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FINANCIAL INCLUSION |
Introduction of Financial Inclusion
Financial inclusion is a critical global initiative aimed at ensuring that individuals and businesses, regardless of their socioeconomic status, have access to essential financial services and products. These services encompass basic banking, savings, credit, insurance, and digital payment systems. By promoting financial inclusion, societies strive to empower marginalized populations, reduce poverty, and foster economic growth, ultimately working toward a more equitable and prosperous future. This brief introduction sets the stage for exploring the multifaceted dimensions of financial inclusion and its far-reaching impact on individuals and economies worldwide.
Understanding How Everyone Can Benefit from Banking and Financial Inclusion
- According to the World Bank, Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way.
- Financial inclusion ensures financial literacy and Financial democracy for the people.
- This ensures social, economic and transaction security, improves social harmony, women empowerment, helps reaping the benefit of “Less Cash Economy”
- Financial inclusion or taking banking services to the common man was the main driver of bank nationalization in 1969 and 1980 powered by three priority areas –
- Access to banking
- Access to affordable credit
- Access to free face-to-face money advice.
Financial Inclusion for Everyone: Making Banking Easy and Fair for All
- Bank Accounts: Ensuring universal access to bank accounts, which are a gateway to all financial services.
- Digital Payment Services: Providing access to digital payment services and increasing its penetration.
- Insurance: Ensuring universal coverage of insurance for life, accidents, etc.
- Asset Diversification: Allowing diversification of the asset portfolio of households through increased participation in capital markets.
- Social Security: a system of payments / assistance by the government to citizens who are ill, handicapped, poor, aged or unemployed.
- Better access to credit at a reasonable cost for those presently excluded
- Social Justice: distribution of wealth, opportunities, and privileges within a society- through reservation in jobs, admissions and election and through legal safeguards for protection of civil rights, prevention of atrocity and personnel laws.
| Article 41 (DPSP)– State to provide public assistance to its citizens in case of unemployment, old age, sickness and disablement;
Article 42 (DPSP)– The State shall make provision for securing just and humane conditions of work and for maternity relief for Financial inclusion. |
Why We All Need Financial Inclusion: Closing Gaps for a Better Future
- Financial inclusion is a key enabler to reduce extreme poverty and boost shared prosperity,
- An ambitious global goal (World Bank ) to reach Universal Financial Access (UFA) by 2020.
- Financial inclusion has been identified as an enabler for 7 of the 17 Sustainable Development Goals (SDG)
- Development: financial inclusion would result in higher savings, decrease in income inequality and poverty, increase in employment opportunities.
- Growth: greater access to formal credit would promote entrepreneurship in country
- Service Delivery: reach targeted beneficiary
- Financial inclusion has a multiplier effect in boosting overall economic output, reducing poverty and income inequality, and in promoting gender equality and women empowerment.
- Women Empowerment: Financial inclusion empowers women by involving them in household finances, promoting self-reliance and financial independence, and boosting financial literacy.
- It provides access to savings and credit for business and training, and encourages mobile phone ownership for financial transactions.
- Additionally, banks offer women-specific benefits like lower interest rates and better savings incentives.
- Examples of schemes launched for financial inclusion include PMJDY, Mudra loans, Atal Pension Yojana, Pradhan Mantri Jeevan Jyoti Bima Yojana, Pradhan Mantri Suraksha Bima Yojana, and Stand-up India.
Understanding Opportunities: The Advantages of Financial Inclusion for All
- Reduce the gap between rich and poor people
- Boosts the financial condition and standards of life of the poor and disadvantaged population.
- Help in implementing social security schemes
- Lowers the transaction cost for daily economic activity.
- Enables creation of economic buffers for exigencies
- Better monitoring and regulation of financial transaction using digital technology
- It helps the government plug leakage in public subsidies and welfare programmes as it can directly transfer the subsidy amount into the account of the beneficiary.
- Poor and downtrodden are encouraged to invest in various financial products and can borrow from formal financial channels.
- It increases the amount of available savings and the rate of capital formation, thereby allowing tapping of new business opportunities.
