Important Chapter

Chapter 1
Introduction and
Conceptual Framework
EVALUATION OF FINANCIAL INCLUSION STRATEGIES AND FINANCIAL LITERACY LEVEL IN GUJARAT STATE
TABLE OF CONTENTS
1. INTRODUCTION AND CONCEPTUAL FRAMEWORK ...................................................... 4
1.1 INTRODUCTION ................................................................................................................................... 4

1.2 FINANCIAL INCLUSION & FINANCIAL LITERACY: CONCEPTUAL FRAMEWORK ................................................... 5
1.2.1 Financial Inclusion (Supply-side).........................................................................................................5
1.2.1.1 Meaning & Definition of Financial Inclusion ............................................................................................. 5
1.2.1.2 Importance of Financial Inclusion ............................................................................................................. 7
1.2.2 Financial Literacy (Demand side) .......................................................................................................8
1.2.2.1 Meaning & Definition of Finance Literacy ................................................................................................ 8
1.2.2.2 Importance of Financial Literacy .............................................................................................................. 9
1.3 DIMENSIONS OF FINANCIAL INCLUSION ................................................................................................. 10

1.4 PRINCIPLES OF FINANCIAL INCLUSION .................................................................................................... 11
1.5 SIGNIFICANCE OF FINANCIAL LITERACY .................................................................................................. 13
1.5.1 To Improve Awareness of Financial Products & Services .................................................................13
1.5.2 To Fulfil Financial Responsibilities ....................................................................................................13
1.5.3 For the Growth of Financial Intermediaries......................................................................................14
1.5.4 Increasing Unique Features of Financial Products ...........................................................................14
1.5.5 To Cope-up with Innovations & Change ...........................................................................................14
1.5.6 For Betterment of Retirement Life....................................................................................................15
1.5.7 To Cope-up with Increasing Globalization & Privatization of Financial Sector .................................15
1.6 COMPONENTS OF FINANCIAL LITERACY .................................................................................................. 16
1.6.1 Understanding the Key Financial Products .......................................................................................16
1.6.2 Understanding basic Financial Concepts ..........................................................................................17
1.6.3 Developing Skills & Confidence.........................................................................................................17
1.6.4 Making Better Financial Decisions ...................................................................................................17
1.7 CONSEQUENCES OF FINANCIAL ILLITERACY ............................................................................................. 18
1.7.1 Panic in Case of financial emergencies .............................................................................................18
1.7.2 Unorganized Savings or Investments ...............................................................................................18
1.7.3 Wrong Individuals will take Financial Benefits instead of Entitled One ...........................................18
1.7.4 Development of Financial Markets...................................................................................................19
1.8 OVERVIEW OF FINANCIAL INCLUSION & FINANCIAL LITERACY - GLOBAL PERSPECTIVES ................................... 19
1.9 FINANCIAL INCLUSION APPROACH IN INDIA ............................................................................................ 21
1.10 NEEDS OF FINANCIAL INCLUSION IN INDIA .............................................................................................. 21
1.10.1 To Develop Saving Habits.............................................................................................................21
1.10.2 To Provide Formal Credit avenues ...............................................................................................22
1.10.3 To Stop Financial leakage of Public Subsidies & Welfare .............................................................22
1.11 ROLE OF BANK IN FINANCIAL INCLUSION ................................................................................................ 22
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1.12 WHY FINANCIAL EXCLUSION? .............................................................................................................. 23

1.12.1 Factor Affecting Access to Financial Services ...............................................................................23
1.13 EVOLUTION OF FINANCIAL INCLUSION & FINANCIAL LITERACY IN INDIA ....................................................... 25
1.13.1 Phases of Financial Inclusion........................................................................................................26
1.14 STRATEGIC INITIATIVES TOWARDS THE FINANCIAL INCLUSION & FINANCIAL LITERACY IN INDIA ........................ 27
1.14.1 No-Frill Accounts ..........................................................................................................................27
1.14.2 Basic Savings Bank Deposit Account (BSBDA) ..............................................................................27
1.14.3 Simplified Know Your Customers (KYC) Norms.............................................................................28
1.14.4 Liberalized ATMs Policy ................................................................................................................28
1.14.5 Introduction of Business Correspondents (BCs) & Business Facilitators (BFs) ..............................28
1.14.6 Constitution of State Level Bankers Committees (SBLCs) .............................................................28
1.14.7 Implementation of Advanced Technology Mechanism ................................................................28
1.14.8 Setting up of Financial Literacy Center (FLC) ................................................................................29
1.14.9 Introduction of Aadhar - Unique Identification Authority of India (UIDAI) ..................................29
1.14.10 Introduction of Pradhan Mantri Jan Dhan Yojana (PMJDY) & Related Flagship Schemes ...........29
1.14.11 Creation of Small Finance Banks (SFBs) & Payments Banks ........................................................30
1.14.12 Initiatives towards Last-Mile Delivery ..........................................................................................30
1.14.13 National Strategy for Financial Inclusion 2019-24 .......................................................................30
1.14.14 National Strategy for Financial Education (NSFE) 2020-25..........................................................31
1.14.15 Towards Liberalization .................................................................................................................31
1.15 CHALLENGES OF FINANCIAL INCLUSION & FINANCIAL LITERACY IN INDIA ...................................................... 31
1.15.1 Poor Financial Infrastructure .......................................................................................................31
1.15.2 Lack of Effective Connectivity.......................................................................................................32
1.15.3 Issue of Convenience & Relevance ...............................................................................................32
1.15.4 Socio-Cultural Obstacles ..............................................................................................................32
1.15.5 Product Usage ..............................................................................................................................32
1.15.6 Lack of Competitive Payment Infrastructure ...............................................................................32
1.16 PROGRESS & CURRENT STATUS OF FINANCIAL INCLUSION & FINANCIAL LITERACY IN INDIA ............................. 33
1.16.1 Progress towards Financial Inclusion ...........................................................................................33
1.16.2 Progress towards Financial Literacy ............................................................................................36
1.16.3 Present Status of Financial Inclusion and Financial Literacy in India ...........................................36
1.17 SIGNIFICANCE OF THE STUDY................................................................................................................ 38
1.18 PROBLEM STATEMENT AND RESEARCH QUESTIONS ................................................................................. 39
1.19 RESEARCH OBJECTIVES ....................................................................................................................... 40
1.20 SCOPE OF RESEARCH .......................................................................................................................... 41
1.21 OUTLINE OF THE RESEARCH ................................................................................................................. 42
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1. INTRODUCTION AND CONCEPTUAL FRAMEWORK
1.1 INTRODUCTION
Financial Inclusion is the key instrument for economic and social development. Despite
imperative economic development over the last two decades, many economies of the world
are experiencing disparities leading to adverse consequences for social cohesion which in turn,
decrease the growth prospects (Zhuang & Hasan, 2008). For long-term sustainable growth, it
should be inclusive, and broad-based across all sectors and sections of the economy (George,
2011). Inclusive growth promotes economic development, reduces poverty, increases disparity,
enhances the standard of living, promotes rural and agricultural growth rates, and generates
employment opportunities (Deutscher & Jacquet, 2009). It is, therefore, financial inclusion has
emerged as the important area of concentration for sustainable inclusive economic growth
across the globe.
India has made steady progress towards financial inclusion, however, financial inclusion could
not be possible unless focus would not be given to financial literacy. The Indian banking
industry has shown remarkable growth in volume and complexity during the last few decades.
Despite making significant efforts and improvements by the government and Reserve Bank of
India (RBI) in terms of policy initiatives, technology up-gradation, financial capability,
profitability, and competitiveness there are concerns that a large section of the population still
lives outside the ambit of formal financial services. Various efforts are being made to study the
causes of financial exclusion and further to design appropriate strategies to ensure financial
inclusion and financial literacy to the underprivileged. The government’s attempts are for
sustainable & inclusive growth through social and economic development while providing equal
opportunities to everyone via financial inclusion. However, successful financial inclusion can be
done through – formulating appropriate strategies, implementing them, and evaluating
strategies – to improve it further to overcome the financial inclusion challenges.
Against this background, the present study is an attempt to evaluate the financial inclusion
strategies and financial literacy level and suggest strategic measures that can assist banks to
deepen financial inclusion through enhancing financial literacy in India. To add value to existing
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theoretical knowledge, the study is targeted to develop the holistic research

instruments/models for both - financial inclusion and financial literacy - (1) to evaluate the
financial inclusion strategies of banks, and (2) to evaluate the level of financial literacy essential
to furthering the financial inclusion, respectively.
This chapter provides perspectives and background of the present study by introducing the
concept of financial inclusion and financial literacy and highlights the importance, impacts,
challenges, prospects, etc. of both terms. The later part of this chapter gives a blueprint of
evolution and presents the scenario of financial inclusion and financial literacy by highlighting
the numerous strategic initiatives taken by the government and RBI towards increase the level
of financial inclusion and financial literacy in India.
1.2 FINANCIAL INCLUSION & FINANCIAL LITERACY: CONCEPTUAL FRAMEWORK
Financial Inclusion and Financial Literacy are twin pillars. Financial inclusion could not be
possible unless focus would not be given to the demand side, i.e. on financial literacy.
1.2.1 FINANCIAL INCLUSION (SUPPLY-SIDE)
Financial Inclusion acts from the supply-side enabling the financial market and providing
financial products and services that people demand. Financial inclusion focuses more on
designing and developing suitable products and services, creation of a financial market through
reach and coverage to satisfy the basic financial needs of an underprivileged segment of
populations.
1.2.1.1 M EANING & D EFINITION OF F INANCIAL I NCLUSION
The Financial Action Task Force (FATF, 2011), the international standard-setting body for Anti-
Money Laundering and Combating Financing Terrorism, defined financial inclusion as, ‘ensuring
access to formal financial services at an affordable cost in a fair and transparent manner’.
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Global Partnership for Financial Inclusion (GPFI), a forum of G20, defined financial inclusion as,
‘a state in which all working-age adults have effective access to credit, savings, payments and
insurance from the formal service provider (GPFI, 2011)’.
World Bank (2018) defines, financial inclusion means that individuals and businesses have
access to useful and affordable financial products and services that meet their needs –
transactions, payments, savings, credit and insurance – delivered in a responsible and
sustainable way.
Rangarajan Committee (2008), ‘A Committee on Financial Inclusion’, has defined Financial

