Financial Inclusion means providing access to useful and affordable financial products and services—like bank accounts, credit, insurance, and payments—to all segments of society, especially the poor and underprivileged, in a fair and transparent manner.
Financial Literacy is the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing.
The two concepts are deeply connected: Financial Literacy is the path to achieving effective Financial Inclusion. Simply opening a bank account (inclusion) is not enough if the person doesn’t know how to use it safely and effectively (literacy).
The Goal of Financial Inclusion
The main objective is to bring the “unbanked” population into the formal financial system. This is crucial because:
- It helps in the effective delivery of government subsidies and welfare benefits directly to the poor through Direct Benefit Transfer (DBT).
- It encourages a culture of savings.
- It provides access to formal credit, protecting the poor from the high-interest rates of informal moneylenders.
- It empowers individuals, especially women, and boosts economic growth.
Key Initiatives for Financial Inclusion in India
Pradhan Mantri Jan Dhan Yojana (PMJDY)
This is the flagship scheme for financial inclusion launched in 2014. Its goal is to ensure access to financial services in an affordable manner.
- Key Feature: It allows the opening of a Basic Savings Bank Deposit (BSBD) Account, which is a zero-balance account.
- Benefits:
- No minimum balance required.
- A RuPay debit card is provided.
- An overdraft facility of up to ₹10,000 is available.
- Built-in accident insurance cover.
Other Initiatives
- Kisan Credit Cards (KCC): To provide timely credit to farmers.
- Atal Pension Yojana (APY): To provide a pension for workers in the unorganized sector.
- Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY): For life insurance.
- Pradhan Mantri Suraksha Bima Yojana (PMSBY): For accident insurance.
Role of Banks in Promoting Financial Literacy
Banks and the RBI play a critical role in educating the public.
- Financial Literacy Centres (FLCs): The RBI has advised banks to set up FLCs to provide free financial education.
- Financial Literacy Week: The RBI observes a “Financial Literacy Week” every year to create awareness on a specific theme.
- Simple Communication: Banks are encouraged to explain their products and services in simple, local languages.
- Business Correspondents (BCs): These are bank agents who provide basic banking services in remote villages where there are no bank branches, acting as a key link in the financial inclusion process.