Financial Inclusion - Past, Present and Future
Inaugural Address by Shri Shaktikanta Das, Governor,
Reserve Bank of India
Delivered at the Economic Times Financial Inclusion Summit on
Thursday, July 15, 2021
I wish to thank the organisers of the Economic Times Financial
Inclusion Summit for inviting me to address this august gathering.
Financial inclusion is a key driver of sustained and balanced economic
growth which helps reduce income inequality and poverty. While we have
made tremendous strides in this area over the years, the pandemic has
created new challenges and complexities. The financial system will have
a crucial role to fulfil the aspirations and needs of our economy on the
mend. It is therefore befitting that a summit to deliberate on financial
inclusion is being organised at this juncture and I commend the organisers
for the same.
2. The overarching principle behind India's journey towards financial
inclusion is echoed in the Gandhian philosophy: "Sarvodaya through
Antyodaya - Welfare of all through the upliftment of the weakest". The
focus is on the basic objectives of 'inclusiveness' and 'equity', which go
beyond poverty alleviation. It also encompasses equality of opportunity for
all sections of society including the poor, women, farmers, small
enterprises, and others. The policy makers in India - Government of India
and the Reserve Bank of India - acknowledged the importance of financial
inclusion early and have taken a number of measures to ensure that the
benefits of economic growth percolate down to the poor and excluded
sections of the society.
3. I am sure this forum today will deliberate on the emerging risks, new
models of innovative and disruptive technologies and areas of possible
policy interventions. In my address today, I thought it may be apt to look
at how far we have travelled on the path of financial inclusion and dwell
upon the way ahead. While assessing the progress made in this sphere
across the dimensions of Access, Usage and Quality, it is observed that
India has come a long way in facilitating access to banking services to the
last mile and in increasing the usage of financial products. Taking this
forward, the National Strategy for Financial Inclusion 2019-2024 (NSFI)1
and National Strategy for Financial Education 2020-20252 (NSFE)
provide a road map for a coordinated approach towards financial
inclusion, financial literacy and consumer protection. The National
Strategy for Financial Inclusion document lays down several milestones
and action plans to be implemented in order to make financial services
available, accessible, and affordable to all citizens in a safe and
transparent manner to support inclusive growth through a multi-
stakeholder approach.
Developments so far
4. Financial Inclusion journey of the country can be traced back to the
1950s when the focus was on channelizing of credit to the neglected
sectors of the economy and weaker sections of the population. This
was followed by various initiatives over the years such as expansion of
branch network, introduction of Priority Sector Lending(PSL), launch of
Lead Bank Scheme, promotion of Self Help Groups(SHGs), Joint Liability
Groups (JLGs), implementation of Business Correspondents (BC) model,
among others. The brick and mortar branches, complemented by the BC
model, have improved the reach of the banking system across the
country. The spread and reach of financial inclusion has indeed been
exponential in recent years.
5. The evolution and adoption of technology has led to massive
improvement in deepening of digital financial services. The Jan Dhan,
Aadhaar and Mobile (JAM) eco system has brought about a major shift
in the universe of financial inclusion. Further, several initiatives have been
taken for the creation of enabling digital infrastructure at the ground level
so as to universalise digital payments in a convenient, safe, secure and
affordable manner. Given the latent potential of harnessing value at the
bottom of the pyramid, we have seen a plethora of players emerging in
the field, ranging from traditional banks, niche financial entities such as
payments banks, small finance banks, micro finance institutions (MFIs)
and promising fintech companies.
6. In order to have a planned and structured approach to financial
inclusion, banks have been advised by RBI to put in place financial
inclusion plans (FIPs) consisting of achievements against several
parameters3. Substantial progress has been made with respect to these
parameters, details of which are given in the Reserve Bank's Annual
Report released in May 2021.
7. Greater focus is now being given to addressing the vulnerable
segments of the economy and population, while paying attention to
consumer protection and enhancing capacity of customers, so that
responsible and sustainable use of financial services can be achieved.
The introduction of differentiated banks catering to the unique needs of
varied population groups was a step in that direction. In the recent past,
the challenges that have engaged our attention are (i) how to identify the
customer; (ii) how to reach the last mile; and (iii) how to provide relevant
products which are affordable and safe catering to diverse needs.
