The framers of the Indian Constitution have thought well in advance and ensured to provide adequate and mandatory provisions in the Constitution of India to provide justice in all aspects of life equality in status, social security and economic/financial safeguards to the weaker sections of the society. The successive Governments in India have also made essential amendments to the constitution and brought legislative framework to ensure social and economic safeguards to the deprived sections of the society.

• As an initial step banks have been nationalized, provisions have been made for priority sector lending requirements for banks; lead bank scheme was introduced to ensure government policy initiatives to get shape in action.
• Regional Rural Banks (RRBs) have been established to provide last mile connection to the people in rural areas and have banking facilities at their door steps, the concept of service area approach have been brought in.
• Self-Help Groups – (SHGs) bank linkage programmes were introduced to give a platform for needy people to come up with business and innovative ideas to self-sustain and engage in gainful economic activities, etc.

What is Financial inclusion?

• Financial inclusion is the process of ensuring access to financial services, timely and adequate credit for needy weaker sections and low income groups at an affordable rate financial inclusion has become one of the most critical aspects in the context of inclusive growth and development.
• It has become a top policy priority of the Central Government to ensure egalitarian society, as the substantial population of India lives with economic insecurity.
• Setting steps towards universal financial inclusion is both a national commitment as well as a public policy priority for India.

Challenges for Financial Inclusion:

(i) Agent and vendor risk.

(ii) Consumption oriented expenditure patterns

(iii) Dormant accounts.

(iv) Inadequate awareness levels

(v) Lack of infrastructure.

(vi) Low literacy rates.

(vii) Poor saving habits.

(viii) Recovery related issues.

(ix) Small ticket transactions and high transaction costs.

(x) Sustainability factor

Barriers for Financial Inclusion:

• From the demand side, the reasons identified in the study for financial exclusion are low income, poverty and illiteracy and lack of awareness.
• From the supply side branch proximity, timings and procedures, attitude of the bank staff and language are the reasons cited.
• Impediments in approaching the bank due to difficulties in documentation requirements, loan sanction procedure, inflexible repayment terms, inability to communicate the requirements, reluctance to approach the bank for small loans were the major blockade in the road to achieve financial inclusion.
• Mobile number registration and pin number generation is a big deterrent for customers along with financial illiteracy.
• Access channels, coordination with mobile service operators are other challenges for banks.
• Low penetration of financial services, less efficiency of business correspondents also limits the success of financial inclusion.
• Marginal, farmers, landless labourers, oral lessees, self-employed and unorganized sector enterprises, urban slum dwellers, migrants or ethnic minorities and socially excluded groups, senior citizens and women are out of the purview of financial inclusion.
• Penetration of bank branches in rural areas was unviable on account of high transaction costs. Business Correspondent (BC) model is observed to be restrictive in rural areas.
• Lack of financial literacy and poor marketing of financial products leads to low awareness among urban poor depending on the informal credit sources which cater according to their convenience.
• There is also a large degree of self-exclusion due to the existence of informal credit sources meeting their convenience. The complex financial services market offers a wide range of products however lack of awareness restricts the use of these products.

Study suggests that achievement of inclusive growth was a result of the act of nationalisation of banks way back in 1969. For the purpose of the study, analysis of data published by RBI was made to substantially prove the fact that banking development after nationalisation has paved the way for penetration of banking into unbanked and rural areas. In spite of the massive branch expansion activity carried out by the banks, the challenges of the banking sector has not been met and there is need for recognising new channels to achieve full inclusive growth in the country. Despite vast coverage of formal banking network, the basic financial services are still not accessible to larger sections of the society.

Financial Inclusion and the Government:

1. The National Scheduled Castes Finance & Development Corporation (NSCFDC):

• NSCFDC was set up by the Government of India in February, 1989 as a Government Company. The broad objective of NSEDC is financing, facilitating and mobilising funds for the economic empowerment of Scheduled Caste communities living below the Double the Poverty Line (DPL) limit.

