Financial inclusion in India – The way forward

The Government and the Reserve Bank have taken several initiatives to bring the underprivileged and weaker sections of the society within the banking fold, which have had a favourable impact. However, the magnitude of the problem is enormous and still a sizeable portion of the rural and urban low income population has very little access to financial services. These groups pay a high premium for accessing credit from moneylenders and other informal sources. There is, thus, a need to expand the outreach of the formal financial system to include rural and urban poor. In the Indian context, financial inclusion has been described as the provision of affordable financial services, viz., access to payments and remittance facilities, savings, loans and insurance services by the formal financial system to those who are excluded. Deepening the financial system and widening its reach is crucial for both accelerating growth and for equitable distribution. The major causes of financial exclusion often cited include relatively low extension of institutional credit in rural areas due to perception of high risk, high operating costs, lack of rural infrastructure, and vast geographical spread of the country with more than half a million villages, some sparsely populated. The micro factors, which are perceived to inhibit credit flow to disadvantaged groups, mainly include factors such as lack of awareness of financial products and services, the procedures for obtaining agricultural non-farm loans, staffing and human resources, and lack of effective legislation for regulating money lending. This paper describes the future prospective of financial inclusion in India and also explains how technology plays a vital role in application.