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FINANCIAL INCLUSION AND IMPACT OF GROWTH: A CASE STUDY OF INDIA By Siddhartha Bharadwaj*

Abstract
The main focus of the present article is to understand the structural dimensions of contemporary societies and their reality with functional approaches. An attempt has also being made to review the importance of financial inclusion in relations with economic condition of country and the support system of international financial institutions. Specifically the role of government with recommendations, regulations and policies along with the role and significance of technology accompanied with the role of NGOs and private financial organizations are critically be discussed in the present paper. Efforts would be made to review the realities related to the process and achievement of financial inclusion in United Kingdom, China and India. The major component of this article is to describe and access inclusion and growth in India .Some the areas including issues and challenges are objectively being analyzed. Key words: Financial Inclusion; Global Efforts and Implication; Recommendations, Regulations , Role and significance of Policies.

Objectives
The importance of this study lies in the fact that India being a socialist, democratic republic, it is imperative on the policies of the government to ensure equitable growth of all sections of the economy. In the recent years there has been growing realization among the developed and developing countries concerning about the upliftment of financially backward sections of the society, by proving them proper and adequate financial support which could be provided by the process of Financial Inclusion . Some objectives of this study are as follows: 1. To understand the process of Financial Inclusion in India. 2. To highlights Impact of Global Efforts and Implication. 3. To observe the impact of the Recommendations from different regulating authorities. 4. To understand the Regulations and policies 5. To find out the Role and significance s of various organizations. These roles , regulations and policies help to analyze and provide , as well as improve the financial inclusion process in our country. -----------------*Post graduate Student, Department of Commerce, University Teaching Department, Barkatullah University Bhopal. E-mail ; sid7828780838@gmail.com , Mobile: 09893114541

Introduction

The financial inclusion is a process to extend the scope of activities of organized financial system and to include people with low incomes, by which an attempt is being made to uplift the poor from one level to another so that they transcend poverty. In fact, financial inclusion provides access to finance in form of empowering the vulnerable groups. Financial inclusion denotes delivery of finance and services at an affordable cost to the vast sections of the disadvantaged and low-income groups. The various financial services include credit, savings, insurance, payments and remittance facilities. This has to become an integral part of our efforts to promote inclusive growth. The realities of contemporary societies being reflected by about 2.9 billion people around the world who do not have access to formal sources of banking and financial services. In India alone approx 560 million people are excluded from formal source of finance, a figure in tight correlation with the 41.6 percent (457 million) of the population that still lives below the poverty line (US$1.25/day). But at the same time if we talk about India which has enjoyed growing domestic demand and globally recognized prowess in the areas of information technology, automotive, life sciences, telecommunications and its continued success and growth as an economic power (in common with other emerging economies) can only be assured if concrete steps are taken to ensure that the social and economic development is inclusive.

Financial Inclusion-role and policies


The process of financial inclusion play a very crucial role in the development of any country as finance being the first step towards progress in our modern societies, providing financial services to each and every individual is not only proving them with their right but also is very important for profit building of the country. More access to finance means more opportunities for development of people which will ultimately lead to development of our nation. For this purpose various roles of various organizations and governments is being discussed below along with some case studies of nations including of ours , we have focused upon three aspects that are The role of government , The role of NGO and private organizations and the role of technology. A. The role of Government The importance of financial inclusion to national economies is evidenced by the support of individual governments as well as international bodies around the world. The United Nations Capital Development Fund (UNCDF), which is present in 33 of the identified 50 Least Developed Countries (LDC), invests in local development and inclusive finance with a total program portfolio amounting to US$130 million. UNCDFs vision of inclusive finance is to offer appropriate financial services to all segments of the population to be supported by sound government policies, legal and regulatory frameworks and infrastructure. UNCDF has been instrumental in taking innovative approaches to build inclusive financial sectors to help them reduce poverty and achieve inclusive growth. Similarly, the International Financial Corporation (IFC), a member of the World Bank, supports numerous causes designed to support the proliferation of financial inclusion. B. The role of non government organizations Some NGOs support Public and Private Sector Banking industry by are providing financial knowledge to financial services deprived section of society , NGOs like SAMVRIDDHI INCLUSIVE GROWTH NETWORK (SIGN), is called an assembly of Banking Professionals with decades of experiences in Leadership positions in Public and Private Sector Banking in India and abroad. According to the recent directives given by the RBI , the Company since forgo its license towards Not for Profit status and conversions made as SIGN (P) Ltd. The super objectives of SIGN have been to create a Downstream

