Breaking barriers, building inclusion

General Studies Paper 3

Context: According to the latest Findex Report – 2021 by the World Bank, around one-third of adults still lack access to formal financial services.

About financial inclusion:

• 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.

Importance of financial inclusion:

• Financial inclusion has been identified as an enabler for 7 of the 17 Sustainable Development Goals.  
• The G20 committed to advancing financial inclusion worldwide and reaffirmed its commitment to implement the G20 High-Level Principles for Digital Financial Inclusion. 
• The World Bank Group considers financial inclusion a key enabler to reduce extreme poverty and boost shared prosperity.
• Financial inclusion has been linked to up to 14% growth in the gross domestic product in developing economies.

Challenges in achieving financial inclusion:

• Lack of access to basic infrastructure
• Low financial literacy
• Limited trust in formal financial institutions
• Insufficient regulatory framework
• High transaction costs
• Lack of diversity in financial services

How India’s G-20 presidency helps in improving financial inclusion:

• The theme of India’s G20 Presidency, “Vasudhaiv Kutumbakam,” underlines the message of equitable growth and a shared future for all.
• The G20 Global Partnership for Financial Inclusion working group met under the grouping’s Global Partnership for Financial Inclusion (GPFI) initiative.
• The G20 Financial Inclusion Action Plan (FIAP) aims to prevent future economic crises by encouraging conditions that promote its objectives of financial inclusion and stability.
• Four major drivers have been highlighted in the new G20 FIAP to lay the groundwork for further progress toward financial inclusion.
  • the acceptance of the 2030 Agenda for sustainable development as a worldwide framework for sustainable development
  • rapid development and penetration of digital breakthroughs,
  • greater emphasis on underprivileged populations,
  • mainstreaming financial inclusion.

Financial Inclusion Schemes in India

• Pradhan Mantri Jan Dhan Yojana (PMJDY)
• Atal Pension Yojana (APY)
• Pradhan Mantri Vaya Vandana Yojana (PMVVY)
• Stand Up India Scheme
• Pradhan Mantri Mudra Yojana (PMMY)
• Pradhan Mantri Suraksha Bima Yojana (PMSBY)
• Sukanya Samriddhi Yojana
• Jeevan Suraksha Bandhan Yojana
• Credit Enhancement Guarantee Scheme (CEGS) for Scheduled Castes (SCs)
• Venture Capital Fund for Scheduled Castes under the Social Sector Initiatives
• Varishtha Pension Bima Yojana (VPBY)

What should be done for improving financial inclusion?

• A multifaceted strategy is needed to create an inclusive and sustainable digital economy.
• Focus on digital identification, banking, payments, and regulation: This will provide opportunities to enhance global economic stability and streamline service delivery. Digital banking should focus on promoting stability, transparency, fairness, inclusivity, and interoperability.
• Focus on Digital identity systems: These include India’s Aadhaar and national ID schemes in Morocco and the Philippines. These systems help to streamline the delivery of services and payments.
• Create a digital stability board: This will aid in advancing digital regulation by supporting better data-sharing legislation and data management for individuals and small- and medium-sized businesses.
• Adaptation of laws and institutions to the digital revolution: Adaptation is required especially in areas such as competition policy, regulatory regimes, innovation ecosystems, workforce development, social protection frameworks, and tax policies.
• Promote sustainability and inclusivity in the digital economy: These can be done by a)establishing a supportive and enabling e-commerce environment, b) developing inclusive digital infrastructure, c) adapting policies and institutions to digital transformation, d) harnessing digital transformation inclusively, and e) using digital public goods.
• Make financial inclusion a top priority for G20 countries: The G20 working group should consider strategies to strengthen the financial system’s foundation, facilitate remittance flows, and lower the price of remittance transfers.

Along with the above measures, global nations should also focus on collaborating with international organisations to unlock the potential of millions of individuals and communities and foster sustainable, inclusive economic growth.