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FINANCIAL INCLUSION
* M s. Kusum a Konen!
** M r. Vil1ay Chagonii
of the process, factors like geographical
The economic disparity is widening and remoteness, working timings, documentation,
economic condition of the people in rural areas staff attitude, financial discrimination, lack of
is worsening. Gini Index is the evidence. Out of internet access, complicated financial products
a myriad of then), financial exclusion is one and many more contribute to the financial
typical reason for the phenomenon. Though our exclusion. India, still a developing nation, is
country is growing at around 9% every year, facing financial exclusion. The Rangarajan
the growth does not seem to be inclusive. Many Committee Report (2008) marks financial
people still are far from basic services like inclusion as a process of ensuring access to
~iavil~g.a savings account and are left only financial services, timely and adequate credit
lInagmmg about having more sophisticated needed by the weaker sections and low income
services like net banking facilit:ies. Therefore, for groups. The financial inclusion index of the
the past several years, -:-------;,_---------- global economies hadand significantly in the Financial exclusion is one significant ranked India in the 50th
last year, RBI has reason for most rural economy that position according to
pursued financial falls into a debt trap. Reasons for the report. The report
inclusion as one' of its financial exclusion include low also suggested that the
core objectives. RBI income, low savings, financial banks in future should
made the priority clear, illiteracy, social exclusions, focus on the customers
by launching a national unemployment, underemployment, at the bottom of the
pilot project on financial poor financial habits, financia I pyramid. Specifically,
inclusion in Puducherry exploitation by inorganic SOU1'ces, the report iden tifies
in 2005. This project d I1 some essential servicesan actc Ofawarenessmade the bank officials ') to be extended to every
open bank accounts at individual which
the doorsteps of the households ~itJ.inot much include (~) :lo-frills banking account for making
ins!stence on the minimum balance or deposits. an? recelvmg payments, (b) savings product
This paper reviews the literature to explore the SUIted to the pattern of cash flows of a poor
current status offinancial inclusiveness and the household, (c) money transfer facili ties, (d)
various initiatives in vogue for the purpose, small loans and overdrafts productive, personal
frOI~na banking standpoint, generally in the and other purposes, and (e) micro-insurance
Indian context with a specific focus on Andhra (life and non-life). Maplecroft (2009) has
Pradesh, and goes on to provide a critique. analyzed 119 countries on their financialF incl~siveness. It categorized India as facing a
inancial exclusion is one significant medium level of risk in terms of its financialreason for most rural economy that falls into a . I .
dme usiveness, while categorizing USA, Canada,
ebt trap. Reasons for financial exclusion "and Austria as being more inclusive.~n~Iude low income, low savings, financial'illiteracy, social exclusions, unemployment, The challenge of financial inclusion
underemploymen t, pOOl' financial habi ts, cannot be trivialized. An RBI publication reveals
financial exploitation by inorganic sources, and that there is no universally accepted definition
lack of awareness and so on. On the other side ? f financial inclusion, and itis measured broadlyin terms of exclusion from financial system.
In trod uction:
~'A5si5tnn t P ro fe sso r, G IT AM University
** R esearc h Sc holar, G IT AM U niversity
Business Visioll October - December, 2010 87
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> ft
Financial exdusion thus needs an exhaustive
definition. While early discussion on financial
exclusion was preceded by social exclusion and
focused predominantly on geographical access
to services, a more appropriate contemporarydefinition of financial exclusion includes all
types of people making little or no use of
financial services.
Review:
Financial inclusion is a critical
determinant of economic health of a nation. On
even a higher pedestal, it is an essential
precondition for the eradication of poverty and
reduction of socio-economic inequalities. With
reference to an RBIpublication, the definitional
emphasis of financial inclusion varies acrosscountries and geographies, depending on the
level of social; economic and financial
development; the structure of stake holding in
the financial sector; socio-economic
characteristics of the financially excluded
segments; and also the extent of the recognition
of the problem by authorities or governments.
