How is the Financial Inclusion Beneficial For the Social Security Schemes in India?

Financial inclusion not only contributes to the economic growth and eradication of poverty but also it will help with the sustainable development goals recommended by the United Nations.

What is Financial Inclusion?

Financial inclusion is the method offered to all individuals in society for banking and financial solutions. Here, no discrimination is made by the government or financial institutions. The focus of financial inclusion is to make available a basic financial service independent of the fact of the individual's income and savings.

This is mainly for the economically unprivileged persons in society and committed towards everyone.

Financial inclusion is applied everywhere judiciously and especially targets the areas and the group that does not have easy access to financial institutions. Some of them lack trust and have a clear idea of how banks work.

Banks have to follow certain guidelines and regulations, which involves submission and verification of documents to have an account in a bank. Moreover, for loans, there are further criteria regarding employment, savings, etc.

The method of financial inclusion aims to eliminate this gap, as there are a considerable number of citizens in this country who do not even qualify on those criteria of banks. It also targets to educate the unaware citizens to understand the importance of financial services and financial management.

Financial Inclusion Linked to Social Security Schemes

The financial inclusions in social security schemes were launched on 9 May 2015 for providing life and accident risk insurance and social security at a very affordable cost namely:

(a) Pradhan Mantri Suraksha Bima Yojana

(b) Pradhan Mantri Jeevan Jyoti Yojana

(c) Atal Pension Yojana

Linking Of Social Security Schemes to Financial Inclusion

In India, where poverty is one of the main problems faced by a big share of the population, the social security scheme is considered to be one of the poverty eradication programs.

The scanty income of the targetted class is supplemented either through direct transfer or through schemes where the labour can be traded for food or money.

There are three assumed benefits of linking Social Security with financial inclusion:

1. The Supply Imperative: Higher usage of the bank accounts

The Centre for Microfinance (CMF) at the Institute for Financial Management and Research (IFMR) in Chennai conducted a study on the impact of the financial inclusion drive in the Gulbarga district (Ramji, 2007). The study suggests that a financial inclusion drive by itself is accepted neither by its beneficiaries nor by the banks. Banks consider it as an extra social commitment, which forces them to the individuals who, in turn, are not able to comprehend the utility of a savings bank account and hardly ever use it.

This study confirms that the imposition of such policies may not be much beneficial in a true sense, which the policymakers were planning about.

2. The Demand Imperative: Steady stream of income for beneficiaries

A scheme like NREGP creates a steady stream of income, though for a limited number of days. Once the beneficiaries get a confirmed and fixed payment every week, the savings can be planned. The accounts linked to the NREGP providing higher usage which may make maintaining them commercially viable for the banks.

The Integrated Rural Development Project (IRDP) could, after implementation, lead to financial inclusion. A large number of people had benefitted through the credit and linked to banks. However, the scheme was not implemented and those linked to banks took their step back from the financial net over time.

Unable to credit linkage to other critical inputs was one of the reasons for its failure. The critical inputs were market linkages which were poorly infrastructure that the businesses were unviable.

In other words, beneficiaries were not able to generate a steady stream of income for themselves. On the other hand, the income from NREGP comes in the form of direct transfers based on their work on-site, insulated from the inefficiencies of the market and infrastructure bottlenecks.

3. The Efficiency Imperative:

The widespread extent of NREGP, in all districts of the country, also makes it eligible for linking it with financial inclusion drives.

NREGP provides a bridge to reach the poorest of the poor. Once this connecting bridge is stabilized, several other services can be superimposed on it to provide other services, financial services are one of the services worth mention.

The physical channel provided by the present situation of financial inclusion in the Indian market -

In India, in recent years, financial inclusions have experienced growth and extensive improvement. The number of Indian citizens opening bank accounts has increased in recent times. It is estimated that 80 per cent of Indians have bank accounts at present.

Financial inclusion will act as a catalyst for not just economic growth but also the eradication of poverty.