Financial Exclusion to Financial Inclusion : A Big Challenge Ahead

Financial inclusion is perhaps the most debated topic in developing countries current times.

In this article, I will be gorging on some of the challenges of financial inclusion in India, its essential characteristics and some of the methods that should be adopted to conquer these complications. In India, where the population is diverse, more than 60% of the population are excluded from the financial systems. The diverse nature of population in an economic, cultural and multi-lingual society, with various levels of literacy warrants the adoption of a homogenous instrument which becomes omnipresent in the society.


The challenges of Financial Inclusion

India is significantly behind the curve in terms of access to financial services. For six lakhs villages, we have 30,000 bank branches. India has currently the second-highest number of financially excluded households in the world. Marginal farmers, landless labourers, self employed and unorganized sector enterprises, ethnic minorities and women, the so called marginalized in the minorities continue to be financially excluded class. 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.

Lack of legal identity like voter id, driving license, birth certificates, employment identity card etc, limited financial literacy and lack of basic education prevent people to have access from financial services. 80% of the children today in 2011 do not reach the 10th class, 50% drop out is up to the 5th and 6th and between 6 and 10 another 30%. These are the statistics. Besides, in India, low income people generally have the attitude of thinking that banks are only for rich. Many people voluntarily infact have excluded themselves due to psychological barriers and they think that they are excluded from accessing financial services.

Many commercial banks operate only in commercially profitable areas and they set up branches and main offices only in those areas. People who lived in under developed areas find it very difficult to go to those areas in which banks are generally reside. Apart from that, women are generally excluded from the national mainstream and more so when it comes to India. More women are under the poverty line compared to men.

In case of low-income households, the lack of access to bank accounts and other saving opportunities result in no savings, low investments, lack of financial planning and security for old age, difficulties in gaining access to credit or getting credit from informal sources at exorbitant rates, increased unemployment due to lack of self–employment opportunities, higher incidence of crime etc. This financial exclusion not only widens the ‘Rich-Poor divide’, it also leads to ‘Social Exclusion’.

In country like India, with diverse social and economic profiles, financial education is particularly more relevant for people who are resource poor and who operate at the margin and are vulnerable to persistent downward financial pressures. With no established banking relationship, the un-banked poor are pushed towards expensive alternatives.

Adopted methods around Financial Inclusion

Considering the importance of financial inclusion for the economy of the country the Government of India (Ministry of Finance), Reserve Bank of India (RBI) and NABARD are adopting different measures for the financial inclusion. The target is to achieve the cent per cent financial inclusion in the country upto 2012.

The new branch authorization policy of RBI encourages banks to open branches in these under-banked states and under-banked areas in other states. The new policy also emphasizes for making efforts by the bank to achieve financial inclusion and other policy objectives. The RBI’s directive to all commercial banks to open no-frill accounts if a prospective customer fails to give at least identity proof/ verification and residential proof.

RBI is also emphasizing for branchless banking i.e., through Business correspondent and Business Facilitator model. Now RBI has also eased the restrictions for mobile banking. For effective operationalization of universal banking and proper development of modern banking, RBI encourages for the coverage of large segment of rural population for availing the National Electronic Fund Transfer (NEFT), ATM, Credit Card facilities etc. RBI has also made a plan to entrust the lead banks to provide banking services either through banking outlet or through technology in every village that has a population of 2000.

Ministry of Finance, Govt. of India is also playing a pivotal role for the greater financial inclusion in the country. In 2007-08 the Government had set up two Finds i.e., Financial Inclusion Fund (FIF)and Financial Inclusion Technology Fund (FITF) with a corpus of Rs. 500 crore each under NABARD in order to extend banking services to the unbanked areas. In the budget of 2009-10, the Government has further contributed Rs.100 crore to each of these funds in order to strengthen the pace of development of financial inclusion. The contributors to these funds are Government of India, RBI and NABARD.


Probable Solutions

After analyzing in depth the underpinning reasons of financial exclusion in India, we can feel that financial literacy is the need of the hour. The first step should be creating awareness and financial literacy among minorities and poor. Intensive awareness, education and promotion can create an in-depth impact on the masses.

