Financial inclusion, in its narrowest connotation, is generally assumed to be a business that provides people, especially those in the previously unbanked region, with a bank account. However, this simple possession of a bank account cannot bring wonders, besides being incomplete in defining the intended meaning of financial inclusion. What is critical are the facilities offered to people with a bank account. Direct cash transfers have significantly controlled the leakage of funds to targeted beneficiaries – the poor. In addition, the poor can access insurance products with nominal premiums through their bank accounts. Not to mention saving habits which could also be instilled, encouraged and improved. More importantly, financial inclusion will have its impact when credit facilities for the poor have seen a dramatic improvement in both quantity and quality.
During one of my field visits to a tribal village in Andhra Pradesh, when I was an intern at SERP (Society for the Elimination of Rural Poverty) in 2010, I spoke to a woman, as part of my investigation of the performance of self-help groups, whose families are lifted 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 inability to feed her three children with the meager salary she would earn. “Then I shared my problems with members of our SHG. As advised, I would apply for the loan from our SHG and although there were other members who needed the money, my case was reviewed and we were selected to receive the loan, the amount of which includes the corporate fund of our group and financing by the Bank. We bought a rickshaw for my husband and now we are out of the poverty line, ”she added with visible signs of relief in her expression. “So it was financial aid that helped you,” I asked to confirm. She agreed and clarified that most of the poor, regardless of their livelihood, will need it to begin their journey across the poverty line.
The success story of the Pudupu Sangams or women’s self-help groups in the PA has been the model behind the National Rural Livelihood Mission. As part of this mission, nationwide efforts have been undertaken by the Ministry of Rural Development to create, manage and empower self-help groups for women. Although PA women’s groups have enough corpus to lend to their members, self-help groups in other states depend on financial institutions such as banks, MFs, and NBFCs to fund their projects. Banks, especially public sector banks, have so far played a central role in funding self-help groups. The main thing is to financially help SHG members who would invest the money in income-generating assets that would provide them with support to get out of the poverty line.
In addition to financing SHGs, banks have played a commendable role in financing the financial needs of agriculture and related activities. Designated as a priority sector for Banks, there is a stipulated percentage of the Annual Net Bank Credit (ANBC) that is allocated to Agriculture and related activities. Notwithstanding the inability of farmers to repay loans during bad seasons and the policies of forgetting agricultural loans, there are thousands of agricultural loan success stories.
The Pradhan Mantri Jan Dhan yojana, which earned the Indian government (Department of Financial Services) a Guinness World Record for the maximum number of accounts opened in a week, has sparked much debate about its effectiveness in reducing poverty. While some believe that simply opening an account makes no meaningful contribution to the well-being of the poor, others believe that former financial illiterates gained financial literacy not only by familiarizing themselves with standards. basic banking, but also practicing it. Proponents argued that savings habits were instilled and people learned about financial products such as credits / loans for farmers etc. One of the best advantages for the poor with a bank account, in addition to obtaining credit, is arguably its additional assistance. for the direct benefit transfer program to be implemented successfully and thus avoid the leakage of rupee crores to farmers in the previous cases.
It is no secret that the poor are tricked by money lenders with exorbitant interest rates charged on their borrowed money. For people who depended on the results of annual harvests and seasonal jobs, pressing demands like medical and food expenses and occasional expenses for weddings and functions forced the poor to turn to pawn shops. Improved bank financing has significantly reduced the headache for the poor. There is still room for improvement to bridge the gap between the poor and the banks in the use of credit. While caring for the poor is the cumbersome process involving heavy documentation, banks on the other hand have their own concerns – the creditworthiness of the poor. Most of the financing provided by banks is based on the company’s assumption that its repayment will be made on time. To ensure that the poor do not default, it is important that the credit used is used for income-generating assets. Thus, sincere inspection work on the part of bankers could help eliminate documentation problems by making the process of granting credit to the poor more user-friendly.
Should we then conclude that having a bank account will transform the fortune of a poor family overnight? It is often said that eradicating poverty is a multidimensional approach and that the poor have the capacity and the knowledge to lift themselves out of poverty. From the many testimonies of the poor, it is evident that finance is one of the most important tools for rural development. This will of course require many other efforts such as securing basic necessities – a good road, an electrified house, drinking water, etc. And while we recognize the right of the poor to decide how best they might develop, one thing is certain that financial inclusion in its true sense will continue to be the only valuable and indispensable tool in the fight against poverty. .
The opinions expressed above are those of the author.
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