Imagine an India where every individual, regardless of their background or circumstances, has equal access to financial opportunities. This is the vision that financial inclusion aims to bring to life, breaking down barriers and opening doors to empowerment.
In this blog, we’ll explain the idea of financial inclusion in India. We’ll understand how it transforms lives, moulds the economy, and contributes to shaping a future that includes everyone.
What is Financial Inclusion?
Financial inclusion means offering financial services to those typically left out by traditional banking. This includes low-income individuals, rural communities, and those without access to modern financial services.
These households lack access to mainstream financial services, often due to unfamiliarity with banking or not meeting eligibility criteria.
Low-income individuals don’t have the right papers to prove who they are or how much they earn when they want to get financial help.
The Beginning of Financial Inclusion in India
Back in 2005, India took on financial inclusion through the RBI’s Annual Policy Statement. The new policy aimed to offer banking services, even in far-off places, and close the gaps in financial access.
The Khan Committee Report of 2005 highlighted basic bank accounts for those with fewer resources, prompting banks to join hands. The government’s ‘Pradhan Mantri Jan Dhan Yojna’ aimed for 75 million accounts by 2015.
What is the primary goal of Financial Inclusion?
Financial inclusion in India aims to assist low-income individuals by providing affordable financial services and promoting greater financial independence. Also, Financial Inclusion aims to educate everyone about handling money, establish secure methods for borrowing, and ensure safe financial transactions.
What are the Objectives of Financial Inclusion?
| Aspects of Financial Inclusion | Description |
| Accessible Financial Services | Financial inclusion makes financial services affordable to all, like deposits, loans, insurance, and payments. |
| Well-Regulated Institutions | It helps create trustworthy financial institutions, focusing on the less fortunate while maintaining high standards. |
| Secured Financial Stability | Financial inclusion provides a safe source of funds for those facing financial challenges. |
| Promoting Financial Awareness | It strives to make economically disadvantaged people aware of the benefits of financial services. |
| Personalised Financial Solutions | Financial inclusion crafts custom financial products for different individual situations. |
| Boosting Financial Literacy | The goal is to offer financial education to people. |
| Adopting Digital Finances | Financial inclusion brings digital services to uplift the financially backward. |
| Reaching Remote Areas | The goal is to extend financial services, which includes all digital banking, even to the remotest corners of the country. |
| Individualised Support | It provides tailored financial solutions based on personal income levels and financial preferences. |
| Government and NGO Initiatives | Various governmental and non-governmental organisations work together to facilitate financial inclusion by improving access to essential documents. |
| Awareness of Documentation | It addresses the lack of awareness about crucial documents required for financial services. |
| Access to Subsidies | Financial inclusion guarantees that eligible individuals can access their entitled government subsidies. |
What is the Importance of Financial Inclusion?
Financial Inclusion is important for the following reasons:
- Financial Stability
Financial inclusion brings stability as individuals access different financial services for better money management.
- Economic Well-being
Financial sector access aids effective savings, investments, and planning for future needs like education and health.
- Risk Management
Services like savings accounts and insurance help individuals handle any emergencies confidently.
- Entry to the Financial Market
Inclusion opens doors to financial markets, enabling investments and boosting economic growth and job opportunities
- Poverty Reduction
Access to credit and financial services helps individuals escape poverty, paving the way to financial independence
- Financially Inclusive Society
Financial inclusion empowers participation in the economy, raising living standards, and building a stable society
How does Financial Inclusion Empower Women?
- Inclusive Financial Management
Financial inclusion targets women’s involvement in managing household finances
- Shattering Stereotypes
Financial inclusion challenges stereotypes about women’s financial capabilities
- Independent Financial Paths
Financial inclusion encourages women’s self-reliance, promoting employment and financial independence
- Financial Literacy Boost
Financial inclusion enhances financial awareness for low-income women, teaching saving, investment strategies and credit options
- Access to Savings and Credit
Financial inclusion equips women with affordable saving tools and credit knowledge for business ventures or training
- Mobile Empowerment
Financial inclusion promotes women’s mobile phone ownership, facilitating financial transactions and digital interactions
- Institutional Support
Financial inclusion encourages banks to assist the unbanked, providing women-specific benefits like lower interest rates and improved savings incentives
How is FinTech expanding Financial Inclusion?
