Mentors Comments:
1. Mention the state of financial inclusion in India.
2. Highlight the challenges for the same and barriers in improving the situation.
3. Provide solutions to address the issue.
Answer:
Financial inclusion may be defined as the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low-income groups at an affordable cost. It has been recognized as a key building block that will form the foundation for achieving several of UN’s Sustainable Development Goals.
Concerns:
- Failure of government schemes:
- Jan Dhan Yojana:
- Disquieting feature is that public banks, regional rural banks, and 13 private lenders reported that as march 2017 around 90 lakh accounts were frozen under the PMJDY owing to inactivity.
- Only 33 percent of all beneficiaries were ready to use their Rupay cards.
- Merely opening physical accounts as flag posts of financial identity won’t help unless they are actively used by people for managing their money.
- Financial literacy:
- India is home to 17.5 percent of the world’s population but nearly 76 percent of its adult population does not understand basic financial concepts.
- Insurance policy issues:
- On account of the lack of awareness and failure of institutions to guide them, people buy insurance policies without planning and give up midway because they don’t have money to pay premiums.
- Aggressive selling prevents agents from assessing the consistency of income streams of the buyers for servicing their policies.
- Customers end up losing heavily as penalties are harsh. According to the insurance regulator, IRDAI, in 2016, Five years after being bought, two-thirds of the life insurance policies are no more.
- This shows customers are losing huge money on account of bad financial planning.
- Access to Credit
- But despite the strong growth, only 200 million borrowers have had access to credit from formal channels This is the reason why the credit penetration index of CRISIL Inclusix remained low
- There is also a large degree of self-exclusion due to the existence of informal credit sources meeting their convenience.
- Digital Connectivity issues:
- When most of the rural areas still not having even a reliable internet facility it is difficult to push for a cashless economy.
- From the demand side, the reasons are low income, poverty and illiteracy and lack of awareness.
- From the supply side branch proximity, timings, cumbersome documentation and procedures,
attitude of the bank staff and language. - Remoteness from the financial institutions:
- Usually, banks are locating their branches in the high densely populated areas for covering their cost of operations.
- Unfortunately, people are scattered in rural India. The population densities of rural areas are very low. The remoteness of the financial institution makes rural people do not utilize such services. They have to travel far to approach these institutions which is again time and cost consuming process.
- Low penetration of financial services, less efficiency of business correspondents also limits the success of financial inclusion.
- The complex financial services market offers a wide range of products however lack of awareness restricts the use of these products.
- Flexibility in terms of financial communication is the biggest roadblock to true financial inclusion in India.
- Low and Irregular income:
- Income level is one of the prominent factors that hinder the underprivileged from availing services from banks.
- The majority of the people’s income level in the rural area is low and irregular too. A major portion of people is in seasonal employment. Hence, income level decides people’s saving and investment avenues.
- Inappropriate products:
- Generally, banks are targeting the educated and high-income groups of people. They develop financial products based on these target groups’ requirements. The needs of low income and weaker section of people are quite different. This increases the percentage of financially excluded people in society.
- Marginal farmers, landless laborers, oral lessees, self-employed and unorganized sector enterprises, urban slum dwellers, migrants or ethnic minorities and socially excluded groups, senior citizens and women are out of the preview of financial inclusion.
- High Cost:
- Nowadays banks are operating for profit under the competitive environment. They levy charges for different transactions like minimum balance requirement, charges for usage of ATM services, processing fees, etc. People are already suffering from low and irregular income.
- Therefore paying these kinds of excessive charges make them more burdened.
- The attitude of employees:
- Employees of the formal financial institutions give differential treatments to dissimilar target groups. The high-income group receives overwhelming response whereas low income and rural people suffer from bitter experiences. This affects the self-respect and dignity of the people and hampers the financial inclusion process.
- Lack of proper Documents:
- As per the norms of the banks, it is mandatory to submit legal documents at the time of opening an account.
- The majority of the poor people like migrants, tribes, etc cannot access formal financial services due to lack of having any legal documents. Getting a legal document is an expensive and time-consuming process.
- Jan Dhan Yojana:
Way forward:
- Financial inclusion can spread faster if there is a sharper focus on enhancing branch and credit penetration beyond south India. Policymakers need to continue incentivizing branch and credit penetration in districts with low CRISIL Inclusix scores.
- Cascade training model:-
- A bank undertook a project to deliver financial education training to young women in rural communities through a cascade training model where core trainers trained peer educators, who in turn trained community members. These examples provide evidence that using a model that involves experiential learning and the use of products has greater chances of success.
- To use financial services to their full potential, low-income people need products well suited to their needs and appropriate training and education for adapting to these financial services.
- To increase cashless transactions:-
- To venture into the vastly untapped domestic smartphone network which is estimated to cover around 500 million users in the next five years.
- UPI has the potential to lift service delivery paradigms to the next level.
The government is committed to its target of increasing the inclusion of every household in the financial system thus strengthening the social contract so that the masses can get all the legitimate benefits arising out of the growth of the country and also provide an extra thrust to lead the path of growth
Comments
41 responses to “What barriers does India face in including the last mile in its financial network? Suggest solutions for the same. (15 Marks)”
Payment ID – MOJO9a25Y0056176325
Hello,
Please review attached answer
Hi Damini
The structure, presentation, and content of the answer are perfect.
The answer has covered almost all the elements required.
Underline imp keywords.
