Financial inclusion is a process of ensuring the availability of financial services to all sections of society, at an affordable cost. A key objective of financial inclusion is to help the unbanked population with institutional finance, to enable them to become self-employed and ensure a stable income.
The government has made a concerted effort to extend financial inclusion by nationalising banks and establishing a network of rural cooperatives and regional rural banks. The RBI too has initiatives like priority sector lending since the early 1970s, opening of no-frills accounts, establishing business correspondents (BCs) and easing of know-your-customer (KYC) norms. Its latest efforts include the preparation of guidelines for licensing payments of banks and small banks. The National Bank for Agriculture and Rural Development (Nabard) has also supported the cause, adopting measures for cooperative banks and regional rural banks, enabling kisan credit cards and spreading financial literacy. In addition, a number of private sector institutions have also been operating in the area. Despite all this, nearly half the population/ households do not even have a bank account.
It is in this context that Finance Minister Arun Jaitley, in his maiden budget speech, mentioned the Financial Inclusion Mission (FIM) to provide banking services to all households in India. The FIM, focused on empowering the weaker sections of society, is likely to be launched on August 15, with two bank accounts eligible for credit per family. The scheme reportedly conceives six pillars to achieve comprehensive or sampoorn financial inclusion. These are — universal access to banking facilities, financial literacy, basic bank accounts and availability of micro credit, micro insuranc, and pension scheme. The vision is to have a banking account for each family and beneficiary by March 2016. To encourage people to start using banking facilities, the government is considering providing an overdraft of Rs 5,000 through a debit card to every basic banking account holder. The strategy is to strengthen the existing business correspondent model (BCM) to make it operationally flexible and viable with the expansion of banking services.
There are numerous challenges to successfully implementing the above proposals. In the absence of Aadhaar, the implementation of some components of the FIM would have to be phased over a few years, requiring sustained monitoring and supervision by the finance ministry.
There is also the need for a bottom-up approach for the FIM to be successful. This implies the active participation of state governments as well as local governments and panchayati raj institutions (PRI). The panchayats could provide office space on their premises or at common service centres, as well as play an important role in resolving the issue of KYC norms. The retention of staff by BCs is another challenge, as the attrition rate is high because continued…