Saturday, December 21, 2013

Financial Inclusion - Full of Sound and Fury

Financial Inclusion is full of sound and fury:
As India faces General Elections in the next four months it is time to look at the Financial Inclusion efforts as it is a barometer for poverty reduction. The CRISIL Financial Inclusion index showed a marginal improvement of around 2.2 between 2010 and 2011. The RBI's composite analysis recently put down by its Executive Director, P. Vijay Bhaskar says that from the NSSO 59th round (Jan-Dec 2003) reflecting a financial exclusion of 51.4 percent farmer households there is considerable improvement but fails in its own study to make exact comparison where it mentions in of all the rural households having access to financial services from the banks. This chart depicts from 1951 to 2002 the course of debt from the formal and informal sources. The formal sources increased by just 4.2% between 1991 and 2002 - the initial years of reforms in the banking sector while the informal sources of debt increased by 13.8% during the same year.


When we look at the data put out by the World Bank, as at the end of 2011, only 51.78 percent availed bank credit and around 68percent the deposit services. If we compare NSSO 59th Round (2003) with World Bank 2011 financial inclusion data the households availing bank credit increased by marginal 0.38 percent.

Central Bank -driven financial inclusion effort made only marginal impact during the period 2002-2011. Financial inclusion is thus full of sound and fury signifying almost nothing during the effective years of its efforts - 2005 to 2011.

Financial Learning Centres established more at the initiative of the central bank reflect numbers and not achievements. It is desirable to have an independent assessment of the FLCs deliverables. The reason would appear to be that the initiative is strongly driven by the central bank and hypocritically led by the Government. The constituent banks, most in the public sector, continue to make any apology of the effort in financial literacy and financial inclusion indulging in numbers to make believe that they are serious about it.