7. Way Forward: Achieving True Financial Inclusion

1) Financial firms must understand the market and structure products accordingly: For example, agricultural income is seasonal and lumpy. Therefore, loan given to farmer for a tractor should be structured where the repayment cycle is seasonal and not monthly.

o In a country as vast and diverse as India, deeper understanding of the market can only come if firms have a widespread distribution and recruit locally.

o For example: Today, Mahindra Finance is present in every Indian state, and its branch network covers 85% of districts nationwide. It has more than six million customers across more than 360,000 villages - that’s one in every two villages in the country.

2) Financial Literacy: Unfortunately, this is one area where India still needs to do a great deal of work. According to a Standard and Poor’s survey, basic financial literacy in India is sub- par.

3) Partnership between the government and providers of various financial products: It will ensure that the risks and rewards of working with marginal populations are shared.

o A good example is rural housing. Powered by a government programme that provides financial support and participation from the private sector, 70 million new houses have been built in the last five years, up from about 400,000 previously.

o The industry body Association of Mutual Funds of India has been running a successful campaign to raise awareness about the benefits of investing in mutual funds to create long-term wealth. The last decade’s growth rate of investment in mutual funds in India is now double that of the rest of the world. Interestingly, digital flows into mutual funds have increased 12 times in the last two years.

Having developed a strong Financial Inclusion infrastructure and PMJDY accelerating the progress, the next milestone should be to bring about a mindset and cultural shift among newly connected beneficiaries to derive benefits from the formal financial system by borrowing from banks and repaying loans in time.

This can boost micro and small enterprises, and hence alleviate poverty and raise the standard of living of the community at the grass-roots level. The next phase of Financial Inclusion is therefore less to do with policy and more to do with educating people, disseminate financial and digital awareness in the society.

This campaign of literacy will need a multipronged, bottoms-up approach. RBI and banks should coordinate with institutions such as State Education Boards (SEBs), Central Board of Secondary Education (CBSE), University Grants Commission (UGC), and All India Council for Technical Education (AICTE), to include FI as a mandatory subject at different educational levels right from school to higher levels of education.

NGOs, corporate sector, banks, NBFCs (Non-Banking Financial Companies), and government departments currently engaged in FI should be persuaded to increase thrust.