Government should promote introduction of basic banking – relevance, services, merits as a topic in secondary and higher secondary classes in all education institutions. Banks should design and organize aggressive education and promotion campaigns in unbanked parts of urban, semi – urban and rural areas to enhance financial literacy and awareness, as well as to remove the doubts and apprehensions that the masses have towards the banking sector. Besides, government should extend financial assistance to students from poor families for school, college and professional studies.

The micro-credit and the Self Help Group movements are in their infancy. We need to promote formation of these groups among minorities, SCs, STs and the women who are discriminated against by financial institutions.

Innovation in the form of business facilitators and correspondents will be needed for banks to increase their outreach for banks to ensure financial inclusion. Banks should involve the knowledgeable and well-informed local inhabitants in such activities. This will help the banks to consolidate and ensure, prompt and extensive response from populace. Banks should gather support from the NGOs, retired bank personals, academic institutions, to reach the desired numbers within a limited span of time. Once the erroneous belief is removed from the minds of the general public, they automatically will join the mainstream. The all round awareness and education simulation will drive them to open savings and current accounts. This will mark the start of basic banking in actual sense.

There has been a burst of entrepreneurship across the country, spanning rural, semi-urban and urban areas. This has to be nurtured and financed. It is only through growth of enterprises across all sizes that competition will be fostered. We should teach entrepreneurial skills to women from poor households who have good skills but manufacture things on daily wages for middleman and extend the line of credit and technical skills to such women.

Government sponsored publicity campaigns through all medias – radio, television, newspapers, village panchayat, movies, local stage shows etc. can play a vital role in Financial inclusion.

The role of Smart Cards and Biometrics

Now we can see that we have to continue with our tireless endeavor to combat monsters like illiteracy, poverty, ignorance, cultural and psychological hurdles and simultaneously design innovative, lucrative and low cost banking products and services to lure public, to join the mainstream. Technology can be used to increase financial inclusion:

• Smart cards for opening bank accounts with biometric identification. For doing a transaction, the customer has to approach the Business Correspondent with his Bio Metric Smart Card. The Business Correspondent can confirm the identity of the customer with the help of the card and bio metrics and then initiate the transaction in the Hand Held Device. The Hand Held Device is capable of reading the Smart Card, scanning the finger prints and is also voice enabled in the local language
• Link to mobile or hand held connectivity devices ensure that the transactions are recorded in the bank’s books on real time basis
• Some State Governments are routing social security payments as also payments under the National Rural Employment Guarantee Scheme through such smart cards. The same delivery channel can be used to provide other financial services like low cost remittances and insurance.
• The use of IT also enables banks to handle the enormous increase in the volume of transactions for millions of households for processing, credit scoring, credit record and follow up.


With these, we can hope that financial inclusion will lead to financial development in our country which will help to accelerate economic growth.

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Ghostly Experience

Do you believe in ghost? I did…

After completion of my college, I took admission at Guwahati University (GU) for my masters. I was excited…for a new life…opening a new chapter. I was in hostel since my 11th. But, experience of University is perhaps unmatched!

GU has 8 girls’ hostels and 10 boys’ hostels with a beautiful green campus. I got admission in Hostel no.1 (R.C.C. -1). R.C.C. -1 has a capacity of 80 girls. It is a two-story building. All the rooms are connected with very long corridor in each floor. It is adjacent to a hill, for which our hostel was attacked by the monkeys all the day.

As freshers have to adjust in their accommodations, initially, I was placed in a hall of 8 girls. It was altogether a different experience of staying timidly being scared of the seniors, facing raggings etc. We used to go to the dinning hall all of us together silently, immediately the bell used to ring, and come back to the room before our senior batch girls used to go for dinner.

After a month, some of us got allocation of few rooms. I got the extreme corner twin sharing room in the first floor, which had a balcony. From the front door of the room, the bathroom section starts. And in between the basin area and the room, there was a store room, where some unused materials were kept. The store room used to be locked all the time. And there was a closed window from our room too. I and my roommate Barna were quite happy to get the room as the other girls of our batch got four seater rooms without balcony. All of them congratulated us.

On the first day itself, at around 8 pm, suddenly Barna came running to the room with a scary face. Myself and three of my classmates were discussing something interesting. Barna used to be our BBC news as she had good terms with one of the senior girls. Barna said, “Hey Madhu! This room is haunted! I am no gonna stay here…For long time the room was unoccupied!”
We all were blank….Didn’t know what to do…!!! Dinner bell rang. Both of us couldn’t have food properly. Ultimately, we decided that we will be staying in a different room with our other batch mates, sharing the beds.

