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Benefits may not be offered in every state. A variable Purchase APR applies to credit card purchases and will be The variable Cash APR applies to cash advances and overdrafts and is Individual indicators, viz. Financial services or products rendered by banks, postal savings banks, credit unions, finance companies, micro-finance institutions MFIs , and other formal and quasi-formal non-bank institutions generally form the basis for measuring the financial inclusion. Such voluntarily excluded persons, it is argued, should be included in measures of access even if they do not use financial services.
For instance, access to finance can be measured in terms of access to certain institutions such as banks, insurance companies, and MFIs or in terms of access to the functions that such institutions perform, or the services that they provide such as payments services, savings or loans and credits. Yet another approach is to look at details on the uses of specific financial products such as debit cards, credit cards, life insurance and home mortgages, among others.
However, these are highly country-specific. The core access indicators often used are generally based on institutional distinctions concerning specifically the degree of formality of the financial institutions World Bank, At the one end of the spectrum are banks or near banks which are often defined as formal financial institutions which can provide multiple financial services to their clients, including deposits, payments and credit services. The attributes of banks and near banks are broadly comparable across countries.
Other formal financial service providers are all other legal entities licensed to provide financial services. They are registered and subject to some reporting requirements. Thus, in the case of credit, this may include consumer finance companies, credit card companies or credit unions. Informal providers of financial services are other organised providers of financial services that are not registered as financial intermediaries and not subject to any oversight.
Moneylenders and cheque cashing outlets, which are not regulated financial institutions, belong to this categor y. This functional perspective enables a focus on specific service needs and their gradation in order of priority from less to more developed financial environment.
These additional core indicators provide augmented understanding of the nature and depth of financial services. The financial service functions identified to be used as the basis for indicators are: i transactions or payment services; ii savings deposit and investment services; and iii loan or credit services. Risk transformation services such as insurance could arguably be added. However, it is conceptually similar to a sophisticated savings and credit product.
Since measuring inclusion is perceived to be difficult, financial inclusion has generally been defined in terms of exclusion from the financial system. Specific indicators such as number of bank accounts, number of bank branches, that are generally used as measures of financial inclusion, can provide only partial information on the level of financial inclusion in an economy.
Another approach is to look at details on the uses of specific financial products such as debit cards, credit cards, life insurance, and home mortgages, but these are highly country specific. The principal barriers in the expansion of financial services are often identified as physical access, high charges and penalties, conditions attached to products which make them inappropriate or complicated and perceptions of financial service institutions which are thought to be unwelcoming to low income people Sinclair, These barriers to inclusion have not been constructed deliberately; they are a result of the structural operation of the financial services industry.
Kempson et al. The critical dimensions of financial exclusion include: i access exclusion- restriction of access through the process of risk management by financial services providers ; ii condition exclusion - conditions attached to financial products which make them inappropriate for the needs of some segments of population; iii price exclusion- some people can only gain access to financial products at prices they cannot afford; iv marketing exclusion - some people are effectively excluded by targeted marketing and sales; and v self-exclusion - people decide not to opt for a financial product because of the fear of refusal to access by the service providers Kempson and Whyley, ; Kempson et al.
Thus, financial exclusion is perceived as an ongoing process in terms of vulnerability to exclusion, rather than simply having access to certain financial services or not. In particular, financial exclusion may be a long-term phenomenon for many consumers or even a life-long process Connolly and Hajaj, For families with particular constellations of socioeconomic characteristics, it may extend beyond the lifetime of an individual family member and become inter-generational.
It has generally been recognised that it is the poorer sections of the population that do not have access to financial services - formal or informal.
However, in many countries, many non-poor individuals, micro, small and medium entrepreneurs also have difficulty in accessing financial services. The most conspicuous dimension is that many of the low-income segments of the population do not have access to even the very basic financial services. Even amongst those who have access to finance, most are underserved in terms of quality and quantity of products and services and significant proportion of low-income households is dependent on unsustainable, subsidy-dependent and poorly performing institutions Chart VII.
