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===== '''Simplified branch authorization:''' =====
To address the issue of uneven spread of bank branches, in December 2009, domestic scheduled commercial banks were permitted to freely open branches in tier III to tier VI centres with a population of less than 50,000 under general permission, subject to reporting. In the north-eastern states and Sikkim, domestic scheduled commercial banks can now open branches in rural, semi-urban and urban centres without the need to take permission from RBI in each case, subject to reporting.


'''Increasing the number of rural banks''' continues to be a priority for the RBI. In 2009, previous policies requiring RBI authorization before opening new branches banks were relaxed and beginning in 2011 the RBI required 25% of new branches opened in a given year be in unbanked rural areas centers.<ref>{{Cite web|title=Reserve Bank of India - Notifications|url=https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=6613&Mode=0|website=www.rbi.org.in|access-date=2020-05-08}}</ref><br />
===== '''Opening of branches in unbanked rural centres''' =====
To further step up the opening of branches in rural areas so as to improve banking penetration and financial inclusion rapidly, the need for the opening of more bricks and mortar branches, besides the use of BCs, was felt. Accordingly, banks have been mandated in the April monetary policy statement to allocate at least 25% of the total number of branches to be opened during a year to unbanked rural centres.
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==== Measuring Financial Inclusion + Progress ====
==== Measuring Financial Inclusion + Progress ====

Revision as of 05:48, 8 May 2020

Financial inclusion

Financial inclusion is defined as the availability and equality of opportunities to access financial services.[1] It refers to a process by which individuals and businesses gain access to appropriate, affordable, and timely financial products and services which include banking, loan, equity, and insurance products.[2][3] Financial inclusion efforts typically target those who are unbanked and underbanked, and directs sustainable financial services to them.[2] Having more inclusive financial systems has been linked to stronger and more sustainable economic growth and development and thus achieving financial inclusion has become a priority for many countries across the globe. [4]

In 2018 it was estimated that about 1.7 billion adults lacked a bank account.[5] Among those who are unbanked a significant number were women and poor people in rural areas and often those who are excluded from financial institutions face discrimination and belong to vulnerable or marginalized populations.[6] Financial inclusion is understood to go beyond merely opening a bank account; it is possible for banked individuals to be excluded from financial services.[7] While it is recognized that not all individuals need or want financial services, the goal of financial inclusion is to remove all barriers, both supply side and demand side.[6] Supply side barriers are those which stem from financial institutions themselves and often indicate poor financial infrastructure and include lack of nearby financial institutions, high costs to opening accounts, or documentation requirements. Demand side barriers refer to aspects of the individual seeking financial services and include poor financial literacy, lack of financial capability, or cultural or religious beliefs that impact their financial decisions.[3]

Initiatives by Country

Financial Inclusion in India

The concept of financial inclusion, extending financial services to those who typically lack access, has been a goal for the Government of India since the 1950s.[8]

The nationalization of banks, which occurred from the mid 1950s to the late 1960s, culminating in 1969 with the nationalization of 14 commercial banks by Prime Minister Indira Gandhi, brought banking facilities to previously unreached areas of the country.[9] The “branching” of banks into rural areas increased lending for agriculture and other unserved rural populations and Indira Gandhi spoke of it as a tactic to “accelerate development” and to address poverty and unemployment.[10]

The Lead Bank Scheme followed nationalization as a way to coordinate banks and credit institutions by districts to more comprehensively ensure that rural areas had their credit needs met.[11] In 1975, the Government of India followed this with efforts to specifically reach rural areas by establishing Regional Rural Banks (RRBs) meant to exclusively meet demand in the rural economy and the number of RRBs has significantly increased over the years.[11]

In 2004 the Khan Commission, created by the Reserve Bank of India (RBI), investigated the state of financial inclusion in India and laid out a series of recommendations. In response, RBI Governor Y. Venugopal Reddy, expressed concern regarding the exclusion of millions from the formal financial system and urged banks to better align their existing practices with the objective of financial inclusion.[12][13] The RBI began to spearhead efforts to expand institutional access to financial services and, in conjunction with the Government of India, has been proactive in developing banking products, crafting new regulations, and advocating for financial inclusion.[6][11]

