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Mapping financially included pockets in India

Posted on July 02, 2013 by Sumita Kale

Measuring financial inclusion has been one of the daunting tasks for regulators as well as researchersWith reference to published data which could be used to study the progress of financial inclusion, the two important sources are RBI and Department of Financial ServicesBetween March 2011-2012, Department of Financial Services had released state wise data on number of BCs appointed and accounts opened by them in each state each month, however this has been discontinued sinceMoreover, less was said about the transactions happening in those accounts and the characteristics of the population being approached by the BCs for account openingRBI on the other hand, has been periodically putting out data in public domain relating to number of bank branches, number of saving and loan accounts at district levelThis data has been used by CRISIL in its attempt to measure the degree of financial inclusion by creating an index using these three parameters.


However, even as the output of this indexing exercise provides a bird eye view of district’s overall positioning in terms of access to financial channel, it is limited only to the ‘bank branch’ as a financial instrumentIt is nonetheless important to note that there has been enough debate on the usefulness of the brick-and-mortar model in the times when technology has delivered low cost models with wide reach and the efficiency of a "bank branch to serve the inaccessible areas and marginalized sections has been questioned time and again.


The penetration level of formal finance systems can also be studied from the Census data e.g access to banking services by householdsThe information can be disaggregated at rural and urban level for districts which thus makes a better measure of mapping financial inclusionOf course this data comes once in ten years only.


Dormancy of bank accounts is another issue the financial system has been grappling with.  Thus, districts with higher bank penetration can still have very low transaction rate which repudiates the basis of financial inclusionTransactions and payment systems are an indispensable part of inclusion process and thus presence of alternate channels enabling transactions at low cost is important instruments for defining and assessing financial inclusionThe RBI has only just begun to gather data from the banks on transaction levels at a disaggregated level.


Similarly, deposit and credit accounts can serve as effective instruments of measuring financial inclusion when put in context of the socio-economic classes being servedWhile the amount of deposits and credit with banks do reflect a district’s overall prosperity levels compared to others, there are also large savings in form of postal schemes, co-operatives and self-help groupsThe same holds true for credit granted in small quantities through micro finance groupsThus, a holistic picture is required to take complete stock of inclusion at sub-national level.


DrK C Chakraborty , Deputy Governor, RBI rightly recognized in one his speeches  that " A robust financial inclusion design depends on a multiplicity of parameters encompassing varied socio-economic backdrops and feasible financial service delivery mechanism that would vary from region to regionThis is particularly so for a country like India, which is distinguished by its vastness of topographical, demographic as also socio-economic diversity. Clearly the present understanding of financial inclusion needs to evolve further to capture "Meaningful Inclusion and the design of our present statistical system needs to adapt to capturing the same.

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