• Wed. Feb 21st, 2024

Taking financial inclusion to the next level

By V Anantha Nageswaran & Monica Thind

Financial inclusion promotes development and inclusive growth by empowering individuals, especially the vulnerable, to tap economic opportunities. Greater access to financial services is a key enabler of seven out of the 17 Sustainable Development Goals (SDGs). Significant progress towards advancing financial inclusion has been made globally. Yet, a lot more needs to be done. 

In a world where 24% of the adult population still does not have access to even a basic bank account, much ground needs to be covered to achieve universal financial inclusion in terms of access, usage, and quality of financial services. Digital financial inclusion, or delivering financial services through digital means, is fast emerging as an effective way to cover the gaps in the financial inclusion landscape. Still, inequalities in access to digital technologies remain; as per the latest (2021) World Bank FINDEX survey data, only 25% and 38% of respondents in low and lower-middle-income countries (LMICs), respectively, have access to the Internet. The gaps in making or receiving digital payments are also huge, with only 35% and 38% of respondents in low and LMICs making or receiving payments digitally.

In the last nine years, India has made great strides in financial inclusion. In just nine years since the Pradhan Mantri Jan Dhan Yojana (PMJDY) was launched, more than 500 million accounts have been opened, and banking penetration has shot up to ~80% for the adult population. Against the backdrop of this exemplary success in digital financial inclusion, and in line with India’s focus on human centricity in the G20 outcomes, the financial inclusion agenda was positioned prominently in G20 and has been steered to leave a mark for many years to come. 

Building on this success, India has leveraged the power of Digital Public Infrastructure (DPI), called the India Stack, to bring a significant proportion of its population under formal banking, revolutionising the retail payments landscape through UPI and strengthening the financial data infrastructure through account aggregators. 

In G20, the Indian presidency introduced the DPI as a robust approach for accelerating the financial inclusion of individuals and Micro, Small, and Medium Enterprises (MSMEs) and realising productivity gains. DPIs like digital identity, fast payment systems, and consent-based data exchange are generally understood as foundational systems that are interoperable, inclusive, and scalable by design, that enable intensive use and provision of digital services across various economic and social interactions and actors. As per the latest UNDP study, the LMICs can speed up their economic growth by up to 33% by implementing payment and credit-related DPI in the financial sector, and DPI can plug the credit gap for 16-19 million additional MSMEs in 2030 alone, representing nearly 7% of total formal MSMEs.

A signal contribution of the G20 India presidency to the global financial inclusion efforts is the unanimously endorsed G20 Policy Recommendations for Advancing Financial Inclusion and Productivity Gains through DPI, formulated by the G20 Global Partnership for Financial Inclusion (GPFI); these will continue to guide countries in the G20 and beyond to leapfrog their development trajectories by harnessing DPI. These actionable recommendations relate to various aspects of DPI, such as fostering their use for financial inclusion of individuals and MSMEs, design, regulation, governance, and consumer protection. 

Aligned with the Indian G20 presidency theme of “one world. one family. one future”, the new G20 GPFI Financial Inclusion Action Plan (FIAP) formulated under the Indian presidency deepens the action-oriented engagement with the non-G20 countries, including the Global South. For effectively developing and implementing digital innovations, including DPI, especially in Low and LMICs, a logical next step would be capacity building and knowledge-sharing support in the technological, governance, and regulatory aspects. Therefore, in the new G20 GPFI Financial Inclusion Action Plan (FIAP) formulated under the Indian presidency, the GPFI members have committed to enhancing collaboration, knowledge sharing, and possible technical assistance in bilateral agreements and multilateral projects. 

The new FIAP also takes forward the legacy of DPI, leading to the DPI narrative becoming firmly rooted in the G20 discourse for years to come. While maintaining focus on two priority areas of digital financial inclusion and MSME financing, it identifies inter alia the promotion of technological innovations and digital infrastructure, including DPI, as key action areas for rapidly advancing the financial inclusion of individuals and MSMEs in G20 and beyond. Most of all, India will be in the driving seat for implementing the new FIAP for three years, as India has been appointed the new co-chair of GPFI along with Italy. 

To conclude, the India G20 presidency has brought the DPI approach to the fore, which, unlike other innovations, provides a solution for rapidly accelerating financial inclusion in a holistic manner beyond just providing access to a bank account. The forward-looking new FIAP, with its focus areas on digital financial inclusion and MSME financing and its deepened engagement with the non-G20 countries, provides the much-needed action orientation to our collective efforts to ensure that no one is left behind and that the shared vision of universal financial inclusion is realised.

V Anantha Nageswaran & Monica Thind, respectively, chief economic adviser, GoI, and officer of the Indian Economic Service. Views are personal.


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