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Financial Inclusion

The ability to acquire formal financial products and services is referred to as financial inclusion. Experts argue that households and individuals who possess such products and use such services are better able to engage in the larger economy and make decisions that increase their well-being in a variety of circumstances. Access to low-cost financial services can help boost economic growth, reduce inequality, and increase people’s financial resilience. It is closely linked to smoother consumption, increased education and health-care expenditure, and wider global financial market inclusion. Digitalisation has the potential to be a vital enabler of financial inclusion and a critical component of a comprehensive recovery from the pandemic. It has been shown to be crucial in governments’ reaction to the COVID-19 issue, especially in terms of reaching out to the most disadvantaged and marginalized people by giving last-mile access to financial resources. Not only this, but digitization also has the potential to increase the formal economy footprint in India by undermining the number of ‘under the radar’ transactions. The more transactions online, gradually, the formal economy will expand, giving macroeconomic policy a greater chance of effectiveness and success.

The Government of India (GoI) has linked financial inclusion to welfare programmes. The flagship policy for financial inclusion, the Pradhan Mantri Jan Dhan Yojana (PMJDY), is a key delivery channel for the Government of India’s Direct Benefit Transfer (DBT) schemes. These two dimensions demonstrate that, for the most part, Indian policymakers focus on boosting access to banking services and resolving the mechanics of operating bank accounts when it comes to financial inclusion. When seen through the viewpoint of access and usage, India has achieved numerous significant strides toward achieving universal financial inclusion. During COVID-19, India’s DBT and AADHAAR (digital identity) are examples of how government digital platforms can be used to enable government response to the disruption of livelihoods and economies through digital financial inclusion. During the epidemic in FY 2020-21, around INR 5.53 trillion was digitally distributed across 319 government programmes using DBT, with nearly INR 1.67 trillion going to the Public Distribution System (PDS).

India recently achieved the mark of 5 billion transactions in March 2022, with half of them being below Rs. 200. Highlighting the importance of the achievement, Sangeeta Godbole, former IRS and now a Masters’s student at the Graduate Institute, Geneva, shares her experience with digital payments, “The numbers show that the woman with the least resources is transacting online. For a small customer of Swiss banking, India’s regulatory innovation in Fintech stands out. The Unified Payments Interface (UPI) system alone crossed the mark of 5 billion transactions in a month for the first time in March 2022. The UPI payment system remains THE channel for low-value transactions. According to NPCI’s assessment, about 50% of the transactions(about 2.5 billion in a month)recorded on UPI are worth less than Rs 200 each. That sizes up the massive digital financial inclusion in India. Even such massive numbers by relatively less net-savvy (and at times even illiterate) customers, India has kept its system safe, secure and relatively free of fraud.” Sharing her experience with the Swiss banking system, she explains, “We realise the value of something only when we no longer have it. A few days back, when trying to transact online from Switzerland, I got a message from SBI, where I held a credit card that 0.06 CHF had been spent on my card. The bank immediately blocked my card. To unblock it, I had to send a message to a particular number, and only then the card could be unblocked. Contrast this with what happens to my Swiss bank credit/debit card/prepaid card. I get any message of any transaction only above 40 CHF (Rs.3200 approx.)I tried to go to the bank website and change the settings so that I get a notification of any transaction made on my card. But, not possible friends. If someone gets details of my card and makes any number of small transactions online, I would not even get a notification. Further, in SBI card transactions, I need an OTP for every single transaction online. Unless I get an OTP and feed that OTP online, the card does not allow any transaction. Contrast this again with my Swiss bank – no OTP required. If someone even got a sneak peek at my card, that’s all that is required for them to make even very large transactions online. I will only get a post facto notification of a fraud played on me. With such safe and stringent safety processes, India has managed its transformation to a digital economy without having millions of fraudulent transactions.”

However, in developing countries, G2P and digital payments face a number of challenges. According to an Indian survey, most merchants and their customers consider cash to be more convenient than digital channels due to unreliable electricity, slow internet, and difficulties using point-of-sale terminals. Recurring digital payments can only assure digital financial inclusion if they are combined with initiatives to strengthen critical enablers such as access to digital infrastructures, connectivity, digital skills, and financial consumer protection.


Sangeeta Godbole

(The writer is a Former IRS and now a Masters’s student at the Graduate Institute, Geneva, Views expressed are personal)