Essay: UN – financial inclusion

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  • UN - financial inclusion
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.The United Nations General Assembly which is the main deliberative and policy making organ of the UN, on 25.09.2015 adopted a resolution for transforming the world by 2030 i.e. the Agenda for Sustainable Development as a plan of action towards eradicating poverty of all forms while recognizing the same to be the greatest global challenge. Under the said agenda, all member states have resolved to collaborate together towards shifting the world on a sustainable path and have adopted 17 Sustainable Development Goals (hereinafter referred to as ‘SDGs’) and 169 targets to be achieved over the next 15 years in areas of critical importance for humanity. Out of the 17 SDGs, the attainment of Goal 1 – which seeks to end poverty in all its forms, Goal – 2 which deals with Food Security and promotion of sustainable agriculture, Goal – 8 which aims to promote sustained, inclusive and sustainable economic growth, Goal 10, which aims at reducing inequality within and among countries, is directly dependent on the inclusive economic growth of a country.
The ideal of ‘leaving no one behind’ is greatly subject to the steps any member state would take to improve the access of financial services to the low-income groups which predominantly include people living in remote areas having limited or no access to banks and financial institutions especially in a country like India. Therefore, a sound economic policy which furthers the overall growth of a country like India necessarily has to focus on the rural masses who have until now been neglected. Furthermore, a country like ours, while being the fourth fastest growing economy is largely considered to be an agrarian economy and cannot ignore the underprivileged and the rural masses if it aims to do away with the tag of a ‘developing country’ and become a major economic power in the world.

This paper aims at understanding the steps that have been taken by India with respect to the financial sector in the last decade and especially after the BJP Government came to power in 2014 with the promise of changing the image of the country world-wide in terms of ease of doing business and an inclusive economic growth advertised under the banner – ‘sabka saath sabka vikas’, after the corruption scams and policy paralysis under the previous government had literally marred the reputation of the country.

The key initiates of the Modi Government are as under:

• Pradhan Mantri Jan-Dhan Yojana (PMJDY) which was launched in August 2014 provides for financial inclusion to ensure access to financial services, such as Banking/ Savings & Deposit Accounts, Remittance, Credit, Insurance, Pension in an affordable manner.

The key benefits under the scheme include, interest on deposit, accidental insurance cover of Rs. 1 lac, no minimum balance requirement. The scheme also provide life cover of Rs. 30,000/- payable on death of the beneficiary, subject to fulfilment of the eligibility condition, easy transfer of money across India. Furthermore, the beneficiaries of government schemes will get Direct Benefit Transfer in these accounts and after satisfactory operation of the account for 6 months, an overdraft facility will be permitted. It also provides for access to pension, insurance products and claims under Personal Accidental Insurance under PMJDY subject to certain conditions as well as overdraft facility upto Rs.5000/- for one account per household. Part from the above, it also provides for loan benefit against the scheme i.e. individuals whose Jan Dhan account completes 6 months are eligible to obtain loans of up to Rs.5000 and aims to make available certain basic financial transactions via mobile phones to ensure that even people from rural areas and the unorganized sector have access to quick and convenient banking options.

One of the major benefits of the PMJDY scheme would be the decreased dependency of the farmers on the local/small money lenders who are known to indulge in fraudulent activities to coerce the borrowers to pay higher interest rates

The beneficiaries under the Jan Dhan Yojna over a period of 3 years are estimated to be approximately around 29 crores who have opened their bank accounts with either public sector banks, regional rural banks or private banks having a cumulative balance of roughly 64000 crores in the beneficiary accounts.

• ATAL PENSION YOJNA which was launched in June 2015 is a guaranteed pension scheme administered by the Pension Fund Regulatory and Development authority primarily aimed at the unorganized workers. The scheme aims at helping these workers save money for their old age and guarantees post retirement pension ranging from Rs. 1,000 – Rs. 5,000/- per month. The Government would also contribute 50% of the contribution of Rs. 1,000/- whichever is lower.

The scheme gives the option of decreasing or increasing the pension amount once a year. In case of death the spouse of the beneficiary shall be entitled for the same amount of pension till his or her death and the nominee of the beneficiary thereafter shall be entitled to receive the pension money that the beneficiary had accumulated till 60 years of age. In case of death prior to 60 years, the spouse shall also have the choice to exit the scheme and claim the accumulated amount or continue maintaining the account under the subscriber’s name for the remaining vested years.

• Pradhan Mantri Jan Suraksha Bima Yojana – Inspite of a plethora of insurance companies operating India, their reach to the rural sector is rather limited. PMSBY is mostly aimed at those who are below poverty line and are unable to afford insurance services. The scheme provides for a meagre premium of Rs. 12 per annum deducted from the savings bank account of the policy holder and giving a cover of upto Rs. 2 lakhs in case of death and in case of irreparable loss of both hands, feet, eyes etc.

• Pradhan Mantri Jeevan Jyoti Beema Yojna (PMJJBY) is similar to PMSBY but aimed at the people employed in the unorganized sector and provides for a renewable life insurance cover of upto Rs. 2 lakhs at a premium of Rs. 330 per annum.

• BHARAT INTERFACE FOR MONEY – BHIM APPLICATION is a digital payments solution application based on the Unified Payments Interface which lets its users to send and receive quick and easy payments using a mobile phone and more and more number of banks have started to partner up and support digital transactions via the application. Users can also send money via IFSC (Indian Financial System Code) and MMID (Mobile Money Identifier) Code to users who don’t have a UPI-based bank account. It also provides for an option of creating your own QR (Quick Response) code for a fixed amount of money, which can be used by a merchant to scan and make the deduction from the user’s account.

