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We have always known that heedless self interest was bad morals, we now
know that it is bad economics.

- Franklin D. Roosevelt

1. INTRODUCTION

The prophecy of Millennium Development goals of U.N. i.e. growth with equity
clearly envisages that the growth spree of the globe in the 21st century has left some
people behind the time. Handful of the global populace are still languishing in the
vicious circle of poverty and are cast aside by those who are economically stronger &
swifter in the sway of globalization and liberalization. For sustenance/better growth of
the world, the deprived sections should be dragged into the mainstream of growth. This
is because of the fact that poverty any where is a grave threat to prosperity everywhere.
Financial services actively contribute to the humane & economic development of the
society. These lead to social safety net & protect the people from economic shocks.
Hence, each & every individual should be provided with affordable institutional financial
products/services popularly called Financial Inclusion.

Financial inclusion may be defined as the process of ensuring access to financial

services and timely and adequate credit where needed by vulnerable groups such as
weaker sections and low income groups at an affordable cost. Financial products &
services are identified as basic banking services like deposits accounts, institutional
loans, access to payment, remittance facilities & also life & non life insurance services.
The following are the denotation & connotation of financial inclusion in India.

1. Affordable credit
2. Savings bank account
3. Payments and Remittance
4. Financial advice
5. Credit/debit cards
6. Insurance facility
7. Empowering SHGs (self help groups)
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An inclusive financial system facilitates efficient allocation of productive resources and

thus can potentially reduce the cost of capital. An all-inclusive financial system enhances
efficiency and welfare by providing avenues for secure and safe saving practices and by
facilitating a whole range of efficient financial services like easy day to-day management
of finances, safe money transfer etc. The govt. of India as well as the banking industry
has recognized this imperative and has undergone certain fundamental changes over the
last two decades. In fact, in order to address the issues of financial inclusion, the

Government of India constituted a Committee on Financial Inclusion under the

Chairmanship of Dr. C. Rangarajan. Not only in India, but financial inclusion has
become an issue of worldwide concern, relevant equally in economies of the
underdeveloped, developing and developed nations. Building an inclusive financial
sector has gained growing global recognition bringing to the fore the need for
development strategies that touch all lives instead of a select few.
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1.1 OBJECTIVE

1. To study about financial inclusion in detail.

2. To analyze the financial inclusion of states and compare them.

1.2 METHODOLOGY

The methodology used in this project is descriptive analytical method.

1.3 SCOPE OF THE STUDY

The present project is an attempt to analyze the financial exclusion and thus, the
need of financial inclusion in our country, its importance for meeting the need of
the people and ensuring livelihood. Also, it aims to observe the Indian scenario
and compare states and their financial inclusion.
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2. FINANCIAL EXCLUSION

The concept of financial inclusion and its implementation has come a long way
since the last two decades and the results are also quite fair. There have been much
technological advances that have transformed the banking industry from traditional
brick and-mortar infrastructure like staffed branches to a system supplemented by
other channels like automated teller machines, debit and credit cards, internet banking,
online money transfer etc. The moot point, however, is that access to such technology
and services are restricted to only certain segments of the society. There is a growing
divide, with an increased range of personal finance options for a segment of high and
upper middle income population and a significantly large section of the population
who lack access to even the most basic banking services. This is termed as Financial
exclusion.

2.1 Who are excluded?

There is still a vast majority of the Indian population that is unbanked. In India
individuals are mainly excluded because of these five reasons-

o No assets
o No savings
o No account
o No affordable credit
o No access to financial advice (counselling)
About 73% of households in India are estimated to be located in the rural areas. Among
the rural households about 60% are cultivator households. Among the urban
households about 36% are self-employed households which are their major source of
income during the last 365 days. Their income is form self-employed of the
households members. In rural areas there are large numbers of people who have no
land and in urban areas many of them are outside the purview of formal employment.
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No doubt, this is a typical case of Financial Exclusion. The following section is

excluded from basic banking

o Urban-slum dwellers
o Marginal farmers
o Landless labourers
o Oral lessees
o Self-employed and unorganized sector enterprises
o Migrants.
o Ethnic minorities, and
o Socially excluded groups, senior citizens, women and disabled people.

