List of Contents
2 Literature Review
3 Research design and methodology
4 Data analysis and Interpretation
5 Findings/ Suggestions and Limitations
9 Annexure : Questionnaire
List of Tables
illustration not visible in this excerpt
List of Figures
illustration not visible in this excerpt
Financial inclusion is delivery of banking services at an affordable cost ('no frills' accounts,) to the vast sections of disadvantaged and low income group. Unrestrained access to public goods and services is the sine qua non of an open and efficient society. As banking services are in the nature of public good, it is essential that availability of banking and payment services to the entire population without discrimination is the prime objective of the public policy."
Areas of concern by banks
The banking industry has shown tremendous growth in volume and complexity during the last few decades. Despite making significant improvements in all the areas relating to financial viability, profitability and competitiveness, there are concerns that banks have not been able to reach and bring vast segment of the population, especially the underprivileged sections of the society, into the fold of basic banking services.
Internationally also efforts are being made to study the causes of financial exclusion and design strategies to ensure financial inclusion of the poor and disadvantaged.
The reasons may vary from country to country and so also the strategy but all out efforts are needed as financial inclusion can truly lift the standard of life of the poor and the disadvantaged.
Several steps have been taken by Reserve bank of India and the government to bring the financially excluded people to the fold of formal banking services. The objective of this study project is to study the financial Inclusion in the rural areas , reasons for low Inclusion ,satisfaction level of rural people towards banking services , To assess the performance of the banks which are working in the rural areas and dominance of money lenders. Structured Questionnaire designed on the basis of the Literature review and the data is collected from 50 people residing in Nallurupalem, Isukapalli and Repalle villages of Guntur District.
Access to finance by the poor and vulnerable groups is a prerequisite for poverty reduction and social cohesion. This has to become an integral part of our efforts to promote inclusive growth. In fact, providing access to finance is a form of empowerment of the vulnerable groups.
Financial inclusion denotes delivery of financial services at an affordable cost to the vast sections of the disadvantaged and low-income groups. The various financial services include credit, savings, insurance and payments and remittance facilities. The objective of financial inclusion is to extend the scope of activities of the organized financial system to include within its ambit people with low incomes.
Through graduated credit, the attempt must be to lift the poor from one level to another so that they come out of poverty.
INCLUSIVE GROWTH: A KEY OBJECTIVE
The Eleventh Five Year Plan (2007-12) envisions inclusive growth as a key objective. The Plan document notes that the economic growth has failed to be sufficiently inclusive particularly after the mid-1990s. The Indian economy, though achieved a high growth momentum during 2003-04 to 2007-08, could not bring down unemployment and poverty to tolerable levels. Further, a vast majority of the population remained outside the ambit of basic health and education facilities. Thus, the Eleventh Plan Document tries to restructure the policies in order to make the growth faster, broad-based and inclusive by reducing the fragmentation of the society. It clearly stated that ‘The development of rural India is an imperative for inclusive and equitable growth and to unlock huge potential of the population that is presently trapped in poverty with its associated deprivations’ Huge investments in education and health, and rural infrastructure were the key elements of the inclusive growth strategy as envisaged.
Broadly, the policies aim at increasing the income and employment opportunities on the one hand and on the other; it tries to finance programmes which are capable of making the growth more inclusive.
INCLUSIVE GROWTH: SUPPLY SIDE
There are supply side and demand side factors driving Inclusive Growth. Banks largely are expected to mitigate the supply side processes that prevent poor and disadvantaged social groups from gaining access to the financial system. Despite the risk, financing of first time entrepreneurs is a must for financial inclusion and growth.
INCLUSIVE GROWTH: DEMAND SIDE
Apart from the supply side factors, demand side factors, such as lower income and /or asset holdings also have a significant bearing on financial inclusion. Owing to difficulties in accessing formal sources of credit, poor individuals and small and macro enterprises usually rely on their personal savings or internal sources to invest 2 in health, education, housing, and entrepreneurial activities to make use of growth opportunities.
Agriculture not only plays the central role for achieving high growth but also inclusive growth for the economy as a whole (generates about 20 per cent of India’s GDP and provides employment to nearly two-third of its population).
The Ground Level Credit requirements for the agricultural sector has been worked out at Rs.16,40,000 crore for the Eleventh Five Year Plan, indicating an annual compounded growth of 17.0 per cent as compared to Rs.6,39,330 crore of expected GLC during the Tenth Plan period.
The role of state governments is of high importance in achieving the target especially in providing suitable infrastructure/extension support for facilitating enhanced credit flow to agriculture.
The draft 11th Plan recognizes the importance of small-scale industries (SSI). It has a share of over 40 per cent of the gross industrial value added in the economy. About 44.0 per cent of the total manufactured exports of the country are directly accounted for by the SSI sector. In terms of employment generation, this sector is next to agriculture sector, employing approximately 295 lakh people.
