Rapid advances in financial inclusion globally have brought over three-quarters of the world adult population into the formal financial system.

Globally, financial account ownership increased by 50 percent in the 10 years spanning 2011 to 2021, to reach 76 percent of the global adult population[i]. Moreover, the gender gap in account ownership narrowed for the first time in the last decade[ii]. Most governments now have a financial inclusion strategy and deliver government payments through the formal financial system. India is a remarkable global example in its accelerated journey towards building a financially inclusive society. The PMJDY scheme combined with India’s digital stack has paved the way for an inclusive infrastructure that is bringing previously underserved low-income populations into the economic and financial mainstream. Till January 2022, the scheme generated over a record 443 million accounts for India’s households out of which over 55 percent of accounts belong to women.[SG1] 

Financial inclusion alone may not be enough to drive economic growth and well-being

While financial inclusion has aided several policy measures during this time, there is an emerging body of evidence that suggests mixed results at best in terms of the impact of financial inclusion on the lives of low-income populations. For example, a recent review by CGAP showcased that while access to bank accounts improved savings among farmers in Malawi, the same exercise in other countries did not find similar results[iii].

Being financially included does not translate into being financially secure or resilient. For instance, the recent Global Findex Database 2021 shows that about 45 percent of adults in developing economies could not access emergency money within 30 days with an unexpected expense. Furthermore, about two-thirds of adults were very worried about at least one source of financial stress, in particular about covering health expenses in the event of a major illness or accident.

Recent evidence from developed countries also suggests that higher levels of financial literacy, financial inclusion, and income do not always translate to financial wellbeing. A 2021 study by Financial Health Network in the U.S. finds that only one out of three Americans is financially healthy despite the U.S. being a high-income country with near universal levels of financial inclusion and high financial literacy.

In India, despite high rates of financial inclusion, consumer financial resilience is lower than the world’s average. As per the Global Findex 2021 survey, while more than 80 percent of adults reported having access to one of several sources of emergency money within 30 days, two-thirds of these adults said it would be very difficult to come up with those funds.

Low rates of saving and borrowing from formal financial institutions[iv] in India, also reflect poor usage of accounts despite ownership. Limited financial literacy[v] and lack of a compelling reason to use formal financial services are key reasons for the low use of accounts. Furthermore, the COVID-19 pandemic also brought greater attention to the digital divide between those who have the resources and capability to embrace the digital transformation, and those who do not.

There is a need to move beyond access and usage of financial services to improving people’s capacity to manage their financial lives

Research by Asian Development Bank (ADB) shows that the impact of financial inclusion varies significantly across income groups subject to its dimensions of access and usage. This highlights the importance of such aspects as economic development, income distribution, demographics, market structure, and infrastructure quality in shaping the impact of financial inclusion strategies[vi].

In India, the NSFI’s 2019-2024 strategic objective is ‘to make financial services available, accessible, and affordable to all the citizens in a safe and transparent manner to support inclusive and resilient multi-stakeholder led growth’. However, in reality, practitioners tend to focus solely on access and use of financial products and services and neglect the ultimate goal of financial inclusion. This narrow focus on designing new products and services to aid inclusion has left behind the primary agenda of improving people’s financial health.