Prominent government initiatives like
establishing the S B r in 1955, nationalization of
commercial banks in1969and 1980,establishing
RRBs in 1975, establishing urban cooperative
banks, primary agricultural credit societies,
introducing Self-Help Groups (SHGs) - Bank
Linkage Program in 1992, and the Kisan Credit
Scheme in 2001; all of them implicitly and
inherently have one common goal - Financial
Inclusion. Some of the other more explicit
measures taken at a macro-economic policy
level, to make financial inclusion as a part of
the fundamental economic structure, of the
nation included (a) creation ofno-frills accounts
by relaxing the KYCstandards, (b) sanctioning
the issue of general credit cards with a credit
limit of R s. 25000, (c) permitting the banks to
take assistance from NGOs, SHGs, Micro-
financing Institutions, (d) bringing in the rural
employment g-uarantee scheme, (e) launching
a website in thirteen languages for credit
counseling and financial education, and (f)
setting up of innovative insurance schemes,
public grievance redressal cell and customer
service centers. Many other initiatives which
aim at creating a structure for financial
inclusion, especially at the local government
level, have been quantitatively impressive but
qualitatively weak (launder. 2010). Also,
beginning in the late 1960s, Indian has beenhome to one of the largest state interventions in
rural credit. This is an indication of the policy
approach and its preference for credit driven
exercises (could be by definition), which may
or may not be in line with the fundamental
tenets of financial inclusion.
A sneak peak-into the RBI publication,
earlier referred, gives us various view pain tson
the definitional aspects of financial inclusion
and the indicators for the corresponding
definition [Table 1].Backin 2000, the indicators
of financial inclusion included the number of
deposits, loans, payment services, money
transfer andr insurance. And the World Bank
standpoint suggests that financial inclusion
would deal with providing access to financial
services such as credit, payments and insurance.
There is not much change in the indicators in a
decade time. However, the debate has been in
terms of what kind of conceptual framework
would really bring in the excluded individuals
to participate in the nation's financial systems.
Such conceptual framework should encompass
various challenges presented at different levels
in the system. A macro economic level, it
becomes an imperati ve to bring in policy driven
initiatives that provide an attractive business
option for the corporate banking entities to
venture beyond these barriers. Also from the
other side, it again becomes the burden of the s:
government to make the individuals think
beyond third party money lenders, provide
them with financial literacy and identity, and
opening gateways for them to enter the larger
financial system. It is an exercise larger than
what imaginations could afford, given the sheer
size of the Indian nation and the complex
structure around which it is built.
The eleventh term plan of the nation
embedded financial inclusion as a part of its
objectives, and initiatives for the purpose have
been in vogue for long. Newer initiatives are
coming up, yet leaving the status of financial r
Business ViSl'OIl October - December, 2010 88
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inclusion uncertain and undecided. This problem would continue to exist so long as there is no
,precise definition, a measuring mechanism, and a long term focused leadership which can address
financial inclusion as its top priority.
Table 1:Definitional aspects of Financial Inclusion/Exclusion
I n s t i t u t i o n J A l l t h o r D e r m it io n I n d i c a t o r s
2 3
'A D B ( 2 0 .D O ) P ro v i s i o n o f a b r o a d r a n g e o f f i n a n c i a l s e r v ic e s s u c h a s
d e po s f t s , lo a n s ~ y m e n t s e rv ic e s , m o n e y t r a n s f e rs a n d
. . i n s u r a n c e t o pool' a n d 1 0 V l . j n c o m e h o u se ho ld s a n d t h e i r
m i c r o - e n t e r p r i s e s . .
D e p os i t s , lo an s , p ay m e n t s e r v i c e s , m o n ey
t r a n s f e r a n d i n s u r a n c e .
S t e p h e n P . S i n c l a r ( 2 0 0 1 ) F m a n c ia J e x c lu s io n m e a n s t h e i n a b il i l y 1 0 a c c e s s n e c e s s a r y
f i n a n c i a l s e rv ic e s I n a n ~ p p ro p r i a le f O (m . E x c l u s io n c a n
c om e B lx lu t a s a r e su lt ~ p ro b l e m s w it h a c c es s , c on d i t i o n s ,. p r ic e s , m a rk e t i n g o r s e l f - e x c lu s io n i n r e sp o n s e t o n e g a t i v e
e x p e ri e n c e s o r p e rc e p ti o n s.
B a s t e b a n k in g s e r v i c e s f o r m o n e y
t r an s m is s i o n ,. ~ r e d i~ . in s u r an c e , d e b t a n d d e b l
a s s is ta n c e , l o n g -t e rm s a v in g s a n d f in a n c ia l
I ~ e r a c y .
