Thursday, 30 August 2012

Financial Inclusion

Extract from Economic Survey 2012, Chapter 5 "Financial Inter-mediation and Markets" pg 114-15, 130

The objective of Financial Inclusion is:
  • To extend financial services to the large hitherto unserved population of the country to unlock its growth potential. 
  • In addition, it strives towards a more inclusive growth by making financing available to the poor in particular. 

GoI is achieving Financial Inclusion with key interventions in four groups, viz.
  1. expanding banking infrastructure, 
  2. offering appropriate financial products, 
  3. making extensive and intensive use of technology and 
  4. through advocacy and stakeholder participation.

  • Of the about 73,000 habitations having a population of over 2000 identified by banks for extending banking facilities by March, 2012 (through Business Correspondents (BCs)/ Bank branches), about 55,000 villages have been covered by Dec 2011.
  • Out of 81 unbanked blocks in the country as on March 2011, banking facilities have been provided in 39 blocks by November 2011. 
  • Banks have been further directed by the Government to provide banking facilities in all the unbanked blocks by March, 2012.

Detailed Strategy and Guidelines on Financial Inclusion issued by GoI emphasise: 
(i) setting up more brick and mortar branches with the objective to have a bank branch within a radial distance of 5 km;
(ii) to open bank branches by Sept 2012 in all habitations of 5,000 or more population in under banked districts and 10,000 or more population in other districts;
(iii) to provide a Business Correspondent within a radial distance of 2 km;
(iv) to cover villages of 1,000 and more population in 10 smaller States/UTs by September 2012;
(v) to consider Gram Panchayat as a unit for allocation of area under Service Area Approach to bank branch and BC etc.
(vi) Banks have also been advised to transfer subsidies through Electronic Benefit Transfer (EBT) under 32 schemes which are in operation and, funded by the Government of India, so that benefit gets credited directly to the account of the beneficiaries.
(vii) Banks are also required to ensure that 25 per cent branches in the Annual Branch Expansion Plan should be in unbanked Tier 5 and Tier 6 centres (upto population of 9,999).
(viii) Banks need to take into account various behavioural and motivational attributes of potential consumers for a financial inclusion strategy to succeed.

Besides, access to financial products is constrained by lack of awareness, unaffordable products, high transaction costs, and products which are not customized and are of low quality. A major challenge in the times ahead would be to meet financing requirements, particularly of the unorganized sector and the self-employed in the micro and small business sector.

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