Initiation of Financial inclusion in rural India- A conceptual analysis

P.Ramalingam, M.Com, Mphil, MBA, NET-JRF1 Introduction: India is living in rural areas said by father of our nation. But, the peoples who are living in rural areas not really lived and they are constrained to live with some socio-economic factors. Even though, India is fast growing country as compared with rest of world in all respects except economic status of people. Beginning with First Five Year Plan in 1951, resources were deployed on areas like irrigation and energy, agriculture and community development, transport and communications, industrial development, social services, land development and infrastructure. Initially, the growth rates were around 3-4 per cent which gradually touched a peak of over 9 per cent. Despite economic turbulences, financial scams, population growth, natural calamities, wars, political disturbances, India witnessed several achievements in many areas in the last six decades. But still, there are people who are ignored by banks and financial institutions to get financial services and benefits. It is very important issue before the government to make them inclusive. So, the Reserve Bank of India has set up a commission (Khan Commission) in 2004 to look into financial inclusion and the recommendations of the commission were incorporated into the mid-term review of the policy (200506). In the report RBI exhorted the banks with a view of achieving greater financial inclusion to make available a basic "no-frills" banking account. The Eleventh Plan (2007-12) document was divided into three volumes viz., (I) Inclusive Growth (II) Social Sector and (III) Agriculture, Rural Development, Industry, Services and Physical Infrastructure. It addresses on sustained growth and investment aiming at improvement in the quality of life. The percentage of population below the poverty line has come down from 36% in 1993-1994 to 28% in 2004-05 while defining the income level at Rs. 10 per day. This is disappointing since this line was fixed in 1973-74 when per capita incomes were much lower. Objectives of the study: This is an attempt to justify the following objectives of the study: 1) To explore the basic understanding of financial inclusion concept in rural India. 2) To recognize the reasons for financial exclusion especially in rural areas 3) To find the peoples who are financial excluded so far 4) To quantify the expectations of financially excluded people. Statement of the problem: The present study is an attempt to create awareness about financial products and services among rural people with suitable guidelines to promote their superior livelihood like urban people. But, it is not so easy to make them inclusive to enjoy the products and services of banking sectors. The government should take necessary legal frame works and actions to achieve the inclusive growth of rural people and make them to understand the concept of financial inclusion, reasons for exclusion, products and services and expectations of excluded people. This Research Scholar and Assistant Professor of commerce,Arignar Anna Govt Arts College, Cheyyar, Tamil Nadu, India
1

study will give the clear picture with survey from a village of moganapalayam, thiruvannamalai district, Tamil Nadu. Financial inclusion: According To United Nations, "A financial sector that provides 'access to credit for all "bankable people and firms and to savings and payments services for everyone. Inclusive finance does not require that everyone who is eligible use each of the services, but they should be able to choose use them if desired. As Per Treasury Committee, House of Commerce, UK, (2005) Ability of individuals to access appropriate financial products and services. Report of the Committee on Financial Inclusion in India (Chairperson: C. Rangarajan) (2008) "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." Major Three Aspects of Financial Inclusion' Make people to Access financial markets Access credit markets Learn financial matters (financial education ) Financial Inclusion Includes Accessing Of Financial Products and Services Like, Savings facility Credit and debit cards access Electronic fund transfer All kinds of commercial loans Overdraft facility Cheque facility Payment and remittance services Low cost financial services Insurance (Medical insurance) Financial advice Pension for old age and investment schemes Access to financial markets Micro credit during emergency Entrepreneurial credit Financially Excluded People The financially excluded sections largely comprise: Marginal farmers Landless labourers Oral lessees Self employed and unorganized sector enterprises Urban slum dwellers Migrants Ethnic minorities and socially excluded groups

Senior citizens Women The North East, Eastern and Central regions contain most of the financially excluded population. Factors affecting access to financial services: Legal identity : Lack of legal identity like voter id , driving license , birth certificates ,employment identity card etc Limited literacy: Particularly financial literacy and lack of basic education prevent people to have access from financial services. Level of income: Level of income decides to have financial access. Low income people generally have the attitude of thinking that banks are only for rich. 'Terms and conditions: While getting loans or at the time of opening accounts banks places many conditions, so the uneducated and poor people find it very difficult to access financial services. Complicated procedures: Due to lack of financial literacy and basic education, it is very difficult for those people who lack both to read terms and conditions and account filling forms. Psychological and cultural barriers: Many people voluntarily excluded themselves due to psychological barriers and they think that they are excluded from accessing financial services. Place of living: As the name suggests that commercial banks operate only in commercially profitable areas and they set up branches and main offices only in that areas .People who lived in under developed areas finds it very difficult to go to areas in which banks are generally reside. Lack of awareness: Finally, people who lack basic education do not know the importance of the financial products like Insurance, Finance, Bank Accounts, cheque facility, etc. Benefits of Inclusive Financial Growth Growth with equity: In the path of super power we the Indians will need to achieve the growth of our country with equality. It is provided by inclusive finance. Get rid of poverty: To remove poverty from the Indian context all everybody will be given access to formal financial services. Because if they borrow loans for business or education or any other purpose they get the loan will pave way for their development. Financial Transactions Made Easy: Inclusive finance will provide banking related financial transactions in an easy and speedy way. Safe savings along with financial services : People will have safe savings along with other allied services like insurance cover , entrepreneurial loans , payment and settlement facility etc, Inflating National Income: Boosting up business opportunities will definitely increase GDP and which will be reflected in our national income growth.

