FINANCIAL INCLUSION FOR INCLUSIVE GROWTH

Inclusive growth is very vital from the point of view of national unity, social cohesion and peaceful living by all. Inclusive growth is possible only if all citizens are enabled to participate in growth procees and derive the benefit of growth.Financial inclusion being a vital part of overall inclusion could contribute significantly to economic progress and well-being of all citizens in the country
The committee on fiancial inclusion headed by Dr .C.Rangarajan has submitted its report a few months ago. The common perception is that financial inclusion of a person or household is complete once the person or a representative of the household opens a savings bank account or no-frills account with a bank branch. Financial inclusion can not be reduced to the ritual of mere opening of no-frills accounts by the financially excluded.Meaningful financial inclusion is achieved only when all accont holders learn the banking habit,the manner of using banking products and services,profitable use of bank credit etc and get in to the saving habit.Financial inclusion can be complete only when all those who are freshly brought in to banking fold are brought in to the main stream of economic and financial life
The committee on financial inclusion has defined financial inclusion as ''the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost''
Financial inclusion has not only deposit aspect and service aspect but also crdit aspect.The financially excluded must be brought in to the fold of banking and finance to get access to all types of financial services and banking products including bank credit. Development of saving and banking habit,education regarding the use of credit profitably the manner in which financial assets can be aquired and enjoyed,etc must be learnt by the newly included.Financial literacy has to be promoted and developed among the newly included so as to make their inclusion meaningful to them.By and by they must be made to learn investments also.Obtaining life insurance cover ,investment in mutual funds etc are also necessary at a later stage Financial literacy and credit counselling centres[FLCCs] if set up as suggested by RBI the same will go a long way in promoting financial literacy The said council can also educate people regarding the manner in which credit can be obtained from banks,how credit can be used profitably,how to sevice the loan by payment of instalments and interest on time,how to remain creditworthy and be eligble for credit from banks next time etc.
All the above aspects are vital from the point of view of meaningful financial inclusion.The importance of financial inclusion acn hardly be overstreesd.At present about 46 million farmer households in the country accounting for 51.4 percent of total farming families are in no position to access credit either from institutional or non-institutional sources.About 22percent borrow from informal sources and about 27 percent obtain credit from formal sources.In the north eastern region and eastern region only 4 percent and 9 percent respectively obtain credit from formal sources.
Many people suffer for want of basic knowledge regarding finance and credit that can be had from banks.Farmers and others in rural India boroww from money lenders at very high rates of interest and remain in debt throuhout their lives.Farmer suicides are constanly on the increase and many of these suicides were because of debts from informal sources at very high rates of interest.
In view of the above situation building up and expansion of an inclusive financial sector is absolutely necessary for bringing about more and more inclusiveness in growth. Financial inclusion has many components.The most important components of financial inclusion are the following
DEPOSITS-Opening of savings bank account is the starting point in financial inclusion.People who open savings bank accounts or no-frills accounts must not be left then and there.Follow up for operations in the account from time time and persuading them to credit their surplusses if any to the account is considered important.Banks can pursue the matter with such new customers and collect their savings if any in the form of small fixed deposits also.Dr.T.M.A.Pai launched the pigmy scheme in Syndicate Bank in 1928 to collect small and tiny savings of people at their door-steps.Pigmy can be an effective weapon of financial inclusion.In this manner the newly included can be taught savings habit,and manner of acquiring financial assets however sammall they may be.People getting manthly income can be persuaded to open recurring deposit accounts and contribute to the same every month.At the end of the period of the account on its maturity they may be persuaded to keep the amount in fixed deposit.
CREDIT--Bank credit is a potent weapon of development.Farmers and others engaged in productive activities may be tutored and educated regarding the ways of obtaining bank credit and utilising credit for productive purposes.Once they obtain credit they must be advised how to service the loan by paying instalments and interest on time and how to increse credit worthiness for getting more credit later on if required etc.
FINANCIAL LITERACY--Fiance is a subject which can not be learnt easily.It requires constant tutoring.The proposed financial literacy and credit counselling centres [FLCCs]are eminently suited for this job.The state governments and banks may bring out small book-lets in regional languages on finance and credit for the purpose of educating the lay people
Rangarajan committe has also recommended effecting improvements witin existing formal credit delivery mechanism.It has suggested methods for improving credit absorption capacity especially amongst the marginal and sub-marginal farmers and poor non-cultivator households.The committee has also recommended evolving new methods for effective out-reaching and leveraging on technology based solutions.
The committee has recommended the launching of National Financail Inclusion Plan.
The plan must aim at achieving the target of providing access to comprehensive financial services including credit to at least to 50 percent of financially excluded households [55.7 million]by 2012through rural and semi-urban branches of commercial banks and regional rural banks.The remaining 50 percent has to be covered by 2015.
The national plan must be broken in to state wise plans and district wise plans for achieving full inclusion.The committee has indicated that each branch may have a target of covering 250 new cultivator and non -cultivator households per annum.According to the committee stress should be on financing marginal farmers,tenant cultivators,and poor non-cultivator households.
A planned approach as suggested by the committee will help achieve definite results according to a time frame.
The committee has recommended that a Natioanl Mission On Financail Inclusion be constituted for achieving universal financial inclusion within a specific time frame and for suggesting policy initiatives and policy changes required for achieving desired level mof financial inclusion and for supporting a range of stake holders in public,private and NGO sectors.
The excluded segments are to be covered via designed products in the ares of savings,credit and other financial assets and life insurance.
The committee has suggested starting of special funds to help launch some of the suggested initiatives such as setting up of farmers service centres,,rural entreprenership development,and self employment training institutes ,self help group and technology applications for greater financial inclusion.The committeehas also suggested simplifications of procedures to the extent possible.
The implementation of the recommendations of the committee on fiancail inclusion will surely go a long way in achieving fiancial inclusion in the country.Promotion of financial literacy is an indispensible basis for meaningful and successful financial inclusion.Hence RBi and government must give full attention and importance to this task.Setting up of FLCCs will surely help promote financial literacy amongst the people newly brought in to the banking fold.State governments and district administarion must also play an important role in promoting financail literacy amongst people.Publication and distribution of book-lets on the subject of finance and banking in regional languages,by banks and state governments etc can be done to promote financial literacy.

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