Financial Inclusion - The Road Ahead..

Posted in Finance Articles, Total Reads: 1707 , Published on 08 October 2012

The great run of a “great” democracy is under the scrutiny of many especially after the promise it showed in the initial phase of the 21st century. While our policy makers continue to go gaga about the robustness of our economy, our demography has maintained the status quo characterized by social inequity. We have been time and again mesmerized by the growth in our GDP but rarely do we see the implications of it in the rural masses.

Unfortunately stats can be exploited to divulge data that can be favorable to the exploiter and this is precisely what is taking place in our country. How often do we hear data about per capita income or other indicators?Just to go through the numbers we are still ranked 94 [1] in terms of per capita income. Likewise financial inclusion is another domain which seems to peek out once in a blue moon and then it is buried in the closet merely because of the fact that we have not been able to make significant inroads into this domain.

The Current Situation

“A world-wide study to index Financial Inclusion to assess the extent of penetration of banking services saw India rank a lowly 50, out of the 100 countries covered in the survey with just a little over one-third — 34 per cent to be exact — of the population has access to or receives banking services” [2]. For a country that is tagged as a developing nation the numbers states otherwise.

Fig: Account Penetration across the Globe Source: The World Bank

The figure above illustrates our level of financial penetration vis-à-vis other nations is quite poor. Though it has been under the purview of our policy makers, financial inclusion continues to be an elusive dream. In the past the government tried to give it a fillip by introducing co-operatives and by nationalizing the banks but the optimum level of penetration has not been reached. Figures like “73% of farm households do not have access to formal credit sources” [3] highlight the gravity of the problem. Financial inclusion should be characterized by “access to banking, access to affordable credit and access to free face-to-face money advice” [4].

The access to banking for the non-inclusive segment has been limited to a few PSU banks that have the patronage of the government. The private players have not shown keen interest in expanding into this domain owing to the risks involved. The concept of no frill accounts has also been introduced to draw the masses into opening an account but there has been minimal impact on the way these people perceive the initiative. There has also been an indirect approach to financial inclusion through the priority sector route by making it mandatory for scheduled banks to invest “40 per cent of Adjusted Net Bank Credit (ANBC) or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher” [5] in these sectors.

The domain includes agriculture, small scale industries, microfinance and many more. Yet the farmers resort to local money lenders to avail credit facilities due to the lack of knowledge and the reluctance of banks to intimate the small scale farmers. The rate of interest doled out by the money lenders is preposterously high. The third aspect of financial inclusion is altogether absent with face-to-face advice not prevalent even in the urban areas. A lot needs to be done in order to make financial literacy a feature of the rural population because this will propel them to take part in financial activities like saving in a bank and making full use of the credit schemes available to them.

In a latest bid, the government launched the Swabhiman Scheme in 2011 with an eye on making banking facilities available to all and to provide credit at lower rate to those who have been kept on the sidelines so far. This can be considered as a significant step towards achieving the goal as it incorporates the help from players in other domains (like TCS to assist in the technological arena). It would be too early to make any comment about the success of Swabhiman but the incorporation of technology can be a welcome change in this area.

The Road Ahead

The trajectory of Swabhiman will probably decide the fate of financial inclusion in our country. There is a lot that can be done by our microfinance institutions (one way would be to probably follow Yunus’ model of disbursing credit; his Grameen Bank has lent $9.87 billion and recovered $8.76 billion; 97 percent of its 8.33 million borrowers are female [6]). The IT revolution should transform the brick and mortar form of banking and for that it is also essential for technology to reach out to the impenetrable areas. It is high time we realized that Regional Rural Banks and Cooperatives have failed to deliver on this front.

The private players will only be proactive if they can profit from investments in these ventures and it is only possible to track the debtors if there is a robust database. Other factors like urbanization and the growth in the literacy rate will also weigh heavily in favor of bringing the masses to financial enlightenment. The government cannot remain complacent simply by creating institutions that cater to the financial demands of the rural base. There is scope for bringing in instruments that address our problem efficiently. The introduction and disbursal of Krishi Credit Card is one such step that has the potential to bring significant changes in the figures of financial inclusion.

Women empowerment is another aspect that should be taken into consideration as their propensity to save is laudable. However, rarely does the women contingent in the villages deposit their savings in banks. Door to door services can be carried out by Banking Correspondents so that the benefits of saving in banks can be highlighted by the parties concerned.

India still lives in its villages and until most of our population grapples under the ineptitude to understand basic finance, the term developing will only be an ornamental title. Financial inclusion can be a means to social welfare as it makes the disbarments necessary for other schemes like NREGA more efficient and transparent.  Consequently it is a step towards removing social inequity when it comes to providing opportunity to different sections of the society. As for the shenanigans who bask on the glory of our growth, they need to tweak their nerve cells to understand the significance of financial inclusion at a level of 34% [2].


1. The Telegraph. (2012). India 4th largest economy but per capita income still low: Survey. Retrieved from: <>

2. Srinivasan, R. (2012).Financial inclusion for whose benefit? Retrieved from: <>

3. Srinivasan. E. (2012).Financial inclusion for whose benefit? Retrieved from: <>

4.Leeladhar, V. (2012). Retrieved from: < >

5. RBI. (2012). Lending to Priority Sector. Retrieved from:  <>

6. Lee, Y. & David, R. (2010). Suicides in India Revealing How Men Made a Mess of Microcredit. Retrieved from: <>

This article has been authored by Soumyajit Datta & Anisha Banerjee from NMIMS.



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