Financial Inclusion Essay

Role of Government in financial inclusion Abstract:- This research paper contains the full information about the financial inclusion of the world’s economic. In this research paper we describe the financial inclusion basic meaning, definitions, scope & significance. Now we move towards the second phase which include role of government & role of banks in financial inclusion. we also include the reforms that has been done by the government and the other government organizations . We also include the main article that has been given by the different ministers about financial inclusion & its reform. Financial Inclusion Meaning: Financial inclusion is a policy adopted by many countries to include more people in the financial set up of the country. It aims at tackling poverty and deprivation in the country. In simple terms financial inclusion refers to making the finance or the financial/banking sector more accessible to people. For example: Debit cards, internet banking and direct debit facilities are now common, convenient and cheap ways of paying for goods and services. Yet there are still people who are excluded from using these services. People who are losing out as they are unable to take advantage of the benefits offered by the range of financial products available. In developing and poor countries like Bangladesh, Nepal, Afgan etc there are many people who do not even have a bank account or who are unable to take advantage of the loans and deposit benefits offered by banks due to various reasons like lack of knowledge, fear, lack of proximity etc. Today, personal debt is at a record igh and borrowing without a bank account means using high interest lenders. Many of the people in this position live in our poorest communities and find themselves without choice or access to basic financial services, making it even more difficult to find routes out of poverty. Defination: Financial Inclusion is the delivery of banking services at affordable costs to vast sections of disadvantaged and low income groups. Unrestrained access to public goods and servic es is the sine qua non of an open and efficient society. It is argued that as banking services are in the nature of public good, it is essential that availability of banking and payment services to the entire population without discrimination is the prime objective of public policy. The term Financial Inclusion has gained importance since the early 2000s, and is a result of findings about Financial Exclusion and its direct correlation to poverty. Financial Inclusion is now a common objective for many central banks among the developing nations. Financial Inclusion in India The Reserve Bank of India setup a commission (Khan Commission) in 2004 to look into Financial Inclusion and the recommendations of the commission were incorporated into the Mid-term review of the policy (2005-06). In the report RBI exhorted the banks with a view of achieving greater Financial Inclusion to make available a basic â€Å"no-frills† banking account. In India, Financial Inclusion first featured in 2005, when it was introduced, that, too, from a pilot project in UT of Pondicherry, by K C Chakraborthy, the chairman of Indian Bank. Mangalam Village became the first village in India where all households were provided banking facilities. In addition to this KYC (Know your Customer) norms were relaxed for people intending to open accounts with annual deposits of less than Rs. 50, 000. General Credit Cards (GCC) were issued to the poor and the disadvantaged with a view to help them access easy credit. In January 2006, the Reserve Bank permitted commercial banks to make use of the services of non-governmental organizations (NGOs/SHGs), micro-finance institutions and other civil society organizations as intermediaries for providing financial and banking ervices. These intermediaries could be used as business facilitators (BF) or business correspondents (BC) by commercial banks. The bank asked the commercial banks in different regions to start a 100% Financial Inclusion campaign on a pilot basis. As a result of the campaign states or U. T. s like Puducherry, Himachal Pradesh and Kerala have announced 100% financial in clusion in all their districts. Reserve Bank of India’s vision for 2020 is to open nearly 600 million new customers’ accounts and service them through a variety of channels by leveraging on IT. However, illiteracy and the low income savings and lack of bank branches in rural areas continue to be a road block to financial inclusion in many states. Apart from this there are certain in Current model which is followed. There is inadequate legal and financial structure. India being a mostly agrarian economy hardly has schemes which lend for agriculture. Along with Microfinance we need to focus on Micro insurance too. The scope of financial inclusion The scope of financial inclusion can be expanded in two ways. ) through state-driven intervention by way of statutory enactments ( for instance the US example, the Community Reinvestment Act and making it a statutory right to have bank account in France). b) through voluntary effort by the banking community itself for evolving various strategies to bring within the ambit of the banking sector the large strata of society. When bankers do not give the desired attention to certain areas, the regulators have to step in to remedy the situ ation. This is the reason why the Reserve Bank of India is placing a lot of emphasis on financial inclusion. In India the focus of the financial inclusion at present is confined to ensuring a bare minimum access to a savings bank account without frills, to all. Internationally, the financial exclusion has been viewed in a much wider perspective. Having a current account / savings account on its own, is not regarded as an accurate indicator of financial inclusion. There could be multiple levels of financial inclusion and exclusion. At one extreme, it is possible to identify the ‘super-included’, i. e. , those customers who are actively and persistently courted by the financial ervices industry, and who have at their disposal a wide range of financial services and products. At the other extreme, we may have the financially excluded, who are denied access to even the most basic of financial products. In between are those who use the banking services only for deposits and withdrawals of money. But these persons may have only restricted access to the financial system, and may not en joy the flexibility of access offered to more affluent customers. Steps towards financial inclusion