International Journal of Applied Engineering Research ISSN 0973-4562 Volume 11, Number 3 (2016) pp 1575-1578
Research India Publications. http://www.ripublication.com
Financial Inclusion in India: A Review
Dr. N. Sundaram
Professor of Commerce, School of Social sciences and Languages,
VIT University, Vellore 632014, Tamil Nadu, India.
Mr. M. Sriram
Research Scholar, Commerce, School of Social sciences and Languages,
VIT University, Vellore 632014, Tamil Nadu, India.
Abstract
This article discusses reviews of financial inclusion in India to
identify how it serves the households and economy for
growth. A predominant role is being played by financial
inclusion policy for inclusive growth all over the world to
transform financially excluded population which is numbered
as 2.5 billion, of which, one third is populated in India.
Financial inclusion is originated from the initiatives of United
Nations, which extensively reported the key goals of the
policy as access to wide range of financial services to all at an
affordable cost, which started its operation effectively in India
in the year 2005. As India is the land of rural supremacy, it is
mandate to provide suitable financial services for economic
growth which will increase the income and living standards of
the households. Consequently, greater financial inclusion in
rural segments is crucial meanwhile the focus on urban and
suburban regions is also required. The core objective of this
study is to review literature on financial inclusion in the
Indian perspective, discussed by different researchers all over
the world and also to highlight the awareness level of
financial inclusion, digital financial inclusion and barriers
confronted to financial access. The vision of the Reserve Bank
for the year 2020 is to open more than new 600 million
customer accounts. It is expected from the government to
encourage the banks to adopt financial inclusion for proper
financial assistance to achieve full inclusion in this decade.
Keywords: awareness, barriers, digital technology, financial
inclusion, India
INTRODUCTION
In accordance with an estimate, almost 10% to 15%
households in United States, 8% to 10% in United Kingdom
and 7% to 10% in France do not even have a basic savings
bank account [1]. But the problem is more acute in developing
countries where the extent of exclusion is 25% to 65% [2]. At
present, in India, the focus of financial inclusion is confined in
ensuring a bare minimum access to savings bank account
without frills, to all [3]. It is dazed that on one hand, poor
persons have been restricted to access the financial system and
they are not enjoying the financial services and on the other
hand, affluent customers who have accessibility to financial
system hesitate because of security concern and outreach [4].
The review of literature for this study is based on financial
inclusion, its awareness among the people, role of digital
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financial inclusion in India and barriers faced by people to
financial access.
REVIEW OF LITERATURE
The banking and other formal financial institutions such as
post offices and insurance companies has become essential for
an individual to deposit, save, invest and avail financial
services [5]. The banking sector and other financial sectors
were providing lots of financial services for decades [6].
Reference [7] portrayed that due to illiteracy and poverty, the
people were unable to access the financial services provided
by the banking and financial services and banks were not able
to provide the products and services required as well [8].
Various steps were taken by the Government of India (GOI)
and the Reserve Bank of India (RBI) to include the financially
excluded regions, so that the people, especially low income
groups and disadvantaged regions can able to access the
products and services rendered by financial institutions [9].
Financial transaction by means of earnings and spending is
considered as connective tissue of an economic system, which
enables people to purchase goods, water, pay electricity bill,
transfer money to family and friends [10]. It also enables
suppliers to collect payments from the buyer [11]. If these
transactions are not cost effective and time consuming,
activity of an economy will impede.
A. Awareness on financial inclusion
The necessity for financial inclusion in India was to include
the financially excluded people, who were unable to access
the financial services provided or rendered by banking and
financial institutions [12]. Banks provide their products and
services to poor people but they were not found aware of
availing products and services from them [13]. The
technological reforms pertained to banking sector such as
mobile phones, e-commerce, email, ATMs and plastic money
were available only in towns and cities, which leads to limited
access to financial products and services in rural and remote
regions [14].
The reviews were obtained on the basis of level of awareness
of financial inclusion through financial literacy, [15]
contributions by various intermediaries towards promoting
and serving financial inclusion to rural poor and the level of
financial inclusion through Information and Communication
Technologies (ICT) like mobile banking and e-banking
services [16].
 International Journal of Applied Engineering Research ISSN 0973-4562 Volume 11, Number 3 (2016) pp 1575-1578
Research India Publications. http://www.ripublication.com
Addressing financial exclusion needs holistic approach on the
part of the banks to create awareness on financial products
and education, advice on money management, debt
counseling, saving and affordable credit [17].
Reference [18] said that the support of financial inclusion can
be achieved only through linkages between micro finance
institutions and local communities. Banks should give mass
publicity about zero balance account, accessing banking
products by using more technology in the rural areas and
modify ATMs as user friendly for those who are illiterate and
less educated [19]. Banks needs to redesign their service
approach to promote financial inclusion to low income group
and consider the policy as business opportunity and corporate
social responsibility [20].
The existing financial inclusion literature was analyzed in two
ways like challenging the simplistic bank or unbanked
distinction and underutilizing their bank accounts [21]. This
paper argued that this segment must be given an ample
attention, if financial inclusion drive is to be successful. It also
challenged the current measures of success for financial
inclusion. Reference [22] showed from his result that benefits
can only be derived from active commitment with financial
product and services and not just by access. Here the active
commitment is about usage of financial products and services.
