The eminent economist Dr. C.K Prahlad, called the poorest of the global world, especially those living in the developing countries, as ‘the fortunes at the bottom of the pyramid’ whose potential had not yet been tapped effectively. On a similar note, Amartya Sen has argued that being poor doesn’t translate to just having low income levels but it is a larger problem that leads to the absence of security and ability to be a part of the larger social, political and financial system of the economy. It can be convincingly argued that these thoughts have been the foundation stone of central bankers and policy makers all across the world, for formulating policies that can eliminate financial exclusion from the society. With more than 800 million mobile subscribers it is yet another irony of India that more than half of its population has no access to formal banking system.
The Rangarajan Committee, constituted by the Indian government in the year 2008, defines Financial Inclusion 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.” Why is financial inclusion such a crucial issue for developing countries? A financial system works extremely well when it is inclusive because it helps in participation of more individuals into the financial system. Also, including the poor into the mainstream financial services is one of the major goals of the Millennium Development Goals (MDGs).
When poor families have access to financial instruments that are designed especially for low-income levels, they can increase their savings, invest in various investment sources and it also helps in reducing inequality and poverty in the society. When the poor have access to micro-finance and loans, they can provide education to their children, reducing the reliance on child labour that exists in our society.
As the Human Development Index reports of 2010, by the UN Development Program, India ranked at the 119th position. India has been doing poorly on all fronts, like life expectancy, education and per capita income. This further leads to a huge setback in the inclusive growth agenda. By improving access to credit and improving financial literacy, poor families can be helped to a great extent with respect to the facilities they can avail. In the recent years, there have been mixed results in the goal of achieving financial inclusion. Some schemes of the banks have failed to do well while several others have gained appreciable success. By constantly reviewing their goals and plans, the banks guided by RBI are trying to make the poor an integral part of the complex financial system. Let us hope the challenges are met by completed dedication and effective policy procedures by those who are at the helm of decision making.