Promoting Financial Inclusion through Policies

A majority of adults in many emerging nations lack access to financial services, particularly those at the bottom of the economic pyramid, those living in rural regions, and women. Microfinance has emerged as a powerful weapon for addressing this problem, and its capacity to do so has expanded in recent years as a result of the adoption of new technology and financial innovations, as well as regulatory changes. Microfinance development is unequal across Asia and the Pacific, and regional collaboration has the potential to help nations create a conducive climate for boosting financial inclusion through creative policies.

Importance of Financial Inclusion

The government hopes to promote a savings and investing culture among the rural people through financial inclusion, which will help the country’s economy. Bringing the weak and impoverished elements of society into a formal financial system, according to the administration, will assist preserve their financial riches and other resources during times of crisis. Furthermore, with access to official banking credit facilities, the possibility of usurious lenders exploiting this population can be reduced. Furthermore, the provision of timely financing via official lending systems would boost the entrepreneurial spirit of lower-income groups, who are now reliant on family, friends, and money lenders for credit.

As a result, providing the unserved with access to formal banking can help them minimise their reliance on costly informal sources of funding, lessen their exposure to economic shocks, and generate jobs.

Reasons for Financial Exclusion

Because India is such a large and diverse country, there is a wide range of income and education levels among different sections of the population, resulting in varying levels of exposure to financial services and products. As a result, certain segments of the population are unaware of various financial products.

Other reasons that contribute to financial exclusion, according to the National Strategy for Financial Inclusion 2019-24, are a lack of excess income, high transaction costs, a lack of essential documentation to access services and products, and the remoteness of the unserved population.

Schemes for Financial Inclusion

The need of financial inclusion for economic progress has long been recognised by Indian policymakers. In the 1950s, the government began the process of financial inclusion by nationalizing life insurance businesses and banks. Following that, it launched a slew of initiatives and program, including the National Strategy for Financial Inclusion (NSFI), which was supported by the Financial Inclusion Advisory Committee in June 2017. (FIAC). In addition, the government launched the following initiatives:

1. Jan Dhan Yojana of Pradhan Mantri (PMJDY)

The PMJDY was launched in 2014 as one of the government’s flagship programmes with the goal of ensuring financial inclusion for those who do not have a bank account. The system provides low-cost financial services such as basic savings and deposit accounts, insurance, pension, remittance, and credit. Individuals can open a basic savings bank deposit (BSBD) account using this plan at any bank branch or business correspondent (Bank Mitra) outlet.

2. Mudra Yojana of Pradhan Mantri (PMMY)

The initiative, which was launched in 2015, intends to provide term loans and working capital loans to small enterprises in the manufacturing, commerce, and services sectors, including agriculture, with a corpus of Rs. 3000 crore (US$ 411 million) (poultry, beekeeping, dairy, etc.). Shishu (up to Rs. 50000 or US$ 680), Kishore (up to Rs. 5 lakhs or US$ 6800), and Tarun (up to Rs. 10 lakhs or US$ 13700) are the three loan types available. 

3. Stand-Up India

The initiative, which was launched in 2016, intends to encourage women and scheduled castes/tribes to start businesses by providing bank loans ranging between Rs. 10 lakhs (US$ 13700) and Rs. 1 crore (US$ 137000) to at least one SC/ST borrower and one-woman borrower each Scheduled Commercial Bank branch. Loans are especially available under this programme for the establishment of greenfield businesses in the manufacturing, trade, and service sectors.

4. Pradhan Mantri Yojana Jeevan Jyoti Bima (PMJJBY)

The plan, which was launched in 2015, intends to insure the uninsured, particularly the poor, by providing coverage for death due to any cause. All subscribing bank holders are eligible for a renewed one-year term life cover of Rs. 2 lakhs (US$ 2740). The plan is run by LIC and other insurance firms that offer life insurance on similar conditions and charges a yearly premium of just Rs. 330 (US$ 4.5).

5. Yojana Pradhan Mantri Suraksha Bima (PMSBY)

The PMSBY scheme, like the PMJJBY plan, was launched in 2015 and provides all subscribing bank holders with a renewed one-year accidental death and disability protection (aged 18-70). A subscriber can get a claim of Rs. 2 lakhs (US$ 2740) in case of death or total disability for just Rs. 12 (US$ 0.16), and a claim of Rs. 1 lakh (US$ 1370) in case of partial disability for just Rs. 12 (US$ 0.16).

In addition to the aforementioned schemes, the government has launched the Atal Pension Yojana (which provides a monthly pension to eligible subscribers who are not covered by any organised pension scheme) and the Pradhan Mantri Vaya Vandana Yojana (which provides a monthly pension to eligible subscribers who are not covered by any organised pension scheme) (providing protection to senior citizens from future interest rate shocks due to market uncertainties).

Some other related steps are:

• Digitalisation

• Mobile Jan Dhan-Aadhaar (JAM)

• Biometric Authentication and Digital Payments Using Aadhaar

Conclusion

Financial inclusion at the bottom of the pyramid would not only enhance financial stability but also widen the country’s socioeconomic progress. Participating institutions, like banks, NBFCs, and insurance firms, would be able to increase their client base and expand into the rural sector as a result of this. Financial inclusion may minimise income inequality and benefit the impoverished and underserved by using technology and providing support through effective grievance redressal processes.