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Financial
Financial inclusion determinants inclusion
and impediments in India: insights determinants

from the global financial

inclusion index
Arif Billah Dar and Farid Ahmed Received 17 November 2019
Revised 6 May 2020
School of Economics, Shri Mata Vaishno Devi University, Katra, India Accepted 26 July 2020

Abstract
Purpose – The purpose of this paper is to understand the determinants of financial inclusion and the
determinants of barriers to financial inclusion in India. Also, the purpose is to ascertain the determinants of
informal financial activities in India.
Design/methodology/approach – The data have been collected from the Global Findex Database
(Findex) 2017. Various measures of financial inclusion, namely, ownership formal accounts, use of accounts
for saving and borrowing, ownership and use of the debit card are used. The independent variables used are:
age, income, education and gender. Given the binary nature of dependent variables, this paper uses the Probit
model to draw the inferences.
Findings – The results show that gender, age, education and income have a significant impact on the
various measures of financial inclusion. Additionally, these factors have a significant impact on the informal
saving and borrowing.
Research limitations/implications – The given study uses the deferent measures of financial
inclusion. An index of financial inclusion created using all the financial inclusion measures would be a better
indicator of financial inclusion.
Practical implications – The results of this study would be useful for policymakers to identify the
determinants and barriers of financial inclusion in India. The results show that policymakers should focus on
the female population, in particular, and education and income enhancing measures, in general, to make
financial inclusion more inclusive.
Originality/value – The study is the first of its kind to analyze financial inclusion in India using the
Findex. Unlike previous studies, variables such as education and income are constructed more pragmatically.
In particular, the study tries to understand the socio-economic determinants of financial inclusion measured
as ownership of formal accounts, formal saving, formal credit, ownership of debit cards and use of debit cards.
The study also analyzes the determinants of barriers to financial inclusion, savings (formal and informal) and
borrowing (formal and informal).
Keywords Financial institutions and services, Financial markets and institutions
Paper type Research paper

1. Introduction
On 28th August 2014, Indian Prime Minister Mr Narendra Modi launched a financial inclusion
scheme popularly known as the “Pradhan Mantri Jan Dhan Yojana (PMJDY).” The scheme was
broadly designed to ensure faster access to financial services such as saving bank accounts,

