CHAPTER : I

i i

INTRODUCTION
In this project I have tried to explain about Financial Inclusion and various aspects of it including
Micro finance in India with reference to the RBI. I have tried to explain it to the best of my
knowledge and have worked faithfully.

• What is Financial Inclusion?

i i i

Financial iInclusion irefers ito ithe iefforts ito imake ifinancial iproducts iand iservices iaccessible iand
iaffordable ito iall iindividuals iand ibusinesses, iregardless iof itheir ipersonal inet iworth ior icompany

isize. i i

Financial iInclusion istrives ito iremove ithe ibarriers ithat iexclude ipeople ifrom iparticipating iin ithe
ifinancial isector iand iusing ithese iservices ito iimprove itheir ilives. iIt irefers ito ithe ieffort ito imake

ieveryday ifinancial iservices iavailable ito imore iof ithe iworld’s ipopulation iat ia ireasonable icost. iThe

iWorld iBank iestimates ithat isome i1.7 ibillion iadults iworldwide istill ilack iaccess ito ieven ia ibasic ibank

iaccount.

• How Financial Inclusion works?

i i i

Financial iInclusion ifacilitates iday ito iday iliving iand ihelps ifamilies iand ibusinesses iplan ifor
ieverything ifrom ilong iterm igoals ito iunexpected iemergencies. iThe iincreasing iuse iof ifinancial

itechnologies ihas iprovided iinnovative itools ito iaddress ithe iproblem iof iinaccessibility ito ifinancial

iservices iand idevised inew iways ifor iindividuals iand iorganisations ito iobtain ithe iservices ithey ineed iat

ireasonable icosts. i

• Concept of Financial Inclusion

i i i i

With ithe ibanking isector ishifting itowards idigital ichannels ito iserve iits icustomers ifurther, ithere iis
istill ia ilarge i group ithat iremains iunbanked ieven itoday. iUnbanked ior iunder-banked ipeople iare ithose

ithat iare ideprived iof iaccessing iminimal ifinancial iservices ior ido inot ireceive iaffordable ibanking

ifacilities.

An iastonishing ifact iby ithe iWorld iBank ihighlights, i“Around i2 ibillion ipeople ido inot iaccess iformal
ifinancial iservices iand iover i50% iof iadults iin ithe ipoorest ihouseholds iare iunbanked.”

Considering ithe ifacts iin ia ideveloping icountry ilike iIndia, ithese inumbers iare iequally idisturbing.
iHave ia ilook iat ithese istatistics iand ithe igraph idenoting iIndia’s irank iin iaccommodating iunbanked

ipopulation, ias icompared ito iothers.

• 40% iof iIndians iremain iunbanked itoday i(not ihaving ibank iaccounts) i– iJune i2016 istats.
• In iIndia, ialmost i167 imillion ipeople ido inot ihold iformal ibank iaccounts i(as iof iNov i2016).
• This ipopulation iis iequivalent ito ithe iworld’s i7th ilargest icountry.
i

In ilight iof ithe icurrent iscenario, ithe igovernment iof iIndia iin iassociation iwith ithe iReserve iBank iof
i India i(RBI) ihas ifast-forwarded ithe iinitiatives ito iextend ibasic ifinancial iservices ito irural iand isemi-

rural ipopulation. iEver isince iModi igovernment itook icharge, i28.38 icrores inew iaccounts iwere
iopened iunder iPradhan iMantri iJan iDhan iYojana i(PMJDY) ias ion iApril i19, i2017.

Another ieffort iis ito ipush iFinancial iInclusion iand itake ibanking ito ievery icustomer’s idoorsteps. iWith
ithis, ithe igovernment iaims ito ideliver ifinancial ifacilities ito ilow-income igroups iand iunprivileged

isector.

• Why Financial Inclusion (FI)?

i i i

There iare ivarious iadvantages iof iFinancial iInclusion, ihowever, ithe ipolicymakers iidentify ithe ithree
imost iprominent iones iconsidering ithe iupliftment iof irural, iunbanked ipeople. iThey iare ilisted ias

iunder:

