FINANCIAL INCLUSION FOR RURAL DEVELOPMENT OF INDIA

Prof. Dr. P. S. Kamble

Head Department of Economics
Shivaji University, Kolhapur.
Maharashtra (INDIA)
Email: pskamble2006@gmail.com
INTRODUCTION:
“The test of our progress is not whether we add more to the abundance of those who have much;
it is whether we provide enough for those who have too little.” - Franklin D. Roosevelt
“Poverty is the worst form of violence.” - Mahatma Gandhi. It is against this over all
background; we have accepted inclusive growth as a development strategy of India in 11 th five
year for the first time and, was continued in the 12 th five year plan also. Inclusive growth has
various components such as social sector development, poverty reduction, inequality control,
employment and unemployment, agricultural development, green economy, and Financial
inclusion, and others. Financial inclusion is a very important component of inclusive growth of
the economy. India is dominated by the rural economy; hence it is rural development which can
enable over all development of the Indian economy. It is a well fact that financial inclusion has a
special importance in the development of the economy in general and inclusive development in
particular. This necessitates studying the financial inclusion, exclusion and rural development of
India.

CONCEPTUALISING FINANCIAL INCLUSION:

It is very much important to define and conceptualize the financial inclusion. It is discussed
with the help of its following important definitions. Financial inclusion may be defined 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 (The
Committee on Financial Inclusion, Chairman: Dr. C. Rangarajan). Financial Inclusion, broadly
defined, refers to universal access to a wide range of financial services at a reasonable cost.
These include not only banking products but also other financial services such as insurance and
equity products (The Committee on Financial Sector Reforms, Chairman: Dr.Raghuram G.
Rajan).
 The essence of financial inclusion is to ensure delivery of financial services which include -
bank accounts for savings and transactional purposes, low cost credit for productive, personal
and other purposes, financial advisory services, insurance facilities (life and non-life) etc.
Financial inclusion broadens the resource base of the financial system by developing a culture of
savings among large segment of rural population and plays its own role in the process of
economic development. Further, by bringing low income groups within the perimeter of formal
banking sector; financial inclusion protects their financial wealth and other resources in exigent
circumstances. Financial inclusion also mitigates the exploitation of vulnerable sections by the
usurious money lenders by facilitating easy access to formal credit (RBI, 2015). In rural areas,
the Gini’s coefficient rose to 0.28 in 2011-12 from 0.26 in 2004-05 and during the same period
to an all-time high of 0.37 from 0.35 in urban areas(RBI, 2015).
CONCEPT OF RURAL DEVELOPMENT:
The term is used to mean ‘organizing things’ so as to change existing conditions in favour of a
better state. The concept was later extended to its wider meaning to embrace ‘changes’ of
political, social, cultural, technological, economic and also the psychological frame of society. In
its current meaning ‘development’ is used to express animated change for reaping utmost human
potential. Technically, development is the name of a ‘Policy’ and its ‘Consequent programmes’,
designed to bring about a desired change’ in social, economic, political, or technological spheres
of life. Development is the conditioning of progress, and when efforts are laid towards the use of
Growth potentials in rural economy and Society, it is rural development. As a concept, it can
notes overall development of rural areas with a view to improve the quality of life of rural
people. In this sense it is a comprehensive and multidimensional concept and encompasses the
development of agriculture and allied activities-village and cottage industries and crafts,
socioeconomic infrastructure, community services and facilities, and above all, the human
resources in rural areas. As a phenomenon, it is the result of interactions between various
physical, technological, economic, socio-cultural, and institutional factors. As a strategy, it is
designed to improve the economic and social well-being of a specific group of people the rural
poor. As a discipline, it is multidisciplinary in nature representing an intersection of agriculture
social behavioural, engineering and management sciences. In the words of Robert Chambers,
“Rural Development is a strategy to enable a specific group of people poor rural women and
men, to gain for themselves and their children more of what they want and need. It involves
helping the poorest among these who seek a livelihood in the rural areas to demand and control
more of the benefits of rural development. The group includes small scale farmers, tenants and
the landless. Professor V.K.R.V. Rao looked upon the process of economic development
essentially as a means to the development of human beings enabling them to realise their full
potential.Since rural development intends to reduce poverty, it must clearly be designed to
increase production and raise productivity. It is believed that improved food supplies and
nutrition, together with basic services such as health, education and cultural activities would
directly improve the physical wellbeing and quality of life of the rural poor, but also indirectly
enhance their productivity and their ability to contribute to the national economy.
RESEARCH METHODOLOGY:
The present study is a secondary data based study. The necessary secondary data has been
collected from the sources such as Annual Reports Ministry of Rural Development Government
of India, RBI Annual Reports, RBI Report on Trend and Progress of Banking and all other
publications of the RBI. The collected data has been classified, tabulated and analysed by using
the simple statistical tools such as Compound Growth Rate, Simple Growth Rate, Mean and
Ratio / Percentage Share. The period of study is from 2006 to 2016 taking into account the data
availability as well as the latest and update data possible.
EXTENT OF FINANCIAL EXCLUSION IN RURAL INDIA:
In this section, the extent of financial exclusion from different perspectives / angularities is
presented based on five different data sources viz.:
th
(a) NSSO 59 Round Survey Results,
(b) Government of India Population Census 2011,
(c) CRISIL-Inclusix
(d) RBI Working Paper Series Study on ‘Financial Inclusion in India:
A Case-study of West Bengal’ and
(e) World Bank ‘Financial Access Survey’ Results.

