Financial inclusion is a process of ensuring access to appropriate financial products and services needed by all sections of the society in general and vulnerable groups in particular, at an affordable cost, in a fair and transparent manner, by regulated, mainstream institutional players. The objective of financial inclusion is to transform the lives of vulnerable people, mainly poor, by providing them access to banking finance and enabling them to generate stable income. Financial inclusion promotes economic development through a network of banking institutions helps to mobilise savings and investment in the economy for productive purposes.
India had been making efforts to improve financial inclusion since independence. The Indian government along with the Reserve Bank of India (RBI) and National Bank for Agriculture and Rural Development (Nabard) has been making concerted efforts to enhance financial inclusion in India. The concerted efforts made in 1969 in nationalising 14 private sector banks followed by another six in 1980 did lead to some banking penetration, especially in rural areas. In 1972, priority sector lending emphasised on extending credit on easy terms, to agriculture and small industries. In 2006, the Reserve Bank of India introduced business correspondents. However, despite various efforts, nearly half of the population did not have a bank account in 2008 as was pointed out in an extensive study undertaken under the Chairmanship of C Rangarajan, former Governor, RBI.
DPI tech
In August 2014, the Centre assigned utmost priority to financial inclusion and launched the Prime Ministers Jan Dhan Yojana on a mission mode achieving unprecedented success. Simultaneously, very imaginatively, technology was harnessed: Digital Public Infrastructure (DPI) developed over the years provided scalability, inter-operability and cost efficiency that pushed financial inclusion to transform the lives of people irrespective of geographical location. In India, the application of DPI was phenomenal: Aadhar provided biometric and portable identity, and affordable mobile phones with internet provided the Jan Dhan account holders access to basic banking. The combination of Jan Dhan, Aadhar and mobile (JAM) revolutionised the banking penetration and usage significantly. Consequently, under the scheme, 35.4 crore accounts were opened in the rural and semi-urban areas as on August 14, 2024. In total, 53.1 crore accounts were opened, of which 29.6 crore were female beneficiaries. The total amount of deposits mobilised under Jan Dhan was ₹2.31 trillion. Thus, nearly 66.6 percent of beneficiaries under JAM are from rural areas and nearly 55.6 percent are women.
Consequent to all these concerted efforts, nearly 100 per cent households are connected with the formal banking institution. Thus, a great success in ten years by any estimate, achieved in a continent size India, a feat unparalleled in global history.
Financial inclusion helps vulnerable segments of the society and is concerned with financial needs of people requiring financial services like saving accounts, credit on easy terms, insurance, asset-leasing and pensions. The Financial Inclusion Index (FI-Index) covers various aspects of financial inclusion, beyond simply banking accounts. This wider FI-index, released by the RBI on July 9, 2024 also shows an improvement from 60.1 in March 2023 to 64.2 in March 2024.
The RBI’s FI-index, a very composite computation aiming to capture wider financial inclusion reflecting the bigger objectivity of the government, was first published by the Reserve Bank of India in August 2021 for end-March 2021. The well-designed index captures various aspects of financial inclusion in a single value ranging between zero and hundred where 100 indicates full financial inclusion. The index comprises of three broad parameters – ease of access (with a weight of 35 percent), availability and usage of services (45 percent) and quality of services (20 percent). As can be noted, the weight is maximum for the usage of the services. The access component has four dimensions — banking, digital, pension and insurance. The 26 indicators, under access, include banking outlets, NBFCs and post offices as well as others, including pension schemes and insurance products. The usage parameter is divided into 5 dimensions — savings and investments, credit, digital, insurance and pension, comprising of 52 indicators. The quality variable has 3 dimensions — financial literacy, consumer protection and inequality in the distribution of financial infrastructure. This subindex has 19 indicators mainly focussed on making citizens aware of appropriate financial instruments. This also captures grievance mechanisms. The unique feature of this index is the quality parameter which covers deficiency in services.
Looking ahead
Financial inclusion ensures that everyone in the society gets access to social, economic and political opportunities without any discrimination. The extension of financial inclusion is inclusive growth.
The mission mode application of financial inclusion was based on the policy of sabka saath, sabka vikas, sabka vishwas and sabka prayas which India has followed relentlessly in last few years to achieve inclusive growth. The same principle when extended to the planet translates into “One Earth, One Family and One Future” which is being achieved by India’s Unified Payments Interface (UPI) under the DPI. The UPI can develop into a cheaper and quicker alternative to available channels of remittances, as it has effectively proven its efficacy under the JAM trinity. The careful application of Artificial Intelligence and Machine Learning will only further facilitate deeper and more extensive financial inclusion, and hence more inclusive growth leading to faster development of India.
Charan Singh is the CEO of EGROW Foundation
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Published on August 27, 2024
https://www.thehindubusinessline.com/news/a-decade-of-jan-dhan-yojana-financial-inclusion-to-inclusive-growth/article68573364.ece
