Financial Inclusion. Are we on the right track?

“The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.” – Franklin D. Roosevelt

As we all know, financial inclusion is a mechanism where in all the individuals and businesses of a nation can have access to appropriate and reasonable financial products and services at the right time. The financial products and services include insurance, loans and banking services.

In order to improve income distribution, a well-developed and inclusive financial system is essential. The Indian Government and the Reserve Bank of India (RBI) have been working relentlessly to bring all Indian citizens under banking umbrella and have succeeded to a considerable extent. But how far have they succeeded is the question. As the fundamental agenda of financial inclusion is to include larger section financially, lot of efforts have been made by both the bodies. These efforts include nationalization of banks, launching of a robust network of scheduled commercial and co-operative banks even at rural areas, implementation of mandated priority sector lending targets, lead bank scheme, creation of self-help groups, allowing banks to appoint business facilitators to provide banking services at the door step, encourage zero-balance Basic Savings Bank Deposit (BSBD) accounts, and so on.

Let us have a look at success of financial inclusion mechanism.

RBI measures the improvement in financial inclusion through “FI Index- Financial Inclusion Index” that was launched in September 20201. This index collates data on around 97 indicators related to financial inclusion into a single number that ranges between 0 and 100, with 0 designating complete financial exclusion and 100 being complete financial inclusion.

According to various reports, “Pradhan Mantri Jan Dhan Yojana (PMJDY)” has been country’s one of the major financial inclusion drivers. Since its launch in 2014, there are more than 42 account holders under PMJDY.

During 2020-21, about INR 5.5 Lakhs crores have been transferred to beneficiary accounts of various government schemes under Direct Benefit Transfer (DBT) payments. The upsurge of fintech has added to improvement of financial inclusion as the digital payments are more convenient and timesaving with less transactional costs. The Pandemic has also acted as a catalyst in promoting financial inclusion as digital payments were highly used even for small transactions over cash payments.

Though the above numbers look really big, according to Michael Patra, Deputy Governor at RBI, financial inclusion is at its lowest in rural and agriculture dependent areas due to a fact that when there is increase in food price, the extra income earned will not be saved but be evaded due to increase in consumption.

India still faces number of challenges in bringing all of its population under financial inclusion.

Financial literacy is one of the biggest challenges. Lack of education avoids the people in accessing the formal financial services offered. The other one being, non-availability of proper documents which is quite an essential to gain access to the financial services.

Prof. Smithashree C R
Assistant Professor


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