th
According to NSSO 59 Round Survey Results 51.4% of farmer households are
financially excluded from both formal/ informal sources. Of the total farmer households, only
27% access formal sources of credit; one third of this group also borrowed from non-formal
sources. Overall, 73% of farmer households have no access to formal sources of credit. Across
regions, financial exclusion is more acute in Central, Eastern and North-Eastern regions. All
three regions together accounted for 64% of all financially excluded farmer households in the
country. Overall indebtedness to formal sources of finance of these three regions accounted for
only 19.66%. Government of India Population Census 2011 reveals, as per census 2011, only
58.7% of households are availing banking services in the country. However, as compared with
previous census 2001, availing of banking services increased significantly largely on account of
increase in banking services in rural areas. CRISIL Financial Inclusion Index (Inclusix) states
that in June 2013, CRISIL first time published a comprehensive financial inclusion index
(viz.,Inclusix). For constructing the index, CRISIL identified three critical parameters of basic
banking services namely branch penetration5, deposit penetration6 and credit penetration. The
CRISIL Inclusix indicate that there is an overall improvement in the financial inclusion in India.
CRISIL –Inclusix (on a scale of 100) increased from 35.4in March 2009 to 37.6 in March 2010
and to 40.1 in March 2011. RBI Working Paper Study by Sadhan Kumar8 (2011) worked out
an Index on financial inclusion (IFI) based on three variables namely penetration (number of
adults having bank account), availability of banking services (number of bank branches per 1000
population) and usage (measured as outstanding credit and deposit). The results indicate that
Kerala, Maharashtra and Karnataka has achieved high financial inclusion (IFI >0.5), while Tamil
Nadu, Punjab, A.P, H.P, Sikkim, and Haryana identified as a group of medium financial
inclusion (0.3 <IFI<0.5) and the remaining states have very low financial inclusion. World
Bank ‘Financial Access Survey’ Results observed that in our country, financial exclusion
measured in terms of bank branch density, ATM density, bank credit to GDP and bank deposits
to GDP is quite low as compared with most of developing countries in the world. In 2011 the
number of bank branches and ATMs per 1000 km was just 30.43 and 25.43 respectively in India.
And 10.64 number of branches per 0.1 million population and 68.43% bank deposits and 51.75%
bank credit as a % of GDP was very low compared to other developing as well developed
countries. It was significantly higher which stood at 1428.98, 2975.05, 23.81, 433.96% and
287.89% respectively for China. For UK it was 52.87, 260.97, 24.87, 406.54%, 445.86% (IMF,
Financial Access Survey, 2011) respectively, which was very much higher than India.
FINANCIAL INCLUSION: RBI POLICY INITIATIVES
RBI has adopted a bank-led model for achieving financial inclusion and removed all regulatory
bottle necks in achieving greater financial inclusion in the country. Further, for achieving the
targeted goals, RBI has created conducive regulatory environment and provided institutional
support for banks in accelerating their financial inclusion efforts include Basic Saving Bank
Deposit, Relaxed and Simplified KYC Norms, Simplified Branch Authorization Policy,
Compulsory Requirement of Opening Branches in Unbanked Villages, Opening of intermediate
brick and mortar structure, Three Year Financial Inclusion Plan. FIP disaggregated and
percolated at down up to branch level, Financial Literacy Centers. The recent RBI measures
comprise of Licensing of New Banks, Discussion Paper on Banking Structure in India: The Way
Forward 2013, a 3- Tier rural co-operative structure with State Co-operative Central Banks
(SCCBs) at the apex, District Central Co-operative Banks (DCCBs) at the intermediary level and
Primary Agricultural Credit Societies (PACs).
PRESENT STATE OF FINANCIAL INCLUSION IN RURAL INDIA:
The present state of the financial inclusion in rural India has been analysed with the help of
the data collected and the results of the data analysis.
The financial inclusion is expected to be achieved by the commercialized banks in India, which
are prominently nationalized. Hence the growth in the scheduled commercial banks in rural
India has been presented in the table below.
Table 1 : Branches of Scheduled Commercial Banks

