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In the Union Budget 2014-15, the Government of India announced to establish the Small Finance Banks (SFBs) for the purpose to expand financial services, provide basic banking activities to the underprivileged, and have last-mile connectivity (mainly in rural areas). The role of Small Finance banks will allow micro and small enterprises, small and marginal farmers, and micro and small industries to avail lending services. Financial inclusion helps in reducing poverty and empowers women/marginalised/secluded to make sound financial decisions, further reducing inequality.
Small Finance Banks are specialised finance institutes created with an intention to implement the concept of financial inclusion in India to serve low-income groups. Small Finance Bank is registered under the Companies Act, 2013[1] as a public limited company in the private sector. Like conventional banks, the functions and role of small finance banks also involves accepting deposits and lending activities.It also aims to strengthen the Indian economy by connecting small businesses with formal financial institutions.
The following important features of a Small Finance Banks are:
The Reserve Bank of India has issued broad guidelines which cover the licensing and role of Small Finance Banks.
Financial inclusion means a process of ensuring access to banking services and timely and adequate lending services to vulnerable sections of society like low-income households and people in unbanked areas. The role of small finance banks in financial inclusion are:
There has to be a structured and multidimensional approach through small finance banks, regional rural banks, NBFCs, digital platforms, infrastructure, and technological innovations to achieve the goal of Financial Inclusion. The role of small financial banks have been instrumental in bringing the underprivileged and unorganised sectors into the mainstream of formal banking activities. By establishing almost all branches in rural and semi-urban areas of the country to serve the lowest-earning strata the society will amplify the pace of financial inclusion and increase economic benefits to unserved areas.
Read our Article: Guiding Principle for Licensing of Small Finance Banks
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