Rangarajan’s committee on financial inclusion defines it 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 financial services include the entire gamut - savings, loans, insurance, credit, payments.
The financial system has to provide its function of transferring resources from surplus to deficit units but both deficit and surplus units are those with low incomes, poor background .
By providing these services, the aim is to help them come out of poverty. So far, the focus has only been on delivering credit (it is called as microfinance but is microcredit) and that has been quite successful.
Rationale or the need for Financial Inclusion: Why is it so important?
Finance has come a long way since the time when it wasn’t recognized as a factor for growth and development. It is now attributed as the brain of an economic system and most economies strive to make their financial systems more efficient. It also keeps policymakers on their toes as any problem in this sector could freeze the entire economy and even lead to a contagion.
Reserve Bank of India data shows that as many as 139 districts suffer from massive financial exclusion, with the adult population per branch in these districts being above 20,000 and only 3 percent with borrowings from banks. On the assumption that each adult has only one bank account (which does not hold good in practice, so that actual coverage is likely to be worse) on an all India basis, 59 percent of the adult population in the country has bank accounts. 41 percent of the population is, therefore, un banked. In rural areas the coverage is 39 percent against 60 percent in urban areas. The un banked population is higher in the poorer regions of the country, and is the worst in the North-Eastern and Eastern regions. Its not surprising that these very regions are also suffering from Naxalism.
Financial Inclusion is delivery of not only banking, but also other financial, services like insurance, pension, remittance, mutual funds, etc. delivered at affordable, though market driven costs.
Opening a no-frills account is just a beginning to a continuous process of providing banking and financial services.
Once the first step of safety of savings is achieved, the poor require access to schemes and products which allow their savings to grow at rates which provide them growth beyond mere inflation protection.
So where does Capital market figure and what can be role of Broking houses
The role of capital markets is vital for inclusive growth in wealth distribution and making capital available to investors.
Capital markets can create greater financial inclusion by introducing new products and services tailored to suit investors’ preference for risk and return as well as borrowers’ project needs and risk appetite.
Proper Segment Identification constitute the possible strategies to achieve this.
A well-developed capital market creates a sustainable low-cost distribution mechanism for distributing multiple financial products and services across the country.
Indian households are among highest savers in the world but less than 1 per cent of the population participates in capital markets. Given a savings rate of 29% and the fact that more than 50 per cent of household savings continue to be in relatively unproductive assets, prospects lie in driving these savings into the financial system and channelising them into productive investments. Through financial inclusion, capital markets can actually generate productive investments
For the Capital markets herein lies a great once in a lifetime business opportunity for decades to come
How can Financial Inclusion in Capital Markets be achieved?
Identify Target segment : Once the exercise of UID / Aadhar is completed, the govt. will have a repository of credible information and the same can be used effectively by targeting the needy. Here the Capital Market participants are involved in asstisting the govt. in issuing these ID’s.
Educate them- Financial Education is the key… BTI too could paly an important role in aiding and assisting this process. There are several Social Religious & Behavioural aspects that need to be addressed. Dr.Shariq’s efforts are precisely in that direction.
Making available multiple products & Services to the masses: Money Transfer, Loans , Insurance etc
Simplification of procedures : Simplify KYC’s, (Provision for compulsory PAN nos)
Product Innovation & Diversification: SEBI has allowed online distribution of mutual funds units through the stock exchanges and retail investors are encouraged to invest in mutual funds. India has more than 200,000 such terminals and allowing investors in over 1,500 towns to invest in the Mutual funds through Stock Exchange terminal will provide accessibility to more investors. The network of brokering companies has spread to semi-urban areas and is now increasing its focus on retail investors. Such cross selling facilities creates enough products and services for each intermediary to have economies of scale and also promotes financial inclusion.
Customisation: Apropriate & Affordfable services to those that need them.
Low cost of delivery..using mobile phones, internet and leveraging Information Technology : In India, there are 70-80 million internet users and 5.2 million broadband internet connections.However, internet penetration rate is merely 7 per cent for a billion population as compared to 25 per cent in China and Singapore, and 75 per cent in the United States. This signifies the great potential for internet trading.
It is widely recognized in economic literature that there are at least five different types of capital - physical (roads, buildings, plant and machinery, infrastructure), natural (land, water, forests, livestock, weather), human (nutrition, health, education, skills, competencies), social (kinship groups, associations, trust, norms, institutions) and financial. One of the causes as well as consequences of poverty and backwardness is inadequate access to all these forms of capital. Thus to look at financial inclusion in an isolated way is not the solution.
Friends, the next few decades clearly belong to us, but it is up to us to seize the moment, recognize the challenges and address them.. It is up to us to transform the Indian Capital Markets from an Emerging Market to a Well Developed Market.