~.,
C h a n t L i n k a n d A s s o c i a te s , A u s t r a f l 8 ( 2 0 0 4 ) F in a n c i a l e x ~ u s i o n i s l a c k o f a c c e s s b y c e rt a in c o n l t lm e rs D e p o s t t a c c o u n ts , d l r e c l l n v e s t m e n t s , h o m e
. 1 0 a p p r o p r i a t e lo w c os ~ [ a ir a n d s a .f a f i n a n c ia l p r od u c l~ ~ n d . l o a n s , c re d n c a r d s , p e t s on a l lo a n s , b u i l o il l g
'~ rv i c e s f r o m m a in s t r e am p ro v l d e i 's v F Il8 n c ia ! e x c lu s l o o i n s u ra n c e a n d h om e io o o ra n c e .
~ c o m e s a c o n c e r n i n t h e c o m m un i t y Y t ' l l e n i t a p p -l i e s t o
. . l o w e r I n t O m e c o n s u m e r s a n d / o r ! h o s e in f i n a n c ia l h a r d s h ip .
T r e a ~ u r y C Q ! ll I \ l i t I e 8 , H o o se o f C o m m o n s ,
U K ( 2 0 0 4 ) .
A b i l i t f . o r i n d iv id u a ls t o a c c es s a p p ro p r i e te f i n a n c i a l P ro d U c t s M O l d a b le c re d i t a n d s o v i n g s f o r a ll a n d a e c e s s
a n a s e r v i c e s : t o f in a n c ia l a d v i c e .
S c o l l i s h . G o v e r n m e n t .( 2 0 0 5 )
A c ce s s f o r i n d M c lu a ls t o a p » f o p ri a le t i n a ilc ia l p ro d u c ts a n d A o ce s s .1 0 p ro d u c t s a ~ d s e r v ic e s , ! l n d fo r
~C$. - y m , i I ' l c k K l e s h a v i n g th e c a p a c it Y . s k i l l s , k n ow l e d g e c a p a c it y , s k i : ~ s , k o o N !e d g e a n d u n d e r s t a n d i n g .
a n d u n d e r s t a n d i n g to m a k e th e b e s t u s e o f t h o s e p to d ~ c t s".
a n d s e r v i c e s : f i n a n c i a l e xc lu s i o n b y c o n t r a s ~ is . t h e
c o n v e r s e o r - ,h i $ .
U n R e d N a ti o n s ( 2 j ) 0 6 b ) A f i n a n o i a l s e c t o r t h a t p ro v id e s ' a c c e s s ' t o c r e d H f o r a ll A c c e s s t o c r e d it , i n s u r a n c e , s a v in g s p a y m e n t
' b a n k a b l e ' p e o P l e a n d f i n n sl' o i n s U f 8 l1 ce f o r a n i n s u r a b l e s e r v i c e s .
. . . . p e o p le a n d f i r m s a n d . t o s a v i n g s a n d p a y r r ie n t s s e f \ ' i c e s .
' , - f o r e ve ry o n e . I n c lu s i v e f i n a n ce d o e s n o t r e q u i r e t h a t
. . e v ~ w h o is e li g ib le u s e .e a c h a fln e s e r v ic e s , b u t t h e Y
s h o u l d b e a b le t o c h o o s e 1 0 u s e ! ! le m if d e s i r e d .
R e p q r t , o f th e C o m m it t e e o n F in a n c i a l
I n c lu s i o n i n l ! } d i a ( C h a m a n : C . R a n g a r a j a n )
(2008)
T h e p ro ce ss o f e n s u 'r t n g a c c e ss t o f in a n c i a l s e rv i c e s a n d
t im e ly a n d a d e q u a t e c r e d i l w h e re n e e d e d ~yv u l n e r a b l e
g ro u p s s U c h a s w e ak e r s e c ti o n s a r i d l o w i n co m e g r o u ps a t
a n a ff o rd a l i e c os t
A c c e s s t o f in a n c i a l' s e r v ic e s a n d t i m e l y a n d
a d e q u a fe · c r ed it .
B r q a < i a c c e s s t o f in a n c i a l s e rv ic .e s im p f ie s a n a b $ e n c e o f A cc e s s to f m a n d a l s e r v ic es & J c h a s d ~ t t ,
. p ri c e a n d n O n - p ri c e b a r n e r s 'n t h e ~ o f f in a n c i a l s e r v ic es ; c re d i t , p a y m en ts , i n sU ra n c e .
ij is d if f lc u H t o d e fn e · a n d m e a s u r e b e c a u s e a c c e s s h a s
m a n y C I lm e n s io n s .:
': .
