India’s Unfinished Road To Financial Inclusion

“India is a great example of how financial inclusion can work,” told Manfred Auster, the Consul General of Germany to PTI as he lauded India’s system and technology for improving financial inclusion while attending the Global Partnership for Financial Inclusion under the Finance Track from January 9 to 11, in Kolkata. Auster is part of the German delegation attending the G20 Summit in the country. “In India, you pay everything with Unified Payments Interface (UPI), every small vendor will accept it. But in Germany, we still use quite a lot of cash. Financial inclusion is important as common people, especially women, can participate in the economy,” he added.

But is it really the case? Does India actually have an inclusive financial system? Does UPI usage equate to financial inclusion? Is India financially literate?

Unified Payments Interface and Financial Inclusion

The Unified Payments Interface was introduced in 2016 and has helped the country become a world leader in the FinTech segment and its adoption. EY reported that India had a world adoption rate of 87% as compared to a 64% global average in the FinTech space. The National Payments Corporation of India in its monthly reports shared that December 2022 clocked in the highest number of transactions of about 7 billion worth over INR 12 trillion. Its inception was done to make low ticket payments faster and simpler, and it has achieved its goal.

However, to limit the concept of FI only to the success rate of UPI is ignorant.

The World Bank defines Financial Inclusion as a system where individuals and businesses have access to affordable and useful financial products and services, where their needs are met responsibly and sustainably. Amending policies, creating schemes and introducing technology plays a big part of developing such a system.

Apurva Chandra, Secretary, Ministry of Information Broadcasting in November 2022 shared that India had over 1.2 billion mobile phone users, where 600 million were smart phone users. The UPI service is only available to smartphones, while NPCI recently introduced UPI123 Pay for feature phones. The basic phone service is yet to gain traction as no data is available on its performance and penetration. 1Bridge, in Q1 of FY22, reported that its survey found out that a mere 3-7 per cent of rural India used UPI.

“You could say India is growing fast enough that in five years most people will have smartphones, so don’t worry about it. Or you can take the other view, which is to say that India is too large to say that everyone will have smartphones. And even after five years, there may be 150-200 million people who don’t have smartphones. We cannot ignore them,” said Jaspreet Singh, Global Lead Financial Health and Innovation, UNCDF during the Inclusion Finance Summit 2023.

So, what does an organization do? They tweak the technology to suit the target audience. At least, one can theorize.

The financial inclusion schemes

The government of India, current and previous, has introduced several FI schemes such as Jan Dhan to Jan Suraksha, Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), Pradhan Mantri Suraksha Bima Yojana (PMSBY), Atal Pension Yojana (APY), Pradhan Mantri Mudra Yojana, and Stand Up India Scheme.

A notable one being Pradhan Mantri Jan Dhan Yojana (PMJDY). Launched in 2014, the scheme aims at providing citizens access to financial services such as bank accounts, remittances, credit, insurance, and pensions. It garnered 15 million account holders on the inaugural day itself. However, in 2018, the government reported that 20% of the accounts lay dormant, while its zero balance, overdraft and free insurance cover has given birth to account duplicacy.

While the intention and ideation is on the right track, lack of financial literacy makes citizens unable to utilize initiatives to their benefit. Nonetheless, the JAM (Jan Dhan-Aadhar-Mobile) trinity is considered to have simplified the path to FI for a good Indian population.

The elephant in the room: language barrier and financial literacy

Contrary to what the majority thinks, the rural population is not fearful of technology; rather it’s the lack of knowledge which is the devil.

9 out of 10 individuals hesitate to use banking products due to their requirement for only English. The 2011 census revealed that a little over 10 per cent of the population could speak English. Indian scripts are bifurcated into 12 written scripts, none of which are used for technology or banking services. Lack of language comfort and monetary transactions make the current financial system an uncomfortable experience for the rural and non-English speaking population.

“Banking solutions must be designed for citizens’ language choices first, rather than replicated from English first interface. Forget local languages; very few banks fulfill the 3-language policy in the country, making online banking cumbersome for people who don’t understand English,” said Vivekananda Pani, Co-founder and CTO at Reverie Language Technologies.

According to SEBI, only 27 per cent of Indians are financially literate, i.e one’s ability to understand and use financial skills such as money management, budgeting, and investing. The National Centre for Financial Education (NCFE)’s report showed that over 73% of our adult population failed to understand basic financial concepts. The government and institutions need to understand that access to financial services will not result in the development of financial literacy. It should start from the basic level of secondary education to introduce financial importance and education. Otherwise, the gap between the number of FinTech products and rural users will keep on expanding.