Inclusion as "the process of ensuring access to financial services and timely and adequate credit
where needed by vulnerable groups such as weaker sections and low-income groups at an
affordable cost.”
The Committee on Medium-Term Path to Financial Inclusion (RBI, 2015) has set the vision for
financial inclusion as, ‘convenient access to a basket of basic formal financial products and
services that should include savings, remittance, credit, government-supported insurance and
pension products to small and marginal farmers and low-income households at reasonable cost
with adequate protection progressively supplemented by social cash transfers, besides
increasing the access of small and marginal enterprises to formal finance with a greater reliance
on technology to cut costs and improve service delivery, ….’
However, K.C. Chakrabarty (2012), Deputy Governor, RBI, has defined, ‘Financial inclusion is the
process of ensuring access to appropriate financial products and services needed by all members
of the society in general and vulnerable groups in particular, at an affordable cost in a fair and
transparent manner by mainstream institutional players.’
Financial Inclusion is about (a) the broadening of financial services to those people who do not
have access to the financial service sector; (b) the depending on financial services for people
who have minimal financial services; (c) greater financial literacy and consumer protection so
that those who are offered the products can take appropriate financial decisions. Though India
is the second-fastest-growing economy in the world, a large section of the Indian rural
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population remains unbanked and lacks access to even basic financial services like savings,
credit, and insurance facilities.
The access of the financial products and services to the households includes access to
contingency planning, credits, and the creation of wealth. The contingency or emergency
planning would help an individual in terms of savings for retirements, buffer savings, and
insurable contingencies whereas the access to the credit include the emergency credit facilities,
housing loans, and credit for consumptions. On the other hand, the access to wealth creation
such as savings and investment is based on the financial literacy and risk-taking capabilities of
the households’. To serve the purpose of financial inclusion for Indian perspectives, the quality
and extent of financial inclusion mainly include ensuring delivery of affordable financial
services, viz., simple savings (basic bank accounts for receiving payments/savings/deposits,
etc.), credit facility (small loan/overdraft), insurance (life / non-life), money transfer facility, and
financial advisory services by the formal financial system to those who tend to be excluded.
1.2.1.2 I MPORTANCE OF F INANCIAL I NCLUSION
The literature has already defined and discussed the importance of well-established financial
institutions (King and Ross, 1993; Beck, Ross & Norman, 2000; Beck, Demirgüç-Kunt, & Ross,
Beck, 2004; and Klapper et al., 2006). NABARD (2008a) highlighted that access to finance by
underprivileged and vulnerable groups is a necessity for employment, poverty reduction, social
cohesion for inclusive growth of the economy. Chakrabarty (2011) argued that financial
inclusion stimulates thrift, creates a culture of savings and develops an effective payment
mechanism strengthening the basic resources of financial institutions which benefits the
economy through efficient payment and dissemination of financial resources. A well-
established financial system plays an important role in the growth, development, and
numerous expansionary actions, especially in developing economies (Kumar, 2012). Though, it
is crucial to have well-connected societies with a proper financial system, especially the rural
poor and underprivileged masses to harness possible benefits. It should confirm that essentially
there is lesser financial inequality, allowing more people to enjoy the fruits of growth, leading in
the process to superior demand, and thus fostering overall growth of the country (Kochhar and
Dhanjal, 2009). Further, Subbarao (2010) has argued that extending the financial sector is
needed for a developed and matured economy. But it is only expected when every individual
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and household are financially well-educated to make informed decisions about how they save,
borrow and invest.
Joshi (2011) revealed that excluding people at bottom of the pyramid has economic
consequences. There is several empirical evidence that demonstrates that countries with a
large percentage of the population excluded from the formal financial system also show higher
poverty ratios and higher dissimilarity (Thorat, 2008). Hence, financial inclusion has now
become a prime objective for many central banks of developing economies. Today, financial
inclusion is a term that comes certainly to all politicians, regulators, bureaucrats, civil society,
and other development organizations. Financial inclusion is not something that is to be done in
the future but it has to be done now (Chadrashekhar, 2009).
1.2.2 FINANCIAL LITERACY (DEMAND SIDE)
Financial literacy stimulates the demand side, making the public aware of what they can
demand. It is a set of skills and knowledge that permits an individual to recognize the financial
principles to make informed decisions. Financial literacy is connected with the understanding of
basic financial concepts, competence to understand the key financial products, to make good
financial choices. The ignorance of financial literacy may lead to intended financial exclusion,
poor management of finance because of lack of appropriate financial decision, poor retirement
planning, depressed investment decision, chances of mis-buying of financial products, and poor
borrowing behavior, which can destructively affect the financial well-being of individuals.
1.2.2.1 M EANING & D EFINITION OF F INANCE L ITERACY
OECD (2013) defined, ‘financial literacy as a blend of skill, behaviour, awareness, attitude and
knowledge of individual that is required to make sound financial decision leading towards the
achievement of being financial well-being.’
OECD, (2014) defined, ‘financial literacy is a knowledge and understanding of financial concepts
and risks, and the skills, motivation and confidence to apply such knowledge and understanding
in order to make effective decisions across a range of financial contexts, to improve the financial
well-being of individuals and society, and to enable participation in economic life.’
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OECD (2005) defined financial education as ‘the process by which financial consumers/investors
improve their understanding of financial products, concepts and risks and, through information,
instruction and/or objective advice, develop the skills and confidence to become more aware of
financial risks and opportunities, to make informed choices, to know where to go for help, and
to take other effective actions to improve their financial well-being.’
Agarwal et al. (2010) defined, ‘financial literacy is the ability to make informed financial
decisions based on sufficient knowledge about financial concepts and instruments’.
Vitt et al. (2000) defined, ‘personal financial literacy is the ability to read, analyze, manage and
communicate about the personal financial conditions that affect material well-being. It includes
the ability to discern financial choices, discuss money and financial issues without (or despite)
discomfort, plan for the future and respond competently to life events that affect every day
financial decisions, including events in the general economy.’
Financial literacy is the ability to use knowledge and skills to manage financial resources
efficiently for lifetime financial security (Jump$tart, 2007).
1.2.2.2 I MPORTANCE OF F INANCIAL L ITERACY
Along with financial inclusion and consumer protection, financial literacy forms a triad, which is
necessary for ensuring financial stability. Not only do the three have a bearing on financial
steadiness, but also have a strong relationship with each other, with each having a vital
influence on the other. No matter how many banks we open and how many boots we have on
the ground, if an individual does not know about the financial decisions that are open to him;
policies, schemes, and financial tools will mean little. Thus, financial literacy has substantial
importance for financial inclusion and consumer protection. Without financial literacy, we
cannot expect to make major progress in either financial inclusion or consumer protection.
Even we develop suitable financial infrastructure to provide access to basic banking facilities to
the masses, people cannot take benefit of it unless they have financial literacy (awareness).
Even if they access formal banking services, there is no guarantee that they are receiving the
right kind of products and services. Thus, it is essential that when assessing financial products,
the consumer should be well aware of the basic terms of financial markets and the latest trend
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to fulfill their basic banking needs. The journey to financial literacy leads through financial
education, enabling individuals to use the knowledge and skills acquired in life situations and to
ensure consumer protection (UNDP, 2012).
There is ample literature highlighting the significance of financial literacy. Insufficient financial
literacy leads households to less effective and rational decisions. Individuals with low levels of
financial literacy are excessively represented amongst the ‘unbanked’, those missing any kind of
transaction bank account (Hogarth et.al. 2005). Lusardi & Mitchell (2006) revealed that
individuals with financial illiteracy are less likely to have intended for retirement. This is
essential because lack of planning is equivalent to lack of saving (Lusardi & Mitchell, 2006;
Lusardi, 1999). Calvet et al. (2007) found that more financially sophisticated individuals are
more likely to buy risky assets and invest more proficiently. Kimball & Shumway (2006)
revealed a huge positive correlation between financial sophistication and portfolio choice.
Several empirical studies have described that poor financial literacy is related to poor-risk
divergence and ineffective portfolio distributions (Banks and Oldfield, 2007; Christelis et al.,
2010). Hilgert et al. (2003) identified a positive link between financial knowledge and financial
behavior, i.e. credit management, savings, and investments. Further examples of the
consequences of financial illiteracy for economic behavior include experiencing difficulties with
debt (Lusardi & Tufano, 2009), borrowing more and becoming less wealthy (Stango & Zinman,
2009), paying more for credit (Stango & Zinman, 2011), selecting mutual funds with less
favorable fees (Hastings and Tejeda-Ashton, 2008), and being less likely to invest in stocks
(Christelis et al., 2010; Rooij et al., 2011). Empirical evidence showed that people were unable
to make good financial decisions due to a lack of financial competence (Chaudhary & Ahalawat,
2014). The policymakers are also concerned with the potential implication of financial literacy
for economic development.
1.3 DIMENSIONS OF FINANCIAL INCLUSION
The broad approach to financial inclusion addresses mainly three aspects – access, usage, and
quality – of financial services and products, defined by consumer ability to benefit from new
financial products and services (IFC, 2011). However, Hannig & Jansen (2010) revealed that
financial inclusion can be measured through the following lenses, in the order of complexity:
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 Access: Access is the ability to use available financial products & services from the
formal financial system. Understanding the level of access may require insight into and
detailed evaluation of potential obstacles for opening and using a bank account for any
purpose, like cost and physical proximity of banking outlets (branch, ATM, Business
Correspondents (BCs), Business Facilitators (BFs), etc.) The basic representation of
access can be derived by counting the actual number of bank accounts across the
financial institutions and estimating the percentage of the population with the account.
 Quality: It is the relevance of financial products and services to the requirements of the
consumer. Quality comprises experience, attitude, and opinions of consumers towards
the products or services offered to them. To measure the quality, there is a need to
gauge the nature and depth of the connection between the services provider and
consumer as well as the options available to the consumer’s levels of understanding of
those alternatives and their implications.
 Usage: It is beyond the basic acceptance of formal financial services, usage concentrates
more on the performance and depth of products or services use. Thus, identifying usage
requires more details about consistency, frequency, and period of use over time. To
measure usage, information must reveal the user’s point of view, i.e. the data obtained
through a demand-side survey.
 Impact: Determining variations in the lives of consumers that can be recognized to the
usage of financial products or services.
1.4 PRINCIPLES OF FINANCIAL INCLUSION
Financial inclusion has emerged as a priority for policymakers and regulators in over 60
developing countries across the globe. Therefore these countries provide holistic approaches
and methods to improve access to finance. The G20 Financial Inclusion Experts Group (FIEG)
was created to expand access to finance for household consumers and micro, small and
medium-sized enterprises. FIEG has developed nine principles for innovative financial inclusion
and endorsed them during Toronto Summit in June 2010. The nine principles include
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leadership, diversity, innovation, protection, empowerment, cooperation, knowledge,