There has also been particular emphasis on socio-cultural factors that matter for an individual to access financial services United Nations, b. Substantial proportion of households, especially those with low income and those living in rural and remote areas, is at present outside the ambit of the formal financial system in many countries. A higher share of population below the poverty line results in lower demand for financial services as the poor may not have savings to place as deposit in savings banks.
Thus, low income leads to low demand for financial services, particularly savings products. Likewise, at low levels of development, investment activity may be low and hence, may lead to low demand for credit from banks and other formal financial institutions.
However, as poverty levels decline and households move into higher income brackets, their propensity to save increases, which, in turn, leads to higher demand for financial services both for saving and investment purposes. The demand for credit by the people arises for a number of activities such as housing, microenterprises, agricultural operations and consumption needs.
Owing to difficulties in accessing formal sources of credit, the poor individuals and small and microenterprises usually rely on their personal savings or internal resources to invest in housing, health and education, and entrepreneurial activities to make use of growth opportunities World Bank, Some of the important causes of relatively low extension of institutional credit in the rural areas are risk perception, cost of its assessment and management, lack of rural infrastructure, and vast geographical spread of the rural areas with more than half a million villages, some sparsely populated Mohan, Box VII.
A number of factors affecting access to financial services have been identified in many countries. However, cultural and religious barriers to banking have also been observed in some of the countries. However, there are a range of other charges that have a disproportionate effect on people with low income. Extremely poor people find it difficult to access financial services even when the services are tailored for them.
Perception barriers and income discrimination among potential members in group-lending programmes may exclude the poorer members of the community. Costs and Consequences of Financial Exclusion 7. Second, from the societal or the national perspective, exclusion may lead to aggregate loss of output or welfare and the country may not realise its growth potential. The more tangible outcomes of financial exclusion include cost and security issues in managing cash flow and payments, compromised standard of living resulting from lack of access to short-term credit, higher costs associated with using informal credit, increased exposure to unethical, predatory and unregulated providers, vulnerability to uninsured risks, and long-term or extended dependence on welfare as opposed to savings Chant Link and Associates, According to the Treasury Committee, UK , financial exclusion can impose significant costs on individuals, families and society as a whole.
These include i barriers to employment as employers may require wages to be paid into a bank account; ii opportunities to save and borrow can be difficult to access; iii owning or obtaining assets can be difficult; iv difficulty in smoothening income to cope with shocks; and v exclusion from mainstream society.
It could also lead to denial of access to better products or services that may require a bank account. It exposes the individual to the inherent risk in holding and storing money — operating solely on a cash basis increases vulnerability to loss or theft. At the wider level of the society and the nation, financial exclusion leads to social exclusion, poverty as well as all the other associated economic and social problems.
Thus, financial exclusion is often a symptom as well as a cause of poverty. Financial exclusion is not evenly distributed throughout society; it is concentrated among the most disadvantaged groups and communities and, as a result, contributes to a much wider problem of social exclusion.
In the case of microenterprises, credit may be needed to achieve a reasonable and viable scale of activities. The rising entrepreneurship spanning rural, semi-urban and urban areas, particularly in the unorganised and informal sectors may give rise to large potential demand for credit. The evidence on the demand for credit in India suggests that medical and financial emergencies are the major reasons for household borrowings. Medical emergencies were particularly high for the lowest income quartile IIMS, 2.
Thus, the difficulty in obtaining finance from formal sources has major social implications. Banks often avoid extending their services to lower income groups because of initial cost of expanding the coverage which may sometimes exceed the revenue generated from such operations.
These business related concerns of banks were, however, meaningful when technology development was at a nascent stage and expanding the coverage of financial services required substantial initial investment. The strides in technology have now reduced the required initial investment in a significant manner.
What is required is to explore the appropriate technology which is suitable to socio-economic conditions of the region under consideration. Moreover, availability and usage of financial services by the otherwise excluded population groups would lead to increase in their income levels and savings. This, in turn, would have the potential to increase savings deposits as well as credit demand, implying profitable business for banks in the medium-term.
