Financial inclusion, banking the unbanked: Concepts, issues, and policies for India

AuthorPriyanka Menon
Date01 May 2019
Published date01 May 2019
DOIhttp://doi.org/10.1002/pa.1911
PRACTITIONER PAPER
Financial inclusion, banking the unbanked: Concepts, issues,
and policies for India
Priyanka Menon
Department of Economics, Institute for
Financial Management and Research, Chennai,
India
Correspondence
Priyanka Menon, Department of Economics,
Institute for Financial Management and
Research, No. 24, Kothari Road,
Nungambakkam, Chennai 600034, India.
Email: priyanka.hmenon@gmail.com
We use the data from World Bank Global Findex for the year 2011 , 2014 and 2017 to
understand financial inclusion in India, at the same time we compare India's situation
with the other BRICS nations. We fathom the fact that financial inclusion is definitely
the way forward for an economy to achieve inclusive growth. Financial inclusion is just
not an economic concept rather it is termed as a socioeconomic concept, as it helps
people have a security for future life through access to education and health facility,
a secure future and better standard of living. In India we see the barriers to inclusion
are predominately caused by voluntary exclusion, and though policies will help to reach
out but the ultimate goal of financial inclusion could be only achieved through improv-
ing awareness and financial literacy in India. Thus financial inclusion should be backed
by financial literacy to get the best results.
1|INTRODUCTION
Financial inclusion (FI) in the broadest terms refers to access to
financial services. These services need not to be restricted to banking
products alone; instead it has to extend to other financial services
such as insurance and equity products at equitable cost. Financial
inclusion is often referred to as the socioeconomic concept because
the very idea behind its structuring is reaching to the underprivileged
with financial access at reasonably priced options (Chakrabarty,
2011) Thus, it is seen as one of the foremost steps towards inclusive
growth and development of a nation. Therefore, we could say that
financial inclusion is highlighted as an important policy option with
the main aim of alleviating poverty, minimising social exclusion, and
enhancing economic growth. The World Bank report on financial
inclusion and development states that despite the various efforts
taken to reach out to a different section of the society around the
world, there are approximately 2 billion people who are unbanked.
Therefore, access to a transaction account is considered as the first
step towards extensive financial inclusion because it lets people
store, send, and receive money. They also consider financial inclusion
as one of the primary goals for Universal Financial Access (UFA)
by 2020.
2|THE TIMELINE
In India, the earliest seeds of inclusive growth were sowed with the
nationalisation of the banks in 1969 and 1980. It was in 2005 that
financial inclusion came up as an important policy with the issue of
annual policy statement 20052006 by the Reserve Bank of India,
and till date, it is a highly significant concept in achieving inclusive
growth, which is inevitable for the development of a nation. The
importance of financial inclusion entered the banking domain after
the recommendation of the Rangarajan committee in 2008; by then,
the banks had started understanding the importance of reaching out
to all sections of the economy for their gain as well. The banks started
putting in efforts to bank the lowincome groups of the society, as it
was evident that these sections were facing exploitation of high
interest rates and unfair banking practices at the hands of petty
money lenders. From April 2010, financial inclusion has become a vital
part of the banking services because RBI emphasised both private and
public sector banks to submit a 3year financial inclusion plan. Most of
the banks came up with different initiatives to achieve this target.
They penetrated the rural areas, this transition was very slow, and
the earliest targets were the urban areas. Various credit products are
introduced to aid this initiative, like the Kisan Credit Cards (KCC)
Received: 23 November 2018 Accepted: 26 November 2018
DOI: 10.1002/pa.1911
J Public Affairs. 2019;19:e1911.
https://doi.org/10.1002/pa.1911
© 2019 John Wiley & Sons, Ltd.wileyonlinelibrary.com/journal/pa 1of5

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