Journal of Financial Economic

Policy
The substantial part of this work was supported by the Indian council of Social Science Research © Emerald Publishing Limited
1757-6385
under IMPRESS (Grant No. : IMPRESS/P65/38/2018-19/ICSSR DOI 10.1108/JFEP-11-2019-0227
JFEP affordable and need-based credit. While policies regarding financial inclusion were already in
place, PMJDY was a renewed policy focus to reach out to the financially excluded masses
through the opening of no-frill accounts. Five years have passed, yet, opinion about financial
inclusion is mixed among policy circles. According to a study by the Development Research
Group of World Bank published in September 2017, PMJDY has made it easier to own formal
bank accounts in India. Nevertheless, people who intend to open no-frill accounts still have to
incur a variety of costs [1]. These costs in the form of longer distance to commercial banks,
documentation and lack of trust still pose a challenge to the financial inclusion in India.
A group of policymakers argue that India has made huge strides in financial inclusion. Yet,
the other group holds the contrary view. According to the Global Financial Database 2017
published by the World Bank, a substantial majority of the population remains financially
excluded [2]. The share of adults with a formal account at the financial institutions has more
than doubled to 80% in India since 2011. Mostly attributed to PMJDY, although the number of
accounts has increased to 80%, the percentage of adults (15 þ age) to have saved (in the past 12
months) has increased from 12% in 2011 to only 20% in 2017. Similarly, the percentage of
adults (15 þ age) to have borrowed (in the past 12 months) has increased from 6% in 2014 to
only 7% in 2017. Despite the targeted program of financial inclusion known as PMJDY, formal
saving and borrowing in India has remained abysmally low. This warrants a thorough
examination of financial inclusion, its determinates and barriers in India.
A substantial body of literature has been devoted to the study of financial inclusion in
India. Using primary data collected via structured questionnaires from 411 households from
the states of Assam and Meghalaya in north-east India, Bhanot et al. (2012) explores the
factors, which are crucial in determining the extent of financial inclusion in geographically
remote areas. The study finds that awareness about self-help groups and education are the
important determinants of financial inclusion in India. Chithra and Selvam (2013) uses
the financial inclusion index to understand the determinants of financial inclusion in India.
The study finds that socio-economic factors such as literacy, income and population are the
significant factors that affect the level of financial inclusion. Other variables such as
banking penetration, deposit and credit accounts have a significant impact on financial
inclusion. Kumar (2013) examines the status of financial inclusion and its determinants in
India. Using panel fixed effects and dynamic panel generalized methods of moments (GMM),
the study finds that the branch network has an unambiguous beneficial impact on financial
inclusion. The study also uses the test of convergence to find that regions tend to maintain
their respective level of banking activity, with no support for the closing gap. Kapoor (2014)
makes the projections of finances in India to attain the millennium development goals. The
study suggests some policy measures to move toward the desired goals. Yadav and Sharma
(2016) investigates the factors, which affect financial inclusion in India. The study uses data
collected from the Reserve Bank of India (RBI) and the Central Statistical Organization. The
study creates a multi-dimensional index of financial inclusion by using banking penetration,
availability and usage of financial services. Using multiple regression analyzes, the study
finds that the share of agriculture to gross domestic product (GDP), literacy ratio, population
density and infrastructure development are significant factors that affect financial inclusion.
Sharma (2016) analyzes the relationship between financial inclusion and economic growth.
Using vector autoregression models and Granger causality tests, the results indicate that
there is a positive association between economic growth and various dimensions of financial
inclusion such as banking penetration, usage of banking service and availability of banking
service. The results show that there is a bi-directional causality between economic
development and geographical outreach and unidirectional causality between the number of
deposits/loan accounts and GDP. Ghosh (2017) uses household-level data on India to
examine the interlinkage among PMJDY account, Aadhaar card and mobile telephony. The Financial
results of this study show the strong evidence of complementarity among these variables, inclusion
with each tending to reinforce the other. Iqbal and Sami (2017) studies the role of banks in
financial inclusion in India. Using the secondary data collected from various sources such as
determinants
RBI and Government of India, the multiple regression results show that there is a positive
and significant impact of the number of bank branches and credit deposit ratio on GDP. It is
also found that automated teller machines have an insignificant impact on the growth of the
Indian GDP. Ghosh and Vinod (2017) by using the Indian micro-level data analyzes the
financial inclusion for women. It is found that female-headed households are less likely to
access formal finance and more likely to access informal finance as compared to their male
counterparts. The study also finds that for female-headed households, education and wage
are important factors explaining the access to finance, whereas, political and social factors
are more relevant for explaining the use of finance. Sharma et al. (2018) analyzes the factors,
which promote the PMJDY scheme. The results show that infrastructure such as road is the
most significant factor explaining the outreach of the PMJDY scheme. Inoue (2019) tries to
understand how financial inclusion affects the poverty in India. By using the GMM on the
data from 1973 to 2004, the results show that financial inclusion has a negative and
significant impact on poverty through public sector banks. Malik et al. (2019) analyzes the
factors responsible for enhancing the performance of financial inclusion in India. The study
finds that banks lead in most of the processes involved with financial inclusion in India.
They also find that potential action such as information and communication technology
based on financial services and products, Jan Dhan-Aadhaar Mobile (JAM trinity) and
construction of physical infrastructure significantly affect the overall performance of
financial inclusion. Ghosh (2019) analyzes the impact of Aadhaar, financial inclusion and
mobile telephony on the economic growth. The study uses the GMM on the financial access
survey data collected for the periods from 2001 to 2014. The results show that mobile
telephony has a positive and significant impact on economic growth.
A scant body of literature uses the World Bank’s Global Findex database (Findex hereafter)
to analyze the financial inclusion. Allen et al. (2012), for example, used Findex 2011 and found
that the probability of owning an account and saving at the formal financial institution is
higher for older, urban, more educated and richer people. Demirgüç-Kunt and Klapper (2012a)
highlighted the global statistics of financial inclusion using Findex 2011. Demirgüç-Kunt and
Klapper (2012b) used the 2011 Findex to study financial inclusion in Africa. Their results have
shown that most of the adults in Africa use informal methods for saving and borrowing.
Demirgüç-Kunt and Klapper (2013) analyzed the financial inclusion in 148 countries using
Findex 2011. They find that differences in income among individuals and countries have a
significant impact the financial inclusion. Demirgüç-Kunt and Klapper (2013) use the Findex to
show that legal discrimination against women explains the cross country variation in access to
finance in women. Fungacova and Weill (2015) compares the financial inclusion in China with
the Brazil, Russia, India, China, South Africa (BRICS) countries using Findex 2011. The results
show that the Chinese relatively use more formal and savings accounts than BRICS countries.
Zins and Weil (2016) uses the Findex 2014 to study financial inclusion in 37 African countries.
The results show that income, education and age have a significant effect on financial inclusion
in African countries. Shaikh et al. (2017) show that in Islamic countries extremely poor people
have largely remained financially excluded.
Among the studies discussed, few studies focus on the determinists of financial inclusion
in India. Moreover, these studies are either region-specific or use crude proxies such as
ownership of accounts as the measure of financial inclusion. In our study, we focus on a
broader set of proxies such as the use of accounts for saving and loan taking, ownership of
JFEP credit and debit cards and use of debit cards. Besides, we analyze the determinants of
barriers to financial inclusion, informal savings and borrowings, which has lightly been
addressed in India. We use data from the most recent survey, Global Financial Index 2017,
conducted by the Gallup foundation in collaboration with the World Bank. The database has
updated indicators on the use and access of formal and informal financial services with a
nationally representative broader sample of 3,000 [3]. Unlike previous studies, variables
such as education and income are constructed more pragmatically (Tables 1 and 2). In
particular, we intend to understand the socio-economic determinants of financial inclusion
measured as ownership of formal accounts, formal saving, formal credit, ownership of debit
cards and use of debit cards. We will also analyze the determinants of barriers to financial
inclusion, savings (formal and informal) and borrowing (formal and informal).
The rest of this paper is divided into four sections. In Section 2, the stylized facts about
financial inclusion in India are thoroughly discussed. Section 3 is devoted to the discussion
of data and methodology. In Section 4, the results are analyzed and discussed. Section 5
concludes the paper.