proportionality, and framework (G20 FIEG, 2010). The brief of each principle are as below;
1) Leadership: To eradicate poverty, a strong leadership government must be formed

which is committed to increasing financial inclusion.
2) Diversity: To implement policy approach, promote competition and market-based

incentives which provides sustainable financial access and usage of a broad range of
affordable services (savings, credit, payments and transfers, insurance) as well as a
range of service providers.
3) Innovation: To increase access to the financial system and its use, technological and
institutional innovations should be promoted.
4) Protection: Encourage a widespread approach for consumer protection that recognizes

the roles of government, service providers, and consumers.
5) Empowerment: To develop financial literacy and financial capability.
6) Cooperation: Develop an institutional environment with a clear line of responsibility and

coordination within the government; and also encourage collaborations with direct
consultations across government, business, and other stakeholders.
7) Knowledge: By using better-quality data an evidence-based policy should be build up.

To measure progress, and to provide an incremental approach to “test and learn” which
can be acceptable for both regulator and service provider.
8) Proportionality: To build a policy and regulate the framework proportionately with the
risks and benefits involved in such innovative products and services by understanding
the gaps and barriers in existing regulation.
9) Framework: Consider the succeeding in the regulatory framework, replicating

international standards, national settings, and sustenance for a competitive landscape: a
suitable, flexible, risk-based Anti-Money Laundering and Combating the Financing of
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Terrorism (AML/CFT) regime; conditions for the use of agents as a customer interface; a
clear governing system for electronically stored value; and market-based incentives to
attain the long-term goal of broad interoperability and interconnection.
The above principles are a reflection of the situations beneficial to stimulating revolution for
financial inclusion while defending financial stability and consumers. They are not a stiff set of
necessities but are intended to help guide policymakers in the decision-making process. They
are flexible enough so they can be altered based on the context of the respective country.
1.5 SIGNIFICANCE OF FINANCIAL LITERACY
Financial services are now widely recognized as a factor contributing to a country's financial
stability, efficiency, and economic growth. In developed countries, the importance of financial
education has drawn interest from a variety of groups including governments, employers,
community interest groups, financial markets, and other organizations. The importance of
improving financial literacy has increased recently due to the development of new financial
products, the complexity of financial markets, and changing social, economic, political, and
demographic factors.
1.5.1 TO IMPROVE AWARENESS OF FINANCIAL PRODUCTS & SERVICES
In the recent past few years with the advent of globalization and liberalization of the financial
sector, a wide range of financial products and services have been introduced with the
participation of private and foreign entities along with the public sector enterprises. The
introduction of innovation of varied products has increased the scope of financial literacy to a
very large extent across the world.
1.5.2 TO FULFIL FINANCIAL RESPONSIBILITIES
With the decrease in the number of joint families, an individual face higher financial
responsibilities to take informed financial decision related for their financial well-being. At the
same, with the increase in living standards and costs, it became vital for individuals to secure
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their financial well-being through suitable financial planning and that can be achieved through
ample financial literacy.
1.5.3 FOR THE GROWTH OF FINANCIAL INTERMEDIARIES
With the development in the financial sector, more institutional players and intermediaries
came into existence to garner market opportunities. In such a competitive scenario, financial
literacy plays an important role in developing the domestic financial markets. It is one of the
major concerns for the poor consumer. Through enhancing financial literacy or education, it is
inevitable to enhance competition amongst the financial institutions. Healthy competition in
the financial market enhances financial stability, boosts efficiency and transparency of retail
financial markets.
1.5.4 INCREASING UNIQUE FEATURES OF FINANCIAL PRODUCTS
Growing complexities in financial products and services have made individuals' financial
decisions more complicated and annoying. In today’s competitive business environment,
consumers are offered a variety of financial instruments that offer a wide range of benefits and
options concerning fees, interest rates, length of the contract, exposure to risk, etc. The
understanding of these multifaceted features of financial products and services is quite difficult
for an average individual, resulting in greater perceived risk, the greater information required
to make comparison across many factors to take an informed decision which requires proper
financial literacy.
1.5.5 TO COPE-UP WITH INNOVATIONS & CHANGE
Developments in technology have made it easier for individuals to access their financial
products and services. The use of the internet as a means of communication is a boon for
financial service providers as it has removed the limitation of geographical restrictions for
consumers. These technological advances and market innovations not only ask an individual to
identify appropriate service providers and delivery channels from the wide range of options but
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also to use these technological innovations in saving time to take the financial decision
speedily.
1.5.6 FOR BETTERMENT OF RETIREMENT LIFE
An increase in life expectancy means the probability of more time spent in retirement and thus,
a greater need for financial planning, expanded insurance, and provisions of healthcare-related
expenses to cover unpredictable eventualities coupled with a major trend in the country, the
shift from Defined Benefit Plan to Defined Contribution Plan and now to National Pension
System or New Pension Scheme (NPS). Since the last decade, there has been a widespread
transfer of risk from both governments and employers to individuals. The governments started
to reduce the state-supported pensions and some healthcare benefits. Defined contribution
pension plans are quickly replacing defined benefit pension plans, shifting onto workers the
responsibility to save for their financial security after retirement. Most surveys show that a
majority of workers are unaware of the risks they now have to face, and do not have sufficient
knowledge and skill to manage such risks adequately, even if they are aware of them (OECD,
2008). Thus, proper financial literacy helps to take a wise decision for the betterment of
retirement life.
1.5.7 TO COPE-UP WITH INCREASING GLOBALIZATION & PRIVATIZATION OF FINANCIAL SECTOR
Globalization and privatization have played an important role in developing the domestic
financial markets. After 1991, many areas of the financial services industry kept open for
private players to gain wider access to consumers. As a result, not only the giant non-financial
domestic but also foreign companies entered into the Indian financial systems. As conservative
investments do not allow the investors to bring the expected rate of return and to cope up with
the inflation, companies have started to provide generalized and customized financial solutions
to consumers, credit made easier, and strongly believe to gain the market share.
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1.6 COMPONENTS OF FINANCIAL LITERACY
The key components of financial literacy are divided into four segments viz. understanding the
key financial products, understanding the basic financial concepts, developing financial skills &
confidence, and making good choices.
1.6.1 UNDERSTANDING THE KEY FINANCIAL PRODUCTS
A person with comprehensive financial literate must be proficient in the fundamental

