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Financial Inclusion in India

Financial inclusion UPSC

What is financial inclusion?

  • Financial inclusion means a process of ensuring access to financial services and timely and adequate credit to vulnerable sections of society like low-income group people.


Financial inclusion importance

Economic importance

  • Access to financial services enables the downtrodden section of society to come out of their state of poverty.
  • Financial inclusion not only drives families and societies, but also help drive economic growth of a nation.


Social importance

  • Financial inclusion helps in reducing poverty which further helps in reducing inequality in the society.
  • Financial inclusion empowers the women to take financial decisions, and hence empowers them to take decisions in the family.



  • Financial inclusion reduces corruption as it removes intermediaries, and the errors of inclusion and exclusion is minimised.
  • It also helps the government in identifying the intended beneficiary, and thus work for the welfare of the targeted communities as envisaged under Article 38 of our constitution.


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Financial inclusion challenges

  • Financial literacy: To make financial inclusion a reality, financial literacy is a must. According to a global survey, only 25% Indians are aware of basic financial concepts.
  • Financial inclusion is based on the use of ICT. However, the digital divide in the country would lead to inequitable financial inclusion.
  • With increase in internet banking, issue of phishing is rising. The benefits of financial inclusion could not be accrued if people are not aware of withholding sensitive information.
  • ICT- based financial inclusion would need a robust infrastructure that is lacking in our country.
  • Geography: Rangarajan committee said that financial exclusion is highest among households of eastern, north eastern and central areas of our country due to poor infrastructure.


Financial inclusion solutions

  • Meaningful collaboration: Financial inclusion calls for technology service providers, mobile network operators, corporate houses, and banking correspondents to develop efficient delivery models.
  • Banks need to look after the needs and constraints of rural areas and not impose the urban models in rural areas.
  • Financial literacy and awareness need to be focussed upon. Programs like e-BAAT of RBI are needed to increase awareness about financial services.
  • Along with financial literacy, consumer protection should be ensured through better dissemination of information to customers.


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Financial inclusion in India: Present situation

  • According to a report by World Bank, only 8% of Indian borrows from institutional and formal sources.
  • As per census 2011, only 58% of households are availing banking services in the country.
  • At present, only about 5% of India’s 6 lakh villages have bank branches.


Financial inclusion: Steps by the government

Banking initiatives

  • SHG-Bank linkage programme: NABARD initiated this project in 1992 to formalise 500 SHGs to the formal financial instructions.
  • Creation of Regional Rural Banks and Micro Finance Institutions to increase institutional presence in unbanked areas.
  • PMJDY: In 2015, government has launched Pradhan Mantri Jan Dhan Yojana to provide every household universal access to banking facilities.
  • PMMY: Government launched Pradhan Mantri Mudra Yojana to formal access of financial services to the micro enterprises.
  • Priority Sector Lending by RBI to provide credit facilities to a few targeted sectors like agriculture, MSMEs, among others.


Social security initiatives

  • PM Suraksha Beema Yojana and PM Jeevan Jyoti Beema Yojana to provide insurance coverage to the people.
  • Atal Pension Yojana to provide pension to the people.


Digital initiatives

  • Rupay cards, BHIM, JAM trinity are a few digital initiatives by the government to increase financial inclusion in the country.


Financial inclusion: Way forward

  • Financial inclusion forms a key to achieve development in any country. If adequate measures are taken, financial inclusion could stimulate the benefits of economic growth to the poor.


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