FinTech broadens financial inclusion through its affordable digital services, especially in remote areas. It leverages mobile technology and forms partnerships with banks and NBFCs. Through this collaboration, banking and financial tools become accessible to unbanked individuals.
How do Digital Tools aid Financial Inclusion?
- Digital payment systems, like e-wallets (BHIM), aid financial inclusion by allowing cashless transactions via mobile phones
- Users can access offers, cashback, and savings, particularly benefiting economically underprivileged sections
How JAM Trinity Promotes Financial Inclusion in India?
The JAM Trinity is a trio of initiatives in India:
- Jan Dhan Yojana (J)
Provides basic bank accounts for all households
- Aadhaar (A)
Offers a unique digital identity
- Mobile (M)
Uses mobile tech for efficient service delivery
How UPI Promotes Financial Inclusion in India?
India’s progress towards financial inclusion has benefited greatly from UPI. It has enabled millions of unbanked individuals to join the financial system by providing a simple, accessible, and affordable payment alternative.
What are the Financial Inclusion Schemes Offered by the Indian Government?
Over the years, the Indian Government has introduced various dedicated schemes to promote financial inclusion. Let’s explore a list of these essential financial inclusion schemes in the country:
| Scheme | Launch Year | Description | Benefits |
|---|---|---|---|
| Direct Benefit Transfer (DBT) | 2010 | Direct Benefit Transfer (DBT) is a system where the government sends financial assistance like subsidies and welfare payments directly to the bank accounts of eligible individuals. | To ensure that the money reaches the right people and reduces chances of misuse or corruption. |
| Pradhan Mantri Jan Dhan Yojana (PMJDY) | 2014 | PMJDY ensures financial inclusion with affordable access to banking services like Basic Savings Bank Deposit (BSBD) account or Business Correspondent (Bank Mitra) outlet. This scheme is available to individuals who don’t have access to the mainstream financial system. | One account per unbanked person, with no minimum balance. Earn interest, and get a Rupay Debit card. Accident insurance up to ₹2 lakh for new PMJDY accounts. Overdraft facility. Eligible for various schemes like APY, PMSBY and more. |
| Atal Pension Yojana (APY) | 2015 | This is a government-backed pension scheme for individuals in unorganised sectors, like small farmers, self-employed and daily wage. | After retirement, the Indian government commits to pay the retiree a minimum pension. Once a retiree turns 60, they can begin receiving pension. |
What makes Financial Inclusion a Challenge in India?
The major challenges faced while addressing the problem of financial inclusion are:
- Banks’ Struggles to Expand Services
Inadequate infrastructure prevents the expansion of banking services to remote areas. Operational challenges worsen the issues and prevent access to formal financial services.
- Low Technology Adoption:
In remote areas, technology adoption is low, and limited access to mobile phones and internet connections. This makes it difficult for low-income individuals to be a part of the financial system.
- Documentation and Financial Illiteracy:
Many low-income individuals struggle to open accounts and get credit. As they lack the necessary financial records and identity documentation. Low-income individuals are financially illiterate and have no idea how to manage their money.
Conclusion
Financial inclusion in India is a transformative journey, bridging gaps and empowering individuals across the socio-economic spectrum.
Through initiatives like the JAM Trinity, UPI, and government schemes, barriers are crumbling, and the unbanked are finding their path to financial stability.
India is utilising technology and focused efforts. This nurtures a financially inclusive society where every Indian citizen can participate, prosper, and contribute to the nation’s growth.
FAQ’s
PM Narendra Modi launched Pradhan Mantri Jan Dhan Yojana (PMJDY) as a national initiative for Financial Inclusion on 28th August 2014.
A bankruptcy code offers a fresh beginning for those with debt, boosts small businesses, promotes financial literacy, and provides loans after debt issues. It creates plans for repaying debt, reduces unofficial borrowing, and builds financial confidence in unprivileged individuals.
A BSBDA (Basic Savings Bank Deposit Account) is a simplified account with nil balance requirements, allowing easy opening with a basic KYC documents. It offers fee-free deposits and up to 4 monthly withdrawals, along with a Passbook and ATM card for day-to-day banking needs.
The Atal Pension Yojana’s main goal is to encourage people to save for retirement and provide a steady income in old age. It guarantees a minimum pension, ranging from ₹1,000 to ₹5,000 per month, based on your contributions.
PMJDY has expanded the count of bank accounts among unbanked individuals. It has also encouraged savings and insurance enrollment among the underserved population.
