This post is a derivative of an article on Financial Inclusion in Rising India by Arjun Ram Meghwal. He is our Minister of State for Finance and Corporate Affairs. The article is in lines with Prime Minister Narendra Modi’s dream of a digital India where mobile & e-banking ensures it. As a matter of fact this is the only way the governments should strive in order to take the common man along with them. It can only happen once the common man has a collective presence into the formal chanel of economy. Beacuse that will ensure that even the person standing in the last is not losing a chance to get the benefits of the economic growth. In fact, we need to add every person in the mainstream economy. That can happen only if we encourage the poor person for certain important finacial transactions in life.
For Financial Inclusion, the first important activity for a poor person is to save. Now, the question is how a poor person can save if he is not able to earn even for his daily basic spendings. So, it is important to create earning opportunities for every poor person in the country. Then only this can happen. Second imporant factor is to safely invest in various financial products. The same question arises here too. Hence, creating opportunities becomes more critical. Third important factor is to borrow from the formal channel when he needs to borrow. For this, the government will have to ensure a hassle free borrowing channel for poor people and it should be as lean as possible. Also to ensure is no brokers in the chain to make it corruption free channel.
Financial Inclusion Need High Level of Discipline
On the other hand if we stay away from financial inclusion, the whole society is going to suffer. And the ultimate impact will be on an individual. In absence of this, ususally any individual will head towards no-banking to informal banking sector. But in that case the interest rates are higher in comparison to the amount of available funds when we talk about loans. The reason is quite simple. Any informal banking mechanism is outside any legislative fremework. This, in turn, creates high risk for the individuals as investors. Also, any dispute between lenders and borrowers is outside the legal structure. This, in fact, leaves a lender always as a loser at the end, in any case.
That is why financial inclusion is so important because of many social benefits attached to it. Logically, these benefits are quite transparent and measurable. Firstly, it increases the amount of available savings. Secondly, it increases efficiency of financial intermediation. Thirdly, it allows for tapping new business opportunities. That is the reason why states sponsor universal banking because it contributes to greater economic diversiftication in rural areas. That does not happen in more competitive banking environments. If we go a little back, we can see many structural adjustment programs coming into picuture during 1980s and 1990s. And that was the reason of financial market reforms swept over many developing countries.
Financial Inclusion Is A Multifaceted activity
By the beginning of 20th century, there were insurance companies (both life and general) in India. Also, we had a functional stock exchange. But scope of the financial inclusion does not limit to only banking services. In fact, it extends to many other financial servicees such as insurance, pension products, equity products, and so on. Hence, it is not merely about opening a simple bank account in any informal bank.There are ample benefits of adding the common man into the mainstream economy. In fact, it helps inculcate the vulnerable section of the soceity to save money for its future. Also, it promotes them to take advantages of the economic activities of the country by means of participating in different financial products of their choice. These include banking sercvices, pension products, insurance, mutual funds etc.
At the same time, financial inclusion also helps the country to increase the rate of ‘capital formation’. This, in turn, gives a thrust to the economic activities in the country by streamlining the money from every corner of the nation.Surprisingly, if a country doesn’t financially include the people in the mainstream, most of the savings/investments park in the non-productive assets like land, buildings, bullion etc. While inclduing them in the mainstream will create a beneficial stream for every person of the country. They can easily get credit facilities with least formalities and hassles. Micro Finance Institutions (MFIs) are the best examples. These small bank like organizations provide easy & affordable credit to poor people. And there have been many success stories in this regard.
Financial Inclusion Is About Bringing everyone to mainstream
Financial Inclusion also helps government filling gaps in public subidies & welfare programs. Because in such cases, government can transfer the subsidy amount directly into the account of the beneficiary instead of subsidizing the product. This also helps in seggregating wolf from the sheep. One of the best example in this regard is JAM – Jan Dhan, Aadhar, and Mobile.