programme has demonstrated across the country its effectiveness in linking banks with excluded category of poor segments of population. In this process, the role of development in NGOs is quite important in providing the last mile connectivity as enablers and catalyst between the SHGs / Village level co-operatives and the banks. Since 1992 SHG's is being implemented. The SHG's movement is popular one and since then financial inclusion has been achieved to a great extent. “Role Of Micro Finance And Self Help Groups In Financial Inclusion”-Dr. D. Aravazhi.

2.7 Self-Help Group - Bank Linkage Programme

An SHG is a group of about 15 to 20 people from a homogenous class who join together to address common issues. They involve voluntary activities on a regular basis, and use of the pooled resource to make interest bearing loans to the members of the group. In the course of this process, they take in the essentials of financial intermediation and also the basics of account keeping. The members also learn to handle resources of size, much beyond their individual capacities. They begin to appreciate the fact that the resources are limited and have a cost. Once the group is stabilized, and shows conventional financial behavior, which generally takes up to six months, it is considered for linking to banks. Banks are encouraged to provide loans to SHGs in certain multiples of the accumulated savings of the SHGs. Loans are given without any collateral and at interest rates as decided by banks. Banks find it comfortable to lend money to the groups as the members have already achieved some financial discipline through their savings and internal lending activities. The groups decide the terms and conditions of loan to their own members. The peer pressure in the group ensures timely repayment and becomes social collateral for the bank loans Generally, the SHGs need self-help promoting institutions. “Financial Inclusion In India An Analysis”- Dr Singh and Tandon

2.8 Pradhan Mantri Jan Dhan Yojana:

Objective of “Pradhan Mantri Jan-Dhan Yojana (PMJDY)“ is ensuring access to various financial services like availability of basic savings bank account, access to need based credit facility, insurance and pension to the excluded sections i.e. weaker sections & low income groups. This deep penetration at affordable cost is possible only with effective use of technology.

Prime Minister's People Money Scheme is a scheme for comprehensive financial inclusion launched by the Prime Minister of India, Narendra Modi on 28 August 2014 He had announced this scheme on his first Independence Day speech on 15 August 2014. with a target to provide 'universal access to banking facilities' starting with Basic Banking Accounts with overdraft facility of Rs.5000 after six months and RuPay Debit card with inbuilt accident insurance cover of Rs. 1 lakh and RuPay Kisan Card & in next phase, micro insurance & pension etc. will also be added. In a run up to the formal launch of this scheme, the Prime Minister personally mailed to CEOs of all banks to gear up for the gigantic task of enrolling over 7.5 crore (75 million) households and to open their accounts. In this email he categorically declared that a bank account for each household was a "national priority". Run by Department of Financial Services, Ministry of Finance, on the inauguration day, 1.5 Crore (15 million) bank accounts were opened under this scheme. By September 2014, 3.02 crore accounts were opened, with around 1500 crore (US$240

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State-wise progress on achievement of FIPs as on 31.3.2011.

Sl.No.

Bank

Total No. of

Villages allotted

Achievement

up to

31.3.2011

No. of BC

agents

appointed

No. Total no.

of F.I. Accounts opened Public Sector Banks

1

A & N Islands

9

5

5 2171

2

Andhra Pradesh

6655 2543

2295

1022521

3 Arunachal Pradesh 11 3 3 04 Assam 2327 337 327 48505

Bihar

9213

2129

658

477627

6

Chhatisgarh

1050 389

206

14353

7

D & N Haveli

30

13

10

17978

8

Daman & Diu

7

3

2

6239

Delhi

113

47

41

10

Goa

41

39

11

271111

Gujarat

3502

1366

918

35112612

Haryana

1843

1044

1485

365093

13

Himachal Pradesh

48

26

5

598414

J&K

795

15

Jharkhand

1541

515

503

22940116

Karnataka

3395

1401

137

153817

Kerala

120

97

90

1981618

Lakshadweep

0

0

0

0

19

Maharashtra

4298

1810

1467

51996020

Manipur

186

23

21

22721

Meghalaya

39

12

11

10022

Mizoram

14

1

2

20023

MP

2736

898

939

30052324

Nagaland

196

18

16

240

25

Orissa

1878

776

691

16888326

Puducherry

43

43

35

2025527

Punjab

1576

686

28

Rajasthan

3883

1422

984

39072729 Sikkim 43 19 18 610230 Tamilnaddu 4385 2077 2180 725212

31 Tripura 416 277 79 21691432 UP 14626 5356 4356 228819533 Uttarkhand 216 89 86 962534 west Bengal 7486 3170 2239 1886589

Total: 72721 26634 19820 9049544

million) were deposited under the scheme, which also has an option for opening new bank accounts with zero balance.

