Financial Inclusion | RBI Grade B Phase 2 Preparation - Bank Exams PDF Download

 Page 1


 
 
221 
Global Perspective: 
Basel Framework 
 
Financial Inclusions 
and Sustainability UNIT 12  FINANCIAL INCLUSIONS AND 
SUSTAINABILITY 
Objective 
After reading this unit, you should be able:  
? to comprehend the meaning of financial inclusion 
? to study the major sustainability models and UN Sustainable Goals  
? to map how the microfinance landscape in India is enabling Financial 
Inclusion      
? to gauge an overview of the Financial Inclusion Scenario in India 
? to understand how financial inclusion can facilitate the sustainable 
development goals. 
Structure 
12.1  Introduction 
12.2 Overview of Financial Inclusion Scenario in India: Past, Present and 
Future 
12.3 Government Initiatives for Financial Inclusion  
12.4 National Strategy for Financial Inclusion 2019-2024 
12.5  United Nations Sustainable Development Goals – An Overview 
12.6 Overview of Microfinance in India  
12.7 Microfinance Institutions and its Components in India 
12.8 Microfinance and Financial Inclusion 
12.9 Summary 
12.10 Self-Assessment Questions 
12.11 References/ Further Readings  
12.1 INTRODUCTION 
The World Bank postulates Financial Inclusion as a means for individuals 
and businesses to have access to useful and affordable financial products and 
services that meet their needs through transactions, payments, savings credit, 
insurance and other financial services in a responsible and sustainable way. 
Financial inclusion also includes the dimension of quality product and 
service delivery. The World Bank also identifies Financial Inclusion as a key 
to achieving sustainable development. It is also a key to prudent financial 
development and well-being, both for the individual and the economy as a 
whole (United Nations, 2018). However, the majority of the developing 
countries lack a basic banking system for the poor, excluding them from 
economic participation and leaving them financially vulnerable. The 
 
Page 2


 
 
221 
Global Perspective: 
Basel Framework 
 
Financial Inclusions 
and Sustainability UNIT 12  FINANCIAL INCLUSIONS AND 
SUSTAINABILITY 
Objective 
After reading this unit, you should be able:  
? to comprehend the meaning of financial inclusion 
? to study the major sustainability models and UN Sustainable Goals  
? to map how the microfinance landscape in India is enabling Financial 
Inclusion      
? to gauge an overview of the Financial Inclusion Scenario in India 
? to understand how financial inclusion can facilitate the sustainable 
development goals. 
Structure 
12.1  Introduction 
12.2 Overview of Financial Inclusion Scenario in India: Past, Present and 
Future 
12.3 Government Initiatives for Financial Inclusion  
12.4 National Strategy for Financial Inclusion 2019-2024 
12.5  United Nations Sustainable Development Goals – An Overview 
12.6 Overview of Microfinance in India  
12.7 Microfinance Institutions and its Components in India 
12.8 Microfinance and Financial Inclusion 
12.9 Summary 
12.10 Self-Assessment Questions 
12.11 References/ Further Readings  
12.1 INTRODUCTION 
The World Bank postulates Financial Inclusion as a means for individuals 
and businesses to have access to useful and affordable financial products and 
services that meet their needs through transactions, payments, savings credit, 
insurance and other financial services in a responsible and sustainable way. 
Financial inclusion also includes the dimension of quality product and 
service delivery. The World Bank also identifies Financial Inclusion as a key 
to achieving sustainable development. It is also a key to prudent financial 
development and well-being, both for the individual and the economy as a 
whole (United Nations, 2018). However, the majority of the developing 
countries lack a basic banking system for the poor, excluding them from 
economic participation and leaving them financially vulnerable. The 
 
 
 