2. Stylized facts about financial inclusion in India

2.1 Ownership and use of formal accounts
As shown in Figure 1, India has achieved an outstanding position, at least, in terms of the
ownership of accounts. The total number of bank accounts has increased to 80% in 2017
while it was 53% in 2014 and meager 35% in 2011. The substantial progress was led by the
flagship financial inclusion scheme known as “PMJDY.” Under this scheme, a large number
of no-frill accounts were opened at minimum balance. The percentage of adults that have
saved in the past 12 months has steadily increased from 12% in 2011 to 14% in 2014 and
further increased to 20% in 2017. Similarly, the percentage of individuals above 15 years of
age that have user accounts for borrowing in the past 12 months has decreased from 8% in
2011 to 6% in 2014. While the percentage of borrowing has marginally gone up to meager

Variable Definition Observations Mean

Female Dummy variable equal to one, if the individual is a 3,000 0.51

woman, zero otherwise
Age Age in numbers 3,000 37.43
Income – poorest 20% Dummy variable equal to one, if income is in the first 3,000 0.18
quintile, zero otherwise
Income – second 20% Dummy variable equal to one, if income is in the 3,000 0.19
second quintile, zero otherwise
Income – third 20% Dummy variable equal to one, if income is in the 3,000 0.20
third quintile, zero otherwise
Income – fourth 20% Dummy variable equal to one, if income is in the 3,000 0.19
fourth quintile, zero otherwise
Income – richest 20% Dummy variable equal to one if income is in the fifth 3,000 0.22
quintile, zero otherwise
Primary education Dummy variable equal to one, if the individual has 2,992 0.65
completed primary school or less, zero otherwise
Secondary education Dummy variable equal to one, if the individual has 2,992 0.27
completed secondary education, zero otherwise
Table 1. Tertiary education Dummy variable equal to one, if the individual has 2,992 0.062
Description of the completed tertiary education or more, zero otherwise
variables used in the
estimation Source: World Bank Global Findex database
Variable Obs. Mean
Financial
inclusion
Main indicator of financial inclusion determinants
Formal accounts 3,000 0.793000
Formal savings 2,346 0.233024
Formal credits 2,357 0.076330
Debit card
Has a debit card 2,371 0.396443
Used debit card in the past year 841 0.391924
Barriers to financial inclusion
Too far away 603 0.233831
Too expensive 592 0.283784
Lack of documentation 600 0.231667
Lack of trust 589 0.232598
Lack of money 614 0.563518
Religious reasons 593 0.060708
Family member has an accounts 624 0.501603
No need for financial services 612 0.302288
Saving motivation
For farm or business 2,948 0.096676
For old age 2,964 0.113698
Saving
Informal saving 2,938 0.094282
Saved in the past year 3,000 0.335000
Loan taking motivation
For medical purpose 2,963 0.148498
For farm or business purpose 2,962 0.068872
To purchase home or land 2,973 0.044736 Table 2.
Informal credit Descriptive statistics
Family and friends 2,961 0.338061 for the dependent
Informal credit 275 0.516364 variables in the
Borrowed in the past year 3,000 0.436667 estimation

90% 80%
80%
70%
60% 53%
50%
40% 35% 33%
30% 20% 22%
20% 12% 14%
8% 6% 7% 8%
10%
0%
Ownership of Use of Accounts for Use of Accounts for Ownership of Debit
Accounts (% of Saving (% of Adults) Borrowing (% of Card (% of Adults)
Adults) Adults) Figure 1.
2011 2014 2017 Ownership and use of
formal accounts in
India
Source: World Bank Global Findex Database 2017
JFEP 7% in 2017. This can be attributed to the fact that the vast majority of the population in
India still borrows from informal sources such as family, friends and landlords. As far as
ownership of debit card is concerned, the data shows that the percentage of the population
that have ownership of debit card has increased from 8% in 2011 to 22% in 2014 and further
increased to 33% in 2017. Overall, we find that while the ownership of accounts has
substantially gone up; the use of accounts has hardly picked up any pace.

2.2 Ownership of formal accounts by gender, age, education and income

Figure 2 shows the ownership of formal accounts by gender, age, education and income. In
India, according to Findex 2017, 44% male population reported ownership of formal accounts
in 2011, 62% in 2014 and 83% in 2017. Similarly, the female population to have reported the
ownership of formal accounts was 26% in 2011, 43% in 2014 and 77% in 2017. While the
ownership of accounts by the female population is marginally lower than the male population,
the overall account ownership is highest for both in 2017. Percentage ownership of formal
accounts by young adults (15–24 age group) was 27% in 2011, 43% in 2014 and 71% in 2017.
For the age group 25-plus the ownership of account was 38% in 2011 increased to 56% in 2014
and 83% in 2017. In terms of ownership of an account, people in higher age group are
marginally better than the people in lower age groups. Education too seems to play an
important role in financial inclusion. In Figure 2, we find that the percentage of adults (primary
or lesser educated) with the ownership of accounts was 31% in 2011, 43% in 2014 and
substantially increased to 75% in 2017. The percentage of adults (secondary or more education)
having formal accounts was 59% in 2011, 64% in 2014 and 85% in 2017. As far as income is
concerned, the percentage ownership of formal accounts by adults belonging to the poorest
income group of 40% was 27% in 2011, 43% in 2014 and 77% in 2017. Percentage ownership
of formal accounts by adults belonging to the richest income 60% was 41% in 2011, 59% in
2014 and increased to 82% in 2017. One interesting observation here is that the ownership of
accounts has become almost similar for higher and lower-income groups in 2017. This may be
attributed to a more direct attack on financial exclusion through PMJDY.

