Received: 29 March 2019 Accepted: 31 March 2019

DOI: 10.1002/pa.1948

PRACTITIONER PAPER

Analyzing the progress and prospects of financial inclusion in

India

Rajesh Barik | Pritee Sharma

Discipline of Economics, School of Humanities

and Social Science, Indian Institute of
Technology Indore, Simrol, India
Correspondence
Rajesh Barik, Discipline of Economics, School
of Humanities and Social Science, Indian
Institute of Technology Indore, Simrol 453552,
India.
Email: rajeshbarik195@gmail.com
Taking data from Financial Access Survey, Global Findex and Reserve Bank of India
bulletin, this paper tries to analyze the progress occurred and the future prospect
of financial inclusion in India. Our analysis depicts that India has witnessed a quick
progress in financial inclusion. Though there is long way to go to achieve the dream
of universal financial inclusion, there is no doubt that tremendous progress has been
achieved in the recent time. Specifically, after the implementation Pradhan Mantri Jan
Dhan Yojana in August 2014, much improvement has happened in opening of bank
deposit accounts. Similarly, the post‐dimerization period has seen a rapid growth of
digital finance in India. Despite high growth of digital transaction, digital payment
among the women, rural people, elderly people, and less educated people is much less
than other groups of people. The provision of good digital infrastructure to the
remote area, opening of more financial literacy centers and extension of credit to
the marginalized people can help to fulfill the true essence of financial inclusion in
India.

1 | I N T RO D U CT I O N financial inclusion in India. After independence, to fulfill the goal of

The successes of financial inclusion necessitate inclusion of financially
excluded and unbanked people under the purview of formal banking
system. The easy access of formal banking to the unbanked/under
banked people has become an indispensable part of development for
every country. The provision of secure, adequate and affordable credit
to the unbanked/under banked people is the basic precondition for
economic growth, alleviating poverty and reducing income inequal-
ities. There is much empirical evidence that depicts financial inclusion
has very significant effect on many economic variables such as pov-
erty, inequality, human development and economic growth (see Laha,
2015; Lenka & Sharma, 2017; Park & Mercado, 2017; Zhang & Posso,
2017). Realizing the importance of financial inclusion on other eco-
nomic indicators, every developing and underdeveloped countries in
the world is trying to obtain universal financial inclusion. In this regard,
the Government of India (GOI) has taken some major initiatives such
as the nationalization of banks, opening cooperative banks, establish-
ing regional rural banks and implementing bank licensing policy and
very recently the introduction of Pradhan Mantri Jan Dhan Yojana
(PMJDY) are some of the key schemes, which have helped to increase
financial inclusion, GOI nationalized 14 banks in 1969 and again, six
more banks were nationalized in 1980. Similarly, the establishment
of regional rural banks had played greater role to extend the banking
services to the rural unbanked areas. Likewise, the recent introduction
of PMJDY has helped the poor and marginalized people to open their
bank account with zero or minimum balance. Same like GOI, the
Reserve Bank of India (RBI) had also undertaken so many initiatives
to extend the banking outreach to the unbanked rural masses. The
implementation of social banking policy, introduction of Know your
Customer norms, opening of financial literacy centers, implementation
of no‐frill account and opening of Business Correspondents (BCs) are
some of eye‐catching programs initiated by the central bank of India
to expand the banking outreach.
Gwalani and Parkhi (2014) argued that many efforts have been
undertaken to fulfill the dream of universal financial inclusion but
India being a diversified country needs more innovative models to
speed up financial inclusion drive, which will alternatively spur eco-
nomic growth. Poonam and Chaudhry (2016) found that 2001 to
2014, most of the Indian states have improved the condition of
financial inclusion in their respective states. But despite all this

