Context: In this episode of the Perspective Prog. based on Banking on Financial Inclusion. Financial inclusion is an important keystone of the socio-economic development of a country as well as a significant enabler of poverty alleviation & boosting prosperity. 

• Bringing every citizen under the formal banking system, encouraging digital payments and making financial services easily accessible and affordable for people across the country are some key aspects of financial inclusion. 
• According to a recently released SBI Research report on Financial Access Survey, India has stolen a march in financial inclusion with the initiation of PMJDY accounts since 2014, enabled by a robust digital infrastructure, careful recalibration of bank branches and use of the Banking Correspondent model. 
• Mobile and internet banking transactions per 1,000 adults have increased to 13,615 in 2019 from 183 in 2015. The number of bank branches per one lakh adults rose to 14.7 in 2020 from 13.6 in 2015, which is higher than Germany, China and South Africa. 
• SBI research report also says that states with higher PMJDY accounts balances have seen a perceptible decline in crime. 
• RBI's annual Financial Inclusion or FI-Index for the period ending March 2021 stood at 53.9 against 43.4 for the period ending March 2017. 
• This index captures information on various aspects of financial inclusion and comprises of three broad parameters-Access, Usage and Quality.

Key highlights of the Report

• Boosted by PM Jan-Dhan Yojana, the number of bank branches per 100,000 adults in India rose to 14.7 in 2020 from 13.6 in 2015.
• It is higher than Germany, China and South Africa.
• Data shows that states with higher Jan-Dhan accounts balances have seen a perceptible decline in crime.

What does one mean by Financial Inclusion?

• Financial inclusion is defined as the availability and equality of opportunities to access financial services.
• It refers to a process by which individuals and businesses can access appropriate, affordable, and timely financial products and services.
• These include banking, loan, equity and insurance products etc.
• It aims to include everybody in society by giving them basic financial services regardless of their income or savings. It focuses on providing financial solutions to the economically underprivileged. 

Objectives of financial inclusion: The objectives of financial inclusion are to provide the following:

• A basic no-frills banking account for making and receiving payments
• Saving products (including investment and pension)
• Simple credit products and overdrafts linked with no-frills accounts
• Remittance, or money transfer facilities
• Micro insurance (life) and non-micro insurance (life and non-life)
• Micro pension

Key Importance of financial inclusion

• Financial inclusion is among the most critical objectives for long-term equitable growth and a financially-stable economy. 
• A country where a large proportion of its population is excluded from the financial sector, as it currently is in India, is not only not equitable but will also have a relatively weak financial sector. 
• Financial inclusion strengthens the availability of economic resources and builds the concept of savings among the poor. 
• Financial inclusion is a major step towards inclusive growth. 
• It helps in the overall economic development of the underprivileged population. 
• In India, effective financial inclusion is needed for the uplift of the poor and disadvantaged people by providing them with the modified financial products and services.

How did India achieve financial inclusion?

• Financial inclusion policies have a multiplier effect on economic growth, reducing poverty and income inequality, while also being conducive for financial stability.
• India has stolen a march in financial inclusion with the initiation of PMJDY accounts since 2014.
• It was enabled by a robust digital infrastructure and also careful recalibration of bank branches and thereby using the BC model judiciously.
• Such financial inclusion has also been enabled by use of digital payments.

What is the BC Model?

• The report highlighted that the Banking Correspondent (BC) model in India is enabled to provide a defined range of banking services at low cost.
• The new branch authorisation policy of 2017 –recognises BCs that provide banking services for a minimum of 4-hours per day and for at least 5-days a week as banking outlets.
• The BCs are enabled to provide a defined range of banking services at low cost and hence are instrumental in promoting financial inclusion.
• This has progressively done away the need to set up brick and mortar branches.

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