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What is Financial Inclusion? What are the last mile challenges of Financial Inclusion?

What is Financial Inclusion? What are the last mile challenges of Financial Inclusion?


  • GS 3 || Economy || Banking & Financial Sector || Financial Inclusion

Why in the news?

Financial inclusion entails delivery of banking services to large sections of society, at an affordable cost. There are yet some challenges related to banking system in India though govt. is trying to make whole payment digital from cash exchange to cashless.

Understanding Financial Inclusion:

What is financial inclusion?

  • Financial inclusion refers to attempts, irrespective of their personal net worth or business size, to make financial products and services available and affordable to all individuals and companies.
  • Financial inclusion aims to eliminate the obstacles that exclude individuals from engaging in the financial sector and to better their lives by using these services. It is called inclusive finance as well.
  • Key features of financial inclusion:
    • Financial inclusion is an effort to make every day financial services available to more of the world’s population at a reasonable cost.
    • Advancements in fintech, such as digital transactions, are making financial inclusion easier to achieve.
    • However, the World Bank estimates that some 1.7 billion adults worldwide still lack access to even a basic bank account.

Objectives of Financial Inclusion

  • Financial inclusion intends to help people secure financial services and products at economical prices such as deposits, fund transfer services, loans, insurance, payment services, etc.
  • It aims to establish proper financial institutions to cater to the needs of the poor people. These institutions should have clear-cut regulations and should maintain high standards that are existent in the financial industry.
  • Financial inclusion aims to build and maintain financial sustainability so that the less fortunate people have a certainty of funds which they struggle to have.
  • Financial inclusion also intends to have numerous institutions that offer affordable financial assistance so that there is sufficient competition so that clients have a lot of options to choose from. There are traditional banking options in the market. However, the number of institutions that offer inexpensive financial products and services is very minimal.
  • Financial inclusion intends to increase awareness about the benefits of financial services among the economically underprivileged sections of the society.
  • The process of financial inclusion works towards creating financial products that are suitable for the less fortunate people of the society.
  • Financial inclusion intends to improve financial literacy and financial awareness in the nation. Financial inclusion aims to bring in digital financial solutions for the economically underprivileged people of the nation.
  • It also intends to bring in mobile banking or financial services in order to reach the poorest people living in extremely remote areas of the country.
  • It aims to provide tailor-made and custom-made financial solutions to poor people as per their individual financial conditions, household needs, preferences, and income levels.

Why financial inclusion is necessary?

  • Access to vulnerable section: Access to financial services enables the poorest and most vulnerable in society to step out of poverty and reduces the inequality in society
  • Community development: Financial inclusion not only helps individuals and families, but collectively it develops entire communities and can help drive economic growth Financial inclusion is about enabling and empowering people and communities:
    • Enabling people to have the ability and tools to manage and save their money
    • Empowering people with the skills and knowledge to make the right financial decisions
  • Participation within the financial system leads to all kinds of individual benefits, including:
    • Ability to start and grow a business, which gives people an opportunity through micro-financing schemes for example to better long term prospects
    • Being able to pay for an education for children, which in turn enables a new generation of educated and informed individuals
    • The ability to handle uncertainties that require ad hoc and unexpected payments or ‘financial shocks’
  • Access to the banking process: Financial inclusion through access to an account, savings and a payment system (whatever that maybe) enables potential and empowers men, women and whole communities. This in turn promotes:
    • Investment within the community, provides jobs and again research shows that employment boosts status, income and ones outlook on life. Collectively this helps to invigorate economies.
    • Equality both within the community and within families

Challenges associated with Financial Inclusion:

