Financial Inclusion Index
Source: PIB
GS III: Economy
Overview
- News in Brief
- About Financial Inclusion Index
Why in the News?
According to the Reserve Bank of India (RBI), the value of the Financial Inclusion Index (FI Index) has recently increased to 60.1 from 56.4 in 2022.
About Financial Inclusion Index
- The index was launched in 2021 with the purpose of capturing the extent of financial inclusion across the country.
- It has been conceptualised as a comprehensive index, incorporating details of banking, investments, insurance, postal, as well as the pension sector, in consultation with government and respective sectoral regulators.
- Three broad parameters
- Access (35%)
- Usage (45%)
- Quality (20%)
- A unique feature of the index is the quality parameter which captures the quality aspect of financial inclusion as reflected by financial literacy, consumer protection and inequalities and deficiencies in services.
- The index captures information on various aspects of financial inclusion in a single value ranging between 0 and 100, where 0 represents complete financial exclusion and 100 indicates absolute financial inclusion.
- It is responsive to ease of access, availability and usage of services, and quality of services.
- The Pradhan Mantri Jan Dhan Yojana (PMJDY) was a major milestone for financial inclusion and the “evolution, promotion and adoption of digital channels.
- The Jan Dhan, Aadhaar and Mobile (JAM) eco-system has brought a major shift in the field of financial inclusion by several initiatives to universalise digital payments in a convenient, safe, secure, transparent and affordable manner.
Financial Inclusion in India
Financial inclusion in India has been a critical component of the country’s economic development and social progress. With a diverse population, including a significant number of individuals in rural and remote areas, ensuring access to financial services for all has been a priority.
Overview
- Historical Context:
- India’s journey towards financial inclusion can be traced back to the nationalization of banks in 1969, which aimed to provide banking services to the unbanked and underbanked populations.
- Jan Dhan Yojana
- A landmark initiative in India’s financial inclusion journey was the Pradhan Mantri Jan Dhan Yojana (PMJDY) launched in 2014.
- It aimed to provide every household with a bank account, insurance coverage, and access to credit.
- Banking Correspondents (BCs)
- To address the issue of physical distance from bank branches, India introduced the concept of banking correspondents who act as intermediaries, providing banking services in remote areas.
- Aadhaar Integration
- The integration of Aadhaar, India’s unique identification system, with bank accounts and other financial services has streamlined the process of opening accounts and accessing subsidies and benefits.
- Digital India
- The Digital India initiative has played a pivotal role in promoting digital financial services, including mobile banking and digital payments. This has increased convenience and reduced costs for users.
- Microfinance Institutions (MFIs)
- Microfinance institutions have filled the gap by providing small loans to low-income individuals and small businesses, fostering financial inclusion.
- Financial Literacy Programs
- Financial literacy programs have been conducted to educate individuals about the benefits and responsible use of financial services, ensuring that they make informed decisions.
- Impact on Poverty Alleviation
- Financial inclusion has had a significant impact on poverty alleviation.
- Access to credit and insurance has enabled individuals to invest in income-generating activities and protect themselves from financial shocks.
- Gender Inclusion
- Special attention has been given to promoting financial inclusion among women. Initiatives like the Stand Up India scheme aim to empower female entrepreneurs.
What are the Challenges Ahead?
Despite significant progress, challenges like low financial literacy, inadequate infrastructure in remote areas, and the need for cybersecurity measures in digital banking remain.
Conclusion
- Financial inclusion in India has come a long way, with millions of previously unbanked individuals now part of the formal financial system.
- This has not only improved their economic well-being but also contributed to the country’s overall economic growth.
- The journey towards complete financial inclusion continues, with a focus on addressing remaining challenges and ensuring that every citizen can access and benefit from financial services.
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