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International Journal of Applied Engineering Research ISSN 0973-4562 Volume 11, Number 3 (2016) pp 1575-1578

Research India Publications.

Financial Inclusion in India: A Review

Dr. N. Sundaram
Professor of Commerce, School of Social sciences and Languages,
VIT University, Vellore 632014, Tamil Nadu, India.

Mr. M. Sriram
Research Scholar, Commerce, School of Social sciences and Languages,
VIT University, Vellore 632014, Tamil Nadu, India.

Abstract financial inclusion in India and barriers faced by people to

This article discusses reviews of financial inclusion in India to financial access.
identify how it serves the households and economy for
growth. A predominant role is being played by financial REVIEW OF LITERATURE
inclusion policy for inclusive growth all over the world to The banking and other formal financial institutions such as
transform financially excluded population which is numbered post offices and insurance companies has become essential for
as 2.5 billion, of which, one third is populated in India. an individual to deposit, save, invest and avail financial
Financial inclusion is originated from the initiatives of United services [5]. The banking sector and other financial sectors
Nations, which extensively reported the key goals of the were providing lots of financial services for decades [6].
policy as access to wide range of financial services to all at an Reference [7] portrayed that due to illiteracy and poverty, the
affordable cost, which started its operation effectively in India people were unable to access the financial services provided
in the year 2005. As India is the land of rural supremacy, it is by the banking and financial services and banks were not able
mandate to provide suitable financial services for economic to provide the products and services required as well [8].
growth which will increase the income and living standards of Various steps were taken by the Government of India (GOI)
the households. Consequently, greater financial inclusion in and the Reserve Bank of India (RBI) to include the financially
rural segments is crucial meanwhile the focus on urban and excluded regions, so that the people, especially low income
suburban regions is also required. The core objective of this groups and disadvantaged regions can able to access the
study is to review literature on financial inclusion in the products and services rendered by financial institutions [9].
Indian perspective, discussed by different researchers all over Financial transaction by means of earnings and spending is
the world and also to highlight the awareness level of considered as connective tissue of an economic system, which
financial inclusion, digital financial inclusion and barriers enables people to purchase goods, water, pay electricity bill,
confronted to financial access. The vision of the Reserve Bank transfer money to family and friends [10]. It also enables
for the year 2020 is to open more than new 600 million suppliers to collect payments from the buyer [11]. If these
customer accounts. It is expected from the government to transactions are not cost effective and time consuming,
encourage the banks to adopt financial inclusion for proper activity of an economy will impede.
financial assistance to achieve full inclusion in this decade.
A. Awareness on financial inclusion
Keywords: awareness, barriers, digital technology, financial The necessity for financial inclusion in India was to include
inclusion, India the financially excluded people, who were unable to access
the financial services provided or rendered by banking and
INTRODUCTION financial institutions [12]. Banks provide their products and
In accordance with an estimate, almost 10% to 15% services to poor people but they were not found aware of
households in United States, 8% to 10% in United Kingdom availing products and services from them [13]. The
and 7% to 10% in France do not even have a basic savings technological reforms pertained to banking sector such as
bank account [1]. But the problem is more acute in developing mobile phones, e-commerce, email, ATMs and plastic money
countries where the extent of exclusion is 25% to 65% [2]. At were available only in towns and cities, which leads to limited
present, in India, the focus of financial inclusion is confined in access to financial products and services in rural and remote
ensuring a bare minimum access to savings bank account regions [14].
without frills, to all [3]. It is dazed that on one hand, poor The reviews were obtained on the basis of level of awareness
persons have been restricted to access the financial system and of financial inclusion through financial literacy, [15]
they are not enjoying the financial services and on the other contributions by various intermediaries towards promoting
hand, affluent customers who have accessibility to financial and serving financial inclusion to rural poor and the level of
system hesitate because of security concern and outreach [4]. financial inclusion through Information and Communication
The review of literature for this study is based on financial Technologies (ICT) like mobile banking and e-banking
inclusion, its awareness among the people, role of digital services [16].

International Journal of Applied Engineering Research ISSN 0973-4562 Volume 11, Number 3 (2016) pp 1575-1578
Research India Publications.