Source: RBI Publication on Financial Inclusion
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evidence to substantiate. Simultaneously, the there can be a debate on various issues which
factors set by Beck et al,.like penetration and could have impacted these factors, numbers do
use of banking services within the nation need indicate progress. In that sense.India as anation
to be looked at carefully. In case of Andhra and Andhra Pradesh in specific also have seen.
Pradesh, the demographic penetration remains only partial development in terms of financial
the same, while the geographic penetration is inclusivity and that suggests that there is still a
reduced. Pel"capita deposits, per capita credits, long way to go before the economic disparities
deposit-income ratio, and credit-income ration are plugged, and before the economy can
are also reduced inthe considered period. While experience a collective growth.
Appendix 1: Attribute-wise breakdown of the Inclusivity index
-1
,,_
India
State
-. Individual contrtbutien:
Delhi 0 .127. 126
0 . 145
0 . 148
0 . 128
0.1-4
0 . 139
0 . 117
0 . 1220 . 119
0 . 126
0.138
0 . 1 14
0 . 144
0 . 116
0 . 117
0.134
0 . 109 ,
0.116
0 . 116
0 . 114
0.105
0 . 098
0 . 083 '
0.091
0 . 124
1586_.49
14708 .52
7970.989
11775.53
.6631.403
7874.346
10158 . 82
7618.4325990.748
11113.84
6844.516
8787.784
50_5 .9
5147.006
3567.506
4388.313
7 l 06~_28
8389 .359
6366.285
6759.822
. 5 57 4.2 0 1
8312 . 859
.7024.257
540 4.675 .
7371.746
0.138 0 .149 0 .1~7 0.14
Goa 0 . 104.1 6 0 .0 8 1 0 .15 .7 0 .L7
Kerala 0 . 129 0 .0 8 2 0 .12 1 0 .0 97 0 . 096
Punjab 0.132 0 .0 71 0 .132 0 . 104 0.097
0 . 103amataka'I
•III
0 .12 9 0 .0 61 0 .12 1 0 .0 97
T am il N adu 0.107. 122 0 .0 67 0 .1 18 0 . 095
Maharashtra 0 .1 19 0 .0 58 0 .116 0 . 108 0 . 109
O . lH imach al P rad eshW e st B eng al
0 .1420.114
0 .0 53 0 .12 10 . 0730 . 111
0.0990 . 107
0 . 0 89
0 . 092aryana 0 . 121 0 .0 64 0 .115 0 . 085 ·
Andh ra P rad esh 0.096.118 0 .0 56 0 .10 6 0 .0 8 8
Gujarat 0 .097.123 0 .0 57 0 .11 0.096
Tripura 0 .1 15 0 .0 56 0 .0 98 0 .0 8 3 0 .0 8 5
0 .OS7ttarPradesll 0 .113 0 .0 65 0 .10 4 . 0.093
Bihar 0 . 0 8 4.1 11 0 .0 64 0 .0 93 0 . 095
Orissa 0 . 0 8 8.116 0 .0 53 0 .0 9 0 . 0 83
Meghalaya 0.125 0 .0 45 0 .10 5 0.094 0.075
Sikk im 0 . 0 81.118 0 . 039 0 . 096 0.096
.r:M a d h y a P r a d e s h
- ( Business Vision October - December, 2010
0.116 0.049 0 .0 98 0 .0 8 1 0 . 0 85
Raiasthan 0 . 0 83. 118 , 0 . 048 0 .0 97 0 .0 8 1
Assam,__ 0.11 , 0 .0 55 0 .0 94 0.079: 0 . 0 85
Nagaland
0 . 0 85l n l n a c h a l P r a d e S h
0 . 112
0 . 121
0 :0 39 0 .0 97 0 . 085
0 . 0 8 8
0 . 081
0.096
'"I Manipur 0 ..1 0 4 .
0.11 ,8 '
0 .0 2 4 0 .104
0 . 08 0.066
0 . 109
'0 .075.038
0 . 058 ' 0 . 109
·91
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Appendix 2:Attribute-wise breakdown of the Inclusivity index
State
Indtvidual contribution:
.2
-!l
I ....
•-: Q)
V Eo 000
I:.J c:0.......
