Page 1 of 12

Journal for Studies in Management and Planning

Available at

http://edupediapublications.org/journals/index.php/JSMaP/

ISSN: 2395-0463

Volume 04 Issue 03

March 2018

Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 94

Financial Inclusion in India

(A Study)

Dr. Neelam Goel

Associate Professor, Department of Commerce Shyama Prasad Mukherjee College University of Delhi

(mkgoelmgc@gmail.com)

ABSTRACT

One of the greatest challenges before the Indian sub- continent which accommodates more than one- third of the population is poverty. India, one of the BRIC nations with more than 1.2 billion population is

seen by many developed countries as an emerging economy. India’s economic growth has failed to make

a significant improvement in its poverty figures with 400 million- more than the total in the poorest

African Nations- still stuck in poverty. Government of India with its concern started various poverty

alleviation programs but they have failed to deliver the objectives to the level which is desired. The

reasons may be many such as failure to reach the target group, loopholes in the system, developing a

robust mechanism to name a few. Many countries including India experimented with subsidized credit

which only led to increase in the NPAs. In this context Financial Inclusion appears to have become the

principal development concern .This has been particularly evident during the past decade or so, even the

world has stumbled through a financial meltdown, more serious than any since the Great Depression,

that has exposed the frailties and inequities of the global financial system. Nevertheless, global attempts

to bring about ‘an increase in the proportion of individuals and firms that use financial services’ to

continue apace. The term ‘financial inclusion’ has acquired universal acceptance as both a mere access

to financial services as well as deeper processes. While there is a general consensus about the many

benefits of expanding the financial markets to facilitate greater reach of credit, savings and payments

services to newer and under-banked segments and to widen access to insurance and pensions, there are

also concerns about the plausible ill-effects like over indebtedness of customers and the stability of

financial markets. The appropriateness of financial services, especially for poorer segments of the

population, has become a critical concern too. This report makes an attempt at tracking and analysing

the larger project of financial inclusion in India being designed and implemented by the banking system

and other diverse stakeholders such as SHG, s/ MFI’s/ NGO’s etc. the introduction of the concept of

financial inclusion has ushered a new phase of financialisation f economic lives of people through the

expansion of financial markets. Engagement with the poor is now posed as a ‘win-win’ game, a

‘profitable’ opportunity to make ‘fortune at the bottom of the pyramid’, notions that have been strongly

founded in theoretical frameworks of neo-classical and institutional economics. Till now the focus was

mainly on poverty alleviation and micro finance but now for a better and diversified growth we have

started approaching towards the concept of “Microfinance plus Services”. Freeing the markets,

including financial markets, of all constraints to the participation of different sections of economic actors

is the crux of this philosophy of development. This paper tries to examine the growth of financial

inclusion in India, its location in poverty development discourse, various initiatives taken by the banks

and the government.

Page 2 of 12

Journal for Studies in Management and Planning

Available at

http://edupediapublications.org/journals/index.php/JSMaP/

ISSN: 2395-0463

Volume 04 Issue 03

March 2018

Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 95

INTRODUCTION

DEFINITION, MEANING AND SCOPE OF

FINANCIAL INCLUSION

Financial inclusion or inclusive financing is the

delivery of financial services at affordable costs

to sections of disadvantaged and low-income

segments of society, in contrast to financial

exclusion where those services are not available

or affordable. (Wikipedia)

Aynsley (2010) identifies three key aspects of

definitions of financial

inclusion:

(i) access to financial services and

products;

(ii) financial capability (managing money

effectively, etc

(iii) financial literacy

Poverty is an unacceptable human condition

which must lie at the center of the financial

inclusion discourse; financial inclusion itself

does not carry with it the intent to address the

poverty problem. Accordingly if it is to be

employed as a tool for development it must be

accompanied by a clear intent and strategy to

address poverty and vulnerability and support

economic security and viable livelihoods.

Similarly, Financial Capability is linked to

poverty as the financial products have

become more sophisticated and refined.

Financial literacy is a means to financial

capability. it broadens the scope of financial

inclusion by improving the way through which

one uses financial resources and at the same time

by reducing vulnerabilities.

