The world economy continues to grapple with the aftermath of the pandemic, which not only resulted in loss of lives and widespread misfortune but also caused far-reaching effects such as disrupted supply chains, mounting global debt, and an impending global recession. One significant consequence has been the widening economic gaps, particularly impacting vulnerable populations in developing and least developed countries, as well as micro, small, and medium-sized enterprises. In this context, promoting financial inclusion among marginalized groups becomes crucial to address these challenges effectively.
Understanding Financial Inclusion
Financial inclusion has evolved over time to encompass various aspects related to access, utilization, and quality of financial services, with a specific focus on underserved segments of society. However, a universally accepted definition of financial inclusion is yet to be established. Definitions often vary based on the target market segment (e.g., households, businesses), the range of financial products and services offered (credit, insurance, payments, savings), and the key attributes emphasized (accessibility, affordability, sustainability, responsiveness, timeliness, convenience).
According to the Reserve Bank of India (RBI), financial inclusion can be defined as “the process of ensuring access to financial services, timely and adequate credit for vulnerable groups such as weaker sections and low-income groups at an affordable cost “. Effective access involves offering relevant products that cater to customer needs, ensuring convenience and affordability, promoting responsible market conduct, and implementing robust financial consumer protection measures.
Promoting Financial Inclusion in India
The Indian government has made concerted efforts to foster financial inclusion as a key driver of economic development and empowerment. Notable initiatives include the Pradhan Mantri Jan Dhan Yojana (PMJDY), through which over 48 crore accounts have been opened with deposits amounting to Rs 195,474.54 Crore. Additionally, schemes such as the Pradhan Mantri Suraksha Bima Yojana and Atal Pension Yojana have been introduced to provide insurance and pension coverage to bank account holders.
As of June 2022, the RBI reports that Scheduled Commercial Banks (SCBs) operates 1.59 Lakh branches with a total deposit of over 170 lakh crore rupees, equating to approximately 15 branches per 1 lakh of population. Moreover, there are 2.17 lakh ATMs, with 47% located in rural and semi-urban areas, and around 32 lakh Business Correspondents (BCs) engaged by banks, with each BC serving approximately 150 account holders. The World Bank’s Global Findex Database shows that as of 2021, 78% of Indian adults (15 years or older) had a bank account, compared to 53% in 2014. RBI has achieved nearly universal banking access within a 5 km radius in 25 states and 7 Union Territories, covering 99.94% of identified villages.
Global Commitment to Financial Inclusion
Financial inclusion is a globally recognized phenomenon, with over 55 countries committing to its implementation since 2010. More than 60 countries have launched or are developing national strategies to promote financial inclusion. According to a World Bank report, account ownership worldwide has reached 76% of the global population and 71% of people in developing countries. From 2011 to 2021, account ownership increased by 50%, with developing economies witnessing an 8% rise in ownership (63% to 71%). In developing economies, the share of adults engaging in digital payments increased from 35% in 2014 to 57% in 2021. In high-income economies, nearly all adults (95%) make or receive digital payments, highlighting the importance of having a bank account to access various financial services.
The Transformative Power of FinTech
Technology has played a pivotal role in driving progress toward achieving financial inclusion and enhancing efficiency and effectiveness across various sectors. Technological advancements have simplified tasks for individuals and facilitated ease of doing business for enterprises. While technology has paved the way for financial inclusion on a global scale, the need for a widely accessible, secure, and responsible digital public infrastructure or ecosystem remains paramount.
FinTech companies have emerged as key enablers of financial inclusion due to their ability to digitize traditional value chains, establish last-mile connectivity, and offer both financial and value-added services at an affordable cost. They have revolutionized payment methods and transformed the consumption of financial services, including insurance, banking, and stock broking. With over half a billion internet subscribers and a significant presence of budget smartphones, India is poised for further growth in FinTech adoption. The supportive government and regulatory policies, coupled with active private sector participation, have fostered this growth. India currently boasts approximately 600 million smartphone users and one of the world’s lowest data rates.
The World Bank has identified several challenges to financial inclusion, including lack of money, distance to the nearest financial institution, and insufficient documentation, which have been consistently cited by 1.4 billion unbanked adults as barriers to account ownership. In developing economies, 39% of adults (or 57% of those with a financial institution account) open their first account specifically to receive wage payments or government funds. Overcoming these obstacles requires addressing supply-side challenges, such as limited access channels, lack of consumer awareness, absence of digital identity for enterprises, and building trust in digital financial services. On the supply side, challenges include high capital costs for new-generation financial institutions, limited access to data due to information asymmetry, and inadequate digital and physical infrastructure.
Conclusion: The Financial Inclusion & FinTech Summit
Despite the existing challenges, significant progress has been made in advancing financial inclusion. However, achieving holistic financial inclusion that goes beyond mere “account access” remains a priority. To address this, the Confederation of Indian Industry (CII) is organizing the Financial Inclusion & FinTech Summit on 19th July 2023 in New Delhi. The summit aims to explore how FinTech has transformed the finance industry, discussed key focus areas, and contribute to the global objective of achieving holistic financial inclusion, thereby strengthening the overall economy.