Financial Inclusion

Financial Inclusion

Last Updated: March 2023

This article deals with ‘Financial Inclusion.’ This is part of our series on ‘Economics’, which is an important pillar of the GS-3 syllabus. For more articles, you can click here.

What is Financial Inclusion?

As defined by Rangarajan Committee on Financial Inclusion in 2008, Financial inclusion means everyone is given access to financial services, i.e. Banking, Credit, Insurance & Investment, at affordable cost & in an appropriate time frame.

Importance of Financial Inclusion

  • It helps the family cope with unforeseen circumstances like the breadwinner’s death.
  • It helps in converting savings to investments, which helps in nation-building. Japan, the USA etc., have earlier followed the same path.
  • Protect common people from exploiting informal money lenders who charge exorbitant interest rates. 
  • Providing good investment schemes can protect people from falling into traps like Ponzi Schemes like Saradha & Rose Valley Chit Fund Schemes.
  • E – Payment: Cashless subsidies & salaries can save the government ₹1 Lakh crore, according to McKinley’s study.


  • In rural areas, there is the problem of accessibility. The number of branches in rural areas is low.
  • Geographically hilly and desert regions don’t have extensive bank penetration.
  • Gender: Access of women to banks is low. Women have a disproportionately lower number of accounts than men.
  • 55% of rural Dalits borrow from money lenders at exorbitant rates.
  • MSMEs are given a low value of loans compared to big industrial houses. 

New steps taken by Government for Financial Inclusion

Government is very much concerned to increase Financial Inclusion and taking various steps in this regard.

1 . Committees

Various committees have been formed like

  • Nachiket Mor Committee: Suggested various measures like Payment Banks, Small Banks etc.
  • Deepak Mohanty Committee for Mid Term Path to Financial Inclusion: Suggested various measures like (1) Use USSD on simple mobiles, (2) Scrap Interest Subvention Scheme for farmers and concentrate on Insurance instead, (3) promote Sukanya Samridhi Scheme to cultivate saving habit in girls etc. 

2. New types of Differential Banks started

  • Payment Banks: 11 Licenses given.
  • Small Banks: 10 Licenses given.

3. Schemes

  • Jan Dhan Yojana is the main one (we are going to read it in detail below).

4. Digital Schemes

The government has taken various initiatives in this regard like

  • Introduction of Rupay Card 
  • UPI, UPI 2.0 & BHIM
  • Bharat pay

5. Small Investment Schemes

  • The government has launched to promote the habit of savings among the poor and save them from Ponzi scams
  • Main schemes include 
    1. Kisan Vikas Patra (doubles money in 8 years 4 months)
    2. Indira Vikas Patra 
    3. Public Provident Fund 
    4. Sukanya Samridhi Yojana (component of Beti Bachao, Beti Padhao): Scheme for small girl children in which the parents can deposit money (between Rs 250 to 1.5 lakh per annum) till girl reaches the age of 14 years and can be later withdrawn by the girl when she reaches the age of 18 years for her studies or marriage. Government offers higher interest than normal rates on such deposits.

Earlier Schemes for Financial Inclusion

  • Bank Nationalization was done in 1969 and 1980. 
  • Regional Rural Banks & Cooperative Banks have been opened. 
  • Micro Finance Institutions have been promoted by the government.
  • Various banks have started no-frills accounts (i.e. accounts with zero balance) schemes.
  • 25% rural bank mandate: Banks have to open 25% of their branches in rural unbanked areas.
  • Post Office Schemes to deposit money. 

Jan Dhan Yojana

Works on following pillars pillars

  • Free Bank Account for every family, Rupay Card, 1 lakh accident insurance, & 10,000 overdraft facility.
  • Banking outlet for each household within 5 km.
  • Imparting financial literacy.
  • Direct Benefit Transfer (DBT) of government schemes and subsidies through Jan Dhan Accounts.
Financial Inclusion

As of March 2021,

  • 42.2 crore PMJDY Accounts have been opened.
  • Rs. 1.45 lakh crore have been deposited in the PMJDY accounts.


  • According to Global Findex Report, 80% of adults in India now have Bank accounts due to Jan Dhan Scheme. Bank accounts have increased from 14.72 crores in 2015 to 43.04 crores in 2021.
  • It has helped in Women empowerment as many women’s accounts have been opened. About two-thirds of the accounts opened under PMJDY are of women belonging to rural and semi-urban areas.
  • It has helped the government implement Direct Benefit Transfers and prevent leakage of subsidies.
  • It has helped in breaking the hold of local moneylenders. 
  • It has helped in the formalization of the financial system in India and gave an avenue to the poor for bringing their savings into the formal financial system.


  1. Account Dormancy (72% of accounts opened under the scheme are dormant, according to Microwave (think tank survey).
  2. Account Duplication (33% duplicate accounts have been opened due to the attraction of insurance & overdraft facility).
  3. Rupay cards are not given to 70% of Jan Dhan Account holders. Overdraft facility can’t be used without that.
  4. Jan Dhan Account Holders are being used as money mules by Hawala Agents.
  5. The operating cost of Banks is increasing because they have to keep on servicing the dormant account. It costs ₹100 to 150 / annum to banks to maintain each account.
  6. In 2016, Indian Express reported that Bank Officials made one ₹ deposit to Jan Dhan accounts to hide their zero balance status. It shows that these can be used in money laundering too.

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