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FINANCIAL INCLUSION IN DEVELOPING COUNTRIES

Introduction 
Every country strives to ensure that all individuals residing in it get equal access to its financial services. The concept of Financial inclusion works differently for both developed and developing countries. It is more challenging for developing countries to achieve financial literacy with limited resources and with its level of literacy. The banking sector plays a vital role in facilitating financial inclusion in a country. The government also plans on various channels which ensure last mile connectivity. The level of financial inclusion clearly varies from developed countries to that of developing countries. 

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OBJECTIVES

To analyse the need for financial inclusion in developing countries.
To understand the challenges faced by the developing countries.

REVIEW OF LITERATURE
Dr.Anurag B.Singh and Priyanka Tandon in their article “Financial inclusion in India: An analysis” suggest that financial inclusion helps to alleviate poverty and enhances development of the country. 
Sonu Garg and Dr.Paul Agarwal (2014) in their article “Financial inclusion in India – Review of initiatives and achievements” explains the various approaches in financial inclusion.
Raihanath M.P and Dr.K.B.Pavithran (2014) in their article “Role of commercial banks in financial inclusion programme” ensures that the commercial banks play a crucial role in achieving financial inclusion.
Dr.N.Sundaram and M.Sriram (2016) in their article “Financial inclusion in India: A review”  analyses the barrier of financial inclusion.
Poonam and Archana Chaudhry (2016) in their article “Financial inclusion in India: A state level study” analyses the status of financial inclusion within states in India.

METHODOLOGY
The modern scientific method is really a combination of empirical and conceptual research. The conceptual framework derives from an abstract idea or theory and does major findings and frame conclusion whereas an empirical research collect and analyse primary data based on direct observation and experiences in the field.
The major findings of this project is a conceptual work with reference from articles from various journals like International journal of commerce – IRACST, International journal of applied engineering research, Chanakya international journal of business research and from the Global Financial inclusion index by the World Bank and also documents by RBI regarding financial inclusion.

MAJOR FINDINGS

FINANCIAL INCLUSION IN DEVELOPING COUNTRIES 
Need for financial inclusion in developing countries 

Financial inclusion in developing countries benefit all the three sectors – primary, secondary and tertiary. The agriculturalists who live in villages and small towns pay higher interest rates and fall prey to the unscrupulous moneylenders. The rise in the number of farmer suicides is a case in point. Therefore there is a strong need to ensure that the farmers are brought into the formal financial system.The people of developing countries majorly belong to the middle and lower income groups who can benefit a lot from the financial services provided by the banks. The micro-finance opportunities help people lift their lives from poverty and provide varied avenues for saving and investment. The micro and small scale industries and cottage industries that primarily function in rural areas of developing countries can benefit by receiving loan at low rate of interest and can be prevented from the clutches of moneylenders. 
Financial inclusion also benefit women who involve in self employment and thus require formal financial services. Studies by World Bank reveal that they are less likely to secure a bank loan. Financial inclusion of women and girls can create gender equality by empowering them and giving them greater control over their financial lives. Savings accounts can provide women with a safe and formal platform to save their earnings for future investments. Digital payments help women take control of their own finances and strengthen their control over household budgets.  
  

 
 
 

This map shows the percentage of adults who used bank account in a month. It clearly shows that countries like North and South America fall under the 75-100% category whereas countries like India fall under 25-49% category. This explains the need to expand the financial services and make it easily accessible in developing countries. 
 

  
 

This map gives the information regarding the origination of new formal loans. This shows the penetration of banks in various countries. The map clearly explains that the developed countries had a formal banking structure that had its wide reach when compared to the developing countries. From this, it is evident that financial inclusion is the need of the hour in developing countries 

CHALLENGES FACED BY THE DEVELOPING COUNTRIES 

Valid Identification Documents

Developing countries are all hugely populated and the population is scattered even to the remotest of the villages. It is a big challenge for the government to bring the population into account and to provide valid identification documents.
(ii) Financial literacy
A lack of financial education prevents people from using financial products and services. An awareness about the financial services such as micro-finance, banking, stock market, mutual funds will bring in more number of people into the organised sector of finance.
(iii) Digital literacy
The use of mobile banking and e-payments facilitate the channels of financial inclusion. However developing countries are yet to build a robust digital network and internet platform. When the rural areas in developing countries still lack access to basic amenities like water, digital literacy and an easy access to the internet becomes a big challenge.
(iv) Unused bank accounts
Opening a transaction account is the first step, not the end goal. Transaction accounts must be useful and serve as a gateway to other financial products such as savings, credit and insurance. People who subscribe to banking services do not use it effectively because of poor infrastructure facilities like lack of transport, lack of branches of the bank in their villages or towns.

OVERCOMING THE CHALLENGES FACED BY THE DEVELOPING COUNTRIES

 Financial literacy programmes

The governments along with the commercial banks must partner with the NGO’s in organising financial literacy programmes by forming workshops or camps and make people aware of the different financial instruments. For instance, RBI in India launched the booklet “FAME (Financial awareness messages)” that 
provides basic financial literacy messages for the information of general public. It contains eleven institution/product neutral financial awareness messages, such as, documents to be submitted while opening a bank account (KYC), importance of budgeting, saving and responsible borrowing, maintaining a good credit score by repaying loans on time, banking at doorstep or at vicinity, knowing how to lodge complaints at the bank and the Banking Ombudsman, usage of electronic remittances, investing money only in registered entities, etc. 
Earlier, the Reserve Bank had published a series of pictorial booklets. Under the ‘Raju’ title, it created literature on the habit of savings and banking concepts. The ‘Money Kumar’ series simultaneously explained the role and functions of the Reserve Bank.

