Financial inclusion
Financial inclusion or inclusive financing is the delivery of financial services at affordable costs to sections
of disadvantaged and low-income segments of society, in contrast to financial exclusion where those services
are not available or affordable. Financial refers to all types of financial services, including credit, savings,
payments and credit, from all types of formal financial institutions. An estimated 2 billion working-age adults
globally have no access to the types of formal financial services delivered by regulated financial institutions.
For example, in Sub-Saharan Africa, only 24% of adults have a bank account even though Africa's formal
financial sector has grown in recent years.[1] It is argued that as financial services can be viewed in that are
significant positive externalities when more people and firms participate. The availability of financial services
that meet the specific needs of users without discrimination is a key objective of financial inclusion.
Contents
1Goals
2Financial Inclusion in the Philippines
3Financial inclusion in India
o 3.1Financial Inclusion Index
o 3.2Controversy
o 3.3Tracking Financial Inclusion through Budget Analysis
o 3.4Pradhan Mantri Jan Dhan Yojana
Goals[edit]
The term "financial inclusion" has gained importance since the early 2000s, a result of findingout financial
exclusion and its direct correlation to poverty. The United Nations defines the goals[2] of financial inclusion as
follows:
access at a reasonable cost for all households to a full range of financial services, including savings or
deposit services, payment and transfer services, credit and insurance;
sound and safe institutions governed by clear regulation and industry performance standards;
financial and institutional sustainability, to ensure continuity and certainty of investment; and
competition to ensure choice and affordability for clients.
Former United Nations Secretary-General Kofi Annan, on 29 December 2003, said: The stark reality is that
most poor people in the world still lack access to sustainable financial services, whether it is savings, credit or
insurance. The great challenge before us is to address the constraints that exclude people from full participation
in the financial sector. Together, we can and must build inclusive financial sectors that help people improve
their lives. More recently, Alliance for Financial Inclusion (AFI) Executive Director Alfred Hannig
highlighted on 24 April 2013 progress in financial inclusion during the IMF-World Bank 2013 Spring
Meetings: "Financial inclusion is no longer a fringe subject. It is now recognized as an important part of the
mainstream thinking on economic development based on country leadership."[3]
In partnership with the National Bank for Agriculture and Rural Development, the UN aims to increase
financial inclusion of the poor by developing appropriate financial products for them and increasing awareness
on available financial services and strengthening financial literacy, particularly amongst women. The UN's
financial inclusion product is financed by the United Nations Development Programme.[4]
Financial Inclusion in the Philippines[edit]
Four million unbanked Filipinos are seen to benefit from the nascent credit scoring industry, a development
that is seen to provide those at the bottom of the economy an easy access to credit once the service is available
to the public. Marlo R. Cruz, President and Chief Executive Officer of CIBI Information, Inc. (CIBI) as one of
the accredited credit bureaus in the Philippines, highlighted that this is expected to unlock much economic
potential in sectors of the economy that are crucial for inclusive growth.[5]
As per Cruz, "Many people still do not realize that the value of having a credit opportunity is synonymous to
generating financial power. Creditworthiness is the same as to owning a keycard that can be used in navigating
to the society of better possibilities." [6]
The Bangko Sentral ng Pilipinas (BSP) reports on Financial Inclusion Initiatives and Financial Inclusion in the
Philippines summarizes the countrys accomplishments and significant milestones in financial inclusion. These
reports show that 4 out of 10 Filipinos saved money in 2015 (up from 2 out of 10 in 2009). Among Filipino
adults, 24.5% never saved and only 31.3% (up from 26.6%) have an account at a formal financial institution.
The lack of enough money was cited as the main reason for not having a bank account. [7]
While there has been significant progress, there is still much to be done.
