Global Financial Inclusion: Challenges and Opportunities

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International Journal of Research and Development - A Management Review (IJRDMR)

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ISSN (Print): 2319–5479, Volume-4, Issue–2, 2015 50

Global Financial Inclusion: Challenges and Opportunities

P. Raja Babu

Associate Professor & Research Progress Assessment Committee (RPAC) Chairman, KL University Business School, KL University, Vaddeswaram, Guntur District, Andhra Pradesh,

Abstract : Financial inclusion is widely recognized not only in India but also has become a prioritized policy in many countries. Financial inclusion is the road map in a developing country like India which needs to travel a long way to reach the destination and becoming a global player.

Today, all the countries across the world focus on inclusive growth. The Reserve Bank of India (RBI) during 12^th Five Year Plan made financial inclusion as one of the top priorities for inclusive growth. The vision of RBI for 2020 is planning to open 600 million new customers’ accounts and serve them through a variety of channels. The main objective of this study is to know global scenario of financial inclusion and to find out opportunities and challenges of financial inclusion in India.

Key Words: Financial Inclusion, Reserve Bank of India, Inclusive growth, Global Scenario

I. INTRODUCTION

United Nations, “a financial sector facilitates financial inclusion, if it provides access to credit for all bankable people, firms, savings and payments services to everyone. Inclusive finance is to use each of services but they should be able to choose them if desired”. In the words of RBI, (2006a) financial inclusion may be defined as “provision of affordable financial services” to under-banked rural people. These services include payments, remittance facilities, saving, loan and insurance services.

Asian Development Board defined financial inclusion as

“provision of broad range of financial services such as deposits, loans, payment services, money transfer and insurance to the poor and low income households and their micro enterprises.”

II. A GLOBAL SCENARIO

Financial inclusion can truly lift the financial conditions and standards of life of the poor and the disadvantaged groups. Various countries are promoting financial inclusion across the world. The list includes Mexico, Bangladesh, South Africa, Kenya and Brazil.

Particularly, Brazil has succeeded in financial inclusion using Business Correspondent Model. India which also has a similar demographic profile can emulate the policiesas successfully as implemented by Brazil.

In recent years, around the world, there has been a slow but significant progress towards greater financial

inclusion. According to Hanning and Alfred and StefenJanse, (2010) estimates by an Asian Development Bank in Africa, through mobile phone payment solutions Kenya has pioneered an interesting process of financial inclusion. Latin American countries such as Peru and Bolivia have attempted to enable regulatory environments for microfinance. In these two countries there are a massive six million clients in the formal financial system. Throughout the world, most of the countries have made financial inclusion a priority as it helps for more comprehensive growth. The Indian Council for Research on International Economic Relations (ICRIER) prepared an Index of Financial Inclusion in which India has been placed in 50^thposition among 100 countries. In this context, banking sector has played a prominent role in promoting financial inclusion.

Business correspondents are retail agents engaged by banks for providing multiple services at lower cost to their clients at branchless bank network. It has been currently operational in countries such as Kenya, Brazil, and Columbia and in India as well. The main objective is ensuring greater financial inclusion through the use of business facilitators (BFs) and business correspondents.

A viable business model will be designed for untapped market to bring into the fold of banking services.

Financial inclusion at first sight, needs to be viewed as

„money at the bottom of the pyramid‟ and business models should be so designed as self-supporting in the initial phase and profit making in the long-run.

In April 2012, the global financial inclusion (global Index) data base analysis says that 50 per cent of adults worldwide have an account of a formal financial institution. In addition, 22 per cent of adults are saving at a formal financial institution in the past 12 months and 9 percent of adults have taken out a new loan from a bank. High cost, physical distance and lack of proper documentation are considered important among the most commonly reported barriers. The following table:01 deals with reasons to open bank account in various countries.

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TABLE: 01 REASONS TO OPEN THE BANK ACCOUNT ACROSS THE WORLD

Sl.

No.

Year Name of the Country

Reason to open the bank account

i. 1996 German For basic banking transactions current banking account is compulsory for

„Everyman.‟

ii. 1997 United States of America

As per Reinvestment Act requires bank account to offer credit.

iii. 1998 France The law on exclusion emphasises an individual‟s right to have a bank account.

iv. 2004 South Africa

„Mzansi‟ was

launched for

financially excluded people to open bank

account with

affordable cost.

v. 2005 United Kingdom

The UK government financial inclusion task force was constituted for improving financial inclusion.

Sources: By Dr (Mrs) ShobanaVasudevan, 2013.

The principles for innovative financial inclusion serve as guidelines for policy makers with the objectives of safe and sound adoption of innovative products. The following Table: 02 highlights the information on milestones of financial inclusion in India in the last four decades.

TABLE: 02 FINANCIAL INCLUSION IN INDIA AND ITS MILESTONES

Year Major Milestones 1969 Nationalization of Banks

1971 Priority Sector Lending Banks were established

1975 Establishment of Regional Rural Banks 1982 Establishment of National Bank for

Agricultural and Rural Development

1992 Self Help Groups Bank Linkage Programme was started

2000 Establishment of Small Industries Development Bank of India foundation for Micro Credit

2007 Proposed bill on Micro Finance Regulation introduced in parliament.

Sources:By Anurag B. Singh & Priyanka Tandon, 2012.

III. OPPORTUNITIES AND CHALLENGES:

Financial inclusion helps to encourage banking habits irrespective of regions, gender, income and age. It is also to provide funding facility to the poor and the weaker section of the society for more productive purpose and providing access to easy finance. It paves way for growth and development of an economy by ensuring timely and quick availability among the needy sectors. It will also attract global market player which results in increasing business and employment opportunity.

Most of the rural people depend on informal borrowing than formal. The main reason is that rural people do not have basic education and they are not able to understand financial literacy and various documents to open a bank account. Lack of infrastructure discourages rural people not to use bank transactions because of long distance between residence and bank. Low income is also another problem as their earnings are barely utilized for their sustenance and savings is a distant dream. Many people do not have knowledge in banking services like cheque facility, insurance, bank accounts etc.

IV. CONCLUSION

It is therefore to conclude that India is at moderate level regarding financial inclusion when compared to the developed countries. In view of ATMs, branches, credit and outstanding deposits, the RBI has adopted various models and strategies such as BCs model, no-frills account, simplified KYC Norms etc., are essential to strengthen financial inclusion. To cope up with the challenges to expand financial services, there is a need for viable and sustainable approaches; business models for affordable products, process for efficient handling of transactions, and appropriate regulatory work and risk management policies to ensure financial inclusion.

V. ACKNOWLEDGEMENT

I am thankful to the Director, ICSSR, New Delhi for giving me an opportunity to take up research project entitled “A Study on Financial Inclusion in Krishna District: Andhra Pradesh” during 2014-15. I owe an irredeemable debt of gratitude to the ICSSR for continuous monetary support throughout the period of this study.

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