APPROACHES TO FINANCIAL INCLUSION

There are various methods practised by Indian Government and Reserve Bank of India for financial
inclusion of public in India. They are shown by the chart given below:

Bank led Product led

initiative approach

Knowledge Technology
based based
approach approach

Regulator
based
approach

1. Bank led initiative :

 An initiative started by the banks – self help groups has been widely influential in
financial inclusion of people who are financially excluded. In this approach banks
help financially excluded people to form a group and pool their savings to deposit in
the bank against which the bank facilitates them some credit. Then , the group
decides to whether to lend some money to some of the members. In this method ,
saving comes first and lending is next. This reduces the prospect of bad loans due to
the peer pressure among the group members and the burrower’s reputation.
Issues associated with this kind of models are:
 Insufficient outreach in many regions
 Delays in opening of SHG accounts and disbursement of loans.
 Taking legal custody of savings by banks as collateral.
 Non-approval of repeat loans by the banks even when the first loan was
repaid.
 Multiple memberships.
 Borrowings by the SHG members within and outside the SHGs.
 Adverse consequences of unhealthy competition between NGO promoted
SHGs.
 Government promoted/subsidy oriented SHGs and limited banker interface.
  Monitoring of the SHGs

Due to this issues , recent developments have led to a new concept of SHG-2.
Its characteristics are:
 Members can have voluntary savings apart from the compulsory savings.
 Sanction of a credit system with cash balances / overdrafts for SHGs will be allowed
longer availability.
 Selected members with entrepreneurship potential are graduated to joint liability
groups where they can borrow larger amount of money.

Business facilitators(BF) or business correspondents(BC) : This model is based on communication

and information technology. The BF/BC performs the last phase of delivery of the financial product
and services with the technological support provided by the banks. This model was initially created
by banks and then with the help of improvisations and Reserve Bank of India’s framework support ,
this approach has helped reduce the gap between service providers and service seekers i.e. banks
and public respectively.

The issues associated with these are:

 Profitability of BFs/BCs
 Banks and their BFs/BCs are exposed to huge risk of cash management
 The training and hand-holding of the BFs/BCs to enhance the trust level of the end
customers
 Adaptation to technology
 Compatibility and integration of technology used by the banks and their BFs/BCs

2. Product led approach: There has been fair amount of motivation from banks while
developing policies for financial institution to produce creative financial services and products
so that common man can avail the benefits of financial inclusion. Some of these products are:
 No frill accounts- In this type of accounts , there is no limit for minimum balance for
opening bank accounts of financially excluded people. This was proposed by RBI.
Later , banks innovated and came up with idea of opening Basic Savings Bank
Deposit Accounts in which account holders can avail facilities e.g. debit card,
cheque book, internet banking, overdraft limits at minimal charges.
 Kissan credit cards(KCC); Under the protection of this scheme, farmers were
issued KCC with which banks can provide the farmers with adequate and timely
credits for their needs in farming from a single window banking system.
 Genral Purpose Credit cards(GCC): Under this scheme of RBI, banks were
instructed to provide GCC for urban and semi-urban people based on assessment of
household cash flows. GCC will facilitate people with getting credit upto Rs 25,000/-
without any collateral requirement.
3. Regulator Approach: Some of the facilities provided under this approach are:
  Simplified KYC forms – RBI has relaxed numerous KYC norms for opening of bank
account with account balance limit not exceeding Rs50,000/- to meet its objective of
financial inclusion and tap the banking opportunities at rural areas.
 Bank branch authorization – Also, RBI has relaxed its norms for opening of bank
branches in tier 3-6 cities , towns, villages. This step would boost up the pace of
financial inclusion .
 Simplified bank saving account opening – RBI has also simplified the norms required
to fulfil to open bank saving accounts.

4. Technology based approach: Many technological innovations have been included to

improve financial inclusion. Following are the examples:
 Mobile banking –This technological innovation has enabled banks and mobile
operators to collaborate with each other to provide various financial services
 ATM based banking- Automated Teller Machine has been another significant
innovation which provides financial services and acts as a 24x7 open branch.
 Aadhar enabled payment services- Anyone with aadhar card can link his aadhar card
to his bank account to avail various financial service. This reduces the delay in
receiving of benefits by the end user.
 Branchless banking-Some of the most prominent banks came to this concept where
they would have online system with chat facilities helping the person to use different
electronic machines Deposit and withdraw money and checks. However, this
initiative is in an early stage and exists a limit on the initial price of banks and
knowledge for the rural population and, therefore, this concept is currently limited to
urban and semi-urban areas.
5. Knowledge based approach: Financial institution has been promoting and making
people aware people of various financial inclusion programs available and increasing their
knowledge in this subjects. As there is a need of efforts from both sides for success of financial
inclusion programs and for this end user needs to be aware of the facilities available to them.
FINANCIAL STABILITY

FINANCIAL INCLUSION FINANCIAL EDUCATION

THE FINANCIAL TRIPOD