Question

Financial Inclusion is globally considered to be a critical indicator of development and well-being of society. In this context discuss the importance of financial inclusion. What steps should be taken by the central and state government to make financial inclusion more effective in the country?

Answer 1

Approach:

• In intro discuss basic definition of Financial Inclusion.
• Discuss about the importance of financial inclusion.
• Discuss about the initiatives for make financial inclusion more effective.

Financial Inclusion may be defined as the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost. Many steps are taken for financial inclusion such as No-Frill accounts, core banking system (CBS), National Electronic Funds Transfer (NEFT), National Electronic Clearing Service (NECS) Immediate Payments Service (IMPS) and AdharEnabled Payment Systems (AIPS) etc.

Importance of financial inclusion:

• Financial Inclusion facilitates access to the financial system, allowing them to build financial and physical assets, seek credit for their education, healthcare and businesses and also save for unexpected exigencies and old age.
• It helps in reducing poverty and inequality. It also offers an array of financial services that provide protection in case of untimely death or accident of the bread earner and also provides a safety net in old age.
• Financial Inclusion means greater transparency, converting cash transactions into account transactions, strengthening the banking system and credit creation process, reducing black m o n e y, corruption and providing the common man benefits of equal rights on the resources of the country.
• It also facilitates investing in bank deposits, contributing to insurance products, participating in stock markets and other financial instruments by removing unfounded fears about efficiency and stability of the financial system, instruments, and financial assets etc.

Steps to make the financial Inclusion more effective:

• For Financial Inclusion to be more effective there is a need for digital infrastructure and digital literacy in small towns and rural India.
• Peer to peer lending platforms, credit penetration, and creation of a credit inclusive society should be encouraged.
• There is a need to encourage FINTECH (financial technology) use of software and modern technology i.e. use of smartphones for mobile banking, investing services and crypto currency (to be issued by Reserve Bank), block chain to help make financial services more accessible to the general public.
• Financial literacy drives need to be more aggressive and driven at the school level where students develop a culture of understanding and transacting through the accounts
• and continue to do so for their lifetime.
• It would be possible if people better understand the financial products and
• services and their role in their daily lives.