Since financial inclusion was established as a priority for the GOI and RBI, progress has been made. Mangalam, Puducherry became the first village in India where all households were provided banking facilities.[14] States or union territories such as Puducherry, Himachal Pradesh and Kerala announced 100% financial inclusion in all their districts.[15] The Indian Reserve Bank vision for 2020 is to open nearly 600 million new customers' accounts and service them through a variety of channels by leveraging on IT. However, illiteracy, low income savings and lack of bank branches in rural areas continue to be a roadblock to financial inclusion in many states and there is inadequate legal and financial structure.[3]

Financial sector strategies

No Frills Accounts (NFAs) can be opened with zero or minimal balances, removing a cost barrier to banking. Banks are also meant to charge minimal overdraft fees on NFAs. [16]

Know-your-customer (KYC) requirements for opening bank accounts were relaxed for small accounts in August 2005, eliminating a documentation barrier to banking. The new procedure only requires an introduction by an account holder who has been subjected to the full KYC screening.[17] Additionally, banks were permitted to accept more easily produced forms of documentation for proof of identity and address.

Technology, particularly the introduction of branchless banking, ATM/Kiosk based banking, and mobile banking initiatives, is being used to deliver banking services to rural and remote areas.[18] Banks have been advised to make effective use of information and communications technology (ICT), to provide doorstep banking services (define this) through the BC model where the accounts can be operated by even illiterate customers by using biometrics, thus ensuring the security of transactions and enhancing confidence in the banking system.[19]

Banks have been asked to consider offering unique credit cards, the most popular being General Purpose Credit Cards (GCCs), and Kisan Credit Cards. These unique cards offer credit to those in rural and semi-urban areas, farmers, and others with adjusted collateral and security requirements with the objective of providing hassle-free credit.[20][21]

In January 2006, the RBI permitted banks to engage intermediaries in the banking process, developing the Business Correspondents (BC) Model.[22] This model enables banks to service neglected areas by allowing intermediaries to facilitate transactions and deliver other banking services directly.[23] Originally, a fairly limited number of entities, including NGO's and certain microfinance institutions were eligible to act as BCs, however in 2010 the list was expanded to include for-profit companies[24] In 2018, operators of Common Service Centers(CSCs) which work with local governing gram panchayats also began working as BCs to further improve penetration of banking services.[25]

[26]

Banks have been advised to implement electronic benefit transfer (EBT) with the goal of reducing dependence on cash, lowering transaction costs, and address corruption.

Government policies

The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) is meant to provide supplemental employment at a guaranteed minimum wage and facilitate financial inclusion to empower women and rural laborers.[27] While achieving financial inclusion is not its main goal, the program directly deposits wages into bank accounts as a way to limit corruption, speed delivery of benefits, and connect wage laborers to bank accounts.[28]

The Pradhan Mantri Jan Dhan Yojana policy scheme was announced by Prime Minister Narendra Modi in his 2014 Independence Day Speech and launched in August of 2014 in an effort to provide "universal access" to banking through the creation of basic banking accounts which come with other basic financial services.[29] Modi informed all Indian banks of the initiative and declared it a national priority.[30] On the inauguration day of the scheme, 1.5 crore (15 million) bank accounts were opened and since then, more than 18 million bank accounts have been created.[31][32]

In 2016, the Government of India instituted a sweeping demonetisation policy in an attempt to stop corruption and the flow of black money. This move forced people to deposit their money into banks or see its value evaporate, with the goal of integrating citizens into a cashless and taxable economy and banking system.[33] While India has seen new bank accounts continue to open in the wake of this policy change, and an overall increase in use of digital payment systems and other financial services, the policy change caused an extreme disruption to the financial system and debate continues on its efficacy. Many people, particularly those in rural areas still lack easy access to banks and awareness of digital services and those working as day laborers saw the cash flow of their incomes interrupted by the sudden change.[34]



First off it is alarming that despite the fact that India's CRISIL index is in excess of 40% and it is reputed to be heavy on technology, over 85% of its financial transactions are cash based. While income and inequality gaps will widen anyway, it is recommended that India embraces - proposed - as a matter of policy financial inclusion.[35] The World Bank and the IMF launched the Bali Fintech Agenda paper in October 2018, which proposes a framework on high-level fintech issues that countries should consider in their domestic policy discussions.