understanding of the financial products essential throughout their life. Such financial products
or services include basic bank accounts, insurance, retirement saving plans, money transfer
facility, National Savings Certificate (NSC), preparation of budget, micro-finance, securities,
market investments like stocks, bonds, and mutual funds, etc. Bank related financial education
consists of details such as customers’ responsibilities under Negotiable Instruments Act,
precautions while dealing with ATMs and net banking, fundamentals of the payment system,
lockers and safe custody, loans, and guarantees, fixed versus floating rates of loans, etc.
Similarly, financial literacy helps securities market investors to understand the basics of the
stock market mechanism, settlement and clearing process in stock markets, the role of various
financial market intermediaries such as stockbrokers or consultants, sub-brokers, financers,
merchant bankers, underwriters, registrars, transfer agents, depository participant, credit
research agencies and portfolio managers, etc. It also helps in the thoughtful selection of
investments that meets investor’s goals and risk profile to keep individual stock and bond risks
at an acceptable level. Raising awareness and educating individuals on life insurance, general
insurance, National Saving Certificate (NSC), the basic concept of taxes, and retirement savings
plans are both critical and challenging priorities for developing countries like India. Financial
education tends to increase the responsibility of individuals for the management of insurance
and retirement risks and their coverage, as well as the consequences of wrong or inappropriate
financial decisions. It also helps to understand the difficulty and complexity of various existing
financial products in the given market.
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1.6.2 UNDERSTANDING BASIC FINANCIAL CONCEPTS
Financial education helps to create awareness about various existing financial products and
services, good financial practices, going digital, and consumer protection. Calculation of
numerical ability of finance is one of the most important day-to-day activities. Basic numerical
ability consists of fundamental mathematics like addition, subtraction, multiplication, division,
and compound interest. Rapidly growing technological advances around the world have
recognized the importance of basic financial employability skills. The lack of numeracy skills
prevents consumers from engaging in sound, credible, and wealth-enhancing analysis of
financial information. Those having poor numeracy skills ability are less likely to be able to save,
invest money in day-to-day activities, and less likely to be able to find or negotiate the best
deals on various financial products available to them. At the same time, they are more likely to
pay a high price and likely to be more indebted.
1.6.3 DEVELOPING SKILLS & CONFIDENCE
All the above core competencies described above are essential for financial literacy, however,
these competencies also require a degree of financial skills and confidence to be aware of
financial risk, opportunities, and related benefits from them. Financial skill and confidence are
an integral part of financial literacy and also a critical component in leading a successful and
stable life of an individual. It allows an individual to understand the implications of financial
decisions. A financially skilled person enjoys all the abilities essential to effectively manage
finances including budgeting, saving, spending, debt management, financial negotiation, etc to
achieve the goal of overall financial well-being.
1.6.4 MAKING BETTER FINANCIAL DECISIONS
The important component of financial literacy is making the best financial decisions about
saving, spending, insurance, investing, and managing debt throughout the life of an Individual
such as getting an education, commencement a new job, buying a house, starting a family,
spending on health, getting ready to retire and living out the senior years in future. As human
beings, people believe more in emotion rather than numbers. We might not understand returns
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and numbers, however understand the goals associated with them. Thus visualizing better
financial choices in advance will help an individual to achieve the goal of financial security.
1.7 CONSEQUENCES OF FINANCIAL ILLITERACY
Financial Illiteracy is a topic that is much discussed at various international economic forums
such as the G-20 summit, OECD meets, IMF, and World Bank conferences. Financial illiteracy
affects individuals and socio-economic levels and hence ineffective management of finance
makes an individual vulnerable to a severe financial crisis. Financial illiteracy leads to poor
financial decisions and ultimately brings stagnancy in the overall economic growth of a nation.
The consequences of financial illiteracy are briefly enumerated below:
1.7.1 PANIC IN CASE OF FINANCIAL EMERGENCIES
Financial emergencies knock on the door with no prior information, for example, a sudden job
loss, medical expenses, emergency home repairs, impending or unpaid bills, etc. Such financial
crises bring disruption and chaos in an individual’s life. People with sound knowledge in finance
can easily cope with the financial crisis by managing priority savings and investments,
negotiating with lenders, having extra financial backup and taking an advantage of available
financial assistance, etc.
1.7.2 UNORGANIZED SAVINGS OR INVESTMENTS
Individuals well versed in finance, with minimum effort, can easily start organizing the finance,
set financial goals, track spending, create a budget and determine the net worth. Financially
illiterate individuals lack all of these qualities and they become easy victims to fraudulent
activities.
1.7.3 WRONG INDIVIDUALS WILL TAKE FINANCIAL BENEFITS INSTEAD OF ENTITLED ONE
The Government of India has already initiated numerous measures for the benefit of
marginalized and poor people. The initiatives such as Pradhan Mantri Gramin Aawas Yojana
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(PMGAY) particularly made for building houses in rural areas, Pradhan Mantri Matritva
Vandana Yojana (PMMVY) for providing financial support to females, Integrated Child
Development Services (ICDS) to provide financial assistance for child development, Pradhan
Mantri Kaushal Vikas Yojana (PMKVY) to encourage skill development, stand-up India initiates
to provide credit facilities to SC/ST/Women entrepreneurs for greenfield enterprises, etc.
Possibly the marginalized and poor people who are financially illiterate fail to take advantage of
the available benefits to them, and wrong individuals take advantage of such advantage due to
the lack of financial literacy and ignorant by the entitled individuals.
1.7.4 DEVELOPMENT OF FINANCIAL MARKETS
Smoothly operating financial markets play a significant role in improving the efficiency and
effectiveness of an economy. The liberalization and globalization of Indian financial markets
have proliferated with complex financial instruments and services, which created challenges for
illiterate individuals to choose from. People with inadequate financial literacy fail to select the
best products or services available in the markets, which further hampers the growth of an
individual and nation as a whole. Thus, financial literacy can uplift the overall growth and
prosperity for the public at large and the country as a whole.
1.8 OVERVIEW OF FINANCIAL INCLUSION & FINANCIAL LITERACY - GLOBAL PERSPECTIVES
It is being recognized that financial inclusion works towards poverty reduction and economic
growth, as it facilitates households and businesses to plan for their routine activities, long-term
goals, and unexpected financial emergencies. The bank account holders are more likely to use
other financial services such as savings, credits, insurance, business startups, and its expansion,
invest in health & education, manage risk, and financial emergencies, all of which can enhance
the overall quality of their lives.
In the past few decades, financial inclusion is being promoted as a key priority development
area among various economies of the world. In 2013, The World Bank Group proposed the
global goal of universal access to basic financial services as an insignificant milestone towards
financial inclusion, where each one has access and causes the formal financial services to gain
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opportunities and diminish vulnerability (World Bank, 2013). Considering the global need for
up-to-date data to support the financial inclusion plan, World Bank’s Development Research
Group had constructed the Global Financial Inclusion (Global Findex) database. This database
gives a precise, multidimensional overview of where we stand and how far we have achieved in
expanding the access for all to the basic financial services which an individual required to
protect themselves against the adversity and invest in their futures.
According to ‘The Global Findex Database 2017’; analysis explained a new set of indicators with
detailed insight about how adults in 140 economies access accounts, make payments, save,
borrow, and manage risk. The report revealed that globally, about 1.7 billion adults remain
unbanked – do not have an account with financial institutions or through mobile money
providers (Demirguc-Kunt et al., 2018). As the account ownership is nearly high-income
economies, effectively all of the unbanked adults live in the developing countries. Certainly, half
of them are living in just seven developing nations including China (13%), India (11%), Indonesia
(6%), Pakistan (6%), Nigeria (4%), Bangladesh (3%), and Mexico (3%). Globally, almost 56% of
the unbanked adults are women. Almost 50% of the world’s unbanked adults comprise the
poor and they originate from the poorest 40% of the families in their respective country.
Interestingly in India and Mexico, more than 50% of the unbanked adults have mobile phones,
whereas, in the case of China, it is 82%. The unbanked global adults are usually having low
education, specifically in developing economies where half of the unbanked adults have
primary education or less, cause a concern of financial literacy. Thus, financial exclusion is not
only India specific problem but a global one.
Looking to the financial literacy globally, the S&P Global FinLit Survey was carried out to
measure the literacy of an individual based on the four fundamental concepts for financial
decision-making covering numeracy, interest compounding, inflation, and risk diversification,
and revealed that across the globe 33% of adults are financially literate and almost 3.5 billion
adults are lacking the basic financial concepts, most of them are living developing economies
(Klapper, Lusardi & Oudheusden, 2015). The survey further revealed that the Australia, United
Kingdom, Canada, Denmark, Finland, Germany, Israel, the Netherlands, Norway, Sweden, and
United States, etc. where 65% or more adults are financial literates, which is considered as a
very high level of financial literacy compared to all other developing economies - the so-called
BRICS (Brazil, the Russian Federation, India, China, and South Africa) where the on an average
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28% of the adults are financially literate. Thus, based on the above-mentioned data it can be
said that role of financial literacy is vital in the development of economies.
1.9 FINANCIAL INCLUSION APPROACH IN INDIA
Different countries have different approaches for financial inclusion based on various
parameters. As a means of the formal financial system, India has adopted a bank-led model for
financial inclusion to introduce a range of products related to savings, payments, and credit
together (Chakrabarty, 2012). Chakrabarty (2012) further argues that, in India, it is recognized
that mainstream banking institutions can offer the suite of products necessary to bring in
effective/meaningful financial inclusion. Other intermediaries and technology partners have
been allowed to partner with banks in offering products and services collaboratively. Other
institutions including, Micro Finance Institutions (MFIs), Non-Banking Financial Companies
(NBFCs), and Non-Governmental Organizations (NGOs) are not able to bring financial inclusion
on their own, as the range of financial products and services which are considered as the
minimum for financial inclusion, cannot be offered by them individually.
1.10 NEEDS OF FINANCIAL INCLUSION IN INDIA
The policymakers in India have been focusing on financial inclusion, primarily for following the
three most pressing needs.
1.10.1 TO DEVELOP SAVING HABITS
Lack of savings made life more miserable for the people of lower-income groups. They live
under the constant shadow of financial threats and this makes them more vulnerable. Presence
of banking products and services aimed at providing a critical tool to inculcate the habit to save
money. Capital formation in the nation is also anticipated to be furthered once financial
inclusion actions materialize successfully, as people move away from traditional modes of
parking their savings in real estate, land, bullion, etc.
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1.10.2 TO PROVIDE FORMAL CREDIT AVENUES
So far the financially excluded population of the country is vulnerably dependent on informal
channels of credit like relatives, family, friends, and moneylenders. Accessibility of suitable and
transparent credit from the formal financial system would allow the entrepreneurial essence of
the masses to escalate the outputs and wealth of the nation as a whole.
1.10.3 TO STOP FINANCIAL LEAKAGE OF PUBLIC SUBSIDIES & WELFARE
The government is approaching for direct cash transfers to beneficiaries through their bank
accounts rather than subsidizing products and making cash payments. This creditable effort is
expected to reduce the government’s subsidy bill (as it shall save that part of the subsidy that is
leaked) and provide benefits only to the real beneficiaries. All these efforts require an efficient
and affordable banking system that can reach out to all.
1.11 ROLE OF BANK IN FINANCIAL INCLUSION
An efficient flow of funds channelized by a strong financial system helps in harnessing the
growth of an economy (McKinnon, 1973). It applies to all, including developed and developing
economies. Therefore, banking institutions are the chief organized financial intermediaries
which help in reinforcing the financial system of an economy. Their effective operations service
to channelize money from savers to the borrowers and circulate the wheels of the economy.
Many researchers including Goldsmith (1969), McKinnon (1973), and Shaw (1973) argued that
an efficient flow of funds from banks to their extensive network leads to innovation and
develops enterprises due to the availability of credit. Supporting that, King & Levine (1993)
provided empirical evidence that the banking system is the strong financial intermediation
system that leads to long-term economic growth through capital accumulation and enhanced
productivity.
However, it is to be noted that half of the world’s population is unbanked and they neither
have any kind of awareness nor do they have access to financial systems or any kind of formal
or semi-formal financial services for saving or borrowing money (Chaia et al., 2009). The
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situation might be even worse in the case of developing economies. These statistics highlight
the present scenarios of financial exclusion and the horrible need for achieving financial
inclusion.
1.12 WHY FINANCIAL EXCLUSION?
Besides various efforts, banking services in India still do not reach a vast segment of the
population, especially the low-income underprivileged segments of the society in rural areas,
viz. marginal farmers, landless laborers, oral leases, self-employed, small businesses, and
unorganized sector enterprises; and in semi-urban/urban areas – slum dwellers, migrants,
ethnic minorities and socially excluded groups, senior citizens and women. These segments are
still outside the fold of formal banking and financial services.
Access to financial products is constrained by various factors like, lack of awareness/literacy