Marketing making most of the Government Policy in extending banking reach to the last mile and remote Indian locations. Just like SAMVRIDDHI(SIGN) various other not for profit NGOs are working towards providing finance to unfinanced areas of India. Some of them are SANCHAYAN,SWADHAAR and various other micro finance self help groups who have collaborated with various banks and are providing financial knowledge and services to remote areas where reaching would be difficult for any other financial institution. C. The role of private financial institutions Nachiket Mor the panel head of RBI, directed to create universal electronic bank account for all adult Indian citizens by January 2016, Private Banks are instructed by the RBI to open at least 40 percent of their branches in rural areas before opening them in urban areas , so as to promote financial services in un bankable areas. D. The role of technology Government policies have laid a strong foundation wherein technology has helped to spread the reach of financial services. Some of the technology solutions being implemented today are Smart Cards, Biometric ATMs, Point of Service Devices and Mobile Phone Applications. Leading banking and financial institutions are engaged in providing banking services to the financially underserved through pilots or limited commercial rollouts using either one or multiple technologies cited above. However, the needs of the vast majority of the underserved and unbanked have not yet been addressed. Technology solutions are being promoted to address the scalability challenges facing financial inclusion in India and other developing countries. Amidst the ever-changing technology landscape, Selfservice has emerged as the foremost scalable and sustainable solution.

Global aspect UK,China & India


At a national level, significant steps have been taken to achieve financial inclusion by a number of governments. Some of these initiatives of the government of United Kingdom, China along with that of India are much more important. United Kingdom According to the Public Management and Policy Association, one out of every eight adults in the UK is financially underserved. In the 2004 pre-budget report, the British government announced its strategy to tackle financial exclusion by promoting financial inclusion. The three priority areas set out in the report were: (i )Access to banking (ii) Access to affordable credit (iii) Access to free face toface money advice. The government established a Financial Inclusion Fund worth 120 mn for three years. The framework for delivering this ambitious plan also includes a Financial Inclusion Taskforce to monitor progress and give further recommendations. China Chinas central bank, the Peoples Bank of China, launched a pilot in 2006 to stimulate micro-lending to individuals and companies by township and village banks. Seven domestic micro-credit corporations were established in five provinces and two micro-credit corporations were created with assistance from the International Finance Corp (IFC), a member of the World Bank. After the success of the pilot, in October 2007 the China Banking Regulatory Commission's program was expanded nationwide. The program now covers 25 village banks

India The government of Indias National Rural Financial Inclusion Plan (NRFIP) has set a target to achieve complete financial inclusion by 2015. The plan aims to serve fifty percent of the financially excluded (280 mn) population by 2012 through regional and semi-urban branches of commercial and regional rural banks. The opening of Bharatiya Mahila Bank will help improve financial inclusion and growth in India. To help achieve these goals, two funds of about US$125 millions each have been allocated the Financial Inclusion Fund (FIF) and the Financial Inclusion Technology Fund (FITF). The objectives of the FIF is to support "developmental and promotional activities" with a view of securing greater financial inclusion, particularly among weaker sections, low-income groups and in under developed regions and hitherto unbanked areas. Current banking infrastructure in rural India relies on the manual delivery of services. This presents a massive hurdle in reaching out to the sheer number and geographical spread of the financially underserved population. In matching the FIF with the FITF, the government has given equal importance to the development of technology that can provide scalable and sustainable solutions for inclusive growth. Specifically, the objectives of FITF are to enhance investment in Information and Communications Technology (ICT) which aims at stimulating research and technology innovation in the area of financial inclusion, increase the adoption of technology among financial services providers and users, and encourage an environment of innovation and cooperation among stakeholders. The government has also set up a Committee on Financial Inclusion under the chairmanship of the exgovernor of the Reserve Bank of India (RBI), Dr. C Rangarajan, to study the pattern of exclusion, identify barriers, review international experience and provide recommendations for achieving the objectives of financial inclusion.

