India’s Path of Financial Inclusion


Moin Qazi – TRANSCEND Media Service

14 Aug 2017 – For decades, balancing one’s checkbook has been the cornerstone of personal finance for conscientious adults in the developed world. I remember when I first opened an account of my own in my college days, I received a little booklet, the ubiquitous passbook, in which every deposit and withdrawal was acknowledged by the bank staff. I learned that keeping track of the bank balance was the personal hygiene of finance, like brushing your financial teeth. The implicit message, not just for me, but I think for society at large, was that the bank account was the locus of money management. All one’s main financial transactions would pass through the account, and the account would serve as a running financial statement, showing not only income and expenses but also personal solvency.

This philosophy has been the cornerstone of personal finance for adults in the developed world. And it is now the key focus of governments in developing countries. Financial institutions are now engaged in a vigorous battle to enlist the poor as their clients, not just for their business but to open a window for the poor which allows the global development winds to touch their lives.

Financial services are like clean water and electricity — they are essential to leading a better life.  The frenetic global effort for bringing those outside the financial  planet into it are part of a movement popularly called financial inclusion .What exactly is financial inclusion   .it is providing   financial  tools to people  —tools that you can afford, that are safe and properly regulated, that you can access conveniently from institutions that treat you with respect . These tools enable them to save and to responsibly borrow—allowing them to build their assets, to improve their livelihoods and to invest in education and entrepreneurial ventures. The term   most buzzed in the industry is “the unbanked” — usually defined as people who don’t have a traditional savings account. Instead, they rely on some assemblage of informal service providers — local saving clubs, neighborhood loan sharks, or pawnshops — to do some of the work that most people trust a big bank or a post office to do. (The “under banked” have a formal bank account, but also use some of these informal services.)

Financial access facilitates day-to-day living, and helps families and businesses plan for everything from long-term goals to unexpected emergencies. It is expensive to be poor. Crisis such as illness, livestock deaths crop failures, farming-equipment breakdowns and even funeral or wedding expenses can be enough to push low income families, or even an entire community, deeper into poverty.

Access to the right financial tools at critical moments can be a key element in overcoming these stubborn realities. It can provide an opportunity to move out of poverty or absorb a shock without being pushed deeper into debt. The poor need to set aside money in times of plenty and draw it out in lean times. Without a safe place to save money, it’s difficult to cope with the unexpected or to plan for the future. Without access to affordable credit, it’s difficult to get a business idea off the ground or to acquire an asset like a house or higher education. Without insurance, all your security can be wiped out by one misfortune. Financial services allow you to insure for health care, save for children’s education, and borrow for wedding or funeral costs.

There are basically three financial needs of the poor:

  • Life cycle needs. Life cycle events that impose financial burdens include: births, deaths, marriages, education, home-making, widowhood, old age, and the need to leave something behind for one’s heirs.
  • Emergencies. Impersonal emergencies are caused by floods, cyclones, and fires etc., while personal emergencies include illnesses, accidents, bereavement, desertion and divorce.
  • Financial and life-style opportunities can require large sums of money for starting or running businesses, acquiring productive assets (including land and housing), or buying life enhancing consumer durables (fans, radios etc.).

Access to a transaction account is a first step toward broader financial inclusion. As accountholders, people are more likely to use other financial services, such as credit and insurance, to start and expand businesses, invest in education or health, manage risk, and weather financial shocks, which can improve the overall quality of their lives.

To use financial services to their full potential, to protect their families and improve their lives, the low income people need products well suited to their needs. Bringing this about requires attention to human and institutional issues, such as quality of access, affordability of products, sustainability for the provider of these services, and outreach to the most excluded populations.

India’s financial inclusion agenda received a steroidal boost with Prime Minister’s Jan Dhan Yojana (PMJDY). This scheme is the now the most powerful driver of financial inclusion

The PMJDY consists of six pillars:

  1. Universal access to banking facilities,
  2. Providing basic bank accounts with overdraft facility and RuPay Debit card to all households,
  3. Financial literacy to enable use of financial products,
  4. A credit guarantee fund to mitigate risks stemming from overdraft facilities extended to these accounts,
  5. Microinsurance for all account holders under PMJDY, and
  6. Pension schemes such as Atal Pension Yojana.

The opportunity to reach the financially excluded with a new generation of financial services has huge developmental as well as commercial potential.  One of the ways for accelerating this path is through digital financial inclusion. It is perhaps the most powerful tool to unlock the most value for those at the bottom of the pyramid.

Traditional ways of doing business make it difficult and costly for commercial banks to manage the small balance accounts that low-income families need. So banks often fail to recognize that low-income people could actually be viable customers—with some creative adaptations to business as usual.

Although digital technology is opening new channels for delivering financial services, challenges persist. Sparse populations, inconsistent network coverage, lack of trust, or insufficient capital for building new business models, can stand in the way of success, particularly in connecting remote or underserved communities.

The challenge of financial inclusion is to understand what is best about all the different ways to reach underserved customers. It’s about understanding what works and building on it. The rapid spread of mobile phones is the game changer that can make the economic benefits from digital finance possible. Fortunately, mobile phone penetration is growing far more quickly than access to financial services.

The unbanked have customer service needs that aren’t well met by traditional banks. The big retail banks   provide digital, and not human, interface. People want more from a financial relationship than a statement whose numbers add up correctly each month .Personal relationships and a feeling of connection with the staff is critical for many semi literate customers.

Many can’t afford regular banks. Many have dropped out of the banking system after getting burned by increasing hunger of banks for fees and penalties, much of which focuses on people who least can afford it. Private banks choose to extract more money from those at the low end of their customer base, and many walk away rather than face a barrage of fees.

The right way to drive a revolution of this type is through empathy —not a form of empathy that comes from superiority, but one born from a profound humility. It is an offering of respect, a moment of listening to stand in the shoes of another. The most successful leaders were those who recognized it and invoked it in developmental interventions they shepherded.

When we design solutions that recognize all as equal partners, we have a real chance to of making to goalpost. Each society is at different stages of digital financial inclusion and the necessary solutions and interventions   must be appropriate for the cultural and economic context. By respecting the cultural outlook of the people and embracing their concerns we enlist their buy in, and that is what paves the way for lasting and sustainable success.


Moin Qazi, PhD Economics, PhD English, is a member of the TRANSCEND Network for Peace Development Environment and author of the bestselling book, Village Diary of a Heretic Banker. He has worked in the development finance sector for almost four decades in India and can be reached at


This article originally appeared on Transcend Media Service (TMS) on 14 Aug 2017.

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