8. The digital ID (Aadhaar) along with the proliferation of mobile phones
with world class payment systems have addressed the first two challenges
of access and usage to a large extent. The third challenge i.e. quality
requires both demand and supply side interventions. Opening of Pradhan
Mantri Jan-Dhan Yojana (PMJDY) accounts has enabled millions of
Indians to have access to financial services, with a basic bouquet of
financial products. This has addressed the supply side issue to a
considerable extent. The demand side interventions focused on creating
awareness amongst the public. Financial literacy, customer protection
and grievance redressal have become areas of focus for furthering
sustainable financial inclusion. Setting up of National Centre for Financial
Education (NCFE) by the Regulators and implementation of the Centre for
Financial Literacy (CFL) project of RBI are two recent initiatives towards
improving financial literacy.
9. Payment systems are seen to be lifeline of an economy. They are
increasingly being recognised as a means of achieving financial inclusion
and ensuring that economic benefits reach the bottom of the pyramid. It is
quite well known by now that India is among the leaders in the world with
regard to development of state-of-the-art payment infrastructure and
products leading to a wider adoption of digital payments. To give an
example, the number of Prepaid Payment Instruments (PPI)4 increased
at a compounded annual growth rate (CAGR) of 53 per cent from 41
crore in May 2017 to 226 crore in May 2021. The trends indicate that such
instruments have become immensely popular for making small value
payments.
10. The movement towards digital payments has also been facilitated by
the introduction of fast payment systems, such as Immediate Payment
Service (IMPS) and Unified Payment Interface (UPI), which provide
immediate credit to beneficiaries and are available round the clock. The
extent of digital penetration can be gauged from the fact that, each day on
an average during June 2021, the payment systems in India processed
more than 15 crore transactions amounting to nearly ₹4.5 lakh crore per
day. The UPI platform facilitating payment transactions through
smartphones has revolutionised the payment landscape in India. UPI has
witnessed over 280 crore transactions in June 2021. Globally, there has
been lot of interest in UPI. Similarly, the Aadhaar enabled Payments
System (AePS) facilitates fund transfers/payments and cash withdrawals
through micro-ATMs and BCs using Aadhaar authentication. During the
pandemic, cash transactions at BC outlets through micro-ATMs have
witnessed significant surge with more than 94 crore transactions
accounting for ₹2.25 lakh crore5 during 2020-21.
Response to the Pandemic
11. In India, the second wave of the pandemic has taken a grievous
toll both in terms of lives and livelihood. The recovery that had
commenced in the second half of 2020-21 was dented by the second
wave of the pandemic in April-May 2021. Our efforts towards financial
inclusion, have helped in enabling the Government to provide seamless
and timely financial support to vulnerable sections through direct benefit
transfers (DBT).
12. One of the important components of the JAM trinity, Aadhaar, the
world's largest initiative to provide biometric identity has facilitated
financial inclusion through innovative digital platforms. The NACH-
Aadhaar Payments Bridge (APB) System and PMJDY together have been
instrumental in enabling an effective usage of available banking facilities,
which came to the fore during the pandemic, with cash benefits under
Pradhan Mantri Garib Kalyan Yojana being disbursed to these accounts.
As on date there are about 42.59 crore6 PMJDY account holders with
more than 55 per cent account holders being women. The impact of the
digital payment in DBT can be discerned from the fact that ₹5.53 lakh
crore was transferred digitally across 319 government schemes spread
over 54 ministries during 2020-21.
13. To mitigate the financial impact of COVID-19 related disruptions,
the Reserve Bank has taken several policy measures to ease flow of credit
at a lower cost to needy segments. These measures include lowering of
policy rate, launching of on-tap liquidity schemes and channelising of
liquidity through All India Financial Institutions and facilitating financial
institutions to resolve stressed loans to individuals, small business and
MSMEs. Cash Reserve Ratio (CRR) exemption on credit disbursements
to new MSME borrowers; PSL classification for bank loans to NBFCs for
on-lending and PSL classification for loans from small finance banks
(SFBs) to micro finance institutions (MFIs) for on-lending were additional
measures taken to promote credit flow to affected sectors. Further, with
an objective to provide more focus on inclusive development, the Reserve
Bank last year broadened the scope of PSL by (a) including start-ups; (b)
enhanced the limits for lending to renewable energy sector; (c) increased
the targets for small and marginal farmers and weaker sections; and (d)
incentivised banks to augment credit flows to districts with relatively lower
credit penetration.
