Financial inclusion measures have been conducted on a mission mode in India. Several promotional measures were launched by the RBI, Government, financial regulators like SEBI and banks to deliver financial products to the poor people.

The RBI was instrumental in promoting financial inclusion from forefront. Various initiatives by the RBI including the BSBD Account, Financial Inclusion Plan, Rupay Card initiative etc., are some of them.

National Strategy for Financial Inclusion

Continuing its financial inclusion drives, the RBI has announced a National Strategy for Financial Inclusion (NSFI) for India 2019-2024.

What is Financial Inclusion?

Financial inclusion has been defined as “the process of ensuring access to financial services, timely and adequate credit for vulnerable groups such as weaker sections and low-income groups at an affordable cost”. (Committee on Financial Inclusion – Chairman: Dr C Rangarajan, RBI, 2008).

An interesting feature of National Strategy for Financial Inclusion is that it looks like a new generation version financial inclusion promotion by incorporating strong digitalisation measures, mobile based delivery of financial services to all individuals, protection of privacy of the user etc.

Another component of the new strategy is the target to provide a bouquet of financial products including pension, life insurance and an investment product to PMJDY holders.

From all these angles, the new National Strategy designed by the RBI is clearly an upgradation of the existing financial inclusion measures.

The main content of the National Strategy is contained under the Strategic Objectives for Financial Inclusion.

Need for financial inclusion

Financial inclusion is increasingly considered as a key driver of economic growth and poverty alleviation. Accessibility to formal finance like banking services can promote job creation, reduce vulnerability to economic shocks and increase investments in human capital.

Importance of financial inclusion is visible from the fact that seven of the seventeen SDG Goals (United Nations) consider financial inclusion as a key enabler for achieving sustainable development. Hence, to achieve the goal of financial inclusion in a coordinated and time-bound manner, a National Strategy for Financial Inclusion (NSFI) is needed.

Factors causing financial exclusion

1. Lack of surplus income.

2. Not suitable to customer’s requirements.

3. Lack of requisite documents.

4. Lack of awareness about the product.

5. Lack of trust in the system.

6. High transaction costs.

7. Remoteness of service provider.

8. Poor quality of services rendered.

Preparation of the NSFI

NSFI is prepared by RBI following the recommendations of the Financial Inclusion Advisory Committee. In addition to the recommendations of the committee, the inputs were received from several stakeholders including suggestions from Government of India, Financial Sector Regulators viz., Securities Exchange Board of India (SEBI), Insurance Regulatory and Development Authority of India (IRDAI) and Pension Fund Regulatory and Development Authority of India (PFRDA).

Strategic Objectives and Pillars of National Strategy for Financial Inclusion

The core of the National Strategy is incorporated under Strategic Objectives and Pillars for Financial Inclusion.

According to the National Strategy document, the vision of financial inclusion strategy is to make financial services available, accessible, and affordable to all the citizens in a safe and transparent manner to support inclusive and resilient multi-stakeholder led growth.

Following are the strategic objectives/pillars of National Strategy for Financial Inclusion.

  1. Universal Access to Financial Services
  2. Effective Co-ordination
  3. Providing Basic Bouquet of Financial Services
  4. Customer Protection and Grievance Redressal
  5. Financial Literacy and Education
  6. Access to Livelihood and Skill Development.

The Strategy also proposes to use technology and adoption of multi-stakeholder approach for realising financial inclusion.

  1. Universal access to financial services

While targeting the delivery of financial services to so far inaccessible areas, the strategy makes following goals.

  • Accessibility in remote areas: The first objective is to provide accessibility to formal financial services to every villages within a 5 km radius/hamlet of 500 households in hilly areas by March 2020.
  • Less cash society: To create the necessary infrastructure in all Tier II to Tier VI centres to mover towards a less cash society by March 2022.
  • Every individual should use financial services through mobile devices: Encouraging financial service providers to provide virtual modes including mobile apps so that every adult can access financial service provider through a mobile device by March 2024.
  • Move towards an increasingly digital and consent-based architecture for customer onboarding by March 2024.

A complete integration of the financial sector and basic service players to be made for the better delivery of financial services and products. Here, in addition to the traditional banking outlets; co-operative banks, Payments Banks, Small Finance Banks and other non-bank entities such as fertilizer shops, fair price shops, Office of the Local Government Bodies, Panchayat, Common Service Centres, educational institutions, etc., are to be absorbed to promote digital transactions.

Better networking of bank branches, BC outlets, Micro ATM, PoS terminals and stable connectivity etc., coupled with electricity is to be ensured.

  1. Providing Basic Bouquet of Financial Services

The RBI visions to provide some basic services to every adult. Every adult who is willing and eligible needs to be provided with a basic bouquet of financial services that include:

  • a Basic Savings Bank Deposit Account,
  • credit,
  • a micro life and non-life insurance product,
  • a pension product and
  • a suitable investment product.

Action plan for providing the bouquet of service is also drawn under the strategy.

Every willing and eligible adult who has been enrolled under the PMJDY to be enrolled under an insurance scheme (PMJJBY, PMSBY, etc.), Pension scheme (NPS, APY, etc.) by March 2020.

The Public Credit Registry (PCR) should be made fully operational by March 2022 so that authorised financial entities can assess credit proposals by citizens.

  1. Access to Livelihood and Skill Development to be provided for new account holders.

All the relevant details related to the ongoing skill development and livelihood generation programmes through RSETIs, NRLM, NULM, PMKVY shall be provided to the new account holders at the time of account opening.

Similarly, details of the account holders including unemployed youth, and women who are willing to undergo skill development and be a part of the livelihood programme may be shared to the concerned skill development centres/ livelihood mission and vice versa by March 2020.

For the newly financially included and SHG/micro entrepreneurs, etc., a focused approach by the civil society/ banks/ NGOs should be made with the coordination of the National Skill Development Mission by March 2022. Financial literacy should be made special attention in such efforts.

4 Financial Literacy and Education – easy to understand learning modules

Easy to understand financial literacy modules with specific target audience orientation (e.g. children, young adults, women, new workers/ entrepreneurs, family person, about to retire, retired etc. in the forms of Audio-Video/ booklets shall be made available for understanding the product and processes involved. It is also expected that these modules would help the new entrants.

The National Centre for Financial Education can prepare modules with specific target audience orientation (e.g. children, young adults, women, new workers/ entrepreneurs, senior citizens etc.) by March 2021. Expansion of the activities of Centers for Financial Literacy (CFL) at every block in the country is also to be done by March 2024.

5 Customer Protection and Grievance Redressal

Customers shall be made aware of the options available for resolution of their grievances. For storing and sharing of customer’s biometric and demographic data, adequate safeguards should be ensured to protect the customer’s right to privacy.

Facilities like common toll-free helplines (by March 2022), Grievances Redressal Mechanisms (by March 2020), customer grievance portal/ mobile app (by March 2022) etc. are to be completed immediately for this purpose.

  1. Effective Co-ordination between various stakeholders.

There needs to be a focused and continuous coordination between the key stakeholders viz. Government, the Regulators, financial service providers, Telecom Service Regulators, Skills Training institutes etc. to make sure that the customers are able to use the services in a sustained manner.

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