Financial inclusion in India has been limited to metropolitan areas, leaving a majority of the population without access to banking infrastructure in villages and towns
The lack of access to banking services, low levels of financial literacy, socioeconomic factors, and inadequate infrastructure and connectivity are major obstacles in achieving financial inclusion in Bharat
Technology is crucial in promoting financial inclusion, particularly through mobile banking and digital payments
The financial inclusion revolution in India has been limited to metropolises so far. In 2021, 35.39% of the Indian population lived in metro cities while the majority lived in tier 3, tier 4, and tier 5 cities, or Bharat. The lack of banking infrastructure in villages and towns limits access to financial services for the majority of the population.
Financial inclusion in India is crucial to reducing poverty, promoting economic growth, and achieving financial stability as it improves access to credit and investments. The objective is to include individuals and businesses that have been traditionally excluded from the formal financial sector.
The government took several steps and introduced several initiatives and policies to bring more people into the formal financial sector. Despite these steps, the current state is still not satisfactory, and more needs to be done. The Financial inclusion index for March 2022 was 56.4, signifying that many individuals and businesses still lack access to affordable credit, highlighting the need for more efforts to increase financial inclusion. So how can we realise the dream of a financially inclusive Bharat?
Factors Hindering Financial Inclusion In Bharat
On the path to greater inclusivity, one of the biggest barriers that I have noticed is the lack of access to banking services and financial products. Such barriers are especially prominent in rural and remote areas, where the majority of India’s population lives. These cities lack basic banking services due to the limited presence of banks and financial institutions, thereby limiting financial exposure in these areas.
Another major barrier is the low level of financial literacy and awareness among the population. Many individuals and businesses are not familiar with financial products and services and lack the knowledge and skills to use them effectively, which makes them vulnerable to fraud and other financial crimes. The lack of financial literacy and their subsequent experiences with fraud erode their trust and demotivate them from further availing of financial services.
Additionally, socio-economic factors, such as poverty and discrimination, limit financial exposure, particularly for underserved people. They may also face discrimination and bias when trying to access financial services and products, which can further limit their participation in the formal financial sector.
Government Initiatives To Promote Financial Inclusion
Taking cognisance of the hurdles, the Indian government has launched several initiatives to promote financial inclusion. Some of these are:
- Jan Dhan Yojana
- Pradhan Mantri Jan Dhan Yojana
- Pradhan Mantri Jeevan Jyoti Bima
- Pradhan Mantri Suraksha Bima Yojana
These policies aim to provide every household with a bank account and improve financial literacy. It also aims to increase access to financial products such as insurance and its related products and ultimately bring them under the umbrella of the formal financial sector.
The government also launched initiatives such as Digital India, Mudra Yojana, and Bharat Interface Money (BHIM) to increase financial inclusion by providing individuals with access to digital financial services such as mobile banking and e-wallets. These policies also aim to provide credit to small businesses, helping them start or grow their businesses and thus promoting economic growth. BHIM allows individuals to make digital payments using their mobile phones. This helps to promote the use of digital payments in the country, making it easier for individuals to make digital transactions and increasing the accessibility of financial services.
Despite the progress, we can sense that inadequate access to banking services and financial products, low financial literacy, socio-economic issues, and lack of infrastructure and connectivity in remote and rural areas are still major obstacles. The government and the private sector must find solutions to solve these challenges.
Role Of Technology In Promoting Financial Inclusion
Technology has been playing a crucial role in promoting financial inclusion, particularly in recent years. Propelled by the increasing availability of low-cost smartphones and high-speed internet connectivity, we can see that India is digitising rapidly. One of the key ways technology is being used to increase financial inclusion is through mobile banking and digital payments.
The widespread use of mobile phones in India has made it possible to deliver banking services and allow individuals to access banking services from their mobile phones. Additionally, the use of Aadhaar has enabled biometrics for identification and authentication, doing away with the need to use traditional forms of identification, such as a passport or voter ID card, to access financial services.
Data analytics is being used to identify and target unbanked populations in India to bring more people under the ambit of financial inclusion. By analysing data, financial institutions can identify those who lack access to financial services and products and target them with appropriate products and services. They can also identify areas where access to financial services is limited and target them.
Challenges Of Widespread Finacial Inclusion
Lack Of Financial Literacy
The biggest challenge faced is the lack of financial literacy. People need to be literate enough to understand the basics of managing money to make successful use of financial services. Financial literacy is essential for enabling people to make the right financial choices.
Lack Of Awareness About Digital Paperwork
There is a definitive need to sensitise government offices and financial institutions to digital paperwork. With digital paperwork, the common man won’t have to waste productive, wage-earning hours getting paperwork in order. This will make the process significantly more convenient for customers.
Though the government has launched digital initiatives, government and private offices on the ground are often unaware of the law. The government needs to make a big push for awareness of digital paperwork on the ground.
We also need improved infrastructure and connectivity in remote and rural areas. Many of these areas do not have access to basic banking services, such as ATMs and bank branches, making it difficult for individuals to access financial services and products.
Lack Of Trust
Another challenge is the lack of trust in formal financial institutions. Many individuals in India do not trust banks and other formal financial institutions and prefer to keep their money in informal savings mechanisms such as gold and cash. This can make it difficult for financial institutions to build a customer base and increase the scope of financial inclusion.
Inclusive Growth For All
Financial inclusion is a crucial step toward reducing poverty and promoting the economy. By ensuring that individuals and businesses have access to financial services and products, they can better manage their finances, invest in their businesses, meet their financial needs, and prosper.
Financial inclusion is the first step towards inclusive growth. Tier 3, 4, and 5 cities play a crucial role in ensuring that. It’s evident that government initiatives, together with startups, can play a significant role in promoting financial inclusion through innovation and investment in digital infrastructure to reach every nook and cranny of the country.
By addressing these challenges and limitations, financial inclusion can become a reality in Bharat, and the country can take a step closer to reducing poverty and promoting economic growth.