2.3 Saving and borrowing behavior by gender, age, education and income
The saving behavior according to the socio-economic profile of individuals is shown in
Figure 3. According to Findex 2017, in general, the use of accounts for savings has shown an
improvement from the previous 2011 and 2014 surveys. However, for the poorest income

90% 83% 83% 85% 82%

77% 75% 77%
80% 71%
70% 62% 64%
56% 59% 59%
60%
50% 44% 43% 43% 43% 43% 41%
38%
40% 31%
26% 27% 27%
30%
20%
10%
0%
Figure 2. Male Female Age 15-24 Age 25+ Primary Secondary Income Income
Ownership and Educaon or More Poorest Richest
formal accounts (% of or Less Educaon 40% 60%
adults) by individual 2011 2014 2017
characteristics in
India
Source: World Bank Global Findex Database 2017
group, the savings have increased marginally. This is true to some extent for education as Financial
well. inclusion
Also, the use of accounts for savings has increased at a much faster rate for women than
their male counterparts. Borrowing behavior shown in Figure 4, on the other hand, gives a
determinants
different picture. In general, the use of accounts for borrowing has almost remained
stagnant when compared with the previous surveys. While the use of accounts for
borrowing has almost remained the same for the male population, it has increased for the
female population. Rest, all the socio-economic parameters show either stagnant or decrease
in use of accounts for borrowing. This is true for India, given that Indian commercial banks
are plagued with too many non-performing assets. Probability, because of this reason banks
have been cautious in lending.

2.4 Ownership of debit card by gender, age, education and income

Given that the Indian government wants digitization of financial services, the ownership of
debit cards has shown substantial improvement over the previous surveys. In Figure 5, it is
apparent that ownership of debit cards has gone up for all socio-economic profiles. The
increase in the ownership of debit cards is manifold for all the profiles. In the case of the
male population, the debit card ownership has increased by more than three and a half times
and for the female population by more than four times. In general, in terms of ownership of
the debit cards, the signs are encouraging.

2.5 Reasons for not having formal accounts

The reasons for not having an account are listed in Figure 6. Findex 2017 classifies them
into eight different reasons. According to the Findex 2017, 23% of the population does not
have an account because financial institutions are “too far away.” In total, 27% believe that
it is too expensive. In total, 22% and 20% mention “lack of documentation” and “lack of
trust,” respectively, as the reason for not having an account. Among the most important
reasons cited for not having an account are “lack of money” and “family member has an
account.” Among the least important reason are “religious reason” and “no need for financial
services.” It is encouraging that religion does not turn out to be a barrier to financial
inclusion in India.

30%
25% 25%
25% 22% 22% 21%
18% 19% 19%
20% 17%
16% 16% 15%
15% 13% 13% 12% 12%
10% 10% 11%
10% 10%
10% 7% 8% 7%
5%

0%
Male Female Age 15-24 Age 25+ Primary Secondary Income Income
Figure 3.
Educaon or More Poorest Richest Use of accounts for
or Less Educaon 40% 60% saving, (percentage of
2011 2014 2017 adults) by individual
characteristics in
India
Source: World Bank Global Findex Database 2017
JFEP 10%
9%
9%
8%8%
9%
8% 8%
8% 7%7% 7%7%7% 7% 7%7%
7% 6%6% 6%
6% 5%5% 5% 5%
5% 4%4%
4%
3% 2%
2%
1%
0%
Figure 4. Male Female Age 15-24 Age 25+ Primary Secondary Income Income
Educaon or More Poorest Richest
Use of accounts for
or Less Educaon 40% 60%
borrowing, (% of
adults) by individual 2011 2014 2017
characteristics in
India Source: World Bank Global Findex Database 2017

60% 52%
50% 43% 43%
37%
40% 32% 34%
29% 30%
30% 26%
22% 23%
20%
16% 17%
20% 12% 12%
11% 9% 9% 11%
8%
10% 5% 5% 3%
0%
Figure 5. Male Female Age 15-24 Age 25+ Primary Secondary Income Income
Educaon or More Poorest Richest
Ownership of debit
or Less Educaon 40% 60%
card (% of adults) by
individual 2011 2014 2017
characteristics in
India Source: World Bank Global Findex Database 2017

2017
54%

52%
27%
23%

22%

20%

6%

1%

Figure 6.
Reasons for not
having a formal
account (percentage
of adults without an
account at financial
institutions)
Source: World Bank Global Findex Database 2017
2.6 Saving and loan taking motivation (per cent of adults) in India Financial
What motivates people to save and take loans from financial institutions? The reasons are inclusion
shown in Figure 7. In 2014, 7% of people reported having saved for “business or farm” and
10% for “old age.” In 2017, both have marginally gone up. As far as loan taking motivation
determinants
is concerned, the Findex 2017 reports three different reasons. These include borrowing for
business or farm purposes, borrowing for medical purposes and borrowing for purchasing
home or land. In 2014, 21% of people reported having “borrowed for medical purpose,” 9%
for “business and farm” and 4% for “land and home.” While the first two have decreased in
2017, the last one has marginally gone up.

