Financial Inclusion | Banking Service at doorstep
What is ‘Financial Inclusion’?
“Financial inclusion is delivery of banking services at an affordable cost (‘no frills’ accounts,) to the vast sections of disadvantaged and low income group.
Unrestrained access to public goods and services is prerequisite of an open and efficient society. As banking services are in the nature of public good, it is essential that availability of banking and payment services to the entire population without discrimination is the prime objective of the public policy.”
“The term “financial inclusion” has gained importance since the early 2000s, a result of findings about financial exclusion and its direct correlation to poverty.”
The United Nations defines the goals of financial inclusion as follows:
- access at a reasonable cost for all households to a full range of financial services, including savings or deposit services, payment and transfer services, credit and insurance;
- sound and safe institutions governed by clear regulation and industry performance standards;
- financial and institutional sustainability, to ensure continuity and certainty of investment; and
- Competition to ensure choice and affordability for clients.
- Promote habit of money saving, insurance and pension investment among poor-people.
- Help them get loans at reasonable rates from normal banks and avoid thugs and ‘lalchi’ moneylenders
Areas of concern by banks
- The banking industry has shown tremendous growth in volume and complexity during the last few decades.
- Despite making significant improvements in all the areas relating to financial viability, profitability and competitiveness, there are concerns that banks have not been able to reach and bring vast segment of the population, especially the underprivileged sections of the society, into the fold of basic banking services.
- The reasons may vary from country to country and so also the strategy but all out efforts are needed as financial inclusion can truly lift the standard of life of the poor and the disadvantaged.
Challenges that bank may face
RBI CAME WITH A SOLUTION
RBI’s Policy on ‘Financial Inclusion':
- When bankers do not give the desired attention to certain areas, the regulators have to step in to remedy the situation.
- With a view to enhancing the financial inclusion, while recognizing the concerns in regard to the banking practices that tend to exclude rather than attract vast sections of population, urged banks to review their existing practices to align them with the objective of financial inclusion.
- No-Frills’ Account :
In the Mid Term Review of the Policy (2005-06), RBI exhorted the banks, with a view to achieving greater financial inclusion, to make available a basic banking ‘no frills’ account either with ‘NIL’ or very minimum balances as well as charges that would make such accounts accessible to vast sections of the population. The nature and number of transactions in such accounts would be restricted and made known to customers in advance in a transparent manner. All banks are urged to give wide publicity to the facility of such ‘no frills’ account, so as to ensure greater financial inclusion.
- ‘Simplification of ‘Know Your Customer (KYC)’ Norms :
- Banks are required to provide a choice of a ‘no frills account’ where the minimum balance is nil or very small but having restrictions on number of withdrawals, etc., to facilitate easy access to bank accounts.
- In order to ensure that persons belonging to low income group both in urban and rural areas do not face difficulty in opening the bank accounts due to the procedural hassles, the ‘KYC’ procedure for opening accounts for those persons who intend to keep balances not exceeding rupees fifty thousand (Rs. 50,000/-) in all their accounts taken together and the total credit in all the accounts taken together is not expected to exceed rupees one lakh (Rs. 1,00,000/-) in a year has been simplified to enable those belonging to low income groups without documents of identity and proof of residence to open banks accounts. In such cases banks can take introduction from an account holder on whom full KYC procedure has been completed and has had satisfactory transactions with the bank for at least six months. Photograph of the customer who proposes to open the account and his address need to be certified by the introducer.
- Ensuring reasonableness of bank charges :
- As the Reserve Bank has been receiving several representations from public about unreasonable service charges being levied by banks, the existing institutional mechanism in this regard is not adequate. Accordingly, and in order to ensure fair practices in banking services, the RBI has issued instructions to banks making it obligatory for them to display and continue to keep updated, in their offices/branches as also in their website, the details of various services charges in a format prescribed by it. The Reserve Bank has also decided to place details relating to service charges of individual banks for the most common services in its website
Solution to all this problem is the third or middle man:
Financial Inclusion by Extension of Banking Services – Use of Business Facilitators and Correspondents.
We will discuss On Business Correspondent In Next Post