Challenges before Financial Inclusion Plan & Role of Financial Institutions

Financial inclusion plan today conceived in most of corner as “buzzword” which sometimes under evaluate its actual area of impact-as this movement refers towards potential spread of institutional finance and financial awareness to cater the needs of hitherto unbanked segment of society, so it becomes imperative to judge the set of problems actually persists and its best suitable redressal. Historically, India as a nation and economy remains stoutly attached with the rural landscape and agrarian activities-despite consistently falling of primary sector’s {Agriculture}contribution in overall GDP, the proportion of headcounts involved in agrarian occupation still constitutes around two-third of total workforce in country.
Though alone the numbers of personal involvement in the agrarian sector doesn’t reflect the healthy trend in terms of prosperity or other developmental indices in comparison with the dwellers of services and or industry-primary reason of such asymmetry lies in disguised nature of employment potential in agrarian sector and very low access to institutional benefits, most notably of institutional financial access. The most visible reason that can be sighted is-low awareness among the persons who placed near or at bottom of pyramid about the benefits of banking to their personnel and professional life; indeed the case is much rampant in rural areas yet that shouldn’t be blamed alone for such materialization.

Infact,role of financial institutions except the Regional Rural Banks and some Scheduled Commercial Banks, remains far from satisfaction-on one side where Co-operative banks by and large caught in unhealthy business executions-on the other side, role of private Non Banking Financial Companies {NBFCs}and Micro Financial Institutions {MFIs}have been largely revolved around their exorbitant profit making proposition. In such condition, it’s hardly surprising that most of illiterate, downtrodden peoples especially in rural areas found themselves far from being fit to dwell with these financial players. Even worst, responsible banking as it slowly appearing within Indian banking as well, also counts merely the number of accounts opened as a real achievement of financial inclusion which poses adverse ramification on advanced participation in the sphere of institutional finance.
Here a lot of things have to be done for maximization and naturalization of partnership between financial excluded class and financial institutions involved in this sphere-equally imperative is financial literacy that plays real catalyst in optimization of financial access and its suitable management for better results. At the same time, banking research and survey have to be more pragmatic in streamlining the particular financial products for proper effectiveness since a lot of confusions are still prevailing about even the basic function of many concept-for example, Microfinance business , atleast in Indian context, these entities are hardly demonstrating their claim of actual Micro financial functions-most of them are acts like micro lender who provides micro credit unlike the real broad meaning; in real terms, Microfinance indeed have very broad range of function-from lending –investment to insurance function.

Unique Identification Numbers {UID}is a welcome concept that would at least end the traumatic web of verification of Know Your Customers {KYC} norms albeit it shouldn’t be taken as panacea for financial inclusion plan. Primarily, RRBs and other Scheduled Commercial Banks are catering the needs of institutional finance in rural areas-these institutions are now heading to assist the innovative models-such as Self Help Groups {SHGs}, this one is a visionary model in India context which emphasized on the collective effort on entrepreneurship-indeed, this model is feasible yet if added some more closer collaboration with the banks and SHGs with essential products like-Insurance, Mutual Funds etc, that’s outcome would be certainly appear more brighter. Integration of Indian economy with the outside world has drastically changed the outlook of banking business in India-on the wake of global financial crisis, Indian banking sector remains relatively unscratched through bad exposure and now catching the attention from world wide because of its sound regulatory norms and huge domestic market including a big chunk of untapped rural markets.
Moreover, the two upcoming changes in Indian banking-consolidation and foraying of new banking players may have far reaching effects for rural India as the style and focus; both are going to shape under the new dynamicism. In most of cases, stiff competition under the open economy leaves positive impact on end users-so; in near future there may be possibility of rationalization among the private MFIs to shift from existing exorbitant rate of lending. Challenges are many before the empowerment of end users with better financial inclusion, yet it’s possible through better regulation and streamlining the innovative practices in financial sector that can effectively address the actual plight of financially untapped.
Atul Kumar Thakur
November 24th 2010 {Wednesday}
New Delhi
atul_mdb@rediffmail.com