JAIIB PPB Unit 30 - Financial Inclusion & Financial Literacy

Financial Inclusion

Financial inclusion or inclusive financing is the delivery of financial products, at affordable costs to sections of disadvantaged and low-income segments of society. It is in contrast to financial exclusion, where those services are not available or affordable.

As per United Nations, the goals of financial inclusion is, to ensure access to a full range of financial services, at a reasonable cost, to ensure continuity and certainty of investment.

India: RBI set up the Rangarajan Committee in 2004 to look into financial inclusion.
Financial inclusion first featured in 2005 when Mangalam became the first village in India where all households were provided banking facilities.

RBI initiatives:

1. Opening of no-frills accounts (replaced by basic saving bank accounts)
2. Relaxation KYC norms for small deposit accounts.
3. Allowing engaging business correspondents (BCs)
4. Effective use of information and communications technology (ICT), to provide doorstep banking services
5. Implementation of electronic benefit transfer ( EBT) by leveraging ICT-based banking 6. Issue of general credit cards for amount up to Rs.25000
7. Simplified branch authorization for tier III to tier VI centres (population of less than 50,000) under general permission

Financial Inclusion Index: On June 25, 2013, CRISIL, launched an index (Inclusix) to measure the status of financial inclusion in India. Inclusix is a one-of-its-kind tool to measure the extent of inclusion in India, in each of the 632 districts. It is a relative index on a scale of 0 to 100, and combines 3 critical parameters of basic banking services : branch penetration, deposit penetration, and credit penetration, into one metric.

RBI Roadmap for Financial Inclusion

Under RBI's earlier roadmap (of Sep 2010) 74,414 unbanked villages were allocated to banks for opening of banking outlets. Banks opened banking outlets in 74,199 (99.7%) villages by March 2012.

New roadmap: To take financial inclusion to the next stage of providing universal coverage and facilitating Electronic Benefit Transfer, banks have been advised) to draw up FIP for 2013-16 and disaggregate the FIPs to the controlling office and branch level. RBI advised State Level Bankers' Committees (SLBCs) to prepare a roadmap covering all unbanked villages of population less than 2000 and notionally allot these villages to banks for providing banking services, in a time-bound manner to provide with at least one banking outlet. The lead banks are to constitute a Sub-Committee of the District Consultative Committees (DCCs) to draw up a roadmap for provision of banking services in every village having a population below 2000 (2001 census) for providing banking services, in a time bound manner.

Direct Benefit Transfer (DBT) Scheme

DBT is being rolled out in a phased manner (43 districts taken up in the first phase from January 1, 2013 and extended to 78 more districts from July 1, 2013). Eventually, all districts in the country would be covered under the DBT scheme.

To facilitate DBT for delivery of social welfare benefits by direct credit to the bank accounts of beneficiaries, banks were advised by RBI (May 10, 2013) to:

1. open accounts for all eligible individuals in camp mode with the support of local government authorities,

2. seed the existing -accounts or the new accounts opened with Aadhaar numbers and  put in place an effective mechanism to monitor and review the progress in the implementation of DBT.

SLBC Convenor Banks and Lead Banks should institute a monitoring and review mechanism to periodically assess and evaluate the progress made in the implementation.

The SLBC Convenor banks shall submit a monthly statement of district wise progress made in implementing DBT from the month ended April 30, 2013 by the 10th of the succeeding month to respective RBI Regional Office.

RBI initiatives :

(1) RBI has undertaken a project titled 'Project Financial Literacy' to disseminate information regarding banking concepts to various target groups, such as, school and college going children, women, rural and urban poor, defence personnel and senior citizens.

(2) RBI launched a financial education website on November 14, 2007.

(3) RBI circulated a comprehensive Financial Literacy Guide for conduct of Financial Literacy Camps & Financial Literacy. Material as also a Financial Diary and a set of 16 posters.

In terms of RBI circular dated Jun 06, 2012, all the Financial Literacy Centres and rural branches
are required to prepare an annual calendar of locations for conduct of outdoor Financial Literacy Camps.

At every location, the program should be conducted in 3 stages to be spread over a period of 3
months comprising of 3 sessions of minimum 2 hours each plus a visit to ensure timely delivery
of cards. 2nd, session is to be conducted a fortnight after first session. After 15 days of the second session, branch officials should visit the village to ensure delivery of cards to the villagers. They will also make sure that the BC has started operations and villagers are able to make transactions. 3rd Session is to be conducted, 2months after holding of second session.

Pradhan Mantri Jandhan Yojana

Prime Minister Narendra Modi on August 28 launched his government's mega scheme 'Pradhan Mantri Jan Dhan Yojana', an ambitious scheme for comprehensive financial inclusion. According to Prime Minister, in a country where 40 per cent of the population does not have access to banking services, this programme would mark the beginning of the end of "financial untouchability" and rid the country of poverty. The scheme has been started with a target to provide 'universal access to banking facilities'. On the inaugural day, a record 1.5 crore bank accounts were opened across the country, the largest such exercise on a single day possibly anywhere in the world. Currently, around 41% of the population is unbanked, of which 33% are in urban areas and 46% in rural. Salient points of Prime Minister’s ambitious Jan Dhan Yojana are given below:

1. About 15 million accident insurance policies done on a single day and same number of bank accounts opened.

2. Programme held at around 77,000 locations.

3. Target to cover 7.5 crore households with at least one account will be achieved by Jan 26, 2015.

4. Coverage of all households with at least one basic banking account.

5. Account holders will be provided zero-balance bank account with RuPay debit card, in addition to inbuilt accidental insurance cover of Rs 1 lakh.

6. Additional Rs.30,000 free life assurance cover for those opening bank accounts before Jan 26, 2015.

7. Holders can avail overdraft of Rs 5,000 subject to satisfactory operations of the account for six months.

8. Universal access to banking facilities for all households through a bank branch or a fixed point business correspondent called "BankMitra".

9. Financial literacy to be imparted up to village level.

10. Under the Jan Dhan Yojana, all benefits from the Centre/states/local bodies are proposed to be transferred to the accounts of beneficiaries.

11. Platform has been built by the National Payment Corporation of India that connects all banks and all telephone networks in the country. With the introduction of new technology introduced by National Payments Corporation of India (NPCI), a person can transfer funds, check balance through a normal phone.

12. Mobile banking for the poor would be available through National Unified USSD Platform (NUUP) for which all banks and mobile companies have come together.

13. The second phase of rollout will involve providing micro-insurance to people and schemes like 'Swavalamban'.

14. Households being targeted instead of only being villages targeted earlier.

15. For the entire exercise, the existing banking network will be strengthened - it will rope in an additional 50,000 business correspondents and set up about 7,000 branches and 20,000 new automated teller machines, in the first phase.

16. PMJDY also aimed at eliminating corruption as it would facilitate routing of subsidies directly into the accounts of intended beneficiaries.

17. Presently, one account is being opened for one adult of each household and by 2018, the mandate is to make it two per household, with the compulsory inclusion of the lady of the house.

18. The government would institute a credit guarantee fund post-August 2015.

Financial Literacy

The financial literacy or financial education stands for ability to know and effectively use financial resources to enhance the well-being and economic security of oneself, one's family, and one's business.

It primarily relates to personal finance that enables individuals to take effective action to improve their overall wellbeing and avoid distress in financial matters.

Benefits: Financial literacy promotes financial inclusion and ultimately financial stability. In India, its need is even greater, due to low levels of literacy and the large section of the population, remaining out of the formal financial set-up.