Financial Inclusion in India

Inclusive growth is a concept which advances an equitable allocation of resources during the process of economic growth with benefits incurred by every section of society.

According to Dr. C. Rangarajan Committee (2008):

“Financial inclusion is the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups, such as weaker section and low-income groups, at an affordable cost.”

Another definition by Dr. K. C. Chakrabarty (2009):

“It is the the process of ensuring access to appropriate financial products and services needed by vulnerable groups (weaker sections and low income groups) at an affordable cost in fair and transparent manner by main stream institutional players.”

Read Also: Financial Inclusion

Extent of Financial Exclusion in India

  • 70,000 bank branches and 1.5 lakh post offices for about 600,000 villages.
  • 51.36% of rural households are financially excluded.
  • Only 44.9% of total earners have bank accounts.
  • Only 28.3% of total earners (earning less than Rs. 50,000) have bank accounts.
  • Only 54 persons per 100 have the savings account.
  • Only 13% of total earners (earning less than Rs. 50,000) take credit from banks.

Also, Read: Financial Management- Meaning, Scope, Objectives, and Functions

Barriers to Financial Inclusion

  • Wide geographical spread posing problems of out reach and scale.
  • The Multiplicity of languages.
  • Illiteracy of languages.
  • Lack of personal and financial identity for the vast section of society.
  • Infrastructural inadequacies.
  • Limited man power resources.
  • Lack of effective business models.
  • Structural constraints of traditional commercial banks.
  • Economic sustainability.

Interventions for Achievement of Financial Inclusion

  • Goal of Financial Inclusion (FI) is difficult, but not unattainable:
  •  State-Driven Interventions by Central, State, and Local Governments.
  • Voluntary Interventions by Banks, Micro finance Institutions (MFI), Cooperatives, Self Help Groups (SHGs) and other social organizations.


  • Harnessing advances in the Information and Computer Technology (I.C.T), like Smart Cards, Internet Kiosks, and Cell Phone Messaging.
  • Developing, testing and implementing appropriate products and suitable delivery channels for financial service to be extended.
  • Attention to the 5 Ps of marketing – Product, Price, Place, Process and Promotion.

Present Concerns of the Union Government

  • Scaling up of Financial Inclusion Plan (F.I.P) to cover all of 6 lakh odd villages.
  • Nationwide awareness on F.I. (Swabhiman Project) by banks.
  • Disbursement of all social security benefits through Electronic Benefit Transfer (E.B.T.) to all rural areas.

Don’t Miss: Key Banking and Financial Terms

Case Study: Andhra Pradesh Smart Card Project

The Andhra Pradesh Smart Card Project has aimed to promote financial inclusion by ensuring the reach of Government benefits to the targeted groups through the use of smart cards. It has been a kind of test-bed to evaluate the potential of smart cards and of the processes involved in marrying technology to financial inclusion. Though the project has undertaken, proved successful, up-scaling the same to the entire state and the nation has its own challenges. The very fact that many of the smart card projects undertaken in various parts of the country have not gone beyond the pilot stage is a pointer to the daunting task ahead for the banks and the Government.

Salient Features:

  1. A State Government driven intervention.
  2. Last mile banking with a banking outpost at each Gram Panchayat (G.P.).
  3. Disbursement of pensions, wages and other benefits without delay.
  4. Bank authentication to eliminate bogus beneficiaries.
  5. Disbursement of benefits at G.P. level by Banking Correspondents (B.C.).
  6. Branchless Banking model – a major step towards F.I.
  7. Entire infrastructure laid by Bank.
  8. Government committed to pay 2% as commission on the total amount disbursed.

Project Implementation:

Pilot: One Bank – One Mandal (August 2006)

  • Started in 6 Mandals in Warangal and 2 Mandal in Karimnagar Districts.
  • Six banks (SBI, S.B.H., A.B., U.B.I., A.P.G.V.B. and Axis) participated in one for each Mandal.
  • Enrollment started in March 2007 and payments started in April 2007 and are continuing.

Phase I: Bank-led Service Area Approach (S.A.A) (August 2007)

  • Review of the pilot in August 2007 and decision to upscale to other districts.
  • G.Ps in 6 districts allocated to 12 different banks based on SAA.
  • Enrollment started from March 2008.
  • Failed to enthuse any stakeholder and progress was tardy.

Phase II: One Bank – One District Model (August 2008)

  • One District allocated to one single bank, irrespective of the service area.
  • Enrollment started in November 2008.
  • 17 districts brought under this phase.
  • 7 banks operating in this model.

RBI has recommended one district – many banks – one leader bank model to be adopted for EBT implementation to avoid overlap and achieve convergence between Phase I and Phase II models. In this model, all the banks present in the district participate in EBT, through for administrative convenience the State Government deals only with one leader bank.

Must Read: Government to Appoint New Governor of Reserve Bank of India (RBI)

Key Learning from Andhra Pradesh Smart Card Project

  • Fast payment to real beneficiaries (in 4 days of fund transfer).
  • People satisfied by banking services at the door step.
  • Fool-proof identification and elimination of bogus beneficiaries.
  • Simple technology for trained rural literates to operate banking outpost.
  • Transaction records for effective monitoring, tracking and recovering of unspent.
  • Potential for incorporation of other financial services.
  • Biometric authentication for control of fraud and misuse.


Challenges in Nationwide Extension of Smart Cards

  • Financial viability is the key to the success of any business model.
  • Technology enabled models (including smart cards) are not viable as of date for banks and customer service providers.
  • The success of the model in achieving financial inclusion depends on the volumes of transactions, diversity of products and profitability in the long run.


  • Integrated Point of Service (PoS) terminal is preferred.
  • Current enrollment process needs refinement.
  • A.P. Rural Employment Guarantee Scheme process needs to be revisited due to short disbursement cycle.
  • Multi-vendor, multizonal, phased approach to be explored for scaling up.
  • Spread the disbursement period for over the month when scaling up.
  • Vendors to implement Service Management Processes based on standards and guidelines.
  • Vendors should be ISO 27001 certified (Information Security Standard).
  • Proper Management Information System for better management and analysis.
  • List of pending enrollments.
  • List of false acceptance and false rejection cases.
  • List of rejected or incomplete enrollments.
  • Data-wise, CSP (Customer Service Provider) -wise transaction details.
  • Policies and Procedures established for exceptions like manual over-ride.
  • Provision of  the financial services to make the business financially viable.

Author: Dr. Kameshwari Peddada, HOD, and Professor, MBA at JBIET Group, Hyderabad (this article was originally written  for Kurukshetra)

Also, Read:

The National Security Council (NSC)

National Payments Corporation of India (NPCI)

Know Your Customer(KYC)

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