The incremental flow of term loan to the SME sector is estimated at Rs.1, 48,720
crore, which translates into a growth rate of an average 24.1 per cent per annum for the Plan period (GoI, 2006)..
The banks are faced with high operating cost in extending the financial services to the remote areas. High maintenance cost of these accounts as well as small ticket size of the transactions is also adding to the problem.
Reaching out to the illiterate people or people who can handle only the regional languages is also difficult without developing a suitable communication mode. The challenge also lies in offering a single loan product which is not based on or linked to the purpose of the loan, the collateral or assets held or income earned by the household but is purely based on cash flow and credit record of the household .
With the arrival of banking technology and realization that poor are bankable with good business prospects, financial inclusion initiatives will strengthen financial deepening further and provide resources to the banks to expand credit delivery. The banking technology initiatives meant for financial inclusion should be collaborative and innovative with an objective to reduce the transaction costs. Thus, financial inclusion along with the Governmental developmental programmes will lead to an overall financial and economic development in our country and as in the case for most developing countries, extending the banking services to everyone in the country will be the key driver towards an inclusive growth.
Financial inclusion has indeed far reaching positive consequences, which can facilitate many people to come out of the abject poverty conditions. It is widely believed that financial inclusion provides formal identity, access to payments system and deposit insurance, and many other financial services.
Universally, it is accepted that the objective of financial inclusion is to extend the scope of activities of the organized financial system to include within its ambit the people with low incomes. In India, there is a need for coordinated action amongst the banks, the government and related agencies to facilitate access to bank accounts to the financially excluded. In view of the need for further financial deepening in the country in order to boost economic development, there is a dire need for expanding financial inclusion. By expanding financial inclusion, inclusive growth can be attained by achieving equity. The policy makers have already initiated some positive measures aimed at expanding financial inclusion.
However, the efforts are opined by many as not commensurate with the magnitude of the issue. There is also a need on the part of the academicians and researchers to study the issue of financial inclusion with a comprehensive approach in order to highlight its need and importance. Financial inclusion is delivery of banking services at an affordable cost to the vast sections of disadvantaged and low income
groups. As banking services are in the nature of public good, it is essential that availability of banking and payment services to the entire population without discrimination is the prime objective of the public policy.
Rangarajan Committee (2008) on financial inclusion stated that: “Financial inclusion may be defined as the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost.” The financial services include the entire gamut of savings, loans, insurance, credit, payments, etc. The financial system is expected to provide its function of transferring resources from surplus to deficit units, but both deficit and surplus units are those with low incomes, poor background, etc. By providing these services, the aim is to help them come out of poverty.
Indian Institute of Banking & Finance (IIBF) opines, “Financial inclusion is delivery of banking services at an affordable cost (‘no frills’ accounts,) to the vast sections of disadvantaged and low income group. Un restrained access to public goods and services is the sine qua non of an open and efficient society”
A perusal of literature on finance and economic development reveals that the earlier theories of development concentrated on labor, capital, institutions, etc., as the factors for growth and development. There have been numerous researches analyzing how financial systems help in developing economies. A great deal of consistency exists among economists regarding financial
Development prompting economic growth. Many theories have established that, financial development creates favorable conditions for growth through either a supply leading or a demand-following channel. According to Rajan and Zingales (2003), development of the financial system contributes to
- Recommending sweeping changes in the banking structure, an RBI panel today suggested setting up of specialized banks to cater to low income households to ensure that all citizens have bank accounts by 2016.
- The term Financial Inclusion was first coined by YV Reddy Former reerve bank Governor.
- It also suggested that facility for withdrawal, payment and deposit should be set up within a 15-minutes walking distance anywhere in the country.
- Banks should also not levy penal charges if the minimum balance is not kept in any inoperative account,
- Total number of Villages banked in India is around 107000 as of June 2013 from 54258 as on March 2010.
- 480000 Villages are Still Unbanked.
- 79 Million “no-frill” till mid-2011 with outstanding balances of 5944 crore less than 20% is actually used.
General equation of financial inclusion.
NFA + BC = FI Where, BC = Banks + OFIs + MFI + IT
NFA = No Frills Saving Bank Account
BC = Banks + Other Financial Institutions + Micro Finance Institutions + Information
OFI = Insurance Companies, Mutual Funds, Pension Companies
illustration not visible in this excerpt
Review of Literature:
The review of literature is likely to provide bird’s eye view of the study conducted on the subject matter. A number of studies have been conducted on the financial inclusion.
A book titled “Promoting financial inclusion through innovative policies” written by john p.corny, Julius Caesar parrenas, and worapat focuses on promoting financial inclusion. Workshop provided a peer to peer learning and knowledge sharing platform among policy makers to enhance their capacity to develop an innovative and enabling policy environment for financial inclusion. In this book authors mainly emphasized on the making of policy regarding financial inclusion.