Understanding the Costs of Financial Exclusion
- The more a country is financialized, the more people who have no access to financial products face difficulties and will suffer from important financial, economic and social consequences.
- Accepting a job can be more difficult, if there is widespread financial exclusion, as most employers insist on paying wages electronically into an account.
- Getting access to other financial products (insurance, credit) may depend on being able to pay by direct debit and not having a bank account also reduces credit scores.
- In the face of widespread financial exclusion, for the affected people, the only option in times of need is illegal lenders. Such lenders apply default charges that can be extortionate and arbitrary—a vicious cycle of perpetual indebtedness sets in.
- People who save informally (that is, not in a bank account) do not benefit from the interest rates and tax advantages that people with savings accounts enjoy. Savings kept in cash at home are vulnerable to theft.
- If the SMEs sector is affected by financial exclusion, then their potential contribution to overall economic growth is severely hampered.
- Further, given the fact that about two-third of the units in this sector are owned by the disadvantaged section, such an exclusion results in a form of social injustice.
- Financial inclusion broadens the resource base of the financial system by developing a culture of savings among large segments of the rural population and plays its own role in the process of economic development.
- Financial inclusion also mitigates the exploitation of vulnerable sections by usurious money lenders by facilitating easy access to formal credit.
Know Your Customer (KYC)
KYC is the due diligence and bank regulation that financial institutions and other regulated companies must perform to identify their clients and ascertain relevant information pertinent to doing financial business with them.
Exploring the Role of the Banking Sector in Financial Inclusion
| YEAR | DEVELOPMENT |
| 1955, 1969, 1980 | Nationalization of Banks to improve its customer base, reach in various parts and financial inclusion. |
| 1961 | DICGC Act: formation of corporations to insure customers deposits in banks. |
| 1966 | Cooperative Banks under RBI’s Ambit |
| 1969 | Lead Bank Scheme (State Cooperative Banks – Pvt or Public) given lead role in district. They prepared a credit plan with ‘Service Area Approach’, and coordinated with the efforts of Government, banks and NBFCs. |
| 1971 | State level Bankers’ Committee to monitor progress of financial inclusion |
| 1972 | Differential rate of interest was introduced to provide bank finance at a concessional rate of interest of 4% per annum to the weaker sections of the community for engaging in productive and gainful activities so that they could improve their economic conditions. |
| 1976
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Regional Rural Bank (RRB) setup through Act – expanded banking in rural pockets. Further, RBI requires commercial banks to set up at least 25% of their branches in unbanked rural areas. Similar norms for White label ATM Companies. |
| 1992 | The Self-Help Group-Bank Linkage Programme (SBLP) started as a pilot programme on the recommendation of S K Kalia Committee. |
| 2005 | RBI-permitted no-frills account with zero balance |
| 2006 | RBI permitted Banking Business Correspondent Agents to ensure banking in rural and remote areas |
| 2011 | Government’s Swabhiman to increase banking presence in rural areas. |
| 2013 | e-KYC permitted. |
| 2014 | Jan-Dhan Yojana, new Private Commercial Banks (Bandhan, IDFC First), Bhartiya Mahila Bank. |
| 2015 | Small Finance Banks and Payment Banks. |
| 2018 | India Post Payment Banks |
| 2020 | The RBI released the National Strategy for Financial Inclusion 2019-2024. |
Q. Service Area Approach was implemented under the purview of ___________(CSE-2019)
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Understanding Financial Inclusion: Empowering Every Citizen through Pradhan Mantri Jan Dhan Yojana
- PMJDY was launched by the Dept of Economic Affairs with two phases in 2014.
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Objectives of PMJDY |
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| 1 | Financial literacy |
| 2 | Banking within 5 kms |
| 3 | Account for every family with overdraft, with Ru-pay ATM-cum- DEBIT Card |
| 4 | Credit Guarantee Fund (For Overdraft defaults) |
| 5 | Direct Benefit Transfer (DBT) |
| 6 | Sell Micro insurance & pension products through banks. |
- PM-JDY bank account can be opened in any Commercial or Cooperative Bank provided RUPAY that bank has CBS and bank is tied with RuPay Payment Gateway.