Addressing financial exclusion needs holistic approach on the appropriate channels and provides access to basic account,
part of the banks to create awareness on financial products payment connections to peers, institutions, governments and
and education, advice on money management, debt enhanced financial services [30].
counseling, saving and affordable credit [17].
Reference [18] said that the support of financial inclusion can C. Barriers to financial access
be achieved only through linkages between micro finance Banking and financial institutions are providing services to
institutions and local communities. Banks should give mass low income groups in many ways [31]. But, there are some
publicity about zero balance account, accessing banking factors which create barriers for vulnerable groups to access
products by using more technology in the rural areas and the financial products and services provided [32]. The
modify ATMs as user friendly for those who are illiterate and constraints were segmented based on demand, supply and
less educated [19]. Banks needs to redesign their service institutional constraints [33].
approach to promote financial inclusion to low income group The major constraints found are less education, illiteracy, high
and consider the policy as business opportunity and corporate proximity from their living area to service institutions, low
social responsibility [20]. density of population, poor channel design and low product
The existing financial inclusion literature was analyzed in two quality [34]. The above constraints represent all the major
ways like challenging the simplistic bank or unbanked constraints on accessing financial services by the weaker
distinction and underutilizing their bank accounts [21]. This individuals as well as rendering of services by financial
paper argued that this segment must be given an ample institutions [35]. In case of firms, especially Small and
attention, if financial inclusion drive is to be successful. It also Medium Enterprises (SMEs), access to finance is not very
challenged the current measures of success for financial easy which creates hurdles for their growth [36].
inclusion. Reference [22] showed from his result that benefits The reason for including the financially excluded region was
can only be derived from active commitment with financial made as a debate and the reasons for economic imbalance
product and services and not just by access. Here the active were considered; found that it can be rectified by building
commitment is about usage of financial products and services. proper financial systems [37]. The reviews represented the
There has been some successful intervention by micro finance constraints faced by the weaker group by means of financial
institutions (MFIs) on financial education; however, there has access.
been a little discussion on how such education should be Reference [38] conducted a review about the issues and public
provided and who should lead this effort. Technologies such policy objectives on the access to financial services among
as mobile phones could be featured more prominently in areas different countries. This study was focused on the importance
where penetration rates are higher. It is proposed that of finance for economic well-being. The data provided in this
education should be targeted to poor individuals who have study was about the usage of financial services by households
distinct financial needs and varied levels of understanding. and firms across different nations [39]. It also provided the
universal access desirability and the overview of macro-
B. Digital financial inclusion economic, legal and regulatory barriers to access.
The financial lives of affluent households are entrenched in
digital financial system which facilitates the process of their DISCUSSIONS AND CONCLUSION
economic activity cheap and ease to remit or receive money While studies on financial inclusion have tackled the issue
[23, 24]. Their money is transacted in digital, by click of a from variety of viewpoints, with the exception of conceptual
button. Conversely, poor people are not availing this system, studies, the focus is seemingly on finding out the relationship
as they store their valuables by means of physical assets like between financial inclusion with awareness, digital
cash, precious metals and/ or livestock [25]. technology and constraints to access [40]. Moreover, at the
The process of financial inclusion has three aspects which are present global scenario, technology is found to be a
referred as clouds by Reference [26]. It was stated that first determining factor in the ultimate performance of financial
aspect is physical cash cloud which is operated by the existing inclusion policy, regardless of the context or the participants
poor people, a traditional cash management system. Secondly, of the study with relevant to this topic [41].
virtual account operated through e money and thirdly neither Financial inclusion is the only hope for financial development,
physical nor virtual but psychological, where people plan their which will lead to growth of economy [42]. It was well
financial life through thought process of brain. Blending documented in the above literature that supports this study to
traditional and virtual clouds reveals access and mixture of the great extent. An apparent increase in addressing the
virtual and psychological cloud leads to usage of financial population of financial exclusion requires a holistic approach
system [27]. for the banks to put forth the level of awareness on financial
It is evident that the extension of payments through digital system, appropriate financial advice and affordable system of
platforms offers the opportunity to connect the needy with credit to kindle the whole importance of formal financial
service providers [28]. Nevertheless, this system will not system management for which banks needs to enact strategies
automatically pull in the people to save the money but it pave for reach in a cost-effective manner and it should also be less
the way to embed the systems of automated financial process time consuming process. It is possible through bridging
like deposits, scheduled reminders and other financial relationship with NGOs, microfinance institutions and eligible
activities [29]. individual and agents.
Digital financial inclusion highly insists on poor people The promotion of financial system should reach the person
because it directly reaches for the welfare of needy through which is possible through technology, a viable tool that

International Journal of Applied Engineering Research ISSN 0973-4562 Volume 11, Number 3 (2016) pp 1575-1578
Research India Publications.

provides financial access in quick and cost effective way. The Business Environment: Worldwide Survey Results.
best existing tool is Automated Teller Machine operated Discussion Paper 43. Washington, DC: International
everywhere in the nation. Banks should give wide publicity to Finance Corporation.
the facility of no frills account [43]. Technology can be a very [10] Cull. R., Demirg-Kunt, A., & Morduch, J. (2013).
valuable tool in providing access to banking products in Banking the world: empirical foundations of
remote areas. But ATMs still are not considered user friendly financial inclusion. MIT Press.
by the people who are illiterate and non user of technology. [11] Mehrotra, A. N., & Yetman, J. (2015). Financial
Banks, in this case, needs to reengineer the design of existing Inclusion-Issues for Central Banks. BIS Quarterly
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financial inclusion in Indian perspective, which can be further OECD Working Papers on Finance, Insurance and
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comparison studies and national field survey. [16] Jain, C. S. (2015). A Study of Banking Sector's
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