Financial Inclusion in India

Financial Inclusion in India

Sukhdeep Singh 28/02/2018 4

The government of India is making various efforts to bridge the gap between the privileged and the underprivileged. Financial inclusion is a measure that aims at ensuring availability of financial services to all social classes at affordable prices. Usually misunderstood as access to only ‘banking’ services, financial inclusion rather means extending access to insurance and social welfare schemes such as National Pension Scheme and Atal Pension Yojna.

If we look at the global scenario at present, more than 2 billion adults in their working age don’t have any account in a formal financial institution. In a country like India, financial inclusion holds much importance in economic growth. Though the economic growth in India is much higher than in most developed countries, the majority of the population is unbanked.

As income from rural areas increases over time, there will be a need to help earners save and manage their funds. There are several reasons why financial inclusion should be one of the major focus areas of the Indian economy, listed as follows:

  1. Encourage Savings: As the rural earnings increase, so does the need for saving. Because most of the people in rural areas have little or no access to financial services, they don’t get into the habit of earning. As an economy, savings need to be encouraged to boost capital formation.
  2. Facilitate Formal Credit Avenues: Dependence on informal channels of credit needs to be uprooted. To reduce lending from such informal avenues, such as borrowing cash from friends and family, proper avenues need to be made available to all sections of the society. Available of adequate credit from formal credit providers will help the masses take up more entrepreneurial responsibility and add to economic growth.
  3. Allow Direct Cash Transfers: Physical cash payments are cumbersome and risky. Moreover, there are no guarantees that the funds will actually reach the right person. Having a proper account with a banking or financial institution enables direct cash transfers, which reduces the risks associated with physical cash payments.
  4. Ensure Money Reaches the Right People: Availability of direct cash transfers also helps keep a check on the system’s bureaucracy, and that poor people receive their due sum from public subsidies in time.

Apart from these four major reasons why financial inclusion is important, there are few other reasons to consider, including:

●      Making day-to-day monetary transactions smoothly

●      Helping households manage their cash flows better

●      Making funds available at the time of unexpected events and calamities

●      Helping small and medium scale businesses to grow and invest

Measures to Assist Financial Inclusion

The government of India, along with the Reserve bank of India took various measures to assist financial inclusion in the country. Among the measures that have been taken include:

Easing out the KYC norms

KYC norms are eased to make sure bank accounts, even with balances as low as ₹50,000 can be easily opened. Also, banks can Aadhaar cards to verify identity and address.

Compulsory Opening of Branches in Unbanked Villages

Banks must follow the directive to allocate at least 25% of the total number of branches they plan to open in an year for opening branches in unbanked villages.

Licensing New Banks

The whole exercise of licensing new banks will include considering the business models that promote furthering of financial inclusion efforts using innovative approaches.

Encouraging Banks to Open Basic Saving Bank Deposit

Banks are advised to open Basic Saving Bank Deposit (BSBD) Accounts that allow customers to maintain accounts with no minimum balance. These BSBD accounts will have other common features such as the provision of ATM cards, easy withdrawal and cash deposits.


India as an economy needs to bring into practice certain strong and effective financial inclusion methods. Policy makers should focus on making financial services available to rural and weaker sections of the society, at affordable costs. Making a proper system accessible to these sections can significantly bolster overall capital growth of the country, and also diminish the rich-poor gap.

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  • Azad Yadav

    Corruption and lack of education are preventing many Indians access to financial inclusion

  • Kumar Mohit

    The Indian government should do more........

  • Riddesh Mangulkar

    Would have preferred if you used some charts to compare financial inclusion in India and other countries.

  • Sam Dawson

    good analysis

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Sukhdeep Singh

Finance Guru

Sukhdeep is a Digital Payment & Financial Inclusion Specialist. He is a highly energetic professional with over 17 years of progressive leadership experience in spearheading diverse functions across Asia and South Asia. He previously held the position of Vice President – Banking and Business Development at Oxigen. He is leveraging strong research, strategy, branding, finance and resource optimization to exceed top & bottom line performance in the banking, financial services, office automation, export, raw material import and card payment business. Sukhdeep holds a PG Diploma in Business Administration from Maharishi University of Management.


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