Findex shows India’s wins and gaps

Financial Inclusion News and Analysis Curated Monthly by Sumita Kale

Photo credit: Sumita Kale

In 2011, the World Bank started its triennial survey - Global Findex - to map the progress of financial inclusion and retail digital payments. The latest report, “Financial Inclusion, Digital Payments, and Resilience in the Age of COVID-19”, with results from 2021, has a wealth of information. In the absence of any comprehensive data in India on the status of financial inclusion, surveys like this help guide policy makers by pointing out lacunae.

The data on India shows that despite the stupendous rise in accounts due to Pradhan Mantri Jan Dhan Yojana (PMJDY), 22% of the respondents reported having no account. Clearly more targeted attention from the Reserve Bank of India (RBI) and Department of Financial Services (DFS) is needed to work at filling these gaps.

We are lagging in usage as well - India has the highest share (35%) of people who have accounts but do not use them. While 49% of those with inactive accounts cited the reason that financial institutions were too far away, 46% didn’t feel the need for an account. Curiously, lack of trust in financial institutions was also reported to be a contributory factor (48%). A reminder that provision of a bank account is just the first step – we have a long way to go for meaningful inclusion, and understanding the causes is but the first step.

On the gender front, India has scored very well - the gender gap in account ownership has shrunk dramatically from 22 percentage points in 2011 to insignificant in 2021. However, here again, when it comes to usage, the gender differential shows up starkly -  while 42% of women had inactive accounts, just 30% of men reported inactive accounts. Global data, excluding India, showed that on an average women and men have equal rates of inactivity. Distance to the nearest outlet may well be the culprit, especially for women who cannot travel outside their areas easily.

Interestingly, this survey corroborates the finding in Dvara Research’s study on cash withdrawal of direct benefit transfers where distance to the cash-out point was cited as the main challenge for beneficiaries who reported problems.

The DFS and RBI must take up this issue of gaps in access. Of course, there would be specific locational problems, but viability may well be the crux of the problem. At the end of the day, the government must ensure that every Indian can access the banking network with ease. To achieve this national social objective, the onus lies on the government to give appropriate commissions and compensation for the bank- BC network to reach every single village.

The Global Findex has helped fill a small part of the hole in data on financial inclusion – but we shouldn’t have to wait for three years for an update. And RBI’s Annual Report with a section on financial inclusion leaves much to be desired as I have written recently in Moneycontrol. If we are serious about filling in the gaps towards effective financial inclusion, we need to have a database that is comprehensive and dynamic, monitored in real time by the DFS/RBI. Unless there is geographically granular data throwing a spotlight on specific locations, issues of access, usage, the gender-gap, viability etc. will continue to go unaddressed.

In fact, the Findex also revealed gaps in India’s digital payments mission. We pride ourselves, and correctly so, as a leader in retail digital payments. See RBI’s report Benchmarking India’s Payment Systems, with UPI transactions soaring beyond 5 billion a month, contributing to 68% of payment systems transactions. Even as NPCI moves to take UPI global, as competition to SWIFT now, the Findex shows that about 70 % of account owners in India have not made a single digital payment, this is amongst the world’s highest shares. In Brazil, South Africa and Türkiye, this share was around 17%, China at 4%!

And don’t forget, the success of the adoption of the UPI, even amongst the 150 million users or so, has been riding on the zero-MDR policy, which has resulted in an unequal playing field between banks and payment apps. This is why the Parliamentary Panel on the Promotion and Regulation of E-Commerce in India has recommended a relook at this zero-MDR policy and restructuring the PSP fee, switching fee and interchange fee so that all participants in the ecosystem share the fee proportionately.

When it comes to spreading the banking network or adoption of digital payments, India’s astounding success has come from a collaborative approach from many stakeholders in the private and public sector space. But somewhere this success breaks down as we go into the bottom of the pyramid. Who bears the cost of reaching the poorest is a question that still begs an answer!


Do follow our Indicus Centre for Financial Inclusion page on Linkedin to continue the conversation. Read on here for more of the latest news and views on financial inclusion in India, thanks!

  • In a clarification on Prepaid Payment Instruments (PPIs) that rocked the digital world, the RBI said that credit lines cannot be loaded into these instruments. Industry bodies – Payments Council of India, Internet and Mobile Association of India – sought clarity from the regulator and asked for a six month waiver to comply with this rule. However, as Saloni Shukla, Tarush Bhalla and Digbijay Mishra reported in the ET Bureau, this move was triggered by fintechs behaving like banks. Yatti Soni and Haripriya Sureban report in the Hindu Business Line that this clarification had been issued looking at numerous complaints of customers being misled under BNPL schemes, some use-cases may still be allowed by the RBI.
  • Madhu Srinivas and Srikara Prasad, Dvara Research, have a paper out on the costs of using Buy Now Pay Later (BNPL). Their findings suggest that customers using BNPL incur monetary costs comparable to costs of using credit cards, and are susceptible to adverse risks emerging from gaps in customer protection.
  • Ashwin Manikandan, writes in The Morning Context on the changes brewing in the RBI as it attempts to balance fostering innovation with customer protection. This article is behind a paywall, but well worth the charge for all those who are invested and interested in digital inclusion.
  • RBI has released its Payments Vision 2025. The core theme of the vision is of ‘E-Payments for Everyone, Everywhere, Everytime’ (4Es), aiming to provide every user with safe, secure, fast, convenient, accessible and affordable e-payment options. As mentioned in the edit above, we have a long way to go to achieve universal access to digital payments.
  • RBI lifted the business restrictions imposed on Mastercard Asia/ Pacific Pte. Ltd, allowing Mastercard to issue credit cards to new customers.
  • The deadline for compliance with the card tokenization norms has been extended by the RBI by three months to September 30, 2022. This is the third extension. However, banks had earlier been requesting an extension till June 2023.
  • CGAP has brought out a reading deck that summarizes lessons from a pilot exercise that involved the Financial Sector Conduct Authority (FSCA) and five FSPs in South Africa focused on measuring intermediate customer outcomes from a supervisory perspective.
  • Sai Krishna Kumaraswamy explores the reasons why MSMEs do not trust digital credit providers. CGAP’s primary research with nearly 400 micro and small enterprises across India, Kenya and Peru finds that lack of trust in formal financial service providers is a looming concern.
  • A partnership between Protean eGov Technologies Ltd. (Formerly NSDL e-Governance Infrastructure Ltd.) and PayNearby brings PAN-related services for PayNearby’s retail partners through Aadhaar and biometric or SMS-based OTP authentication for their customers.
  • On June 8, 2022, as part of the Statement on Developmental and Regulatory Policies, the RBI announced that a) Urban Cooperative Banks would be allowed to offer Door-step banking, on par with Scheduled Commercial Banks; b) the limit on e-Mandates on Cards for Recurring Payments was enhanced from Rs. 5, 000 to Rs. 15, 000; c) credit cards could be liked to UPI, beginning with Rupay cards; modifications are to be proposed to the Payments Infrastructure Development Fund (PIDF) Scheme by enhancing the subsidy amount, simplifying the subsidy claim process etc.
  • Sarah Mary Stanley and Srikara Prasad, Dvara Research, write a comprehensive piece on designing UPI services for constrained users – that is users with lower access to technology, lower digital literacy, and those who are more vulnerable to financial losses or harms.
  • Aishwarya Narayan, Dvara Research, summarizes the findings of the study on exclusion risk where payment failures during the back-end processing of a Direct Benefit Transfer (DBT) payment emerged as a major concern.

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