Financial inclusion is where people and organizations approach valuable and moderate money related items and services that address their requirements which are conveyed in a mindful and credible way. Financial inclusion is characterized by the accessibility and fairness of chances to get money-related services. The accessibility of monetary administrations that meet the particular needs of a user without any discrimination is a key goal of Financial Inclusion.
When it comes to credit, these are of two types: Formal and Informal credit. Landlords, moneylenders, traders, relatives, friends and other sources of credit constitute the informal sector of credit. The formal sector provides only marginally more credit than the informal sector currently. The credit activities of the formal sector are supervised by the Reserve Bank of India.
In the Indian context, Financial Inclusion is pivotal to the country’s growth because:
- 51.4% of farmer households are financially excluded from both formal/ informal sources.
- Of the total farmer households, only 27% access formal sources of credit; one-third of this group also borrowed from non-formal sources.
- Overall, 73% of farmer households have no access to formal sources of credit.
- Across regions, financial exclusion is more acute in Central, Eastern and North-Eastern regions. All three regions together accounted for 64% of all financially excluded farmer households in the country. Overall indebtedness to formal sources of finance of these three regions accounted for only 19.66%.
The Indian Government and the RBI have been making synergetic efforts to promote financial inclusion as one of the important national objectives of the country. Some of the major efforts made in the last five decades include – nationalization of banks, building network of SCB’s, co-operatives and regional rural banks, introduction of mandated priority sector lending targets, lead bank scheme, formation of self-help groups, permitting BCs/BFs to be appointed by banks to provide doorstep delivery of banking services, zero balance BSBD accounts, etc. In India, RBI has initiated several measures to achieve greater financial inclusion, such as facilitating no-frills accounts and GCCs for small deposits and credit. Some of these steps are:
- Advised all banks to open Basic Saving Bank Deposit (BSBD) accounts with minimum common facilities such as no minimum balance, deposit, and withdrawal of cash at bank branch and ATMs, receipt/ credit of money through electronic payment channels, facility of providing ATM card.
- Relaxation on know-your-customer (KYC) norms: to facilitate easy opening of bank accounts, especially for small accounts with balances not exceeding Rs. 50,000 and aggregate credits in the accounts not exceeding Rs. one lakh a year. Further, banks are advised not to insist on introduction for opening bank accounts of customers. In addition, banks are allowed to use Aadhar Card as a proof of both identity and address.
- 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.The Business correspondents (BCs), with the help of Village Panchayat (local governing body), has set up an ecosystem of Common Service Centres (CSC). CSC is a rural electronic hub with a computer connected to the internet that provides e-governance or business services to rural citizens.
- Use of technology: Recognizing that technology has the potential to address the issues of outreach and credit delivery in rural and remote areas in a viable manner, banks have been advised to make effective use of information and communications technology (ICT), to provide doorstep banking services through the BC model where the accounts can be operated by even illiterate customers by using biometrics, thus ensuring the security of transactions and enhancing confidence in the banking system.
- Adoption of EBT: Banks have been advised to implement EBT by leveraging ICT-based banking through BCs to transfer social benefits electronically to the bank account of the beneficiary and deliver government benefits to the doorstep of the beneficiary, thus reducing dependence on cash and lowering transaction costs.
- With a view to helping the poor and the disadvantaged with access to easy credit, banks have been asked to consider the introduction of a general purpose credit card (GCC) facility up to `25,000 at their rural and semi-urban branches. The objective of the scheme is to provide hassle-free credit to banks’ customers based on the assessment of cash flow without insistence on security, purpose or end use of the credit.
- Simplified branch authorization: To address the issue of the uneven spread of bank branches, in December 2009, domestic scheduled commercial banks were permitted to freely open branches in tier 3 to tier 6 centers with a population of less than 50,000 under general permission, subject to reporting. In the north-eastern states and Sikkim, domestic scheduled commercial banks can now open branches in rural, semi-urban and urban centers without the need to take permission from RBI in each case, subject to reporting.
- Opening of branches in unbanked rural centers: To further step up the opening of branches in rural areas so as to improve banking penetration and financial inclusion rapidly, the need for the opening of more bricks and mortar branches, besides the use of BCs, was felt. Accordingly, banks have been mandated in the April monetary policy statement to allocate at least 25% of the total number of branches to be opened during a year to unbanked rural centers.
- Pradhan Mantri Jan Dhan Yojana, this scheme was announced for comprehensive financial inclusion on 15 August 2014. The scheme was formally launched on 28 August 2014 with a target to provide ‘universal access to banking facilities’ starting with Basic Banking Accounts with the 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. On the inauguration day of the scheme, 1.5 Crore (15 million) bank accounts were opened.
- Several Startups are working towards increasing Financial Inclusion in India by organizing various large unorganized sectors where payments primarily happen in Cash, instead of a bank transaction.
Bon has started to disrupt the $100+ billion cash exchanged annually in India by funding the expenses at petrol pumps, tolls, transit, etc that help the self-employed make a living more reliably. Less than 1% of India has credit cards. Self-employed, entrepreneurs, and workers of the gig economy lack access to financial services in form factors that salaried employees in India get. Bon was created to bring financial services to workers of the gig economy like taxi drivers, delivery boys, plumbers to beauticians, contractors and the self-employed who are currently being under-served.