Financial Inclusion means, the delivery of financial services including banking and credit at an affordable cost to vast sections of disadvantaged and low income groups who tend to be excluded. Components of financial inclusion include access to savings, loans, insurance, payments and remittance facilities offered by the formal financial system.

• Among the key Financial Services that are of great relevance here, are risk management or risk mitigation vis-a-vis economic shocks, may be an income shock due to adverse weather conditions are natural disasters, or an expenditure shock due to health emergency or accidents, leading to a high level of unexpected expenditure.
• This aspect of financial inclusion is of vital importance in providing economic security to individuals and families especially in rural India.

Evolution of financial inclusion:

• The measures for financial inclusion started way back in 1904, but with the advent of cooperative movement, further in 1969 with the nationalization of major banks in India the issue got real impetus in 2008, when the committee on financial inclusion, headed by Dr. C Rangarajan was formed by RBI.
• The Reserve Bank of India has been complementing the government’s efforts through its numerous initiatives like introduction of priority sector lending requirements for banks, establishment of regional rural banks (RRBs), self-help group-bank linkage programme to extend the financial services to the poor and marginalized segments of the society.
• The Government of India and Indian Bank’s Association, in the beginning of 2011, jointly launched ‘Swabhiman’ to bridge economic gap between rural and urban India. It aimed at ensuring availability of banking facility within the reach of every village with a population of over 2000 by the end of March, 2012.
• This gained a momentum with the Pradhan Mantri Jan Dhan Yojana, aiming at ensuring universal access to bank facilities, increase in the level of financial literacy and providing access to credit, insurance and pension services as well.
• RBI also undertook some measures to augment financial inclusion, such as –
  • Granting in-principle approval to the largest Micro Finance Institutions in India to commence banking operations, Permitting Non-banking Financial Companies to act as business correspondence for banks,
  • Issuing guidelines on differentiated banking licenses for a Small Banks and Payments Banks based on the recommendations of the committee on Comprehensive Financial Services for Small Business and low income households.
• NABARD launched Self Help Group-Bank linkage programme in 1992 as an alternative credit delivery mechanism for reaching the unreached.
• Like self-help groups (SHGs), the scheme of joint liability groups (JLG) is yet another institutional invention introduced in India with a view to enable landless/tenant farmers, oral lessees, secure collateral-free loans and productive purposes from the banking system, just on the basis of joint undertaking by all the members of the group.
• In January 2006, The Reserve Bank of India, on the recommendations of Khan Commission, permitted banks to employ two categories of intermediaries – Business Correspondence (BCs) and Business Facilitator (BFs). Scheduled commercial banks including regional rural banks (RRBs) and local area banks (LABs) were permitted to use the services of these agents in providing financial and banking services throughout the country, especially in remote areas.
• Subsequently, PMJDY – a National Mission on Financial Inclusion encompassing an integrated approach to bring about comprehensive financial inclusion of households was introduced.

Recent developments:

• Ministry of Finance and National Informatics Centre (NIC) jointly developed a mobile app called Jan Dhan Darshak with a view to enable common people in locating a financial service touch-point.
• Direct Benefit Transferthat aims to transfer subsidies directly to the people through their bank accounts has been introduced.
• Payments Bank is a model of banks conceptualized by RBI which came just weeks after the PMJDY. It primarily focuses at enhancing financial inclusion drive by widening the spread of payment and financial services to small businesses, low-income households, migrant workforce in a secured Technology-driven environment.
• M-banking has also played a significant role.
• In view of the changes that have taken place in the financial sector over the years, RBI constituted a Committee of Executive Directors of the world to study the efficacy of the Lead Bank scheme.
• Twenty public sector banks and one private sector bank have been assigned Lead Bank responsibility in 714 district across the country.
• In order to have a planned and structured approach to financial inclusion, banks have been advised to prepare Board-approved financial inclusion plans, capturing their achievements on all parameters.
• The National Strategy for Financial Inclusion document is being finalized under the aegis of Financial Inclusion Advisory Committee to take forward the momentum.

Conclusion and way forward:

• The World bank’s latest Global Findex data proves that India has made rapid strides in improving access to formal financial Services.
• Today more than 80 percent adults have a formal bank account. At the same time, it has cut its gender gap in financial access from 20 percentage points to six.
• PMJDY has opened more than 100 million new bank accounts, more women have been enrolled.
• The mobile phone is still the most promising empowerment tool for financial inclusion.
• Gender gap in basic access needs to be eliminated while increasing usage among all customers by making financial services more digital, flexible and relevant.
• There is an acute need for developing next generation payment systems which have a user friendly interface and local language.