The Bali Fintech paper offers a high-level framework for countries to consider and to tailor fintech applications to national circumstances, and recognize that their individual approach to fintech may vary depending on the type of financial services.[36]



Increasing the number of rural banks continues to be a priority for the RBI. In 2009, previous policies requiring RBI authorization before opening new branches banks were relaxed and beginning in 2011 the RBI required 25% of new branches opened in a given year be in unbanked rural areas centers.[37]

Measuring Financial Inclusion + Progress

From Article:

Financial inclusion again featured later in 2005 when it was used by K.C. Chakraborthy, the chairman of Indian Bank. Mangalam, Puducherry became the first village in India where all households were provided banking facilities.[14] Norms became less strict for people intending to open accounts with annual deposits of less than Rs. 50,000. General credit cards (GCCs) were issued to the poor and the disadvantaged with a view to help them access easy credit.[citation needed] In January 2006, the Reserve Bank permitted commercial banks to make use of the services of non-governmental organizations (NGOs/SHGs), micro-finance institutions, and other civil society organizations as intermediaries for providing financial and banking services. These intermediaries could be used as business facilitators or business correspondents by commercial banks. The bank asked the commercial banks in different regions to start a 100% financial inclusion campaign on a pilot basis. As a result of the campaign, states or union territories such as Puducherry, Himachal Pradesh and Kerala announced 100% financial inclusion in all their districts. The Indian Reserve Bank vision for 2020 is to open nearly 600 million new customers' accounts and service them through a variety of channels by leveraging on IT. However, illiteracy, low income savings and lack of bank branches in rural areas continue to be a roadblock to financial inclusion in many states and there is inadequate legal and financial structure.[3]

MIX designed the FINclusion Lab India FI workbook[38] to support these actors as they craft strategies to achieve these goals.

Financial inclusion index

On June 25, 2013, CRISIL, India's leading credit rating and research company launched an index to measure the status of financial inclusion in India. The index- Inclusix- along with a report,[39] was released by the Finance Minister of India, P. Chidambaram[40] at a widely covered program at New Delhi. CRISIL Inclusix is a one-of-its-kind tool to measure the extent of inclusion in India, right down to each of the 632 districts. CRISIL Inclusix is a relative index on a scale of 0 to 100, and combines three critical parameters of basic banking services— branch penetration, deposit penetration, and credit penetration—into one metric.

The report, covering data till April 2016, highlights many hitherto unknown facets of inclusion in India. It contains regional, state-wise, and district-wise assessments of financial inclusion, and the first analysis of trends in inclusion over a three-year timeframe. Some key conclusions from the study are:[41]

  • The all-India CRISIL Inclusix score of 58.0 is above average as of April 2016, this is a significant improvement from 35.4 in 2009.[42]
  • Deposit penetration is the key driver of financial inclusion– the number of deposit accounts (1646 million), is almost eight times the number of credit accounts (196 million).[42]
  • The top three states are Kerala, Karnataka and Andhra Pradesh.[42]

Debates/controversies

From Article:

Financial inclusion in India is often closely connected to the aggressive micro credit policies that were introduced without the appropriate regulations oversight or consumer education policies. The result was consumers becoming quickly over-indebted to the point of committing suicide,[43] lending institutions saw repayment rates collapse after politicians in one of the country's largest states called on borrowers to stop paying back their loans, threatening the existence of the entire 4 billion a year Indian microcredit industry.[44][45] This crisis has often been compared to the mortgage lending crisis in the US.[44]

The challenge for those working in the financial inclusion field has been to separate micro-credit as only one aspect of the larger financial inclusion efforts and use the Indian crisis as an example of the importance of having the appropriate regulatory and educational policy framework in place.[46]

