Micro Finance in India

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from the knowledge of micro finance foundations as these give rivalry to cash moneylenders (J, 2012).

FACTORS THAT AFFECT THE POOR PEOPLE IN INDIA TO AVOID USING THE FINANCIAL SERVICES

Cultural and Psychological Barriers: Numerous individuals excluded themselves because of mental obstructions and they believe that they are prohibited the accessibility to financial services. A very general mental hindrance can be effectively perceived by observing the difficulty of aged individuals thinking that it hard to utilize ATMs which is the easiest methods of banking in today’s scenario.

Complex System: The terms and conditions of bank are very complex. The bureaucratic structure is very rigid. This makes the system alien to poor people. Form filling and other procedures makes the accessibility difficult to illiterate people.

Income of Individuals: People with low income have a perception that banks are for rich people. Majority of rural population earn less than 2 dollars per day. They don’t have savings or culture of saving mentality.

Lack of Legal Identity: Many poor people don’t register under governments. It is mandatory to have a government identity to start a bank account. In India poor don’t register under government as they are aware of any government services

Lack of literacy: Absence of financial literacy and education put a barrier to access financial services. Financial literacy includes awareness to use various financial products through banks, nonprofit organizations and micro finance institutions. Many financial products like Insurance, Mutual funds, bank accounts are under used.

Level of Occupation: Many banks don’t give loans for small amounts. They don’t have provisions and regulations for giving loans of meagre amounts. They also don’t give loans to rural poor due to problems in their repayment capacity.

Structural Bureaucratic Regulations: Since banks are benefit making associations they dishearten the non-beneficial clients (poor) by the base offset necessities. While getting advances or at the time of opening records, banks place numerous conditions, so the uneducated and poor individuals think that it exceptionally hard to get to financial institutions.

Geographical Area: Commercial banks work just in beneficial areas. Banks set their extensions and work places just in the business regions where they can generate profits. Along these lines, individuals living in rural areas face difficulty to connect with financial institutions. Thus, they do not connect or access financial institutions.

Lack of linkage between banks and Social Security Payments: The programs of the government has not yet linked with banks. This reduces the motivation to people to start a bank account. (IJMSSR, 2013)

CONCLUSION AND RECOMMENDATION

India is far behind in achieving financial inclusion. The central bank of India, Reserve Bank of India has taken measures to improve the efficiency of commercial banks, rural banks and micro finance institutions to achieve financial Inclusion. Many policies like 25 percent of funds of commercial banks should be mandatorily invested in starting new banks in rural areas. The number of ATM counters has to be increased. Regulations under Micro Finance institutions are compiled under an umbrella of Reserve Bank of India.

Government of India has also taken many initiatives to ensure financial inclusion in the country. Now government has taken initiatives to transfer services to people through ‘Direct Credit Transfer’ in order to make people start a bank account. Government has also made arrangements to distribute subsided LPG gas cylinder money through bank accounts. Also services like pensions, salaries, agricultural subsidies are also being connected with bank accounts.

Government should also take measures to increase the efficiency of the banks, encourage mobile banking system and ATMs in rural areas, reducing transaction costs, making the bank activities more transparent and accountable will create a sense of trust on people. Initiatives should be taken by the government to introduce the use of local languages in the banks.

References

1) Ghunawat, V. (2014, March 31). India today. Retrieved from India Today: http://indiatoday.intoday.in/story/black-money-foreign-banks-stock-brokers-gold-smuggling-hawala-lok-sabha-elections/1/352192.html

2) IJMSSR. (2013, August). Retrieved from International Journal of Management and Social Sciences Research: http://www.irjcjournals.org/ijmssr/Aug2013/23.pdf

3) Indian Financial System - An overview. (n.d.). Retrieved from Indian Financial System - An overview: http://shodhganga.inflibnet.ac.in/bitstream/10603/11589/11/11_chapter%203.pdf

4) J, D. C. (2012, September-October). Financial Inclusion in Rural India: The role of Microfinance as a. Retrieved from IOSR Journal of Humanities and Social Science (JHSS): http://iosrjournals.org/iosr-jhss/papers/Vol2-issue5/D0252125.pdf

5) Nasir, S. (2013). Microfinance in India: Contemporary Issues and Challenges. Retrieved from Middle-East Journal of Scientific Research : http://www.idosi.org/mejsr/mejsr15%282%2913/4.pdf

6) World Bank. (2012). Retrieved from World Bank: http://datatopics.worldbank.org/financialinclusion/country/india

7) World Bank. (2013). Retrieved from World Bank: http://www.worldbank.org/en/country/india