about the financial products & services, absence of reach and coverage, lack of technology, lack
of appropriate business model, poverty, ignorance, unaffordable products, high transaction
costs, and products which are not convenient, inflexible, not customized and of low quality. In
short, financial exclusion is the reason for the huge demand-supply side gap in the financial
service industry. Addressing effectively, we may overcome the financial inclusion challenges.
1.12.1 FACTOR AFFECTING ACCESS TO FINANCIAL SERVICES
Based on the study conducted by World Bank, 2008; Asian Development Bank, 2007; and
Kempson et al., 2004, the following are the key factors that affecting access to financial
services;
 Gender Issues: Usually the access to credit is frequently restricted for women as they do
not have, or cannot hold title to assets such as land, building, and property or essentially
pursue male guarantees to borrow.
 Age Factor: The financial service providers typically aim at the center of the
economically active people, habitually supervising the design of suitable products for
older or younger possible customers.
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 Legal Authentication: The absence of legal identities such as identity cards, birth
certificates, or transcribed records often eliminates women, tribal minorities, financially
and politically refugees, and migrant workers from accessing financial services.
 Limited Literacy: Inadequate literacy, mainly financial literacy, i.e., basic calculation,
business finance skills as well as the absence of knowledge frequently restrain demand
for financial services.
 Place of Living: While actual distance is as much about transportation infrastructure as

physical distance, factors like thickness of population, rural and distant areas,
movement of the people (i.e., highly movable individuals with no fixed or formal
address), insurgence in a location, etc., also distress access to financial services.
 Psychological & Cultural Barriers: The emotion that banks are not attentive to look into
their cause has led to self-exclusion for several of the low-income groups. Nevertheless,
social and religious obstacles to banking have also been detected in some of the
countries.
 Social Security Payments: In such countries where the social security payment system is
not interconnected to the banking system, banking exclusion has been observed higher.
 Bank Charges: In the majority of the economies, the transaction is free as long as the
account has adequate funds to cover the cost of transactions made. Conversely, there
are a variety of extra charges that have a disproportionate effect on people with low
income.
 Terms & Conditions: The terms & conditions associated with products such as minimum
balance necessities and settings linking to the use of accounts habitually discourage
individuals from using such products/services.
 Level of Income: The level of income of an individual is always imperative in gaining

access to financial services. Exceptionally poor persons find it challenging to access
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financial services even when the services are personalized for them. Perception
obstacles and income perception among prospective fellows in group-lending programs
may eliminate the poorer members of the community.
 Type of Occupation: Many banks have not established the ability to assess loan
requests of small borrowers and unorganized enterprises and therefore incline to reject
such loan applications.
 The attractiveness of the Product: Both the financial services/products (savings

accounts, credit products, payment services, and insurance) and how their accessibility
is promoted are decisive in financial inclusion.
1.13 EVOLUTION OF FINANCIAL INCLUSION & FINANCIAL LITERACY IN INDIA
In the same line as other developing nations, India has already started taking initiatives towards
financial inclusion. Indian Government and Reserve Bank of India have been pursuing the goal
of financial inclusion over several decades. Initially, the concept of financial inclusion was
evolved with the initialization of the co-operative movement during 1904. Several institutions
have been established so far for credit delivery and to provide direct credit to the needy and
poor. For example, the creation of the State Bank of India (1955), nationalization of commercial
banks (1969 & 1980), introduction of the Lead Bank Scheme (1969), setting up of Co-operative
& Regional Rural Banks (RRBs, 1976), Creation of National Bank for Agriculture and Rural
Development (NABARD) (1982), Service Area Approach for lending (1988), NABARD’s SHG-Bank
Linkage Program (1992), Setting up of Local Area Banks (1996), Policy initiatives for Business
Correspondents (BCs) / Business Facilitators (BFs), the introduction of Microfinance Institutions
(MFIs) were some of the major institution-building measures initiated for financial inclusion in
India. Fixing targets for priority sector lending has also been the hallmark of policy intervention
for achieving financial inclusion. Broadly the process of financial inclusion in India is divided into
three-phase (Kothandaraman, 2012).
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1.13.1 PHASES OF FINANCIAL INCLUSION
• The aim was on channelizing credit to weaker sections of the society and neglected
1960-1990 sectors of the economy.
• Aimed at strengthening the financial institutions as part of financial sector reforms.

1990-2005
• The ‘Financial Inclusion’ was explicitly made as a policy objective and thrust was on
2005 providing safe facility of savings deposits
Onwards
Figure 1.1: Phases of Financial Inclusion in India
It is essential to have a robust institutional architecture guiding and coordinating the efforts of
numerous stakeholders towards the dissemination of financial literacy. In India, we have such
advantage having the Financial Stability and Development Council (FSDC), which is managed by
Hon’ble Union Finance Minister, Government of India, and heads of all major financial sector
regulatory authorities including the Reserve Bank of India (RBI), Security Exchange Board of
India (SEBI), Insurance Regulatory and Development Authority of India (IRDAI) and Pension
Fund Regulatory and Development of India (PFRDA). FSDC mandated to focus on spreading
financial inclusion and financial literacy in India. Under the aegis of FSDC, a National Strategy
for Financial Education (NSFE) 2020-25 for India has been prepared and envisaged for creating
financial awareness and educating consumers towards access to various financial services
including availability of different types of products and their features, shifting attitudes to
translate the knowledge into responsible financial behavior; making the consumer aware about
their rights and obligation related to various financial services. The strategy calls for active
participation of all stakeholders’ inclusion people, financial sector controllers, educational
organizations, NGOs, banking and financial sector organizations, multifaceted global players,
and the Government.
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1.14 STRATEGIC INITIATIVES TOWARDS THE FINANCIAL INCLUSION & FINANCIAL LITERACY IN
INDIA
Financial inclusion gained importance in India since early 2000 when financial exclusion came
into light and it was found that it has a direct relation to poverty (Saravanakumar, 2010). In its
annual policy statement 2004-05, RBI highlighted that “…banks should be obliged to provide
banking services to all segments of the population on an equitable basis (Reddy, 2005).” Under
this policy regime, banks were advised to examine their present practices to align the common
man, who are excluded from the formal financial system, with an objective of financial
inclusion.
Later on, several key measures have been initiated both by RBI and Government to bring the
financially excluded people into the fold of formal banking services. The important initiatives
are highlighted as below:
1.14.1 NO-FRILL ACCOUNTS
In 2005, RBI has advised banks to provide basic banking ‘no frills’ accounts either with ‘nil’ or
very low minimum balance as well as charges that would make such accounts accessible to vast
sections of the population. Banks were also advised to provide small overdraft facilities in such
accounts.
1.14.2 BASIC SAVINGS BANK DEPOSIT ACCOUNT (BSBDA)
During 2010, the ‘no-frills’ accounts have been replaced by Basic Savings Bank Deposit Account
(BSBDA), under which a minimum bouquet of banking services including savings and payments
provided to the financially excluded people. The services offered under BSBDA include; savings
cum overdraft accounts, pure savings accounts (recurring deposit), a remittance product to
enable Electronic Benefits Transfer (EBT) and other remittances, Commercial credit products
such as General Credit Cards (GCC) or Kisan Credit Cards (KCC).
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1.14.3 SIMPLIFIED KNOW YOUR CUSTOMERS (KYC) NORMS
To ensure hassle-free bank account opening procedure, the Know Your Customer (KYC) norms
were simplified in rural & urban areas especially for small value customers and transactions by
RBI during 2004.
1.14.4 LIBERALIZED ATMS POLICY
To increase the network of ATMs, the RBI has liberalized the ATM Policy and permitted the
non-banking organization to commence ATMs (called ‘White Label ATMs’).
1.14.5 INTRODUCTION OF BUSINESS CORRESPONDENTS (BCS) & BUSINESS FACILITATORS (BFS)
To ensure greater financial inclusion and increase the outreach of banking services in the
country, RBI in 2006 permitted banks to use the services of Non-Governmental
Organizations/Self Help Groups (NGOs/SHGs), MFIs, and other Civil Society Organizations
(CSOs) as intermediaries and Business Facilitators (BFs) or Business Correspondents (BCs) for
providing banking and financial services. The BCs are the retail agents of the banks to conduct
banking business at places other than bank premises and are allowed to do “cash in-cash out”
transactions.
1.14.6 CONSTITUTION OF STATE LEVEL BANKERS COMMITTEES (SBLCS)
State Level Bankers Committees (SLBCs) have been constituted in each for quarterly review of
banking developments in each state.
1.14.7 IMPLEMENTATION OF ADVANCED TECHNOLOGY MECHANISM
To spread the banking services using technology-based instruments, several technology-based