222 
Special Issues 
foremost step towards achieving financial inclusion is to have access to 
transaction accounts where people can exchange and save money. Universal 
Financial Access 2020 Initiative identifies having a transaction account as the 
most crucial dimension of Financial Inclusion (BIS, 2020). Financial access 
opens up the doorway to change in many financial behaviours among the 
poor population such as managing daily money requirements, long term 
financial planning, savings habit and planning for future unforeseen shocks.  
The recent paradigm shift in technology has enabled easier access to the 
banking services through mobile phones and internet. The Global Findex 
Database 2017 revealed that 515 million adults worldwide have opened an 
account at a Financial Institution or through internet banking provider 
between 2014 to 2017 (Bank, 2017). Also 87% SMEs worldwide have an 
account with formal financial institution. However, only providing access to 
the Financial Services or Products does not suffice for wellbeing and 
development of an individual or the economy. It should also fulfil the core 
principles of sustainable development for overall wellbeing (World Bank, 
2001). The basic aim of sustainable development is to use the natural 
resources in such a manner that both the present and the future generations 
can enjoy the benefits of natural resources. 
A United Nations General Assembly in 2015 had adopted the new set of 
development goals collectively called as Sustainable Development Goals 
(SDGs) (Baeyens & Goffin, 2015), 2030. The SDGs cover a set of 17 goals 
graduating for the earlier Millennium Development Goals. After years of 
deliberation and negotiation, the agenda for these goals was put in place and 
has been endorsed by around 193 member nations of the General Assembly 
including both developed and developing countries. Financial inclusion 
offers wide range of benefits such as improving earning potential, enhanced 
women empowerment by encouraging women entrepreneurs, reduction in the 
costs of transactions, easy accumulation of funds, increased use of digital 
platforms etc. According to the World Bank, Financial Inclusion does not 
explicitly targets achieving the SDG’s; greater access to financial services 
has paved the way for achieving a number of sustainable development goals. 
Financial inclusion has been identified as an enabler for at least 4 out of the 
17 Sustainable Development Goals.  
In recent years initiatives taken up by India kept Financial Inclusion in the 
frontline. The famous JAM Trinity (Jan Dhan Account, Aadhaar and Mobile 
Phones), have included majority of the population who were earlier excluded 
from the mainstream banking system. Various government initiatives such as 
NABARD’s Self Help Group (SHG) Bank Linkage Programme, National 
Strategy for Financial Inclusion, pension programmes for unorganised 
workers are the examples of India’s focus towards Financial Inclusion and 
achieving SDGs by 2030.  
This unit focuses on various Financial Inclusion initiatives taken up by 
Government of India to achieve the SDGs. The unit also shed light upon 
Page 3


 
 
221 
Global Perspective: 
Basel Framework 
 
Financial Inclusions 
and Sustainability UNIT 12  FINANCIAL INCLUSIONS AND 
SUSTAINABILITY 
Objective 
After reading this unit, you should be able:  
? to comprehend the meaning of financial inclusion 
? to study the major sustainability models and UN Sustainable Goals  
? to map how the microfinance landscape in India is enabling Financial 
Inclusion      
? to gauge an overview of the Financial Inclusion Scenario in India 
? to understand how financial inclusion can facilitate the sustainable 
development goals. 
Structure 
12.1  Introduction 
12.2 Overview of Financial Inclusion Scenario in India: Past, Present and 
Future 
12.3 Government Initiatives for Financial Inclusion  
12.4 National Strategy for Financial Inclusion 2019-2024 
12.5  United Nations Sustainable Development Goals – An Overview 
12.6 Overview of Microfinance in India  
12.7 Microfinance Institutions and its Components in India 
12.8 Microfinance and Financial Inclusion 
12.9 Summary 
12.10 Self-Assessment Questions 
12.11 References/ Further Readings  
12.1 INTRODUCTION 
The World Bank postulates Financial Inclusion as a means for individuals 
and businesses to have access to useful and affordable financial products and 
services that meet their needs through transactions, payments, savings credit, 
insurance and other financial services in a responsible and sustainable way. 
Financial inclusion also includes the dimension of quality product and 
service delivery. The World Bank also identifies Financial Inclusion as a key 
to achieving sustainable development. It is also a key to prudent financial 
development and well-being, both for the individual and the economy as a 
whole (United Nations, 2018). However, the majority of the developing 
countries lack a basic banking system for the poor, excluding them from 
economic participation and leaving them financially vulnerable. The 
 
 
 
