By Himanshu Sekhar Panigrahi

Undeniably, financial inclusion is complementary to social inclusion, and both are fundamental to all-round development of any nation. For the last couple of decades policy makers across the globe have been considering financial inclusion as an intrinsic part of mainstream philosophy on economic and social development. It has increasingly been aiding and sustaining the effort for poverty reduction in the developing countries like India. Remaining in access to formal financial ecosystem is a human right. At the individual level it helps in the process of economic empowerment and further leads to improvement in social position.

Financial Exclusion and Poverty

On the flip side, financial exclusion, partly caused by systemic social barriers, grips the individual within the vicious cycle of poverty. It is directly correlated to poverty as it, like social exclusion, forbids the individual the opportunities and choices essential to conquer deprivation. So, inter-generational stretch of poverty persists for long. Financial exclusion debars the poor and marginalized groups from affordable and sustainable financial services like savings, credit and insurance provided by formal and proper agencies.

Magnitude of Financial Exclusion in India

Almost two-fifth of the working-age adults of India are devoid of access to formal financial services provided by regulated financial institutions. It is a regrettable fact that even after 70 years of independence, a major part of Indian population is still cut off from formal banking system and is devoid of any financial products and services. And, it is not surprising that almost all these financially marginalized people are bracketed within the below poverty line (BPL) and low-educated segment. Also, a large section of this deprived population is from SC & ST communities. It is also an upsetting reality that a whopping number of our farmers, labourers, urban slum dwellers and rural artisan communities are the financially excluded. To add, financial exclusion is not gender neutral, and women are more underprivileged, in comparison to their male counterpart, as several adverse social factors are overlapped on them.

Addressing Constraints to Financial Inclusion

In order to improve wide-ranging participation of the people in financial sector, several social and infrastructural constraints, supply-side or demand-side, are to be addressed. One such major constraint that needs immediate combative action is financial illiteracy. In addition to it, the concern of digital illiteracy is to be addressed. Gone are the days when thrust was on wiping out illiteracy, now focus is growing upon to promote e-literacy. Both financial literacy and digital literacy are critical weapons to fight socio-economic vulnerability and poverty, and to create a situation of household economic security. These create an enabling situation for the poor and marginalized to come out of the poverty trap by leveraging individual potential.

Empowering Through Financial and Digital Literacy

A financial and digital literate person can get access to varied livelihood options. He can better recognize opportunities available around and tap the benefits of welfare schemes of government. Digital skills and financial knowledge are the essential tools for the empowerment of the common people.

Government and Regulatory Efforts

The government has initiated several measures through regulations to address financial exclusion. Government of India’s scheme Jan DhanYojana is considered a great effort in the line to promote financial inclusion. The National Digital Literacy Mission (NDLM) works for creating people IT literate so that they can participate in the developmental process of the country in addition to improving their communication and accessibility to financial and social services.

Role of Private Sector

The initiatives, taken earlier by the Reserve Bank of India, like opening of no-frills account, improving access to easy credit and small deposits through General Credit Cards, engaging banking correspondents and relaxation in KYC norms have done a commendable job. However, the effort of the Government and its institutions is not regarded as adequate to support the process of financial inclusion. Role of the private sector (including financial, non-financial and social sectors) has become highly obligatory for this. Companies, both private and government, can make vital contribution in this area.

Corporate Social Responsibility (CSR)

It is desired that companies take innovative and comprehensive moves for financial inclusion through their Corporate Social Responsibility (CSR) endeavour, be it voluntary or compliance-based.

Business Opportunities and Legal Framework

From the ethical perspective, companies should work for the inclusive growth of the society, and for this financial inclusion remains a key sector. Creating equitable opportunities for their major stakeholder groups i.e. consumers, customers and communities will in return benefit the companies themselves. Companies can get improved access to market by helping these stakeholders improve their financial understanding and behaviour. This will enhance the companies’ financial performance and brand image. Also, the business bodies may get increased access to capital for furthering their business. So, it would be no exaggeration to say that the companies’ financial performance relies on the financial attitude of the people.

CSR Mandates and Guidelines

The provisions of legal framework under Section 135 of the Companies Act 2013, that came into force from 2014-15, mandates the companies to spend 2% of their profits on CSR activities. Corporate houses under this regulation should recognize the business opportunity these financially excluded groups provide, and work out strategies to bring them into financial mainstream.

Integration with Voluntary Guidelines

The National Voluntary Guidelines on Social Environmental & Economic Responsibilities of Business, brought out by the Ministry of Corporate Affairs of Government of India,advocates through many of the nine principles that businesses should be responsive towards their stakeholders, particularly marginalized groups, and support inclusive growth and equitable development. Banks, insurance companies and other financial institutions those come under this legal framework for CSR ought to promote financial and digital literacy among this type of underserved people. This pursuit is perfectly in sync with their expertise and their area of business.

Strategic Areas for Action

Companies espousing CSR may take up several areas to address financial exclusion. Some of the basic areas where strategic action is sought are elucidated below.

Generating Demand and Supply

First, effort must be put to generate demand from the marginalized sections to be part of the financial mainstream. For this awareness should be created,in campaign mode, among such people on the benefits of financial literacy and on how to upgrade their financial manner. Companies with support of NGOs should target these vulnerable and isolated groups for making them digitally connected. Second, it is essential to match the demand through a strong supply system. Technology, infrastructure and institutions are the key requisites to enable the supply system.

Creating Affordable Technology

Companies, particularly of IT and manufacturing sector, may work for creating affordable and easy-to-use devices like mobile phones and biometrics for encouraging financial and digital literacy. An effective digital connectivity system should be ensured as a pre-condition. Third, extensive training and orientation programmes are needed to be organized for boosting the understanding, knowledge, skill and confidence of the people on opening and maintaining bank accounts, cashless and digital payment options, insurance, savings, and government schemes for credit and financial support. For conducting training and capacity building excercises, corporate bodies may develop partnership with social sector agencies, NGOs and CBOs.

Cyber Safety and Government Support

Fourth, IT companies with support from Government regulatory bodies should work for enabling an atmosphere of cyber safety and security so that people get encouraged to choose the digital options for financial transactions. Fifth, initiatives of government towards financial and digital literacy need to be widespread and more effective by the support of corporate sector.

Supporting Government Initiatives

Companies may provide technical know-how, infrastructural support and financial boost to such efforts of the government like creation of Aadhaar-linked bank accounts, bank-linked SHG microfinance, e-transfer of money, use of mobile wallets, etc.