Daily Answer Writing GS Paper 3

DAILY ANSWER WRITING QUESTIONS-10TH NOVEMBER,2020

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Q . The recent pandemic highlighted the importance of financial inclusion. Critically analyze the governmental efforts for financial inclusion and suggest ways to achieve it.10TH NOVEMBER,2020 (10 marks, 200 words, GS-3)

Answer-

Approach-

  • The introductory para could be about the financial inclusion and its importance.
  • The second para could include the measures taken by government.
  • The next para could have the challenges and shortcomings.
  • Final conclusion with the required measures and way forward.

Financial Inclusion is the process of ensuring access to appropriate financial products and services needed by vulnerable groups such as weaker sections and low income groups at an affordable cost in a fair and transparent manner by mainstream Institutional players. According to NITI Aayog, Financial inclusion should focus on banking for unbanked and securing the unsecured.

United Nation’s goals of financial inclusion include- Accessibility, Efficient and safe institutions, financial institutional sustainability and Competition.

Need for financial inclusion

  • Development
  • Growth
  • Service delivery
  • Bank’s efficiency

The initiatives taken by government

  • PM Jan Dhan Yojana (PMJDY)-
      • Pradhan Mantri Jan-Dhan Yojana (PMJDY) under the National Mission for Financial Inclusion was launched initially for a period of 4 years (in two phases) on 28th August 2014. 
      • It envisages universal access to banking facilities with at least one basic banking account for every household, financial literacy, access to credit, insurance and pension.
  • PM Shram Yogi Maan-Dhan Yojana (PM-SMY)
      • To ensure old age protection for Unorganised Workers, 
      • a voluntary and contributory pension scheme, 
      • receive minimum assured pension of Rs 3000/- per month after attaining the age of 60 years.
  • PM Kisan Maan-Dhan Yojana
      • PM-KMY Scheme in India is a central sector scheme for the farmers aged between 18 to 40 years. 
      • The beneficiary can become a member of the PM-KMY Scheme by registering under the Pension Fund managed by the Life Insurance Corporation of India (LIC).
  • Mudra Bank scheme
      • It enables a small borrower to borrow from all Public Sector Banks such as PSU Banks, Regional Rural Banks and Cooperative Banks, Private Sector Banks, Foreign Banks, Micro Finance Institutions (MFI) and Non-Banking Finance Companies (NBFC) for loans up to Rs 10 lakhs for non-farm income generating activities.
      • Under the aegis of Pradhan Mantri MUDRA Yojana, MUDRA has already created the following products / schemes.
        • Shishu : covering loans upto 50,000/-
        • Kishor : covering loans above 50,000/- and upto 5 lakh
        • Tarun : covering loans above 5 lakh and upto 10 lakh
  • National Strategy for Financial Inclusion (2019-2024)-
      • Six strategic objectives of a national strategy for financial inclusion identified by RBI are: 
        • Universal access to financial services
        • Providing basic bouquet of financial services
        • Access to livelihood and skill development
        • Financial literacy and education
        • Customer protection and grievance redressal, and 
        • Effective coordination
  • Kisan Credit Card (KCC) Loan Scheme 2020
      • The main objective of Kisan Credit Card Loan is to provide loans to farmers at a low rate of interest
  • Self-Help Groups Bank Linkage Programme
      • Three different models-
        • Model-1- SHGs promoted, guided and financed by banks
        • Model-2- SHGs promoted by NGOs/government agencies and financed by banks
        • Model-3- SHGs promoted by NGOs and financed by banks using NGOS as financial intermediaries

However the challenges to financial inclusion

  • Illiteracy of large section of population
  • Difficulty in understanding of various products
  • Hidden bank charges demotivates the poor people from opting the banking services
  • Lack of credit, low-costing and high-quality financial advice.
  • Gender inequality as most women often restricted to access the financial services
  • Non-Performing Assets (NPAs) makes it difficult to provide credit to needy and poor people.
  • According to NITI Aayog, the following are the constraints in financial inclusion
      • Lack of financial literacy amongst low income households and small informal businesses.
      • The high cost of operations of the traditional banking model.
      • Excessive regulatory requirements on products, and market entry, and conservative regulatory approach to new technologies.

The NITI Aayog has proposed several points for financial inclusion-

  • Launching a new scheme for comprehensive financial literacy, Arthik Shiksha Abhiyan
  • Ease of access with door-step banking facilities with the help of banking correspondents and giving better incentives.
  • Serving the underserved areas by providing all the banking services
  • Using technology to assess the credit-worthiness of the households to provide credit
  • Creating a platform for data sharing among the banks
  • Facilitating online and paperless banking to reduce friction, documentation requirement and cost of banking

 

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