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Feature
Financial Inclusion Opportunities and Challenges M. Kalyanasundaram*
T
here has been increasing realization about the problem of inadequate access to formal banking system particularly for small and marginal farmers, agricultural labourers and other poor sections of the society, which accentuates the problem of exclusion from gainfully participating in the process of and sharing the fruits of economic development. The recent Survey of National Sample Survey Organization (NSSO 2003) on indebtedness of Farmer Households vividly highlight the problem of exclusion what with of the 89.35 million farmer households (forming 60.4% of total rural households) only 43.42 million households accounting for 48.6% have availed financial services especially credit. Similarly, the All India Debit and Investment Survey (NSS FiftyNinth Round) has revealed that the share of non-institutional credit in total dues of rural households has increased from 17.5 per cent in 1991 to 29.6% in 2002. In fact, despite impressive growth of branch network in India, the vast sections of the society remain financially excluded and continue to remain away from the formal system and thereby access to affordable financial services including savings, credit and insurance. The banking industry in India has shown tremendous growth in volume and complexity during the last few decades. We have an extensive
banking infrastructure comprising 33,411 rural and semi-urban branches of commercial banks, over 14,501 branches of RRBs, around 12,000 branches of District Co-operative Credit Banks (DCCBs) and nearly 1,00,000 cooperative credit societies at the village level. There is at least one retail credit outlet on an average for about 5,000 rural people, which translates into one outlet for every 1,000 households. This is remarkable and extensive work. Given this network the moot question would be “Are the financial services needs of the rural poor comprehensively met by this network?’ Frankly enough, the answer is not positive. What is Financial Inclusion? By Financial Inclusion, we mean delivery of banking services at an affordable cost to the vast sections of disadvantaged and low income groups. It is not just credit but include access to savings, insurance, payments and remittance facilities by the formal financial system to those who tend to be excluded. An open and efficient society is always characterized by the unrestrained access to public goods and services. As banking services are in the nature of public good, financial inclusion should therefore be viewed as availability of banking and payment services to the entire population without discrimination of any type. In other words, the financial inclusion can be looked at in two ways, one is
exclusion from the payment system i.e. not having access to bank accounts, the second kind of exclusion from the formal credit market requiring the excluded to approach informal and exploitative market. Current status Though there has been widespread prevalence of exclusion, it is, however, important to recognize that in the policy framework for development of the formal financial system in India, the need for financial inclusion and covering more and more of the excluded population by the formal financial system has always been consciously emphasized by the Reserve Bank of India and the Central Government not to speak of the initiatives of commercial banks. Access to Financial services is highly important to improve the quality of peopleÂ’s life. Only 59 percent of adult population in the country has bank accounts. And 39 percent of rural adults have access to accounts while in the urban areas the percent rises to 60. Only 14 out of 100 adults have loan accounts on an all India basis. In rural areas it is just 9.5 percent. The top six metros alone contribute 45 percent to total deposit and to credit 56 percent, indicating poor rural penetration. It is now one of the largest microfinance initiatives in the world
* M. Kalyanasundaram, Chief Executive, INAFI (International Network of Alternative Financial Institutions) India.