- Basic Savings Bank Deposit Account–anyone of Age 10 or above can open a Zero balance account. However, Chequebook will be issued only with balance.
- There are restrictions on the number of money withdrawals per month.
- Overdraft up to INR 10,000 depending on balance history of min. 6 months. Overdraft given on only one account holder in the household (preferably woman). Money has to be returned with interest (more than 12 percent) within 3 years. Banks decide the loan interest rate on the same.
- Every Jan Dhan account comes with free Rs.1 lakh Accident Insurance which will be premium by NPCI, it’s therefore necessary to regularly use the card- at least for checking balance. Union Government employees, and income tax payers are not eligible for this free insurance.
- Significance of Jan-Dhan Account: JAM trinity (Jan-Dhan, Aadhar, Mobile) for targeted and direct transfer of subsidies, scholarship and payments to beneficiaries.
Q. Pradhan Mantri Jan-Dhan Yojana’ has been launched for__________(CSE-2015)
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An Insight into PM Kisan Samman Nidhi (PM-KISAN) and Financial Inclusion
- PM-KISAN Scheme inaugurated by the Prime Minister on 24th February, 2019 which provides for transfer of an amount of Rs. 6000/- per year in three equal installments each of Rs. 2000/- directly into the bank account of beneficiary farmer families.
- The Scheme initially covered only small and marginal farmer families with land holding up to 2 hectares as beneficiaries, subject to certain exclusion criteria for higher income status.
- The Govt. later extended the scheme with effect from 1st June 2019 to all farmer families irrespective of land holding size, subject to applicable exclusions.
- Since the launch of PM Kisan till now about 8.12 crore farmer families have been benefited under the scheme.
- A new facility has been provided on PM-KISAN Web-portal (www.kisan.gov.in) through ‘Farmers’ Corner’ Link to facilitate the farmers for self-registration, edit his/her name in PM-Kisan database as per Aadhar Card, access the beneficiary list and status of payment.
- The farmers are being facilitated for self-registration and data correction through Common Service Centers.
OVERDRAFTS TO WOMEN IN SELF HELP GROUPS (SHGs)
- Initiative mentioned in Budget-2019
- Launched by Ministry of Rural Development under National Rural Livelihoods Mission (NRLM)
- Women SHG interest subvention programme under NRLM will be expanded to all districts.
- Every verified woman SHG member with a PM Jan Dhan account eligible for overdraft of ₹ 5,000.
- One woman in every SHG will also be eligible for upto₹ 1 lakh MUDRA loan.
JAN DHAN DARSHAK APP (2018)
- Jointly developed by the Department of Financial Services (DFS) & National Informatics Centre (NIC).
- It helps people find the nearby financial touch points such as Bank branches, ATMs, Post Offices etc.
INVESTMENTS OTHER THAN BANK FOR FINANCIAL INCLUSION
- Poor and lower middle-class person may opt for other investment schemes for better returns than bank deposit rates.
| Act | Small Savings Schemes |
| Govt Savings Bank Act 1873 | Post Office schemes: monthly, 5 year, savings, time deposit |
| Govt Savings Bank Act 1873 | Senior Citizen Savings (2004) |
| Government Savings Certificate Act 1959 | National Savings Scheme (NSC) 1959 |
| Government Savings Certificate Act 1959 | Kisan Vikas Patra 1988-11, 2014 |
| PPF Act 1968 | Public Provident Fund (PPF) |
| No Act | Sukanya Samriddhi Yojana 2015 |
| Deposited Money usually goes into National Small Savings Fund (NSSF) which is extended as loans to Union and (selected States) with caveats. | |
| Interest rates are decided by the Finance Ministry’s Dept of Economic Affairs on a quarterly basis. | |
Exploring Financial Inclusion: A Comparative Analysis of POSB and IPPB in the Department of Pos
Ministry of Communication
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- Post was set up by Lord Clive in 1766, and was later expanded by Warren Hastings in 1774.
- The Post Office Act was passed by Dalhousie in 1854. He also introduced the first postal stamp and rates were decided by weight and not by the distance.
- Project Arrow for modernization of Post was launched in 2008.
