Volume : 2, Issue : 8, AUG 2016

FINANCIAL INCLUSION IN INDIA: A REVIEW OF POLICIES, PROGRESS AND CHALLENGES

DR. PRAVESH BHANDARI

Abstract

Financial inclusion is increasingly being recognized as an important element of India’s development strategy due to the fact that access to appropriate and affordable financial services can facilitate not only household security but also savings, productive investment, and a reduced dependence on informal sources of finance. Despite the India banking system expansion post nationalisation and growth of rural banking institutions many low-income households, small farmers, informal workers, women, and those living in remote areas were excluded from the formal financial system for a long time.

The review paper analyzes the evolution of financial inclusion in India, major policy initiatives, progress made and outstanding issues as per the literature and policy documents published till 2015. It includes the major initiatives of financial inclusion which were taken up in India like expansion of rural branches; priority sector lending; Regional Rural Banks; Self-Help Group-Bank Linkage Programme; no-frills accounts; Business Correspondent model; Financial Inclusion Plans; financial literacy programmes; technology-enabled banking; Direct Benefit Transfer; Pradhan Mantri Jan Dhan Yojana and others. The literature suggests that these measures significantly increased the geographical and institutional scope of formal finance. By March 2015, there was substantial increase in Banking Outlets in villages. Moreover, Basic Savings Bank Deposit Accounts (BSBDA) registered rapid growth.  Despite improvements in financial access, the literature points out a continued gap in financial inclusion effective.  The efforts to enhance the financial inclusion faced several limitations, including dormant accounts, lack of adequate formal credit, regional imbalance, low financial literacy, poor state of the infrastructure, irregular functioning of Business Correspondents, gender inequalities, and continued dependency on informal finance. The review suggests that we need to move from just opening accounts to ensuring that accounts are used frequently, providing appropriate financial products, affordable credit, financial capability, consumer protection and commercially sustainable last mile delivery mechanisms for achieving sustainable financial inclusion.

Keywords

Financial Inclusion, Banking Sector, Financial Literacy, Financial Access.

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