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https://doi.org/10.1002/pa.1948
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improvement in financial inclusion, still these efforts have failed to
attract the rural poor to obtain the basic banking services. Despite vast
expansion of bank branches, a large number of people are remaining
excluded from formal financial system (Mahadeva, 2008). While asking
the question who are excluded from the formal financial system?, one
obvious answer comes that the underprivileged and marginalized peo-
ples (such as farmers, unorganized workers, women, artisan, self‐
employed, and pensioners) are excluded from banking system (Dev,
2006).
Based on this above arguments, this paper analyzes the undergone
progress and future path of financial inclusion in India. This paper is
organized as follows. Section 2 of the paper discusses the recent ini-
tiatives and status of financial inclusion in India. The subsections of
Section 2 discuss the recent development of digital finance and finan-
cial inclusion between different groups of people in India. Section 3 of
this paper discusses the future path of financial inclusion in India.
Lastly, Section 4 of this paper provides concluding remarks.
2 | RECENT INITIATIVES AND STATUS OF
FINANCIAL INCLUSION
In the recent years, GOI and RBI have undertaken several initiatives to
expand the financial outreach to the unbanked people of India. Both
the institutions have endeavored to introduce so many schemes to
meet the goal of universal financial inclusion. For example, RBI intro-
duced no‐frill account in the year of 2005 for providing basic banking
services to the unbanked people and to increase financial inclusion in
FIGURE 1 Recent development in financial inclusion (FI) Sources: Author's PreparationNote: KYC_ Know Your Customer, EBT_ Electronic
Benefit Transfer, UIDAI_ Uniq Identification Authority of India, DBT_ Direct Benefit Transfer, PMJDY_ Pradhan Mantri Jan Dhan Yojana, ATM_
Automated Teller Machine, USSD_ Unstructured Supplementary Service Data, UPI_ Unified Payments Interface, AEPS_ Aadhaar Enabled Payment
System
BARIK AND SHARMA
India. No‐frill account scheme allows the customers to open their bank
accounts with minimum balance or no balance. Similarly, other major
schemes such as Know your Customer, Electronic Benefit Transfer,
Uniq Identification Authority of India, Direct Benefit Transfer, PMJDY
and Mudra banks have been introduced in India for the promotion of
financial inclusion in India.
Apart from these major schemes, the central bank of India has also
introduced several financial products and services for promoting
financial inclusion in India. Some of the financial services has
extremely benefited to the unbanked people in India. For example,
through the use of Kisan Credit Card, the bank is providing small
credits or loans to the poor farmers to cover their cost of cultivation,
harvest and farm maintenance. Similarly, the introduction of BCs has
helped the banks to provide the basic banking services to the poor
people at a low and an affordable cost (Figure 1).
As a consequence of these initiatives, India has seen massive boost
of financial inclusion in recent times. It can be recalled that the com-
mercial banks started to implement financial inclusion as a part of their
business policy after they were instructed to adopt a 3‐years Financial
Inclusion Policy approved by the board in 2010. Furthermore, financial
inclusion received a boost through the implementation of PMJDY in
2014. PMJDY added 336.6 million new bank accounts expanding
the base of such accounts to 536 million by the end of March 2018.
The opening of new bank accounts has increased the deposit rate,
which is a good indicator for economic growth and poverty reduction.
Given the praiseworthy penetration of banking services and the
sustained financial inclusion policies, it is observed that 80% of adults
have bank accounts in their name. These bank accounts will help the
BARIK AND SHARMA
unbanked poor people to save money in their accounts, access micro
credits and to obtain government subsidies through Direct Benefit