- The telegram was stopped by India Post in 2013, due to the onset of SMS & emails in India.
| Post Office Savings Bank (PoSB) | India Post Payments Bank (IPPB) |
| Formed under Govt Savings Bank Act 1873
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Under Companies act 2013. Registered as Public Ltd company in 2016 |
| Savings account only
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Both Current account and Savings account |
| Accept time deposits
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Given payment bank, does not accept time deposits |
| Can keep more than ₹1 lakh balance | No, because of the payment bank. |
| E-Banking and online bill payment are not directly possible. | UPI, BHIM, NEFT, IMPS and BBPS (Bharat Bill pay) available. |
| Sukanya Samriddhi (daughter’s fixed deposit account) can be opened | Not possible. Given a payment bank, time deposits are not allowed. |
| No loans to individual
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No loans until it becomes Small Finance Bank |
| Objective – Promote savings habits among the poor. | Objective – Remittance & digital payments |
Sukanya Samriddhi Yojana (2015): Understanding Futures and Fostering Financial Inclusion
- Sukanya Samriddhi Scheme is a small saving scheme under the Government of India targeting the parents of any girl children.
- This scheme focuses on encouraging the parents of the female child to build a fund for their future education and marriage expenses.
- The Sukanya Samriddhi Scheme provided an interest rate of 8.4% and tax benefits to every account opened under it for July-September 2019.
- The Sukanya Samriddhi Account can be opened at any Post office or branch of authorized commercial banks in the country.
- Under ‘‘Beti Bachao Beti Padhao’’ , Sukanya Samriddhi Account Scheme launched in January 2015 has been a great success.
- More than 1.26 Crore accounts opened across the country under Sukanya Samriddhi Account scheme
- Parents open a (fixed deposit type) bank account in the name of a 0-10 years old girl child, and deposit annually ₹ 250 to 1.5 lakhs till she reaches the age of 14.
- The Finance Ministry’s Dept of Economic Affairs announces a 9.1% interest rate.
- Sukanya Samriddhi Yojana (2015) promotes financial inclusion by allowing the withdrawal at the age of 18-21 depending on whether married or not. Thus, it indirectly prevents child marriages and empowers the grown-up daughter with money to pursue higher education, small business etc.
- One daughter – only one account can be opened in this scheme.
- Maximum two daughters can be enrolled by parents/legal guardians.
Chit Funds and Prize Chit: Exploring their Role in Financial Inclusion
| CHIT FUNDS | PRIZE CHITS |
| Scheme runs for a definite period of e.g. 12 months from Jan to Dec-2020. | Scheme is illegal and vaguely designed. |
| Every month each subscriber deposits equal amount, as stipulated in the scheme document
Every month Foreman draws ‘chit’. whichever subscribers’ name comes he may get loan / prize.(in next month, previous winners’ names may not be added to the lottery pool). This way, everyone has an equal chance of winning. |
There are no official documents or account books.
Scamster will accept whatever small / large amount is offered by the poor person who falls prey. Investor doesn’t know with surety how much is contributed by other investors.
|
| Even if you won in Feb-2020, still you’ll have to compulsorily pay monthly deposits until Dec-2020 when the scheme is officially over. | Not compulsory to pay the monthly deposits after you’ve won the prize. (Therefore the scheme will collapse eventually, when new subscribers stop coming). |
| This is legal, under Chit Funds Act | This is illegal under Prize Chits and Money Circulation Schemes Banning Act, 1978 |
Why Chit Funds? Understanding the Attraction and Potential for Financial Inclusion
- Low rates of interest on small savings provided by commercial banks are usually not coherent with the market rate.
- Obtaining formal loans still remains a huge task for a common man as banks, financial institutions are plagued by stringent procedures.
- Less regulated regime at fairly competitive interest rates prevailing in the market makes these schemes easily accessible.
- Chit funds come handy to meet exigencies like death or ill-health as well as joyous occasions like marriages.
- These types of schemes promote a savings culture as each member is supposed to contribute a fixed amount every month towards the fund.
Making Chit Funds Fair: Understanding the Changes in the Chit Funds (Amendment) Act, 2019 for Financial Inclusion
- The 2019 act aims to amend 1982’s Chit Funds Act.
