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Financial Inclusion and Millennium Development Goals

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In a speech at the 4th Programme on Human Development and State Finances at CAB, Pune, Smt. Usha Thorat, Deputy Governor of the Reserve Bank of India began by stating “The financial system can play a role in reinforcing many of the objectives of MDGs involving savings, livelihood and economic infrastructure apart from providing an efficient payment system”. She also clarifies that by financial inclusion “we mean the provision of affordable financial services, viz., access to payments and remittance facilities, savings, loans and insurance services by the formal financial system to those who tend to be excluded”.

She goes on to suggest that “In the context of the overall fiscal constraint faced by most States, the linkages between the formal financial system and the community based organisations can be effectively exploited by the State Governments to meet the challenges of ensuring the achievement of the MDGs”. Two cases are briefly described to illustrate this point and refers to this point further at the end of the speech.

Of significant interest in this speech are highlights of some of the recent initiatives that RBI has taken to promote financial inclusion. These include:

  • RBI has exhorted banks, to make basic banking available through “no frills” accounts with either nil or very small balances as well as charges that would make these accounts widely accessible
  • The KYC procedure for opening accounts has been simplified for those persons with balances not exceeding Rs.50,000 and credits in the accounts not exceeding Rs.1,000,000
  • RRBs have been specifically advised to allow limited overdraft facilities in “no frills” accounts without any collateral or linkage to any purpose. The idea is that provision of such overdraft facility provides a ready source of funding to the account holder who is thereby induced to open such accounts
  • Banks have been advised by RBI to provide a General purpose Credit Card (GCC) facility at their rural and semi-urban branches. The credit facility extended under the scheme will be in the nature of revolving credit
  • A major recommendation of the Internal Group set up by RBI on microfinance (Khan Committee) is to permit banks to use microfinance institutions as business facilitators and correspondents to enable banks to increase their outreach and ensure greater financial inclusion

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