2.2 Need for Financial Inclusion

The word Financial Inclusion could be described as being the opposite of financial
exclusion. However financial inclusion is more of a process rather than a
phenomenon. It is a process by which mainstream financial services are made
accessible to all sections of the population. It is a conscious attempt at trying to bring
the un-banked people into banking. Financial Inclusion does not merely mean access
to credit for the poor, but also other financial services such as Insurance. Financial
Inclusion allows the state to have an easier access to its citizens. With an inclusive
population, for e.g.: the government could reduce the transaction cost of payments
like pensions, or unemployment benefits. It could prove to be a boon in a situation
like a natural disaster, a financially included population means the government will
have much less headaches in ensuring that all the people get the benefits. It allows for
more transparency leading to curtailing corruption and bureaucratic barriers in
reaching out to the poor and weaker sections. An intelligent banking population could
go a long way by effectively securing themselves a safer future. More importantly
Financial Inclusion is imperative for creating an inclusive economy at all fronts. This
attains special importance at this stage of rising food and oil prices, without an
inclusive economy the countrys development will suffer. In the recently concluded
G8 meeting in Hokkaido, Japan, the World Bank chief Robert Zoellick reiterated the
importance of creating an inclusive economy in an increasingly globalized World.
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3. FINANCIAL INCLUSION

3.1 What is Financial Inclusion

Financial inclusion is delivery of banking services at an affordable cost to the vast

sections of disadvantaged and low income groups. Unrestrained access to public
goods and services is the sine qua non for an open and efficient society. 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 the public policy.

3.2 Benefits of Financial Inclusion

Financial inclusion has many benefits. Following are some of the benefits summed
up.

1) It paves the way for establishment of an account relationship which helps the poor to
avail a variety of savings products and loan products for housing , consumption, etc.

2) An inclusive financial system facilitates efficient allocation of productive resources

and thus can potentially reduce the cost of capital.

3) This also enables the customer to remit funds at low cost. The government can
utilize such bank accounts for social security services like health and calamity
insurance under various schemes for disadvantaged. From the banks point of view,
having such social security cover makes the financing of such persons less risky.
Reduced risk means more flow of funds at better rates.

4) Access to appropriate financial services can significantly improve the day-today

management of finances. For example, bills for daily utilities (municipality, water,
electricity, telephone) can be more easily paid by using cheques or through internet
banking, rather than standing in the queue in the offices of the service.

5) Transfer of money can be done more safely and easily by using the cheque, demand
draft or through internet banking. A bank account also provides a passport to a
range of other financial products and services such as short term credit facilities,
overdraft facilities and credit card. Further, a number of other financial products,
such as insurance and pension products, necessarily require the access to a bank
account.
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6) Lastly, the Employment Guarantee Scheme of the Government which is being rolled
out in200 districts in the country would bring in large number of people through
their savings accounts into the banking system.

3.3 Methods to achieve Financial Inclusion

To address the issue of financial exclusion in a holistic manner, it is essential to

ensure that a range of financial services is available to every individual. These
services are: `

(i) a no-frills banking account for making and receiving payments,

(ii) a savings product suited to the pattern of cash flows of a poor household,
(iii) money transfer facilities,
(iv) small loans and overdrafts for productive, personal and other purposes, &
(v) micro-insurance (life and non-life)

3.4 Institutions and Financial Inclusion

Financial Institutions, both large and small have an important role to play in
financial inclusion. With their organized structure and effective management larger
financial institutions could act as mentors for small financial services firm by
ensuring a strong financial backing:
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1. COMMERCIAL BANKS: Commercial banks could act as an important part of

the process to achieve full financial inclusion. Especially with simplified savings
bank accounts (including no-frills account), relaxed KYC procedures, primary sector
lending and even microfinance.

2. COOPERATIVE BANKS: The Urban and Rural cooperative banks could cater
to populations that are generally neglected by the commercial banks. Their position
allows them to reach out to the people far easier than the more formal commercial
banks. Since they are operated by the members of the banks themselves, there would
be more involvement from the people of such cooperatives.

3. REGIONAL RURAL BANKS: Through priority sector lending, KCCs and

GCCS the RRBs could ensure a steady flow of credit to the rural poor especially the
marginal farmers. The RRBs like the commercial banks can deal with the agencies
like NGOs who are interested in helping out the poor and the weaker sections.

