Financial Inclusion in India and Its Challenges

[op-ed snap] How India should close the financial gender gap


Mains Paper 1: Social issues | Role of women & women’s organization

From UPSC perspective, the following things are important:

Prelims level: Global Findex data, Pradhan Mantri Jan Dhan Yojana (PMJDY)

Mains level: Problems being faced by women in terms of financial inclusion & solutions to these


India’s efforts in financial inclusion

  1. The World Bank’s latest Global Findex data proves that India has made rapid strides in improving access to formal financial services
  2. In 2014, just 53% of adults had a formal account. Today, more than 80% do
  3. At the same time, it has cut its gender gap in financial access from 20 percentage points to six

How did this happen?

  1. The government has made financial inclusion and expanding the formal sector a top priority
  2. The Pradhan Mantri Jan Dhan Yojana (PMJDY) programme—launched in 2015 with a mission to provide a basic account to every adult—has enrolled more women than men

Problems that were being faced and how PMJDY resolved them

  • Millions of women were deterred from going to banks because of the long distances involved as they have a more restricted “economic geography” than men, making brick-and-mortar banks harder to access
  1. Under the PMJDY, banks went door-to-door enrolling customers and held camps in villages
  2. It also increased the number of banks’ business correspondents (BCs or bank mitras), bringing services closer to more households
  • Establishing identity
  1. Aadhaar and the India Stack’s biometric eKYC verification capability make it easier for women, who possess the required documents less often than men, to establish their identity to a bank
  2. Until recently, fulfilling know your customer (KYC) requirements was a significant barrier for many women
  • Directed benefits for women
  1. The government has also mandated that certain defined benefit schemes, such as Pradhan Mantri Vaya Vandana Yojana (PMVVY), distribute payments to accounts in a woman’s name
  2. The benefits are being deposited directly in the recipients’ Aadhaar-linked accounts

Thrust toward digital payments

  1. The government has made a major policy thrust toward digital payments since demonetization
  2. The widespread rollout of Aadhaar enabled customers to use digital BC payment points in addition to ATMs and service terminals

Closing the gender gap is still difficult

  1. PMJDY has opened more than 100 million new bank accounts, but many of them are inactive or carry a zero balance
  2. More women have been enrolled, but a larger gender gap persists in account usage
  3. In terms of credit and insurance usage, the gender gap remains high

How to reduce this gap?

  • First, we need to put smartphones into the hands of more women
  1. The mobile phone is still the most promising empowerment tool for financial inclusion, and yet, fewer than half of adult women in India own a mobile phone, compared to 73% of men
  2. One reason for this technological divide is that smartphones are not marketed as an empowerment tool, but rather as an entertainment and social media platform
  3.  In India, many women have internalized social fears that smartphones will expose them to “bad influences”, leading to sexual harassment or broken marriages
  • Second, when women gain access to digital financial services over mobile, many face a three-step learning curve at once:
  1. Becoming familiar with using a smartphone
  2. Understanding how credit, insurance, and other financial products work
  3. Using an interface that’s not even written in their native language
  4. A goal of inclusion efforts is to improve women’s financial literacy, but the second lesson is that these efforts must also improve women’s digital literacy
  • Third, financial products are often not structured, distributed, or bundled to meet the needs of women
  1. Financial responsibilities differ between men and women, who are generally tasked with back-stopping and stretching the family budget
  2. Bundled solutions of savings, credit, and insurance could be designed to be more relevant to women’s financial lives
  • Extending emergency credit
  1. In markets with high card penetration, customers often have the option of linking their checking accounts to a credit card account for extra liquidity
  2. In emerging markets, adding microcredit to accounts could help women cover unexpected expenses and emergencies in their day-to-day management of the household finances
  3. Women also go through more life transitions than men, moving in and out of the workforce more frequently, so making it easier to reactivate dormant accounts could increase usage

Way Forward

  1. As the world nears the long-held goal of universal financial access, we can see the road ahead for eliminating the gender gap in basic access and increasing usage among all customers, by making financial services more digital, flexible, and relevant to both men and women’s lives
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