222 
Special Issues 
foremost step towards achieving financial inclusion is to have access to 
transaction accounts where people can exchange and save money. Universal 
Financial Access 2020 Initiative identifies having a transaction account as the 
most crucial dimension of Financial Inclusion (BIS, 2020). Financial access 
opens up the doorway to change in many financial behaviours among the 
poor population such as managing daily money requirements, long term 
financial planning, savings habit and planning for future unforeseen shocks.  
The recent paradigm shift in technology has enabled easier access to the 
banking services through mobile phones and internet. The Global Findex 
Database 2017 revealed that 515 million adults worldwide have opened an 
account at a Financial Institution or through internet banking provider 
between 2014 to 2017 (Bank, 2017). Also 87% SMEs worldwide have an 
account with formal financial institution. However, only providing access to 
the Financial Services or Products does not suffice for wellbeing and 
development of an individual or the economy. It should also fulfil the core 
principles of sustainable development for overall wellbeing (World Bank, 
2001). The basic aim of sustainable development is to use the natural 
resources in such a manner that both the present and the future generations 
can enjoy the benefits of natural resources. 
A United Nations General Assembly in 2015 had adopted the new set of 
development goals collectively called as Sustainable Development Goals 
(SDGs) (Baeyens & Goffin, 2015), 2030. The SDGs cover a set of 17 goals 
graduating for the earlier Millennium Development Goals. After years of 
deliberation and negotiation, the agenda for these goals was put in place and 
has been endorsed by around 193 member nations of the General Assembly 
including both developed and developing countries. Financial inclusion 
offers wide range of benefits such as improving earning potential, enhanced 
women empowerment by encouraging women entrepreneurs, reduction in the 
costs of transactions, easy accumulation of funds, increased use of digital 
platforms etc. According to the World Bank, Financial Inclusion does not 
explicitly targets achieving the SDG’s; greater access to financial services 
has paved the way for achieving a number of sustainable development goals. 
Financial inclusion has been identified as an enabler for at least 4 out of the 
17 Sustainable Development Goals.  
In recent years initiatives taken up by India kept Financial Inclusion in the 
frontline. The famous JAM Trinity (Jan Dhan Account, Aadhaar and Mobile 
Phones), have included majority of the population who were earlier excluded 
from the mainstream banking system. Various government initiatives such as 
NABARD’s Self Help Group (SHG) Bank Linkage Programme, National 
Strategy for Financial Inclusion, pension programmes for unorganised 
workers are the examples of India’s focus towards Financial Inclusion and 
achieving SDGs by 2030.  
This unit focuses on various Financial Inclusion initiatives taken up by 
Government of India to achieve the SDGs. The unit also shed light upon 
 
 
223 
Global Perspective: 
Basel Framework 
 
Financial Inclusions 
and Sustainability 
Sustainability models, UN Sustainable Goals and how microfinance 
landscape in India is enabling Financial Inclusion.    
Activity 1 
Explain the meaning of financial inclusion.  
………………………………………………………………………………… 
………………………………………………………………………………… 
………………………………………………………………………………… 
………………………………………………………………………………… 
………………………………………………………………………………… 
12.2 OVERVIEW OF FINANCIAL INCLUSION 
SCENARIO IN INDIA: PAST AND PRESENT 
AND FUTURE 
To ensure to the economic progress of India, it is imperative that maximum 
participation from all the sections of the society needs to be included, 
especially when the focus is on achieving the sustainable development. 
However, the lack of financial literacy among rural population, and access to 
financial services, mainly to the formal credit pertained as the major issues in 
financial inclusion. One of the leading forces affecting people’s ability to 
access financial services in rural area is financial literacy. Financial inclusion 
is a lofty idea but financial literacy is the first step towards achieving 
financial inclusion. The low financial inclusion in rural India is a result of 
mismatch between the supply and demand of the financial services. However, 
this creates ample opportunities for government as well as private players to 
invest in business opportunity, education, pension and insurances.  
To ensure the Financial Inclusion, Government of India and Reserve Bank of 
India have taken initial steps since early 1960s. Through multiple phases of 
Nationalization of Banks, formal credit for poor section of society was 
ensured, which was not possible in private banks due to unsure risks. The 
Priority Sector Lending (PSL) ensured the designated credit lending from 
banks to development sectors such as agriculture, small and micro 
enterprises, education, housing etc. (Jain, 2019). This enabled farmers, SME 
entrepreneurs to avail for formal lending from banks. The establishment of 
regional rural banks in 1975 with joint partnership among centre, state and 
sponsored banks enhanced the scope of banking services in the remote 
villages of India. The promotion of cooperative rural banks in 1950s also 
enabled credit lending and banking services for small and marginal farmers. 
SHG-Bank Linkage programme of National Bank for Agriculture and Rural 
Development (NABARD) empowered women to take up entrepreneurship. 
The programme had been a great success in India and reached the milestone 
of 112 lakh members (RBI, 2021a).  
Page 4


 
 