solutions are being initiated by the RBI to promote financial inclusion. It includes incentivizing
banks to issue smart cards, ATM Cards, facilitating internet banking, mobile banking with
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regulatory measures. The due weightage has been given to Information and Communication
Technologies (ICT) to provide banking services in remote areas.
1.14.8 SETTING UP OF FINANCIAL LITERACY CENTER (FLC)
To promote financial literacy amongst the individuals, in 2012, RBI has directed banks to set up
at least one Financial Literacy Centre (FLC) in all the districts (640+) across the country in a
time-bound manner besides the existing Financial Literacy and Credit Counselling (FLCC)
institutions. It has also directed banks to perceive a ‘Financial Literacy Week’ across the nation
simultaneously every year. Centers for Financial Literacy (CFLs) have been set up at the block
level, involving public involvement in association with banks to spread financial literacy.
1.14.9 INTRODUCTION OF AADHAR - UNIQUE IDENTIFICATION AUTHORITY OF INDIA (UIDAI)
In 2009, the government has initiated the allotment of AADHAR - Unique Identification Number
(UID) to every Indian citizen, which could act as a tool for financial inclusion, specifically for
those who have been facing a problem of identity proof.
1.14.10 INTRODUCTION OF PRADHAN MANTRI JAN DHAN YOJANA (PMJDY) & RELATED
FLAGSHIP SCHEMES
Pursuing financial inclusion on top priority, Pradhan Mantri Jan Dhan Yojana (PMJDY) has been
launched in August 2014 with the objectives to provide universal access to banking facilities,
providing basic banking accounts with overdraft facilities and RuPay Debit cards to all
households, conducting financial literacy programs, creation of credit guarantee fund, micro-
insurance, and unorganized sector pension schemes. Likewise introduction of other social
security schemes including social security schemes viz. Pradhan Mantri Jeevan Jyoti Bima
Yojana (PMJJBY), Pradhan Mantri Suraksha Bima Yojana (PMSBY), Pradhan Mantri Kisan Maan
Dhan Yojana (PM-KMY), Atal Pension Yojana (APY), Pradhan Mantri Shram Yogi Mann Dhan
Yojana (PM-SYM), and Pradhan Mantri Mudra Yojana (PMMY) have transformed the scenario of
financial inclusion in India.
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1.14.11 CREATION OF SMALL FINANCE BANKS (SFBS) & PAYMENTS BANKS
Besides, telling universal banks to open Jan Dhan accounts with basic banking services, it has
issued differentiated licenses in 2015 to create Small Finance Banks (SFBs) and Payments Banks
in 2015. Small finance banks are for offering savings bank services to the hitherto unbanked
people and create access to credit to small business units, small and marginal farmers, micro
and small industries, and other unorganized sector entities. Payment Banks provide small
savings accounts and payment/remittance services to migrant laborers, low-income
households, small businesses, and other unorganized sector entities. Microfinance lenders have
a well-orchestrated eco-system to create for the bottom of the pyramid customers, but they
are not allowed to offer savings bank services.
1.14.12 INITIATIVES TOWARDS LAST-MILE DELIVERY
Besides the access to financial services through ICT based BC / BF model, another step to
deepen financial inclusion in the country, RBI launched Post Payments Bank (IPPB) in 2018. IPPB
leveraging a huge network of 1.55 lakh Post Offices, more than 3 lakh postmen, and Grameen
Sewaks to further accelerate the financial inclusion initiatives in the country.
1.14.13 NATIONAL STRATEGY FOR FINANCIAL INCLUSION 2019-24
With an aims to provide access to formal financial services affordably, broadening & deepening
financial inclusion, and promoting financial literacy & consumer protection, the National
Strategy for Financial Inclusion (NSFI) 2019-24 has been prepared by RBI under the aegis of the
Financial Inclusion Advisory Committee (FIAC) and is constructed on the inputs and
recommendations from Government of India, other Financial Sector Regulators viz., SEBI, IRDAI,
PFRDA and related other stakeholders including NABARD, NPCI, commercial Banks and
Corporate Business Correspondents, etc. The initiative is in line with the global initiates towards
financial inclusion, where more than 35 economies including India have launched an NSFI and
more than 25 countries are in process of developing such strategies.
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1.14.14 NATIONAL STRATEGY FOR FINANCIAL EDUCATION (NSFE) 2020-25
The latest NSFE 2020-25 envisioned to spread the financial education/literacy using the ‘5 C’
approach through an emphasis on the development of suitable Content (for School, College &
Training Institutions), Capacity building amongst the financial intermediaries, leveraging the
positive impact of Community for financial literacy with proper Communication strategy and
extending the Collaboration amongst concerned stakeholders. This will cover all the sections of
the society including all aged individuals, geography, and sectors.
1.14.15 TOWARDS LIBERALIZATION
RBI has deregulated bank branch opening, de-licensed ATMs, and mandated banks to open at
least 25% new branches in unbanked rural areas. Commercial banks including RRBs have been
mandated to migrate to Core Banking Solutions. In 2009, RBI has allowed domestic scheduled
commercial banks to freely open branches in Tier 2 to Tier 6 centers with a population less than
50,000, subject to reporting. While in the case of northeastern states, scheduled commercial
banks are allowed to open branches in rural, semi-urban, and urban areas by RBI in each case,
subject to reporting.
1.15 CHALLENGES OF FINANCIAL INCLUSION & FINANCIAL LITERACY IN INDIA
Besides the numerous initiatives undertaken by various stakeholders towards strengthening

financial inclusion and financial literacy in India, there are still huge gaps exist in the access and
usage of formal financial services which require the attention of regulators with proper
coordination and monitoring. The broad challenges are as below;
1.15.1 POOR FINANCIAL INFRASTRUCTURE
Inadequate physical financial infrastructure, limited transportation facility, lack of trained

manpower, etc., in parts of the rural hinterland, create an obstacle to the customer while
accessing financial services.
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1.15.2 LACK OF EFFECTIVE CONNECTIVITY
As the technology became an integral part enabling to access financial services, various parts of
the country still facing poor connectivity which tend to be left behind ensuring access to
financial services thus created a digital divide. Enhancing the telecommunication and internet
connectivity at the last mile (rural areas) needs a key concentration.
1.15.3 ISSUE OF CONVENIENCE & RELEVANCE
The complicated long procedure restricts on-boarding the customers, specifically to the low
income and illiterate households to access and usage the formal financial services. The
availability of complex products, which are difficult to understand, and do not fulfill the needs
of the financially excluded people are creating barriers for financial inclusion.
1.15.4 SOCIO-CULTURAL OBSTACLES
The dominance of definite value systems and beliefs in some sections of the population in India
created an unfavorable attitude towards formal financial services.
1.15.5 PRODUCT USAGE
The numerous supply-side initiatives have increased access to basic financial services such as
micro-insurance and pension, however, unless effective financial literacy mechanism, the usage
of the products and services offered under financial inclusion are limited and not up to the
mark.
1.15.6 LACK OF COMPETITIVE PAYMENT INFRASTRUCTURE
Presently, the mainstream of the retail payment products viz. CTS, AEPS, NACH, UPI, IMPS, etc.
are functioned by the National Payments Council of India (NPCI) only and need more such
market players to promote product innovation and competitiveness to minimize the risk and
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financial stability. The literacy to use such a payment mechanism also creates hurdles for
financial inclusion.
1.16 PROGRESS & CURRENT STATUS OF FINANCIAL INCLUSION & FINANCIAL LITERACY IN
INDIA
India is the home of 1.37 billion people, spread across 29 states and 7 union territories. It
comprises about 650,244 villages and 732 districts in our country. A vast majority of the
population living in rural areas and a large population of them are still excluded from access to
formal financial services. Besides the numerous initiates towards financial inclusion and
financial literacy, the availability of financial services in an affordable manner is a daunting task.
1.16.1 PROGRESS TOWARDS FINANCIAL INCLUSION
Comprehensive financial inclusion policies and measures have a multiplier effect on economic
growth, poverty reduction, and income disparity, while also being favorable for financial
stability. Per the latest Financial Access Survey conducted by IMF, reflects that initiatives taken
by RBI and the government towards financial inclusion have a positive impact. The number of
bank branches per 1 lakh adults reached 14.6 during 2019 compared to 13.6 in 2015, which is
higher than Germany, China, and South Africa (IMF, 2020). With a strong thrust to increase
bank account among the unbanked adults through PMJDY, the number of deposits accounts at
banks surge significantly with emerging peer economies and even a few of the advanced
countries. Remarkable progress has been also reported towards the use of digital payment with
numerous government initiates and promotion of usage of digital medium for payments.
Within a span of six years of its implementation, the total number of accounts opened under
PMJDY reached 41.4 crores, with a deposit of Rs 1.30 Lakh crore as of December 2020 (RBI,
2020). Almost two-thirds of these accounts are operational in rural and semi-urban areas. More
than 60% of these accounts are associated with public sector banks. Nevertheless, usage of
these accounts remained a concern with lacklustre growth in the average balance.
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The introduction of National Strategy for Financial Inclusion (NSFI): 2019-20 has laid down
numerous landmark and action plans to be executed during the strategy period with curtail two
recommendations related to financial literacy (development of financial literacy modules with
precise target group) and consumer protection (development of strong customer grievance
portal) (RBI, 2021). According, the National Centre for Financial Education (NCFE) has
developed appropriate modules in the form of audio-visual content/booklets for the target
groups. For the strong grievance redressal portal, the Complaint Management System (CMS)
introduced by RBI acts as a public electronic platform for lodging, tracing, and redressal status
of the complaints. Additionally, the RBI has also introduced Online Dispute Resolution (ODR)
system for addressing customer disputes and grievances concerning digital payments.
To have a planned approach towards financial inclusion, banks have been instructed to put in
place the Financial Inclusion Plan (FIP) on predefined various parameters. The progress and
achievement towards the specified parameters at the end of December 2020 are highlighted in
below Table 1.1.
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Table 1.1: Financial Inclusion Plan: A Progress Report (As of Dec-2020)