As an emerging country with a sizeable number of people living in poverty, access to financial services
remains an important challenge. Based on a March 18, 2016 report from the Philippine Statistics Authority, the
countrys 2015 poverty incidence (the proportion of people below the poverty line versus the total population)
is at 26.3% while the subsistence incidence (the proportion of Filipinos in extreme or subsistence poverty) is at
12.1%. This means that there are around 26 million Filipinos who are still living below the poverty line.
Financial inclusion in India[edit]
In the Indian context, the term financial inclusion was used for the first time in April 2005 in the Annual
Policy Statement presented by [Link] Reddy,the then Governor,Reserve Bank of India.[8] Later on, this
concept gained ground and came to be widely used in India and abroad. While recognizing the concerns in
regard to the banking practices that tend to exclude rather than attract vast sections of population, banks were
urged to review their existing practices to align them with the objective of financial inclusion.[8] The Report of
the Internal Group to Examine Issues relating to Rural Credit and Microfinance (Khan Committee) in July
2005 drew strength from this announcement by Governor Y. Venugopal Reddy in the Annual Policy Statement
for 2005-06 wherein he had expressed deep concern on the exclusion of vast sections of the population from
the formal financial system.[9] In the Khan Committee Report, the RBI exhorted the banks with a view to
achieving greater financial inclusion to make available a basic "no-frills" banking account. The
recommendations of the Khan Committee were incorporated into the mid-term review of the policy (2005
06).[10] 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. Norms were relaxed 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. 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 like Puducherry, Himachal Pradesh and Kerala announced 100% financial
inclusion in all their districts. Reserve Bank of Indias 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
and the 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.
The government of India recently announced Pradhan Mantri Jan Dhan Yojna,[11] a national financial
inclusion mission which aims to provide bank accounts to at least 75 million people by January 26, 2015. To
achieve this milestone, its important for both service providers and policy makers to have readily available
information outlining gaps in access and interactive tools that help better understand the context at the district
level. MIX designed the FINclusion Lab India FI workbook[12] to support these actors as they craft strategies to
achieve these goals.
Recently, the government of India came up with a policy under the name "rupee exchange" to exchange higher
notes with the intent of: clamping down on tax defaulters, track down corrupt officers ( by rendering valueless
heavy cash stashed away secretly) and generally restoring sanity to the economic system. First off it is
alarming that despite the fact that India's CRSISIL 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
anyways, it is recommended that India embraces - proposed - as a matter of policy financial inclusion[13]
In India, RBI has initiated several measures to achieve greater financial inclusion, such as facilitating no-frills
accounts and GCCs for small deposits and credit. Some of these steps are:
Opening of no-frills accounts: Basic banking no-frills account is with nil or very low minimum balance as
well as charges that make such accounts accessible to vast sections of the population. Banks have been advised
to provide small overdrafts in such accounts.
Relaxation on know-your-customer (KYC) norms: KYC requirements for opening bank accounts were
relaxed for small accounts in August 2005, thereby simplifying procedures by stipulating that introduction by
an account holder who has been subjected to the full KYC drill would suffice for opening such accounts. The
banks were also permitted to take any evidence as to the identity and address of the customer to their
satisfaction. It has now been further relaxed to include the letters issued by the Unique Identification Authority
of India containing details of name, address and Aadhaar number.
Engaging business correspondents (BCs): In January 2006, RBI permitted banks to engage business
facilitators (BFs) and BCs as intermediaries for providing financial and banking services. The BC model
allows banks to provide doorstep delivery of services, especially cash in-cash out transactions, thus addressing
the last-mile problem. The list of eligible individuals and entities that can be engaged as BCs is being widened
from time to time. With effect from September 2010, for-profit companies have also been allowed to be
engaged as BCs. India map of Financial Inclusion by MIX provides more insights on this.[14] In the grass-root
level, the Business correspondents (BCs), with the help of Village Panchayat (local governing body), has set
up an ecosystem of Common Service Centres (CSC). CSC is a rural electronic hub with a computer connected
to the internet that provides e-governance or business services to rural citizens.[15]
Use of technology: Recognizing that technology has the potential to address the issues of outreach and credit
delivery in rural and remote areas in a viable manner,banks have been advised to make effective use of
information and communications technology (ICT), to provide doorstep banking services 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.[15]
Adoption of EBT: Banks have been advised to implement EBT by leveraging ICT-based banking through
BCs to transfer social benefits electronically to the bank account of the beneficiary and deliver government
benefits to the doorstep of the beneficiary, thus reducing dependence on cash and lowering transaction costs.
