Financial Inclusion

Financial Inclusion

This article deals with ‘Financial Inclusion.’ This is part of our series on ‘Economics’ which is important pillar of 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 ie Banking, Credit, Insurance & Investment at affordable cost  & in appropriate time frame .

Importance of Financial Inclusion

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


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

New steps taken by Government for Financial Inclusion

Government is very much concerned to increase the 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 in detail below).

4. Digital Schemes

  • Various initiatives have been taken by the government in this regard like
    1. Introduction of Rupay Card
    2. UPI, UPI2.0 & BHIM
    3. Bharat pay

5. Small Investment Schemes

  • 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 year 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 money can be deposited by the parents (between Rs 250 to 1.5 lakh per annum)  till girl reaches age of 14 years and can be later withdrawn by girl when she reaches age of 18 years for her studies or marriage. Government offers higher interest than normal rates on such deposits (In 2020 : interest rate = 8.5%)

Earlier Schemes for Financial Inclusion

  • Bank Nationalisation was done in 1969 and 1980 .
  • Regional Rural Banks  & Cooperative Banks have been opened .
  • Micro Finance Institutions have been promoted by the government .
  • No frills accounts  (i.e. accounts with zero balance) scheme has been started by various banks .
  • 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  along with 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


  • According to Global Findex Report, 80% adults in India now have Bank accounts due to Jan Dhan Scheme .
  • It has helped in Women empowerment as large number of women accounts have been opened .
  • It has helped government in implementing Direct Benefit Transfers and prevent leakage of subsidies .
  • It has helped in breaking hold of local moneylenders .
  • + All benefits of Financial inclusion


  1. Account Dormancy (72% accounts opened under scheme are  dormant according to Microsave (think tank survey) .
  2. Account Duplication (33% duplicate accounts have been opened due to attraction of insurance & overdraft facility) .
  3. Rupay cards not given to 70% Jan Dhan Account holders . Overdraft facility cant be used without that .
  4. Jan Dhan Account Holders are being used as money mules by Hawala Agents  .
  5. Operating cost of Banks is increasing because they have to keep on servicing dormant account . It costs ₹100 to 150 / annum to banks to maintain each account .

2016 : Indian Express Report -> Bank Officials made one ₹ deposit to Jan Dhan accounts to hide their zero balance status . This shows that these can be used in money laundering too .