Becoming Global Player : Financial access will attract global market players to our country that will result in increasing employment and business opportunities Financial inclusion in India: In India, Financial Inclusion first featured in 2005. When it was introduced, "Nearly forty years after nationalization of banks, 60% of the country's population does not have bank accounts and nearly 90% do not get loans. A National Rural Financial Inclusion Plan (NRFIP) is suggested to be launched with a clear target to provide access to comprehensive financial services, including credit, to at least 50% of financially excluded households, say 55.77 million by 2012 through rural / semi-urban branches of Commercial and Regional Rural Banks. The remaining house-holds have to be covered by 2015. Each branch is asked to cover at least 250 new accounts every year. The SHGBank Linkage Programme has been successfully growing and the number of SHGs financed increased to 29.25 lakhs on 31st March, 2007. Several Voluntary Organizations and NGOs have also been associating in the exercise throughout the country. Mangalam Village became the first village in India where all households were provided banking facilities. In addition to this KYC (Know your Customer) norms were relaxed for people intending to open accounts with annual deposits of less than Rs. 50,000. General Credit Cards (GCC) were issued to the poor and the disadvantaged with a view to help them access easy credit. In January 2006, the Reserve Bank permitted commercial banks to make use of the services of nongovernmental organizations (NGOs/SHGs), micro-finance institutions and other civil society organizations as intermediaries for providing financial and banking services. These intermediaries could be used as business facilitators (BF) or business correspondents (BC) by commercial banks. However, illiteracy and the low income savings and lack of bank branches in rural areas continue to be a road block to financial inclusion in many states. A Government of Indias Committee on Financial Inclusion in India (Jan 2008), headed by Dr C Rangarajan, begins its report by defining financial inclusion as the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as the weaker sections and low income groups at an affordable cost. NSSO data reveals that 45.9 million farmer households in India (51.4%) out of a total 89.3 million households do not access credit, either from institutional or non-institutional sources. Further, despite the vast network of bank branches, only 27% of total farm households are indebted to formal sources (of which, one-third also borrow from informal sources). The problem is much more grave in the North-Eastern, Eastern and Central regions. The Committee opines that the poorer the group, the greater is the exclusion.

Index of Financial Inclusion (IFI) Mandira Sarma of ICRIER, New Delhi in the Working Paper No. 215 (June 2008) prepared and proposed the first ever Index of Financial Inclusion (IFI) to find out the reach of banking services in 100 countries of the world. While recognizing the importance of financial inclusion, it was observed that there is no comprehensive measure to use as a measure for the extent of financial inclusion across economies. IFI, as a multi-dimensional index, captures

information on various dimensions of financial inclusion in one single digit lying between 0 and 1. The proposed index is said to be easy to compute and is comparable across countries. In the index of financial inclusion presented, three basic dimensions of an inclusive system were considered: banking penetration (BP), availability of the banking services (BS) and usage of the banking system (BU). India has been ranked poorly, even below African countries such as Kenya and Morocco. India has been placed at the 50th place, much above Russia but below China, in the index. The index, which gives the extent of availability and usage of banking services in the countries, is based on indicators like number of bank accounts per thousand adults, number of ATMs and bank branches per million people and amount of bank credit and deposit. Report from village:

There are 87 households only and population is 457. Population mixed of 237 males and 220 females. 87% of people are illiterates. 99% of people are involved only in agriculture and its allied activities. Only 12% of people is having the bank account and out of which, 77% of male and 23% of female. only 4% of people have got loan for their agriculture purpose Out of loaned people, only 13% of female and 87% of male are enjoyed. Only 6% of people are insured their life but not insured for medical purposes due to lack of knowledge and surplus income. No one has de mate account. No one invested in mutual fund units. People are not informed about the financial services. People are expecting the financial consultancy services. Expectations about to relax the conditions and terms. They are little afraid while seeing the officials They need easy loan for their small business. They want to improve their living standard.

Expectations of poor people from financial system Taking into account their Seasonal Inflow Of Income from agricultural operations, Migration from one place to another, Seasonal And Irregular Work Availability and Income; the existing financial system needs to be designed to suit their requirements. Security and safety of deposits Low transaction cost Convenient operating time Minimum paper work Frequent deposits Quick and easy access Product suitable to income and consumption Conclusions: Financial Inclusion is not an old wine in new bottle, but it is new wine in the new bottle either in India or elsewhere. It has been found to be wanting across the globe as a conscious policy to reach the unbanked areas and sections of the society. Financial Intermediaries have been asked to extend their reach and offer services and products to the poorer and needy sections of the Society. Government and NGOs are all deeply involved in their endeavour to make all types of financial services deposit accounts, loans and advances, remittances, insurance products, financial education / counseling, etc available to all classes of people. Hence, Financial Inclusion is not merely opening of no frills accounts by all the bank branches. Eventually, all the agencies involved collaborate to work for development in order to achieve in eradication of poverty. Financial Inclusion would result in reduction if not removal of poverty in a planned manner. References: B. Sujatha, Financial Inclusion Concepts and Strategies ICFAI university press Report of Committee on Financial Inclusion , Report submitted by Committee headed by C. Rangarajan Taking Banking Services to Common Man Financial Inclusion Commemorative Lecture by Shri V. Leeladhar, Deputy Governor, Reserve Bank of India at the Fedbank Hormis Memorial Foundation at Ernakulam on December 2, 2005. Financial Inclusion The Indian Experience speech by Smt. Usha Thorat, Deputy Governor, Reserve Bank of India at the HMT-DFID Financial Inclusion C Whitehall Place, London, UK on June 19, 2007.