Need for Financial Inclusion

By Dr Arvind Kumar

Financial inclusion is the delivery of financial services at an affordable cost to low-income households. Broadly speaking, about half of the population in India is not served well (or even at all) by the current financial system. There is a close connection between poverty and financial exclusion, which can lead to estrangement, disaffection and reduced participation in society by low-income families.
The magnitude of the problem of financial exclusion can be daunting. Nearly half of the population and a majority in rural Indians do not have bank accounts. Less than 10% of India’s 600,000 villages have a bank branch. Nearly 80% of the Indian population is without life or health insurance. Penetration of mortgages, mutual funds and pension products is also very low.
The Reserve Bank of India has taken many initiatives to spread banking services such as expanding the number of rural bank branches as well as allowing the banking correspondent model. Apart from Government’s keenness to promote financial inclusion, the private sector can also serve the poor by making available capital, both debt and equity, at reasonable cost with the help of better technology and Internet connecivity. Financial inclusion will enable hundreds of millions of low-income people to improve their economic and social status by participating in the financial system.