In today’s fast-paced world, financial inclusion is not limited only to banking services, it goes to investing in stocks, bonds, and mutual funds
India being one of the fastest growing economies in the world is unlocking its potential in the true way with financial inclusion. It is true that if everyone, from poor to rich, has access to banking and financial services then the whole country will grow. India’s motto of financial inclusion “from Jan Dhan to Jan Suraksha” has been going strong since the introduction of the 2014 scheme of Pradhan Mantri Jan Dhan Yojana (PMJDY). With the benefit of no-minimum balance Jan Dhan Accounts, this scheme covers 54.03 crore people in the banking system, constituting over 50 per cent of women (as of November 20, 2024).
In today’s fast-paced world, financial inclusion is not limited only to banking services, it goes to investing in stocks, bonds, and mutual funds. This is evident with a sharp rise in demat account openings and the number reaching 179 million accounts in October 2024. It highlights that a huge number of the population is now empowered and exploring investment options beyond traditional instruments such as FD.
RBI’s Financial Inclusion Index (FI-Index), which is a measure of financial inclusivity in a country has grown from 43.4 in March 2017 to 64.2 in March 2024 at a CAGR of 5.75%. It is based on three broad parameters: access, usage, and quality of financial services like banking, insurance, credit, digital, financial literacy, etc.
Economic Survey 2023-24 also highlights that people have easy access to bank credit with double-digit growth in bank credit from FY22 to FY24. Economic Survey also signifies that more than 5.5 per cent of the total population had credit cards in 2022. The easy credit facility and growing digital public infrastructure are leveling up financial inclusion in the country with a rise in spending and investment.
Financial Inclusion Leading Holistic Growth
Financial inclusion helps in reducing poverty and inequality in the country as the lower-income groups get access to channels of savings, investments, insurance, and credit products. By investing in markets and businesses, people can generate more income which can lead to a rise in the country’s income or GDP.
Small businesses that do have access to credit facilities will also benefit if there is higher financial inclusion in the country. 2023-24 Economic Survey pointed out that India has the second-largest microfinance sector. Microfinance Institutions (MFIs) have given micro-loans of Rs 1.8 lakh crores to over 532 lakh clients, with women constituting 98 per cent of the total clients of MFIs. Through the holistic growth in credit facilities, MFIs are doing a great job in reducing financial inequality.
Financial inclusion also promotes innovation and digital access in the country. In the JAM (Jan Dhan Yojana, Aadhaar and Mobile Connectivity) Trinity, Aadhaar is the world’s largest biometric identification system with more than 139.7 crore cards registered in the system as of FY24. India has the 2nd highest number of smartphone user base globally and has more than 116.7 crore mobile subscribers. Including the Jan Dhan push, these 3 pillars are core requirements to bring people into the financial system and India has passed all three tests. These three measures help in the growth of small businesses and provide greater accessibility of different financial instruments to the people.
India’s Fintech Boosting Financial Inclusion
With the 3rd largest Fintech system in the world, the Indian fintech industry is valued at $111 billion in 2024 and is estimated to grow to USD 421 billion by 2029. Long documentation processes, lower local accessibility, and poor financial literacy have kept away people from entering the finance world.
With the fintech boom, everything is there on smartphones from opening bank accounts, to instant credit facilities, and investing in the stock market. India has the fastest Fintech adoption rate of 87 per cent , higher than the global average rate of 64 per cent . The traditional financial services system has been revolutionised with the advent of technology. It has led to efficient delivery of products and services in a cost-effective way with better customer service and experience. The government’s push towards a digital economy, combined with a young and tech-savvy population base, is likely to propel the fintech sector to new heights which can directly add value to financial inclusion.
Digital Payments Supporting Financial Inclusion
UPI is a game changer in increasing financial inclusion in India with UPI transactions rising over 10 times from FY20 to FY24 and the volume reaching 13,116.5 crores as of FY24. Access of digital payments and products by under-served population and lower-income groups is one of the key factors that boost financial inclusivity in India. The introduction of UPI 123 PAY and UPI Lite has provided the access to UPI framework to more than 400 million feature phone users and also facilitated low-valued transactions (up to ₹200) in an offline mode through the on-device wallet.
When seen globally and in emerging markets, M–Pesa was one of the best examples of the power of technology to reinvent financial services and increase financial inclusion in Kenya. M-Pesa was launched in 2007 and has a major positive impact on Kenya’s economy. It helped in increasing the country’s financial inclusion from just 26% in 2006 to 84% in 2021.
Well, India’s UPI system has surpassed all the big names such as Alipay, Paypal, and PIX, and leads the world in the number of digital transactions processed in 2023. As the story of Kenya’s M-Pesa says, India is on a strong path to its financial inclusion and its FI-index can also touch new highs in the near future.
The main factor that can pull back India’s financial inclusion growth is the lower level of financial literacy. The latest report suggests that among the 144 countries, India ranks at the 73rd position in terms of financial literacy. India has a financial literacy rate of 24%, lower than the global average rate of 33 per cent .
To raise the level of financial literacy, there is a need for a comprehensive approach wherein fintech players play a big role. Nowadays, every fintech player is providing financial information in the simplest way to its users which can really benefit the newcomers entering the system. With the rise in internet penetration and India being the second largest Internet user market, people now have easy access to financial market information. The implementation of the latest technology such as AI and ML business models will also continue to expand the system.
The government is pushing financial literacy through awareness camps, videos, and educational resources, which can be taken in a positive light in the future. The financial inclusion programs and support by the government such as Pradhan Mantri Jan Dhan Yojana, Pradhan Mantri Jeevan Jyoti Bima Yojana, Pradhan Mantri Mudra Yojana, Direct Benefit Transfer, and Atal Pension Yojana will continue to prosper and can bring more people to the digital financial system. Overall, a country with a higher rate of financial inclusion is poised for strong economic growth and India is successfully trying to reach there.
-Mr. Subhash Chand Aggarwal, Chairman & Managing Director, SMC Global Securities Ltd