The Financial Inclusion Scenario In India

By Seema Prem, CEO of FIA Technology Services Private Ltd. (FIA Global)Involved in social services, Seema has been focuses on the impact of technology on social innovation

Striving to get rid of barriers that exclude people from the formal economy especially those caused by social factors such as net worth, income, or occupation­financial inclusion refers to the efforts taken to make financial services and products accessible to all.

This inclusiveness works towards ensuring that anyone can participate in the financial sector, regardless of their financial status, and improve their lives with the help of useful and affordable products and services that help meet their financial needs. It works towards reducing the gap between the rich and the poor by bringing financial services to the masses, particularly the underprivileged and those residing in remote areas.

About 2.7 billion people around the world keep their hard-earned money in their pockets or hidden away at home. In India alone, there are 395 million people who have no bank accounts. Financial inclusion plays a vital role in the elimination of poverty in India and the rest of the world.

The first step to financial inclusion is having access to a transaction account that helps one store money as well as send and receive payment. Besides this, an account functions as a gateway that grants individuals access to financial services.

The current scenario in India
India has a vast majority of its population living in rural areas. These people do not have easy access to finance facilities. Only 38% of the scheduled commercial banks have branches in these remote locations and over two-thirds of the unbanked populace are women.

Of the financially excluded population that has opened bank accounts in the country, less than 30% are operational. Financial inclusion initiatives focus on providing economic security to individuals and families of the underprivileged communities. Very often, these communities have no access to banks and financial services in the form of savings accounts, term deposits, loans, insurance, and remittance facilities.

Over the years, banks have expanded their presence in these areas by opening new rural branches, set-ting up ATMs and digital kiosks, providing credit through General Credit Cards (GCC) and Kisan Credit Cards (KCC),
deploying banking correspondents, etc.

With the introduction of technology in core banking and a rapid increase in alternative channels for delivery, inclusion is being effected on a large scale. Over the past seven years, considerable progress has been made, with the number of rural branches rising from 33,000 to over 50,000, and basic savings accounts from 73 million to a staggering 533 million. And deposits in these accounts shot up from Rs 55 billion to Rs 977 billion!

All of this happened between 2010 and 2017, according to the Annual Report of the RBI (2016-17). The biggest factor was the Pradhan Mantri Jan DhanYojana (PMJDY), which was rolled out in 2014. Designed to enable access of financial services to the deprived, PMJDY has seen phenomenal results since its inception. According to a May 2018 report, over 316 million new savings accounts were opened, Rs 800 billion accumulated in deposits, and over 200 million debit cards issued.

Rapid advancements in technology have helped the banking sector take swifter strides

Financial inclusion schemes got a notable boost through PMJDY and also came under the focus of the RBI. This focus and acceleration in financial inclusion is expected to be immensely beneficial for the people and prove widely successful in the coming years.

The role of technology
Rapid advancements in technology have helped the banking sector take swifter strides. The RBI is focused on (and is actively involved in) channeling new technology to help the banking sector. Real Time Gross Settlement (RTGS), electronic funds transfer (NEFT), and mobile banking have all helped in achieving the objective of electronic payments.

The adoption of Core Banking Solutions (CBS) has brought about a huge change. Customers can now operate their accounts and avail of services from any branch on the network, regardless of where they maintain their parent account.

Mobile banking is another trend that has served as a low-cost channel helping to expand the reach of banking services. Over 70% of the country's population now owns a mobile phone, even in rural areas. This form of banking not only overcomes geographical constraints; it is also more efficient, secure, and immediate.

Paving the way for inclusion
Financial inclusion has been an important aspect of the government's agenda. It continues to have high priority, with many initiatives being launched and a range of Fin-tech services being developed to cover the last mile and help the rural population.

Basic financial services are a necessity for all. Traditional banking is not always a feasible option for the unbanked millions. Digital India is betting on people's willingness to use the internet and laying the foundation for a completely cashless, digital economy.

Over USD 18 billion has been invested in the Digital India initiative. It aims to provide services such as last mile internet connectivity, improved access to government services, Wi-Fi in public areas, internet access to 2.5 lakh villages, and the development of smart cities. It also focuses on moving towards delivery automation in the government services sector.

Notably, India's Aadhaar program is considered to be a champion in the delivery of financial inclusion, as innovations leveraging this program are expected to help enable mass access and acceptance of the services among financially excluded sections of society.