1. Imbibing a habit of saving money in people

ii i i i i i i i

The ipeople iin irural iareas igenerally icontinue ito ilive iin ifinancial istress. iThis iis imajorly ibecause ithey
iearn imoney iand ispend iit icompletely iwithout isaving iany. iThis ihabit iof inot isaving ifunds ifor ian

iemergency imakes ithem ivulnerable. iWith iFI, ithey ihave iaccess ito ifinancial iproducts iand iservices ito

ichoose ifrom iand istart isaving ia iminimum ivalue iof itheir ihard iearned imoney ito ibe iable ito iuse iit iin

ifuture. iOn ithe iother ihand, iFinancial i Inclusion ican ihelp iin ithe icapital iformation iof ia icountry iby

iredirecting ipeople ito iblock itheir imoney iin ireal iestate, iprecious imetals ietc.
2. Generating employment opportunities
ii i i

Financial iInclusion imakes iBusiness iCorrespondent imodel ia ireality iby iempowering iindividuals ior
igroups ito iavail itheir inetworking icapabilities iin iorder ito iserve ipeople iwith ifinancial iservices, iassist

ibanks iin iexpanding ibusiness iand imost iimportantly iearning ia isource iof iincome ifor ithemselves. iFI

icreates ijob iopportunities ifor ianyone iwho iwants ito iwork ifor ithemselves iand ieven iensures ithat

iothers ijoin ithe igroup/community ias ibusiness icorrespondents iand iearn itheir ilivelihood.

3. Empowering the banking system

ii i i i

Financial iInclusion ihelps inon-reliance ion ia icash ieconomy iby ibringing imaximum icurrency iinto ithe
ibanking iecosystem iand ithereby iincreasing itransparency. iFinancial i Inclusion iis ia icritical istep ifor

ithe ibetterment iof iunbanked i(and iunder-banked) ipopulation iand ineeds ifocused iattention iof ithe

igovernment iand iregulatory ibodies. iWith idedicated iefforts, iit ican iredefine igrowth iand ilaurels ifor

ithe ibanking iindustry.

CHAPTER : II
i i

COMPANY’S
PROFILE
i
 RBI iAND iFINANCIAL iINCLUSION i
As ithe icentral ibank iof ithe icountry, ithe iReserve ibank iof iIndia ihas itaken isteps ito iensure ifinancial
iinclusion iin ithe icountry. i It ihas itried ito imake ibanking imore iattractive ito icitizens iby iallowing ifor

ieasier itransactions iwith ibanks. i In i2004 iRBI iappointed ian iinternal igroup ito ilook iinto iways ito

iimprove iFinancial i Inclusion iin ithe icountry. i It icame iout iwith ia ireport iin i2005 i(Khan iCommittee)

iand isubsequently iRBI iissued ia icircular iin i2006 iallowing ithe iuse iof iintermediaries ifor iproviding

ibanking iand ifinancial iservices. iThrough isuch ipolicies ithe iRBI ihas itried ito iimprove iFinancial

i Inclusion. iFinancial i Inclusion ioffers iimmense ipotential inot ionly ifor ibanks ibut ifor iother

ibusinesses. iThrough ian iintegrated iapproach ithe ibusinesses, ithe iNGOs, ithe igovernment iagencies ias

iwell ias ithe ibanks ican ibe ipartners iin igrowth. iRBI ihas irealised ithat ia ipush iis ineeded ito ikick istart ithe

ifinancial iinclusion iprocess. iSome iof ithe isteps itaken iby iRBI iinclude ithe idirective ito ibanks ito ioffer

iNo-frills iaccount, ieasier iKYC inorms, ioffering iGCC icards ito ithe ipoor, ibetter icustomer iservices,

ipromoting ithe iuse iof iIT iand iintermediaries, iand iasking iSLBCs iand iUTLBCs ito istart ia icampaign ito

ipromote ifinancial iinclusion ion ia ipilot ibasis. iSo ifar ithe icampaign ifor i100% ifinancial iinclusion ihas

ibeen isaid ito ibe ia isuccess iwith imany istates inow ireaching inear-total ifinancial iinclusion. i

 Policy iinitiatives iby ireserve ibank iof iIndia i

Keeping iin iview ithe itremendous iscope ifor iimproving ifinancial icoverage, ithe iRBI ias ia iproactive
imeasure, ihas itaken iseveral iinitiatives ito ipromote ifinancial iinclusion: i