221 
Global Perspective: 
Basel Framework 
 
Financial Inclusions 
and Sustainability UNIT 12  FINANCIAL INCLUSIONS AND 
SUSTAINABILITY 
Objective 
After reading this unit, you should be able:  
? to comprehend the meaning of financial inclusion 
? to study the major sustainability models and UN Sustainable Goals  
? to map how the microfinance landscape in India is enabling Financial 
Inclusion      
? to gauge an overview of the Financial Inclusion Scenario in India 
? to understand how financial inclusion can facilitate the sustainable 
development goals. 
Structure 
12.1  Introduction 
12.2 Overview of Financial Inclusion Scenario in India: Past, Present and 
Future 
12.3 Government Initiatives for Financial Inclusion  
12.4 National Strategy for Financial Inclusion 2019-2024 
12.5  United Nations Sustainable Development Goals – An Overview 
12.6 Overview of Microfinance in India  
12.7 Microfinance Institutions and its Components in India 
12.8 Microfinance and Financial Inclusion 
12.9 Summary 
12.10 Self-Assessment Questions 
12.11 References/ Further Readings  
12.1 INTRODUCTION 
The World Bank postulates Financial Inclusion as a means for individuals 
and businesses to have access to useful and affordable financial products and 
services that meet their needs through transactions, payments, savings credit, 
insurance and other financial services in a responsible and sustainable way. 
Financial inclusion also includes the dimension of quality product and 
service delivery. The World Bank also identifies Financial Inclusion as a key 
to achieving sustainable development. It is also a key to prudent financial 
development and well-being, both for the individual and the economy as a 
whole (United Nations, 2018). However, the majority of the developing 
countries lack a basic banking system for the poor, excluding them from 
economic participation and leaving them financially vulnerable. The 
 
 
 
222 
Special Issues 
foremost step towards achieving financial inclusion is to have access to 
transaction accounts where people can exchange and save money. Universal 
Financial Access 2020 Initiative identifies having a transaction account as the 
most crucial dimension of Financial Inclusion (BIS, 2020). Financial access 
opens up the doorway to change in many financial behaviours among the 
poor population such as managing daily money requirements, long term 
financial planning, savings habit and planning for future unforeseen shocks.  
The recent paradigm shift in technology has enabled easier access to the 
banking services through mobile phones and internet. The Global Findex 
Database 2017 revealed that 515 million adults worldwide have opened an 
account at a Financial Institution or through internet banking provider 
between 2014 to 2017 (Bank, 2017). Also 87% SMEs worldwide have an 
account with formal financial institution. However, only providing access to 
the Financial Services or Products does not suffice for wellbeing and 
development of an individual or the economy. It should also fulfil the core 
principles of sustainable development for overall wellbeing (World Bank, 
2001). The basic aim of sustainable development is to use the natural 
resources in such a manner that both the present and the future generations 
can enjoy the benefits of natural resources. 
A United Nations General Assembly in 2015 had adopted the new set of 
development goals collectively called as Sustainable Development Goals 
(SDGs) (Baeyens & Goffin, 2015), 2030. The SDGs cover a set of 17 goals 
graduating for the earlier Millennium Development Goals. After years of 
deliberation and negotiation, the agenda for these goals was put in place and 
has been endorsed by around 193 member nations of the General Assembly 
including both developed and developing countries. Financial inclusion 
offers wide range of benefits such as improving earning potential, enhanced 
women empowerment by encouraging women entrepreneurs, reduction in the 
costs of transactions, easy accumulation of funds, increased use of digital 
platforms etc. According to the World Bank, Financial Inclusion does not 
explicitly targets achieving the SDG’s; greater access to financial services 
has paved the way for achieving a number of sustainable development goals. 
Financial inclusion has been identified as an enabler for at least 4 out of the 
17 Sustainable Development Goals.  
In recent years initiatives taken up by India kept Financial Inclusion in the 
frontline. The famous JAM Trinity (Jan Dhan Account, Aadhaar and Mobile 
Phones), have included majority of the population who were earlier excluded 
from the mainstream banking system. Various government initiatives such as 
NABARD’s Self Help Group (SHG) Bank Linkage Programme, National 
Strategy for Financial Inclusion, pension programmes for unorganised 
workers are the examples of India’s focus towards Financial Inclusion and 
achieving SDGs by 2030.  
This unit focuses on various Financial Inclusion initiatives taken up by 
Government of India to achieve the SDGs. The unit also shed light upon 
 
