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Financial inclusion in I ndia. Presented by kishore kumar. In Indian context Rangarajan committee ( report of the committee on financial inclusion in India )

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In Indian context Rangarajan committee

(report of the committee on financial inclusion in India)

It as a process of ensuring access to financial services , timely and adequate credit where needed by vulnerable group such as weaker section and low income group at an affordable cost. Financial inclusion is no longer a policy choice but it is a policy compulsion today and banking is a key driver for inclusive growth.

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Outreach of financial inclusion refers to breadth of financial services. it measures how many people have access to financial services including saving credit transferring money and other services. Having bank account is being considered key to access these services (Mohan2006)

  • Access to financial services promotes social inclusion, and builds self-confidence and empowerment. The process of financial inclusion consists of ensuring bank accounts to each household and offering their inclusion in the banking system (Reddy, 2007).
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There are various socio-cultural, economic issues that hinder the process of financialInclusion. For instance on demand side, it includes lack of awareness and illiteracy.( Usha Thorat,2007)

  • FICCI 2012 report: Promoting Financial Inclusion: Can the constraints of political economy be overcome?
  • The social exclusion of low income families which results in the barriers of illiteracy, inhibition and poor physical access; it limits awareness, ability to overcome prejudice about their bank worthiness and enhances the transaction costs incurred by them in using the financial services available in the country.
  • The small value of accounts and transactions expected by the banking system from financially excluded families which results in high cost of operations and limits the incentive to serve them.
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Vijay Kelkar (2010)“Financial Inclusion for Inclusive Growth”that enhanced financial inclusion will drastically reduce the farmers’ indebtedness, which is one of the main causes of farmers’ suicides. The second important benefit is that it will lead to more rapid modernization of Indian agriculture

RoshnyUnnikrishnan (2012), analyzed in their study “Enabling Financial Inclusion at the bottom of the Economic Pyramid”, the importance of financial inclusion in economic empowerment.

This study identified the variables in enabling financial inclusion, analyzed the barriers to effective financial inclusion and the prerogative steps to be taken to overcome the barriers and enable inclusive growth. The study concluded by identifying the variables that empower the masses financially and stating the importance of social inclusion in relation to financial inclusion and also by reinforcing the importance of self sustenance at the bottom of the economic pyramid.

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Psychological, Cultural,

Lack of financial

literacy

Demand side

FI Barriers

Supply side

Physical Barriers, Lack of Suitable products,

Documentation

Barriers

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Infosys finacle 2012“Measures for achieving financial inclusion in India”Establishing a rural infrastructure is a prerequisite for financial inclusion and all stakeholders including bank have to contributes toward setting up connectivity and ensuring power supply among other things

Financial Inclusion in India: Journey So Far and Way Forward

( By Dr. K.C. Chakrabarty, September, 2013)

The importance of financial inclusion has been emphatically underlined in the wake of the financial crisis. As we all know, the crisis has had a significant negative impact on lives of individuals globally. One of the prominent reasons for the crisis was that the financial system was focused on furthering its own interests and lost its linkage to the real sector and with the society at large. The crisis also resulted in a realization that free market forces do not always result in greater efficiency in the financial system, particularly while protecting the interests of the vulnerable sections of society. In wake of the Crisis, therefore, Financial Inclusion has emerged as a policy imperative for inclusive growth in several countries across the globe.

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Michael Chibba (2009) noted that Financial Inclusion is an inclusive development and Poverty Reduction strategy that manifests itself as part of the emerging FI-PR-MDG nexus. However, given the current global crises, the need to scale-up Financial Inclusion is now perhaps more important as a complementary and incremental approach to work towards meeting the MDGs than at any other time in recent history.

Financial Inclusion - Journey so far and Road Ahead( by Dr. (Smt) Deepali Pant Joshi, 2013)

Emphasize the need for banks to move beyond simply opening bank accounts to ensuring that poor customers are confident and comfortable enough to use them. Innovation in reaching out to the underserved customer, rather than simply posting higher numbers in branches or bank accounts opened, has to be part of our efforts. There is a grave need of frugal, trustworthy, and effective Indian model for financial inclusion.

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BCG 2007 report “The next billion consumers: A road map for financial inclusion in India”

To acquire more customer bank must develop the distribution model that is aligned with the needs and behavior of the next billion customers that presents the alternative trustworthy channel and that are economically viable. At the same time they must educate the consumer and build trust through community level partnership.

The next billion have been excluded for so long and been considered unattractive segment to serve. This is short-sightedness; creative business model supported by government initiatives and regulatory reforms can allow the financial services companies to unlock opportunities for profitable expansion.

  • “Strategy adopted for financial inclusion” by Dr. Deepali Pant Joshi
  • India has adopted a bank led model for financial inclusion which seeks to leverage on technology the FI initiative would have to be ICT based and would ride on a new delivery model that would need to be developed by market participants to best suit to their requirement. Past experience shows that goal of financial inclusion is better served through mainstream banking institutions only they have ability to suit the product required to bringing effective meaningful financial inclusion, other players such as mobile companies have been allowed to partner with bank in offering service collaboratively
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Satya R. Chakravarty and Rupayan Pal (March 2010), at Indira Gandhi Institute of Development Research, Mumbai conducted a study titled Measuring FinancialInclusion: An Axiomatic Approach. This paper demonstrates that the axiomatic measurement approach developed in the human development literature can be usefully applied to the measurement of financial inclusion.

CRISIL report dec2013 :The CRISIL Inclusix that indicates an overall improvement in the financial inclusion in India (on a scale of 100) increased from 35.4 in 2009 to 42.8 in 2012.