Goa 0.114
Delhi 30168.95 0 .135 0.167. 0.147 0 .148 0.167 0.167
29523.58 0.167 . 0 .0 8 8 0 .167 0 .142 0.146
K erala 14749.2 5 0 .133 0.088 0.13 0 .15 0 .119 0.116 .
Maharashtra 18007- .070 0.\15 0.061 0 .117 0 .146 0 .139 0 :151
T am il N adu
0.127
16260.760 0 .122 {).0 70 0 .1 2 1 0.167 0 .111 . 0.128
Kamataka 13449.55 0.127 0 .0 64 0 .1 2 2 0 .147 0 .1 2 4
Punjab 17438 .2 0 0 0 .133 0 .0 77 0 .130 0 .1 2 6 0 .118 0.117
- - U t ta ra nc ha l0 .103
11710.860 0 .130 0 :0 57 0 .1 2 0 0 .1 2 3 0 .130 0 .1 0 3H im ac hal P ra desh 150 92 .4 8 0 .139 0.055 0.124 0 .1 2 3 0 .115
0 .103
A n dh ra P ra de sh 13908,34 0 .117 0 .0 59 ,5 . 0.116 0 .1,45 ·0 .105 0..113
Sikkim 0.110
Haryaua 2 0 593 .7 0 .1 2 2 0 .0 7 1 ·....0 .1 1 8 0.119 0 .106
14589.510 0.130 0 .0470 .105 0.122 0 .117
W est Bengal 11178 .360 0 .110 0 .0 76 ' 0 .110 0 .111 ·0 .112 0.111
Gujarat 16663.4 0 .119 0.059 0.119 0 .116 0.108 - 0 .1 07
0.101
Orissa 8203.013 0 .113 0 .0 55 0 .1 0 1 0.125· 0 .1 0 6 0 .1 0 6
U ttar P radesh - Ne1 .... 6533.344 0 .1 0 6 " 0.068 0.107 0.110 0 .112
Tripura
0 .106ajasthan'
10454 .950 .
·9686.328
0 :109
0 .112
. 0 .0 57 ,0.103
0.050 0.102
0 .126
0 .114
0 .101
0.099
_0 .087
Ma dh ya P radesh - N ew 0.11 0 .051 0.101 0.109 0 .1 0 5 0 .1 0 3
- - lh ark b an d 0 .0 8 9 _
Megb.alaya" 11663 .830 0 .119 0.047 0 .098 · 0.112 0.r07 0 .092
,10066 ,74 0.109 0 .0 )8 0 . . 1 . 0 4 0 .109 0.106
Bihar- N ew 432 4 .712 0 .10 1 '0.07 0 :0 92 0 .1 0 4 0 .11 0.092
Assam 7358.659 0 .10 2 0 .0 56 0.098 0 .105 0 .103 0.093
- - Chh at tisg ar h
'0 .085 .
948 9.50 0 . 0 .10 5 . -0.047 0.094 0.105 0.102 0 .096
Arunachal P radesh 11369.62 -0.112 0 .0 2 4 0 .1 0 .10 5 0.106
Nagaland 12 30 0 .160 0 .0 95 0 .0 40 '0.079 0 .1 0 0 0 .0 93 0 .0 77
M anipur 10 50 3 .670 0 .0 92 0 .0 37 0 .077 0 .098 0.081 0.081
India 14430 .910 0.115
Conclusions and Suggestions:
While there is evidence which can bepresented for financial inclusion happening,
there is more evidence that can convey
meanings otherwise. We suggest a review of
specific initiatives taken across the globe, their
progress, their criticalsuccess factors, and the
feasibility of amore aggressive economic policy
to perhaps bri.ng in change more quickly a n deffectively, For sure, developing nations are in
the race to improve their growth and grow
consistently.
0.060 0.112 0 .1 2 9 0 .113 0 .117
References:
1. Ahluwalia, M. S. (2000). Economicperformance states in post-reforms period, Economicand Political Weekly 35(19),1637-1648.
2. Anamika, S. (2009). Challenges for building
Financially InclusiveIndia, Accepted Paper Series,SS~. I
3: .Beck, T, A. Dernirguc Kunt, and" R' Levine.
(2004). Finance, inequality and poverty, World'Bank
Policy Research Working Paper 3338.4. [atinder, H. -(2010).Financial Inclusion in India:
Integration o f Technology, Policy and l.1al'kets at the
bottom of the pyramid, Working Paper Series, SSRN.
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