Two days we stayed in other’s room. But what next?

The third day…with our brave hearts, decided to stay in our own room. Two other brave girls also agreed to sleep with us. Around 11 PM! Lights were on. We four were in the effort of getting asleep. Suddenly, we got to hear some sounds in the door. Not exactly the knocking, something like… “Hoooo..Hoooo..” as if somebody is trying to whistle through the door. It was winter season….We all put ourselves inside the heavy blankets…and slept somehow.

First night was over. Second night too, it was the repeat of the previous day. Barna could not resist herself. She got up from the bed. Took a knife and went into the door. Did some R & D. Put some papers in between the door panels. And then onwards, there was no sound…! And got to know that wind used to pass through the door for which those sound we used to get to hear.

Story does not finish here. Next day again, there was a heavy rain and storm in the evening. We were feeling cosy. We both were studying at our tables. Suddenly at around 8 PM, we got to hear some sounds of throwing utensils in the store room. It was locked from outside, so who will throw the utensils inside? Big question! We called our neighbours….all were sweating in the January cold atmosphere. What to do again….one problem we solved, another arised. This time, Barna was silent. We called our cook uncles. Two of them came….but were scared to open neither the door, nor the window from our room and go inside the dark room. So, when there is a problem with the good people, God always send some Angel to help! That’s happened with us too like Chetan Bhagat’s Call Centre book!

A senior batch girl - Chandana came forward to go through the window. Our two brave cook uncles also agreed to go behind her. So, expedition started. Chandana opened the window and went inside with a torch, both uncles also followed her. She found many utensils on the floor lying here and there and the window from the other side was open. The storm attacked the window badly and the lock was broken and the flaps were dancing then also with the breeze. So, Chandana detected the ghost!

After uncovering the ghost, Chandana became the Heroin in front of us! And we started a new chapter in that haunted room!

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What 'I' connotes?

“I am highly educated person! Thus I have more knowledge than a normal person.”

“If I would not have been there, how come that task would have been done.”

“Nobody will be able to do this task except me!”

“This office, I am the most talented person, nobody is above me …”

“I am jack of all trades and master of all too..!”


These kinds of sentences usually rule our conscience or we get to listen….may be from colleagues, friends, relatives etc.

The word ‘I’ always chase us, or start dwelling in our mind …. whenever we receive expertise in some particular subject, or when people start appreciating us looking at our proficiency, we start feeling proud of own talent.

We don’t get that much of time, opportunity to see the sky with a free mind… which we used to get in our childhood. Neither we get enough time to introspect or understand ourselves… Now, do we have time to sit with our parents to enjoy the starry sky together ? I remember, me and my siblings usually used to sit with my parents at the moonlit nights and used to talk about various topics in our childhood times…plan about our futures…Once my mother told us pointing towards the galaxy… “See these are seven star –brothers. They always stay together…never fight with each other, share even a small sesame among them”. Since then, we three siblings share a small toffee even. Once, we used to dream, imagine looking at the open sky, and now, when we are growing, we are as if becoming machines day by day, narrowing our openness…

Sky does not have any limit…there are limitless solar systems…Don’t know which planet is going where! Which star is going where! Just we know about our 8 planets and then our very own ‘Earth’. In the following way, we can understand our position…
I was born at Bakata. Where is Bakata?

In Sibsagarh district. Where is Sibsagarh district?

Assam. So, where is Assam?

In India. Where is India?

In Asia. And where is Asia?

In Earth. Earth is situated in?

In eternal Sky. And the Sky is in?

……….Can we answer this question..?

If we engross in this question, we will understand the significance of the word ‘I’. If we compare ourselves with the sky…we will understand worth we are carrying.

In this world, nothing is dependable on any human being. Like, when Galilio was alive, people were unaware of most of his discoveries and inventions. So, he was not considered as vital personality during his life-time. But, now he is respected as the pioneer of a new era. In the same way, once independence of India could not be thought without Gandhiji. But after his death, India is moving, no matter what her speed is!

In various organizations, sometimes, many employees play very critical role, and we feel without them organization will stop growing, infact even stop working. But, does it happen in reality? If one key employee leaves, work may slow down for couple of weeks or months, but if some other responsible person picks those task, things speed up.

What say?