Financial inclusion inarguably has been the single largest
reform focus in India in past 5 decades. Beginning with nationalization of
banks in 1969, the government policy has always been biased towards providing
credit access to poor. Initially, setting priority sector (farm, MSME and BPL)
lending targets for banks and creating specialized institutions such as
cooperative banks and regional rural banks (RRBs) were two primary medium used
to achieve the success. These efforts yielded limited success as the policy
focus excluded the other aspects like building a deposit base, promoting
savings culture, or extending the payment network to the hinterlands.
In past one decade a paradigm shift has taken place in India's
financial inclusion agenda. The concerns over structural macroeconomic lacunae
and governance shortcomings, e.g., massive leakage in delivery of public
services and subsidies; consistently falling household savings rates; rise in
physical savings, especially in gold etc., have forced the measures like direct
cash transfer of subsidies (DBT), push to digital payments, expansion of
banking network, through new banks, small banks, payment banks, and banking
correspondents, expansion of well regulated MFI institutions, etc.
As per the official data, in less than five years, under PM Jan
Dhan Yojna (PMJDY), 371million accounts were opened with deposits amounting to
Rs1.02trn (upto
September 2019).
The banking outlets in villages grew 9 fold in six years from a
total of 67,694 in March 2010 to 5,97,155 by March 2019.
The self-help group (SHG)-bank linkage programme (SBLP) run by
the National Bank for Agriculture and Rural Development (NABARD) has emerged as
the world’s largest micro finance movement through which credit facilities are
extended to the poor by organising them into groups and connecting them to the
formal financial sector. SHGs’ outstanding loans with banks are approximately
five times larger than those of their closest alternative model viz., Micro
Finance Institutions (MFIs).
Hitherto financially excluded household and MSME were forced to
deal in cash, and therefore had limited options for building assets or saving
for future financial security. This also made them susceptible to exploitation
by moneylenders, scrupulous operators of sham schemes and touts. In past five
years, in particular, this drive has gained tremendous momentum, the effect of
which can be seen with naked eyes. Humongous drive to open bank accounts (Jan
Dhan); promotion of NPS by removing anomalies; launch of crop insurance and
personal insurance; bringing more and more subsidies under DBT scheme; giving
UIDAI a statutory status and making it an effective KYC document has certainly
helped.
To further accelerate the process of financial inclusion,
promote economic wellbeing, prosperity and sustainable development, the Reserve
Bank of India has recently issued an approach paper for developing a
"National Strategy for Financial Inclusion 2019-2024" (NSFI 2019-24).
NSFI 2019-24 sets forth the vision and key objectives of the
financial inclusion policies in India to help expand and sustain the financial
inclusion process at the national level through a broad convergence of action
involving all the stakeholders in the financial sector. The strategy aims to
provide access to formal financial services in an affordable manner, broadening
& deepening financial inclusion and promoting financial literacy &
consumer protection.
The idea behind the approach paper is to make financial services
available, accessible, and affordable to all the citizens in a safe and
transparent manner to support inclusive and resilient multi-stakeholder led
growth.
I shall highlight the key features of the approach paper
tomorrow.
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