The Cashless Economy and Financial Inclusion in India in the Digital Age

Abstract

Financial inclusion is defined as the availability and equality of opportunities to access financial services.[1] It refers to a process by which individuals and businesses can access appropriate, affordable, and timely financial products and services. These include banking, loan, equity, and insurance products.[2][3] Financial inclusion efforts typically target those who are unbanked and underbanked, and directs sustainable financial services to them.[2] Financial inclusion is understood to go beyond merely opening a bank account. It is possible for banked individuals to be excluded from financial services.[4] Having more inclusive financial systems has been linked to stronger and more sustainable economic growth and development and thus achieving financial inclusion has become a priority for many countries across the globe.[5]

In 2018, it was estimated that about 1.7 billion adults lacked a bank account.[6] Among those who are un-banked a significant number were women and poor people in rural areas and often those who are excluded from finan-cial institutions, face discrimination and belong to vulnerable or marginalized populations.

Due to the lack of financial infrastructure many under-served and low-income communities suffer. Specifically, the lack of proper information can be detrimental to low-income communities and expose them to financial risks. For instance, payday loans target low-income persons who are not adequately informed about interest rates and compound interest. They become trapped and indebted to these predatory institutions.

The public sector spearheads outreach and education for adults to receive free financial services such as education, tax preparation, and welfare assistance. Non-profit organizations dedicate themselves to serving underprivileged communities through private resources and state funding. Within California, state legislation allows for grants to be disbursed during the fiscal year and non-profits can apply for additional funding. Bill AB-423 is an example of the state recognizing the lack of financial inclusion of young adults, the bill encourages pupil instruction and financial literacy lessons to begin as early as grade 9.

While it is recognized that not all individuals need or want financial services, the goal of financial inclusion is to remove all barriers, both supply side and demand side. Supply side barriers stem from financial institutions themselves. They often indicate poor financial infrastructure, and include lack of nearby financial institutions, high costs to opening accounts, or documentation requirements. Demand side barriers refer to aspects of the individual seeking financial services and include poor financial literacy, lack of financial capability, or cultural or religious beliefs that impact their financial decisions.[7]

There is some skepticism from some experts about the effectiveness of financial inclusion initiatives.[8] Research on microfinance initiatives indicates that wide availability of credit for micro-entrepreneurs can produce informal inter-mediation, an unintended form of entrepreneurship.[9].