(ii) Technological changes and improvement
The developing countries must strive to build a robust ICT network that will withstand cyber threats and ensure data privacy. The use of optical fibre network can ensure internet access to remote villages with the cooperation of gram panchayats. Mobile technology could also be leveraged in various ways as there are over 700 Million people in India who have mobile phones. Today mobiles can do almost everything, from biometrics to even IRIS & document scanning. There are limitless applications one can think of. In India, schemes like Digital India, National Optic Fibre Network (NOFN) are rays of hope in assuring better internet access by the people.

(iii) Cost efficient payment gateways
Developing Next generation payment systems – Financial inclusivity deals with high volume but small ticket transactions. Existing payment gateways are too expensive and not built grounds-up to deal with the complexity & nature of this business. Therefore there is an acute need for a new payment gateway that is low cost and based on either Aadhaar or biometrics.

(iv) Extension of financial services
Opening of branches in remote areas and extending the facilities by having more ATM’s and employing business correspondents may bring more people into the bracket of financial inclusion.

STEPS TAKEN BY INDIA TO ENSURE FINANCIAL INCLUSION

1) Swabhiman Campaign
It is especially focused on including people from Rural into Banking Services and linking them in the financial sector of India in a proper and organized way. Under this public is made aware of the benefits of financial services especially in rural areas.

2) Business correspondent Model
Under this model financial Institutes appoint commission agents who provide financial Services at the doorstep of the public at remote areas where they are unable to open branches which result in large customer base at low cost.

3) Regional rural banks
Regional Rural Banks are local level banks operating in different States of India. They have been created with a view to serve primarily the rural areas of India with basic banking and financial services.

4) Rupay Kisan cards
The meaning of Kisan is farmer. The Kisan Credit Card was introduced in the year 1998-99 in order to provide adequate and timely credit to the farmers who avail credit from formal financial institutes.

5) Pradhan Mantri Jan Dhan Yojana
Jan Dhan Yojna – with a view to increase the penetration of banking services and to ensure that all households have at least one bank account, a National Mission on Financial Inclusion named as Pradhan Mantri Jan Dhan Yojana was announced by Prime Minister Sh. Narendra Modi in his independence speech on 15th August, 2014 & the scheme was formally launched on 28th August, 2014.

FINANCIAL INCLUSION IN DEVELOPED COUNTRIES

Financial inclusion is easier to achieve in developed countries than the developing countries. Developed countries have a strong database of its population that makes it easier to bring its population under the banking sector.
The ICT is very well developed in the developed countries. They also possess a strong encryption network and with the use of big data, they secure their financial information from cyber threats and phishing. 
The efficient infrastructure facilities that are available makes it easier for the people to access financial services.

The percentage of bank account penetration, formal savings and borrowings of some developed and developing countries are given below:

(Source: Global Financial Index-2004) (in %)

The data clearly shows that the developed countries like United States, United Kingdom, Germany and United Arab Emirates have high account penetration with increased formal savings and borrowings whereas developing countries such as India, Bangladesh, Pakistan and Myanmar are much behind the developed countries. From this it is very evident that the financial inclusion is better in the developed countries and there is a long way ahead for countries like India, Pakistan and Bangladesh.

Financial inclusion in Sub Saharan Africa:

Surprisingly regions of Sub Saharan Africa have positioned itself in the path of efficient mobile banking despite being a developing country. In the last decade, mobile money services have proven to be more than an accessible tool for payments. Other financial services, such as credit, insurance and savings have been rolled out in a number of markets, allowing people to better manage financial risks and household shocks. Credit services enabled by mobile money, in particular, have proliferated in the region: from six services in Kenya in 2011 to 39 services in 11 countries in 2016.
Mature mobile money markets, such as Kenya and Tanzania, have seen a high uptake of mobile credit accounts; as of June 2016, M-Shwari in Kenya had around 15 million accounts, while M-Pawa in Tanzania had around five million accounts – having only launched in 2014.Mobile money has also generated a wide array of positive externalities for other industries, such as water and sanitation, education, energy and agriculture. For instance, the Dar Salaam Water and Sewage Corporation increased revenue by 38% in 2013 by offering mobile money as a method of payment, and almost 1.7 million secondary school students (i.e., 99% of secondary school students) in Côte d’Ivoire paid their annual school fees via mobile money in 2015-2016. Additionally, mobile money has improved service provision for rural areas and communities. Numerous households in East Africa have been able to access energy through pay-as-you-go solar home systems integrated with mobile money payments – with M-KOPA providing access to around 500000 households and Fenix International providing access to around 100000 households as of 2017. In Liberia, paying teachers’ salaries via mobile money saved 15% of the cost of receiving the salary (such as the cost of bank fees and the cost of taking a bus to the nearest town with a bank). Sub-Saharan Africa has the lowest mobile money gender gap (19.5%) in comparison to other emerging regions of the world. In spite of this, there remains a substantial opportunity to empower and financially include women further, and 225 million women in the region do not have a mobile money account.

CONCLUSION

Financial inclusion has positive spill over effects on the economy of the country. The economic position is decided by the GDP of the country. GDP can be raised by increasing the manufacture of goods and services for which finance plays a crucial role. It is decided by people who have access to finance and thereby it is evident that financial inclusion is important. The various international institutions such as IMF, UN, World Bank along with the central governments of all the countries – both developed and developing must come up with a framework to achieve 100% financial inclusion. It is possible to achieve with the cooperation of all stakeholders such as banks, governments, legislature, executives and public.

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