4. NON-BANKING FINANCIAL COMPANIES (NBFCS): The NBFCs could

include both large and small financial firms which provide financial services. They
could offer specific financial products to the poor and low income people such as
micro-insurance, micro-credit, etc. The NBFCs could create financial awareness
among the people by not only offering alternative financial services but also
spreading financial literacy by providing financial advices.

5. MICRO FINANCE INSTITUTIONS (MFIS): Micro Finance Institutions or

MFIs are created with the specific aim of extending financial services to the poor
and the weaker sections of the populations. A MFI could be independent or as in
most cases are promoted by NGOs, government agencies, NBFCs, commercial
banks and other institutions. Micro Finance Institutions have so far been the most
successful at ensuring basic financial services to the unbanked sections of the
populations. Along with the SHG movement, the MFIs has enabled the wealth
generation in many underdeveloped rural as well as neglected urban areas in India.

6. POST OFFICE SAVINGS BANK: These along with their extensive network
could offer wide variety of small and micro financial services to the people. The
Post Office Savings bank could utilise their staff to deliver door-to-door service to
the people.
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NON-GOVERNMENTAL ORGANIZATIONS (NGOS): NGOs could

provide financial assistance to the poor and the weaker sections through NGO
promoted MFIs or by providing financial advice. NGOs working the poor and the
economically deprived can more closely analyze their spending patterns and credit
requirements. Commercial banks and other large financial agencies can work closely
with NGOs to ensure that the dealings with the poor and the weaker sections turn out
to be a fruitful activity not only for the people but also for the lending agencies.

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 / saving 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 services
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 enjoy
the flexibility of access offered to more affluent customers.

The Indian economy is characterized a heavy dependence on agriculture as

industries are concentrated mainly in the urban areas and a highly skewed
distribution of income and wealth. A high percentage of the working population
depends on agriculture and related activities. Rural people have a poor base of
resources, a low level of capacity and limited access to financial and other support
services. Especially women and young people are affected. Financial inclusion has
proved to be the best intervention in removing chronic poverty amongst women and
enabling them to participate in economic activity by raising their income levels.
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4. INDIAN SCENARIO

The bank nationalization in India marked a paradigm shift in the focus of banking
as it was intended to shift the focus from class banking to mass banking. The rationale
for creating Regional Rural Banks was also to take the banking services to poor
people. The branches of commercial banks and the RRBs have increased from 8321 in
the year 1969 to 68,282 branches as at the end of March 2005. The average population
per branch office has decreased from 64,000 to 16,000 during the same period.
However, there are certain under banked states such as Bihar, Orissa, Rajasthan Uttar
Pradesh, Chattisgarh, Jharkhand, West Bengal and a large number of North-Eastern
states, where the average population per branch office continues to be quite high
compared to the national average. As you would be aware, the new branch
authorization policy of Reserve Bank encourages banks to open branches in these
under banked states and the under banked areas in other states. The new policy also
places a lot of emphasis on the efforts made by the bank to achieve, inter alia,
financial inclusion and other policy objectives.

One of the benchmarks employed to assess the degree of reach of financial services
to the population of the country, is the quantum of deposit accounts (current and
savings) held as a ratio to the adult population. In the Indian context, taking into
account the Census of 2001 (ignoring the incremental growth of population
thereafter), the ratio of deposit accounts (data available as on March 31, 2004) to the
total adult population was only 59% (details furnished in the table). Within the
country, there is a wide variation across states. For instance, the ratio for the state of
Kerala is as high as 89% while Bihar is marked by a low coverage of 33%. In the
North Eastern States like Nagaland and Manipur, the coverage was a meagre 21% and
27%, respectively. Northern Region, comprising the states of Haryana, Chandigarh
and Delhi, has a high coverage ratio of 84%. Compared to the developed world, the
coverage of our financial services is quite low. For instance, as per a recent survey
commissioned by British Bankers' Association, 92 to 94% of the population of UK
has either current or savings bank account.
Table 1 No. of accounts per 100 population region-wise
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Region No. of Accounts Population No. of Accounts

(current+saving) (in 000) per 100 population

2001 2005 2001 2005 2001 2005

Northern 50944 58777 132679 141599 38 42

N.Eastern 7536 7729 34495 411083 20 19

Eastern 47838 51888 227617 242920 21 21

Central 63498 69424 255714 272906 25 25

Western 48120 55178 149073 159095 32 35

Southern 79531 94725 223437 238459 36 40

All India 297467 337721 1027015 1096063 29 31

4.1 Delhi

The Reserve Bank of India is on a mission mode to carry forward the financial
inclusion drive that has been initiated by the government to bring in more under-
banked and unbanked people under its fold. With furthering financial inclusion in a
mission mode through a combination of strategies ranging from relaxation of KYC
regulatory guidelines, provision of new products and supportive measures to
achieve sustainable and scalable Financial Inclusion.

