According to the Committee on Financial Inclusion headed by Dr. C. Rangarajan, 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. But the major question remains whether it has been achieved after regular efforts made by the Government? Are citizens financially included now? Were they able to get credit when they needed it?
Data from the World Bank would (see here) says that as of 2014, nearly 53% of all Indian population has access to bank accounts. This is before the launch of the Jan-dhan Yojna which led to 28 crores new account opened by banks. This coupled with the natural increase in number of accounts and the push by the Government via the demonetization exercise in November 2016 has led to large population of India with access to bank accounts.
However, as Dr. C. Rangarajan points out in his definition, a key aspect of Financial Inclusion is timely access to credit. In the context of credit access it was found that only 7.7 % population borrowed from financial institution while the rest relied on informal means from private lenders or friends. The situation is much worse when viewed from the prism of rural credit access. Farmers and weaker sections are unable to raise money in the hours of need leading to their distressed conditions. Although the Jan Dhan Yojna increased the spread of banked families, it still does not solve the problem of credit access.
In reality, traditional banking facilities are ill-equipped to service the large population of India, and hence large sections of society are flocking to informal means of credit. In order to get a simple loan, a person may have to get involved in many paper-works and could potentially take months time. Traditional banking institutions due to their high fixed costs are not able to service the credit needs of the credit-hungry population. It is in part due to these problems that RBI is promoting alternate institutions to provide credit via platforms like Peer-to-peer lending platforms. Given the recently controlled inflation levels, RBI’s push is to decrease interest rates, thus such platforms present a good opportunity for investing and earning returns, leading to a win-win scenario for both lenders and borrowers. Peer to peer lending is set to help India finally achieve financial inclusion for its population.
Abhishek Ranjan is a Research and Policy Analyst to Members of Parliament (MPs) Mr. Ninong Ering and Mr. Dilip Tirkey. He is also working as a Consultant to DTSRDF and University of Chicago’s Delhi Center for Anubhav Lecture Series, and is a Policy Consultant for FinTech startup Credy. Earlier, he was a LAMP Fellow and graduated in Engineering from Manipal Institute of Technology.