First, it complicates day-to-day cash flow management -being financially excluded means households, and micro and small enterprises deal entirely in cash and are susceptible to irregular cash flows. Second, lack of financial planning and security in the absence of access to bank accounts and other saving opportunities for people in the unorganised sector limits their options to make provisions for their old age.
From the macroeconomic standpoint, being without formal savings can be problematic in two respects. First, people who save by informal means rarely benefit from the interest rate and tax advantages that people using formal methods of savings enjoy. Second, informal saving channels are much less secure than formal saving facilities.
Those who can afford it least, suffer the highest risk. The resultant lack of savings and saving avenues means recourse to non-formal lenders such as moneylenders. This, in turn, could lead to two adverse consequences — a exposure to higher interest rates charged by informal lenders; and b the inability of customers to service the loans or to repay them.
Judged in this specific context, financial exclusion is a serious concern among low-income households, mainly located in rural areas Mohan, The principal barriers in the expansion of financial services are often identified as physical access, high charges and penalties, conditions attached to products which make them inappropriate or complicated and perceptions of financial service institutions which are thought to be unwelcoming to low income people.
There has also been particular emphasis on socio-cultural factors that matter for an individual to access financial service. The most conspicuous dimension of exclusion is that a majority of the low-income population do not have access to the very basic financial services. Even amongst those who have access to finance, most of them are underserved in terms of quality and quantity of products and services.
The critical dimensions of financial exclusion include access exclusion, condition exclusion conditions attached to financial products , price exclusion, and self exclusion because of the fear of refusal to access by the service providers. The financial exclusion process becomes self-reinforcing and can often be an important factor in social exclusion, especially for communities with limited access to financial products, particularly in rural areas.
Apart from the above mentioned supply side factors, demand side factors may also significantly affect the extent of financial inclusion. For instance, low level of income and hence low savings would result in lower deposits. Similarly, at low level of income, the ability to borrow is affected because of low repayment capacity and inability to provide collateral. Recognising the implicit and explicit cost of financial exclusion across the globe, many countries have initiated measures to deal with the same.
The planning strategy recognised the critical role of the availability of credit and financial services to the public at large in the holistic development of the country with the benefits of economic growth being distributed in a democratic manner. In recognition of this role, the authorities modified the policy framework from time to time to ensure that the financial services needs of various segments of the society were met satisfactorily.
The organised financial system comprising commercial banks, regional rural banks RRBs , urban co-operative banks UCBs , primary agricultural credit societies PACS and post offices caters to the needs of financial services of the people. Overall Approach 7. Besides access, emphasis is also placed on affordability low cost of financial services such as savings, loan, and remittance to the underprivileged segments of the population.
Accordingly, several initiatives have been taken over time such as nationalisation of banks, prescription of priority sector targets, lending to weaker sections at concessional rates, and initiation of the lead bank scheme.
These initiatives were undertaken at different points in time to expand the outreach of banking facilities and increase the flow of credit to the rural areas. The Indian financial system essentially catered to the needs of planned development in a mixed-economy framework, where the Government sector had a predominant role in economic activity. The focus of banking policy during the s and up to the early s was more on creating a strong and efficient banking system. However, once the financial health of the banking system was restored, focussed attention was again paid towards promotion of financial inclusion.
The important difference in the recent focus on financial inclusion is the adoption of market oriented approach that recognises the importance of business consideration of banks and other financial institutions for the long-term sustainability of the process.
The Annual Policy Statement for the Year of the Reserve Bank observed that although there had been expansion, greater competition and diversification of ownership of banks leading to both enhanced efficiency and systemic resilience, there were legitimate concerns with regard to the banking practices that tended to exclude vast sections of population, in particular pensioners, self-employed and those employed in the unorganised sector. The Statement further observed that while commercial considerations were important, the banks had been bestowed with several privileges, especially of seeking public deposits on a highly leveraged basis, and therefore, should be obliged to provide banking services to all segments of the population on an equitable basis.