1. No-frills Accounts: The RBI in its annual policy statement for the year 2005-06 and also in
i i i i i i i i i i i i i i i i

ithe imid iterm ireview iof ithe ipolicy i(2005-06), iexhorted ithe ibanks, iwith ia iview ito iachieving igreater
ifinancial iinclusion i, ito imake iavailable ia ibasic ibanking i“No-Frills” iaccount i either iwith inil ior ivery

iminimum ibalances ias iwell ias icharges ithat iwould imake isuch iaccounts iaccessible ito ivast isections iof

ithe ipopulation. iThe inature iand inumber iof itransactions iin isuch iaccounts iwould ibe irestricted iand

imade iknown iof itransaction iin isuch iaccounts iwould ibe irestricted iand imade iknown ito icustomers iin

iadvance iin ia itransparent imanner. iAll ibanks ihave ibeen iurged ito igive iwide ipublicity ito ithe ifacility

iof isuch i“No-Frills” iaccount. iBanks iare irequired ito imake iavailable iall iprinted iused iby iretail

icustomers iin ithe iconcerned iregional ilanguage. i

2. Simplification of KYC norms: In order to ensure that persons belonging to low income
i i i i i i i i i i i i i i

igroup iin iurban iand irural iareas ido inot iface idifficulty iin iopening iaccounts ihas ibeen isimplified ifor
ithose ipersons iwith ibalances inot iexceeding irupees i fifty ithousand irupees i(Rs. i50,000) iand icredits iin

ithe iaccounts inot iexceeding irupees ione ilakh i(Rs. i1,00,000) iin ia i year. i

3. Overdraft facilities in No-frill Accounts: RRBs have been specifically advised to allow
i i i i i i i i i i i i

ilimited ioverdraft ifacilities iin i`No-frills` iaccount iwithout iany icollateral ior ilinkage ito iany ipurpose.
iThe iidea iis ithat iprovision iof isuch ioverdraft ifacility iprovides ia iready isource iof ifunding ito ithe
iaccount iholder iwho iis ithereby iinduced ito iopen isuch iaccounts. i
4. One-Time Settlement: For all borrowers where the principal amount is less than RS.25000/-,
i i i i i i i i i i i i i

ibanks ihave ibeen iasked ito ioffer ia ione-time isettlement ischeme. iAs ithere iis ilarge inumber iof isuch
ivery ismall iNFA is iwith ibanks, ioffer iof isuch ian iOTS iwas iexpected ito irestore iborrowing irelationship

iwith ithe iformal isystem iand ithereby iobviate ithe ineed ito igo iback ito ithe iinformal isystem. iin icase

iwhere ithe iloans iare iunder igovernment isponsored ischemes ithe istate ilevel ibanker’s icommittee

i(SLBC) iwas iexpected ito ievolve ia isuitable ipolicy. i

5. General purpose Credit Card: Banks have been advised by RBI to provide a General
i i i i i i i i i i i i i i

ipurpose iCredit iCard i(GCC) ifacility iat itheir irural iand isemi iurban ibranches. iThe icredit ifacility
iextended iunder ithe ischeme iwill ibe iin ithe inature iof irevolving icredit. iThe iGCC-holder iwill ibe

ientitled ito idraw icash ifrom ithe ispecified ibranch iof ibank iup ito ithe ilimit isanctioned. iBanks iwould

ihave iflexibility iin ifixing ithe ilimit ibased ion ithe iassessment iof iincome iand icash iflow iof ithe ientire

ihousehold, iwithout iinsistence ion isecurity ior ipurpose.however, ithe itotal icredit ifacility iunder iGCC

ifor ian iindividual ishould inot iexceed iRS. i25,000/- i. iit iis iexpected ithat ibanks iwill icome iout iwith itheir

iown ischemes ito ipopularise ithis iproduct iamongst ithe irural iclient. i

6. Business Facilitators and correspondents: with the objective of ensuring greater financial
i i i i i i i i i i i

iinclusion iand iincreasing ithe ioutreach iof ithe ibanking isector, ibanks iwere ipermitted ito iuse ithe
iservices iof iNGOS/ iSHGs, iMFIs iand iother icivil isociety iOrganisations ias iintermediaries iin
iproviding ifinancial iand ibanking iservices ithrough ithe iuse iof ibusiness ifacilitator iand icorrespondent

imodels. i

7. Broader definition of financial inclusion: RBI subsequently observed that a family

i i i i i i i i i i i

i satisfying ithe ifollowing iconditions ialso iwould ibe itreated ias ifinancially iincluded:

A. iMember iof iSHG

B. iMember iof ia iPACS

C. iIf ihave ia ipost ioffice isavings iaccount i
D. iMember icovered iunder igovt ischemes i
 CHAPTER : III
i i

PRESENTATION OF i

i DATA AND ANALYSIS

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• Importance of Financial Inclusion
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1. Access ito ifinancial iservices ienables ithe ipoorest iand imost ivulnerable iin isociety ito istep iout iof
ipoverty iand ireduces ithe iinequality iin isociety