3. Data and methodology

We use the data from World Bank’s Findex 2017 released in October 2018. The data is an
outcome of a survey conducted by Gallup in 144 countries on 150,000 adults with more than
15 years of age representing more than 97% of the population. The database has updated
indicators on the use and access of formal and informal financial services and additionally
the use of financial technology. For India, the sample size is 3,000.
As dependent variables are binary, we use the Probit model to analyze the determinants
of financial inclusion:

Y ¼ / þ b Gender þ g Age þ d Income þ d Education þ e

Where Y is a proxy for financial inclusion represented by different financial inclusion

measures. Following Zins and Weil (2016), we use three measures, namely, ownership of
bank account, savings and borrowings. Besides these indicators, we use two more
indicators, namely, ownership and use of debit cards as a proxy for financial inclusion. In
our case, we use five different financial inclusion measures. The independent variables are
individual characteristics that are expected to determine the financial inclusion. Except age,
individual characteristics are constructed as dummies. Gender, for example, is equal to one
if an individual is a female and zero otherwise. We have five different income groups, use
four dummies and omit the richest quintile. For education, we use three different dummies to
capture primary, secondary and tertiary education and omit primary education. We replace
dependent variable Y by eight measures of barriers to financial inclusion to estimate the
determinants of barriers to financial inclusion. Subsequently, the dependent variable is

12% 11% 25%

10% 10% 21%
10% 20%
14%
8% 7% 15%
9%
6% 10%
5% 5% 4%
4% 5%
2% 0%
Borrowed for Borrowed for To Purchase
0%
Medical Business or Home or Land
2017 2014 Purpose (% of Farm Purpose (% of Adults)
Adults) (% of Adults) Figure 7.
Saved for Business or Farm (% of Adults)
Saved for Old Age (% of Adults) 2017 2014 Saving and loan
taking motivation (%
of adults)
Source: World Bank Global Findex Database 2017
JFEP replaced by variables representing saving and loan taking motivation. As the dependent
variable is dichotomous, we use the Probit model to estimate the equations. Overall, we,
therefore, estimate 23 equations. The description of these variables is given in Table 1. As
most of the variables are dummies, the descriptive statistics are limited to mean calculation,
and the same is shown in Table 2.

4. Results and discussion

To analyze the determinants of financial inclusion, we follow Fungacova and Weill (2015)
and Zins and Weil (2016). Accordingly, we focus on five financial inclusion parameters.
These include: formal account, formal saving, formal credit, ownership of the debit card and
the use of debit cards. The contextual survey question in a formal account is: do you
currently have a banks account at a formal financial institution? Formal savings indicates
the saving behavior in a formal financial institution. The survey question asked is: have you
saved or set aside money in a bank account in the past 12months? The third measure of
financial inclusion covers the use of bank credit. The survey question asked, in this case, is:
have you borrowed from the financial institution in the past 12 months? [4] The fourth
measure of financial inclusion is the ownership of debit cards and the survey question asked
is: do you personally have a debit card? The fifth one is the use of debit cards and the
question asked is: in the past 12 months, have you used your debit card directly to make a
purchase. In Table 3, we show the marginal effects of Probit estimation. Some observations
are apparent. For example, all the financial inclusion variables show a significant
relationship with the sex of an individual. Being a woman reduces the probability of being
financially included at least for three out of five cases. This result is in line with the previous
research (Zins and Weil, 2016; Fungacova and Weill, 2015). Debit card use and formal
Savings, however, turn out to be insignificant for women. We also find that age is positively
related to all, except for the use of debit cards and formal credit. We include age as a non-
linear function of financial inclusion by taking extra variables as Age2. The coefficient of
Age2 is negative for most of the indicators suggesting older people are less likely to be
financially included. Higher education is associated with higher financial inclusion as
evident from the results. This is true for all the financial inclusion measures. Also, being
poor increases the chance of being financially excluded. However, poverty tends to decrease
when income increases. As far as education is concerned, it is significant for three out of five
measures of financial inclusion. We find that the value of coefficient increases with the
increase in education. Being tertiary-educated means the likelihood of being financially
included is more than secondary educated. These results highlight the importance of some
measures to improve financial inclusion in India. Government should focus on improving
the financial inclusion Also, the improvement in education and income enhancing measures
would go a long way in helping India in financial inclusion.
Next, we analyze the determinants of Barriers to financial inclusion. Findex 17 identifies
eight such barriers. The barriers are defined in the first row of Table 4. The results are again
shown in Table 4. As far as determinants of barriers to financial inclusion are concerned,
socio-economic indicators hardly determine any barrier. Some observations in Table 5,
nevertheless are apparent. Squared age, for example, is positively related to two barriers,
namely, too far away and family member has an account. For elderly people these results are
plausible. These results are in line with the results found in Fungacova and Weill (2015).
Similarly, poor people (poorest 20% population) do not feel to have accounts that are again
plausible given the very low income of the poorest people in India. In general, religion as a
barrier is not determined by the educated people. Religion as a barrier also decreases with
income.
Variables Formal account Formal saving Formal credit Ownership of debit card Used of debit card