Transfer scheme (Figure 2).
2.1 | Banking through digital technologies
Since last 10 years, India has witnessed massive progress in digital
banking. The inventions of new innovative technologies have drasti-
cally changed the traditional banking systems in India. The traditional
cash‐driven Indian economy has been changed to cashless economy
through the rapid adoption of e‐banking and e‐commerce. The high
penetration of mobile phone and internet has helped to expand the
banking outreach and serve to the unbanked people in India. The
frequent use of mobile/internet banking has enabled to provide the
banking services without the presence of physical bank branches. This
branchless banking service has allowed people to obtain banking ser-
vices anywhere and anytime in an easy and affordable cost. Further-
more, this e‐banking system has benefited a lot to the disadvantaged
section of people in India. Through the Jan‐Aadhra‐Mobile (JAM) ini-
tiative, people are allowed to link their Jan dhan bank account with
their mobile number and Aadhar card, so that they can directly receive
government subsidies in their bank account. This JAM programs
mainly benefit in two ways. First, it reduces corruption by avoiding
ghost beneficiaries and second, it transfers money directly to the
FIGURE 2 Trend of bank branches,
outstanding deposit/credit in India
Sources: Sources: Financial Access Survey,
IMF, 2017
FIGURE 3 Development of digital
technologies in India
Sources: Sources: Financial Access Survey,
IMF, 2017
3 of 6
beneficiary's bank account without any official linkages, which ulti-
mately brings good governance in the country.
Additionally, most of the banks in India have opened their own
mobile apps to provide banking services to their customer. On the
other hand, banks are trying to build up their customer's confidence
that e‐banking is as convenient and reliable as banking in person. Sim-
ilarly, academic research has shown that mobile banking and internet
banking increase the banking habits of the people, speed up financial
transaction and provide better financial services with a greater accu-
racy, reliability and security (see Alam, Patwary, & Rahim, 2013; Liao
& Cheung, 2002). Therefore, the use of mobile banking and internet
banking is gaining much popularity among the Indian masses in general
and young people in particular. Despite the huge usage of
mobile/internet banking, there are some other technological innova-
tions (such as installment of micro ATM, use of debit/credit card, e‐
wallet, etc.) that have helped to boost digital finance in India
(Figure 3).
Moreover, the post‐demonetization period has witnessed a sharp
rise in digital transactions. When the governments of India withdraw
currency notes of ₹ 1000 and ₹ 500 in November 8, 2016, suddenly,
cash crunch happened in India and people started adopting various
noncash channels for their transaction. In this regard, fintech services
have played a major role to provide various technical support for
financial transaction to happen. Now, various noncash channels like
Paytm, debit/credit card and PhonePe are available even if in the
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small Indian cities. Today, there are several digital channels exist in
India, which help the consumers to make digital payment just at the
click of the button. It is true that the dream of digital India has to go
a long way because still cash transaction has occupied large number
of financial transaction in Indian market. But there is no doubt that
the volume of digital transaction has increased over times and will
increase more in near future. According to the NASSCOM and KPMG
joint report (2016), the transaction value for the Indian fintech indus-
try is expected to touch USD 73 billion by 2020 from its present
investment USD 33 billion (Figure 4).
2.2 | Financial inclusions between different groups
of people
It is argued that most of the underprivileged and marginalized peoples
are excluded from banking system. Basically, financially excluded
groups are farmers, unorganized workers, women, artisan, self‐
