The good news for India is that it is one of the fastest-growing economies among the developing countries. The not so great news is that we still lag by astronomical measures in providing financial inclusion to a large number of people straddling in lower-income or underprivileged socio-economic strata. Global trends indicate that financial inclusion is the key to long term and sustainable growth and development of a country; it is still fraught with a poor turnaround.
Financial inclusion is a concept focused chiefly on providing individuals and businesses access to useful and affordable financial products and services that meet their needs. The needs that should be met include saving, transacting, making and receiving payments, receiving credit, and insurance. One of its main aims is to get the unbanked and under-banked into the banking ambit.
Why financial inclusion is important
Financial inclusion is needed for all and sundry, and especially the world’s poor population working in the informal sector. The Niti Aayog’s study released in November 2019, estimates, India’s informal sector employs approximately 85% of all workers. For India, this means 3/4th of its population toiling at the farms, shuffling in the small factories and a large number of homegrown entrepreneurs, cottage industries, merchants and shopkeepers.
1. Financial inclusion will ensure that the rural masses get access to banking facilities like cash receipts, cash payments, balance inquiry and account statements using biometric authentication. This not just simplifies banking for them, it also gleans out the probabilities of fraud or access due to lack of documents.
2. Reducing the size of the cash economy.
3. The lower-income category has been living under the constant shadow of financial constraint, mainly because of the absence of savings. It inculcates the habit to save, thus increasing capital formation in the country and giving it an economic boost.
4. The gaps and leakages in the public subsidies and welfare programs can be directly plugged by direct cash transfer to the beneficiary’s account. This will ensure that the funds actually reach the intended recipient instead of meandering through a large channel of the government machinery. Receiving social security transfers in the form of old-age pensions, widow pensions, monthly aid to disabled persons and other benefits accruing from state governments directly into their bank accounts without wasting time in collecting the benefits in cash;
5. A bank account with transparent activity and adequate funds from savings and income will enable credit for business expansion etc and foster the entrepreneurial spirit.
The Pradhan Mantri Jan Dhan Yojana is one of the greatest movements towards financial inclusion, rolled out by the government five years ago. As per the latest finance ministry data, the total balance in over 36.06 crores Pradhan Mantri Jan Dhan Yojana (PMJDY) accounts was at Rs 1,00,495.94 crore as on July 3, 2019. The deposits in the account of the beneficiaries, which has been steadily rising, was Rs 99,649.84 crore on June 6 and Rs 99,232.71 crore by November 2019. This is a clear indicator of the permeation of financial inclusion. According to the data released by the government, 51% of the account holders are women from the rural or semi-rural populace. This sure is a great stride towards not just financial inclusion but social inclusion.
Benefits for the banks and intermediaries:
As the doors of a massive new market open up to the banks and intermediaries, there are some more specific benefits that make them woo to the rural unbanked or newly banked.
1. The low-cost deposits will offer banks the opportunity to reduce their dependence on bulk deposits from corporates, HNI’s and better help in the management of liquidity risks and asset-liability mismatches.
2. There will be a huge opportunity for the banks to cross-sell asset products, micro-insurance (both life & non-life), micro-pension products, etc.
3. While banks will carry out the core operations, there will be additional income for many small entrepreneurs by becoming an intermediary of the bank. Thus, individual owners of Kirana stores / medical shops/ fair price shops; individual PCO operators; individual petrol pump owners; agents of saving schemes of government of India; agents of insurance companies will massively line up and increase skills to become intermediaries, adding income and opportunities to their business.
When the mobile becomes the bank!
With the marriage of technology and banking, getting the services to a rural household’s doorstep has become far easier. In fact, riding on sound technological platforms, the financial inclusion not just benefits the under services but also opens a large captive market for the banks and the NBFC intermediaries. The intermediaries with their business/Banking Correspondents (BC) carry handheld tablets coupled with portable biometric scanners, a smart card swipe and thermal Bluetooth printers to complete the banking activity.
With the proliferation of digital transactions and mobile banking apps and mobile banking gateways like BHIM, UPI, etc. all the smartphones have become smarter. They have made funds transfer; shopping and payments as easy as the snap of the finger.
When the mobile becomes the bank and the internet account becomes the wallet, the cost of banking and the scope of banking spreads like a worldwide web.