 
223 
Global Perspective: 
Basel Framework 
 
Financial Inclusions 
and Sustainability 
Sustainability models, UN Sustainable Goals and how microfinance 
landscape in India is enabling Financial Inclusion.    
Activity 1 
Explain the meaning of financial inclusion.  
………………………………………………………………………………… 
………………………………………………………………………………… 
………………………………………………………………………………… 
………………………………………………………………………………… 
………………………………………………………………………………… 
12.2 OVERVIEW OF FINANCIAL INCLUSION 
SCENARIO IN INDIA: PAST AND PRESENT 
AND FUTURE 
To ensure to the economic progress of India, it is imperative that maximum 
participation from all the sections of the society needs to be included, 
especially when the focus is on achieving the sustainable development. 
However, the lack of financial literacy among rural population, and access to 
financial services, mainly to the formal credit pertained as the major issues in 
financial inclusion. One of the leading forces affecting people’s ability to 
access financial services in rural area is financial literacy. Financial inclusion 
is a lofty idea but financial literacy is the first step towards achieving 
financial inclusion. The low financial inclusion in rural India is a result of 
mismatch between the supply and demand of the financial services. However, 
this creates ample opportunities for government as well as private players to 
invest in business opportunity, education, pension and insurances.  
To ensure the Financial Inclusion, Government of India and Reserve Bank of 
India have taken initial steps since early 1960s. Through multiple phases of 
Nationalization of Banks, formal credit for poor section of society was 
ensured, which was not possible in private banks due to unsure risks. The 
Priority Sector Lending (PSL) ensured the designated credit lending from 
banks to development sectors such as agriculture, small and micro 
enterprises, education, housing etc. (Jain, 2019). This enabled farmers, SME 
entrepreneurs to avail for formal lending from banks. The establishment of 
regional rural banks in 1975 with joint partnership among centre, state and 
sponsored banks enhanced the scope of banking services in the remote 
villages of India. The promotion of cooperative rural banks in 1950s also 
enabled credit lending and banking services for small and marginal farmers. 
SHG-Bank Linkage programme of National Bank for Agriculture and Rural 
Development (NABARD) empowered women to take up entrepreneurship. 
The programme had been a great success in India and reached the milestone 
of 112 lakh members (RBI, 2021a).  
 
 
224 
Special Issues 
To concert the efforts for furthering the financial inclusion, Government of 
India acknowledged the need of measuring the financial inclusion. NABARD 
had launched the first NABARD All India Rural Financial Inclusion Survey 
(NAFIS) in 2016-c. The survey sought to assess the penetration of various 
aspect of financial inclusion like savings, debt, income, expenditure, 
investment, borrowing behaviour, financial literacy, Kisan Credit Card 
(KCC), technology, etc. The survey revealed that 73% of the sample 
population could use ATMs independently and 39% responded similar for 
the mobile banking. 90% of the sample population could use debit and credit 
cards (NABARD, 2017).  
The Task force constituted by Indian Government in October 2017, 
suggested various dimension and aspects for creation of an Index for 
Financial Inclusion to assess the Financial Inclusion status of Indian States. 
The Task Force recommended to use three dimension “Access”, “Usage” and 
“Quality” through weighting distribution on 0-100 scale published the report 
in 2021 (RBI, 2021b). Access index stood to 73.3 which indicated 
commendable progress for country of India’s size and diversity. Usage index 
stood to 43 showing the improvement in moving away from physical 
banking to digital banking due to increase in UPI, DBT, and Aadhar based 
transactions. Quality index to 50.7, a reduced because of COVID 19 impact. 
The overall FI index of India stood to 53.9. The regional disparity in credit 
outstanding has seen to the most prominent with Gini Coefficient at 0.72 and 
0.58 for deposits. 
The prominent enabler for financial inclusion turned out to be changing 
microfinance landscape in India. The future of India’s Financial Inclusion 
can be defined by the microfinance industry by the way it has saw the growth 
in last two decades. The MFI industries growth stood at Rs. 1,87,386 crore at 
the end of March 2019, with 38% year to year growth. The total number of 
microfinance accounts was 9.33 crore with 21.9% growth at the end of March 
2019. Non-Banking Financial Corporation – MFI saw a growth of 47% in 
2018 (Jain, 2019). Microfinance players have also been actively pursuing 
activities beyond lending in order to meet their social objectives as well as 
improve their margins. This also calls for changes in the operating model, 
product portfolio, partnership models and delivery capabilities of the players 
for enhancing financial inclusion and achieving the sustainability. 
12.3  GOVERNMENT INITIATIVES FOR 
FINANCIAL INCLUSION 
India’s efforts for financial inclusion started as early as in 1956 with the 
nationalization of Life Insurance Companies followed by nationalization of 
banks in 1969 and 1980. RBI on the lines of global development in financial 
inclusion formulated the National Strategy for Financial Inclusion in June 
2017. As per the strategy framework suggested by the document, various 
stakeholders viz Department of Economic Affairs, Ministry of Finance, RBI, 
Page 5