My Edits:


  1. ^ Nanda, Kajole; Kaur, Mandeep (2016). "Financial Inclusion and Human Development: A Cross-country Evidence". Management and Labour Studies. 41 (2): 127–153. doi:10.1177/0258042X16658734.
  2. ^ a b World Bank (2013-11-07). Global Financial Development Report 2014: Financial Inclusion. The World Bank. doi:10.1596/978-0-8213-9985-9. ISBN 978-0-8213-9985-9.
  3. ^ a b c d Shankar, Savita (2013). "Financial Inclusion in India: Do Microfinance Institutions Address Access Barriers?" (PDF). ACRN Journal of Entrepreneurship Perspectives. 2: 60–74.
  4. ^ Dixit, R., Ghosh, M. (2013). Financial Inclusion for Inclusive Growth of India – A Study of Indian States. International Journal of Business Management and Research. 3, 147-156.
  5. ^ "Overview". World Bank. Retrieved 2020-04-22.
  6. ^ a b c Garg, S. & Agarwal, P. (2014). Financial Inclusion in India – a Review of Initiatives and Achievements. IOSR Journal of Business and Management. 16(6), 52-61. doi:10.9790/487X-16615261.
  7. ^ Ranjani, K.S.; Bapat, Varadraj (2015-01). "Deepening Financial Inclusion Beyond Account Opening: Road Ahead for Banks". Business Perspectives and Research. 3 (1): 52–65. doi:10.1177/2278533714551864. ISSN 2278-5337. {{cite journal}}: Check date values in: |date= (help)
  8. ^ Mahajan, V & Ramola, B.G. (1996). Financial Services for the Rural Poor and Women in India: Access and Sustainability. Journal of International Development. 8(2), 211-224.
  9. ^ Ketkar, Kusum W. Ketkar, Suhas L. Bank nationalization, financial savings, and economic development : a case study of India. OCLC 82987271.{{cite book}}: CS1 maint: multiple names: authors list (link)
  10. ^ Cole, Shawn Allen (2007). "Financial Development, Bank Ownership, and Growth: Or, Does Quantity Imply Quality?". SSRN Electronic Journal. doi:10.2139/ssrn.1158078. ISSN 1556-5068.
  11. ^ a b c Sudhakar, A. & Singh, T.S. (2017). Financial Inclusion: The Role of RBI and Government. IOSR Journal of Business and Management. 6(13), 70-75.
  12. ^ "Reserve Bank of India - Annual Policy Statement for the Year 2005-06", Reserve Bank of India
  13. ^ "Report of the Internal Group to Examine Issues relating to Rural Credit and Microfinance" Archived June 10, 2012, at the Wayback Machine, Reserve Bank of India, July 2005.
  14. ^ a b Babu, P. Raja (2015). "Measure for Achieving Financial Inclusion in India and Its Inclusive Growth" (PDF). IOSR journal of Economics and Finance. 6: 35–37.
  15. ^ Seeman, Bharath (2014). Bank Exam Pedia. Rapid Academy of Competitive Exams (RACE) Institute. p. 67.
  16. ^ Garg, S. & Agarwal, P. (2014). Financial Inclusion in India – a Review of Initiatives and Achievements. IOSR Journal of Business and Management. 16(6), 52-61. doi:10.9790/487X-16615261.
  17. ^ Chakrabarty, Dr. K.C. "Financial Inclusion | A road India needs to travel". Reserve Bank of India. Retrieved 12 Oct 2011.
  18. ^ Garg, S. & Agarwal, P. (2014). Financial Inclusion in India – a Review of Initiatives and Achievements. IOSR Journal of Business and Management. 16(6), 52-61. doi:10.9790/487X-16615261.
  19. ^ "The changing face of rural banking in India" by Debroop Sengupta Archived 2014-08-20 at the Wayback Machine, The Alternative.in Jan 11, 2014.
  20. ^ Garg, S. & Agarwal, P. (2014). Financial Inclusion in India – a Review of Initiatives and Achievements. IOSR Journal of Business and Management. 16(6), 52-61. doi:10.9790/487X-16615261.
