32 a. What is Financial Inclusion and how it is measured?
b. Explain Indian approach of 5A's related to financial inclusion.
c. Briefly Explain SHG Bank Linkage programme.
Words - 629, Time - 23 minutes approx
The government of India defines Financial Inclusion as the process of ensuring access to
appropriate financial products and services like credit facility, savings product, insurance and
remittance services needed by the weaker sections of the society at an affordable cost. In India
a three pillar approach of Financial Inclusion is followed which is “banking the unbanked,
securing the unsecured and funding the unfunded.” Financial Inclusion and Economic Growth
are seen to go hand in hand as the savings of the poor are mobilized and put into productive
use. Hence, it is of key importance to the policymakers of all the countries.
When policy makers have reliable performance indicators they are able to diagnose the state of
financial inclusion in the country and set national targets to better their financial inclusion. After
thorough surveys, policymakers focus on designing proper indicators to measure the Financial
Inclusion that include:
1. Access - These reflect the penetration of the financial services or the demand
side barriers customers face to access the financial services like high cost or
information asymmetry.
2. Usage - It measures the regularity and duration of use of financial services by the
customers. For example - the number of transactions done per account, number
of UPI payments etc.
3. Quality - This indicates how well the financial services match the customer
needs, the range of options available and the awareness about the existence of
financial services.
Using these parameters, financial inclusions create their own country wise or global index like
the Financial Inclusion Index created by RBI for India or the Financial Access Survey that IMF
designs for evaluating the global financial inclusion level.
Along with designing proper Financial Inclusion indices, India has formulated its own
approach to strengthen financial inclusion in the country. It has designed a 5A approach
towards Financial Inclusion to encapsulate all the components of Financial Inclusion
together. This 5A approach includes:
1. Availability – It means the point of presence & Choice of products of the financial
institutions. For example bank branches should be present within 5km of every rural
village to make financial products available as and when required by the rural
customers.
2. Awareness – Financial Inclusion also includes dissemination of proper information,
mass education to enhance financial literacy and transparent communication to build
trust in the users.
3. Acceptability – Value desired by the customers from the financial products to meet
their needs have to be provided by the financial entities. Only then they will accept
products that meet their requirements.
4. Affordability – All the services have to be Value for money to attract clients and make
them want to buy such products.
5. Accessibility – The financial institutions should make it more Convenient for the
customers to use their products and also include lower entry thresholds.
To make approaches like 5A a reality, the government has introduced several initiatives for
Financial Inclusion. One major step included providing banking services to the poor through
the Bank -SHG Linkage Programme. This was launched in 1992 by NABARD to link the
unorganized sector with the formal banking services and was initially aimed at promoting
and financing 500 Self Help Groups (SHGs) of the country. The small and poor were
encouraged to pool their savings regularly so the members could get small interest bearing
loans from it. Bank credit was also made available to the group to augment the resources of
the SHG to lend to its members and encompassed all the credit requirements of the
members.
In a nutshell it can be said that Financial Inclusion has been a key consideration for all
countries across the globe. India has significantly progressed in increasing access to
financial services to all the sections of the society. Through various government and central
bank policies and innovative initiatives, India holds a firm resolve to move steadily towards
completing the entire process of Financial Inclusion in the country.