18 July, Hyderabad
Reserve Bank of India (RBI) Governor Raghuram G Rajan Monday said In the foreseeable future, we will bring formal financial services to every Indian who wants them.
Speaking at a National seminar on on Equity,Access and Inclusion organised by National Institute of Rural Development and Panchayat here, Dr Rajan said Financial inclusion will be an important element in ensuring access and equity – the necessary building blocks for sustainable growth of our country.
Stating that the imperative for financial inclusion is both, moral as well as one based on economic efficiency, the Governor asked, “After all, should we not give everyone access to the services we all in this room enjoy?” He added that if everyone had the tools and resources to better themselves, it would increase output, growth,and economic prosperity.
In his speech, Governor focussed on three elements of financial inclusion: (a) the broadening of financial services to those people and enterprises who do not have access to financial services sector; (b) the deepening of financial services for those who have minimal financial services; and (c) greater financial literacy and consumer protection so that those who are offered financial products can make appropriate choices.
He described the economic impediments to greater financial inclusion through the acronym IIT: Information, Incentives, and Transaction Costs.
Elaborating on these, he said, the banker, especially if he is not from that region, will have difficulty in getting sufficient information to offer financial products to the excluded. As a lender, he may also not have incentive to lend to the excluded as the legal system does not enforce repayment quickly or cheaply. Moreover, the borrower does not have any collateral to pledge, leading the lender to believe that he will find it difficult to get the loan repaid.