2. Financial iinclusion inot ionly ihelps iindividuals iand ifamilies, ibut icollectively iit idevelops ientire
icommunities iand ican ihelp idrive ieconomic igrowth

3. Financial iinclusion iis iabout ienabling iand iempowering ipeople iand icommunities:

• iEnabling ipeople ito ihave ithe iability iand itools ito imanage iand isave itheir imoney
• iEmpowering ipeople iwith ithe iskills iand iknowledge ito imake ithe iright ifinancial idecisions i

4. Participation iwithin ithe ifinancial isystem ileads ito iall ikinds iof iindividual ibenefits, iincluding:

• Ability ito istart iand igrow ia ibusiness, iwhich igives ipeople ian iopportunity ithrough imicro-financing
ischemes ifor iexample ito ibetter ilong iterm iprospects

• Being iable ito ipay ifor ian ieducation ifor ichildren, iwhich iin iturn ienables ia inew igeneration iof
ieducated iand iinformed iindividuals

• The iability ito ihandle iuncertainties ithat irequire iad ihoc iand iunexpected ipayments ior i‘financial
ishocks’

5. Financial iinclusion ithrough iaccess ito ian iaccount, isavings iand ia ipayment isystem i(whatever ithat
imaybe) ienables ipotential iand iempowers imen, iwomen iand iwhole icommunities. iThis iin iturn

ipromotes:

• Investment iwithin ithe icommunity, iprovides ijobs iand iagain iresearch ishows ithat iemployment
iboosts istatus, iincome iand iones ioutlook ion ilife. iCollectively ithis ihelps ito iinvigorate ieconomies.

• Equality iboth iwithin ithe icommunity iand iwithin ifamilies

• OPPORTUNITIES OF FINANCIAL INCLUSION IN INDIA

i i i i i

1. With ithe ihelp iof ifinancial iinclusion iconcept, iby isaving ismall iamounts iover itime, ipoor ipeople
ican iarrange ifunding ifor ithe ilump iinvestment ineeded iin ibusinesses ilike ifor ipurchasing

iequipments ior ibuying igoods iat ia iwholesale iprice.

2. By ifostering ifinancial iinclusion iand iencouraging isaving ihabits ican ialso iprovide iprovides
ifunds ifor isearching imore iproductive isources iof iemployment iby iproviding iaccess ito ieasy

ifinance iand ibanking iservices ito ieven iin irural iareas.

3. Electronic ibenefit itransfer i(EBT): iWith ithe ihelp iof iEBT iand iinformation iand icommunication
itechnologies, ibanks ican itransfer isocial ibenefits ielectronically ito ithe ibank iaccount iof ithe
 ibeneficiary iand ican ideliver igovernment ibenefits iat ithe idoorstep iof ibeneficiaries, ithus
ireducing idependence ion icash iand ilowering itransaction icosts.

4. For iachieving icommercially isustainable iuniversal iaccess, ibanking isystems iwill ibe iupdated ito
inew itechnologies ilike iEBT ito iensure ithe iavailability iof ifinancial iservices ito iall isections iat ia

ireduced icost iand ienhanced ibenefits ilike imakes ibanking iconvenient iwhich iensures ibeing iable

ito itransact inear iwhere ithey ilive iand iwork iand iensuring itrust iamong ithe ipeoples ithat ithey iare

iputting itheir imoney iwith isuch iorganisations ithat iseem ito icare ifor ithem iand iwho ithey ifeel iare

igoing ito ibe ithere ifor ithem iwhen ithey ineed ithem ithe imost.

5. Financial iinclusion iprovides iopportunities ito ithe ibanking isector ito icut iacross ivarious istrata’s
iof isociety, iregions, igender, iand iincome iand iencourage ithe ipublic ito iembrace ibanking ihabit.

iReserve iBank iof i India ihas iintervened ifor ithe isuccess iof ifinancial iinclusion iby iintroducing

ivarious ienactments, ifinancial iliteracy idrives, ileveraging itechnology ietc.

6. Financial iinclusion ipaves ia iway ifor igrowth iand idevelopment iby iensuring itimely iand iquick
iavailability iamong ithe ineedy isectors.

7. Financial iinclusion iwill iprovide inot ionly isafe isavings, ibut ialso ioffer imany iother iallied
iservices ilike iinsurance icover, ientrepreneurial iloans, ipayments iand isettlement ifacilities ietc.