There has been some successful intervention by micro finance
institutions (MFIs) on financial education; however, there has
been a little discussion on how such education should be
provided and who should lead this effort. Technologies such
as mobile phones could be featured more prominently in areas
where penetration rates are higher. It is proposed that
education should be targeted to poor individuals who have
distinct financial needs and varied levels of understanding.
B. Digital financial inclusion
The financial lives of affluent households are entrenched in
digital financial system which facilitates the process of their
economic activity cheap and ease to remit or receive money
[23, 24]. Their money is transacted in digital, by click of a
button. Conversely, poor people are not availing this system,
as they store their valuables by means of physical assets like
cash, precious metals and/ or livestock [25].
The process of financial inclusion has three aspects which are
referred as clouds by Reference [26]. It was stated that first
aspect is physical cash cloud which is operated by the existing
poor people, a traditional cash management system. Secondly,
virtual account operated through e money and thirdly neither
physical nor virtual but psychological, where people plan their
financial life through thought process of brain. Blending
traditional and virtual clouds reveals access and mixture of
virtual and psychological cloud leads to usage of financial
system [27].
It is evident that the extension of payments through digital
platforms offers the opportunity to connect the needy with
service providers [28]. Nevertheless, this system will not
automatically pull in the people to save the money but it pave
the way to embed the systems of automated financial process
like deposits, scheduled reminders and other financial
activities [29].
Digital financial inclusion highly insists on poor people
because it directly reaches for the welfare of needy through
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appropriate channels and provides access to basic account,
payment connections to peers, institutions, governments and
enhanced financial services [30].
C. Barriers to financial access
Banking and financial institutions are providing services to
low income groups in many ways [31]. But, there are some
factors which create barriers for vulnerable groups to access
the financial products and services provided [32]. The
constraints were segmented based on demand, supply and
institutional constraints [33].
The major constraints found are less education, illiteracy, high
proximity from their living area to service institutions, low
density of population, poor channel design and low product
quality [34]. The above constraints represent all the major
constraints on accessing financial services by the weaker
individuals as well as rendering of services by financial
institutions [35]. In case of firms, especially Small and
Medium Enterprises (SMEs), access to finance is not very
easy which creates hurdles for their growth [36].
The reason for including the financially excluded region was
made as a debate and the reasons for economic imbalance
were considered; found that it can be rectified by building
proper financial systems [37]. The reviews represented the
constraints faced by the weaker group by means of financial
access.
Reference [38] conducted a review about the issues and public
policy objectives on the access to financial services among
different countries. This study was focused on the importance
of finance for economic well-being. The data provided in this
study was about the usage of financial services by households
and firms across different nations [39]. It also provided the
universal access desirability and the overview of macro-
economic, legal and regulatory barriers to access.
DISCUSSIONS AND CONCLUSION
While studies on financial inclusion have tackled the issue
from variety of viewpoints, with the exception of conceptual
studies, the focus is seemingly on finding out the relationship
between financial inclusion with awareness, digital
technology and constraints to access [40]. Moreover, at the
present global scenario, technology is found to be a
determining factor in the ultimate performance of financial
inclusion policy, regardless of the context or the participants
of the study with relevant to this topic [41].
Financial inclusion is the only hope for financial development,
which will lead to growth of economy [42]. It was well
documented in the above literature that supports this study to
the great extent. An apparent increase in addressing the
population of financial exclusion requires a holistic approach
for the banks to put forth the level of awareness on financial
system, appropriate financial advice and affordable system of
credit to kindle the whole importance of formal financial
system management for which banks needs to enact strategies
for reach in a cost-effective manner and it should also be less
time consuming process. It is possible through bridging
relationship with NGOs, microfinance institutions and eligible
individual and agents.
The promotion of financial system should reach the person
which is possible through technology, a viable tool that
 International Journal of Applied Engineering Research ISSN 0973-4562 Volume 11, Number 3 (2016) pp 1575-1578
Research India Publications. http://www.ripublication.com
provides financial access in quick and cost effective way. The
best existing tool is Automated Teller Machine operated
everywhere in the nation. Banks should give wide publicity to
the facility of no frills account [43]. Technology can be a very
valuable tool in providing access to banking products in
remote areas. But ATMs still are not considered user friendly
by the people who are illiterate and non user of technology.
Banks, in this case, needs to reengineer the design of existing
technology which creates opportunity for traditional users to
use technology [44].
Sensibly, it is not possible for banks and concerned authorities
to bring changes in existing financial system overnight but
optimum plan and speedy action will take bank to the bottom
of the pyramid sections which may not be a profitable plan for
banks but the number of beneficiaries will increase and
possibility of profitable proportion will be in higher volumes.
Emerging financial inclusion as a commercial profitable
business exists in the hands of the banks, possible through
viable tailored plan.
SCOPE FOR FURTHER RESEARCH
This article reviewed diversified contexts and literature on
financial inclusion in Indian perspective, which can be further
extended to practical survey by selecting a district or a state,
comparison studies and national field survey.
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