Evolution of Financial Inclusion Strategies

Even after the 70 years of independence, more than 50 % of total populations don’t have any bank account. Expectations of poor people from the financial system is security and safety of deposits, low transaction costs, convenient operating time, minimum paper work, frequent deposits, and quick and easy access to credit and other products, including remittances suitable to their income and consumption.

Initially Indian banking is dominated by big landlords, moneylenders who are replaced by private institutions latterly mainly focused on either exploitation of deprived strata of the society or simply ignoring them. So, first step was to strengthen the institutions. Steps taken by Government were:

• In 1954,  All-India Rural Credit Survey Committee report -suggested Multi-agency approach for financing the rural and agricultural sector;
• In 1969, Nationalization of 14 major Private Banks. This was done to increase the flow of credit to agriculture and rural areas.
• In 1972, Mandatory system of Priority Sector Lending (PSL) was introduced which focused on agriculture, small industries, and housing facilities for poor.
• In 1975, Establishment of RRBs, which the main focus on rural area where more than 70 % population exist and more than 50 % employment generated.
• In 1982, NABARD was created for the easy credit flow in rural areas and agriculture.

These measures are sufficient for establishment of system for banking services, but still to include every person was still a difficult task.

For this government has taken second step which focused on simplifying procedures:

• In 2000, SHG model was introduced with the main focus to link people with employment and banking services. NABARD estimates that there are 2.2 million SHGs in India, representing 33 million members. SHGs have significantly empowered poor people, especially women, in rural areas.
• Banking system follows complex procedure while opening bank accounts in order to avoid KYC violation and Money laundering. But this often leads to the no opening of  bank  accounts to deprived section specially migrants, illiterate  who have hardly any verification certificate. No frill accounts, BSBDA accounts where there is relaxation of KYC procedures initiated in order to include them all.  RBI has taken a number of initiatives in this regard ( Click here)

This was followed by third step started in 2009, which focuses on innovative banking, bank account opening through government programmes, and linking various facilities like pension, insurance and subsidies with bank account in order to attract more people. This step include various schemes like Pradhan mantra jan dhan yojana, pradhan mantra jeevan jyoti yojana, Atal pension yojana and creation  of more institution and assets like small  and payment banks, micro finance institutions, while label ATM

By: Parveen bansal