RBI has also relaxed the KYC norms to open bank accounts under Pradhan Mantri
Jan Dhan Yojana by allowing acceptance of only one of the documents proof of
address or proof of identity.

Two separate documents were required earlier but now there is clear instruction
from RBI that any one of the documents is necessary. The Aadhaar card is
sufficient proof of identity even if the current address is changed.
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Pradhan Mantri Jan-Dhan Yojna, (PMJDY) is National Mission for Financial

Inclusion to ensure access to financial services, namely Banking Savings &
Deposit Accounts, Remittance, Credit, Insurance, Pension in an affordable
manner.This financial inclusioncampaign was launched by the Prime Minister of
India Mr. Narendra Modi, on 28 August 2014. He had announced this scheme on
his first Independence Day speech on 15 August 2014.

Run by Department of Financial Services, Ministry of Finance, on the inauguration

day, 1.5 Crore (15 million) bank accounts were opened under this scheme. 1
Guinness World Records Recognises the Achievements made under PMJDY,
Guinness World Records Certificate says "The most bank accounts opened in 1
week as a part of financial inclusion campaign is 18,096,130 and was achieved by
Banks in India from 23 to 29 August 2014". By 05 August 2015,
17.45 crore accounts were opened, with around 22032.68 crore (US$3.3 billion)
were deposited under the scheme.

Delhi has become the first city to achieve 100 per cent enrolment under Prime
Minister Jan Dhan Yojana (PMJDY), according to a top Delhi government official.
Bank accounts of more than 31.63 lakh families have been opened under the
scheme in the national capital. Bank accounts of 31,63,579 households have been
opened in the national capital so far ever since the PMJDY was launched.

With this, Delhi has completed 100 per cent enrolment under Pradhan Mantri Jan
Dhan Yojana, becoming the first territory in the country to achieve so, S N Sahay,
secretary of Revenue Department, said. The scheme envisages universal access to
banking facilities with at least one basic account for every household with focus on
financial literacy, access to credit, insurance and pension facility.

Government also claimed that it has also completed 100 per cent enrolment under
AADHAAR in the national capital. According to the department, it is currently
working on e-refund model under which money can be returned via online.
Government will soon launch e-refund scheme in Delhi. Under this scheme,
Delhiites, who have paid stamp duty and later wanted to get it back, can now be

1
ET Bureau (28 August 2014). "PM 'Jan Dhan' Yojana launched; aims to open 1.5 crore bank accounts on first day". The
Economic Times. Retrieved 28 August 2014.
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able to recover their paid money through online. This scheme will be launched in
the next few days, said a senior official of the Revenue Department.

4.2 Maharashtra

Bank of Maharashtra provided services ever since the governments ascent to the
centre, PM Modi, FM Jaitley, and the Cabinet have worked relentlessly towards
promulgation of new schemes that make financial security for the common man.
The first step towards achievement of social security was the rollout of the
Pradhan Mantri Jan Dhan Yojana (PMJDY). With Phase I being declared a major
success and 1.8 crore accounts having been opened across the country, the
government had flagged off three new schemes on 9 May 2015 two insurance
schemes (Pradhan Mantri Jeevan Jyoti Bima Yojana, and Pradhan Mantri
Suraksha Bima Yojana), and a pension scheme (Atal Pension Yojana). This is
called Phase II of the PMJDY, since it was important to get people into
mainstream banking before any benefits can be extended to them.

Atal Pension Yojana is a fixed pension scheme (different from NPS Lite in which
pension amount was not fixed) for all the Saving account holders of the Bank
who are not covered under any social benefit scheme. Eligible age group is 18 to
40 Years old.