- Amendment act will regulate the ‘Chit Funds’, ‘Kuri’, ‘fraternity fund’, ‘rotating savings and credit institution’.
- Chit must be drawn in the presence of at least two subscribers. Moreover video-conferencing is also allowed.
- Chit Fund’s fund manager is called ‘Foreman’. New act increases his commission in terms of percentage.
- New Act also increases the maximum amount of investment the foreman accepts from subscribers.
Exploring Chit Fund Scandals: Impact on Financial Inclusion and Trust
- Chit fund is a type of “contract” and subject under the Concurrent list of seventh schedule of the constitution. .
- To regulate this sector and ensure financial inclusion, Union has Prize Chits and Money Circulation Schemes 1978 and Chit Funds Act 1982 (amended in 2019)
- Moreover, states have their own acts / rules / State regulator of Chit Funds.
- Saradha Chit Fund scam, Rose Valley Chit Fund Scam The – Scammers ran multiple schemes in West Bengal and neighboring states, invested money in share market, real-estate, shopping malls etc. thus violating the chit-fund laws.
- Further, any collective investment scheme of ₹100 cr or more requires SEBI permission. Yet they didn’t obtain permission.
- Moreover, they also engaged in Multi-level marketing (MLM)/Pyramid /Ponzi Selling
- To avoid such scams in future, the Union Govt proposed “Banning of Unregulated Deposit Schemes Bill 2018” and later ordinance in 2019.
Exploring Financial Inclusion: The Imperative for Stricter Regulations of Chit Funds
- Fraudulent Companies: There have been rising instances of people in various parts of the country being defrauded by illicit deposit taking schemes such as Saradha Chit Fund Scam, Rose Valley Scam etc.
- Financial Illiteracy: Lack of financial literacy results in people getting duped as they are promised huge return on their investment which has no substantial basis to fulfill.
- Non-Transparency: Chit funds, especially those catering to a large number of members, are opaque both in their operations and eliciting of bids.
- Administrative Loopholes: Companies running such schemes exploit existing regulatory gaps and lack of strict administrative measures to dupe poor and gullible people of their hard-earned savings.
- Lack of Accountability: There is no deposit insurance for investors. If a registered chit fund company files for bankruptcy neither the government nor the Reserve Bank of India can help the investors.
Analyzing the Banning of Unregulated Deposit Schemes Act, 2019 for Financial Inclusion
- If an entity is soliciting public to deposit/invest money, then it could be regulated by RBI (Bank, NBFC-D), NHB (Home loan NBFCs), SEBI (Mutual Funds, ReITs, InvITs etc), IRDAI & PFRDA, Corporate Affairs ministry (NIDHI), State Governments (chit fund), EPFO, Multi state cooperative societies Register under Agriculture Ministry.
- A deposit-taking scheme is defined as ‘unregulated’ if a person is asking people to deposit/invest money but he has not registered with any of the above organizations.
- Example: builders, jewelers, etc. The Act prohibits advertisement & money collection in it.
- Penalty up to ₹50 crores and imprisonment up to 10 years along with attaching the assets to refund depositors within prescribed timelines.
- Union to set up an online central database of deposit-taking activities in the country.
The Role of Credit (Loans) in Driving Financial Inclusion
Mudra (NBFC created in 2015)
- Mudra Units Development & Refinance Agency is 100% subsidiary of SIDBI and also receives the funding from PSL (shortfalls via RBI and budgetary support via Department of Financial Services.
- MUDRA aims to provide indirect lending via Scheduled Commercial Banks, RRB, Cooperatives, Microfinance Institutions & other NBFCs through refinancing.
- Targeted beneficiaries are – Non-Corporate type Micro Enterprises from Agri-allied sectors, manufacturing and service sector.
- Mudra loans are collateral-free. If a borrower defaults on loan, then the lender’s losses are covered through Credit Guarantee Fund for Micro Units [CGFMU] which is operated by National Credit Guarantee Trustee Company Ltd. [NCGTC, 2016]– which is a private company by the Dept of Financial Services in the Finance Ministry.
| Pradhan Mantri MUDRA Yojana (PMMY) | |
| Shishu | Loans up to INR 50000 |
| Kishor | Above INR 50000 to 5 lakh |
| Tarun | Above 5 lakh to 10 lakh |
- Budget-2019: One woman in each self-help group (SHG) will be made eligible for ₹ 1 lakh loan under Mudra scheme.
