ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Involuntary Exclusion and the Formal Financial Sector

Financial inclusion is a policy priority in India, with the focus on the supply-side of the financial inclusion drive and programmes such as the Pradhan Mantri Jan-Dhan Yojana. Insufficient attention, however, has been paid to the use of banking services by people at the bottom of the pyramid in order to understand what constrains them from using the formal financial services on offer. This study looks at the causes of involuntary exclusion from formal financial services in the slums of Delhi.

The views presented here are personal and the usual disclaimers apply. We thank the anonymous referee for comments. Gopinath Tulasi ( is a member of faculty, Reserve Bank Staff College, Chennai.

A more focused and structured approach to financial inclusion has been followed in India since 2005, when the Reserve Bank of India (RBI) decided to promote financial inclusion by implementing various policies from the supply-side (Joshi 2014).1 However, determinants of demand for financial services, especially in emerging market economies (Cole et al 2009), are not sufficiently understood. This is, therefore, the ideal juncture to study demand-side barriers to the use of financial services on offer, especially among people at the bottom of the pyramid in India. This article tries to address demand-side constraints on financial inclusion in Delhi slums.2 We have two objectives: to understand the constraints causing involuntary exclusion in India, and to estimate the incremental increase in the probability of availing banking services3 if these constraints are addressed.

Against this backdrop, this article attempts, inter alia, to gauge usage of financial services in identified slums of the Delhi–National Capital Region (NCR)4 by conducting a primary survey and using the survey data for an econometric exercise to identify demand constraints and draw policy inferences, if any. The article is organised in five sections. Section 1 briefly covers the logistics and summary results of the survey. Section 2 describes the methodology for estimating determinants of demand for financial services. Section 3 presents the results of the econometric exercise. Section 4 contains broad policy inferences, and Section 5 presents the conclusion.

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Updated On : 13th Sep, 2017
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