GCC: With a view to helping the poor and the disadvantaged with access to easy credit, banks have been
asked to consider introduction of a general purpose credit card facility up to `25,000 at their rural and semi-
urban branches. The objective of the scheme is to provide hassle-free credit to banks customers based on the
assessment of cash flow without insistence on security, purpose or end use of the credit. This is in the nature of
revolving credit entitling the holder to withdraw up to the limit sanctioned.
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.
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.
Financial Inclusion Index[edit]
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,[16] was released by the
Finance Minister of India, P. Chidambaram[17] 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 penetrationinto one metric. The report
highlights many hitherto unknown facets of inclusion in India. It contains the first regional, state-wise, and
district-wise assessments of financial inclusion ever published, and the first analysis of trends in inclusion over
a three-year timeframe. Some key conclusions from the study are:[18]
The all-India CRISIL Inclusix score of 40.1 is low, though there are clear signs of progress this score
has improved from 35.4 in 2009.
Deposit penetration is the key driver of financial inclusion the number of savings accounts (624
million), is almost four times the number of loan accounts (160 million).
618 out of 632 districts reported an improvement in their scores during 2009-2011.
The top three states and Union Territories are Puducherry, Chandigarh, and Kerala; the top three districts
are Pathanamthitta (Kerala), Karaikal (Puducherry), and Thiruvananthapuram (Kerala).
Controversy[edit]
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,[19] 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.[20][21] This crisis has often been compared to the mortgage lending crisis in the US.[20]
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.
Tracking Financial Inclusion through Budget Analysis[edit]
While financial inclusion is an important issue, it may also be interesting to assess whether such inclusion as
earmarked in policies are actually reaching the common beneficiaries. Since the 1990s, there has been serious
efforts both in the government agencies and in the civil society to monitor the fund flow process and to track
the outcome of public expenditure through budget tracking. Organisations like International Budget
Partnership (IBP) are undertaking global surveys in more than 100 countries to study the openness
(transparency) in budget making process. There are various tools used by different civil society groups to track
public expenditure. Such tools may include performance monitoring of public services, social audit and public
accountability surveys. In India, the institutionalisation of Right to information (RTI) has been a supporting
tool for activists and citizen groups for budget tracking and advocacy for social inclusion.
Pradhan Mantri Jan Dhan Yojana[edit]
Main article: Pradhan Mantri Jan Dhan Yojana
Indian Prime Minister Narendra Modi announced this scheme for comprehensive financial inclusion on his
first Independence Day speech on 15 August 2014. The scheme was formally launched on 28 August
2014[22] with a target to provide 'universal access to banking facilities' starting with Basic Banking
Accounts with overdraft facility of Rs.5000 after six months and RuPay Debit card with inbuilt accident
insurance cover of Rs. 1 lakh and RuPay Kisan Card & in next phase, micro insurance & pension etc. will also
be added.[22]In a run up to the formal launch of this scheme, the Prime Minister personally mailed to CEOs of
all banks to gear up for the gigantic task of enrolling over 7.5 crore (75 million) households and to open their
accounts.[23] In this email he categorically declared that a bank account for each household was a "national
priority".
On the inauguration day of the scheme, 1.5 Crore (15 million) bank accounts were opened.[24]
Financial Inclusion - Role of Indian Banks in Reaching Out to the Unbanked
Even after 60 years of independence, a large section of Indian population still remain unbanked. This malaise has
led generation of financial instability and pauperism among the lower income group who do not have access to
financial products and services. However, in the recent years the government and Reserve Bank of India has been
pushing the concept and idea of financial inclusion.