employed and pensioners (Dev, 2006). Looking from this perspective,
the active participation of marginalized people in the financial inclu-
sion drive is necessary for their empowerment because it provides a
kind social protection to them. Connecting all the weaker sections of
people with the formal financial system has many positive outcomes
for their life. Provision of microcredit through the formal financial
institutions will help the poor to increase their banking habits,
augment saving, smoot consumption and enhance their capability by
investing on their non‐income generating activities such as health,
education, sanitation and other basic entitlements. Research finding
describes that the expansion of financial inclusion can raise the finan-
cial condition and can improve the standard of living of the poor and
disadvantaged groups of people (Srijanani, 2012). Similarly, Sen
(2001) argues that the availability and easy access to finance have very
significant effect on other economic entitlement.
Hence, analysis of the availability and usability of financial services
among the different groups of people is necessary to measure the
degree of financial inclusion in India. While looking the current dataset
from Global Findex, it is clear that the basic requirement of financial
inclusion (i.e., owning a bank account) has been fulfilled in a greater
extent. Ownership of bank account among the adults has increased
over time and has brought 80% of Indian adults under the formal
BARIK AND SHARMA
banking structure (see Table 1 below). Population group‐wise analysis
of financial inclusion depicts that among every population group, own-
ership of bank account has speedily increased from previous time
periods. Though there are financial inclusion gaps existing among the
different population groups, there is no doubt that a significant
amount of progress has been undertaken than the earlier period. The
recent government scheme like PMJDY has facilitated the poor and
marginalized people to open a bank account with zero or minimum
balance. As a consequence of this, enormous progress has happened
in India. This progress has assisted to fill‐up the financial inclusion gaps
between the different populations groups (i.e., between male and
female, poor and rich and young and adult).
Though much progress has happened in financial inclusion in India,
the worrying factor is that more than half of the accounts are rarely
used by the bank customers. The mere opening of bank account is
not the only aim of financial inclusion rather the utilization of these
accounts through saving and accessing credit is also essential for ful-
filling the true essence of financial inclusion. While observing the
saving and credit accounts from the Global Findex dataset, it can be
understood that only 20% of Indian adults are able to have saving
account in their names. Furthermore, this number declines further in
case of poor individuals, female population, rural people, young adults
and primary or less studied population groups (see Table 1). Similarly,
with regard to the access of credit from the formal financial institu-
tions, the situation is worse. Only 7% of Indian adults are able to
access credit from the formal financial system. While considering poor
people, women, young adults and primary or less educated population,
the number further decreases to 6%, 5%, 5% and 6%, respectively (see
Table 1).
3 | FUTURE PATH OF FINANCIAL
INCLUSION
Analysis of various dataset depicts that much progress has been
occurred with regard to financial inclusion in India. But there is long
way to go to achieve the goal of universal financial inclusion. While
India has made significant growth in accelerating financial inclusion,
challenges continue to remain on both the access and usage fronts.
Fulfilling the true essence of financial inclusion requires regular use
FIGURE 4 Volume of electronic payment in
the post‐demonetization period
Sources: RBI Monthly BulletinNote: Volume in
million; NEFT, national electronic funds
transfer; IMPS, immediate payment service;
UPI, unified payments interface; POS, point of
sale
BARIK AND SHARMA 5 of 6