  21. ^ Chakrabarty, Dr. K.C. "Financial Inclusion | A road India needs to travel". Reserve Bank of India. Retrieved 12 Oct 2011.
  22. ^ "Business Correspondents / Business Facilitators (BCBF) Model Details". www.sakshieducation.com. Retrieved 2020-05-08.
  23. ^ "Reserve Bank of India - Database". www.rbi.org.in. Retrieved 2020-05-08.
  24. ^ Gupta, Asit Ranjan Mishra,Komal (2018-02-15). "Over 20% of business correspondents faced fraud in 2017: MicroSave report". Livemint. Retrieved 2020-05-08.{{cite web}}: CS1 maint: multiple names: authors list (link)
  25. ^ Rathee, Kiran (2018-07-04). "Common Service Centres to work as banking correspondents of HDFC bank". Business Standard India. Retrieved 2020-05-08.
  26. ^ SRINIVASAN, R. "Financial inclusion for whose benefit?". @businessline. Retrieved 2020-05-08.
  27. ^ Breitkreuz, R, Stanton, C.J., Brady, N., Pattison Williams, J., King, E.D., Mishra, C., Swallow, B. (2017). The Mahatma Gandhi National Rural Employment Guarantee Scheme: A Policy Solution to Rural Poverty in India? Development Policy Review. 35(3), 397-417.
  28. ^ Reddy, D.N., Reddy, A.A., Bantilan, M.C.S. (2014). The Impact of Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) on Rural Labor Markets and Agriculture. India Review. 12(3), 251-273.
  29. ^ "Prime Minister to Launch Pradhan Mantri Jan Dhan Yojana Tomorrow". Press Information Bureau, Govt. of India. 27 August 2014. Retrieved 28 August 2014.
  30. ^ "PM's email to all bank officers". Press Information Bureau, Govt. of India. 25 August 2014. Retrieved 28 August 2014.
  31. ^ ET Bureau (28 August 2014). "PM 'Jan Dhan' Yojana launched; aims to open 1.5 crore bank accounts on first day". The Economic Times. Retrieved 28 August 2014.
  32. ^ Sudhakar, A. & Singh, T.S. (2017). Financial Inclusion: The Role of RBI and Government. IOSR Journal of Business and Management. 6(13), 70-75.
  33. ^ Taruna & Kumar, N. (2017). Demonetization in rural areas of Lucknow (U.P): Immediate impact make life difficult to live. International Journal of Commerce and Management Research. 3(4), 100-103
  34. ^ Devi, L.V.K & Devi, L.V.R. (2017). Impact of Demonetisation on Financial Inclusion in India. IOSR Journal of Business and Management. 8(7), 42-47
  35. ^ CNN News Nov 2016
  36. ^ "focus area prototype redesign". World Bank. Retrieved 2018-12-09.
  37. ^ "Reserve Bank of India - Notifications". www.rbi.org.in. Retrieved 2020-05-08.
  38. ^ MIX, MARKET. "India Financial Inclusion Workbook". FINclusion Lab.
  39. ^ "CRISIL Inclusix" Archived 2017-07-10 at the Wayback Machine, June 2013.
  40. ^ "P Chidambaram launches Crisil Inclusix", DNA India, June 25, 2013.
  41. ^ "Finance Minister launches ‘CRISIL Inclusix’" Archived 2013-07-17 at the Wayback Machine, CRISIL, June 25, 2013.
  42. ^ a b c "CRISIL Inclusix February 2018 | Volume 4" (PDF).
  43. ^ "India’s oldest microfinance firm on the verge of closure", Livemint.com, Jul 27, 2011.
  44. ^ a b "India Rocked By Microfinance Crisis", NPR, December 09, 2010.
  45. ^ Polgreen, Lydia; Bajaj, Vikas (17 November 2010). "India Microcredit Sector Faces Collapse From Defaults". The New York Times.
  46. ^ Chakrabarty, Dr. K.C. "Financial Inclusion | A road India needs to travel". Reserve Bank of India. Retrieved 12 Oct 2011.
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