Current Affairs

Unleashing Growth through empowerment (Financial Inclusion)

Economic outlook
• India was considered a low income country in 1951 with over 53% of the population poor
• Post- 1991 economic reforms, the economy grew faster and by 2015, poverty was below 30%
• Even though the economy has been growing very well, there are still several reasons for concern like: a stagnating industrial sector, lack of credit availability, no pick-up in the creation of jobs, amongst others
• The government has addressed these problems through a series of policy interventions.

Financial Inclusion since independence
• Banks facilitate the efficient allocation of finances from savers to investors which ultimately stimulates the production of goods, services employment and prosperity
• The government nationalised State bank of India in 1955, 14 commercial banks in 1969 and 6 more in 1980
• RBI, NABARD vigorously pursued financial inclusion policies and provided credit access to large sections of the society.
• Even with all these efforts, it was revealed in the 2011 census that of the 24.7 crore households in India, only 14.5 crore had access to financial services (58.7%) and it is only 54.5% in rural areas

• Announced in August 2014, it aims at ensuring universal access to financial services in an affordable manner
• In 2 years, the scheme helped open 21.7 crore accounts throughout India with 83.6% of them being operational
• PSBs accounted for 20.9 crore of the accounts newly opened of which 12.8 crore of them were in rural areas
• More than 95% of households have access to banking sector now

MUDRA bank (MB)
• Announced in April 2015, it focuses on providing credit to small entrepreneurs
• Of the 6 crore enterprises in the country, only 4% received institutional finance
• MB provides loans up to Rs 10 lakhs to micro units

Stand up and Start up initiatives
• Launched in April 2016 to promote entrepreneurship, especially amongst deprived sections and women
• Provides loans from Rs 10 lakhs up to Rs 1 crore
• The initiative is backed by the government though other concessions like tax exemptions, skill programmes etc
• Stand up India, is touted to push India into the ‘job creation’ mode

• Even though a money lender charges very high rate of interest, borrowers tend to go to them rather than to a commercial bank
• Lack of awareness of financial products, high transaction costs discouraging people from making use of the banking system under the PMJDY
• The unfriendly mindset of the commercial bankers to lend to micro enterprises
• Lack of an ecosystem to enable entrepreneurs under the start up India imitative

• PMJDY has to provide a variety of instruments to increase the transactions in its accounts which eventually inspires confidence and encourages people to use the financial system.
• Sensitisation of the commercial bankers to lend to micro enterprises through MB
• Setting up of world class entrepreneurship courses and institutes and a supportive educational policy