Particulars Mar 2010 Dec 2019 Dec 2020*
Banking Outlets in Villages Branches 33,378 54,481 55,073
Banking Outlets in Villages >2000*-BCs 8,390 1,28,980 8,51,272
Banking Outlets in Villages <2000*-BCs 25,784 3,83,864 3,85,537
Total Banking Outlets in Villages - BCs 34,174 5,12,844 12,36,809^
Banking Outlets in Villages - Other Modes 142 3,473 3,440
Banking Outlets in Villages -Total 67,694 5,70,798 12,95,322
Urban Locations Covered Through BCs 447 5,51,327 3,24,345
BSBDA - Through Branches (No. in Lakh) 600 2,558 2,891
BSBDA - Through Branches (Amount in Crore) 4,400 90,731 1,25,898
BSBDA - Through BCs (No. in Lakh) 130 3,409 3,601
BSBDA - Through BCs (Amount in Crore) 1,100 62,095 77,163
BSBDA - Total (No. in Lakh) 735 5,967 6,492
BSBDA - Total (Amount in Crore) 5,500 1,52,826 2,03,061
OD Facility Availed in BSBDAs (No. in Lakh) 2 62 59
OD Facility Availed in BSBDAs (Amount in Crore) 10 455 500
KCC - Total (No. in Lakh) 240 479 490
KCC - Total (Amount in Crore) 1,24,000 7,09,377 6,79,136
GCC - Total (No. in Lakh) 10 200 199
GCC - Total (Amount in Crore) 3,500 1,84,918 1,73,968
ICT-A/Cs-BC-Total Transactions (No. in Lakh)# 270 22,500 35,183
ICT-A/Cs-BC-Total Transactions (Amount in 700 6,06,589 8,28,795
Crore)#
*: Village population. ^: Significant increase in numbers is due to reclassification done by a bank.
#: Transactions during the year. $: Provisional data.
Source: FIP returns submitted by banks.
Source: RBI (2021), Reserve Bank of India Annual Report 2020-21. Reserve Bank of India (RBI). Retrieved from
https://rbidocs.rbi.org.in/rdocs/AnnualReport/PDFs/0RBIAR202021_F49F9833694E84C16AAD01BE48F53
F6A2.PDF
As highlighted in Table 1, a total of 12,95,322 banking outlets (branches, BCs, and other modes)
are operational in village areas.
Regarding lead bank responsibility, 12 public sector banks and 1 private sector bank were
assigned the responsibility of lead bank by RBI, covering a total of 730 districts across the
country by March 2021.
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In achieving one of the key objectives of NSFI: 2019-24; the milestone is achieved in providing
universal access to financial services in each village in the range of a 5 Km radius/hamlet of 500
households in hilly locations covering 22 states and 6 UTs as of March 2021 (RBI, 2021).
1.16.2 PROGRESS TOWARDS FINANCIAL LITERACY
The development of financial literacy content is one of the prime objectives of the NSFE: 2020-
25. As of March 2021, 13 state educational boards have already included the specified
components on financial education in their school syllabus. NCFE is in talk with NCERT about
the incorporation of financial education in the school curriculum for classes 6-10. NCERT is also
developing financial literacy e-learning resources and NCFE is providing content development
supports based on inputs obtained from various stakeholders.
As of December 2020, there were 1,478 Financial Literacy Centres (FLCs) in India and a total.
During FY 2019-20, these FLCs have undertaken a total of 1,48,444 financial literacy activities
wherein, a total of 45,588 financial literacy programs were undertaken by the FLCs during the
period Apr-Dec 2020, hampered due to the COVID-19 pandemic (RBI, 2021). However, the RBI
undertook financial education programs through virtual mode and also leveraged through cable
television (TV) and public radio to extent financial awareness messages.
Understanding the necessity to develop standardized content to meet the necessities of the
common public related to financial awareness on essential banking aspects, the RBI developed
the Financial Awareness Messages Booklet (FAME) booklet in 2016. Keeping because of the
latest development in the financial sector, the content of the booklet was reviewed to cover 20
essential messages through the four themes of financial proficiencies, basic banking, digital
financial literacy, and consumer protection. The updated booklet has been made available in 11
regional languages and is placed on the RBI’s Financial Education website for larger spreading.
1.16.3 PRESENT STATUS OF FINANCIAL INCLUSION AND FINANCIAL LITERACY IN INDIA
Besides the constant efforts of providing access to a formal financial system in India, there are a
vast number of people, potential entrepreneurs, small enterprises, and others, who are
excluded from the financial services, which has affected growth and prosperity in India.
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As per the latest available World Bank’s Findex 2017 report, 80% of the Indian adults have bank
accounts, and 20% still lacking access to the formal financial system (Demirguc-Kunt et al.,
2018).’The report further highlights that, accounting for almost 190 million adults without an
account, India is the home of the second-largest unbanked population in the world after China,
which has 225 million unbanked adults. 90% of the unbanked Indian adults reported having
identity proof issued by the government. About every 4 in 10 unbanked Indian adults are in the
age group of 15-24. Less than half of the account holders have debit cards, and amongst those
who do, only about one-third of them used it to make the direct purchase. Less than 10% of the
account holders are using a mobile phone or the internet to make the transaction through their
account.
The report further highlighted the interesting fact, that in India, almost half of the account
owners have an account that remained inactive in the previous year (2017), which is the
highest in the world and about twice the average of 25% for developing nations. The
government’s initiates towards the increase in ownership of account holders through the
introduction of Pradhan Mantri Jan Dhan Yojana (PMJDY) launched in 2014, which had bought
millions of Indians into the formal banking system, however, many of them might not have an
opportunity to use their new account. Interestingly, 100 million adults with an inactive account
have a debit card, while nearly 250 million (66%) of the inactive Indian account owners have
mobile phones. Almost 60% of the account holders reported not saving at all.
Roughly 16 out of 100 people in India don’t save at all. Most of these people are either students
or are in the unorganized sector such as rickshaw pullers, street vendors, etc. who earn a
meager sum of money on a daily wage basis which is not even sufficient to sustain their basic
nutritional requirements (Rawat & Gambhir, 2017).
After the great reforms of 1991, India has expanded a wide range of economies by narrowing
the gaps in the living standard of its people. Yet, socially and economically a huge mass of the
country’s population became expelled. It becomes imperative that social inclusion is made
possible with financial Inclusion.
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1.17 SIGNIFICANCE OF THE STUDY
Financial Inclusion is essential for improving the incomes of the poor and acts as an engine for
sustainable economic growth. The worldwide number of institutions/organizations and groups
of countries trying to develop standard strategies for financial inclusion, to be implemented
anywhere with a minor change. Indian has already taken numerous efforts to adopt global
standard practices for financial inclusion. However, the efforts of financial inclusion will only be
effective if they are supported by reliable data, common indicators to focus on, appropriate
strategy formation or revision, and monitoring progress in achieving improvements. The
success for financial inclusion could be accomplished through the formation of appropriate
strategies, building institutional structure, developing the private sector and public sector
actions with suitable policies, regulations, and financial infrastructure, and creating a
supportive implementation framework.
It has been discussed that financial literacy is a tool to achieve financial inclusion. So, it is
necessary to identify that what are the important determinants that lead to a better level of
financial literacy and financial inclusion.
This research can provide important inputs related to study the level of financial literacy and
evaluating the financial inclusion strategies of banks in the Indian context. The main purpose of
the research is to understand and identify the key determinants of the financial literacy level
and to evaluate the financial inclusion strategies of the formal banking sector.
This study also aims at understanding the dynamics of the financial literacy and financial
inclusion determinants. As, determinants are highly variable in nature, they change due to
change in income, age, gender, education, occupation, and investment experience in terms of
the number of years, etc. So, the study will also examine that how the financial literacy level is
changing based on different demographics.
It is seen that level of financial literacy and financial inclusion strategies are also being affected
by some of the environmental and policy-related factors. Hence, this study also aims at
knowing that how this factor affects the overall level of financial literacy and financial inclusion.
38 | P a g e
Thus, the research is targeted to study how these environmental and investor moderating
factors affect each determinant.
Overall knowing determinants and moderating factors affecting financial inclusion and financial
literacy level experience is intended to craft a sustainable competitive strategy in the formal
banking sector to achieve the goal of financial inclusion. As the management of financial
inclusion strategies and financial literacy practices becoming a need of the day, it has become
very important to determine what kind of strategies are to be formed to achieve the overall
goal of financial inclusion and financial literacy. So, this study will examine determinants,
dynamics, and management strategies for developing and implementing seamless financial
inclusion and financial literacy practices informal banking sector.
1.18 PROBLEM STATEMENT AND RESEARCH QUESTIONS
The problem identified in this research is to seek relationships of the determinants on financial
inclusion strategies and financial literacy with and/or without the moderating variables. This
would necessitate a systematic procedure of identifying the determinants, development of
holistic research instruments/metrics of measurement of the endogenous and exogenous
variables, and establishing hypothetical relationships between the variables of the study
followed by the testing of this model. The result would be the development of a model which
can be analyzed for the significance of influence so that managerial implications can be drawn.
This problem statement of the present research has raised the following questions.
1. What could be the indicators of the determinants of effective financial inclusion strategies
and financial literacy?
2. Are there any moderators between the determinants and strategies affecting financial
inclusion and financial literacy?
3. If there exist moderators what could be their indicators with reference to financial inclusion
strategies and financial literacy?
4. What would be the significance of the influence of the determinants on financial inclusion
strategies and financial literacy level?
5. Would the moderators cause any variance in the above influence?
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6. Would the identification of the influence reveal the most dominating determinants and
could there be managerial implications derived from the analysis?
7. What would be the strategy to be adopted by banks to improve financial inclusion in light of
financial literacy?
1.19 RESEARCH OBJECTIVES
Having identified the research problem in the literature available related to financial inclusion
and financial literacy, the following objectives have been identified to fill the gap.
 Identifying the determinants of financial inclusion and financial literacy along with the
moderating variables can influence the strategy aspect of both concepts.
 Develop a metric for the measurement of financial literacy level and to evaluate the
financial inclusion strategies and validate and test the same.
 Collect the data from the individuals and banking organizations and analyze the same to
seek a relationship between the determinants and financial inclusion and financial
literacy with and without the moderating influence of variables.
 Draw managerial implications based on the study and make suggestions to enhance
financial inclusion and financial literacy to achieve the financial well-being of society.
 To understand efforts made by banks to improve financial inclusion.
 To understand the impact of Bank Network on Financial Inclusion.
 To evaluate the effect of utilization of various Technology tools on Financial Inclusion.
 To understand the impact of the Regulatory Environment on Financial Inclusion