Inclusion and Growth in India


From an annual average growth rate of 3.5 per cent during 1950 to 1980, the growth rate of the Indian economy accelerated to around 6.0 per cent in the 1980s and 1990s,In the last four years (2003-04 to 2006-07), the Indian economy grew by 8.8 per cent. In 2005-06 and 2006-07, the Indian economy grew at a higher rate of 9.4 and 9.6 per cent, respectively. Reflecting the high economic growth and a moderation in population growth rate, the per capita income of the country also increased substantially in the recent years. Despite the impressive numbers, growth has failed to be sufficiently inclusive, particularly after the mid-1990s. Agricultural sector which provides employment to around 60 per cent of the population lost its growth momentum from that point, though there has been a reversal of this trend since 2005-06. The percentage of Indias population below the poverty line has declined from 36 per cent in 1993-94 to 26 per cent in 1999-2000. While India has witnessed unprecedented economic growth in recent past, its development has been lopsided with the country trailing on essential social and environmental parameters of development. It is universally opined that the resource poor need financial assistance at reasonable costs and that too with uninterrupted pace. However, the economic liberalization policies have always tempted the financial institutions to look for more and more greener pastures of business ignoring the weaker sections of the society. In India, the financially excluded sections comprise largely rural masses comprising marginal farmers, landless laborers, oral lessees, self-employed and unorganized sector enterprises, urban slum dwellers, migrants, ethnic minorities and socially excluded groups, senior citizens and women. Some of the important causes of relatively low extension of institutional credit in the rural areas are risk perception, cost of its assessment and management, lack of rural infrastructure, and vast geographical spread of the rural areas with more than half a million villages, some sparsely populated (Mohan, 2006).

It is essential for any economy to aim at inclusive growth involving each and every citizen in the economic development progression.

Issues and Challenges


India is currently facing several issues and challenges in the area of Financial Inclusion for Inclusive growth which are proving to be roadblocks in the development of the inclusion process the Salient features among them are stated here below : Spatial Distribution of Banking Services : Even though after often emphasized policy intervention by the government and the concerted efforts of Reserve Bank of India and the public sector banks there has been a significant increase in the number of bank offices in the rural areas; but it is not in tune with the large population living in the rural areas. For a population of 70% only 45% of bank offices provide the financial services. KYC norms : The Reserve Bank of India governor Raghuram Rajan has blamed the central bank's 'know your customer' (KYC) norms for keeping many Indians out of the banking system and has proposed easing liability on banks for KYC violations in low-value accounts. According to the governor norms should be mandatory but should be considerate as well. Regional Distribution of Banking Services: The analysis by the authors brings to the fore that there has been uneven distribution of the banking services in terms of population coverage per bank office in the six regions viz; Northern, North-eastern, Eastern, Central, Western and Southern regions of the country. Bank Branches :They are required to be increased as it has a direct impact on the progress of financial inclusion. It is clearly established that as the bank branches increase number of bank accounts also increase significantly. Poverty level : It has direct relationship with the progress of financial inclusion. The authors have established in their study that as the poverty levels decrease financial inclusion also increase. As such, there should be multi fold strategic approach in such poverty dominated areas for financial inclusion. SC/ST population: It is ascertained by the authors study that in the areas of Scheduled Castes/Scheduled Tribes population the progress of Financial Inclusion is slow which indicates that the efforts for Financial Inclusion has to be increased significantly in such areas in order to bring in social and economic equity in the society. Trust for channeled financial services should be developed and education for banking services and its working should be provide to youngsters of tribes. Overcoming Bankers Aversion for Financial Inclusion : Even though no banker openly expresses his aversion for the financial inclusion process, overtly it can be noticed that they are averse to it in view of the cost aspects involved in opening of no frill accounts.

