Financial inclusion or inclusive financing is the delivery of financial services at affordable costs to sections of disadvantaged and low income segments of society. Unrestrained access to public goods and services is the sine qua non of an open and efficient society. It is argued that as banking services are in the nature of public good, it is essential that availability of banking and payment services to the entire population without discrimination is the prime objective of public policy. The term "financial inclusion" has gained importance since the early 2000s, and is a result of findings about financial exclusion

Financial exclusion

Financial exclusion is the unavailability of banking services to people living in poverty. It is believed to be one factor preventing poor people from exiting poverty, by forcing them to manage their finances on a cash-only basis and restricting their access to equitable sources of credit.Financial...

 and its direct correlation to poverty. Financial inclusion is now a common objective for many central banks among the developing nations.

Financial Inclusion, UN

On 29 December 2003,Former UN Secretary-General Kofi Annan

Kofi Annan

Kofi Atta Annan is a Ghanaian diplomat who served as the seventh Secretary-General of the UN from 1 January 1997 to 31 December 2006...

 said: ”The stark reality is that most poor people in the world still lack access to sustainable financial services, whether it is savings, credit or insurance. The great challenge before us is to address the constraints that exclude people from full participation in the financial sector. Together, we can and must build inclusive financial sectors that help people improve their lives.”

According to the United Nations the main goals of Inclusive Finance are as follows:

1. Access at a reasonable cost of all households and enterprises to the range of financial services for which they are “bankable,” including savings, short and long-term credit, leasing and factoring, mortgages, insurance, pensions, payments, local money transfers and international remittances
2. Sound institutions, guided by appropriate internal management systems, industry performance standards, and performance monitoring by the market, as well as by sound prudential regulation where required
3. Financial and institutional sustainability as a means of providing access to financial services over time
4. Multiple providers of financial services, wherever feasible, so as to bring cost-effective and a wide variety of alternatives to customers (which could include any number of combinations of sound private, non-profit and public providers).

Financial Inclusion Taskforce, UK

The United Kingdom was one of the first countries to realize the importance of financial inclusion. It published its strategy of financial inclusion in its report Promoting Financial Inclusion which was published alongside the Pre-Budget Report of 2004. The UK government also set up the Financial Inclusion Fund of £120 m to help bring about Financial Inclusion. The Financial Inclusion Taskforce was formally launched on 21 February 2005 to monitor progress on financial inclusion and to make suitable recommendations.

Financial inclusion in India

The Reserve Bank of India

Reserve Bank of India

The Reserve Bank of India is the central banking institution of India and controls the monetary policy of the rupee as well as US$300.21 billion of currency reserves. The institution was established on 1 April 1935 during the British Raj in accordance with the provisions of the Reserve Bank of...

 has set up a commission (Khan Commission) in 2004 to look into financial inclusion and the recommendations of the commission were incorporated into the mid-term review of the policy (2005–06). In the report RBI exhorted the banks with a view of achieving greater financial inclusion to make available a basic "no-frills" banking account. In India, Financial Inclusion first featured in 2005, when it was introduced, that, too, from a pilot project in UT of Pondicherry, by K C Chakraborthy, the chairman of Indian Bank. Mangalam Village became the first village in India where all households were provided banking facilities. In addition to this KYC (Know your Customer) norms were relaxed for people intending to open accounts with annual deposits of less than Rs. 50,000. General Credit Cards (GCC) were issued to the poor and the disadvantaged with a view to help them access easy credit. In January 2006, the Reserve Bank permitted commercial banks to make use of the services of non-governmental organizations (NGOs/SHGs), micro-finance institutions and other civil society organizations as intermediaries for providing financial and banking services. These intermediaries could be used as business facilitators (BF) or business correspondents (BC) by commercial banks. The bank asked the commercial banks in different regions to start a 100% financial inclusion campaign on a pilot basis. As a result of the campaign states or U.T.s like Pondicherry, Himachal Pradesh

Himachal Pradesh

Himachal Pradesh is a state in Northern India. It is spread over , and is bordered by the Indian states of Jammu and Kashmir on the north, Punjab on the west and south-west, Haryana and Uttar Pradesh on the south, Uttarakhand on the south-east and by the Tibet Autonomous Region on the east...

 and Kerala

Kerala

or Keralam is an Indian state located on the Malabar coast of south-west India. It was created on 1 November 1956 by the States Reorganisation Act by combining various Malayalam speaking regions....

have announced 100% financial inclusion in all their districts. Reserve Bank of India’s vision for 2020 is to open nearly 600 million new customers' accounts and service them through a variety of channels by leveraging on IT. However, illiteracy and the low income savings and lack of bank branches in rural areas continue to be a road block to financial inclusion in many states. Apart from this there are certain in Current model which is followed. There is inadequate legal and financial structure. India, being a mostly agrarian economy, hardly has schemes which lend for agriculture. Along with microfinance we need to focus on Microinsurance too.

• In its platinum jubilee year, the Reserve Bank of India (RBI) wants to connect every Indian to the country s banking system.
• RBI is currently working on a three-year financial inclusion plan and is discussing this with each bank to see how to take this forward, KC Chakrabarty, deputy governor, RBI said.
• "Nearly forty years after nationalization of banks, 60% of the country's population does not have bank accounts and nearly 90% do not get loans," he pointed out .
• Despite heightened focus on financial inclusion, Indian banks still somewhat failed to bring the under- and un-banked into the mainstream banking fold.
• India has currently the second-highest number of financially excluded households in the world. Approximately, 40% of India s population have bank accounts, and only about 10% have any kind of life insurance cover, while a meager 0.6% have non-life insurance cover.