Q. Pradhan Mantri MUDRA Yojana is aimed at_____ (CSE-2016)
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The Kisan Credit Card (1998) and Financial Inclusion
- KCC was jointly launched by RBI and NABARD in 1998
- Farmers get credit cards from PSB, RRB, State Cooperative Banks.
- Card holder farmers can swipe it to buy farm inputs (seeds, fertilizers, pesticides etc.)
- Moreover he can also withdraw cash (as loan).
- However, money to be repaid with interest. Accidental insurance is also given.
| Budget-2018 | Kisan Credit Card (KCC) extended to Animal Husbandry and Fisheries farmers |
| Budget-2019 | Animal Husbandry and Fisheries farmers will get the interest subsidy. |
| Budget-2019 | Comprehensive drive with a simplified application form to get all farmers under KCC cards. |
Understanding Interest Subvention for Financial Inclusion
- Government pays part of the interest rate for borrowers. (farmer, MSME, affordable housing etc) such as:
- Farm loans upto 3 lakhs→ 9% Minus 2% (to all farmers) minus 3% (regular paying farmers)= only 4% loan interest farmer has to pay.
- Budget-2019: Animal Husbandry and Fisheries farmers with KCC also eligible for Financial Inclusion.
- MSME: Incremental loans upto ₹1 crore to GST registered MSME industry= 2% subvention. (As such already announced by PM in 2018)
PAiSA Portal (2018)
- A centralized electronic platform for processing interest subvention on bank loans to beneficiaries under Deendayal Antyodaya Yojana – National Urban Livelihoods Mission (DAY-NULM) named “PAiSA – Portal for Affordable Credit and Interest Subvention Access”.
- It has been designed and developed by Allahabad Bank, the nodal bank under the scheme and launched by the Ministry of Housing and Urban Affairs (MOHUA) in 2018.
- It aims to connect directly with beneficiaries and ensure there is greater efficiency in the delivery of services.
- PAiSA portal aims to connect with all scheduled commercial banks, RRBs and Cooperative Banks.
| Before this portal | Interest subvention was released manually on a quarterly basis, sometimes delayed. |
| After this portal | Released on a monthly basis, and can be tracked through this portal, beneficiaries get SMS information. |
The Importance of Credit Guarantee in Financial Inclusion
- Credit guarantee means if the borrower defaults to pay interest or principle or both, then losses of banks/NBFCs will be covered by the credit guarantor.
- Credit guarantee facilitates confidence without requiring the borrower to pledge collaterals.
- Earlier DICGCI used to give credit guarantee for PSL borrowers, but now this work is done by organizations such as:
- If the government provides say a 100% credit guarantee up to an amount of Rs 1 crore to a firm, it means that a bank can lend Rs 1 crore to that firm; in case the firm fails to pay back, the government will make good all of Rs 1 crore.
- If this guarantee was for the first 20% of the loan, then the government would guarantee to pay back only Rs 20 lakh.
| Organization | Credit Guarantee Fund | Loans covered |
| SIDBI
+ Government |
Credit Guarantee fund trust for Micro & Small Enterprise (CGTMSE) | Loans to Micro & Small Enterprise
|
| Dept. of financial services | National Credit Guarantee Trustee (NCGTC)
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MUDRA, Stand Up India Skill & Education loans |
| Ministry of Commerce | Export Credit Guarantee Corporation of India fund (ECGC) | Exporters |
Refinance
- When an AIFI (or MUDRA) gives new finance to Banks/NBFCs based on the quantum of finance they (Bank/NBFC) have already given to end-borrowers.
- Usually works via the process of securitization of the previous loan papers.
