Financial Inclusion: A Focus on Rural Women in India

Abstract
Financial inclusion promotes economic development and inclusive growth by empowering individuals especially the
vulnerable and women to tap economic Opportunities (V Anantha Nageswaran & Monica Thind). In last decade
developing countries including India has made remarkable progress in financial inclusion showing impressive growth in
bank opening. As per Bank of International Settlements’ Analysis in 2011 only 30% individuals had a bank account but
in just 8 years this tally has improved to 80%. Pradhan Mantri Jan Dhan Yojana (PMJDY) and various other regulatory
and technological innovation has made this improvement. According to the RBI, as of 2021, 80% of Indians have bank
accounts, but active account usage is lower, with weaker socio-economic group and female populations being the least
engaged. This proposal seeks to examine the current and actual status of financial inclusion in India, focusing on
gender disparities and rural area. The study will also provide an analysis of financial literacy and technological barriers.
Introduction
Despite over 75 years of independence, a significant portion of India’s population—particularly women and those from
weaker socio-economic backgrounds—remains distant from true financial inclusion. While the Indian banking system
began focusing on underserved groups in the 1970s, women were only explicitly inc luded in this focus in 2013
(Chavan 2020). In 2004, the Reserve Bank of India (RBI) set up the Khan Commission to review banking policies aimed
at enhancing financial inclusion. Since then, India has made strides, notably with initiatives such as the Pradhan Mantri
Jan Dhan Yojana (PMJDY) and the Unified Payments Interface (UPI). However, progress remains uneven, particularly for
rural women who face gender-based challenges that hinder their financial empowerment, underscoring the need for
targeted interventions in these communities to drive broader economic advancement.
The World Bank’s Global Findex Database (GFD) illustrates India’s journey in financial inclusion. In 2011, only 35
percent of Indians aged fifteen and above held an account with a bank, financial institution, or mobile money provider,
a figure that rose to 53 percent in 2014, then to 81 percent in 2017, and settled at 78 percent in 2021. While these
improvements have led some to view India’s financial inclusion model as exemplary, the GFD also reveals a persisting
challenge: in 2021, 35 percent of account holders had inactive accounts, with no deposits or withdrawals (cash or
digital) made during the year. Previous inactivity rates were similarly high—33 percent in 2014 and 38 percent in
2017—with the majority of these inactive accounts belonging to women and economically weaker groups.
In rural regions of North India, access to essential financial services like credit, savings, and insurance remains limited,
exacerbating existing socio-economic inequalities. Financial literacy, which is crucial for effective financial participation,
is low nationwide, with only 24 percent of adults possessing adequate financial knowledge (S&P Global Financial
Literacy Survey ).

Literature Review
Research on financial inclusion in India has covered several years and points to key aspects of access and usage of
financial services. For instance, Agarwalla et al. (2012) noted that, for India, the standard of financial literacy lags
behind the international average and the following groups in rural areas have very low awareness of savings, credit,
and insurance products. Chakravarty and Pal (2013) argued that pro-market financial sector reforms had adverse
effects on the financial inclusion side in India, which could further widen it for some population. Chithra & Selvam
(2013) defined financial inclusion as access to a range of formal financial services, including savings, credit, insurance,
and payments, by all sections of the population and measured indicators like bank account ownership, credit
penetration, and insurance coverage. Kumar concludes in 2013 that financial literacy, the availability of branch
networks, and socio-economic conditions highly contribute to financial inclusion among the rural regions. Arora,
(2016), discusses that gender gap remains prevailing because financial illiteracy coupled with societal restrictions
further bar them from gaining independent finance mainly in the rural settings further stated by Ambarkhane et al.,
2016 as factors underlining socio-economic dimensions. Mathew & Kurian (2017) have studied how restricted
availability of financial services causes financial exclusion for the weaker sections, particularly for those who stay in the
rural areas and low-income group people. Goel & Goel (2019) also ascertain the socio-economic determinants of
financial inclusion, such as bank account holding and credit percolation. Accounting usage continues to be even more
uneven between men and women in India. Only 54% of women reported active use of their accounts, as against 72%
of men, a gap that is even more pronounced in rural areas. Global Findex Database, World Bank (2021). According to
Shankar (2020), even though PMJDY has been successful in broadening access to bank accounts, it is found that only
24% of the account holders in rural areas made savings/credit use from the accounts, thus implying that only
superficial account ownership does not translate into meaningful financial inclusion.