8. With ian iincrease iin ibusiness iopportunities, inational iincome iof iour icountry iwill ialso iincrease,
iwhich iin iturn iresults iin iincreased iGDP.

9. With ithe ihelp iof iKYC inorms iand iUID ifinancial iinclusion iprocess ispeeds iup ithe ibanking
iprocess iwhich ireduces ithe icash iand inon icash icosts ito iboth ibanks iand icustomers.

10. Financial iaccess iwill ialso iattract iglobal imarket iplayers iin iour icountry ithat iwill iresult iin
iincreasing ibusiness iand iemployment iopportunities.

11. Financial iinclusion iwill ihelp ithe ipoor iin imeeting ivarious ineeds iwith ithe ihelp iof ia iwide irange
iof ifinancial iservices iwhich iare ireadily iavailable iand iaffordable ialso. iFinancial iservices iwill

iprovide itools iwhich iwill ihelp iin iproviding ieasy ifinancing ifacilities iin imany ifields ilike imicro

ienterprises iinvestments iin inew iproduction itechnologies, ihelping iin ifarmers’ ipurchasing

iproductivity- ienhancing iinputs isuch ias ifertilizers, ilabourers isearch ifor ibetter ijob

iopportunities, ior ichildren’s ieducation iand ito imitigating ipeople’s iexposure ito ilarge i Lifecycle

ievents ior iunpredictable irisks. iThus, ifinancial iinclusion ioffers iplenty iof i opportunities ifor

igrowth iand idevelopment iin iIndia.

• CHALLENGES IN ACHIEVING FINANCIAL INCLUSION
i i i i

The ivarious ichallenges iinvolved iin ifinancial iaccess ito ilow iincome ifamilies iare iset iout ibelow.

1. Socio-economic factors: Financial exclusion is closely related to the social exclusion of lo

i i i i i i i i i i i i

iw iincome ihouseholds, iwho iare inot iable ito iaccess ithe iavailable ifinancial iproducts iand
iservices idue ito iconstraints isuch ias iilliteracy, ilo iw iincome, ilow7 isavings, iunavailability io if

iidentification idocuments, iand igenerally ilow ilevels iof iawareness.

2. Geographical factors: A review by the Rangarajan Committee’ shows that financial

i i i i i i i i i i

iexclusion iis ihighest iamong ihouseholds iin ithe iEastern, iNorth i-Eastern iand iCentral iareas iof
ithe icountry ipartly idue ito ipoor iinfrastructure icoupled iwith iremoteness iand ispare ipopulation iin
isome iareas iresulting iin iproblems iwith iaccess.

3. High operational costs: Most financial service providers are wary of providing products
i i i i i i i i i i i

iand iservices iappropriate ito ilo iw iincome ifamilies ion iaccount iof ithe ihigh itransaction icosts
iintrinsic ito ismall ivalue iaccounts iwith ilimited inumbers iof itransactions. iIn ithe iperception iof

ibank imanagements ithis ireduces ifinancially i inclusive iservices ito icorporate isocial

iresponsibility irather ithan ireal ibusiness.

4. Limited availability of appropriate technology: The key driver of widespread

i i i i i i i i i

ifinancial iinclusion iis ithe iproliferation iof ie- ifinancial iinclusion ior ithe iapplication iof
iinnovative, istable iand ireliable i Information iand iCommunication iTechnology i(ICT). iThe

ichallenge iis ito iintegrate ithe idaily itransactions idone ithrough ihand iheld idevices iwith ithe

ibank’s imain iserver. iFurthermore, ithe idevices ishould ibe icapable iof ihandling itransactions

irelated ito iat ileast ifour imain itypes iof ibanking iproducts: isavings icum ioverdraft iaccounts, ipure

isavings iproducts, iremittance iproducts iand ientrepreneurial icredit isuch ias iKCC iand iGCC.

5. Financial inclusion and banks business plans: Since banks have a tendency to view
i i i i i i i i i i i i

ifinancial iinclusion ias ia ipart iof icorporate isocial iresponsibility irather ithan iserious ibusiness,
ifinancial iinclusion iis irarely icore ito ithe ibanks ibusiness istrategy. iThe ilack iof iinfrastructure iand

icost ieffective itechnology ifor ifacilitating ismall ivolume itransactions iat ithe idoorstep iof ithe

iaccount iholder icompounds ithe iperception iof ihigh icosts iand ithus idiscourages ibanks ifrom

iproviding ifinancial iservices ito ilo iw iincome iindividuals.

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