FINANCIAL INCLUSION
Economics
INTRODUCTION TO FINANCIAL INCLUSION
Financial inclusion refers to the process of ensuring access to adequate, affordable, and timely financial services to all sections of society, especially vulnerable and low-income groups. These services include banking, savings, credit, insurance, pension, and investment products.
In a developing economy like India, financial inclusion is essential because a large section of the population traditionally remained outside the formal financial system and depended on informal moneylenders, leading to exploitation, indebtedness, and poverty.
Financial inclusion has a strong multiplier effect as it:
- Boosts overall economic output
- Reduces poverty and income inequality
- Encourages savings and investments
- Promotes gender equality and women empowerment
- Supports inclusive and sustainable growth
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STEPS TAKEN TO PROMOTE FINANCIAL INCLUSION IN INDIA
Nationalisation of Banks (1969 and 1980):
- Aimed at expanding banking services to rural and backward regions
- Shifted focus from urban-centric to region-focused banking
- Enabled priority sector lending to agriculture and small borrowers
Expansion of Institutional Alternatives:
- Promotion of Regional Rural Banks, cooperative banks, and credit societies
- Improved access to formal credit in rural and semi-urban areas
Lead Bank Scheme:
- RBI assigns one bank as the lead bank for each district
- Responsible for coordinating banking development, credit planning, and financial literacy
Pradhan Mantri Jan Dhan Yojana (PMJDY):
- Largest financial inclusion programme in the world
- More than 40 crore accounts opened
Niche Banking:
- Introduction of Small Finance Banks and Payments Banks
- Cater to small savers, migrants, and low-income groups
India Post Payments Bank (2018):
- Utilises vast postal network for last-mile connectivity
- Significant for rural and remote areas
Priority Sector Lending:
- Mandated lending to agriculture, MSMEs, weaker sections
Other Supporting Measures:
- Post office saving schemes
- Insurance and pension schemes
- Direct Benefit Transfer (DBT) framework
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PRADHAN MANTRI JAN DHAN YOJANA (PMJDY)
Background:
In 2014, more than 40 percent of Indian households did not have access to a bank account. To address this exclusion, the Government of India launched PMJDY in August 2014 as the National Mission for Financial Inclusion.
Objectives:
- Universal access to basic banking services
- Affordable financial products for all
- Use of technology to reduce cost and expand reach
- Financial literacy and awareness
- Channelisation of government benefits through DBT
Basic Philosophy:
- Banking the unbanked
- Securing the unsecured
- Funding the unfunded
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SIX PILLARS OF PMJDY
1. Banking Service within Five Kilometres
- Country divided into Sub-Service Areas with 1000–1500 households
- Banking outlet (branch or BC) within five km of every SSA
2. Universal Bank Account
- Bank account for every adult individual
- RuPay debit card with accident insurance
- Overdraft facility of Rs 5,000 later enhanced to Rs 10,000
3. Financial Literacy
- Promotion of savings habit
- Use of ATMs and digital payments
- Awareness about credit, insurance, and pensions
4. Credit Guarantee Fund
- To cover defaults arising from overdraft facilities
5. Micro-Insurance
- Accident insurance of Rs 2 lakh for RuPay card holders
- Life cover of Rs 30,000 for early account holders
6. Pension Transfers
- Pension payments for unorganised sector workers routed through bank accounts
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ACHIEVEMENTS OF PMJDY
- Near universal banking coverage with over 40 crore accounts
- Around 60 percent accounts from rural and semi-urban areas
- About 55 percent account holders are women
- Improved access to savings, credit, insurance, and pensions
- Strengthened DBT and reduced leakages
- Promoted cashless and digital transactions
- Empowerment of women and weaker sections
Recent Enhancements:
- Open-ended scheme
- Focus shifted from household to individual
- Accident insurance increased to Rs 2 lakh
- Overdraft limit increased to Rs 10,000
- Age limit for overdraft revised to 18–65 years
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NATIONAL STRATEGY FOR FINANCIAL EDUCATION (NSFE) 2020–25
Released by:
- Reserve Bank of India
Background:
- Prepared after review of the first National Strategy for Financial Education (2013–18)
Vision:
- Create a financially aware and empowered India
Objectives:
- Inculcate financial literacy as a life skill
- Encourage active saving behaviour
- Promote participation in financial markets
- Develop credit discipline
- Improve safe usage of digital financial services
- Encourage insurance coverage and risk management
- Promote retirement planning through pension products
- Enhance awareness of consumer rights and grievance redressal
Approach:
- Multi-stakeholder participation
- Robust monitoring and evaluation framework
- Adoption of a 5C approach for dissemination of financial education
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RBI’S NATIONAL STRATEGY FOR FINANCIAL INCLUSION (NSFI) 2019–24
Prepared by:
- RBI in consultation with Government of India and regulators such as SEBI, IRDAI, and PFRDA
Vision:
- Inclusive, sustainable, and resilient financial system
Key Observations:
- More than 35 countries have national financial inclusion strategies
- Common themes include technology use, financial literacy, last-mile delivery, and monitoring
Key Recommendations:
Universal Access:
- Banking access within five km radius for every village or hamlet
- Special focus on hilly and remote areas
Comprehensive Financial Services:
- Savings, credit, insurance, pensions, and investment products for every eligible adult
Digital Financial Inclusion:
- Strengthening digital infrastructure
- Move towards a cashless economy
Mobile-based Access:
- Every adult to access financial services through mobile devices by 2024
Insurance and Pension Coverage:
- All eligible PMJDY account holders to be covered
Skill Development Linkages:
- Financial inclusion linked with livelihood and skill development schemes
Customer Protection:
- Awareness about grievance redressal mechanisms
Public Credit Registry:
- Operationalisation to improve credit assessment
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MEASUREMENT OF FINANCIAL INCLUSION
RBI recommended measurement across three dimensions:
Access:
- Number of bank branches and ATMs per population
Usage:
- Percentage of adults with bank accounts, insurance, pension coverage
Quality:
- Customer service and grievance redressal effectiveness
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FINANCIAL STABILITY AND DEVELOPMENT COUNCIL (FSDC)
Nature:
- Apex-level body set up by Government of India in 2010
- Non-statutory body
Objective:
- Strengthen financial stability
- Promote financial sector development
- Enhance inter-regulatory coordination
- Monitor macro-prudential risks in the economy
Composition:
- Chairperson: Finance Minister of India
- Members include:
Governor RBI
Finance Secretary
Secretary, Department of Economic Affairs
Secretary, Department of Financial Services
Secretary, Ministry of Corporate Affairs
Secretary, Ministry of Electronics and IT
Chief Economic Adviser
Chairpersons of SEBI, IRDAI, PFRDA, and IBBI
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Subject: Economics
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