Steps India Must Take Towards Financial Inclusion


India’s financial inclusion campaign has been in the spotlight recently, winning an entry in the Guinness Book of World Records for the number of bank accounts opened in the shortest period of time (over 18 million accounts in the campaign’s first week).

India’s financial inclusion campaign is among the most ambitious in history.

There’s no doubt the campaign is among the most ambitious government-led financial inclusion drives in history, enabling tens of millions to sign up for an account by filling in a simple form and using India’s unique biometric ID system. As of January 31, more than 125 million new accounts had been opened under the program, called Pradhan Mantri Jan-Dhan Yojana (Prime Minister’s People’s Wealth Scheme, or PMJDY). These accounts were made all the more appealing by the offer of insurance and overdraft facilities and as a way to receive government benefits electronically. Each account holder also gets a Rupay branded debit card.

The numbers are impressive and the program has become a household name, but the jury is still out over whether India can convert this account-opening sprint into meaningful financial inclusion. Previous campaigns have failed to move past account-opening drives, ending up with millions of dormant accounts. This campaign is different with its emphasis on insurance, credit and transactions services and a bigger emphasis on financial literacy. But there are several other basic steps the government could take to ensure success.

  • Set targets for usage. The Ministry of Finance has laid out precise targets for the number of accounts opened, but, moving forward, an important barometer of success would be to set targets for usage. An initial target could be set for account holders to use their accounts at least once every 90 days.
  • Ensure agents are “transaction ready.” The program relies on an innovative model of using small corner stores as agents for banks where people can deposit and withdraw money from their accounts and transact. However, not all those agents have equipment or are being paid enough by banks to conduct transactions.
  • Build an acceptance network. Eventually, all account holders will get their debit cards in the mail. But the acceptance network for those cards is virtually non-existent. There are solutions to develop that network more rapidly and India could work with global partners to make that happen.
  • Emphasize mobile. The financial inclusion campaign should also make a bigger effort to emphasize mobile channels that have been a catalyst for financial inclusion elsewhere. India trails other countries when it comes to leveraging mobile channels. The 2014 Intermedia Financial Inclusion Insight (FII) Survey of 45,000 Indian adults found that 0.3 percent of adults use mobile money, compared to 76 percent in Kenya, 48 percent in Tanzania, 43 percent in Uganda and 22 percent in Bangladesh.
  • Leverage payment banks. The campaign relies primarily on public sector banks to process government payments to the tune of over US$100 billion annually. India’s central bank is in the process of licensing a new category of banks called Payments Banks. Subsidiaries of mobile operators and retailers could get the license giving those banks significant last mile reach. Allowing Payments Banks to process government payments would break the monopoly of public sector banks and be a boon for customers.

India’s financial inclusion campaign has sparked interest with other countries seeking to overcome similar challenges. If India’s campaign is able to go beyond the initial record-breaking sprint towards meaningful financial inclusion, it could be a useful example for others to follow.

*This article originally appeared in 2015.