Rama Pal and Rupayan Pal (June 2012) analyzed in their article “Income Related Inequality in Financial Inclusion and Role of Banks” : Evidence on Financial Exclusion in India, income related inequality in financial inclusion in India using a representative household level survey data, linked to State-level factors. This paper also provides estimates of the effects of various socio, economic and demographic characteristics of households on propensity of a household to use formal financial services, and compare that for rural and urban sectors. A notable result is that greater availability of banking services fosters financial inclusion, particularly among the poor.

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Reddy K. Sri harsha (2011) in his article, A Study on Extent of Financial Inclusion among Small Borrowers in Andhra Pradesh, studied the flow of credit to small borrowers with the objective to evaluate the extent of financial Inclusion based on credit to small borrowers with special reference to agricultural credit in Andhra Pradesh. This paper attempted to fill this gap by evaluating the extent of financial inclusion in Andhra Pradesh based on the penetration of credit to small borrowers.

Oya Pinar Ardic et al (2011) explained that using the financial access database by CGAP and the World Bank group, this paper counts the number of unbanked adults around the world, analyses the state of access to deposit and loan services as well as the extent of retail networks, and discusses the state of financial inclusion mandates around the world. The findings indicate that there is yet much to be done in the financial inclusion arena. Fifty-six percent of adults in the world do not have access to formal financial services.

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(Nitinkumar, 2009) . At All-India level the credit penetration and deposit penetration are positively correlated implying that the regions having high credit penetration are also the regions having High deposit penetration and vice versa. The results from the empirical analysis indicate a negative influence of population density on deposit penetration. The finding implies that although deposit accounts have improved over time, but its growth has not matched with respect to the population increase. But, the relationship is not as clear in case of credit penetration as the coefficient is insignificant

Dr. VigneswaraSwamy and Dr. Vijayalakshmi (2009) conducted the study on “Role of Financial Inclusion for Inclusive Growth in India - Issues & Challenges”concluded that Financial Inclusion has far reaching consequences, which can help many people come out of abject poverty conditions. Financial inclusion provides formal identity, access to payments system & deposit insurance. The objective of financial inclusion is to extend the scope of activities of the organized financial system to include within its ambit people with low incomes. Through graduated credit, the attempt must be to lift the poor from one level to another so that they come out of poverty

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Joseph Massey (2010) said that, role of financial institutions in a developing country is vital in promoting financial inclusion. The efforts of the government to promote financial inclusion and deepening can be further enhanced by the pro-activeness on the part of capital market players including financial institutions. Financial institutions have a very crucial and a wider role to play in fostering financial inclusion. National and international forum have recognized this and efforts are seen on domestic and global levels to encourage the financial institutions to take up larger responsibilities in including the financially excluded lot.

HemavathyRamasubbian and GanesanDuraiswamy (2012) suggested, in their article The Aid of BankingSectors in Supporting Financial Inclusion – An Implementation Perspective from Tamil Nadu State, India, that though over the past six years the FI strategy had improved the life style of BPL, but missing focus on savings and credit improvement strategies degrades the benefits of FI. This paper surveys analyzes the issues pertaining to implementation of financial inclusion in economically down trodden districts of Tamil Nadu, India. Data collected from districts were collected and analyzed using SPSS tools.

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Refernces:

  • CRISIL report dec 2013 “financial inclusion gain momentum in india”
  • Chakravarty, S.R., Pal, R. (2010), ‘Measuring financial inclusion: An Axiomatic approach’, Indira Gandhi Institute of Development Research,
  • Mohan, R. (2006): 'Agricultural Credit in India: Status, Issues and Future Agenda',Economic and Political Weekly (March).
  • Nitin Kumar (2009) “Financial Inclusion and its determinants: Evidence from state level empirical analysis in India”
  • Thorat, U., (2007), 'Financial Inclusion-the Indian Experience', Reserve Bank of India, Bulletin, July, Vol LXI (7)
  • Joseph Massey. (2010). Role of Financial Institutions in Financial Inclusion, FICCI’s Banking & Finance Journal
  • Michael Chibba. 2009. Financial Inclusion, Poverty Reduction and the millennium Development Goals, European Journal of Development Research
  • MandiraSarma and JesimPais. (2008). Financial Inclusion and Development: A Cross Country Analysis, Indian Council for Research on International Economic Relations.
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9. Rama Pal and Rupayan Pal (June 2012) “ Income Related Inequality in Financial Inclusion and Role of Banks”

  • 10. Dr. VigneswaraSwamy and Dr. Vijayalakshmi (2009) “ Role of Financial Inclusion for Inclusive Growth in India - Issues & Challenges”
  • 11. Rangarajan Committee, (2008), 'Report of the Committee on Financial Inclusion', Committee Report.
  • 12.BCG 2007 report “The next billion consumers: A road map for financial inclusion in India”
  • 13. FICCI 2012 report: Promoting Financial Inclusion: Can the constraints of political economy be overcome
  • 14.Infosys finacle 2012 report “Measures for achieving financial inclusion in India”
  • 15.Dr. Deepali Pant Joshi 2014 “Strategy adopted for financial inclusion
  • 16. Chattopadhyay, Sadhan Kumar (2011) “Financial Inclusion in India: A case-study of West Bengal”
  • 17.http://www.rbi.org.in/scripts/BS_SpeechesView.aspx?Id=218
  • 18. http://www.rbidocs.rbi.org.in/rdocs/Speeches/PDFs/ISCHF230712_F.pdf
  • 19. http://www.rbi.org.in/scripts/BS_speechesview.aspx?id=871