Financial Inclusion in India.


India, one of the fastest-growing major economies of the world, is climbing up the ranks of nominal GDP beating country after country. One of the most attractive markets for financial services providers with the global banks investing in developing infrastructure, but the question remains is everyone benefiting from the growing access to the financial services or for simplicity’s sake, banks. Let’s find out in this blog.

What it is and What it Means for India?

Investopedia defines financial inclusion as “Financial inclusion is the pursuit of making financial services accessible at affordable costs to all individuals and businesses,” which pretty much covers all the aspects of it. However, there is more to add on only increasing access to financial services won’t help it would be beneficial only when benefits of the facilities are aware of what is being offered so that they can make appropriate choices.

Increased Financial Access and its benefits:

The more is the penetration of financial services to rural and remote sections of India, the more it reduces the dependence on the traditional moneylenders charging interest, which eats up a large portion of the borrower’s income. The borrower slowly gets crushed under the humongous interest, often losing the collateral sometimes, which is the only. Access to credit is also challenging, which hinders or almost abort the growth and causes stagnancy.

Ways of Improvement:

Self Help Groups:

One of the best ways to attain financial independence, address mutual financial issues, and teaming up to resolve it. It generally consists of 9–10 individuals from common economic and social backgrounds often employed in the same occupation. The pool in their savings to create funds which can be lent to those members in need. The interest rate is very nominal or sometimes zero, not only that no collateral is required for obtaining loans, which solves many problems.

However, as no system can be termed perfect, it also has issues associated with it. Some of these are weak financial management instead of utilizing the funds to expand the business, the diversion of funds toward personal expenses.

Some members of the self-help groups take advantage of the illiteracy of other members by having the lion’s share of profit and utilizing the accumulated funds for fulfilling

their monetary needs.

Most of the problems of the Self Help Groups can be solved if provided proper financial assistance from the financial services providers, workshops to train members, efficient management of monetary resources, and supervision of the functioning of these groups can be done. But these can’t be done without government intervention. Some of the possible steps can be incentivizing the financial services providers to reach to the bottom of the pyramid’s business.

Though Non-Governmental Organisations are providing much-needed help, however, these groups can be linked to the formal economy only if industry and government work together for the upliftment of these groups.

Easing out-licensing of new banks:

With the allowance of more banks to enter the market, the competition will increase, as the urban markets are already saturated, the banks have to penetrate rural areas to generate profits. While increase competition will lead to a reduction in the price of services, it will benefit the banks as well as they will be exposed to a new pool of customers, so the increased number of customers will compensate for the reduction in service prices. It will also create a need among them to develop products specific to serve the needs of the broader part of India, which is still not a part of the formal economy.


As I mentioned earlier, only access to easy credit won’t solve the problem access to information about the credit and banking services is of equal importance. The problem encloses an opportunity within itself as startups can jump in to provide accessible finance education through innovative methods. With the highest number of smartphone users and growing internet connectivity, it seems feasible.

One of the steps that the government has already taken is to link bank accounts with Aadhar. It helps to build the credit history of the borrower. In rural areas, it becomes difficult for banks to know the creditworthiness of the borrowers, which makes the lending process complicated, often resulting in the reluctance of rural borrowers to approach banks, and the problem remains unresolved.

With the help of Aadhar, a central repository can be created, which will help the lenders to know the credit history based on the bank activities. It will also reduce the burden on the borrower to prove its eligibility and will view the banks as the most easily accessible option and prevent him from falling in the debt trap of the money lenders. Easing the process will increase the competitiveness among banks to serve in rural areas, and with that, services will become cheaper.

— Srijan & Avichal

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