Creating Financial Inclusivity: A Case-study of Banking ...

3. Current scenario of financial exclusion in IndiaThere exists a rural-urban divide with respect to banking services in terms of usage. Many people invillages still don’t have bank accounts. This divide has widened in the last decade.Table 1 : Deposit and Loan Accounts in Rural and Urban India (per 1000 persons)PARTICULARS DEPOSIT ACCOUNTS CREDIT ACCOUNTS1996 2006 1996 2006RURAL 322 325 64 62URBAN 699 724 50 115Source: RBI Basic Statistical Returns and Population CensusThe number of deposit accounts (per1000 persons) has increased from 322 in 1996 to 325 in 2006 inrural areas, whereas the comparable figures for urban areas was 699 which increased to 724 in 2006.For credit accounts (per 1000persons) there was a decline in the number of accounts during the period1996 to 2006 in the rural areas. With 70 per cent of the population living in the rural areas, a decline inthe credit accounts and slow increase in the deposit accounts clearly shows the level of financialexclusion.3.1 Financial Inclusion and Development IndicatorCountryTable 2: Composite Index of Financial Inclusion, Poverty, Unemployment & Gini IndexComposite Index ofFinancial inclusion(%of population with accessto financial services) (2008)Poverty(% ofpopulationbelow povertyline)UnemploymentDuring 2000-2004( percent)Gini Index(%)India 48 28.6 4.3 32.5Bangladesh 32 49.8 3.3 31.8Brazil 43 22 9.7 58China 42 4.6 4 44.7Indonesia 40 27.1 9.9 34.3Korean republic 63 - 3.5 31.6Malaysia 60 15.5 3.5 49.2Philippines 26 36.8 9.8 46.1Sri Lanka 59 25 9.0 33.2Thailand 59 13.1 1.5 42Source: World Bank (2006), World Development Indicators, Washington; World Bank (2008), Finance for All –Policies and Pitfalls in Expanding Access; Washington.The above data shows that countries with large proportion of population excluded from the formalfinancial system also have higher poverty ratios and higher inequality. India has a lower percentage ofpopulation with access to financial services even when compared to other developing countries such asSri Lanka, Korea, Thailand and Malaysia, which clearly shows the extent of financial exclusion in India.Lower degree of financial inclusion is leading to higher poverty, unemployment and inequality in incomedistribution.