What is Financial Inclusion in banking ? What is meaning of Financial Inclusion in Indian
context ? :
Financial inclusion is the delivery of financial services at affordable costs to vast sections of
disadvantaged and low income groups (for example "no frill accounts").
Why Financial Inclusion in India is Important ?
The policy makers have been focusing on financial inclusion of Indian rural and semi-rural areas primarily for three
most important pressing needs:
1. Creating a platform for inculcating the habit to save money The lower income category has been living under
the constant shadow of financial duress mainly because of the absence of savings. The absence of savings makes
them a vulnerable lot. Presence of banking services and products aims to provide a critical tool to inculcate the habit
to save. Capital formation in the country is also expected to be boosted once financial inclusion measures
materialize, as people move away from traditional modes of parking their savings in land, buildings, bullion, etc.
2. Providing formal credit avenues So far the unbanked population has been vulnerably dependent of informal
channels of credit like family, friends and moneylenders. Availability of adequate and transparent credit from formal
banking channels shall allow the entrepreneurial spirit of the masses to increase outputs and prosperity in the
countryside. A classic example of what easy and affordable availability of credit can do for the poor is the micro-
finance sector.
3. Plug gaps and leaks in public subsidies and welfare programmes A considerable sum of money that is meant
for the poorest of poor does not actually reach them. While this money meanders through large system of
government bureaucracy much of it is widely believed to leak and is unable to reach the intended parties.
Government is therefore, pushing for direct cash transfers to beneficiaries through their bank accounts rather than
subsidizing products and making cash payments. This laudable effort is expected to reduce governments subsidy
bill (as it shall save that part of the subsidy that is leaked) and provide relief only to the real beneficiaries. All these
efforts require an efficient and affordable banking system that can reach out to all. Therefore, there has been a push
for financial inclusion.
Why is financial inclusion needed in India? - (A Graphical Representation )
What are the steps taken by RBI to support financial inclusion?
RBI set up the Khan Commission in 2004 to look into financial inclusion and the
recommendations of the commission were incorporated into the mid-term review of the policy
(200506) and urged banks to review their existing practices to align them with the objective of
financial inclusion. RBI also exhorted the banks and stressed the need to make available a
basic banking 'no frills' account either with 'NIL' or very minimum balances as well as charges
that would make such accounts accessible to vast sections of the population
Of the many schemes and programmes pushed forward by RBI the following need special mention.
A. Initiation of no-frills account These accounts provide basic facilities of deposit and withdrawal to accountholders
makes banking affordable by cutting down on extra frills that are no use for the lower section of the society. These
accounts are expected to provide a low-cost mode to access bank accounts. RBI also eased KYC (Know Your
customer) norms for opening of such accounts.
B. Banking service reaches homes through business correspondents The banking systems have started to adopt
the business correspondent mechanism to facilitate banking services in those areas where banks are unable to open
brick and mortar branches for cost considerations. Business Correspondents provide affordability and easy
accessibility to this unbanked population. Armed with suitable technology, the business correspondents help in
taking the banks to the doorsteps of rural households.
C. EBT Electronic Benefits Transfer To plug the leakages that are present in transfer of payments through the
various levels of bureaucracy, government has begun the procedure of transferring payment directly to accounts of
the beneficiaries. This human-less transfer of payment is expected to provide better benefits and relief to the
beneficiaries while reducing governments cost of transfer and monitoring. Once the benefits starts to accrue to the
masses, those who remain unbanked shall start looking to enter the formal financial sector.
What more is to be done for financial inclusion?
Financial inclusion of the unbanked masses is a critical step that requires political will, bureaucratic support and
dogged persuasion by RBI. It is expected to unleash the hugely untapped potential of the bottom of pyramid section
of Indian economy. Perhaps, financial inclusion can begin the next revolution of growth and prosperity.