  • Financial inclusion program is a very ambitious program of GOI. In fact, this program was needed since decades. The purpose of FI (Financial Inclusion) is to provide doorstep financial services to those who are not yet aware of such services, at an affordable cost with minimum paper formalities.
  • As the definition goes, this is a very cumbersome and long process and therefore there are many challenges. Let us enlist some of these challenges—
    • Poor guidance: Those who are not having much daily income do not wish to be financially included. Their proper guidance about benefits that they shall receive is desirable and very challenging.
    • Huge population is still unreached: The population of such financially excluded persons is scattered and many times very difficult to reach. This gives another challenge as to find them and provide them financial services.
    • Daily earner: Such persons may be daily wage earners, so they are not available in day time, so finding them after working hours is also a big challenge
    • Illiteracy: Generally, they are uneducated (illiterate), so their proper identification and explaining them intricacies of such services is also a challenging task.
    • Middleman: There are many middleman or their gang leaders who mis-guide them or take a cut from such innocent persons. Avoiding such middleman is also a challenge.
    • Banks found a big crowd in branches for opening accounts of such persons, some years back. The challenge before the banks was to provide normal Banking services to other customers and to cater to the demands of such financially excluded persons also.

Financial Inclusion Schemes in India

  • The Government of India has been introducing several exclusive schemes for the purpose of financial inclusion. These schemes intend to provide social security to the less fortunate sections of the society.
  • After a lot of planning and research by several financial experts and policymakers, the government launched schemes keeping financial inclusion in mind. These schemes have been launched over different years. Let us take a list of the financial inclusion schemes in the country:
    • Pradhan Mantri Jan Dhan Yojana (PMJDY)
    • Atal Pension Yojana (APY)
    • Pradhan Mantri Vaya Vandana Yojana (PMVVY)
    • Stand Up India Scheme
    • Pradhan Mantri Mudra Yojana (PMMY)
    • Pradhan Mantri Suraksha Bima Yojana (PMSBY)
    • Sukanya Samriddhi Yojana
    • Jeevan Suraksha Bandhan Yojana
    • Credit Enhancement Guarantee Scheme (CEGS) for Scheduled Castes (SCs)
    • Venture Capital Fund for Scheduled Castes under the Social Sector Initiatives
    • Varishtha Pension Bima Yojana (VPBY)

What can be future prospect?

  • Dedication towards proper working of financial inclusion: With a vision to attain inclusive growth, the Government, RBI and the implementing agencies are required to place mind and hearts together to develop methods and measures to take forward financial inclusion
  • Independent technology solution: The need is to develop and apply scalable, platform-independent technology solutions which, if implemented on a large scale, will bring down the high cost of operation. Proper and efficient technology, thus, holds the key for financial inclusion to take place on an accelerated scale
  • Upgrading existing working style: India has large number of households and rural population excluded from banking. Financial Inclusion can be seen as a prospect of improving and upgrading existing working style of banks and financial institutions.
  • Improve delivery mechanism: There is also an opportunity for banks to improve delivery mechanism and existing structure of operations. The mass banking with no-frills accounts can become a win-win situation for both the banks and the customers. The financial institutions, especially the banks, can speed up the financial inclusion process by increasing enrolment of SHGs through bank linkage programme.
  • Mobile banking system: Mobile banking can be a key tool for rapid up scaling of financial inclusion, targeting and improving quality and tune to delivery for the untapped customers. Thus, there is an opportunity or prospect in the future to achieve 100% financial inclusion

Way forward:

  • The MFIs (Micro financial Institutions) need to function under and be held answerable to clear regulations that are overseen by a single regulator RBI. In an eco-system for profit, MFIs can play a convincing, dependable and sustainable role. So, there is need to have financial inclusion regulation in our country.
  • Financial Inclusion should be taken as a business prospect rather than compulsion so that probable business opportunity can be utilized by tapping and targeting untapped and unorganized market.
  • The RBI and commercial banks should plan a coordinated campaign in partnership with the trainers and professional to educate customers about the basic financial products, services and offerings.
  • For building customer awareness E-banking and Mbanking training and education programme should be conducted.


For achieving complete financial inclusion and for inclusive growth, the RBI, Government, NABARD and the implementing agencies will have to put their minds and hearts together so that the financial inclusion can be taken forward. There should be proper financial inclusion regulation in our country and access to financial services should be made through SHGs and MFIs. Thus, financial inclusion is a big road which India needs to travel to make it completely successful.

Mains oriented question:

Instead of compulsion, financial inclusion should be taken as a business prospect so that likely business opportunities can be used by tapping and targeting untapped and unorganised markets. Comment. (250 words)