Female 0.0433*** (0.0146) 0.0229 (0.0175) 0.0364*** (0.0114) 0.101*** (0.0175) 0.0245 (0.0343)
Age 0.0179*** (0.00215) 0.00618** (0.00286) 0.00219 (0.00167) 0.0191*** (0.00335) 0.00396 (0.00639)
Age2 0.000172*** (2.42e-05) 4.16e-05 (3.24e-05) 1.42e-05 (1.85e-05) 0.000232*** (3.98e-05) 5.90e-05 (7.45e-05)
Income – poorest 20% 0.0323 (0.0240) 0.210*** (0.0289) 0.00355 (0.0174) 0.304*** (0.0282) 0.175** (0.0692)
Income  second poorest 20% 0.0195 (0.0236) 0.133*** (0.0266) 0.0135 (0.0173) 0.252*** (0.0268) 0.0894 (0.0574)
Income  third poorest 20% 0.00942 (0.0233) 0.0914*** (0.0251) 0.0247 (0.0173) 0.168*** (0.0256) 0.0697 (0.0469)
Income  fourth poorest 20% 0.0473** (0.0230) 0.0471* (0.0244) 0.000510 (0.0160) 0.0947*** (0.0257) 0.0928** (0.0425)
Secondary education 0.115*** (0.0186) 0.0562*** (0.0212) 0.0133 (0.0137) 0.241*** (0.0197) 0.111*** (0.0394)
Tertiary education 0.317*** (0.0490) 0.156*** (0.0313) 0.00144 (0.0224) 0.395*** (0.0343) 0.263*** (0.0496)
Observations 2,992 2,340 2,352 2,365 840
Pseudo R2 0.0564 0.0524 0.0185 0.1888 0.0444
Log likelihood –143.3683 –1,216.9679 –621.34497 –1,289.873 –537.41687

Notes: On top of the columns are the dependent variables. The first column shows the independent variables. The estimated coefficients are the marginal effects
and numbers in parentheses indicate the standard errors; ***; **; and *denote the significance level at 1%, 5% and 10% levels, respectively

financial inclusion in
India
Determinants of
Table 3.
inclusion
Financial

determinants
 JFEP

Table 4.
Determinants of

inclusion in India
barriers to financial
Lack of No need for financial Family member has
Variables Too far away Too expensive documentation Lack of trust Lack of money services Religious reasons an account

Female 0.011 (0.035) 0.040 (0.038) 0.018 (0.035) 0.007 (0.036) 0.08** (0.040) 0.004 (0.037) 0.002 (0.020) 0.030 –0.040)
Age 0.008 (0.005) 0.003 (0.005) 0.008* (0.005) 0.002 (0.005) 0.004 (0.006) 0.004 (0.005) 0.004 (0.003) 0.0137** (0.006)
Age2 0.0001* (0.000) 0.000 (0.000) 0.000 (0.000) 0.000 (0.000) 0.000 (0.000) 0.000 (0.000) 0.000 (0.000) 0.000130** (0.000)
Income  poorest
20% 0.025 (0.057) 0.104* (0.062) 0.034 (0.058) 0.082 (0.059) 0.104 (0.066) 0.172*** (0.062) 0.055 (0.040) 0.211*** (0.064)
Income  second
poorest 20% 0.027 (0.057) 0.014 (0.060) 0.000 (0.059) 0.052 (0.058) 0.114* (0.065) 0.061 (0.060) 0.0785** (0.040) 0.062 (0.065)
Income  third
poorest 20% 0.064 (0.057) 0.058 (0.061) 0.001 (0.059) 0.024 (0.058) 0.047 (0.066) 0.098 (0.061) 0.0713* (0.040) 0.069 (0.066)
Income  fourth
* *
poorest 20% 0.057 (0.057) 0.011 (0.061) 0.077 (0.057) 0.053 (0.055) 0.117 (0.065) 0.032 (0.058) 0.0734 (0.040) 0.068 (0.065)
Secondary
* **
education 0.005 (0.045) 0.049 (0.047) 0.0748 (0.045) 0.017 (0.045) 0.120 (0.050) 0.073 (0.045) 0.004 (0.024) 0.0890* (0.051)
Tertiary education 0.129 (0.169) 0.045 (0.164) 0.124 (0.139) 0.330** (0.135) 0.383** (0.184) 0.314** (0.153) 0.050 (0.068) 0.026 (0.192)
Observations 602.000 591.000 599.000 588.000 613.000 611.000 592.000 623.000
Pseudo R2 0.011 0.011 0.015 0.020 0.024 0.035 0.029 0.034
Log likelihood 322.963 348.121 318.620 313.983 409.888 360.668 131.727 417.349

Notes: On top of the columns are the dependent variables. The first column shows the independent variables. The estimated coefficients are the marginal effects
and numbers in parentheses indicate the standard errors; ***; **; and *denote the significance level at 1%, 5% and 10% levels, respectively
Variables Saving for old age Saving for farm or business
Financial
inclusion
Female 0.0150 (0.0117) 0.0331*** (0.0110) determinants
Age 0.0108*** (0.00189) 0.00781*** (0.00195)
Age2 8.98e-05*** (2.12e-05) 7.89e-05*** (2.27e-05)

Income – poorest 20% 0.122*** (0.0204) 0.0619*** (0.0186)

Income  second poorest 20% 0.0869*** (0.0180) 0.0322* (0.0170)
Income  third poorest 20% 0.0453*** (0.0163) 0.00248 (0.0157)
Income  fourth poorest 20% 0.0403*** (0.0156) 0.0234 (0.0157)
Secondary education 0.0639*** (0.0140) 0.0423*** (0.0132)
Tertiary education 0.0915*** (0.0213) 0.0784*** (0.0201)
Observations 2,956 2,941
Pseudo R2 0.0807 0.0408
Log likelihood –962.2603 –897.68578

