03-12-2012, 01:15 PM
Financial Inclusion and Banks : Issues and Perspectives
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Role of FICCI and UNDP
As you are all aware, financial inclusion is a mammoth task and it cannot be achieved without the active collaboration of all stakeholders. It is in this context that this particular seminar organised by Federation of Indian Chambers of Commerce and Industry (FICCI), which is an apex industry association and brings a large number of stakeholders under its fold, and United Nations Development Programme (UNDP), which is at the centre of the UN’s efforts to reduce global poverty, assumes significance. FICCI has been playing a leading role in policy debates touching social, economic and political issues and I believe that corporates have a great role to play in furthering financial inclusion. It is in their interest. UNDP, as I am aware, has always been a solution-oriented, knowledge-based development organization, supporting various countries to reach their development objectives and internationally agreed goals. The strength of UNDP is that it partners with people at all levels of society to help build nations as also helps build capacities for sustained development and to meet the emerging developmental needs. It also brings in global perspective which is much needed. Within the thematic area of poverty reduction, UNDP has also associated itself with state governments to facilitate the design and implementation of pro-poor and inclusive livelihood promotion strategies with focus on excluded groups such as women, Schedule Castes (SCs), Scheduled Tribes (STs), Minorities, below-poverty line and migrant households and involuntarily displaced people. It is indeed an opportune time for FICCI-UNDP to release the paper on “A study on the progress of Financial Inclusion in India” which aims to analyze the role played by banks in creating Financial Inclusion and the future strategy they need to adopt to make further progress.
National focus on inclusive growth
Today, there is a national as well as global focus on inclusive growth. The Financial Stability and Development Council (FSDC) headed by the Finance Minister is mandated to focus on financial inclusion and financial literacy. All financial sector regulators including the Reserve Bank of India are committed to the mission. And, very publicly, so are banks and other financial sector entities. If we are advocating any kind of stability whether financial, economic, political or social and inclusive growth with stability, it is not possible to attain these goals without achieving financial inclusion. Financial inclusion promotes thrift and develops culture of saving, improves access to credit both entrepreneurial and emergency and also enables efficient payment mechanism, thus strengthening the resource base of the financial institution which benefits the economy as resources become available for efficient payment mechanism and allocation. Empirical evidence shows that countries with large proportion of population excluded from the formal financial system also show higher poverty ratios and higher inequality. Thus, financial inclusion is no longer a policy choice today but a policy compulsion. And, banking is a key driver for financial inclusion/inclusive growth.
Role of Banks
But, it is well recognized that there are supply side and demand side factors driving inclusive growth. Banks and other financial services players are largely expected to mitigate the supply side processes that prevent poor and disadvantaged social groups from gaining access to the financial system. Access to financial products is constrained by several factors which include lack of awareness about the financial products, unaffordable products, high transaction costs and products which are inconvenient, inflexible, not customized and of low quality. However, we must bear in mind that apart from the supply side factors, demand side factors such as lower income and /or asset holdings also have a significant bearing on inclusive growth. Owing to difficulties in accessing formal sources of credit, poor individuals and small and micro enterprises usually rely on their personal savings and internal sources or take recourse to informal sources to invest in health, education, housing and entrepreneurial activities to make use of growth opportunities.