Current developments, challenges and way forward in respect of sectoral growth in Financial Inclusion

Current developments, challenges and the way forward in respect of sectoral growth in Financial Inclusion

Financial inclusion is progressively being established as a crucial driver of economic growth and poverty alleviation the world over. Wide access to formal finance lowers susceptibility to economic shocks, boosts investments in human capital, and enhances job creation. Due to inadequate access to formal financial services, individuals and businesses have to depend on their limited resources or on costly unauthorized sources of funding to meet their monetary needs and engage in livelihood activities. At a macro level,  greater financial inclusion boosts sustainable and inclusive socio-economic development for all.

Financial inclusion involves an individual’s access to financial products and services such as transactions, payments, savings, credit, and insurance at a reasonable cost and to invest in healthcare or education, start or improve a business, manage risks and withstand ‘financial shocks’, which subsequently improves the overall quality of their lives.

India has a large untapped market potential for financial service technology startups as 20% of the population are not connected to banks and 59% of payments are made in cash at present. The usage of mobile is expected to increase from 64% to 72% and internet penetration steadily increasing. A large portion of small businesses are not linked to formal financial institutions. These gaps in accessing institutional credit and other services offer significant scope for development of Fin-Tech solutions and expand the market base. Financial inclusion enables better and improved sustainable economic and social advancement of the country. Financial inclusion exercise not only provides easy availability of financial services but also delivers maximum investment in business opportunities, education, pension, insurance against risks, etc. for the rural  individuals and firms.


The vision of Financial Inclusion is to make financial services available, accessible, and affordable to all the citizens in a safe and transparent manner to support inclusive and resilient multi-stakeholder led growth.  Financial inclusion has acquired new dimensions in the recent past. The financial sector experts have grasped the growing importance of formal access to financial services to millions of people as a key factor in economic growth and ultimately in the development of the country. Financial inclusion at a macro level helps in achieving sustainable developmental goals of United Nations Development Programme by 2030 for transforming the world.

Around the globe, particularly, developing countries are widely using various inventions in financial technology to deliver financial services to the under-served and unbanked population. Various digital technological companies are playing a big role in promoting these initiatives. The modern devices together with diversified products and services are posing an exciting prospectus to give access to the unbanked rural population of India at an affordable cost. Adoption of Fin-tech has risen from 53% to 64% when compared to last year across the globe where India and China are in the fore front. In India, over 1.3 billion people have unique Aadhar identity. The Indian Fin-tech market penetration is projected to rise approximately from USD 66.1 billion to USD 137.8 billion in 2023 in transactional value. With a strong technological ecosystem, Fin-tech is on an upward growth trajectory. However, the prolonged and complex procedures, inadequate infrastructure, poor connectivity, socio-cultural barriers are posing as major challenges.

The two major components that are driving as game-changers are – Digital Financial Services and Retail agents.

Digital Financial Services comprises of a wide range of services which are provided through digital channels which includes savings, payments, money transfers, credit, micro- insurance etc. This model facilitates easy accessibility and cost-effective.

Retail agents or Business Correspondents/Facilitators play vital role by providing value-added services such as  bill payments, ticketing etc. within the regulatory framework.

Fin-Tech are digital innovations emerging as a potentially transformative force in the financial markets. A recent Financial Stability  Board  (FSB)  study highlighted some of the potential benefits of Fin-tech, including effectiveness, risk mitigation and greater financial reach. The Fin-tech comprising of high-end hardware and cutting-edge software services will further enhance financial inclusion.

Digital solutions are considered as one of the most significant developments. influencing the global  financial  sector  in  the  coming  days.  Innovations  related to payments, lending, asset management and insurance also bring diversified opportunities for both the serving market players and beginners. On the other hand, innovation may  also generate  new  risks  for  customers,  financial  institutions, as well as the financial services ecosystem

Financial innovation has become a focal point and seeking lot of considerations from the stakeholders and some jurisdictions have decided to take a more  active approach in facilitating these innovations. To overcome this, a wide variety of regulatory and supervisory initiatives like innovation hubs, incubators, regulatory sandboxes etc. have come up informal.


Exhaustive access to every village to provide last mile delivery: Development of robust and efficient digital network infrastructure needed at the financial outlets/touch points for continuous delivery of services in order to achieve the widespread access to every village.

Customization products and Services: Design and development of cutting- edge, sector specific customized Fin-Tech financial products in order to provide a bouquet of financial services to under- privileged society by ensuring effective delivery through augmenting Fin-Tech and BC networks. To achieve this, Bank should strive for capacity building of BCs.

Collaboration: Banks and other Financial Institutions have to collaborate with Fin-Tech/start-ups actively to improve their customer experience and operational excellence. Banks may also undertake Fin-Tech activity in areas  like payment, data analytics and risk management areas to achieve the last mile connectivity.  Wide usage of technology driven financial services in the remotest areas in an economical approach will guarantee balancing of demand and supply.

Regulatory concerns: There is a need to have a deeper understanding of various Fin-Tech products and their interface with the financial sector and also the implications on the financial system, before regulating this sector. The regulatory system can be of three degrees of importance depending on the risk implications. They can be classified as 1.Disclosure 2.Light-Touch Regulation & Supervision 3.Tight Regulation and Full-Fledged Supervision.

Innovations: In India, IDRBT has acquired a unique position as a research and development institute to create and maintain a regulatory sandbox in collaboration with RBI for enabling digital innovators’ to test their financial solutions for final adoption. The Institute continuously interacts with regulators, participating banks and solution providers regarding assessment of new product, services and to upgrade infrastructure and skill sets to deliver full-fledged regulatory sandbox environment. The Banks may actively engage with the Institute in this regard. Innovation labs may be established, including insurance companies, to combine brand and product managers with technological and analytical resources. Insurance companies may team up with startups like “Insure-tech” to provide better customer experience in a cost-effective manner.

Promoting e-Shakti portal: Banks have found the E-Shakti portal very useful for data storage as it is on real time basis and will get all the required information about the SHGs at the click of a button, thereby saving a lot of time for sanctioning of loan. The future focus should be on infusion of technological modernizations to establish E-Shakti platform as a user-friendly, output oriented and “One Stop Solution” on Digitization of SHGs.

Other suggestions:

  • Discontinuation of physical copy requirement for the account opening Introduction of Inter-bank remittances
  • Insertion of insurance products in the current Kiosks
  • Money deposit and withdrawal limits on the kiosk should be re-examined.
  • There is a need to develop a more detailed insight of risks inherent in Fin-tech based platform.
  • Empowering our BCs & CSPs with the help of technology. This will not only facilitate risk management but also help in using this channel to its optimal potential and achieve its desired objective of serving people at the bottom of the pyramid.

To conclude, it is emphasized that our efforts for greater financial inclusion along with the goal of sustainable future with fast-tracked universal reach of bank accounts as well as access to  various financial products and services like credit, investment, insurance and pension and at effectively confronting threats like cyber security, mis-selling, data privacy and endorsing confidence in the financial system through proper financial education. This will also facilitate  banking and non-banking financial institutions to enhance their customer base and products and diversify their balance sheet and these efforts have to be supported by a robust grievance redressal mechanism in the process of financial inclusion.


1.Digital Financial Inclusion 2020: The Emerging Trends -FinTech and market structure in financial services

3.Fincial Inclusion-Overview-World Bank

4.National Strategy for Financial Inclusion-RBI

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