Year Area wise Branches of Scheduled Commercial Banks

Rural Semi Urban Urban Metropolitan Total
2006 30572 (45%) 15274 11864 10971 68680
2007 30461 (43 ) 16035 12649 11566 70711
2008 30732 (41 ) 17212 13944 12438 74326
2009 31489 (40 ) 18764 15325 13478 79056
2010 32289 (38 ) 20358 16653 14697 83997
2011 33325 (37 ) 22419 17706 15660 89110
2012 35364 (37 ) 25076 18541 17078 96059
2013 17953 (22 ) 27219 19327 17844 83343
CGR 9.68% ( 38%) 8.89% 7.56% 7.57% 4.24%

Source: Basic Statistical Returns RBI & DFS GOI

It is revealed that the growth in the branches of commercial banks in the rural India has been
grown at the comparatively higher rate , is a good and appreciable thing, but not sufficient. The
percentage share of branches of scheduled commercial banks in rural India was just 38% on an
average, is not a good and satisfactory performance but really dismal one.
The availability of the banking facilities is very important for financial inclusion. The bank
outlets help in providing and availing banking facility in the rural area.
Table 2 : Villages Covered by Banking Outlets
Year Villages with Villages with Total
Population > 2000 Population < 2000
2010 27353 26905 54258
2011 54246 45937 100183
2012 82300 65234 147534
CGR 7.34% 5.57% 6.48%
Source: RBI Annual Report
Total number of banking outlets in villages increased from 67,694 in March 2010 to 2,68,454 in
March 2013 (increased around 4 times during the period of three years). Of total branches,
banking outlets through BCs increased from 34,174 to 2,21,341 during the same period
(increased around 6.5 times). This reveals that the growth in the bank outlets was moderate and
not significant in the rural areas of India, which grew at the rate of 6.48% pa.
The latest and present position of the financial inclusion in rural India has been depicted in
the table below.
Table 3 : Financial Inclusion: A Progress Report
Particulars March March March SGR MEAN
2010 2015 2016
Banking Outlets in Villages – 33,378 49,571 51,830 8% 7404
Branches
Banking Outlets in Villages – 34,316 504,142 534,477 208% 76354
Branchless Mode
Banking Outlets in Villages – 67,694 553,713 586,307 109% 83758
Total
Urban Locations covered through 447 96,847 102,552 3263% 14650
BCs
BSBDA-Through branches (No. 60 210 238 42% 34
in million)
BSBDA-Through branches (Rs. 44 365 474 140% 68
in Billion)
BSBDA-Through BCs (`No in 13 188 231 240% 33
million)
BSBDA-Through BCs(`Rs. in 11 75 164 199% 23
billion)
BSBDA-Total (No. in million) 73 398 469 77% 67
BSBDA-Total (Rs . in billion) 55 440 638 151% 91
OD facility availed in BSBDAs 0.2 8 9 629% 1.28
(No. in million)
OD facility availed in BSBDAs 0.1 20 29 4% 4
(Rs. in billion)
KCCs -Total (No. in million) 24 43 47 14% 7
KCCs -Total (Rs . in billion) 1,240 4,382 5,131 45% 733
 GCC-Total (No. in million) 1 9 11 143% 1.57
GCC-Total (Rs. . in billion) 35 1,302 1,493 595% 213
ICT-A/Cs-BC-Total Transactions 26.5 477.0 826.8 432% 118
(No. in million)
ICT-A/Cs-BC-Total Transactions 6.9 859.8 1,686.9 3429% 241
(Rs. in billion)
Source: R B I Annual Report 2015-16
It is found that the growth in branches of banks in rural India was marginal only, which rose
at 8% SGR pa and average of 7404 only. But the growth in branchless mode was higher and
significant, which stood at more than 200 percent with average of 76354 indicates it is just a time
being provision to provide banking services. The rural –urban comparisons reveals that the
growth in the banking facilities was significantly greater in urban areas than rural areas. It was at
the growth rate 109% and 3263% respectively. The KCCs as well as GCCs are expected to play
