How to boost financial inclusion

Synopsis: Greater flexibility in financial products will lead to greater inclusion of nano-enterprises, a segment which is critical to the growth of our rural economy.


There are 63.4 million MSMEs in India, 99% of which are micro enterprises with less than Rs 10 lakh in investment. These tiny businesses are run by nano-entrepreneurs, a growing segment that is absolutely critical to the growth of our rural economy.

For daily wage earners such as vegetable sellers, loan flexibility is given only by the moneylender and not by the bank.

What is the present situation wrt formalization of nano-enterprises?

If we assess our progress against the definition of “financial inclusion” i.e. accessibility of banking and availability of credit, we have made significant progress.

However, if we question the adequacy of the financial products that they find access to, we fall short. Financial inclusion is not the same as financial integration.

The journey from inclusion to integration is not only about making products available and accessible, but also about making them relevant, applicable, and acceptable.

What are the associated challenges?

Supply side issues

Risk associated and no customer-centric products: limited risk appetite, lack of data on customers and challenging regulatory oversight and agile capital makes it difficult to design bespoke products.

Apathy of bankers: Bankers and private financial institutions believe that a poor person takes a microcredit loan because she cannot save. In reality, they are able to save because of village postal agents who collect their savings from their doorstep.

One-size-fits-all is no longer viable: Products must be designed and delivered intelligently to meet the customer where they are, and by keeping in mind that they use products to reach their goals.

In the traditional financial system, the design, expensive technology development and brick-and-mortar infrastructure, distribution cost on financial products contribute to an impractical model.

Consequently, financial service providers are not attempting to reach rural and financially excluded areas.

Demand side issues

Financial literacy and technology readiness: Financial education assists people in making sound financial decisions. These are not just challenging of the Indian market, but other economies too.

What is the way forward?

First, tailoring the products to the needs and income profile of the customer, including being cognisant of their environment, geography, and demography.

Second, use the power of machine learning and cloud infrastructure to lower operating costs while offering customers affordable, bespoke financial products that help them reach their goals.

Source: This post is based on the article “How to boost financial inclusion” published in Indian Express on 14th September 2021.

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