Govt. will contribute Rs. 1000/- every Year for the next five years. The
contribution from the subscribers will be based on fixed pension amount opted
for and age. For e.g.to get a fixed monthly pension of Rs. 1000/- per month and
Rs. 5000/- per month , the subscribers has to contribute monthly Rs. 42/- and Rs.
210/- if he joins at the age of 18 Year. For the same pension level, the
contribution amount will be Rs. 291/- and Rs. 1454/- if the subscribers join at the
age of 40 Years.

The Atal Pension Scheme will bring security to ageing Indians while at the same
time promote a culture of savings and investment among the lower and lower
middle class sections of society. One of the greatest benefits of the scheme may
be enjoyed by the poorer sections of society. The Government of India has
decided to contribute 50 percent of the users contribution or INR 1,000 a year
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(whichever is lower) for a period of five years. This contribution will, however,
be enjoyed only by those who are not income tax payers and those who join the
scheme before December 2015.

SWABHIMAN State Financial Inclusion Plan Maharashtra

Swabhiman is path-breaking initiative by Govt of India and banks in state to

cover the economic distance between rural and urban India. It promises to bring
basic banking services to all unbanked villages in the country with population
above 2000. The swabhiman movement facilitate opening of bank accounts,
provide need based credit, remittance facilities and help to promote financial
literacy in rural India using various models and technologies including branchless
banking models through Business correspondents. RBI on the basis of
recommendations of High Level Committee on Lead Bank Scheme directed lead
banks to draw a road map by March 2010 to provide banking services through a
banking outlet in every village having a population of over 2000, by March 2012
and further stated that such banking services may not necessarily be through a
brick and mortar branch but can be provided through any of the various forms of
ICT based models with the help of hand held machines, smart card & Business
Correspondents.

4.3 Chhattisgarh

Financial Inclusion is one of the top priorities of GoI, RBI and Banks too. The aim

is to provide access to basic financial products and services to all households in the

country. In Chhattisgarh State Bank of India has worked for financial inclusion of

such un(under) privileged households. Initially the target was to cover 2000+

population villages, SBI was allotted 196 villages out of 1050villages in

Chhattisgarh and the task of providing Banking coverage to these FIP villages was

successfully completed on March 2012.

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In second Phase of Financial Inclusion Plan, villages with population above 1000-

1999 were to be covered. SBI was allotted with 741 villages out of 4122 villages in

Chhattisgarh. All the villages were financially included on March 2013.

In Third Phase of FIP, Villages with population below 1000 are to be financially

included. The task is to be done in phased manner from 2013-2016, in three

financial years. SBI is allotted with 2616 villages and plan is to cover 860 villages

in FY 2013-14.The mapping is in progress for implementation of FIP.

Aadhaar - The focus of issuing Aadhaar number is well flow in Chhattisgarh. The
process of seeding of Aadhaar in respective accounts is in progress.
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5. CONCLUSION
Financial Inclusion has been a catch phrase for the past few years. Delivering
financial services to all sections of the population will remain a challenge that
central banks around the world will face over the next few years. Increasing
educational level means more financial inclusion; therefore a literate population
must be created in order to create a meaningful financially included population.
Innovation and out-of-the-box thinking are what has made the World what it is
today. We can never be complacent with what we have or what we have achieved,
the human life is an endeavour for progress and a better life. This should be the case
with Financial Inclusion; we cannot become complacent and become victims of our
own success. Not only should people have access to basic financial services but
should also actively use them. A modern and a globalize economy cannot be
successful unless it is inclusive. With enthusiasm and foresight this challenge would
be overcome rather simply. We should not lose the enthusiasm with which we
started and that mediocrity or partial success cannot considered as same as success.
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6. REFERENCES

www.scribd.com/doc/29443419/Research-Paper-on-Financial-Inclusion

Financial Inclusion Issues and Challenges Article by Dev

http://www.bankofmaharashtra.in/Atal-Pension-Yojana.asp

http://www.bankofmaharashtra.in/SLBC-Financial-Inclusion.asp

http://www.newindianexpress.com/business/

https://en.wikipedia.org/wiki/Pradhan_Mantri_Jan_Dhan_Yojana

Poor Financial Inclusion in Rural Areas of Chhattisgarh: Causes and Remedies

Ms.Manjeet Kaur Bal, Faculty, TPIPRD, Raipur, Chhattisgarh