Key initiates of the Reserve Bank of India

• The Reserve Bank has allowed banks to increasingly utilize the services of Business Correspondents (BCs) which allows for a greater reach in terms of remote areas resulting in an increase in the number of transactions from such areas.

• RBI has also taken steps for providing banking services in unbanked villages having a population of more than 2,000 from 2010-2013 by allotting the same to various banks for coverage through various modes – Branch or BC or other modes such as ATMs, mobile vans, etc. and thereafter opening of banking outlets in unbanked villages with population less than 2,000 from 2013-2016 in a time bound manner.

• RBI has also made initiatives to draw up Financial Inclusion Plans through banks in the public as well as the private sector as an integral part of their business strategy with respect to opening rural brick and mortar branches; Business Correspondents (BCs), opening of Basic Savings bank deposit accounts, issuance of Kisan Credit Cards (KCC) and General Credit Cards (GCC) etc.

• Relaxation of KYC requirements wherein, small accounts could be opened with self-certification in the presence of bank officials along with usage of Aadhaar allotted by the Unique Identification Authority of India and provision of e-KYC services based on Aadhaar thus making opening of bank accounts easier and facilitating access to banking services.

• Priority sector lending certificates launched on April 7, 2016 to facilitate the achievement of priority sector lending targets by banks and in-turn incentivising providing for a mechanism to sell their over-achievement, thereby enhancing lending the said categories. It also enables banks to trade their PSL targets with banks who have underachieved.

• As per the data maintained by the RBI, a snapshot of the progress reported by banks under their FIPs for certain key parameters as on September 30, 2016 is as under:


March 2010

September 2016

Rural Banking Outlets



Urban Outlets (through BCs)



Basic Savings A/Cs

73.5 Million

495.2 Million

(due to PMJDY)

Kisan Credit Cards

24.3 Million

46.4 Million

General Credit Cards

1.4 Million

11.5 Million

BC- ICT (Information and Communication Technology) Transactions

26.5 Million

550.6 Million

• The Reserve Bank has also set up the Financial Inclusion Advisory Committee (FIAC) to review Financial Inclusion policies on an on-going basis.

Steps with respect to Financial Literacy

• The Reserve Bank is in the process of conducting a nation-wide survey to gauge the financial literacy targeting low income groups such as farmers, small entrepreneurs, students, senior citizens etc. and has also undertaken tailored programmes with the help of financial literacy centres with the help of NGOs and use of technology.

• The RBI has also set up a technical group for coordinating the efforts on financial inclusion and literacy at the policy level. Apart from this, a National Centre for Financial Education which includes representatives from various financial sector regulators has been set up to create material on financial education and conducting such campaigns across India to promote financial awareness in different languages through Kiosks controlled from a central location.

• The NCFE in collaboration with CBSE, has prepared financial education workbooks for classes VI to X and steps have been initiated with the various state boards to adopt a similar curriculum.

• The RBI has also taken steps for graded certification for BCs.

• The steps taken by RBI have gone a long way in improving the accessibility of financial services to the underprivileged. The following table enumerates the progress under financial inclusion plans of RBI as on September 2016;

S. No.


Year ended

March 2010

Year ended

March 2016


Banking Outlets in Rural locations -Total




Urban Locations covered through BCs




BSBDA-Total (No. in million)




BSBDA Total (Amt. in ₹ billion)




OD facility availed in BSBDAs (No. in million)




OD facility availed in BSBDAs (Amt. in ₹ billion)




KCCs -Total (No. in million)




KCCs -Total (Amt. in ₹ billion)




GCC-Total (No. in million)




GCC-Total (Amt. in ₹ billion)




ICT-A/Cs-BC- Total number of transactions (in million) *




ICT-A/Cs-BC- Total amount of transactions (in ₹ billion) *




The steps taken by the Indian Government as well as the RBI have without a doubt brought about a significant change insofar as the access of the lower income groups to the financial and banking services concerned. However, the hoped for results would not follow the concrete efforts made if immediate steps are not taken simultaneously to alleviate illiteracy and educate the rural masses as India still has the highest number of illiterates at around 290 million according to a report published by UNESCO in 2016. As of 2011, according to a report published by a leading news magazine, as of 2011, the enrolment rate for pre-primary schools is 58 per cent and 93 per cent for primary schools. However, among rural children of age 10, half could not read at a basic level, despite the high overall enrolment rate for primary education and over 60 per cent were unable to calculate division based sums, and half dropped out by the age 14.

Lack of education leaves the elderly and the women, most vulnerable to malpractices vis-à-vis digital and financial transactions where such individuals often bank upon their relatives, friends or banking correspondents to avail or make use of financial services. The reports of banking correspondents giving one Personal Identification Number to all the residents of a single village to ensure ease of business reflect the poor state of implementation of these schemes. Furthermore, the inability to of such individuals to understand the working of digital transactions and the processes entailed, have turned out to be a huge roadblock in the effective implementation of these schemes. It is no secret that the Jan Dhan accounts have underperformed largely due to the people belonging to the informal sector being unable to make recurring deposits on account of seasonal, unplanned and uncertain income. The reports of Jan Dhan accounts being used by the rich and powerful in the name of vulnerable individuals post demonetization to deposit old currency expose the loopholes in the financial system of the country. Therefore, financial inclusion schemes would fail to attain the desired objective if the more fundamental problems that are facing the country such as lack of basic education and poverty are not eliminated.

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