Notes: On top of the columns are the dependent variables. The first column shows the independent Table 5.
variables. The estimated coefficients are the marginal effects and numbers in parentheses indicate the Determinants of
standard errors; ***; **; and *denote the significance level at 1%, 5% and 10% levels, respectively saving motivation

Regarding savings motivation, the results are shown in Table 5. Findex 17 divides savings
into savings for old age and savings for farm or business. Being female is an insignificant
determinant of savings for old age and significant determinant of savings for farm or
business. The coefficient is negative signifying that being female reduces the likelihood of
savings for farm or business. Age is positive and significant, however, squared age is
negative and significant. These results are again plausible, suggesting that with age people
likely save more, however, with too much age the motivation to save decreases. Income
shows the significant, but, negative effect on savings. However, the negative effect vanes
with the increase in income. Education has a significant and positive impact on both the
savings. Impact is more when people are tertiary educated. Educated people in India,
therefore, realize the importance of savings.
Boosting secondary and tertiary education would thus, help in realizing the objectives of
financial inclusion in India. We also look at the determinants of informal savings shown in
Table 6 and compare them with the formal savings. We find that being female increases the
likelihood of informal saving and decreases the likelihood of formal savings. With age both
formal and informal savings increase. However, being too elderly decreases the likelihood of
saving both formally and informally. All income groups show a negative association with
both the savings. However, negative coefficients decrease when we move to higher income
brackets indicating savings increase with the increase in income. Education, both primary
and secondary affect the formal savings positively. However, both turn out to be
insignificant against informal savings. In India, illiterate and poor people generally tend to
save informally. Income and education can be used to play an important role in motivating
people to save more formally than informally. Formal savings come with several
advantages. They can be efficiently mobilized to better uses.
The loan taking motivation is yet another aspect of financial inclusion. In India, despite
there is an increase in the ownership of accounts. The loan taking has not kept pace with the
ownership of accounts. This might be because of non-institutional borrowing by people. We,
therefore, try to understand the determinants of loan taking meant for different reasons as
shown in Table 7. In general, women tend to impede loan taking as shown by the negative
JFEP Variables Formal saving Informal saving Saved in the past year

Female 0.0229 (0.0175) 0.0235** (0.0107) 0.0339** (0.0169)

Age 0.00618** (0.00286) 0.0131*** (0.00210) 0.0175*** (0.00269)
Age2 4.16e-05 (3.24e-05) 0.000144*** (2.47e-05) 0.000165*** (3.08e-05)
Income – poorest 20% 0.210*** (0.0289) 0.0903*** (0.0172) 0.221*** (0.0272)
Income  second poorest 20% 0.133*** (0.0266) 0.104*** (0.0169) 0.150*** (0.0261)
Income  third poorest 20% 0.0914*** (0.0251) 0.0792*** (0.0156) 0.0877*** (0.0253)
Income  fourth poorest 20% 0.0471* (0.0244) 0.0549*** (0.0148) 0.0552** (0.0248)
Secondary education 0.0562*** (0.0212) 0.0132 (0.0126) 0.0912*** (0.0206)
Tertiary education 0.156*** (0.0313) 0.0301 (0.0234) 0.193*** (0.0340)
Observations 2,340 2,932 2,992
Pseudo R2 0.0524 0.0616 0.0557
Log likelihood –1,216.9679 –860.55796 –1,801.9912
Table 6. Notes: On top of the columns are the dependent variables. The first column shows the independent
Determinants of variables. The estimated coefficients are the marginal effects and numbers in parentheses indicate the
informal saving standard errors; ***; **; and *denote the significance level at 1%, 5% and 10% levels, respectively

Variables To purchase a home or land For medical purposes For farm or business

Female 0.0197** (0.00792) 0.0161 (0.0132) 0.0320*** (0.00944)

Age 0.00311** (0.00130) 0.00555** (0.00216) 0.00294** (0.00149)
Age2 3.16e-05** (1.48e-05) 6.16e-05** (2.49e-05) 2.90e-05* (1.73e-05)
Income – Poorest 20% 0.000447 (0.0117) 0.0254 (0.0211) 0.0518*** (0.0154)
Income  second poorest 20% 0.0487*** (0.0150) 0.00327 (0.0209) 0.0365** (0.0154)
Income  third poorest 20% 0.00399 (0.0111) 0.0416* (0.0213) 0.00530 (0.0165)
Income  fourth poorest 20% 0.00256 (0.0106) 0.0138 (0.0201) 0.0284* (0.0150)
Secondary education 0.0216** (0.00936) 0.0322 (0.0168)
*
0.000230 (0.0118)
Tertiary education 0.0246* (0.0148) 0.0635** (0.0312) 0.0258 (0.0229)
Observations 2,965 2,955 2,954
Pseudo R2 0.0391 0.0116 0.0259
Log likelihood –521.61954 –1,225.544 –715.19524
Table 7. Notes: On top of the columns are the dependent variables. The first column shows the independent
Determinants of loan- variables. The estimated coefficients are the marginal effects and numbers in parentheses indicate the
taking standard errors; ***; **; and *denote the significance level at 1%, 5% and 10% levels, respectively

