Syllabus: Inclusive growth and associated issues/challenges
Source: Live Mint
An article by David Malpass (president of the World Bank Group) on financial inclusion.
*The article can be read along with one on 7th July 2022 (World Bank releases Global Findex database 2021)
Data: Global Findex found that 71% of adults in developing economies now have a formal financial account.
Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way.
Benefits of the financial inclusion revolution:
- Easier, cheaper and safer for people to receive wages from employers, and send remittances to family members.
- Mobile money accounts can better handle high-volume, small-denomination transactions
Successful example – Kenya’s M-Pesa, allows users with or without bank accounts to transfer and make payments through a basic mobile phone is an example of a digital financial inclusion success story which now accounted for 20% of GDP and improved per capita consumption and lifted 2% of Kenyan households—out of poverty
- Women empowerment: Individual accounts also give women more privacy, security and control over their money.
- Reduce leakage and delay in government transfers –It benefits directly the people through their Aadhaar seeded bank accounts.
- For example – MGNREGA has been attached to the Jan Dhan-Aadhaar-Mobile (JAM) platform, which aims to prevent leakages and delays and is a right step in this direction.
- Government of Andhra Pradesh launched a smart-card program for MGNREGS and social security pensions where payments were delivered to bank accounts linked with biometric smart cards has resulted in a faster, less corrupt payment process.
- It enhances financial resilience (the ability to deal with an unexpected financial event)- Financial access facilitates day-to-day living and helps families and businesses plan for everything from long-term goals to unexpected emergencies.
- Against corruption: It helps to increase transparency as money flows from a government’s budget to public agencies to citizens.
Suggestions given by the world bank chief:
- Create a favourable operating and policy environment: E.g. enable the interoperability of systems (e.g. UPI), access to the mobile-phone system for banking, Consumer protections and stable regulations.
- Establishing digital-identification systems: g. Aadhar in India
- Promote the digitalization of payments: This will also promote formal-sector employment without making compliance excessively burdensome.
- Inclusion: The gender gap in financial access has narrowed, but it still exists. Women, along with the poor, are more likely to lack a form of personal identification or a mobile phone, to live far from a bank branch, and to need support to open and use a financial account.
Expanding people’s access to finance, reducing the cost of digital transactions, and channelling wage payments and social transfers through financial accounts will be vital to mitigating development setbacks resulting from the ongoing turbulence.
Q. India still has a long way to go to bridge the gender gap in access and use of financial services. Comment (250 Words)
Q. Consider the following statements:
- National Payments Corporation of India (NPCI) helps in promoting financial inclusion in the country
- NPCI has launched RuPay, a card payment scheme.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither1 nor 2
National Payments Corporation of India (NPCI), an umbrella organisation for operating retail payments and settlement systems in India, is an initiative of Reserve Bank of India (RBI) and Indian Banks’ Association (IBA) under the provisions of the Payment and Settlement Systems Act, 2007.