******
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* Mr Arihant Bhandawat, is a Freelance content developer. He has BBA( Finance) to his credit and can be
contacted at [Link]@[Link]
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Some other Relevant links for this Subject :
Financial Inclusion - An Overview (from NABARD)
Financial Inclusion - Implementation in India
Financial inclusion: India scores poorly on global stage
The Importance of Financial Inclusion in India
Despite India boasting economic growth rates higher than most developed countries in
recent years, a majority of the countrys population still remains unbanked. Financial
Inclusion is a relatively new socio-economic concept in India that aims to change this
dynamic by providing financial services at affordable costs to the underprivileged, who
might not otherwise be aware of or able to afford these services. Global trends have
shown that in order to achieve inclusive development and growth, the expansion of
financial services to all sections of society is of utmost importance. As a whole, financial
inclusion in the rural as well as financially backward pockets of cities is a win-win
opportunity for everybody involved the banks/NBFCs intermediaries, and the left-out
urban population. Banks will handle core infrastructure and services while intermediaries
known as Business Correspondents (BCs) will be the executors and act as the face of
these banking & financial institutions in dealing with end-users. The Business
Correspondents (BCs) shall be carrying handheld terminals like Tablets (GSM enabled)
coupled with portable biometric scanner, smart card swipe machines as well as thermal
Bluetooth printers for carrying out their online banking activities on the field.
Authentication and customer information is provided by the UIDA through NPCI or
NSDL once the institution becomes an authorized UIDAI user. As income levels and
consequently, savings in rural areas increase, it is essential to help earners manage their
funds and facilitate incoming and outgoing payments. Allowing people to create simple,
no-frills current and savings accounts, relaxing KYC norms and directly crediting social
benefits to account owners will bolster an inclusive approach to finance & banking in
rural areas.
Reasons Financial Inclusion in India is Important:
Financial inclusion of the unbanked masses is a critical step that requires political will,
bureaucratic support and constant pressure by the RBI. It is expected to unleash the
hugely untapped potential of the bottom-of-pyramid section of Indian economy.
Benefits of financial inclusion:
The rural masses will get access to banking like cash receipts, cash payments, balance
enquiry and statement of account can be completed using fingerprint authentication. The
confidence of fulfilment is provided by issuing an online receipt to the customer.
Reduction in cash economy as more money is brought into the banking ecosystem
It inculcates the habit to save, thus increasing capital formation in the country and giving
it an economic boost.
Direct cash transfers to beneficiary bank accounts, instead of physical cash payments
against subsidies will become possible. This also ensures that the funds actually reach the
intended recipients instead of being siphoned off along the way.
Availability of adequate and transparent credit from formal banking channels will foster
the entrepreneurial spirit of the masses to increase output and prosperity in the
countryside.
Hence, it is believed that financial inclusion can initiate the next revolution of growth and
prosperity. In the 21st century, India has been pulling all the right levers to advance
financial inclusion and economic citizenship by channeling its own transactions to
lubricate the system. Indias journey towards economic ascension relies on how the 65%
unbanked population of India (conservative 2012 estimate by World Bank) is enabled
with financial infrastructure.
Challenges to financial inclusion
There have been some recent reports of malpractices with respect to Jan Dhan
accounts. In this context, it may be interesting to know the grassroot level
challenges that are impacting financial inclusion.
In India, where nearly one-fourth of population is illiterate and below the
poverty line, ensuring financial inclusion is a challenge. The two indicators,
poverty and illiteracy, vary widely between different States in India. Rural
poverty is above 30 per cent of population in places such as Assam, Bihar,
Madhya Pradesh, Uttar Pradesh, Orissa, Jharkhand, Chhattisgarh, and
Manipur. Rural poverty can be attributed to lower farm income, lack of
sustainable livelihood, lack of skills, under employment and unemployment.
Thus, ensuring deposit operations in these accounts is a challenge.
