A practical agenda in financial inclusion: What RBI Governor Dr Rajan needs to do?

Ramesh S Arunachalam

Dr Rajan’s first task would be to ensure that the RBI puts out a proper working definition of financial inclusion. Without proper baseline data, quoting facts and figures is meaningless as then, we would not be able to attribute whether financial inclusion occurred because of something we did consciously or it was simply an accident and/ or act of GOD

There is a lot that Reserve Bank of India (RBI) governor Raghuram Rajan can do to bring transparency to the financial inclusion process. I say this, notwithstanding the issues that I have already raised about composition of the Committee  and the conflicts of interest of its members.  Let me start with the definition of financial inclusion and data pertaining to the same, as my first article of a series that will look at measurement of financial inclusion and related aspects.

Without a clear definition of financial inclusion and good ground level data, much of what we say in terms of inclusiveness in the financial sector is analogous to writing on water. Additionally, without proper baseline data, quoting facts and figures is meaningless as then, we would not be able to attribute whether financial inclusion occurred because of something we did consciously or it was simply an accident and/or act of GOD.

Having an internally consistent definition of financial inclusion is very critical. And generating data based on the same is even more important. Together, these can form the basis for our opinions and judgements, which in turn can shape policy and subsequent implementation appropriately.

It therefore follows that we first need a reliable and valid definition of financial inclusion in terms of type of products and services (for example, it could be loans, savings, insurance, remittance, literacy and financial education services, ombudsman services etc) accessed through different institutions (Banks, Insurance Companies, SHGs, MFIs, Business Correspondents, Cooperatives etc) by various kinds of mutually exclusive individuals/households from different segments of society (especially, low income and excluded groups).

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