Financial Inclusion Index: RBI Flashcards
Why in News?
The Reserve Bank of India has released the Composite Financial Inclusion Index (FI-Index) for the year ended 31st March 2022.
What are the Findings?
India’s Financial Inclusion Index has improved to 56.4 from 53.9 in the previous year 2021.
The improvement has been seen across all its sub-indices (Access, Usage and Equality).
What is the Financial Inclusion Index?
About:
It is a comprehensive index incorporating details of banking, investments, insurance, postal as well as the pension sector in consultation with the government and respective sectoral regulators.
It was developed by the RBI in 2021, without any ‘base year’, and is published in July every year.
AIM
To capture the extent of Financial Inclusion across the country.
The FI-Index is responsive to ease of access, availability and usage of services and quality of services, consisting of 97 indicators.
PARAMETERS
It captures information on various aspects of financial inclusion in a single value ranging between 0 and 100, where 0 represents complete financial exclusion and 100 indicates full financial inclusion.
It comprises three broad parameters (weights indicated in brackets) viz., Access (35%), Usage (45%), and Quality (20%) with each of these consisting of various dimensions, which are computed based on a number of indicators.
The index is responsive to ease of access, availability and usage of services, and quality of services for all 97 indicators.
What is the Significance of FI Index?
@Measures Level of Inclusion:
It provides information on the level of financial inclusion and measures financial services for use in internal policy making.
@Development Indicators:
It can be used directly as a composite measure in development indicators.
@Fulfil the G20 Indicators:
It enables fulfilment of G20 Financial Inclusion Indicators requirements.
The G20 indicators assess the state of financial inclusion and digital financial services, nationally and globally.
@Facilitate Researchers:
It also facilitates researchers to study the impact of financial inclusion and other macroeconomic variables.
What is Financial Inclusion?
1.Financial inclusion is 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.
2.In a diverse country like India, financial inclusion is a critical part of the development process. Since independence, the combined efforts of successive governments, regulatory institutions, and civil society have helped in increasing the financial-inclusion net in the country.
3. Being able to have access to a transaction account is a first step toward broader financial inclusion since a transaction account allows people to store money, and send and receive payments. A transaction account serves as a gateway to other financial services
What are the Initiatives to Increase Financial Inclusion in India?
Pradhan Mantri Jan Dhan Yojana
Digital Identity (Aadhaar)
National Centre for Financial Education (NCFE)
Centre for Financial Literacy (CFL) Project
Expansion of financial services in Rural and Semi-Urban Areas
Promotion of Digital Payments.
About initiatives
PM-JDY
- PMJDY- pradhan mantri jan dhan yojana–Recently, Pradhan Mantri Jan Dhan Yojana (PMJDY) - National Mission for Financial Inclusion, completed eight years of successful implementation.
Pradhan Mantri Jan Dhan Yojana (PMJDY) is the National Mission for Financial Inclusion.
It ensures access to financial services, namely, Banking/ Savings & Deposit Accounts, Remittance, Credit, Insurance, Pension in an affordable manner.
Six Pillars of the Scheme
*Universal access to banking services: Branch and Banking Correspondants.
*Overdraft Facility: Basic savings bank accounts with overdraft facility of Rs. 10,000/- to every eligible adult.
*Financial Literacy Programme: Promoting savings, use of ATMs, getting ready for credit, availing insurance and pensions, using basic mobile phones for banking.
*Creation of Credit Guarantee Fund: To provide banks some guarantee against defaults.
*Insurance: Accident cover up to Rs. 1,00,000 and life cover of Rs. 30,000 on account opened between 15 Aug 2014 to 31 January 2015.
*Pension scheme for Unorganized sector.
National Strategy for Financial Education
The Reserve Bank of India (RBI) has released the National Strategy for Financial Education (NSFE): 2020-2025 document for creating a financially aware and empowered India.
It is the second NSFE , the first one being released in 2013.
This NSFE for the period 2020-2025 has been prepared by the National Centre for Financial Education (NCFE) in consultation with all the Financial Sector Regulators viz. RBI, Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority of India (IRDAI), Pension Fund Regulatory and Development Authority (PFRDA), etc. under the aegis of the Technical Group on Financial Inclusion and Financial Literacy (TGFIFL).
NCFE is a Section 8 (Not for Profit) Company under the Companies Act, 2013 promoted by RBI, SEBI, IRDAI and PFRDA.
It has recommended a ‘5 C’ approach for dissemination of financial education in the country:
Content: Financial Literacy content for various sections of population.
Capacity: Develop the capacity and ‘Code of Conduct’ for financial education providers.
Community: Evolve community led approaches for disseminating financial literacy in a sustainable manner.
Communication : Use technology, media and innovative ways of communication for dissemination of financial education messages.
Collaboration : Streamline efforts of other stakeholders for financial literacy.
Digital Payment Systems
The central banks of India and Singapore will link their respective fast digital payment systems - Unified Payments Interface (UPI) and PayNow - for “instant, low-cost, cross-border fund transfers”.
The linkage is targeted to be operationalised by July 2022.
National Electronic Funds Transfer
NEFT is a nation-wide payment system facilitating one-to-one funds transfer. Under this Scheme, individuals, firms and corporates can electronically transfer funds from any bank branch to any individual, firm or corporate having an account with any other bank branch in the country participating in the Scheme.
There is no limit – either minimum or maximum – on the amount of funds that could be transferred using NEFT.
However, the maximum amount per transaction is limited to Rs. 50,000/- for cash-based remittances within India and also for remittances to Nepal under the Indo-Nepal Remittance Facility Scheme.
