‘I want to start a new business, I guess I will borrow money from my uncle who lives in the next village’, is a statement that is said very often in our country and highlights a problem that needs immediate attention. If you still don’t understand the issue we are talking about, its Financial Exclusiveness in India.

Financial Inclusion is becoming the need of the hour as it is a key facilitator in reducing poverty and boosting prosperity. It is alarming that more than half of the world’s adult population does not have access to basic financial resources. Even in India, only 58.7% of households are availing bank services in the country.

Imagine having no bank account, no source for a loan, no fund transfer services, no insurance, no credit card, no safe place for your savings; even the thought of it might scare you, but it’s a reality for a large population of our country. They are excluded from the formal financial system.

To understand the importance of Financial Inclusion, let’s first study how Financial Exclusion affects the lives of working poor, how their communities are more unsecured, and how it hinders the development of a nation. It is believed that Financial exclusion is one of the main causes that restrict poor people from coming out of the web of poverty. It is also believed that in the long run, it leads to Social Exclusion which precludes them to avail fundamental requirements like healthcare, education and a quality standard of living. Answering the question of how people become financially excluded, it’s because of the tangential effects of their low socio-economic status, traditional caste systems (especially in India), historical prejudices, low education levels among many others.

According to World Bank’s 2017 Global Findex, an individual (or business) is financially included if they have “access to useful and affordable financial products and services that meet their needs, transactions, payments, savings, credit, and insurance.” Financial Inclusion has many benefits directly and indirectly. It increases household income by providing much-needed financing for business activities, it will generate profits and can help families save a part of their incomes which can assist them in times of crisis. With higher income, poor families have the means to acquire assets. Many people keep their savings under the mattress, or in a container, but saving money in a trusted financial institution, families are able to safely keep, grow and use their funds. With the help of financial services, entrepreneurs not only create jobs for themselves but also allows a growing business to provide opportunities for the youth to gain employment. Now, these people will be able to take part in a cashless economy in which they can easily save for and purchase higher-value products and services, like houses, insurance products, vehicles, education for children. Basically, it means using cash in a more secure and efficient manner. Along with the public, bankers can also avail of its benefits. Low-cost deposits will offer the banks the opportunity to reduce their dependence on bulk deposits from corporates. These low-cost deposits will also result in increased profits in the long run, and there will be a huge opportunity for the banks to cross-sell asset products, micro insurance, micro pension products, etc.

When discussing Financial Inclusion in India, we have to take into consideration the aims and impact of The Pradhan Mantri Jan Dhan Yojana launched half a decade ago on August 15, 2014. Under the scheme, all the banks in the country were told to ensure that every household should have a bank account, and also launched mass pension schemes and microinsurance. It is without a doubt that Jan Dhan Yojana has had immense success, 365 million accounts have opened, 289.1 million Rupay cards issued, and more than Rs 1 trillion of deposits have been garnered under the scheme. Nearly 60 percent of these accounts were opened in rural and semi-urban areas giving banking connect of the government with the smaller, backward areas of the country. More than 50 percent of the beneficiaries have been women and a large number of them are from rural areas. The poor were identified as the biggest beneficiaries of the Jan Dhan scheme.

However, there are two sides to every coin, the Jan Dhan scheme has not been able to fulfill all the promises it made. Some studies suggest that the percentage of households that have at least one bank account may be lower than what the government claims.  Apart from bringing every Indian household into the formal financial system, it also aimed to improve access to banking amenities like ATM transactions, overdraft facility, short-term credit and insurance among others. Dormant accounts still make up for about one-fifth of all Jan Dhan accounts. An Indian Express investigation last year revealed that bankers in public sector banks were allegedly putting paltry amounts of Rs 1 to Rs 10 in several Jan Dhan accounts, ostensibly to reduce the percentage of zero-balance accounts. Launched as a universal banking access scheme, Jan Dhan has proved to be a very potent tool of political campaign for the Narendra Modi government.

In conclusion, Financial inclusion is emerging as a new paradigm of economic growth that plays a major role in pushing out poverty from the country. It is a tool to reduce the gap between the rich and the poor. Financial Inclusion is considered the characteristic of a developed country.  Having invested huge sums of money in building FI infrastructure, the next wave of inclusion should be to prompt beneficiaries to use their access to financial services for improving their economic and social well-being.

So, even though, we have come a long way, there are still miles to go before we realize our dream and make it a reality, it would the efforts of the public and the government alike but 100 percent Financial inclusivity will be a milestone for India.

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