The e Netherlands Platform for Inclusive

Finance4 thus states that ‘through what is called

inclusive finance, people living in poverty are

offered a diverse range of financial instruments

to run their businesses, build assets, stabilise

consumption and shield themselves against

risks.... By responding to the need of the

client—offering the right product to the right

client—MFIs broaden their market share, reduce

their own risk and grow responsibly.

According to EU publication, financial inclusion

can be expressed as something beyond ‘financial

access ‘but which is a win-win deal for both

sides in financial services delivery.

According to Raghuram Rajan, Governor of the

Reserve Bank of India (RBI)‘Financial inclusion

is about:

(a) The broadening of financial services to those

people who do not have access

to financial services sector;

(b) The deepening of financial services for

people who have minimal financial services;

(c) Greater financial literacy and consumer

protection so that those who are offered the

products can make appropriate choices. The e

imperative for financial inclusion

The e landmark Rangarajan Committee Report

on Financial Inclusion (2008) stated ‘the essence

of financial inclusion is in trying to ensure that a

range of appropriate

financial services is available to every individual

and enabling them to understand and access

those services.’

From the above definitions we can see that each

statement highlights a different aspect of

financial inclusion. While one addresses the

weaker sections directly another emphasises on

the affordability, transparency and

appropriateness. Also it emphasises on the

individuals need to learn and understand these

financial services. It also emphasises on the need

of a suite of products to cover the various needs

of poor households. Thus, financial inclusion can

be viewed differently by many stakeholders

depending upon the scope and outcome.

Page 3 of 12

Journal for Studies in Management and Planning

Available at

http://edupediapublications.org/journals/index.php/JSMaP/

ISSN: 2395-0463

Volume 04 Issue 03

March 2018

Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 96

RESEARCH OBJECTIVE AND

METHODOLGY

The research objective is to study the current

state of financial inclusion in India and the

initiatives which have been taken with respect to

it. We also try to find the meaning behind the

term “Financial inclusion” and tits relevance in

the society today. The research methodology

used is studying the various reports and data on

financial initiatives taken. The research involves

studying secondary data through internet, books,

and magazines.

REAL FINANCIAL INCLUSION

Financial behaviour is not defined by only access

to finance but it is significantly shaped by an

individual’s environment and personal attitudes.

Real financial inclusion is about providing a

comprehensive set of services which meets the

total needs of the working poor. The question

arises is whether financial access is sufficient

condition for financial inclusion.According to

the general agreement financial inclusion does

not merely includes financial access but also the

use of financial services. Some business

observers see that financial inclusion should

involve business models reaching low – income

households in a sustainable way.thus , real

financial inclusion pertains to the capabilities of

the people with which they make informed

financial choices and it is more of a long term

thing than a short term thing .

Moreover , financial inclusion is

also not a binary condition .It is a continnum

represented by an extent to which mainstream

needs are covered with the financially excluded

having no access or limited access to use

financial services.Formal education is seen as a

critical to advancing financial inclusion and

consumer protection.

Also human behaviour including knowledge

, skills , capital , physical attitudes, culture,

social status , health, assets determine whether a

person is willing to take financial decisions that

are beneficial to him/her. In reality peple would

nnot always choose the services which would

have been best for them.

In this context it is also important to know that

maximum financial inclusion initiatives are

targeted towards the general population

(including women), most initiatives are

introduced without comprehensive

understanding about women’s socio- economic

conditions, intra – household bargaining

positions and restrictions on mobility. For fi

nancial inclusion to have the desired impact,

policymakers must consider the social, cultural

and economic constraints women face when

accessing fi nancial products and services.

brought about by alternative agencies such as fi

nancial co-operatives of the poor, based upon

informal agencies and channels such as SHGs,

primarily of women, wherein the decision- making power and profi ts are retained in the

hands of the members themselves.

EXTENT OF FINANCIAL INCLUSION IN

INDIA

The All India Debt and Investment Survey 2002

estimated that 111.5 million households had no

access to formal credit. Moreover, lower the

asset class or income, higher the degree of

financial exlusion.

Data from the 2011 Census of India indicates

that 58.7 percent people avail banking services.

54.5 percent in rural areas and 67.7 % in urban

areas.

The World Bank estimated that 59.5 percent of

the households did not have a savings bank

account.