Question

<!--td {border: 1px solid #ccc;}br {mso-data-placement:same-cell;}--> Credit-based financial inclusion approach has done more harm than good to the intended sections of society. Suggest measures to make the concept of Financial Inclusion broad-based.

Answer 1

Answer:

Introduction:
Financial inclusion means vulnerable and weaker sections of society having access to financial services and timely and adequate credit at an affordable cost. In developing countries like India Financial inclusion is a precondition for the increasing income level and removal of poverty.

Body:
Steps for Credits access to weaker sections of society:
NABARD launched the Self Help Group-Bank linkage programme in 1992 as an alternative credit delivery mechanism for reaching the unreached.
Like self-help groups (SHGs), the scheme of joint liability groups (JLG) is yet another institutional invention introduced in India. This scheme enables landless/tenant farmers and oral lessees, secure collateral-free loans from the banking system on the basis of joint undertaking by all the members of the group.
In January 2006, The Reserve Bank of India, on the recommendations of Khan Commission, permitted banks to employ two categories of intermediaries – Business Correspondents (BCs) and Business Facilitator (BFs). Scheduled commercial banks including regional rural banks (RRBs) and local area banks (LABs) were permitted to use the services of these agents in providing financial and banking services throughout the country, especially in remote areas.
Priority Sector Lending is an important tool with the Reserve Bank of India (RBI) to ensure financial inclusion and credit access to weaker sections of society. The Reserve Bank of India (RBI) has made it mandatory for the banks to provide a specified portion of the bank lending to a few specific sectors like agriculture or small scale industries.
General-purpose Credit Card (GCC) is another mechanism to ensure credit access to weaker sections of society. Under it banks have been asked to consider the introduction of a general-purpose credit card facility up to Rs 25,000 at their rural and semi-urban branches
Kisan Credit Card Scheme (KCC) was introduced in August 1998 as revolving cash credit for ease of access and delivery.
PMJDY (Pradhan Mantri Jan-Dhan Yojana) envisages Rs. 5,000 overdraft facility for Aadhar-linked accounts as well as a RuPay debit card with inbuilt Rs. 1 lakh accident insurance cover.

Problems with credit based financial inclusion approach:
Consumers who cannot comprehend basic financial concepts often end up paying higher transaction fees.
They pile up unmanageable debts and end up paying higher interest on loans, which can mean more harm to the poor.
There is the problem of Impounding of savings by banks as collateral.
The Reserve Bank of India’s Internal Working Group (IWG) to review agricultural credit raised several concerns on the farm front as approximately 30 percent of agricultural households still avail credit from non-institutional sources only. They could be tenant farmers, sharecroppers and landless labourers who are not able to offer collateral security to avail institutional credit, or they are involved in unviable subsistence agriculture or banks do not find them credit worthy.
These most vulnerable sections end up taking loans at very high rates from local moneylenders.

Measures:
Universal Access to Financial Services
The digital infrastructure in the country needs to be expanded through better networking of bank branches, business correspondents (BC) outlets, Micro ATM, PoS terminals and stable connectivity etc. coupled with electricity.
Efforts are needed to be undertaken through coordination with various stakeholders to ensure the creation of the requisite infrastructure for moving towards completely digital onboarding of customers.
Providing Basic Bouquet of Financial Services
The banks may undertake a periodic review of their existing products and adopt a customer-centric approach while designing and developing financial products.
Initiate measures for capacity building of the business correspondents by encouraging and incentivizing them to acquire requisite certifications and enabling them to deliver a wide range of financial products.
Access to Livelihood and Skill Development
There should be a convergence of objectives of the National Rural Livelihood and Urban Livelihood Missions to deepen Financial inclusion through an integrated approach.
Inter-linkages may be developed between banks and other financial service providers with ongoing skill development, and livelihood generation programmes through RSETIs, NRLM, SRLM, Pradhan Mantri Kaushal Vikas Yojana etc.
Financial Literacy and Education
Customers need to be explained in simple language the nature of the product, its suitability to their requirements and the cost vis-à-vis return.
Concerted efforts are needed to ensure coordination among the ground-level functionaries viz. Lead District Manager (LDM), District Development Manager (DDM) of NABARD, Lead District Officer (LDO) of RBI, District and Local administration, Block level officials, NGOs, SHGs, business correspondents, Farmers’ Clubs, Panchayats, PACS, village level functionaries, etc. while conducting financial literacy programmes.
Customer Protection and Grievance Redressal
A robust customer grievance redressal mechanism at different levels helps banks in timely redressal of grievances.
Develop a portal to facilitate inter-regulatory coordination for redressal of customer grievance.

Conclusion:
Substantial efforts are needed not only from banks and other financial institutions but also from an array of other stakeholders including civil society to make financial inclusion a key driver of economic growth and poverty alleviation.