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India poised for better financial inclusion now
Highlights
In the last few years, more so in 2015, several policy initiatives of stakeholders have been specifically aligned towards deepening financial Inclusion (FI).
In the last few years, more so in 2015, several policy initiatives of stakeholders have been specifically aligned towards deepening financial Inclusion (FI).
Government of India, Reserve Bank of India (RBI), banks and even some of the corporate sector entities have come together to establish last mile connectivity.
More than spreading touch points (bank branches, extension counters, electronic kiosks, digital banking channels, business correspondents and barefoot bankers), an air of sensitisation towards the massive task of FI has been well-highlighted.
All forms of banking touch points have reached a substantial level of 553713, marking a rise of 44.3 per cent in FY15. FI is a must for any economy to ensure that the synergy of financial resources with masses is channelised into the productive space of the economy.
Though concrete efforts have been made to spread financial and technology literacy among masses, last five years have been more number centric in pushing the agenda of FI.
Thus year 2016 will see more efforts to develop orientation towards using banks as means to not only save, buy micro insurance products but to go a step further in building culture of enterprise.
Customers should get accustomed to use bank loans to build employment centric micro enterprise that can help step up economic growth. Why financial inclusion?
It is globally established that FI can help spur economic development. According to Global Findex Report, FI is broadly recognized as critical in reducing poverty and achieving inclusive economic growth.
Studies show that when people participate in the financial system, they are better able to start and expand businesses, invest in education, manage risk, and absorb financial shocks. Access to savings accounts and payment mechanism increases not only the pool of savings but it also brings many attendant benefits to the society.
FI empowers women, and boosts productive investment and consumption. Access to credit also has positive effects on consumption - as well as on employment status and income and on some aspects of mental health and outlook. The benefits go beyond individuals.
Greater access to financial services for both individuals and firms may help reduce income inequality and accelerate economic growth.
The number of people worldwide having an account grew by 700 million between 2011 and 2014. 62 percent of the world’s adult population has an account, up from 51 per cent in 2011.
Three years ago, 2.5 billion adults were unbanked. Today, 2 billion adults still remain without an account. This represents a 20 per cent decrease in the exclusion of people from the formal banking system.
Status of FI in India With the onset of Prime Minister’s Jan Dhan Yozana (PMJDY) launched in August 2014, India could bring new wave of policy intervention to make a mark in pursuing FI.
It has assumed the role of a national mission to connect people with the formal banking system. Thus, by December 16, 2015, 19.60 crore accounts could be opened mobilizing deposits to the tune of Rs 28012.38 crores.
Out of them, 33.21 per cent of accounts are still having zero balance. Debit cards have been issued to 16.7 crore account holders to spread the electronic banking culture among masses.
Though it will take some time for impact of PMJDY to be measured the FI is stated to have reached 59 per cent now up from 35 per cent in 2001. A significant mark up could be achieved.
Thus as against such state of FI in India, close to 70 per cent of adults in various BRICS economies, and an even higher percentages of adults in the US and UK have connectivity with formal banking system.
Similarly, in 2014, 6 per cent of Indian adults had borrowed from a formal financial institution in the past 12 months compared with 10 per cent or more in other BRICS economies.
Role of technology in FI Technology has proved to be an effective tool to intensify FI. The number of ATMs has touched 1,80,000, surpassing the number of branches. But in terms of international comparison, lot of efforts is needed.
In 2014, there were only 18 ATMs per 100,000 adult population in India against over 65 in South Africa and over 180 in Russia. Similarly, 10 per cent of individuals aged 15 years and above had made payments through debit cards in India as against approximately 40 per cent in South Africa.
But in recent years, the share of ATMs in rural and semi-urban area has been rising, though urban and metropolitan centers still dominate. In 2015, about 44 per cent of the ATMs were located in rural and semi-urban centres, up from 35 per cent in 2013.
Way forward In order to work out a medium-term (five year) measureable action plan for implementing FI as a national agenda, RBI has constituted a Committee on Medium-term Path on Financial Inclusion with Deepak Mohanty as its chairman.
The committee sets a much wider vision of financial inclusion as ‘convenient‘ access to a set a 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 transfer besides increasing the access for micro and small enterprises to formal finance with greater reliance on technology to cut costs and improve service delivery, such that by 2021 over 90 per cent of the hitherto underserved sections of society become active stakeholders in economic progress empowered by formal finance.
Moreover, RBI reiterates in its ‘Report on Trends and progress in Banking – FY15’: “a competitive, sound and inclusive banking system is sine-qua-non for a growing economy like India that aspires to be globally competitive”.
Thus seen from all policy angles, the year 2016 will completely focus on deriving better synergy of all efforts made for achieving more qualitative FI.
Focused financial literacy and disseminating know-how on the usage of rising e-banking channels, simplifying lending procedures for MSME/agriculture sector and greater use of local language in connecting with masses would occupy implementation strategies of banks.
The huge FI centric banking infrastructure built so far is to be fully harnessed to achieve long term vision of its sustainability and profitability. It can be a defining year to trigger greater goal of achieving quality in implementing FI moving beyond quantitative dimensions.
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