Financial Inclusion

Financial Inclusion is the process of ensuring access to appropriate financial products and services needed by vulnerable groups such as weaker sections and low income groups at an affordable cost in a fair and transparent manner by mainstream Institutional players.


It primarily focuses to provide-

  • Banking facility (nearby areas)
  • Easy credit.
  • Investment opportunity.
  • Insurance(life ,non-life)



  • Fightback against corruption : Mckinley study says if E-Payment (cashless subsidies,payments ,salaries) is used in India then Rs 1 lakh cr is saved in an year.


  • Safegaurd against Debt-trap: 55% rural dalits still borrow from money lenders @34% rate.


A Global concern

The lack of access of a large percentage of working age adults to the formal financial sector services such as loans, savings, payment services, and other related services     (as evidenced in the G20 Pittsburgh Summit in 2009 and Alliance for Financial Inclusion’s Maya Declaration in 2011).

Financially acquainted countries like Japan ,S. Korea ,USA have provisions for financial inclusions giving them boosting effect,. Hence need to learn from them.


The access to credit, savings, and remittance instruments begins with the existence of a bank account. Many national governments and international institutions have been leading major policy initiatives to bridge the gap between financial inclusion and the poor. The Pradhan Mantri Jan Dhan Yojana in India is an example of a state-led initiative towards universal financial inclusion taken up on a mission mode.

Technology could also play a role in enhancing the financial inclusion agenda, as in sub-Saharan Africa, where 12% of adults have a mobile money account and 45% of them rely on mobile phones alone for formal banking.


GOI and RBI have taken few actions which include the following:

  • Nationalization of banks (1969, 1980)
  • Priority Sector Lending requirements
  • Establishment of Regional Rural Banks (RRBs) (1975, 1976)
  • Service area approach (1989)
  • Self-help group-bank linkage program (1989,1990)

The other measures taken by GOI, RBI and National Bank for Agriculture and Rural Development (NABARD) are shown in Table 1.


Reports by Various Committees:

RBI (2005) proposed financial inclusion based on the business facilitators/ business correspondent model, adapting the Brazilian success story in India.Which failed later. The reasons behind these were:

  1. declining productivity of the rural branches of SCBs
  2. digression of RRBs from their social objective of reaching out to the masses and the fragility of the cooperative credit structure.

GOI (2008) examined financial inclusion as a delivery mechanism providing financial services at an affordable cost to the vast sections of the disadvantaged and low-income groups. The recommendations of the report focused on the following areas.

  1. financial inclusion should include access to mainstream financial products.
  2. banking and payment services should be available to the entire population without discrimination.
  3. promotion of sustainable development and generation of employment in rural areas should be a priority
  4. financial inclusion must be taken up in a mission mode and thereby suggested the constitution of a National Mission on Financial Inclusion (NMFI) in order to achieve universal financial inclusion within a specific time frame.
  5. the Committee also recommended for the constitution of two funds with NABARD – the Financial Inclusion Promotion and Development Fund, and the Financial Inclusion Technology Fund for better credit absorption capacity among the poor and vulnerable sections of the country and also for proper and appropriate application of technology in order to facilitate the mandated levels of inclusion.

Kamath (2008) attempted to understand the impact of Micro-Finance Institution (MFI) loans on daily household cash flows by analyzing cash inflow and outflow patterns of borrowers of MFI and comparing with non-MFI households. The Financial diary methodology was used to collect the data and to keep track of 11 months expenditure pattern of households.

  • The findings of the study highlighted some critical issues.
  • repayment of one MFI loan was done by using other MFI loans.
  • maximum repayment of MFI loan exceeded the average income of the households
  • none of the loans were used for productive purpose instead they are used for consumption purpose.

CRISIL (2013) measured the extent of financial inclusion in India in the form of an index.

RBI (2014a) focused on the provision of financial Services to the small businesses and low income households.

RBI (2014b) presented a report to study various challenges and evaluate alternatives in the domain of technology that can help large scale expansion of mobile banking across the country. The report divided the challenges into 2 broad categories – Customer enrollment related issues and Technical issues.

  • Customer enrollment related issues include mobile number registration, M-PIN (mobile pin) generation process, concerns relating to security as a factor affecting on-boarding of customers, education of bank’s staff and customer education.
  • Technical issues include access channels for transactions, cumbersome transaction process, and coordination with MNOs (Mobile Network Operators) in a mobile banking eco-system.

The report has a detailed comparison of four channels of mobile banking – SMS (Short Message Service), USSD (Unstructured Supplementary Service Data), IVRS (Interactive Voice Response System) and Mobile Banking Application, and evaluates each one of them based on accessibility, security and usability


Extent of ExclusionNSSO Survey -59th Round

(a) General :

  • 4% of farmer households are financially excluded from both formal / informal sources.
  • Of the total farmer households, only 27% access formal sources of credit; one third of this group also borrow from non-formal sources.
  • Overall, 73% of farmer households have no access to formal sources of credit.

(b) Region-wise :

  • Exclusion is most acute in Central, Eastern and North-Eastern regions – having a concentration of 64% of all financially excluded farmer households in the country.
  • Overall indebtedness to formal sources of finance alone is only 19.66% in these three regions.

(c) Occupational Groups :

  • Marginal farmer households constitute 66% of total farm households. Only 45% of these households are indebted to either formal or non formal sources of finance.
  • About 20% of indebted marginal farmer households have access to formal sources of credit.
  • Among non-cultivator households nearly 80% do not access credit from any source.

(d) Social Groups :

  • Only 36% of ST farmer households are indebted (SCs and Other Backward Classes – OBC – 51%) mostly to informal sources.



Under Dept. of Financial services, launched on 15/08/14.

5 Pillars of PMJDY’s:

  • Universal Access to Banking Facilities:
  • No Frill Account with RuPay Debit card
  • Financial Literacy Programme
  • Creation of Credit Guarantee Fund
  • Micro- Insurance






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