Financial Inclusion: A Panacea for Poverty Alleviation

Abstract

Open and efficient society is characterised by unrestrained access to public goods and services. Services provided by banks are in the nature of public good; therefore, it is essential that all section of the society should have access to the availability of banking services without discrimination. It is important to recognise that in the policy framework for development of the formal financial system in India, the need for financial inclusion and covering more and more of the excluded population by the formal financial system has always been consciously emphasised. What has now come to the fore is that even after decades of such emphasis and significant improvement in the banking system there are large segments of the society outside the financial system. The poor in the informal or subsistence economy depends on their friends, family or usurious money-lenders for borrowing. The paper find out the causes and challenges of financial exclusion and accordingly design strategy to ensure financial inclusion of the poor, vulnerable section and disadvantage section of the society. The strategy may differ for financial inclusion as causes and reasons for financial inclusion may differ from country to country. Financial inclusion helps poor and disadvantage section of the society to come out of poverty and provides opportunity to link with the market and thereby society. Besides, financial inclusion helps in transition of economy from an agrarian system to a post-industrial modern society as people move from traditional working system to digital working system. Financial inclusion is, therefore, important because it is a necessary condition for sustaining equitable growth, inclusive growth, and for poverty alleviation. Through financial inclusion people start making saving and investment, whereby they link with formal financial system and find freedom from the clutches of usurious money-lenders. Access to formal financial system protects people especially the poor and the vulnerable section of the society from income shock as they can avail credit facility at nominal rate of interest. Further, financial inclusion also helps to meet emergency need like loss of unemployment, illness and so forth. The paper concludes that formal financial system must ensure the inclusion of those who are not able to meet their financial requirements from formal financial system. Financial inclusion has several externalities, which can be exploited to the mutual advantage of those sections of the society who are so far excluded from enjoying services of formal financial institutions. Financial inclusion not only helps the poor and vulnerable sections of the society to meet their financial needs but also helps the economy to grow. Banks must understand the requirements of the financially excluded section of the society and focus on development market and products that suited to the clientele.