Financial Inclusion - National Strategy for Financial Inclusion [UPSC GS-III]

The World Bank defines the term as the following:

“Financial Inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way.”

Aspirants can find information on the structure and other important details related to the IAS Exam,in the linked article.

In India, the government too has tried to financially include its citizens through initiatives like Jan Dhan Yojana, aadhar etc. The topic, ‘Financial Inclusion’ is important for Civil Service Exam from the perspective of GS-III (Economics.)

National Strategy for Financial Inclusion (2019-2024)This article will provide relevant facts about Financial Inclusion and the government’s National Strategy for Financial Inclusion.

The key facts about the National Strategy for Financial Inclusion are mentioned in the table below:

National Strategy for Financial Inclusion
Who has brought out the National Strategy for Financial Inclusion?  Reserve Bank of India (RBI) introduced this strategy
What is the timeline of this strategy? 2019-2024
What is the objective of the National Strategy for Financial Inclusion? To accelerate financial inclusion to promote economic well being, prosperity and sustainable development
What is the strategy of the National Strategy for Financial Inclusion? It aims to provide access to formal financial services in an affordable manner, broadening & deepening financial inclusion and promoting financial literacy & consumer protection
What is the vision of the National Strategy for financial inclusion? Financial Inclusion - RBI Vision towards National Strategy for Financial Inclusion
Which centres are included in this strategy? All Tier-II to Tier-VI centres
Key-highlight of the strategy?
  • To move towards a less-cash society is one of the aims encompassed in this strategy. The deadline is decided to be March 2022
  • An insurance scheme and a pension scheme have been mentioned in the strategy under which a willing and eligible adult who is already enrolled under the PM Jan Dhan Yojana (might be delayed due to Wuhan Coronavirus)
  •  The Public Credit Registry (PCR) is planned to be made fully operational by March 2020. This will lead authorized financial entities to assess the credit proposals from all citizens.
Who are the stakeholders of the National Financial Inclusion Strategy?
  • Financial Consumers.
  • Financial Market players like banks, non-banking financial companies (NBFC)
  • Educational Institutions.
  • Non Governmental Organizations (NGOs).
  • Financial Sector Regulators.
  • Both Central and State governments.
  • Multilateral international players like OECD, G-20, and others. 
What are tier-I to tier-VI cities? According to 2011 census, they are categorized as per population:

Tier-I: 1 lakh and above

Tier-II: 50000-99999

Tier-III: 20000 – 49999

Tier-IV: 10000 – 19999

Tier-V: 50000 – 9999

Tier-VI: Less than 5000

Relevant Facts about Financial Inclusion for UPSC

  1. The main concept of financial inclusion is to ensure delivery of financial services :
    • bank accounts for savings and transactional purposes,
    • low-cost credit for productive, personal and other purposes,
    • financial advisory services,
    • Insurance facilities (life and non-life) etc.
  2. The report on the committee of financial inclusion reforms mentioned the household access to financial services, depicted in the diagram below:
    • Financial Inclusion - Household Access to Financial Services

      Source : Committee on Financial Inclusion

       

  3. There are three challenges to financial inclusion and those can be termed to be:
    • The high cost of the plan
    • Lack of technological advances
    • Lack of awareness among masses

Financial Inclusion and India

Despite various governmental initiatives, the state of financial inclusion is not very bright:

  1. Only about 5% of India’s 6 lakh villages have bank branches. There are 296 under-banked districts in states with below-par banking services
  2. A very large segment of the agricultural sector is starved of formal credit, forcing the farmers to borrow from the informal moneylenders at usurious interest rates.

Micro, Small and Medium Enterprises (MSME) sector, which provides 90 per cent of non-farming employment, could access only 4 per cent of institutionalized finance, leaving the rest to usurious money lenders

Financial Inclusion – UPSC Notes:-Download PDF Here

 

Multiple Choice Question

Consider the following Statements

  1. The foreign exchange market is a global decentralized or over-the-counter market for the trading of currencies. This market determines foreign exchange rates for every currency.
  2. The bond market is a financial market where participants can issue new debt, known as the primary market, or buy and sell debt securities
  3. A stock market, equity market or share market is the aggregation of buyers and sellers of stocks, which represent ownership claims on businesses
  4. The primary market is the part of the capital market that deals with the issuance and sale of securities to investors directly by the issuer.

Choose the correct answer from the below given options

A) All the above given Statements are false

B) All the above given Statements are true

C) Only Statements 1, 2 and 4 are true

D) Only Statements 1,2 and 4 are false

 

Answer: B

Candidates can find the general pattern of the UPSC Civil Service Exam by visiting the IAS Syllabus page.

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