Suggestions/Findings

Micro-finance Institutions (MFIs) or self-help group deliver doorstep banking is the most persuasive model today supporting the governments drive towards Financial Inclusion. The Business Correspondent (BC) model offers a lower cost channel and local presence without the infrastructure costs of branches. However, it is limited by poor security, time-consuming manual processes and a lack of scale. Supplementing the BC model with technology can improve security, speed up enrolments and transactions, and extend the size of the physical territory that agents can cover. Even with enabling technology, the agent model in isolation, will always be limited to the size of the physical territory that can be covered. In addition to assisting or supplementing an existing, labor-intensive delivery channel, technology can become a direct delivery channel for financial and information services. This is particularly true of selfservice technology (e.g. ATMs, mobile phones) where transactions are driven by the consumer without third party interventions. Once the unbanked are bought into the banking model, a whole range of financial services can be delivered through self-service technology, with minimal need for person to person interaction. Self-service technologies are the foremost sustainable and scalable solutions because they offer multiple products and services from the same platform/device, at lower costs, ease-of-use, higher levels of availability and accessibility by the potential of leveraging existing physical infrastructures (i.e. merchant partners and kirana stores) as a distribution channel. Self-service can provide the scale necessary to achieve the Indian governments target of full Financial Inclusion by 2015.

Conclusion
To conclude, Financial Inclusion provides formal identity, access to payments system & deposit insurance , the Importance of financial inclusion arises from the problem of financial exclusion of nearly 3 billion people from the formal financial services across the world. With only 34% of population engaged in formal banking sector , India has about 135 million financially excluded households, the second highest number after China. Further, the real rate of financial inclusion in India is also very low and about 40% of the bank account holders use their accounts not even once a month. Financial Inclusion has far reaching consequences, which can help many people come out of object poverty conditions. The financial inclusion has extended the scope of activities of the organized financial system to include within its ambit people with low incomes. Through graduated credit, activities have shown positive efforts to lift the poor from one level to another so that can overcome poverty. There is a need for coordinated efforts between the banks, the Government in a one side and facilitate access to bank accounts amongst the financially excluded on the other side.

References
1. RBI press release on 7-jan-2014 http://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=3035

2. http://samvriddhi.com/ 3. sanchayansociety.org/ 4 . www.rbi.org.in Speeches on 6-sep-2013 5. http://www.epw.in/special-articles/challenges-financial-inclusion-india.html by S Ananth and T Sabri Vol XLVIII No. 07, February 16, 2013 article in economic and polity weekly 6. Speech by Governor Raghuram G. Rajan at BANCON 2013 : held at Mumbai on November 15, 2013 http://www.rbi.org.in/scripts/BS_SpeechesView.aspx?Id=856 7. Raghuram Rajan: Financial inclusion - technology, institutions and policies : Keynote address by Dr Raghuram Rajan, Governor of the Reserve Bank of India, at the NASSCOM (The National Association of Software and Services Companies) India Leadership Forum, Mumbai, 12 February 2014. 8. RBI Governor Raghuram Rajans report to be lynchpin of financial sector reforms : Deepshikha Sikarwar, ET Bureau Sep 16, 2013, 07.06AM IST 9. Financial Inclusion in India Challenges & Opportunities by Anuraj Soni on April 9, 2013 Published under Ecosystem 10. www.rierc.org/business/paper26 Chattopadhyay, S. K. (2011) 11. www.ijars.in/iJARS%20630 Manuscript Id: iJARS/630 12. www.icicigroupcompanies.com/financial_inclusion_efforts.html 13. articles.economictimes.indiatimes.com Collections Icici Bank 5-sep-2013 14. www.jrf.org.uk Publications Jul 15, 2008 15. en.wikipedia.org wiki inancial inclusion 16. Research Unit for Financial Inclusion www.ljmu.ac.uk Education, Health and Community 1 . www.birmingham.ac.uk ... inancial-inclusion-report- 13-final.pdf We wish to thank the UK Data Service for supplying the datasets used in this research project

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