sign of the coefficients. With age people tend to borrow more, however, too elderly also
become an impediment for loan taking. Poorest income groups tend to borrow for farm and
business purposes. For the rest of the income groups, we find coefficients are mostly
insignificant. Education too seems to affect loans for purchasing houses and land. However,
for the rest of the loan taking reasons education turns out to be insignificant.
We then try to understand the alternate sources of borrowing. Findex 17 defines three
such types of borrowing sources. These include; family and friends, informal credit and
formal credit. Being female is associated with a lower probability of borrowing from the
alternate sources. Age has either positive or does not affect the alternate borrowing sources.
Income does not seem to have any significant effect on the borrowing from alternate
sources. However, in some cases, it tends to decrease the borrowing from alternate sources.
Almost the same applies to education as well. Overall, we find being a woman turns out to
Variables Family and friends
***
Female 0.0548 (0.0176)
Age 0.0115*** (0.00290)
Age2 0.000144*** (3.37e-05)
Income – poorest 20% 0.0804*** (0.0282)
Income  second Poorest 20% 0.0355 (0.0278)
Income  third poorest 20% 0.0122 (0.0276)
Income  fourth poorest 20% 0.0385 (0.0269)
Secondary education 0.0399* (0.0219)
Tertiary education 0.0586 (0.0385)
Observations 2,953
Pseudo R2 0.0128
Log likelihood –1,862.037
Informal credit Formal credit Borrowed in the past year
***
0.0397 (0.0638) 0.0364 (0.0114) 0.0633*** (0.0182)
0.00988 (0.0134) 0.00219 (0.00167) 0.0169*** (0.00293)
0.000129 (0.000154) 1.42e-05 (1.85e-05) 0.000192*** (3.39e-05)
0.0611 (0.101) 0.00355 (0.0174) 0.0228 (0.0295)
0.271** (0.110) 0.0135 (0.0173) 0.00934 (0.0289)
0.0318 (0.0934) 0.0247 (0.0173) 0.0630** (0.0284)
0.0174 (0.0844) 0.000510 (0.0160) 0.00433 (0.0279)
0.0217 (0.0784) 0.0133 (0.0137) 0.0200 (0.0227)
0.270* (0.155) 0.00144 (0.0224) 0.0167 (0.0397)
275 2,352 2,992
0.0315 0.0185 0.0138
–184.45991 –621.34497 –2,020.6376

Notes: On top of the columns are the dependent variables. The first column shows the independent variables. The estimated coefficients are the marginal effects
and numbers in parentheses indicate the standard errors; ***; **; and *denote the significance level at 1%, 5% and 10% levels, respectively

alternate source of
Determinants of
Table 8.

borrowing
inclusion
Financial

determinants
JFEP be an important barrier for all the measures of financial inclusion. We hardly find socio-
economic determinant as an important determinant of barriers to financial inclusion.
However, education and income enhancing measures can be used to navigate the economy
toward more savings, hence, financial inclusion. Some of our results are in line with the
results already confirmed by studies such as Zins and Weil (2016), Fungacova and Weill
(2015).
The results of this paper have important policy implications. In India, financial inclusion
defined in terms of ownership of accounts and debit cards is not a problem per se. The use of
accounts for saving and borrowing, however, has remained appallingly low. Nevertheless,
the use of accounts for savings and borrowing needs to be enhanced through income-
generating and education enhancing measures. Education, especially, financial literacy has
beneficial effects on financial inclusion. These results are supported in the cross country
study by Grohmann et al. (2018). The Indian policymakers should focus on the female
population, in particular, and education and income enhancing measures, in general, to
make financial inclusion more inclusive.

5. Conclusion
Financial inclusion in India has become a much-debated issue, especially, after the
introduction of the flagship financial inclusion program commonly known in India as
the “PMJDY.” The scheme was designed to ensure that financial services such as access
to saving bank accounts, affordable and need-based credit reaches the common people
of India residing in both rural and urban areas. In this study, we analyzed the financial
inclusion in India using the latest data from the World Bank’s Global Findex Report
2017. We found that financial inclusion defined as the ownership of formal accounts
and debit cards has progressed well for India. However, financial inclusion defined in
terms of use of accounts for savings and borrowing has remained abysmally low. We
analyzed determinants of five different measures of financial inclusion. We found that
socioeconomic indicators defined by Findex 2017 have a significant impact on some of
the financial inclusion indicators. Being rich and educated was found to enhance
financial inclusion. However, being a woman was found to be an important impediment
for financial inclusion in India. We found only a few socio-economic indicators such as
age (elderly) determine few barriers such as distance and family members already
having an account. Also, age, income and education too significantly affect both saving
and borrowing. The Indian policymakers should focus on the female population, in
particular, and education and income enhancing measures, in general, to make financial
inclusion more inclusive. Some of the results are similar to previous studies, yet, some
results differ from previous studies. In a nutshell, Indian policymakers can focus on
women and use income and education promotion as a measure of financial inclusion.

Notes
1. For more details on this please refer to policy research working paper 8,205 of the Development
Research Group, World Bank Group by Demirguc-Kunt et al. (2017).
2. For details one may refer to Demirguc-Kunt et al. (2018).
3. The brief detail of variables is given in Tables 1 and 2.
4. The borrowings include those form bank, credit union or microfinance institution.
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Corresponding author
Farid Ahmed can be contacted at: faridahmed431@gmail.com

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