Highlight your subheadings more prominently
Please review MOJO9b05300A74622986
Solutions and way ahead are the same thing. So, avoid duplication of subheadings.
The overall answer is decent.
Good discussion in the main body.
Underline imp stuff in your answers.
Good structure.
MOJO9a31K00N58111047
MOJO9a31K00N58111047
In terms of structure, discuss the need for FI in the 1st part of the answer.
The rest of the answer is decent.
Good intro.
Way forwards are deep.
You can use flowcharts in the main body to make your presentation better.
MOJO9b04X00D25275001
You failed to discuss the reasons for the low penetration of FI in India.
You only gave the status of the FI in India.
Read the model answer.
Way forwards are OK.
The presentation needs rework.
Keep your writing and points clear
Pleas review.
MOJO9b04600W25293262
Use the content of the model answer but write in your own words.
Do not discuss the status of FI in India in that details. This affects the overall structure and balance of the answer
The 2nd part of the answer is well attempted.
Good elements in that discussion.
Good way forwards.
MOJO9930Q00N64198657
Very good intro.
Before discussing the challenges with FI in India, discuss the current status of FI in India. This part should be only brief.
The rest of the answer is quite decent.
The content is rich and well placed.
But with your current presentation style, the Full-Length Tests may become monotonous for the examiner. Hence start using some sort of flowcharts, box styled discussions or images. That will bring the X-Factor in your answers.
Underline imp words.
The way forwards are very good.
MOJO9b02200D52463423
Before discussing the challenges with FI in India, discuss the current status of FI in India. This part should be only brief.
The main body of the answer is decently attempted.
The content is good with a fine amount of explanation.
The language is also good.
Good way forwards.
Underline imp stuff
Please Review…My payment id: MOJO9a31400N58094558
Divide your intro into two parts to make a better and shorter intro. The second paragraph should discuss the current status of the FI.
Your coverage is decent but points are lengthy and over-explained.
Work on this aspect of answer writing.
The structure is OK
MOJO9b06O00N30009361
Can you please tell how to attach answer
Hi Raja
Click the picture of the answer sheet and upload the image in an upside-down orientation through the attachment link given in the comment box. You can also convert the file into PDF and attach it.
https://www.civilsdaily.com/submission-of-awe-answers/
Please review.
Payment id- MOJO9a05700D19953140
Hi Shambhavi
Apart from a missing conclusion, the overall content is perfect.
The question is well attempted.
The answer has a perfect structure, presentation, and depth.
The explanation and language are well crafted.
All in all, a near-perfect answer
MOJO9a31100A58098507
Good discussion.
The coverage is decent and you have met the demands of the answer in a lucid manner.
The overall presentation and structuring of the answer is fine.
Good way forwards
ID – MOJO9a30J00A35179194
Please review
Hi Pragya
The structure of the answer can be made better, especially in the 1st part of the main body.
The 1st part after the intro should discuss the current status of FI in India and then under separate subheading, discuss the challenges or reasons for the low FI in India.
The way forwards are decent.
But do write a conclusion.
Good intro.
Underline imp parts.
MOJO9b03K00A07920521
The overall answer lacks content and depth.
Before discussing the challenges with FI in India, discuss the current status of FI in India. This part should be only brief.
The points in the main body are OK but there are more dimensions in the topic that you missed like gender inequality in accessing finance, Failure of government schemes, Insurance policy issues, Access to Credit and Digital connectivity.
Similarly, in the part of the solutions, you need to discuss more.
Remember, in 15 mark questions, you need to give more content. This answer would have been suffice if it was a 10 marker.
The overall structure is OK.
Underline imp stuff
ID: MOJO9a29V00D61774546
Thank you.
Very good answer.
Right from the intro to your conclusion, you have attempted the answer in a decent manner.
The overall content is rich and has proper depth.
The coverage and dimensions in the content are also fine.
The structure is fine.
But underline imp stuff
MOJO9b04S00N25297271. Please review
Decent intro.
Use the content from the sources but write them in your own language.
The overall approach is decent.
Your coverage is more than enough for the topic.
You have covered almost all the dimensions.
Very good content and presentation in your way forward.
MOJO9801A00D04078686
Hi Ayush
The structure can be made better.
Instead of discussing the steps taken for the FI after discussing the challenges, discuss it in the 1st part of the answer before the challenges.
That way, you will have proper reach and coverage in the answer.
The challenges part needs more content like gender inequality in accessing finance, Failure of government schemes, Insurance policy issues, Access to Credit and Digital connectivity, etc.
Decent way forward
Underline imp stuff
ID
MOJO9b01C00A90817216
Please review
Before discussing the challenges with FI in India, discuss the current status of FI in India. This part should be only brief.
The rest of the answer is fine.
Good dimensions covered in the main body.
Fine way forwards.
Good conclusion.
Payment ID:MOJO9b01O00A90839766
Please review
Hi Sahithya
Before discussing the challenges with FI in India, discuss the current status of FI in India. This part should be only brief.
The rest of the answer is very good.
Your coverage is decent and explanation crisp.
Very good way forwards.
MOJO9a05K00A19952476
A very good intro.
Good discussion n the main body of the answer.
The discussion is pinpoint and adheres to the requirement of the question.
The points are deep and well structured.
The way forwards are the real gem of this attempt.
They are detailed, informative and well explained.
Good conclusion.
The presentation is fine.