• According to UNITED NATIONS, "A financial sector that provides 'access to credit for all "bankable " people and firms and to savings and payments services for everyone . Inclusive finance does not require that everyone who is eligible use each of the services , but they should be able to choose use them if desired.
• REPORT OF THE COMMITTEE ON FINANCIAL INCLUSION IN INDIA (Chairperson : C. Rangarajan ) (2008) "The process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost."
• As per " TREASURY COMMITTEE , HOUSE OF COMMONS , UK , (2005) " Ability of individuals to access appropriate financial products and services . "

'Major Three Aspects Of Financial Inclusion'
Make people to

• Access financial markets
• Access credit markets
• Learn financial matters (financial education )

Financial Inclusion Includes Accessing Of Financial Products And Services Like,

• Savings facility
• Credit and debit cards access
• Electronic fund transfer
• All kinds of commercial loans
• Overdraft facility
• Cheque facility
• Payment and remittance services
• Low cost financial services
• Insurance (Medical insurance)
• Financial advice
• Pension for old age and investment schemes
• Access to financial markets
• Micro credit during emergency
• Entrepreneurial credit

Financially Excluded People
The financially excluded sections largely comprise :

• Marginal farmers
• Landless labourers
• Oral lessees
• Self employed and unorganised sector enterprises
• Urban slum dwellers
• Migrants
• Ethnic minorities and socially excluded groups
• Senior citizens
• Women
• The North East, Eastern and Central regions contain most of the financially excluded population.

Factors affecting access to financial services

• Legal identity : Lack of legal identity like voter id , driving license , birth certificates ,employment identity card etc.
• Limited literacy : Particularly financial literacy and lack of basic education prevent people to have access from financial services .
• Level of income : Level of income decides to have financial access . Low income people generally have the attitude of thinking that banks are only for rich.
• 'Terms and conditions : While getting loans or at the time of opening accounts banks places many conditions , so the uneducated and poor people find it very difficult to access financial services .
• Complicated procedures : Due to lack of financial literacy and basic education , it is very difficult for those people who lack both to read terms and conditions and account filling forms .
• Psychological and cultural barriers : Many people voluntarily excluded themselves due to psychological barriers and they think that they are excluded from accessing financial services .
• Place of living : As the name suggests that commercial banks operate only in commercially profitable areas and they set up branches and main offices only in that areas .People who lived in under developed areas find it very difficult to go to areas in which banks are generally reside .
• Lack of awareness : Finally , people who lack basic education do not know the importance of the financial products like Insurance , Finance , Bank Accounts , cheque facility ,etc.

Consequences Of Financial Exclusion
Major Two Threats :

• Losing opportunities to grow : In the absence of finance , people who are not connected with formal financial system lack opportunities to grow.
• Country's growth will retard : Due to vast unutilized resources that is in the form of money in the hands of people who lack financial inclusive services.

Other Consequences :

• Business loss to banks : Banks will loss business if this condition persists for ever due to lack of opening of bank accounts.
• Exclusion from mainstream society : The people who lacks financial services , presumed that they are excluded from mainstream society .
• All transactions cannot be made in cash : Some transactions can be made in cash . In this technological world everybody wants to have electronic cash system like debit and credit cards and also EFT .
• Loss of opportunities to thrift and borrow : Financially excluded people , may lose chances to save their some part of livelihood earnings and also to borrow loans .

• Employment barriers : Nowadays all salary and other financial benefits from various sources like Governments scholarships , any compensation , grants , reliefs , etc. are paid through bank accounts.
• Loss due to theft : Banks provide various schemes of safety locker facility . It mitigates the risk due to thefts .
• Other allied financial services : People who do not have bank accounts may not go to bank as for as possible . So they lack basic financial auxiliary services like DD ,Insurance cover and other emergency need loans etc.

Benefits Of Inclusive Financial Growth

• Growth with equity : In the path of super power we the Indians will need to achieve the growth of our country with equality . It is provided by inclusive finance.
• Get rid of poverty : To remove poverty from the Indian context all everybody will be given access to formal financial services . Because if they borrow loans for business or education or any other purpose they get the loan will pave way for their development .
• Financial Transactions Made Easy : Inclusive finance will provide banking related financial transactions in an easy and speedy way .
• Safe savings along with financial services : People will have safe savings along with other allied services like insurance cover , entrepreneurial loans , payment and settlement facility etc.,
• Inflating National Income : Boosting up business opportunities will definitely increase GDP and which will be reflected in our national income growth .
• Becoming Global Player : Financial access will attract global market players to our country that will result in increasing employment and business opportunities .

Relationship between Financial Inclusion and Development Indicators

• Economic growth follows financial inclusion. In order to achieve the objective of growth with equity, it is imperative that infrastructure is developed with financial inclusion.
• savings and credit accounts - indicators of financial inclusion.
• per capita income - indicator of economic development
• Electricity consumption

and road length -indicators of infrastructure development.

• All the above influence economic development which follows adequate financial and credit facilities

• Expectations of poor people from financial system
Taking into account their

• Seasonal Inflow Of Income from agricultural operations,
• Migration from one place to another,
• Seasonal And Irregular Work Availability And Income; the existing financial system needs to be designed to suit their requirements.
• Security and safety of deposits
• Low transaction cost
• Convenient operating time
• Minimum paper work
• Frequent deposits
• Quick and easy access
• Product suitable to income and consumption

External links

• The Alliance for Financial Inclusion
• Transact, National Forum for Financial Inclusion
• Financial Inclusion Taskforce, UK
• Research Unit for Financial Inclusion
• UNCDF report on Financial Inclusion
• Resources, articles and documents from Financial Inclusion Champions site, UK
• FDIC Advisory Committee on Economic Inclusion (United States)
• Financial Inclusion - An Overview (India)