2. The National Scheduled Tribes Finance & Development Corporation (NSTFDC):

• NSTFDC was established during 2001 and it is incorporated as a government company a company not for profit to provide concessional financial assistance to scheduled tribes for their economic and educational development
• NSTFDC provides term loan for viable projects costing upto Rs 25 lakh per unit.
• Under the scheme, financial assistance is extended up-to 90 per cent of the cost of the project and the balance is met by way of subsidy/promoters contribution/margin money.
• The Adivasi Mahila Sashakikaran Yojana (AMSY) is an exclusive scheme economic development of scheduled tribes women under which NSTEDC provides loan up-to 90 per cent for the project costing up-to Rs 1 lakh at an interest rate of 4 per cent p.a.

3. The National Safaikarmacharies Finance & Development Corporation (NSCFDC):

• NSKFDC, was established in January 1997 as a ‘company not for profit’. It is fully owned by the Government of India.
• NSKFDC disburses the funds to the state channelizing agencies (SCAs) nominated by the concerned State Govts./UT Administrations and to Regional Rural Banks (RRBs) and Nationalised Banks for onward disbursement of the funds to the beneficiaries’.
• The SCAs disburse the funds to the ultimate beneficiaries in association with the District Social Welfare Department.

4. The National Backward Classes Finance & Development Corporation (NBCFDC):

• NBCFDC, is a Govt. of India Undertaking under the aegis of Ministry of Social Justice and Empowerment. The company is a not for profit with an objective to promote economic and development activities for the benefit of Backward Classes and to assist the poorer section of these classes in skill development and self-employment ventures.

5. The National Minorities Finance & Development Corporation (NMDFC):

• The prime mandate of NMDFC is to provide concessional finance to the Minorities for self-employment / income generation activates.
• As per the National Commission for Minorities Act, 1992, the notified Minorities are Muslims, Christians, Sikhs Buddhists and Parsis. Subsequently Jain community was also added unto the list of notified Minority Communities in January 2014.
• Under NMDFC programme, preference is given to artisan and women.

6. The National Handicapped Finance & Development Corporation (NHFDC):

• The NHFDC has been set up by Government of India to play a catalytic role in economic empowerment of Persons with Disabilities (PwDs).
• It has been working as an Apex Corporation for the benefit of Persons with Disability (PwDs) (Divyangjan) in the coutry.

7. Rashtriya Mahila Kosh (RMK):

• Rashtriya Mahila Kosh (RMK) is an autonomous organisation under the Ministry of Women & Child Development (MWCD).
• It is a society registered under the Societies Registration Act 1860 and an apex micro-finance organisation.
• The main objective is to provide micro-credit to poor women for various livelihood support and income generating activities at concessional terms in a client-friendly procedure to bring about their socio-economic development.

8. MUDRA Yojana:

• The Finance Minister announced the formation of MUDRA Bank.
• Accordingly MUDRA was lunched by the Hon’ble Prime Minister on 08 April 2015 for providing loans upto 10 Lakh to the non-corporate, non-farm small/micro enterprises.
• Loans are given by Commercial Banks, RRBs, Small Finance Banks, Cooperative Banks, MFIs and NBFCs.

9. Stand-Up India Scheme:

• Facilitates bank loans between 10 lakh and 1 crore to at least one Scheduled Caste (SC) or Scheduled Tribe (ST) borrower and at least one woman borrower per bank branch for setting up a Greenfield Enterprise. This enterprise may be in manufacturing, services or the trading sector.

10. Venture Capital Fund Scheme:

• A first of its kind Venture Capital Fund was launched by Ministry of Social Justice and Empowerment to promote entrepreneurship in India among the Scheduled Castes by providing concessional finance to them.

11. Prime Minister Jan Dhan Yojana (PMJDY):

• A new scheme Pradhan Mantri Jan Dhan Yojana was announced to ensure financial inclusion for weaker sections of the society for providing banking, pension and insurance to reduce the negative effects of earlier schemes, thus giving them financial freedom and stability.
• 5 crore bank accounts were opened under this scheme across the country.