Financial inclusion in India aims to promote sustainable development in rural areas. India has shifted its economic and regulatory structures in the last twenty years. The government has taken action to inform the populace about the banking services and investment-ready financial instruments. In India’s rural and semi-urban areas, access to finance has remained limited despite numerous efforts. Unrestricted access to public goods and services is essential for economic progress and is the core focus of financial inclusion. The unawareness of banking services and financial instruments in rural and semi-urban areas is a concern. The rural and even semi-urban people are unaware of the financial instruments and banking services. They fear entering banks and fulfilling their financial requirements through moneylenders charging a higher interest rate.
Financial inclusion has been a buzzword for policymakers and governments for a long time. Despite the tremendous growth of the banking sector in India, both horizontally and vertically, a large section of the Indian population remains unbanked. Poor access to finance is a prerequisite for poverty reduction and sustainable economic development. Access to finance by the poor, weaker sections, and marginalized is limited due to many factors. In India, data at the macro level shows that a large section of the poor and marginalized of the Indian economy are financially excluded or illiterate. They do not have access to the various financial services the institutional set-up provides, and access to financial services is not uniform throughout the economy. It necessitates an excellent mechanism to operationalize financial inclusion. The government is going ahead with the “Digital India scheme to transform the country into a digitally motivated modern society with a knowledge economy” and proposes to “pass it to people in remote locations and give them a role in India’s development history”. Digital tools will enable people and could prove to be a game-changer.
A country’s financial system must be sturdy and robust to ensure sustainable growth, economic development, and economic progress. Retail consumers’ or investors’ resources must be efficiently channeled to achieve inclusive growth. Reserve Bank of India and Ministry of Finance are attempting to close the gap between the haves and have-nots in our society. The government is trying to aid those who are financially disadvantaged by the official banking system. Incorporating the poor into the formal financial system can be helped by appropriate campaigns and reforms in the credit system. Households living in rural areas or with low incomes usually lack access to banking or financial services. It is challenging for these families to save and arrange financial resources for the longer term. The ease of access and usage of financial services and products influences the economic health of the individuals and the state.
Savings is a space where private players can enter as the living standard in the region suggests that significant savings can be mobilized. Villagers currently invest in their houses and jewellry. Almost all households had younger members who had left the village for better livelihood. The younger members were remitting money back home either through the post office or through acquaintances. Agriculture is a primary source of work, although its contribution to income is low due to insufficient rainfall in non-monsoon seasons over the last three years. It is unfortunate and easily remediable because the region still receives rainfall in the monsoon months. Loans for water-harvest tanks can help push up agricultural productivity significantly. A lot of the landscape is barren due to deforestation. Thus loans for plantations can potentially help increase incomes and improve the local ecosystem. Also, the region grows apples and potatoes as cash crops. However, a few insurance companies provide cover for these crops. Households generally seemed to be interested in this kind of financial service. Still, due to geographical constraints, the list of service getters remains limited to those living close to the market/road.
The financial inclusion model of Pradhan Mantri Jan Dhan Yojana has come up as a promising solution for the problem of inequalities prevalent among different regions and people. It is a model pre-dominantly adopted to enhance those regions and the social section of the strata deprived of growth opportunities. Through this Yojana, the rural masses are getting financial and social development benefits. Business Correspondents (BCs) play a critical role in ensuring inclusivity. BDO and Gram Panchayats should support them.
There are consistent efforts on the part of the government to formalize the system of SHG and give them additional financial support by creating a proper link between the banking system and SHG. Post demonetization, the linkage of the SHG with the banking system has become an unsaid mandate for the efficient working of the microfinance system in India. Also, since post demonetization, the steps to achieve the objectives of Digital India have been taken up consistently; digitization of SHG has become the need of the hour. Financial literacy and vocational training may not be the only requirement for the digitization process of SHG. But, the blend of these two elements in the overall process of financial inclusion would increase the rate of successful digitization of SHGs in India. Governments should continue to promote greater access to and use of financial services, given the increasingly evident link between financial inclusion and development.
=Prioritizing financial services does not divert resources away from other critical SDG priorities. Governments can minimize costs and leakage while also boosting financial inclusion by shifting away from cash and toward digital payments to distribute social benefits and wages. Financial inclusion for women aims to increase women’s confidence in launching businesses by providing them with cheap credit. This will reduce the activity of informal credit-granting organizations. Formal financial sources working together will lead to national progress. Understanding the link between financial inclusion and socio-economic development at the aggregated level will assist policymakers in devising and employing programs to expand financial inclusion and reduce income equality and poverty.
Dr Vinay Kandpal is the associate professor with the School of Business, UPES Dehradun.
Dr Deep Chandra is associate professor with the FCBM, Amrapali Group of Industries, Haldwani.