Securing Futures: Exploring the Link Between Insurance, Pension, and Financial Inclusion
| Insurance schemes for financial inclusion | Postal Life, ESIC, PM Jeevan Jyoti & Surkasha Bima, PM-JAY, PM Fasal Bima. |
| Pension schemes for financial inclusion | EPFO, NPS, Atal Pension, PM Maan Dhan, PM Vay-Vandana, Rural Ministry’s National Social Assistance Program. |
Micro Insurance: Exploring Financial Inclusion for All
- Insurance policy may be Life/General Insurance with a very low premium.
- When a small sum insured (upto ₹50k) & target audience is poor / villagers / farmers. It may be an individual / group based insurance. Intermediaries such as NGO, SHG, MFI help in selling such policies. Policy/Contracts are given in the local language.
- Example: LIC’s Jeevan Madhur and Jeevan Mangal
Financial Inclusion for Gig Workers: Empowering Through Social Security Schemes
A gig economy is a free market system in which temporary positions are common and organizations contract with independent workers for short-term engagements
- The draft Code on Social Security has proposed that the Centre may formulate social security schemes for gig workers.
- The draft law has defined a gig worker as a “person who performs work or participates in a work arrangement and earns from such activities outside of traditional employer-employee relationship”. E.g. freelancers, independent contractors, project-based workers and temporary or part-time hires.
- Informal workers do not have formal job contracts with employers.
- While they may have some written contract to deliver services to the company, but the contract is worded in such a manner they are not “regular employees” of a company and not eligible for EPFO, ESIC benefits.
- Labour Ministry drafting a “social security code for all informal & gig workers2019”.
- Such schemes would encompass issues like “life and disability cover”, “health and maternity benefits”, “old age protection” and “any other benefit as may be determined by the Central Government”.
- The report says there has been an increase in freelancers in India from 11% in 2018 to 52% in 2019, thanks to various initiatives including Start-up India and Skill India.
The Role of RBI’s Ombudsman in Promoting Fairness and Financial Inclusion
| Banking Ombudsman | NBFC Ombudsman | Digital Transactions Ombudsman |
| Estb. in 1995 | 2018 | 2019 |
| Banking Regulation Act,1949 | powers to regulate NBFCs under RBI Act, 1934 | Payment & Settlement Systems Act, 2007 |
| Customer can file free complaint against any type of bank. | Any NBFC-Deposit-taking (e.g. Mahindra, Sriram), OR
Any NBFC with assets size of ₹1 billion & customer interface. Although Exempt: Infrastructure finance/debt companies, Core Investment Companies, NBFCs under liquidation. (for them NCLT, SEBI-SCORE). |
Prepaid payment instruments, Mobile wallets, Apps, NEFT/RTGS and other digital transactions |
| For amounts upto ₹20 lakhs | For amounts upto Rs 10 lakhs | For amounts upto Rs 20 lakhs |
| Ombudsman can order penalty upto Rs 1 lakh for customer’s mental agony, waste of time and money | ||
| Higher Appeal lies with Dy. Governor of RBI | ||
RECENT INITIATIVES BY GoI TO IMPROVE FINANCIAL INCLUSION
- JAM- Jan Dhan (banking), Aadhar (trinity), Mobile (transactions)Biometric Identity
- To improve social security to all citizens – PM Suraksha Bima Yojana and PM Jeevan Jyoti Bima Yojana
- Atal Pension Yojana – guaranteed monthly pension to the subscriber
- To expand ATM network, the RBI has allowed Non-Bank entities to start white label ATMs
- Banks are deploying micro-ATMs in rural areas.
- Ru-Pay cards have significantly increased its market share.
- SHG-Bank linkage programme
- Financial Literacy Centres have started by commercial banks at the request of the RBI
- Financial inclusion of women through the implementation of its biometric identification system “Aadhar”.
- UPI platform built by NPCI.
- Priority Sector Lending (PSL)
- Establishment of MUDRA bank
- Financial literacy centers were launched by commercial banks at the request of the RBI.
- The National Centre for Financial Education was established in 2017 to implement the National Strategy for Financial Education.
- Policies delivered at scale, such as universal digital ID – India and Aadhaar / JDY accounts – more than 1.2 billion residents covered
NATIONAL STRATEGY ON FINANCIAL INCLUSION(2019-2024) – RBI
- The RBI released the National Strategy for Financial Inclusion 2019-2024 on January 10, 2020.