Around Rs 5,400 crore have been deposited in banks in over seven crore bank accounts opened under Pradhan Mantri Jan Dhan Yojana of which 74 per cent accounts are with zero balance, according to an RTI reply. The data provided by department of financial services says that as on November 7, 2014 a total of 7.1 crore bank accounts have been opened of which 5.3 crore were accounts with 'Zero balance. “Excerpts from www.wikipedia.com and Times of India”.

3. ANALYSIS AND INTERPRETATION OF DATA

Table 1.

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Table 2.

Table 3.

PERCENTAGE AND RANK ANALYSIS OF 2011

State-wise FIP Progress as on 31.03.2012S No Name of State Total No. of

VillagesAllotted

No. ofVillagescovered

No. of villages yet to be covered

Total No. of BCsAppointed

Total No. of FI accounts opened

1 Andaman & Nicobar Islands

9

9

0

9

720

2 Andhra Pradesh

6640

6639

1

6262

29859033 Arunachal Pradesh

11

11

0

4

456864 Assam

2319

2319

0

629

4286955 Bihar

9213

9177

36

7097

2944040

6 Chandigarh

0

0

0

0

0

7 Chhattisgarh

1050

1050

0

802

241613

8 Dadra & Nagar Haveli

30

30

0

23

306159 Daman &diu

6

6

0

6

548610 Delhi

110

107

3

84

35810

11 Goa

41

41

0

36

6817

12 Gujarat

3502

3502

0

2712

99890313 Haryana

1838

1838

0

1727

737641

14 Himachal Pradesh

48

48

0

41

3618415 Jammu & Kashmir

795

726

69

618

254749

16 Jharkhand 1541 1541 0 1487 155459617 Karnataka 3395 3395 0 3035 170472318 Kerala 120 120 0 104 16242119 Lakshadweep

0

0

0

0

0 20 Madhya Pradesh

2736

2736

0

2439

135546221 Maharashtra

4292

4292

0

3988

2212227

22 Manipur

186

186

0

95

4896823 Meghalaya

39

39

0

12

6238124 Mizoram

14

14

0

11

4886

25 Nagaland

196

196

0

73

18178226 Orissa

1877

1875

2

1738

61409027 Puducherry

42

42

0

34

3342828 Punjab

1576

1576

0

1355

56194829 Rajasthan

3883

3879

4

2779

107861330 Sikkim

43

43

0

41

1832731 Tamil Nadu

4445

4445

0

4051

188841932 Tripura

419

419

0

414

44287233 Uttar Pradesh

16270

16269

1

13452

784986334 Uttarakhand

226

226

0

202

63161

35 West Bengal 7486 7398 88 7108 3046524Grand Total 74 398 74194 204 62468 31637553

Source: SLBC Conveners

SL NO STATE

FINANCIAL INCLUSION RANK

VILLAGES COVERED RANK

0

Andaman & Nicobar Islands

0.002

32

100

13

2 Andhra Pradesh

9.438

3

99.98

273 Arunachal Pradesh

100

13

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4 Assam 1.355 16 100 135 Bihar 9.306 4 99.61 30

6 Chandigarh

0.000

7 Chhattisgarh

0.764

18

100

13

8 Dadra & Nagar Haveli

0.097

28

100

13

9 Daman & diu

0.017

30

100

13

10 Delhi

0.113

25

97.27

32

11 Goa

0.022

29

100

13

12 Gujarat

3.157

11

100

13

13 Haryana

2.332

12

100

1314 Himachal Pradesh

0.114

24

100

13

15 Jammu & Kashmir

0.805 17 91.32 33

16 Jharkhand 4.914 8 100 13

17 Karnataka 5.388 7 100 13

18 Kerala 0.513 20 100 13

19 Lakshadweep

0.000

20

Madhya Pradesh

4.284

9

100

13

21 Maharashtra

6.992

5

100

13

22 Manipur

0.155

23

100

13

23 Meghalaya

0.197

22

100

1324 Mizoram

0.015

31

100

13

25 Nagaland

0.575

19

100

13

26 Orissa

1.941

13

99.89

29

27 Puducherry

0.106

26

100

13

28 Punjab

1.776

14

100

13

29 Rajasthan

3.409

10

99.9

28

30 Sikkim

0.058

27

100

13

31 Tamil Nadu

5.969

6

100

13

32 Tripura

1.400

15

100

1333 Uttar Pradesh 24.812 1 99.99 26

34 Uttarakhand 0.200 21 100 13

35 West Bengal 9.629 2 98.82 31

Table 4.