In the first phase starting in the late s through the s, the focus was on channelling of credit to the neglected sectors of the economy.
Special emphasis was also laid on weaker sections of the society. In the second phase spanning the early s through March , the focus was mainly on strengthening the financial institutions as part of financial sector reforms.
Financial inclusion in this phase was encouraged mainly by the introduction of SHG-bank linkage programme in the early s and Kisan Credit Cards KCCs for providing credit to farmers. Progress till 7. The announcement of the policy of social control over banks was made in December with a view to securing a better alignment of the banking system with the needs of economic policy.
The National Credit Council was set up in February mainly to assess periodically the demand for bank credit from various sectors of the economy and to determine the priorities for grant of loans and advances. Social control of banking policy was soon followed by the nationalisation of major Indian banks in The immediate tasks set for the nationalised banks were mobilisation of deposits on a massive scale and lending of funds for all productive activities. A special emphasis was laid on providing credit facilities to the weaker sections of the economy.
Unrestrained access to public goods and services is the sine qua non of an open and efficient society. As banking services are in the nature of public good, it is essential that availability of banking and payment ser vices to the entire population without discrimination is the prime objective of the public policy Leeladhar, This process becomes self- reinforcing and can often be an important factor in social exclusion, especially for communities with limited access to financial products, particularly in rural areas Mohan, Rangarajan, Realising that the flow of credit to employment oriented sectors was inadequate, the priority sector guidelines were issued to the banks by the Reserve Bank in the late s to step up the flow of bank credit to agriculture, small-scale industry, self-employed, small business and the weaker sections within these sectors.
The target for priority sector lending was gradually increased to 40 per cent of advances in the case of domestic banks 32 per cent, inclusive of export credit, in the case of foreign banks for specified priority sectors. Sub-targets under the priority sector, along with other guidelines including those relating to Government sponsored programmes, were used to encourage the flow of credit to the identified vulnerable sections of the population such as scheduled castes, religious minorities and scheduled tribes.
The major emphasis of the branch licensing policy during the s and the s was on expansion of commercial bank branches in rural areas, resulting in a significant expansion of bank branches and decline in population per branch. The branch expansion policy was designed, inter alia , as a tool for reducing inter-regional disparities in banking development, deployment of credit and urban-rural pattern of credit distribution.
In order to encourage commercial banks and other institutions to grant loans to various categories of small borrowers, the Reserve Bank promoted the establishment of the Credit Guarantee Corporation of India in for providing guarantees against the risk of default in repayment. The scheme, however, was subsequently discontinued. RRBs, which were set up in to cater, inter alia , to the credit requirements of the rural poor, have recently been restructured. Recent Initiatives 7. Accordingly, the financial sector refor m process placed more emphasis on creating a strong, vibrant and competitive banking system.
An important step to bring financially excluded people within the fold of formal financial sector was the promotion of micro-finance in India. Banks, as wholesalers of credit, were to provide the resources, while the NGOs were to act as agencies to organise the poor, build their capacities and facilitate the process of empowering them Box VII. Subsequent to the Monetary and Credit Policy announcement for the year , banks were.
An SHG is a group of about 15 to 20 people from a homogenous class who join together to address common issues. They involve voluntary thrift activities on a regular basis, and use of the pooled resource to make interest-bearing loans to the members of the group.
In the course of this process, they imbibe the essentials of financial intermediation and also the basics of account keeping. The members also learn to handle resources of size, much beyond their individual capacities. They begin to appreciate the fact that the resources are limited and have a cost. Once the group is stabilised, and shows mature financial behaviour, which generally takes up to six months, it is considered for linking to banks.
Loans are given without any collateral and at interest rates as decided by banks. Banks find it comfortable to lend money to the groups as the members have already achieved some financial discipline through their thrift and internal lending activities. The groups decide the terms and conditions of loan to their own members. The peer pressure in the group ensures timely repayment and becomes social collateral for the bank loans.
