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Financial inclusion: A huge challenge

By Sudhansu R Das, Jan 4, 2013

Financial inclusion has not yielded the desired result because it is more a metabolic growth.

The RBI in its second quarter review of the monetary policy 2012-13 has mandated the state level bankers’ committees (SLBCs) to prepare a roadmap for provision of banking services in all unbanked villages with less than 2,000 people in a time bound manner. “Moving towards universal financial inclusion has been a national commitment,” the RBI has emphasised in its report.  The Financial Inclusion Advisory Committee chaired by Dr K C Chakrabarty will explore viable, affordable and sustainable banking service delivery models for unbanked population and suggest appropriate regulatory framework to stabilise financial inclusion.

Over the years, banks have introduced many innovations: ATMs, kissan credit cards, general credit cards, freedom prepaid cards, biometric cards, phone banking, mobile banking, electronic clearance services and banking correspondence to achieve financial inclusion.

Access to credit


Over the last two decades India has witnessed the world’s biggest micro credit movement in the world. As on March 31, 2012, nearly 86 lakh SHGs have been bank-linked. So nearly 17.20 crore people get access to banks’ credit to start hundreds of small economic activities: Achar, masala, jelly, jam, papad, herbal medicines, handicrafts, handloom items and different kinds of eatables etc. The RBI has further asked banks to open zero balance savings bank account with ATM cum debit card facility so that all kinds of wages, subsidy and bank credit could be routed through bank accounts.

The Union government had allocated Rs 50 crore in 2011-12 budget for banks to meet the expenditure towards opening zero balance accounts.  As per the RBI report, banks have covered 74,199 unbanked villages by March 2012 out of the target of 74,414 villages.

Now the RBI is out to cover all unbanked villages across the country. Both public and private sector banks have set self targets of opening rural brick and mortar branches to cover unbanked villages. The number of brick and mortar branches has increased from 21,475 in March 2010 to 1,11,948 by March 2012.  The number of no frills accounts has increased to 99 million by March 2012. 

Over the decades, 31 state co-operative banks with their 371 DCCBs and nearly one lakh co-operative society outlets have been recapitalised and rescued from bad financial state from time to time in order to meet the unbanked population. Besides, many micro finance institutions have rolled their money to reach the unbanked population in the last decade.
In spite of a series of efforts, financial inclusion has not yielded the desired result because it is more a metabolic growth than a time bound programme which needs proper environment to take its root. In fact, the purpose of financial inclusion is to activate the micro credit cycle which ultimately helps borrowers to earn surplus after meeting their consumption need.

Banks, extension departments, people’s representatives, NGOs and civil society have the joint responsibility to create credit absorption capacity among people. The rise in the price of sugar has made sugarcane replace pulses and other crops in Kolhapur district. Initially, the farmers got surplus income.  But their joy turned in to frustration when the thirsty canes needed more water and the cost of inputs increased. The surplus eroded when farmers had to buy food grains at a higher cost from the market.

 Clay models made by the artisans of Cuttack have high demand in different studios and in puja pendals across the country. In the absence of marketing facilities, credit flow can only become a bad loan. In pilgrim centre of Puri, people have the indigenous skill to make mouth watering sweet items from milk and ghee. If those items are not marketed, bank credit will become a burden on the producers.  Pure cow ghee has huge demand all over the world for its medicinal, nutritional and religious value. Today one can find tonnes of adulterated cow ghee packs even in big malls.  Agro processed food items have suffered huge credibility loss because there is nobody to authenticate quality. Credibility loss always affects bulk of the business.

Unless the producers at the bottom of the pyramid are left with surplus they cannot help consumer driven economy. For instance, in 2005, the cost of a flat in a prime area in Pune was Rs 2,000 per sq feet. In 2012, the cost rose to Rs 12,000 per sq feet after 100 per cent FDI in realty sector was allowed. Consumers are left with little surplus after meeting the basic necessities of life. Adhar card based cash transfer may aggravate the agriculture labour shortage in the country and make food costlier. There is need for scientific approach to address poverty through financial inclusion.

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