PERCENTAGE AND RANK ANALYSIS OF 2012

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Interpretation

On the basis of the availability of data for the year 2011 and percentage analysis and ranking of the same data, it is found that Uttar Pradesh stands first among all the states with regard to financial inclusion followed by West Bengal, Andhra Pradesh, Tamil Nadu, and Madhya Pradesh whereas Maharashtra, Nagaland and Meghalaya are the states which stands last in the queue as per financial inclusion is concerned

As per the villages covered under financial inclusion is concerned, Pondicherry stands first followed by Goa, Kerala, Tripura, and Haryana, whereas Meghalaya stands last in the queue on this respect.

On the basis of availability of data for the year 2012 and percentage analysis and ranking of the same data, it is found that Uttar Pradesh stands first among the states followed by West Bengal,

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Andhra Pradesh, Bihar, Maharashtra, and Madhya Pradesh. Whereas Daman & Diu, Mizoram, and Andaman and Nicobar Islands stands last in the queue.

As per the villages covered under financial inclusion is concerned, there are 25 out of 35 states Which have covered 100% villages that are assigned for financial inclusion. Jammu and Kashmir stands last in the queue on this respect.

3.1 FINDINGS

As per our findings, 25.28% of financial inclusions have taken place in Uttar Pradesh alone when compared with all the 35 states of India during 2012 whereas Arunachal Pradesh, Delhi, Jammu and Kashmir, Lakshadweep and Punjab have not shown any progress in the direction of financial inclusion.

It is evident that 24.81% of financial inclusions have taken place in Uttar Pradesh alone when we compare with all the 35 states of India during 2011 whereas Chandigarh and Lakshadweep have not shown any progress in the direction of the financial inclusion.

3.2 SUGGESTIONS

Ÿ There are many programs and concepts which have been implemented but people are unaware due to illiteracy and communication hence The Government should take a step in giving awareness to the people of different financial services provided to them.

Ÿ If the progress continues then corruption, illiteracy might reduce in the country, which intern leads to economic development.

Ÿ Apart from these measures and programs which have been implemented by the government the banks should also take up initiatives to provide financial services.

Ÿ They should also provide assistive services to the intermediaries and give directions to them

Ÿ They should focus on the welfare of the family as the whole and not on individual basis.

Ÿ The banks should also have a friendly attitude towards people so that many more people may be influenced and make the best uses of the services provided to them.

3.3 CONCLUSION

Financial inclusion plays a vital role in the economic development of our country. This concept mainly benefits the people of rural and other backward areas, by the introducing of the new program Pradhan Mantri Jan Dhan Yojana by our Prime Minister Mr. Narendra Modi financial inclusion has taken a step forward in improving the backward sectors of our country. Financial inclusion has provided a lot of opportunities and facilities for the people living in backward areas in order to have better standard of living. Various programs and concepts have been started like Micro financing, Branchless banking, etc. which helps to get easy access to finance

According to the report released on November 7th by times of India the department of financial services has revealed that 7.3 crore bank accounts have been opened of which 5.3 crores are of zero balance on account of the program introduced by our Prime Minister Mr. Narendra Modi (Pradhan Mantri Jan Dhan Yojana).

3.4 REFERENCE

1. Dr. Singh, Anurag B and Tandon, Priyanka (2013), “Financial Inclusion In India: An Analysis”, International Journal Of Marketing, Financial Services & Management Research, Vol 1 Issue no, 6.

2. R Srikanth (2013), “A Study on Financial Inclusion Role Of Indian Banks In Reaching Out To

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The Unbanked And Back Ward areas”, International Journal Applied Research and Studies, Vol 2 Issue No.9.

3. Kumar, Sujay Dhar, “Financial inclusion in India its prospects and challenges”

4. DR. Sharma, Anupaama, MS. Kukreja, Sumita (2013), “An analytical study: relevance of financial inclusion for developing nations”, Research inventory: International journal of Engineering and science, Vol N0. 2, Issue No. 6.

5. Raman, Athul (2012), “Financial inclusion and Growth of Indian Banking System”, IOSR Journal of Business and management (IOSRJBM), vol no. 1, issue no. 3

6. Dr. Memdani, Laila, K Rajya, Lakshmi, (2013), “Financial inclusions in India”, International Journal of Applied Research and Studies, vol no. 2, issue No. 8.

7. timesofindia.indiatimes.com. Pradhan Mantri Jan Dhan Yojana

8. en.wikipedia.org. Pradhan Mantri Jan Dhan Yojana.

9. www.rbi.org

10. Report of the committee on financial inclusion in India (Chairman: C. Rangarajan) (2008), Government of India.

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