a very crucial role in the financial inclusion in the rural India , but the number indicates it is just
inadequate, but growth is no doubt , significant.
FINANCIAL INCLUSION FOR RURAL DEVELOPEMNT: CONCLUSIONS
The foregoing analysis adequately reveals that, it is rural development which can enable over
all and inclusive growth of India. Hence financial inclusion in the rural economy of India has a
special importance. But it is clearly reveals that, even though the efforts are being made by the
RBI and the government of India for financial inclusion in the rural economy of India, it did not
succeed to that extent. No doubt some efforts are being made for the financial inclusion in the
rural economy of India but the expected and desirable success we did not get is a well known but
unsatisfactory fact Still long miles to go for the financial inclusion of rural India and overall and
inclusion growth of the rural as well as over all Indian economy. There is an urgent need for
sincere, honest and rigorous efforts for the financial inclusion in rural area of India necessary for
rural development. A separate plan with due provision in the union budget is the urgent need of
the hour.
REFERENCES:
Anand Sinha (2012), “Financial Inclusion and Urban Cooperative Banks”, edited transcript at the
launch of the financial inclusion program of COSMOS Bank at Pune.
Chakrabarty K.C (2011), “Financial Inclusion and Banks: Issues and Perspectives”, RBI
Bulletin, November, 2011.
Chakrabarty K.C (2011), “Financial Inclusion: A Road India Needs to Travel”, RBI Bulletin,
November, 2011.
Chakrabarty K.C (2012), “Empowering MSMEs for Financial Inclusion and Growth – Role of
Banks and Industry Associations”, address at SME Banking Conclave 2012.
Chakrabarty K.C (2013), “Financial Inclusion in India: Journey So Far And the Way Forward”,
Key note address at Finance Inclusion Conclave Organised by CNBC TV 18 at New Delhi.
Chakrabarty K.C (2013), “Revving up the Growth Engine through Financial Inclusion”, address
at the 32th SKOCH Summit held at Mumbai.
Leeladhar V (2005), “Taking Banking Services to the Common Man – Financial Inclusion”,
Commemorative Lecture at the FedbankHormis Memorial Foundation at Ernakulam.
Mira Mendoza (2009), “Addressing Financial Exclusion through Microfinance: Lessons from the
State of Madhya Pradesh, India”, The journal of International Policy Solutions, Vol 11Narayan
Chandra Pradhan (2013), “Persistence of Informal Credit in Rural India: Evidence from All-
India Debt and Investment Survey and Beyond”, RBI Working Paper Series, WPS (DEPR):
5/2013
Radhika Dixit and M. Ghosh (2013) “Financial Inclusion For Inclusive Growth of India – A
Study”, International Journal of Business Management & Research, Vol.3, Issue 1, pp. 147-156.
Rangarajan C (2008), “Report of the Committee on Financial Inclusion”
Raghuram G. Rajan (2009), “A Hundred Small Steps - Report of the Committee on Financial
Sector Reforms”.
Reserve Bank of India - “Annual Reports and ‘Report on Trend and Progress of Banking in
India”, various issues.
Reserve Bank of India - “Annual Reports”, various issues, Mumbai.
Sadhan Kumar Chattopadhyay (2011), “Financial Inclusion in India: A Casestudy of West
Bengal”. RBI Working Paper Series, WPS (DEPR): 8/2011.
Sarkar A.N (2013), “Financial Inclusion: Fostering Sustainable Economic Growth in India”, The
Banker, Vol. VIII, No.4, pp.44-53.
Sarkar A.N (2013), “Financial Inclusion Part-II: Fostering Sustainable Economic Growth in
India”, The Banker, Vol. VIII, No.5, pp.32-40.
Status of Microfinance in India: 2010-11, NABARD