Answer:

Financial inclusion denotes delivery of various financial services at an affordable cost to the vast sections of the disadvantaged and low-income groups. 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.

The Pradhan Mantri Jan-Dhan Yojana (JDY) was launched in August 2014 as an ambitious financial inclusion scheme. The yojana envisages universal access to banking facilities with at least one basic banking account for every household, access to credit, insurance and pension facility.

It is estimated that nearly 14.7 crore accounts were opened till 31 March 2015. Even though the programme is an accelerated effort towards financial inclusion in India, mere opening of bank accounts will not transform into financial inclusion.

In addition to opening of bank accounts, there is a need to address various other issues in order to achieve financial inclusion:

♤ According to the World Bank’s Global Financial Development Report (2014) only 11% of those who had a bank account had savings and only 8% took loans. Equally alarming are the number of bank accounts that are opened and lie dormant.

♤ As per the RBI data almost 75% of savings accounts lie dormant. These figures get more dismal if we look at the accounts opened by business correspondents (BCs).

♤ While it is true that bank accounts can be used to link different wage employment schemes such as MgNREGA, it does not ensure affordable credit from formal sources for the rural poor who continue to rely on informal sources of finance at high interest rates for their credit needs.

♤ The poorer and more disadvantaged group of households in agriculture and allied activities form just a mere 1% of the savings in formal institutions.

♤ 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.

♤ The current service delivery model of using BCs and mobile money to increase outreach faces a formidable trust barrier. The Inter Media India FII Tracker Survey (2013) report suggest that just 3% of households fully trust BCs with their financial transactions and only 1% of households trust the use of mobile money. This defeat the very purpose of making financial services more accessible and affordable for the poor.

♤ There is a need for banks 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.

♤ Low level of financial literacy is another major issue. Reaching out to the illiterate people or people who can handle only the regional languages is also difficult without developing a suitable communication mode.

There is a need to compute a more multidimensional index of financial inclusion to include both financial deepening indicators such as the number of bank accounts as well as financial habit indicators such as the number of bank accounts that are actually used.

Both access and use will be necessary to smooth consumption and reduce risks for the poor. The mere chasing of numerical targets of financial access becomes meaningless unless deeper issues that address financial capability and trust in service delivery are tackled simultaneously.