Impact of Financial Exclusion and its impact on rural society

Farmers in particular and rural residents in general seek prompt financial assistance to make the best use of available resources for securing a sustainable way of life. When there is no rural financial inclusion culture, or when there is no financial help, rural people often choose to migrate to urban regions, which deepens the cycle of vulnerability and poverty. The development of an effective and efficient delivery system, together with raising awareness among rural populations in general and marginalized groups in particular, are key components to the success of financial inclusion. It is necessary to address the structures that encourage the exploitation and vulnerability of the weaker groups. Money lenders that advertise loans through dishonest tactics ought to be adequately controlled. The participation of non-government organizations working closely with rural residents would be crucial in bridging the institutional and individual gaps. The rules and regulations governing access to financial support services must be made practical and agreeable for individuals in order to advance local concepts of social entrepreneurship. A more straightforward financial aid program will make it easier for women and other clientele groups to connect with financial institutions.

Concept of Financial Inclusion

Government Initiatives  

1. The first step taken was in the year 1969 with nationalisation of the then existing banks to make the services of the bank to the common man. 
2. In the year 1981, The National Bank for Agriculture and Rural Development (NABARD) was established to promote sustainable and equitable agriculture and rural prosperity through effective credit support, related services, institution development and other innovative initiatives. NABARD provided credit services to farmers and various subsidy schemes for handloom sector, benefitting weavers in India. 
3. Swarnjayanti Gram Swarozgar Yojana (SGSY) initiated in the year 1999 to create avenues of self employment available to the poor, specifically Below Poverty Line (BPL) families residing in rural areas. The Self Help Groups (SHGs) were formed and linked to bank to promote activities for their livelihood by providing income generating assets. 
4. The National Rural Employment Guarantee Scheme (NREGS) was launched after the enactment of the National Rural Employment Guarantee Act in the year 2005 to provide employment for at least 100 days in a financial year. The scheme was  specifically targeted for the rural poor, willing to do unskilled manual labour. The scheme in addition to wage employment also ensures gender and social empowerment, by increased women participation and wage parity. 
5. National Rural Livelihood Mission (NRLM) was introduced to overcome the shortcoming of SGSY in the year 2010. The motto was poverty through access to gainful self employment and improve the standards of living of the poor by building strong and sustainable grassroots institutions of the poor. The concept of ‘Bank Mitras’ was introduced to facilitate greater accessibility to bank services. 
6. The concept of Regional Rural Banks (RRBs) was introduced in the year 1976 to cater to the special needs of the rural and semi- urban areas specifically focussing on efficient credit availability for agriculture sector.
7. Kisan Credit Card Scheme designed to cater farmers’ credit requirements, the scheme facilitates a single window system for providing credit in activities like cultivation of crops, post harvesting expenditure, maintenance cost for assets used in agriculture, and investment requirements in agriculture and allied activities. 

Credit is crucial for amassing the other capital necessary for generating income. For instance, it is necessary to have financial capital to satisfy the purposes in order for any physical capital, such as tools and machinery, or human capital, such as health and education, to develop. On the other hand, natural, physical, social, and human capital are crucial for the development of any form of financial capital. Both these contribute to the expansion of financial capital. Therefore, it is reasonable to suppose that all means of subsistence (capitals or assets) are interconnected and strive to advance the welfare of all. Therefore, creating secure livelihoods should be a major priority. People must take on various tasks in order to support their way of life. However, the choice of livelihood depends on the options available. As a result, assets are the initial component of every life. It may also be referred to as capital or stock. It aids in maintaining the material well-being of the home. Here, "stocks of capital" refer to any stocks that produce resources or stocks that can be used now or in the future by saving during a period of excess availability. It is important to establish if the household owns, controls, claims, or accesses the assets. The majority of the poor share some fundamental traits. The most significant of these is their lack of assets, which includes their inability to own or access property as well as other types of productive assets such as skills, education, and health.

Rural India will benefit from financial inclusion by having easier access to credit and savings. As was already mentioned, credit markets make it easier to accumulate both human and material capital. These also make it possible for people to buy insurance against unfavorable health outcomes and other surprises. People's quality of life is impacted by financial exclusion either directly or indirectly because financial inclusion increases financial capital across all livelihoods. Livelihood is made up of natural, physical, social, financial, and human capital. Therefore, it is impossible to maintain a livelihood without owning the aforementioned goods. By enhancing other assets, financial capital contributes to the creation of a life and vice versa. As a result, it enhances people's general welfare. Therefore, including the rural population in the formal financial support system is vital for any rural economy.