Fraud due to illiteracy
India has a literacy rate of 73 per cent with some States such as Bihar, Uttar
Pradesh, Jharkhand, Madhya Pradesh and Rajasthan where the literacy rate
ranges between 62 per cent and 70 per cent. The banks have devised ways to
address limitations arising out of illiteracy by ensuring biometric access to
bank accounts. However, Aadhaar seeding implies that some numericals have
still to be punched in the machine to operate an account. As all the numerals
are in English, only the banker or the business correspondent (BC) can punch
in the Aadhaar number. Similarly, the messages that are received on mobile
phones from banks are also in English and therefore the illiterate person has
to seek someones assistance to understand and interpret the message.
In each of the above cases, the privacy of an individuals bank balance is
breached. This makes the illiterates, and population confined at home
females and elderly vulnerable to malpractices. There are also anecdotes
that enterprising BCs, to ensure ease of business, give the same Personal
Identification Number (PIN) to all the residents in a single village. This can
further compromise privacy and cause embarrassment to the authorities when
direct benefit transfers through bank accounts are implemented on a larger
scale. Therefore, a financial inclusion strategy sensitive to regional,
demographic and gender related factors, needs to be carefully crafted.
Further, it needs to be considered that why despite extensive efforts from
authorities, the Prime Ministers Jan Dhan Accounts (PMJDA) have
underperformed. This could be, in addition to poverty and illiteracy, due to
the type of products being offered to the unbanked population. Illustratively,
recurring deposits are products which are more suitable to the salaried income
group rather than people in informal sector whose incomes are uncertain,
seasonal and unplanned.
Making accounts operational
In the opening of PMJDA, mainly public sector banks (PSBs) rose to the
occasion in ensuring that every unbanked household had a bank account. Now
that 25 crore PMJDAs have been opened in the last two years, a feat
unparalleled in history of financial inclusion, it needs to be considered
whether is it also the responsibility of the PSBs to ensure that these are
operational.
The opening of PMJDA was a mammoth task, as in March 2014 just before
PMJDA, total accounts on books of commercial banks were around 1 lakh
crore. As can be imagined, given the limited resources in banking sector,
opening of such large number of PMJDA within 24 months in far flung areas
diverted the attention of bankers from their principal activity of mobilising
resources and lending to reliable borrowers.
The next challenge is monitoring existing borrower accounts. Therefore, to
ensure that the banking industry is robust and existing banking assets safe,
given that heavy lifting has been done by PSBs, should the newly opened
PMJDA in rural areas and some in urban too, in a sequentially planned
manner be moved to rural and urban cooperatives?
Further, at present, there are a number of regulatory authorities that have a
role to play in financial inclusion Reserve Bank, National Bank for
Agriculture and Rural Development (NABARD), Securities and Exchange
Board of India, Small Industries and Development Bank of India, and
MUDRA bank. There is a need to fix responsibility on a single regulatory
authority to ensure that JDAs are operational. In this context, given that
NABARD has an extensive presence across the country and was formed for the
purpose of development of agriculture and rural areas, it should be made the
nodal and accountable agency for financial inclusion. NABARD may not have
the existing capacity, as of now, to accept the challenge but can certainly be
prepared in a phased manner in next few years. It has been investing in
modernising, and infusing technology in cooperative institutions.
Moneylenders influence
There is also need for further research on why the moneylender despite
persistent efforts by institutions in formal sector has continued to flourish in
the financial market.
Money lenders continue to account for nearly 30 per cent of total banking
business. This then gives rise to an interesting related question: do interest
rates matter?
After all, it is a fact that Chanakyas interest rate structure was risk weighted
and banking business flourished even then traders were generally charged
60 per cent per annum, if goods passed through forest then 120 per cent, and
sea-borne cargo at 240 per cent.
In modern times, if interest rate matters, why do people prefer to go to
moneylenders, despite a network of banks, cooperatives, MFIs and SHGs? Is it
simply due to ease of doing business or some other factors? This is one area
which requires grass-root level research.