- It sets forth the vision and objectives of financial inclusion policies in India.
- The strategy was prepared by the RBI with inputs from the central government and financial sector regulators – PFRDA, SEBI, IRDA, etc.
- The report refers to financial inclusion as the process of ensuring access to financial services, and timely and adequate credit for vulnerable groups and low-income groups at an affordable cost.
Common Themes Across These Nations to Improve Include:
- Following a target-based approach (by targeting specific sectors)
- Strengthening requisite infrastructure of payment mechanisms
- Strong regulatory framework
- Focus on last-mile delivery and financial literacy
- Use of innovation and technology
- Periodic monitoring and evaluation of progress made in financial inclusion
Strategic objectives of a national strategy for financial inclusion
CHALLENGES TO FINANCIAL INCLUSION IN INDIA
- In India, where nearly one-fourth of population is illiterate and below poverty line, ensuring financial inclusion is challenging task
- Due to this, ensuring deposit operations in the Jan-Dhan account is challenging.
- High volume of frauds due to lack of financial literacy
- Money lenders continue to account for nearly 30 percent of total banking business
- Most commercial banks operate in commercial and urban areas. Hence the rural population finds it difficult to access financial services.
- Lot of hidden banking charges have demotivated and disincentivized poor customers.
- Making banks accessible for peoples with disabilities
- Lack of credible, low-cost and high-quality financial advice.
- Difficulty in understanding different product offerings, financial terms, and conditions.
- The rising level of Non-Performing Assets (NPAs) of banks due to the large corporates makes it difficult to improve financial inclusion situation in India.
- Gender inequality = Most women are being excluded from the formal financial system.
Concerns in Achieving Financial Inclusion
- PMJDY has ensured universal access to bank accounts and India now has 180 billion accounts. However, 48% of those accounts haven’t seen any transaction in the last one year.
- Only 33 percent of all beneficiaries were ready to use their RuPay cards.
- India is a cash-intensive economy, still India remains among countries with the lowest access to digital payments.
- Financial illiteracy, safety, and security concerns prevent people from moving towards the digital mode of payments.
- About 76% of the adult population in India does not understand even the basic financial concepts.
- Misuse of SHGs – Panchayats are now competing with NGOs and rural banks in forming SHGs due to the qualification for government subsidy – Political pressure and misuse of funds.
WAY FORWARD: Strategies for Advancing Financial Inclusion
- A financial inclusion strategy sensitive to regional, demographic and gender related factors need to be carefully crafted.
- Digitization of land record Bringing SHGs into financial main streams
- Proper financial inclusion regulation in the country to access financial services.
- Financial inclusion is necessary before comprehensive success of mobile wallets.
- Financial services must be made accessible for people with disabilities at par with non-disabled persons.
- NABARD has an extensive presence across the country; it should be made the nodal and accountable agency for financial inclusion.
- Requires grass root level research as to why people prefer to go to money lenders, despite a network of banks, cooperatives, MFIs and SHGs.
- As India uses Aadhar to advance the goal of financial inclusion the government must examine and put into place a robust regime for data protection.
India’s Financial Inclusion Journey and Future Outlook
| Global Microscope Report 2019
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Over the years, this report identified following challenges in India: 1. Lack of full interoperability across payment systems. 2. Lack of financial literacy, no trust in the financial system or buying insurance. 3. Pervasive digital divide, grievances redressal. Extreme poverty, no surplus to save/ invest. 4. Missing land/property records make access to loans difficult. |
| Financial Inclusion Index by DFS
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1. Access to financial services 2. Usage of financial services 3. Quality.
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| Global FINDEX Database 2018 |
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The gender gap in account ownership remains stuck at 9 percentage points in developing countries, hindering women from being able to effectively control their financial lives. – World Bank
Conclusion
India’s commitment to Financial Inclusion marks a transformative journey, fostering inclusive growth and empowering citizens economically. As we embrace this path, it propels the nation towards a future of shared prosperity and financial well-being.
Financial Inclusion propels India towards inclusive growth, empowering citizens for shared prosperity. A promising path to economic inclusivity.
