Financial inclusion, in its narrowest connotation, can be construed as an endeavour that provides people, especially those in the hitherto un-banked region, a bank account. However, that mere possession of a Bank account cannot bring wonders, in addition to the fact thatthe same is incomplete to define the intended meaning of financial inclusion. What is critical is the facilities endowed to the individuals having a bank account. The Direct Cash Transfers have considerably controlled the leakage of funds meant for targeted beneficiaries- poor. Also, the poor can have access to insurance products with nominal premiums through their Bank accounts. Not to forget is the saving habits that could also be inculcated, encouraged, and improved. Most importantly, financial inclusion will have its impact when credit facilities to the poor have seen a considerable improvement both in quantity and quality.
In one of my field visit to a tribal village in Andhra Pradesh, when I was interning with SERP (Society for Elimination of Rural poverty) in 2010, I had spoken to a woman, as part of my survey on the performance of SHGs, whose family came out of poverty. The woman said, “My husband worked in a factory but after his health deteriorated he could not continue his work.” She expressed her helplessness to feed her three children with the meagre wage she’d earn. “Then I shared my problems with members of our SHG. As advised, I’d apply for the loan to our SHG and though there were other members who required the money, my case was considered and we were chosen to receive the loan, the amount of which comprises of the corpus fund of our group and finance by Bank. We bought an autorickshaw for my husband and now we have come out of the poverty line,” she added with visible signs of relief in her expression. “So, it was financial assistance that helped you,” I asked to confirm. She agreed and further elaborate that most poor people irrespective of their livelihoods will need it to start their journey of crossing the poverty line.
The success story of the Pudupu Sangams or the Women SHGs in AP has been the role model behind the National Rural Livelihood Mission. Under this mission, nationwide efforts have been undertaken by the Ministry of Rural Development to build, manage and empower women Self Help Groups. Though the women groups in AP have enough corpus to lend to their members, the SHGs in other states depend on financial institutions like Banks, MFs, and NBFCs to finance their projects. Banks, especially Public Sector Banks have played a pivotal role in financing SHGs thus far. The crux is to financially assist SHG members who would invest the money in income generating assets that would provide them a hand holding support to come out of the poverty line.
Apart from financing SHGs, Banks have played a commendable role in funding the financial requirements of Agriculture and allied activities. Designated as a priority sector for the Banks, there is a stipulated percentage of the Annual Net Bank Credit (ANBC) which is allotted to Agriculture and allied activities. Notwithstanding the inability of farmers to repay the loans during bad seasons and the politics involved with farm loan waiver, there are thousands of success stories of farm loans.
The Pradhan Mantri Jan Dhan yojana, which earned the Government of India (Department of financial services) a Guinness world record for the maximum number of accounts opened in a week, has raised many debates on its effectiveness in poverty reduction. While some are of the opinion that the mere opening of an account do not have any worthy contribution to the betterment of the poor, others feel that the erstwhile financially illiterate people have become financially literate by not only familiarising themselves with the basic norms of banking but by also practicing it. Those in favour argued that saving habits have been inculcated and people became aware of financial products like credits/loans for farmers etc. What is arguably one of the best benefits of the poor owning a bank account, apart from availing credit, is its complementary assistance for the Direct Benefits transfer scheme to be successfully implemented and thereby avoiding the leakage of crores of rupees intended for the farmers in earlier instances.
It is no secret that the poor are entrapped by money lenders with exorbitant rates of interest charged on their borrowed sums. For people who depended on the outcome of annual crops and seasonal employments, pressing requirements like medical and food expenses and occasional expenditure requirements for marriages and functions compelled the poor to reach out to the money lenders. The improvement in financing from Banks has considerably reduced the headache of the poor. There is still scope for improvements to bridge the gap between the poor and Banks as far as availing credits are concerned. While the concern of the poor people is the cumbersome process involving heavy documentations, the Banks on the other hand have their own concerns- the creditworthiness of the poor. Most of the finances that Banks provide are based on the business assumption that its repayment will be made on time. To ensure that the poor do not default, it is important that the credit availed is used for income-generating assets. Thus, a sincere inspection work on the part of the Bankers could help do away with documentation concerns by making the process of credit delivery to the poor more friendly.
Are we then to conclude that having a Bank account will transform a poor family’s fortune overnight? It is often said that poverty eradication is a multi-dimensional approach and that the poor have the ability and the knowledge to come out of poverty. From the many testimonies of the poor, it is evident that financing is one of the most important tools for rural development. It will of course require many other efforts like ensuring basic necessities – good road, electrified house, drinking water, etc. And while we acknowledge the rights of the poor to decide on how best they could develop, one thing is for sure that financial inclusion in its real sense would be one precious hand-holding support we can at the least offer.