“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 financial services include the entire gamut - savings, loans, insurance, credit, payments.
The financial system has to provide its function of transferring resources from surplus to deficit units but both deficit and surplus units are those with low incomes, poor background .
By providing these services, the aim is to help them come out of poverty. So far, the focus has only been on delivering credit (it is called as microfinance but is microcredit) and that has been quite successful.
Rationale or the need for Financial Inclusion: Why is it so important?
Finance has come a long way since the time when it wasn’t recognized as a factor for growth and development. It is now attributed as the brain of an economic system and most economies strive to make their financial systems more efficient. It also keeps policymakers on their toes as any problem in this sector could freeze the entire economy and even lead to a contagion.
Reserve Bank of India data shows that as many as 139 districts suffer from massive financial exclusion, with the adult population per branch in these districts being above 20,000 and only 3 percent with borrowings from banks. On the assumption that each adult has only one bank account (which does not hold good in practice, so that actual coverage is likely to be worse) on an all India basis, 59 percent of the adult population in the country has bank accounts. 41 percent of the population is, therefore, un banked. In rural areas the coverage is 39 percent against 60 percent in urban areas. The un banked population is higher in the poorer regions of the country, and is the worst in the North-Eastern and Eastern regions. Its not surprising that these very regions are also suffering from Naxalism.
Financial Inclusion is delivery of not only banking, but also other financial, services like insurance, pension, remittance, mutual funds, etc. delivered at affordable, though market driven costs.
Opening a no-frills account is just a beginning to a continuous process of providing banking and financial services.
Once the first step of safety of savings is achieved, the poor require access to schemes and products which allow their savings to grow at rates which provide them growth beyond mere inflation protection.
So where does Capital market figure and what can be role of Broking houses
The role of capital markets is vital for inclusive growth in wealth distribution and making capital available to investors.
Capital markets can create greater financial inclusion by introducing new products and services tailored to suit investors’ preference for risk and return as well as borrowers’ project needs and risk appetite.
- Innovation,
- Credit Counselling,
Financial Education and
Proper Segment Identification constitute the possible strategies to achieve this.
A well-developed capital market creates a sustainable low-cost distribution mechanism for distributing multiple financial products and services across the country.
Indian households are among highest savers in the world but less than 1 per cent of the population participates in capital markets. Given a savings rate of 29% and the fact that more than 50 per cent of household savings continue to be in relatively unproductive assets, prospects lie in driving these savings into the financial system and channelising them into productive investments. Through financial inclusion, capital markets can actually generate productive investments
For the Capital markets herein lies a great once in a lifetime business opportunity for decades to come
How can Financial Inclusion in Capital Markets be achieved?
Identify Target segment : Once the exercise of UID / Aadhar is completed, the govt. will have a repository of credible information and the same can be used effectively by targeting the needy. Here the Capital Market participants are involved in asstisting the govt. in issuing these ID’s.
Educate them- Financial Education is the key… BTI too could paly an important role in aiding and assisting this process. There are several Social Religious & Behavioural aspects that need to be addressed. Dr.Shariq’s efforts are precisely in that direction.
Making available multiple products & Services to the masses: Money Transfer, Loans , Insurance etc
Simplification of procedures : Simplify KYC’s, (Provision for compulsory PAN nos)
Product Innovation & Diversification: SEBI has allowed online distribution of mutual funds units through the stock exchanges and retail investors are encouraged to invest in mutual funds. India has more than 200,000 such terminals and allowing investors in over 1,500 towns to invest in the Mutual funds through Stock Exchange terminal will provide accessibility to more investors. The network of brokering companies has spread to semi-urban areas and is now increasing its focus on retail investors. Such cross selling facilities creates enough products and services for each intermediary to have economies of scale and also promotes financial inclusion.
Customisation: Apropriate & Affordfable services to those that need them.
Low cost of delivery..using mobile phones, internet and leveraging Information Technology : In India, there are 70-80 million internet users and 5.2 million broadband internet connections.However, internet penetration rate is merely 7 per cent for a billion population as compared to 25 per cent in China and Singapore, and 75 per cent in the United States. This signifies the great potential for internet trading.
It is widely recognized in economic literature that there are at least five different types of capital - physical (roads, buildings, plant and machinery, infrastructure), natural (land, water, forests, livestock, weather), human (nutrition, health, education, skills, competencies), social (kinship groups, associations, trust, norms, institutions) and financial. One of the causes as well as consequences of poverty and backwardness is inadequate access to all these forms of capital. Thus to look at financial inclusion in an isolated way is not the solution.
Friends, the next few decades clearly belong to us, but it is up to us to seize the moment, recognize the challenges and address them.. It is up to us to transform the Indian Capital Markets from an Emerging Market to a Well Developed Market.