 
 
221 
Global Perspective: 
Basel Framework 
 
Financial Inclusions 
and Sustainability UNIT 12  FINANCIAL INCLUSIONS AND 
SUSTAINABILITY 
Objective 
After reading this unit, you should be able:  
? to comprehend the meaning of financial inclusion 
? to study the major sustainability models and UN Sustainable Goals  
? to map how the microfinance landscape in India is enabling Financial 
Inclusion      
? to gauge an overview of the Financial Inclusion Scenario in India 
? to understand how financial inclusion can facilitate the sustainable 
development goals. 
Structure 
12.1  Introduction 
12.2 Overview of Financial Inclusion Scenario in India: Past, Present and 
Future 
12.3 Government Initiatives for Financial Inclusion  
12.4 National Strategy for Financial Inclusion 2019-2024 
12.5  United Nations Sustainable Development Goals – An Overview 
12.6 Overview of Microfinance in India  
12.7 Microfinance Institutions and its Components in India 
12.8 Microfinance and Financial Inclusion 
12.9 Summary 
12.10 Self-Assessment Questions 
12.11 References/ Further Readings  
12.1 INTRODUCTION 
The World Bank postulates Financial Inclusion as a means for individuals 
and businesses to have access to useful and affordable financial products and 
services that meet their needs through transactions, payments, savings credit, 
insurance and other financial services in a responsible and sustainable way. 
Financial inclusion also includes the dimension of quality product and 
service delivery. The World Bank also identifies Financial Inclusion as a key 
to achieving sustainable development. It is also a key to prudent financial 
development and well-being, both for the individual and the economy as a 
whole (United Nations, 2018). However, the majority of the developing 
countries lack a basic banking system for the poor, excluding them from 
economic participation and leaving them financially vulnerable. The 
 
 
 
222 
Special Issues 
foremost step towards achieving financial inclusion is to have access to 
transaction accounts where people can exchange and save money. Universal 
Financial Access 2020 Initiative identifies having a transaction account as the 
most crucial dimension of Financial Inclusion (BIS, 2020). Financial access 
opens up the doorway to change in many financial behaviours among the 
poor population such as managing daily money requirements, long term 
financial planning, savings habit and planning for future unforeseen shocks.  
The recent paradigm shift in technology has enabled easier access to the 
banking services through mobile phones and internet. The Global Findex 
Database 2017 revealed that 515 million adults worldwide have opened an 
account at a Financial Institution or through internet banking provider 
between 2014 to 2017 (Bank, 2017). Also 87% SMEs worldwide have an 
account with formal financial institution. However, only providing access to 
the Financial Services or Products does not suffice for wellbeing and 
development of an individual or the economy. It should also fulfil the core 
principles of sustainable development for overall wellbeing (World Bank, 
2001). The basic aim of sustainable development is to use the natural 
resources in such a manner that both the present and the future generations 
can enjoy the benefits of natural resources. 
A United Nations General Assembly in 2015 had adopted the new set of 
development goals collectively called as Sustainable Development Goals 
(SDGs) (Baeyens & Goffin, 2015), 2030. The SDGs cover a set of 17 goals 
graduating for the earlier Millennium Development Goals. After years of 
deliberation and negotiation, the agenda for these goals was put in place and 
has been endorsed by around 193 member nations of the General Assembly 
including both developed and developing countries. Financial inclusion 
offers wide range of benefits such as improving earning potential, enhanced 
women empowerment by encouraging women entrepreneurs, reduction in the 
costs of transactions, easy accumulation of funds, increased use of digital 
platforms etc. According to the World Bank, Financial Inclusion does not 
explicitly targets achieving the SDG’s; greater access to financial services 
has paved the way for achieving a number of sustainable development goals. 
Financial inclusion has been identified as an enabler for at least 4 out of the 
17 Sustainable Development Goals.  
In recent years initiatives taken up by India kept Financial Inclusion in the 
frontline. The famous JAM Trinity (Jan Dhan Account, Aadhaar and Mobile 
Phones), have included majority of the population who were earlier excluded 
from the mainstream banking system. Various government initiatives such as 
NABARD’s Self Help Group (SHG) Bank Linkage Programme, National 
Strategy for Financial Inclusion, pension programmes for unorganised 
workers are the examples of India’s focus towards Financial Inclusion and 
achieving SDGs by 2030.  
This unit focuses on various Financial Inclusion initiatives taken up by 
Government of India to achieve the SDGs. The unit also shed light upon 
 
