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Summary of Financial Inclusion Conference in Mumbai

April 3, 2015

Inclusive growth has to be the cornerstone of nation-building and financial inclusion of the marginalised segments is its important aspect.  The Reserve Bank of India broadly defines financial inclusion as providing universal access to a “wide range of financial services at a reasonable cost” and this has been marked as “one of the important” national objectives of the country.

Highlights of Financial Inclusion Conference, Mumbai

The Central Bank acknowledges that ensuring delivery of services such as low cost credit, bank accounts for savings and transactional purposes, financial advisory services as well as insurance facilities form the essence of financial inclusion.

In the past, there had been certain measures taken to promote financial inclusion such as:

  • Planningnationalisation of banks
  • Setting up expansive branch  network of scheduled commercial banks
  • Setting up of cooperatives and regional rural banks; mandated priority sector lending targets; promoting self-help groups
  • Providing zero balance basic savings bank deposit accounts etc

Yet, even after almost seven decades of independence and eight decades of setting up of the RBI, the fact remains, as the 59th Round Survey Results of the National Sample Survey Office in 2013 showed, still over 70 per cent of the total farmer households had no access to formal sources of credit.

The ground reality is worrisome and measures in the past failed to deliver desired results such as bringing low income groups within the ambit of banking sector, which would have allowed them easy access to formal credit , and in the process mitigated the exploitation of these vulnerable sections by greedy money lenders. The exposure to banks would also have encouraged savings in rural areas to meet any exigency.

It is in this light the outcome of the very important Financial Inclusion Conference that was held in Mumbai on 2nd April as part of RBI’s 80th anniversary celebrations, needs to be analysed.

During the conference, Prime Minister Narendra Modi did seek to address the concerns and aptly referred to his government’s Jan Dhan Yojana for the poor which he said, had attracted deposits to the tune of Rs. 14, 000 crore in less than seven months, since the scheme was introduced.

The task of financial inclusion is enormous and, therefore, Modi asked the RBI to prepare a 20-year-roadmap for the same and that the banks set milestones before  2035, the centenary year for RBI.(He also asked the RBI ensure against importing the paper and ink used in minting currency as part of the ‘Make in India’ drive).

The Prime Minister also directed the apex bank to shun the fear of non-performing loans and consider lending also to those marginalised people who were excluded from the formal financial system. He asked the RBI to work on “innovative financial inclusion instruments” to ensure that

  •   the farmer does not commit suicide “due to lack of bank funding”

  •   the poor students get bank loans to pursue “quality higher/technical education and training to be skilled”

He also asked the banking sector to consider lending over five crore people who are engaged in small times businesses and who need “an average loan of Rs. 17,000 to scale up and enhance their income”. He announced that the government will shortly launch the MUDRA Bank in this regard.

Some of the key issues deliberated  during the conference were that the banks should

  • Fund more small businesses and entrepreneurs to help increase employment and   productivity

  • Fund farmers to grow more trees where crops have failed so as to reduce carbon emissions and maintain soil fertility

Fund the poorest of students Convince their employees to let go of the cooking gas subsidy so as to make these cylinders more affordable to the poor Fund a second green revolution in eastern India by tapping into the development that will happen in these states due to abundance in natural reserves.

The Prime Minister’s announcement that the issue of financial inclusion needs to be taken up in a “very big way” is a welcome move by the government and so is his move to hold a meeting with the RBI governor once every two months. Giving a definite dimension to the thrust area, Modi made it clear that banks should take a considerate view in lending to the poor. Along with the economic and social parameters, he also sought to set the geographical parameters by identifying the “neglected” eastern India as the new thrust area for the banking sector.

However, any such social engineering also needs financial prudence and the RBI Governor Dr. Raghuram Rajan, while expressing hope that the poor could be empowered with government initiatives and new technologies, he pointed out that it was a challenge before the banks to ensure bringing financial services to every doorstep and to every small enterprise because “the poor are still too far away from, or too uncomfortable stepping into bank branches”.

The RBI governor also did cautiously warn the government that the push to finance infrastructure “should not override the need for financial stability”. He though, acknowledged that the Central Bank needed to ensure “greater consumer protection and consumer literacy”.

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