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

Financial InclusionSubscribe to Financial Inclusion

Determinants of Digital Technology Adoption and Financial Inclusion in India

The status of digital technology adoption after the launch of Pradhan Mantri Jan Dhan Yojana in 2014 is examined. Using microdata from two rounds (2013 and 2015) of a pan-India survey, the uptake of digital technology platforms among Indian adults for making financial transactions is examined and its determinants are investigated. The results suggest that being male and having a higher education, salaried job, smartphone, and access to mobile internet are positively associated with higher uptake of digital technology platforms. These results are fairly robust across empirical specifications.

Small Finance Banks

Small finance banks (SFBs) are niche banks serving the unserved and underserved population at affordable cost with a view to furthering digital financial inclusion in India. The main objectives of the SFBs are promoting an institutional mechanism to mobilise savings from rural and semi-urban areas...

Repercussions of Protracted Currency Shortage across Two Models of Financial Inclusion in India

Following the announcement of demonetisation on 8 November 2016, India saw the withdrawal of nearly 86% of the cash in circulation. This caused prolonged currency shortages and impacted employment, sales, income, loan payback capacity, savings and by extension, financial inclusion. A survey conducted among two distinct groups in Mumbai and Pune, three months after demonetisation, in April–May 2017, reveals the adverse impact of currency shortages on the incomes and livelihoods of those employed in tiny, informal enterprises. With a decline in the sales in their businesses, their income and savings fell, and so did the demand for credit.

Financial Inclusion and Digital India: A Critical Assessment

Financial inclusion is one of the cornerstones of a developing economy. Launched in 2015, Digital India has been regarded as a significant intervention to bring the unbanked population, who had been kept out of the mainstream economy, into the formal financial net. While there has been an improvement in digital transactions across the country, issues still remain of last-mile connectivity of banks and other financial institutions, dormant accounts, among others.

Can Payments Banks Succeed?

Recently, the Reserve Bank of India has begun licensing a new kind of retail bank, called payments banks, for the hitherto financially excluded. The regulator’s argument that technological innovation will allow payments banks to achieve a seemingly impossible trilemma of financial inclusion while still being competitive and profitable is examined. The article concludes that amelioration of this trilemma will require the regulatory orientation to fundamentally change, and for the state to provide a kind of public good to all payments banks.

Did Demonetisation Accelerate Financial Inclusion?

The claim that removing cash would improve financial access for the poor has become a fallback argument for demonetisation, despite notebandi failing to achieve its other objectives. Like many other arguments made for abolishing cash in favour of digital payments, this claim does not stand up to scrutiny.

Financial Inclusion of Female Sex Workers

The clandestine nature of sex work and the stigma surrounding it restricts access to and utilisation of financial services by female sex workers, and makes it more difficult for policymakers to design appropriate programmes for their empowerment. An examination of the factors that contribute to the utilisation of financial services focused on FSWs reveals that there is an urgent need to strengthen linkages with formal banking institutions for the financial inclusion and empowerment of FSWs.

Excluding the Poor from Credit

Andhra Pradesh and Telangana have become no-go areas for microfinance institutions due to the Andhra Pradesh Microfinance Institutions (Regulation of Money Lending) Ordinance, 2010 and, later, the Andhra Pradesh Microfinance Institutions (Regulation of Money Lending) Act, 2010. Contrary to their laudable objectives, these legislations have neither served public interest nor improved access to finance for the underprivileged sections. Instead, access to finance has contracted, and financial distress and fall in consumption levels of underprivileged households have increased. The law has hit the poor and the marginalised, by constricting their choices in accessing alternate modes of non-collateralised credit.

Can Jan Dhan Yojana Achieve Financial Inclusion?

While there has been a tremendous increase in the number of bank accounts opened, the data show that the average balance in these accounts is low and a significant proportion of the accounts are inoperative. Although there was a rise in the average deposits during demonetisation, they later settled at a lower level. Further, financial inclusion means not just the opening of bank accounts but, more importantly, access to credit from formal sources. The limited data available in this regard show that after the Pradhan Mantri Jan Dhan Yojana was launched there has not been any increase in the credit–deposit ratio and the share of small loans has continued to decline. Very few people have benefited from the overdraft facility that is supposed to be provided by the accounts under the scheme. Issues of access to banking in rural areas remain.

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.

Did MGNREGS Improve Financial Inclusion?

Utilising household-level data, this paper investigates the impact of Mahatma Gandhi National Rural Employment Guarantee Scheme on financial inclusion. Exploiting the staggered timing of the roll-out of the programme across districts, while controlling for its non-random implementation, it is found that MGNREGS improves financial access. This is confirmed in simple univariate tests as well as in multivariate regressions that take into account several district- and household-level controls. The evidence, however, is less compelling when the use of finance is examined, although there is a differential impact for districts with higher proportion of women. The magnitudes in most cases are quite large and suggest that public works programme can positively influence financial inclusion.

Role of ‘Fintech’ in Financial Inclusion and New Business Models

The convergence of finance and technology to provide financial services by non-financial institutions, popularly known as “fintech,” has come to dominate the financial landscape. Taking stock of this development, its impact and implications for new products, processes and services, including for financial inclusion are examined. The Jan Dhan–Aadhaar–mobile phones trinity provides fertile ground for fintech to permeate to the “last mile.” Notwithstanding its manifold benefits, there is a need to exercise caution in areas such as privacy and ownership of data. In a fast-paced world of rapidly evolving technology and related financial services, regulators have new paradigms to grapple with and therefore, need to be proactive so as to not stifle the growth of this nascent sector.

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