Financial Inclusion Through India Post Essay Example

Financial Inclusion Through India Post Essay Example Financial Inclusion Through India Post Essay Financial Inclusion Through India Post Essay Dr. Joji Chandran PhD ABSTRACT India is having the most widely distributed post office system in the world. With 1,55,333 post offices, the India post comes under the Department of Posts which is a part of the Ministry of Communications and Information Technology under the Government of India. The wide distribution network of India post is one important factor that favours india post as a channel for financial inclusion in India. The search of financial inclusion appears to be a tough task. Sustained growth of the nation and its continued prosperity depend critically on universal financial services covering all people. Further, empirical evidence shows that inclusive financial system significantly raises growth, alleviate poverty and expand economic opportunity. In India, the India post when linked to banks in a gradual way initially through saving and later through loan product is considered to be an effective strategy to ensure financial inclusion in this backdrop. This paper examines the scope of India Post in the inclusion (Access) of excluded poor households. INTRODUCTION Financial Inclusion The delivery of financial services to the low income group at affordable cost is termed as financial inclusion. The term financial inclusion has gained importance since the early 2000s, and is a result of findings about the unavailability of banking services to the poor (financial exclusion) and its direct correlation to poverty. Financial inclusion is now a common objective for many central banks among the developing nations. The two approaches used for financial inclusion is microfinance and Islamic banking. : Financial Inclusion covers a wide array of services by banking sector. According to Mor and Anath (2007) financial inclusion, at a minimum, may be interpreted to mean the ability of every individual to access basic financial services which include savings, loans and insurance in a manner that is reasonably convenient and flexible in terms of access and design and reliable in the sense that savings are safe and that insurance claim will be paid with certainity. Rao (2007) was of the opinion that though the inancial inclusion covers a wide array of services by the banking sector, one crucial area relate to borrowings from banks by the lower strata of unorganized segment of the economy. Further, debt owed to institutional and non-institutional sources could be used as barometer of degree of financial inclusion in the two sectors. Thorat (2007) used the percentage of adult population having bank accounts as a measure of financial inclusion in the payment system. Similarly she used the pe rcentage of adult population having loan account as a measure of financial inclusion in formal credit market. India Post The apex body of the department is the Postal Service Board. The board consists of a chairman and three members. The three members hold the portfolios of Operations amp; Marketing, Infrastructure amp; Financial Services, and Personnel. The Joint Secretary and Financial Advisor to the Board is also a permanent invitee to the Board. India has been divided into 22 postal circles. Each circle is headed by a Chief Postmaster General. Each Circle is further divided into Regions comprising field units, called Divisions, headed by a Postmaster General. Other functional units like Circle Stamp Depots, Postal Stores Depots and Mail Motor Service may exist in the Circles and Regions. Million’s of people in India live below poverty line with the per capita income of less than one dollar per day. The policy makers and practitioners who have been trying to improve the lives of these poor and fight against poverty. This got reflected in the successive fiver-year plans, which had the objectives of ‘growth and equity’ and ‘social justice’. The planners however, realized that rapid growth did not bring about ‘trickle down’ effect, particularly so in rural areas. This realization led to the restructuring of institutions and schematic lending to facilitate better accessibility of credit for the underprivileged. Thus, initiatives in this regard were taken by building an institutional frame work through nationalization of banks, creation of regional rural banks. The government sponsored several programmes and projects to bring the excluded poor into the mainstream â€Å"development†. These programmes failed achieve its goals. And many now believe that government assistance to the poor often creates dependency and disincentives that make matters worse, not better. Moreover, despite decades of aid, communities and families appear to be increasingly fractured, offering a fragile foundation on which to build. Table No. 1. Bank Penetration Rates among working age paid workforce’s in India Workforce Category| Total| Rural| Urban| All earners aged 18-59 years| 45%| 38%| 62%| Shopkeepers| 72%| 65%| 79%| Dairy farmers| 59%| 59%| 62%| Traditional farmers| 45%| 45%| 51%| Street Vendors| 39%| 35%| 45%| Semi amp; Skilled wage labourers| 34%| 32%| 37%| Artisans amp; Craftsman| 26%| 22%| 37%| Home based workers| 25%| 20%| 38%| Agricultural wage labourers| 14%| 14%| 12%| Other daily wage labourers| 18%| 15%| 26%| Source: Invest India Incomes and Savings Survey, 2007 While considering the total number of customers and the total number of branches, the post office savings bank is the largest bank in India. The bank does not discriminate between rich customer or a poor customer. One of the biggest problems in rural India is that the population is not accustomed to formal banking and turns to local moneylenders in times of need. Out of fear for their livelihood, farmers only approach money lenders for special situations, such as medical emergencies, their children’s weddings or religious ceremonies. As traditional banks do not grant credit for these kinds of expenses, the central bank issued a â€Å"kisaan credit card† for farmers, designed to enable them to borrow money in precisely those circumstances. In view of the crucial role of savings, the central bank decided to collaborate with India Post in 2006. The latter looks back on a very long history as a savings institution (since 1882).