New Financial Inclusion Fund Created

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RBI announced merger of two funds to create a new Financial Inclusion Fund with a corpus of Rs 2,000 crore to support ‘developmental and promotional activities’ for expanding reach of banking services.

The two funds – the Financial Inclusion Fund and Financial Inclusion Technology Fund are merged into a single Fund — Financial Inclusion Fund (FIF).

Contribution to FIF would be from the “interest differential in excess of 0.5% on RIDF (Rural Infrastructure Development Fund) and STCRC (Short Term Co-operative Rural Credit Refinance Fund) deposits on account of shortfall in priority sector lending (as notified by RBI from time to time) kept with NABARD by banks.

When banks fail to meet their priority sector lending targets, they are required to maintain deposits with the RIDF and STCRC to cover for the shortfall. These deposits are held by National Bank for Agriculture and Rural Development or NABARD.

Under the revised guidelines, the fund shall be in operation for another three years or till such period as may be decided by the RBI and the government.

rbiThe new FIF will be administered by the reconstituted Advisory Board constituted by government and will be maintained by NABARD.

The objectives of the FIF shall be to support ‘developmental and promotional activities’ including creating of FI infrastructure across the country, capacity building of stakeholders, creation of awareness to address demand side issues with a view to securing greater financial inclusion.

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Enhanced investment in Green Information and Communication Technology (ICT) solution is one of the another major objective of the fund. The fund shall not be utilized for normal business or banking activities.

FIF will provide support for funding the setting up and operational cost for running Financial Inclusion and Literacy Centers. Institutions eligible for the fund are banks and NABARD.

BACKGROUND

In financial year 2007-08, the government had formed two funds namely the FIF and the Financial Inclusion Technology Fund (FITF) with a corpus of Rs500 crore, each. After completion of five years, the government has decided to merge the two funds to a single FIF.

In order to address the issues of financial inclusion, the Government of India constituted a “Committee on Financial Inclusion” under the Chairmanship of Dr. C. Rangarajan. The Committee submitted its final report to Union Finance Minister on 04 January 2008.

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The Committee on Financial Inclusion has defined Financial Inclusion as “the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost.”

Among others, the Committee has recommended setting up of two funds – Financial Inclusion Fund (FIF) and Financial Inclusion Technology Fund (FITF). The two funds have been established with NABARD, which is the coordinating agency of Financial Inclusion initiatives with Financial Inclusion Department (FID) as the nodal department.

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