Strategies of banks.
40 | P a g e
 To study the impact of Niche Group Coverage by Banks on Financial Inclusion Strategies
 To evaluate the role of Trust & Awareness of individuals on Financial Inclusion.
 To understand the impact of the Financial Attitude of individuals on the Financial

Literacy Level.
 To study the relationship between Financial Influence and Financial Literacy Level.
 To evaluate the impact of Financial Behaviour on individuals on the Financial Literacy

Level.
 To understand the impact of Financial Awareness of individuals on the Financial Literacy

Level.
 To understand the influence of Financial Aptitude on Financial Literacy Level.
 To evaluate the relationship between Financial Knowledge on Financial Literacy.
 To understand Moderating effect of Investors and Environment between Financial

Inclusion and Financial Literacy.
1.20 SCOPE OF RESEARCH
1) Present Research is conducted only in some major parts of Gujarat viz, Ahmedabad,
Surat, Mehsana, Gir Somnath, Dahod, etc.
2) Research is done on the bank account holders only.

3) To understand the effectiveness of financial inclusion strategies of banking
organizations, the information is collected from banking officials of the selected bank
branches of Gujarat.
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1.21 OUTLINE OF THE RESEARCH
This entire research study is divided into six chapters. The chapter-wise brief outline of the
study is as follows.
Chapter one is all about the introduction to the study area. In the earlier part of the chapter,
the concept of financial inclusion and financial literacy is discussed with supportive definitions
of the concept. Details of the importance and challenges of both the concepts with respect to
the Global and Indian scenario are also briefly discussed in this chapter. The later part of the
chapter talks about the importance of research study in this particular area, followed by the
research problem and objective of the study.
Chapter two discusses broad and intensive literature study of the area of Financial Inclusion
and Financial Literacy. This extensive review analyses past studies done in the area of Financial
Inclusion Strategies, Financial Literacy, and its determinants.
Chapter three of the thesis explains Research Methodology used in the study. Further in the
chapter hypothetical model and various hypotheses are discussed. Later in the chapter, various
aspects of the methodology like sampling, questionnaire design, contact methods, and data
analysis plan are discussed.
Chapter four of the thesis talks about the analysis and interpretation of data related to the
study of financial inclusion strategies. This section of data analysis covers confirmatory factor
analysis, measurement analysis regression analysis. Various other tools like simple regression,
multiple regressions, and PLS path analysis is also used to study the effect of various
independent factors on dependent factor. Multi-group analysis and product indicator approach
are used to understand the role of various moderators on financial inclusion and to test the
hypothesis to support the study assumptions.
Chapter five of the thesis talks about the analysis and interpretation of data related to the
study of financial literacy level. At the beginning of the chapter demographics of the
respondents are analyzed with reference to various determinants. Later in the chapter, various
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statistical tools like PLS, factor analysis, multiple regressions, etc. are discussed to test the
hypothesis to support the study assumptions.
In chapter six, the results of interpretation and data analysis are discussed from a strategic
perspective. Finally, this chapter concludes the hypothetical model designed and tested with
managerial implications and future research directions.
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Chapter 1

1. INTRODUCTION AND CONCEPTUAL FRAMEWORK ...................................................... 4

1.1 INTRODUCTION ................................................................................................................................... 4

1.3 DIMENSIONS OF FINANCIAL INCLUSION ................................................................................................. 10

1.12 WHY FINANCIAL EXCLUSION? .............................................................................................................. 23

1. INTRODUCTION AND CONCEPTUAL FRAMEWORK

theoretical knowledge, the study is targeted to develop the holistic research

1.2 FINANCIAL INCLUSION & FINANCIAL LITERACY: CONCEPTUAL FRAMEWORK

1.2.1 FINANCIAL INCLUSION (SUPPLY-SIDE)

1.2.1.1 M EANING & D EFINITION OF F INANCIAL I NCLUSION

Rangarajan Committee (2008), ‘A Committee on Financial Inclusion’, has defined Financial

1.2.1.2 I MPORTANCE OF F INANCIAL I NCLUSION

1.2.2 FINANCIAL LITERACY (DEMAND SIDE)

1.2.2.1 M EANING & D EFINITION OF F INANCE L ITERACY

1.2.2.2 I MPORTANCE OF F INANCIAL L ITERACY

1.3 DIMENSIONS OF FINANCIAL INCLUSION

1.4 PRINCIPLES OF FINANCIAL INCLUSION

leadership, diversity, innovation, protection, empowerment, cooperation, knowledge,

1) Leadership: To eradicate poverty, a strong leadership government must be formed

2) Diversity: To implement policy approach, promote competition and market-based

4) Protection: Encourage a widespread approach for consumer protection that recognizes

5) Empowerment: To develop financial literacy and financial capability.

6) Cooperation: Develop an institutional environment with a clear line of responsibility and

7) Knowledge: By using better-quality data an evidence-based policy should be build up.

9) Framework: Consider the succeeding in the regulatory framework, replicating

1.5 SIGNIFICANCE OF FINANCIAL LITERACY

1.5.1 TO IMPROVE AWARENESS OF FINANCIAL PRODUCTS & SERVICES

1.5.2 TO FULFIL FINANCIAL RESPONSIBILITIES

1.5.3 FOR THE GROWTH OF FINANCIAL INTERMEDIARIES

1.5.4 INCREASING UNIQUE FEATURES OF FINANCIAL PRODUCTS

1.5.5 TO COPE-UP WITH INNOVATIONS & CHANGE

1.5.6 FOR BETTERMENT OF RETIREMENT LIFE

1.5.7 TO COPE-UP WITH INCREASING GLOBALIZATION & PRIVATIZATION OF FINANCIAL SECTOR

1.6 COMPONENTS OF FINANCIAL LITERACY

1.6.1 UNDERSTANDING THE KEY FINANCIAL PRODUCTS

A person with comprehensive financial literate must be proficient in the fundamental

1.6.2 UNDERSTANDING BASIC FINANCIAL CONCEPTS

1.6.3 DEVELOPING SKILLS & CONFIDENCE

1.6.4 MAKING BETTER FINANCIAL DECISIONS

1.7 CONSEQUENCES OF FINANCIAL ILLITERACY

1.7.1 PANIC IN CASE OF FINANCIAL EMERGENCIES

1.7.2 UNORGANIZED SAVINGS OR INVESTMENTS

1.7.4 DEVELOPMENT OF FINANCIAL MARKETS

1.8 OVERVIEW OF FINANCIAL INCLUSION & FINANCIAL LITERACY - GLOBAL PERSPECTIVES

1.9 FINANCIAL INCLUSION APPROACH IN INDIA

1.10 NEEDS OF FINANCIAL INCLUSION IN INDIA

1.10.1 TO DEVELOP SAVING HABITS

1.10.2 TO PROVIDE FORMAL CREDIT AVENUES

1.10.3 TO STOP FINANCIAL LEAKAGE OF PUBLIC SUBSIDIES & WELFARE

1.11 ROLE OF BANK IN FINANCIAL INCLUSION

1.12 WHY FINANCIAL EXCLUSION?

Access to financial products is constrained by various factors like, lack of awareness/literacy

1.12.1 FACTOR AFFECTING ACCESS TO FINANCIAL SERVICES

 Place of Living: While actual distance is as much about transportation infrastructure as

 Level of Income: The level of income of an individual is always imperative in gaining

 The attractiveness of the Product: Both the financial services/products (savings

1.13 EVOLUTION OF FINANCIAL INCLUSION & FINANCIAL LITERACY IN INDIA

1.13.1 PHASES OF FINANCIAL INCLUSION

• Aimed at strengthening the financial institutions as part of financial sector reforms.

Figure 1.1: Phases of Financial Inclusion in India

1.14.1 NO-FRILL ACCOUNTS

1.14.2 BASIC SAVINGS BANK DEPOSIT ACCOUNT (BSBDA)

1.14.3 SIMPLIFIED KNOW YOUR CUSTOMERS (KYC) NORMS