State of Financial Inclusion in India: In Search of Focus

Abstract

From a supply-driven state-owned provision of financial services to the excluded, the country has significantly moved in making financial inclusion a larger agenda. If we were to look at financial inclusion from the time of Independence onwards, we can possibly break this up into four phases: the first phase of co-operativization; the second phase of bank nationalization; the third phase of institutional tinkering, and the fourth phase of providing a framework for private sector participation and bank-led initiatives. The current and the fourth phase, in which we currently are, is opening up multiple possibilities both in terms of the technology adopted in the financial inclusion space as well as the institutional infrastructure. In this article, we will briefly describe the earlier phases and discuss in detail the last phase. Historically, the efforts of the state to bring the poor into the banking system has worked at multiple levels, without sharp definitions and, therefore, has resulted in creating opportunities for inclusion rather than having a focused and planned approach to inclusion. It is important to recognize this continuing fallacy and define the aspect of inclusion sharply, if we were to ensure that the institutional and technological architecture has to work for the poor.