TABLE 1 Financial inclusions between different groups of people

Deposit account Saving account Credit account

Variable name 2011 2014 2017 2011 2014 2017 2011 2014 2017

Adult (% age 15+) 35 53 80 12 14 20 8 6 7

Income, poorest 40% (% ages 15+) 27 44 77 10 7 12 7 5 6
Income, richest 60% (% ages 15+) 41 59 82 12 19 25 8 7 7
Female (% age 15+) 26 43 77 7 10 17 7 5 5
Male (% age 15+) 44 63 83 16 18 22 9 8 8
Rural (% age 15+) 33 52 79 11 13 18 8 7 7
Young adults (% ages 15–24) 27 43 71 8 10 13 4 4 5
Older adults (% ages 25+) 38 57 83 13 16 22 9 7 7
Labor force (% age 15+) 44 64 84 16 19 23 9 8 7
Primary education or less (% ages 15+) 31 43 75 10 11 15 8 6 6
Secondary education or more (% ages 15+) 59 64 85 21 19 25 7 7 7

Sources: The Global Findex Database, 2017.

of one's bank account. Statistical data show that large number of bank
accounts opened through PMJDY remains inactive or have non‐active
users. There are much gaps exist between the deposit accounts, saving
accounts and credit accounts. Though much progress has occurred in
account opening, but with regard to usage of such accounts, insignifi-
cant improvement has undertaken. There are few possible demand
side and supply side factors are responsible for this inactiveness of
bank accounts. The possible reasons are lack of financial literacy, low
income, high‐transaction cost, unavailability of bank branches, lack of
identity prof, or documentation problem and so forth. However, some
of basic problems (such as high transaction cost and unavailability of
bank branches) can be eliminated through the use of digital banking.
But the use of digital banking has confronted numerous constraints
among the different population groups. The usage of digital transac-
tion among poorest 40%, rural people, female individuals, less edu-
cated peoples and older people are much less than other population
groups. Though the accessibility of mobile/internet banking has
increased in India, women more than 45‐years age groups, the elderly
people, people living in remote villages and primary or less educated
people are still less likely to use a smartphone. Furthermore,
consumers from remote villages also face infrastructural barriers like
irregularities in electricity supply and poor internet connectivity.
Sometimes the consumer's incapability to use digital technology also
stands as a barrier in the usage of digital banking. Even if one con-
sumer own smartphone with internet connectivity, lack of knowledge
to use it, difficulty in downloading apps, lack of understanding the
instructions, fear of insecurity and less reliability on technology also
cause for lesser use of digital technology in financial transaction.
Hence, as a remedy of these hurdles, some necessary steps should
be taken to mitigate all these problems and to fulfill the goal of univer-
sal financial inclusion. The first remedy can be the extension of finan-
cial literacy program to each and every part of the country. The best
possible way to do is by opening more financial literacy centers and
also by introducing financial literacy in the school and college text
books. Advertising different financial products and services through
electronic and print media and also giving instruction how to use these
technologies for your financial transactions can also be one possible
way to promote financial inclusion in India. Second, regular provision
of electricity and internet facility to the remote areas can help the
people to make their financial transaction through digital technology.
Third, reducing the minimum saving criteria, annual charges of
debit/credit card and documentation criteria by different banks can
promote saving accounts and digital payment. Fourth, extension of
formal credit to the poor and marginalized people at an easy and
affordable cost can fulfill the true essence of financial inclusion in
India. Fifth, providing formal employment can help to usage of bank
account more frequently, because the employees receive their salary
via their bank accounts.
4 | C O NC L U D I N G R E M A RK S
Previous literature demonstrations, the beginning of 21st century has
witnessed a rapid growth in acceleration of financial inclusion in India.
Moreover, with the passage of time, the definition of financial inclu-
sion has been changed. Financial inclusion is no more about opening
of a bank account rather utilizing these accounts for saving and credit
purpose has become the main goal of financial inclusion. Analyzing
various national and international dataset on the accessibility and
usability of financial services depicts that India has progressed a lot
in case of opening bank account than its previous time period. The
recent introduction of PMJDY has facilitated the poor and marginal-
ized people to open a bank account with zero or minimum balance.
As a consequence of this, 80% of Indian adults have owned bank
account in their names. Though there is much variances of financial
inclusion between different papulation groups, there is no doubt that
PMJDY has enabled to fill‐up the financial inclusion gaps between
different groups in a large extent.
With context to the utilization of digital payment, India has imple-
mented several new technologies for the easy and comfortable
6 of 6
transaction of customers. However, the post‐demonetization period
has seen rapid growth of the use of digital payment in India. Despite
of this high growth in digital transaction, challenges and hurdles con-
tinue to remain in both accessibility and usability fronts. Though the
overall accessibility and usability of digital payment has increased in
India, digital payment among the women, rural people, elderly people
and less educated peoples is much less than other groups of people.
Lack of digital infrastructure facility, less financial literacy, low income
and absence of formal employment opportunities are some of the
major factors that restrict the rural consumers to use digital technol-
ogy for their financial transactions.
ORCID
Rajesh Barik https://orcid.org/0000-0002-8658-0207
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AUTHOR BIOGRAPHIES
Rajesh Barik currently doing PhD at the discipline of Economics,
Indian Institute of Technology Indore. His area of interest in
research is financial inclusion, financial literacy, digital finance,
financial regulation, Poverty reduction, human development, gen-
der development, gender discrimination, social exclusion, Social
Policy etc.
Dr. Pritee Sharma is an Associate Professor at the discipline of
Economics, Indian Institute of Technology Indore. She has
obtained her PhD degree from Indian Institute of Technology
Bombay. Her research experience is largely related to the analyti-
cal problem of allocation and access of natural resources particu-
larly land and water. She also works in the area of financial
inclusion and rural poverty in India.
How to cite this article: Barik R, Sharma P. Analyzing the
progress and prospects of financial inclusion in India. J Public
Affairs. 2019;e1948. https://doi.org/10.1002/pa.1948