What are the primary causes of limited formal credit penetration among the rural and unbanked populations in India? Comment on the effectiveness of Small Finance Banks in addressing this gap and advancing inclusive financial growth. (Answer 250 words in writing)

Despite grand success of PMJDY and financial inclusion drive by RBIs, rural areas and unbanked population are still struggling with unformed credit system. Data: - RBIs financial inclusivity index - 64% - Informal agricultural credit - constitute 85% of total NABARD - 40% financial literacy - 30% account in PMJDY - zero balance Primary causes of limited formal credit penetration: (1) Limited banking infrastructure a RBI data - only 20% rural areas - financial presence of banks b Neglected behavior of SCBs/UKBs (2) Poor implementation of Banking scheme (2.1) Shortcomings of PSL (2.2) Digital divide - only 38% rural India usage internet (3) Poor financial literacy - 20% in rural on (4) Faulty practice by MFIs and cooperative sources ex Feature of UCBs (5) Dominance of moneylenders and informal intermediaries (6) Financial inclusivity without financial empowerment (7) Neglected leaden tenure/cozener/hired people who don't have collateral (8) High banking procedure

Nasimlain Committee 2 proposed Small Finance Bank as audible to Institutional Credit mechanism:- (1) 75% PCL criteria - help to targeted credit system (2) Rural area centric banking procedure - encourage banking to unbanked, finance to unframed (3) Cooperative partnership with SHG, NGO to promote financial inclusivity - Best case study :- Kudumbasree Project (4) Addressing unbanked sect - Complimenting note to SCBs/Cooperative banks (5) Physical physical and digital penetration universalize financial inclusivity Challenges: 1) limited capacity and penetration of SFB 2) Credit culture - high interest rates 3) No collateral-free credit mechanism RBIs National Strategy on Financial Inclusivity 2020-15 provides comprehensive framework and multiprongs approach to universalize financial inclusivity.