14. The pandemic has accelerated the push towards digitalisation with
greater adoption of digital payments. It is important to take steps to
converge greater digitalisation with goals of financial inclusion.
Operationalisation of Payment Infrastructure Development Fund (PIDF) -
an initiative of RBI together with banks and card networks - will provide
the necessary impetus for development of payment acceptance
infrastructure in tier-3 to tier-6 centres and north eastern states. This will
facilitate greater deployment of electronic payment acceptance facilities
(for example point of sale devices) in hitherto untapped areas, thereby
furthering the reach of digital payments ecosystem.
15. Similarly, the Reserve Bank's pilot project in association with banks
of making at least one district in each State/UT 100 per cent digitally
enabled, which was rolled out in 2019, covering 42 districts, will facilitate
greater access and usage of digital payments by the common man. As on
March 2021, banks have achieved a digital coverage7 of 95.9 per cent of
individuals while the achievement for businesses stood at 89.8 per cent.
The SLBCs have been advised to give renewed focus and
emphasis to ensure sustenance of the digital progress in these identified
districts. Further, in order to promote 'universal access to financial
services' under the NSFI, access to some form of banking outlet has been
provided to 99.9 per cent of the targeted villages within a 5 KM radius/
hamlets with 500 households in hilly areas.
16. The pandemic related restrictions on mass gathering of people at
various public places has necessitated a relook at conventional financial
literacy camps. During the pandemic period, enhanced recourse to
alternative approaches like using social media, mass media (including
local TV channels and radio), was undertaken across the country to
continue dissemination of financial education.
Post Pandemic World: The Way Forward
17. In order to make the post-pandemic recovery more inclusive and
sustainable, financial inclusion would continue to be our policy priority.
Considering the complementary role played by microfinance in bridging
the gaps at the last mile, a consultative document for harmonising the
regulatory frameworks for various regulated lenders in the microfinance
space has been issued recently. The primary objective is to address the
concerns relating to over-indebtedness of microfinance borrowers; enable
market mechanism to rationalise the interest rates; and empower the
borrowers to make an informed decision by enhancing transparency of
loan pricing.
18. The scaling up of Centre for Financial Literacy (CFL) project across
the country at the block level by March 2024 is expected to enhance the
effectiveness of community-led participatory approaches for greater
financial literacy. Further, recognising the importance of inculcating
financial literacy concepts at a young age, one of the strategic goals of the
National Strategy for Financial Education 2020-2025 (NSFE) is integrating
financial literacy content in the curriculum for school children. So far 15
state educational boards have included modules on financial education in
their school curriculum. These approaches are expected to strengthen
financial education at the grass-roots level so as to realise the vision of
creating a financially aware and empowered India as enunciated in the
NSFE.
19. To measure the extent of financial inclusion in the country, it has
been decided to construct and periodically publish a "Financial Inclusion
Index" (FI Index). The Index will have parameters across the three
dimensions of financial inclusion viz., Access, Usage and Quality. Work
on FI Index is underway and the Index will be published shortly by the
RBI.
Conclusion
20. As I conclude, I would like to reiterate that financial inclusion
promotes inclusive growth by way of making financial services including
credit and other safety nets available to the bottom of the pyramid.
Lessons from the past and experiences gained during the COVID-19
pandemic clearly indicate that financial inclusion and inclusive growth
reinforce financial stability. Greater financial literacy and education,
together with sound consumer protection mechanisms will ensure that
people at the bottom of the pyramid are empowered to take informed
financial decisions. This will also enable banks, NBFCs, MFIs, etc. to
enhance their customer base and products and diversify their balance
sheet.
21. I would like to emphasise that we must continue our efforts for greater
financial inclusion in pursuance of the goal of sustainable future for all.
There is need for accelerated universal reach of bank accounts along with
access to financial products relating to credit, investment, insurance and
pension. It is the responsibility of all stakeholders to ensure that the
financial ecosystem (including the digital medium) is inclusive and capable
of effectively addressing risks like mis-selling, cyber security, data privacy
and promoting trust in the financial system through appropriate financial
education and awareness. These efforts have to be supported by a robust
grievance redressal mechanism. I look forward to interesting ideas and
thoughts emanating from this forum which would enhance the process of
financial inclusion in the country.
Thank you. Namskar.