Chapter 3: Financial Exclusion and Financial Inclusion

India is one of the prominent countries which has registered a significant segment of its population being excluded from the financial system as well as the financial services despite having a long period of their existence. This situation continued for over 60 years after the independence, that too after the nationalisation of the Scheduled Commercial Banks (SCBs) in 1961 and 1981. The first-ever assessment of the incidence of deprivation of the banking services was in the order of 124 million households in the country, of which over 96 million households in rural areas (Census of India, 2001). Subsequently, the incidence was reassessed at 102 million households in the country and over 76 million households excluded in the rural areas (Census of India, 2011). Although in relative terms, the incidence was reduced, respectively, from 66 per cent in 2001 to 59 per cent in 2011 and 70 per cent to 54 per cent in the rural areas, even then a large chunk of households was out of the financial market and its network. Unfortunately, it only means that the excluded population have slipped from the process of economic growth or productive activities without any financial support from the formal source. Further, the hardest reality is that the dream of the provision of the banking operations and of the financial services in the unbanked and backward regions have been belied, despite having banking expansion as one of the principal objectives of the nationalisation of the commercial banks. To be precise, the public-sector banks and cooperative societies and banking have not lived up to expansions, in terms of providing basic facilities like savings and deposits, let alone the other services including the credits. Opening up of the banking sector for private and foreign banks operations in the country also could not bring the needed respite to the problem of financial exclusion. Less said the better about the financial advisers, financial literacy and even financial campaigns, which have been altogether missing in the rural and backward regions of the country and are yet to be implemented by the financial institutions. With this situation, it may not be wrong to say that the banking expansion that took place since nationalisation was only to meet the normative compulsions than extending financial services and inclusive businesses from the unbanked areas. Further, the Committee on Financial Inclusion (RCFI, 2008) has estimated the incidence of exclusion at 51.4 per cent of the total number of farmer households of all size (small, medium, semi-medium, medium and large) and non-farmer households (agricultural labourers, artisans and others) at 78.2 per cent. It only indicates that the financial system is highly urban-biased and the services are largely confined to urban customers. Although the United Nations has estimated that over 45 per cent of India’s population will be urban by 2025, the country is continuing to remain largely rural in nature. Thus it goes without saying that any development success lies in the rural walks of the country and more so of the financial mainstreaming of the rural folks assumes paramount importance. Creating financial access being critical for the economic growth, any growth-oriented strategy shall have a positive impact on the rural economy. Above all, releasing the unserved people from the clutches of the uneconomic informal financial services is also a need of the hour.