• Tue. May 28th, 2024

Enabling financial inclusion through digital public infrastructure

Financial Inclusion fosters equitable and inclusive growth and development by extending credit to economically and socially weaker population of a country by empowering them to make better financial decision and achieve financial independence through providing universal access to a large array of financial services.

Access to finance is an important factor in enabling people to transform their lives through engaging in productive activities and to exit poverty. The efforts to provide financial services to underprivileged groups face many obstacles as was the experience in India.

With the nationalisation of the State Bank of India in 1955, which was conducted with the primary purpose of boosting bank penetration in rural regions, there has been a constant effort in India to extend access to the formal financial sector. In order to promote financial inclusion between 1969 and 1980, the Central government nationalised the 20 largest private sector banks.

Further, in order to encourage financial inclusion, priority sector financing was established in 1972. The branch licensing policy and the launch of business correspondents did not yield encouraging results. However, the role of the moneylender kept increasing, especially in rural areas. In 2011, according to FINDEX report 2021 published by the World Bank, only 35 per cent of the 15+ population had bank accounts. Therefore, these attempts of financial inclusion did not generate the desired results.


A number of evaluative studies revealed that the challenge of financial inclusion is multi spectrum and covers different aspects like high bank operating fees, difficulties with physical access (geographical, disability and old age) and even, psychological and cultural hurdles. Therefore, financial inclusion in mission mode was launched by the Central government in 2014 with the Pradhan Mantri Jan Dhan Yojana (PMJDY). The scheme offered a RuPAY debit card, micro insurance and emphasised on banking coverage of households and individuals.  

The Jan Dhan initiative with 51.86 crore accounts and 34.61 crore Rupay cardholders today, acquired huge success in the banking history of India and that of the world. In 2014, India’s 53 per cent of the 15+ population had a bank account which was an increase of 16 percentage points from 2011 which improved by 27 percentage points to 80 percent in 2017 (FINDEX Report 2021).

The balances in Jan Dhan accounts increased by 21 times, from ₹10,500 crore to ₹2,20,334 crore, between January 31, 2015, and February 21, 2024. The average amount in these accounts has increased by 4.2 times from ₹1,007 in March 31, 2015 to ₹4,248.6 by February 21, 2024. Further, the scheme has also effectively reached the unbanked areas as 66.7 per cent of the accounts belong to rural or semi urban areas.

Building infrastructure

The government then proceeded to connect Jan Dhan accounts with a unique identification number (Aadhar) and a mobile number to promote social and economic well-being of the society. Therefore, strong incentives were provided to people in 2015 [Aadhar for all subsidy schemes, like Pratyaksh Hanstantrit Labh (PAHAL), and social security schemes like National Social Assistance Programme (NSAP), Atal Pension Yojana (APY), Pradhan Mantri Suraksha Bima Yojana (PMSBY) and Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY)] from government, which increased the number of people having Aadhar linked with their bank account.

Further, low tariffs by telephone companies also led to an increasing percentage of the population having access to internet and mobile phones. The success of JAM trinity propelled the rise of financial technology (Fintech) in India. The recent period oversaw the development of several initiatives like UPI, BHIM app, IMPS and multiple private digital wallet services. This laid the groundwork for several future initiatives for enhancing financial inclusion, like the Digital Banking Units (DBUs).  

The success story of JAM trinity

India launched the Pradhan Mantri Garib Kalyan Yojana (PMGKY) programme in March 2020 during the Covid-19 pandemic. The Government of India, during the initial stages of the pandemic (from March 2020 to September 2020), used the DBT system to transfer ₹68,820 crore to 42 crore poor people.

PMGKY through the DBT system also provided ex gratia payment of ₹1,000 to the elderly population, widows, and differently-abled people under the National Social Assistance Programme (NSAP). Ex-gratia payments totalling ₹2,814 crore were made by May, 2020 to 282 lakh NSAP scheme beneficiaries.


In recent years the emphasis has been on use of technology in improved access to finance leading to expanding financial inclusion. JAM trinity, with Aadhar-based authentication possible, has been a major game changer where transfer of ₹34-lakh crore to more than 1,167 crore beneficiaries under DBT was possible. The reach of Jan Dhan has been noteworthy with 56 per cent of Jan Dhan account holders being women and two third of these accounts have been in rural and semi-urban areas.

PMJDY provided access to low-cost bank account to a large unbanked population and DBT facilitated transfer of resources which narrowed the rural-urban divide and increased spending on aspirational goods in rural India. The latest release on monthly per capita consumption expenditure (MPCE) reveals the improving consumption pattern in rural India where average share of food and cereals in MPCE has declined from 52.90 in 2011-12 to 46.4 in 2022-23 and from 10.75 to 4.91 over the same period, respectively.

The average MPCE in rural and urban India in lower fractile from 0 to 5 per cent and 5 to 10 per cent is significantly narrow when compared with higher fractile especially from 90 to 95 per cent and 95 to 100 per cent over the same period. It is for this inclusive effort that India’s GDP growth in 3rd quarter of 2023-24 is higher at 8.4 per cent as against a projected growth of 6.5 per cent.

Charan Singh

Charan Singh

(The writer is CEO, EGROW Foundation and Non-Executive Chairman of Punjab and Sind Bank)


By admin