[Answered]What is financial inclusion? What are the challenges to financial inclusion in India? Discuss various government measures for the same.

According to the world bank, financial inclusion means that individuals and businesses have access to affordable financial products and services that meet their needs. Accessibility, affordability and availability of financial services are 3 pillars of financial inclusion. It is a method of offering banking and financial solutions and services to every individual in the society without any form of discrimination.

Challenges to financial inclusion in India:

1. Socio-economic factors: Financial exclusion is related to the social conditions of low income households, who are not able to access the available financial products and services. Various constraints such as low income, low savings and generally low levels of awareness hinders financial inclusion.
2. Geographical factors: A review by the Rangarajan Committee shows that financial exclusion is highest among households in the Eastern, North -Eastern and Central areas of the country partly due to poor infrastructure. This coupled with remoteness and less population in some areas resulting is in problems with access.
3. Limited availability of appropriate technology: The key driver of financial inclusion is the proliferation of stable and reliable Information and Communication Technology (ICT). The lack of infrastructure and cost effective technology for facilitating transactions at the doorstep is a hindrance to financial inclusion.
4. Perception of obligation: The financial institutions are reluctant to serve small value and unprofitable customers with irregular income. Banks perceive inclusion as an obligation rather than a business opportunity. This discourages banks from providing financial services to low income individuals.
5. Lack of documents: Another factor preventing them from accessing formal financial institutions are the requirement of various document proof. The poor generally lack documents such as Aadhaar card, income certificate, birth certificate, address proof etc.
6. Financial illiteracy: The absence of basic education prevents people from following even simple information related to financial inclusion. Lack of financial literacy is the major hurdle. The rural population as a result, relies mostly on the informal sector for availing finance at high rates which lead to the vicious circle of poverty and debt repayment.
7. Penetration: At present, only about 5% of India’s 6 lakh villages have bank branches. There are 296 under-banked districts in states with below-par banking services. Thus, bank reach is poor in rural areas leading to financial exclusion.

Various government measures for financial inclusion:

1. Pradhan Mantri Jan Dhan Yojana (PMJDY): It was launched to ensure financial inclusion of all the households in the country by providing universal access to banking facilities. Under this, a person not having a savings account can open an account without the requirement of any minimum balance.
2. Swabhiman Campaign: Swabhiman means “self-respect”. This campaign aimed at giving more self-respect and confidence to people by making them aware of the financial sector of their country and banking services.
3. Insurance & Pension schemes: Government has launched many insurance and pension schemes. This includes Atal Pension Yojana, Pradhan Mantri Suraksha Bima Yojana and Jan Suraksha Yojana.
4. Pradhan Mantri Mudra Yojna: Pradhan Mantri Mudra Yojna provides formal access of financial facilities to Non Corporate Small Business Sector. The basic objective of the scheme is to promote & ensure bank finance to the unfunded segment of the Indian economy.
5. RBI initiatives: RBI has launched many initiatives for promoting financial inclusion. This includes Priority Sector Lending (for providing a specified portion of the bank lending to few specific sectors), Opening of no-frills accounts (account with nil or very low minimum balance), Relaxation on know-your-customer (KYC) norms,Business correspondents (BCs) (as intermediaries for providing financial services) etc.
6. Digital initiatives: Initiatives like Digital India, payments banks and small finance banks have helped to improve the reach of formal financial services to economically disadvantaged sections. This will help to provide financial services to both the unbanked and the underbanked population, especially in rural/remote regions.

Financial inclusion is important for any economy. The availability of banking facilities and strong bank branch network are the major facilitators of developmental activities. A strong and sturdy financial system is a pillar of economic growth, development and progress of an economy. The problem of financial exclusion needs to be tackled if we want our country to grow in an equitable and sustainable manner.