Inclusion in the financial system has a long history in India. It is commonly believed to refer to opening new bank locations in unbanked and rural areas. However, today's definition of financial inclusion goes beyond simply establishing bank branches in unbanked communities to extend formal financial services across the entire nation. Direct transfers utilizing technology have been considered in the context of the different limitations in the delivery of subsidies. The beneficiary must maintain a minimum of one bank account. Since constructing that many brick and mortar physical branches is logistically impractical, the focus will be on creating electronic accounts instead. Technology adaptation would be a crucial component of this financial inclusion plan. The basic goal of rural financial inclusion is to connect individuals who are still outside the scope of formal banking with banking services by reaching out to the rural masses. This necessitates teaching the formerly uninvolved rural population about the many routes available for connecting to the services, which necessitates opening bank accounts with the bank.

SHGs affiliated with banks are emerging as a low-cost alternative to traditional methods of providing financial services to the underprivileged. Therefore, improved SHG empowerment would mark an important turning point in the financial inclusion effort. Although SHGs are becoming more significant as a source of credit for the poor and marginalized, there is no evidence of their efficient internal operation. More than a billion people worldwide have access to mobile phones, but more than 2.6 billion do not have access to financial services, according to an estimate (Dermish et al. 2011).

Banks have been permitted to use the services of NGOs, self-help groups, MFIs, and other civil society organizations as intermediaries in providing financial and banking services through the use of business facilitator and correspondent models in order to ensure greater financial inclusion and expand the reach of the banking sector. Banks now have new and varied ways to address the issue of financial inclusion thanks to provisions for this form of financial intermediation. (2006) Mahendra Dev S.

In addition to providing them with financial support options, connecting with banking services can help the poor escape the clutches of predatory lenders who frequently charge them unfair fees. To encourage financial engagement between rural people and banking institutions, developing a secure connection with the bank is a requirement. It is important to educate rural residents in general and the disadvantaged in particular about the proper issues.

Reasons of Uneven Financial Inclusion in India

In India, financial inclusion is more of an interconnected than an autonomous phenomenon. It is not possible to achieve rural financial inclusion solely by expanding banking services there. At the same time, the demand for banking services must rise. However, the demand for financial services as well as their availability are denied to rural India. People's demand won't rise until they have enough assets to pay for those services, according to the explanations.

In India, the GDP of agriculture has fallen while the GDP of services has steadily increased. However, the majority of people in rural India depend on agriculture for a living. Therefore, it is challenging to increase the rural population's demand for financial services in the absence of a stable source of income. According to the Socio-Economic Census of 2011, nearly three-fourths of rural households had monthly incomes of less than Rs 5000. More than half of rural households lack land and employ primarily casual labor.

One of the most valuable resources for any generation seeking a living is education. The state of rural India lags significantly behind that of urban India, where universal literacy has yet to be reached, even in metropolitan India. Male and female literacy rates in urban India are 88.76 and 79.11, respectively, compared to 77.15 and 57.93 in rural India, according to the 2011 Population Census. It demonstrates that the rural population in India has fewer opportunities to comprehend and make use of the country's financial services.

Similar disparities exist in health care between urban and rural India. The disparity in India's growth between rural and urban areas can be seen in the infant mortality rate, anemic children, women, and pregnant women, the incidence of underweight children, and awareness of various ailments. When infrastructure is considered, the disparity in development between rural and urban areas becomes more obvious. In terms of roads, electrification, drinking water, sanitation, government and non-government institutions, etc., rural India lags considerably behind urban India.

All of the aforementioned factors have a negative impact on rural residents' general standard of living, and Indians without stable incomes find it challenging to participate in the country's formal financial systems. In other words, every barrier to securing people's means of subsistence has a negative impact on the demand for financial services. In addition to the previously noted uneven development of banking services in India, in terms of income generation,

According to the Reserve Bank of India, there are only 7.8 bank branches per 100,000 people in rural and semi-urban areas, and there are 18.7 branches in urban and metropolitan areas, according to the Reserve Bank of India. In India, there are 82,794 total rural bank branches out of a total population of 1065 million, whereas there are only 43,910 urban bank branches out of a total population of 235 million. Because there are more bank branches in urban areas, it can be seen that people in India have access to more financial services.

In rural and semi-urban areas, there are 189 million savings bank accounts, compared to 139 million in urban and metropolitan areas. If we look at the overall population of rural India, we can see that there are far fewer saving bank accounts in rural and semi-urban areas than in urban and metropolitan areas. Additionally, if we look at the percentage of deposits in bank accounts, rural areas in India account for about 10% of all savings. (Indian Reserve Bank, 2015).

Concluding Remarks: 

Financial inclusion is the process of ensuring that vulnerable groups, such as weaker segments and low-income groups, have access to suitable financial support systems at an accessible price, in a fair and transparent manner by mainstream institutional players. The poor and other vulnerable groups in society, as well as rural residents in particular, suffer from a lack of access to financial institutions.

Thus, financial inclusion cannot be realized until both the demand for and the availability of cheap banking services are increased. More rural people should have access to banking services. The power of the populace should also be increased in terms of their wealth, health, and education so that they have better access to those financial services. Additionally, attention must be paid to reducing inequality between India's rural and urban areas. More than 70% of the people in India reside in rural areas. Thus, improving rural India will lead to a better India.

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