Model II accounted for around 74 per cent of the total linkage at end-March , while Models I and III accounted for around 20 per cent and 6 per cent, respectively. The low cost or free of cost account is internationally considered to be helpful in expanding the access of banking services, particularly to the low income groups. Similar types of accounts, though with different names, have also been extended by banks in various other countries with a view to making financial services accessible to the common man either at the behest of banks themselves or the respective Governments Table 7.
The simplified procedure allowed introduction by a customer on whom the full KYC drill had already been done. Under GCC, based on the assessment of household cash flows, the limits are sanctioned without insistence on security or purpose. The credit facility is in the nature of revolving credit entitling the holder to withdraw up to the limit sanctioned.
Based on assessment of household cash flows, the limits are sanctioned. Interest rate on the facility is completely deregulated. Fifty per cent of GCC loans are treated as priority sector lending. The Reserve Bank is undertaking an evaluation of the progress made in these districts by independent external agencies to draw lessons for further action in this regard. In April , banks were permitted to engage retired bank employees, ex-servicemen and government employees as BCs, subject to appropriate due diligence.
Banks are also entering into agreements with Indian Postal authorities for using the enormous network of post offices as BCs, thereby increasing their outreach. In order to provide social security to vulnerable groups, in some cases banks have provided, in association with insurance companies, innovative insurance products at affordable cost, covering life disability and health cover.
As a result, there was a growing perception of inadequate flow of credit to the traditionally preferred sub-sectors of the priority sector such as agriculture and small industries.
In order to address these concerns, revised guidelines on the priority sector were issued in April Consequently, the priority sector is now restricted to advances to highly employment intensive sectors such as agriculture, small enterprises, retail trade, educational loans, micro-finance and low cost housing.
The MFIs currently cover 8. The NBFC segment within this sector accounts for Bank lending to such entities for micro-finance is treated as priority sector lending. Private sector and foreign banks are observed to be actively supporting this sector, which is also attracting private equity funding and philanthropy funding from outside the country Thorat, An interesting example in this regard has been the efforts by Aryavart Gramin Bank which embarked upon a novel idea of financial inclusion in remote villages and hamlets of Uttar Pradesh Box VII.
The Aryavart Gramin Bank embarked on a novel idea of financial inclusion in remote villages and hamlets of Uttar Pradesh where electricity supply was not available or if available was erratic. The villagers were dependent only on kerosene lamps for their lighting needs and often kerosene had to be bought from black markets, which was affecting their incomes.
The company and the dealer were ready to sacrifice their margins as the bank was agreeing to finance the system on a large scale. The system cost Rs. The system could light two CFLs of 14 watt for more than 7 hours and could also support one mobile charger, one table fan and a television.
The bank extended finance of around Rs. The amount together with interest was to be repaid in 60 equated monthly instalments of approximately Rs. This was much less than the amount that the villagers had to spend for their kerosene requirements per month. The bank had identified literate village youths as business facilitators who were trained by the company for maintenance of the systems. The bank is paying an honorarium of Rs.
More than 1, households in Unnao District and about houses in Barabanki District, were provided with Solar Home Lighting Systems by the bank as at end-December The bank aims to cover 25, households by October Services which the bank offers include savings, loans, insurance and pensions.
A partnership with UTI Mutual Fund had enabled the bank to be the first to offer pension schemes to its clients in Maharashtra. Set up in partnership with HSBC Bank, the school primarily aims at making its range of courses accessible to women who, due to financial and cultural constraints, would be unable to access such training in neighbouring urban hubs.
Unlike traditional business schools that delve into the theor y of microeconomics, accounting, organisational behaviour and so on, this business school focusses on imparting simple business skills. I applied for Capital One around the same time, and they are a BETTER to work with, their fee is alot lower and they give you a credit increase with 6 months of good payment history. These ratings and reviews are provided by our users. Banks, issuers and credit card companies do not endorse or guarantee this content, are not responsible for it, and may not even be aware of it.
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