 
223 
Global Perspective: 
Basel Framework 
 
Financial Inclusions 
and Sustainability 
Sustainability models, UN Sustainable Goals and how microfinance 
landscape in India is enabling Financial Inclusion.    
Activity 1 
Explain the meaning of financial inclusion.  
………………………………………………………………………………… 
………………………………………………………………………………… 
………………………………………………………………………………… 
………………………………………………………………………………… 
………………………………………………………………………………… 
12.2 OVERVIEW OF FINANCIAL INCLUSION 
SCENARIO IN INDIA: PAST AND PRESENT 
AND FUTURE 
To ensure to the economic progress of India, it is imperative that maximum 
participation from all the sections of the society needs to be included, 
especially when the focus is on achieving the sustainable development. 
However, the lack of financial literacy among rural population, and access to 
financial services, mainly to the formal credit pertained as the major issues in 
financial inclusion. One of the leading forces affecting people’s ability to 
access financial services in rural area is financial literacy. Financial inclusion 
is a lofty idea but financial literacy is the first step towards achieving 
financial inclusion. The low financial inclusion in rural India is a result of 
mismatch between the supply and demand of the financial services. However, 
this creates ample opportunities for government as well as private players to 
invest in business opportunity, education, pension and insurances.  
To ensure the Financial Inclusion, Government of India and Reserve Bank of 
India have taken initial steps since early 1960s. Through multiple phases of 
Nationalization of Banks, formal credit for poor section of society was 
ensured, which was not possible in private banks due to unsure risks. The 
Priority Sector Lending (PSL) ensured the designated credit lending from 
banks to development sectors such as agriculture, small and micro 
enterprises, education, housing etc. (Jain, 2019). This enabled farmers, SME 
entrepreneurs to avail for formal lending from banks. The establishment of 
regional rural banks in 1975 with joint partnership among centre, state and 
sponsored banks enhanced the scope of banking services in the remote 
villages of India. The promotion of cooperative rural banks in 1950s also 
enabled credit lending and banking services for small and marginal farmers. 
SHG-Bank Linkage programme of National Bank for Agriculture and Rural 
Development (NABARD) empowered women to take up entrepreneurship. 
The programme had been a great success in India and reached the milestone 
of 112 lakh members (RBI, 2021a).  
 
 
224 
Special Issues 
To concert the efforts for furthering the financial inclusion, Government of 
India acknowledged the need of measuring the financial inclusion. NABARD 
had launched the first NABARD All India Rural Financial Inclusion Survey 
(NAFIS) in 2016-c. The survey sought to assess the penetration of various 
aspect of financial inclusion like savings, debt, income, expenditure, 
investment, borrowing behaviour, financial literacy, Kisan Credit Card 
(KCC), technology, etc. The survey revealed that 73% of the sample 
population could use ATMs independently and 39% responded similar for 
the mobile banking. 90% of the sample population could use debit and credit 
cards (NABARD, 2017).  
The Task force constituted by Indian Government in October 2017, 
suggested various dimension and aspects for creation of an Index for 
Financial Inclusion to assess the Financial Inclusion status of Indian States. 
The Task Force recommended to use three dimension “Access”, “Usage” and 
“Quality” through weighting distribution on 0-100 scale published the report 
in 2021 (RBI, 2021b). Access index stood to 73.3 which indicated 
commendable progress for country of India’s size and diversity. Usage index 
stood to 43 showing the improvement in moving away from physical 
banking to digital banking due to increase in UPI, DBT, and Aadhar based 
transactions. Quality index to 50.7, a reduced because of COVID 19 impact. 
The overall FI index of India stood to 53.9. The regional disparity in credit 
outstanding has seen to the most prominent with Gini Coefficient at 0.72 and 
0.58 for deposits. 
The prominent enabler for financial inclusion turned out to be changing 
microfinance landscape in India. The future of India’s Financial Inclusion 
can be defined by the microfinance industry by the way it has saw the growth 
in last two decades. The MFI industries growth stood at Rs. 1,87,386 crore at 
the end of March 2019, with 38% year to year growth. The total number of 
microfinance accounts was 9.33 crore with 21.9% growth at the end of March 
2019. Non-Banking Financial Corporation – MFI saw a growth of 47% in 
2018 (Jain, 2019). Microfinance players have also been actively pursuing 
activities beyond lending in order to meet their social objectives as well as 
improve their margins. This also calls for changes in the operating model, 
product portfolio, partnership models and delivery capabilities of the players 
for enhancing financial inclusion and achieving the sustainability. 
12.3  GOVERNMENT INITIATIVES FOR 
FINANCIAL INCLUSION 
India’s efforts for financial inclusion started as early as in 1956 with the 
nationalization of Life Insurance Companies followed by nationalization of 
banks in 1969 and 1980. RBI on the lines of global development in financial 
inclusion formulated the National Strategy for Financial Inclusion in June 
2017. As per the strategy framework suggested by the document, various 
stakeholders viz Department of Economic Affairs, Ministry of Finance, RBI, 
 
 
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Global Perspective: 
Basel Framework 
 
Financial Inclusions 
and Sustainability 
SEBI, IRDAI, PFRDA, NABARD, NPCI, Department of Financial Services 
are working to achieve the objectives of NSFI (National Strategy for 
Financial Inclusion).  
The Pradhan Mantri Jan Dhan Yojana (PMJDY), which was launched in 
2014 is a prominent example of India’s resolution to maximise financial 
inclusion and it turned out to be a watershed movement. The programme 
leveraged on the existing large banking network and technological innovation 
to provide access to basic financial services by opening up the bank accounts. 
Under PMJDY, 37 crore accounts were opened with ` 90,000 crore were 
being deposited up to 2019. Apart from this, the scheme also provided bundle 
of accidental cum death insurance cover, term life cover, old age pension etc. 
services. The Pradhan Mantri Suraksha Bima Yojana (PMSBY), an 
accidental death cum disability insurance scheme to cover of ` 2 lakhs is 
offered to all subscribing bank account holders in the age group of 18-70 
years at the premium of ` 12 per annum. The Pradhan Mantri Jeevan Jyoti 
Bima Yojana (PMJJBY) was made available for all subscribing bank account 
holders in the age group of 18-50 for a premium of ` 330 per annum. The 
Atal Pension Yojana (APY) was introduced for old age subscriber between 
18-40 to get fixed monthly pension of ` 1000 – ` 5000 after completing the 
age of 60 years of age.  
Micro, Small and Medium Enterprises (MSMEs) which are considered to be 
the growth engines of Indian Economy, facilitated with various credit 
programmes to expand the businesses. A Certified Credit Counseller (CCC) 
scheme was launched for creating a structural mechanism for providing 
entrepreneurs financial plans, project decisions and credit decision. A 
webportal called ‘Udyami Mitra’ was launched to provide MSMEs easy 
access to credit. Pradhan Mantri Mudra Yojana (MUDRA) was launched in 
2015 to provide easy access of credit to Small and Medium Enterprises 
(SMEs) by lending ` 10 lakh by financial institutions.  
The Government of India introduced Direct Benefit Transfer (DBT) in 2013 
and now being implemented across the country for providing financial 
assistance under scholarship schemes, MGNREGA, gas subsidies, and 
pension programmes. Jan Dhan Accounts, Aadhar Biometric Verification and 
Mobile Phone linking (JAM) trinity enabled opportunity for implementing 
DBT for all welfare schemes. The DBT not only extends the scope of 
financial inclusion but enables transparency, accountability and efficiency. 
The Business Correspondents (BC) model of RBI enabled the last mile 
delivery of services through ICT infrastructure and solutions. The most 
prominent effort was of launching Indian Post Payment Banks (IPPB) in 
2018 leveraging the post office networks. More than 3 lakh Dak Sewaks 1.50 
lakh Offices helped in scaling up the financial inclusion objectives to further 
extent. 
The NABARD’s SHG-Bank Linkage Programme and MFI networks 
remained the most successful financial inclusion initiatives taken up by the