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Research Gap
Despite all such progress, there is still quite a number of problems in the form of active usage by rural women for
financial services. Programs like PMJDY have indeed been extremely successful in boosting the number of bank
account holders, but evidence from research reveals that "mere ownership may be insufficient for meaningful financial
inclusion, with most accounts being inactive- particularly among the rural women". These are financial illiteracy, socio-
cultural barriers, and limited access to digital. The underlying causes for inactive accounts and low involvement of
women in the rural economy in the financial sector are not known despite better access to formal financial services. A
general lack of comprehensive studies of the effectiveness of digital and financial literacy programs developed for rural
women in the literature can also be identified. More research must be conducted to ascertain targeted strategies that,
in addition to access, foster active and independent financial participation on the part of women in rural areas.

Definition of Financial Inclusion

1. According to The Committee on Financial Inclusion, Chairman: Dr. C. Rangarajan. Financial inclusion may be defined
as the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable
groups such as weaker sections and lowincome groups at an affordable cost.
2. World Bank (2011) defines financial inclusion as access to useful and affordable financial products and services that
meet the needs of individuals and businesses. These services must be delivered responsibly and sustainably, including
access to savings, credit, insurance, and payments systems.
3. Singh and Roy (2015) highlight financial inclusion as the provision of accessible, low-cost, and safe financial services to
underserved populations. Their research focuses on the availability of basic services such as savings accounts, credit,
payment services, and microfinance to enhance financial stability for vulnerable groups

Objective
This proposal has four main objectives:
1. To assess the initiative taken by government to improve financial inclusion.
2. To assess the status of financial inclusion for women in India.
3. To analyse reason and give recommendation to improve the status of financial inclusion
Status of Financial Inclusion in India: Trends in Account Ownership, Savings, and Credit
Usage
To analyse the state of financial inclusion in India we will be using World bank financial inclusion database. Formal
Account ownership, Formal savings in formal financial institutions formal bank credit usage are three factors that help
in determining the financial inclusion status in any area (Tony Cavoli & Ilke Onur, 2020).
In the last decade (2011–2021), access to ban k accounts in India has grown impressively, showing big steps forward in
financial inclusion. As seen in Figure 01, the number of people with banking access has more than doubled. In 2011,
only 38 percent of Indians had access to formal banking services, meaning many were still outside the financial
system. By 2021, this number rose to 78 percent, showing strong progress in bringing more people into the banking
network. This growth reflects the positive impact of government efforts to expand banking access, especially for
communities that were previously underserved. Figure 01 also highlights the progress made in reducing gender
discrimination in financial inclusion. In 2011, only 26 percent of females had bank accounts compared to 44 percent of
males, showing a significant gap in access to banking services. However, by 2021, this gap had closed, with both
females and males reaching 78 percent in terms of bank account ownership. A major contributor to closing the gender
gap in financial inclusion is the Pradhan Mantri Jan Dhan Yojana (PMJDY), which has enabled the opening of basic
savings accounts for 28 crore women by January 2024. (Shruti Joshi and Anshuman Kamila)

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 Account Ownership
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2010 2012 2014 2016 2018 2020 2022

Male Female Overall

Source: World Bank Global Findex Data 2011-2021

From 2011 to 2021, both men and women showed an upward trend in formal saving behaviour, reflecting a gradual
shift toward financial participation. In 2011, the overall formal saving rate was just 12%, indicating that only a small
portion of the population actively saved through formal institutions. By 2017, this figure rose to 20%, signalling
growing financial awareness and accessibility. By 2021, the saving rate had reached approximately 24%, suggesting
continued progress in encouraging saving habits. However, despite this improvement in overall savings, the gender gap
remained largely unchanged, meaning men were still more likely to save formally than women. This implies that,
although more people began saving, women continued to face barriers to financial inclusion at the same level as
before.

Figure 02: Formal Savings Behaviour

Formal Saving Behavoiur

30%

25%

20%

15%

10%

5%

0%
2011 2014 2017 2021

Male Female Overall

Source: World Bank Global Findex Data 2011-2021

In contrast, formal credit usage, which includes taking loans from banks or financial institutions, showed minimal
growth over the same period. The credit usage rate remained relatively stable, fluctuating between 6% and 8% from
2011 to 2021, with no significant increase. This stability suggests that, unlike savings, there was little expansion in
access to formal credit, possibly due to limited financial products tailored for certain demographics or restrictive
lending requirements. Additionally, like in savings, the gender gap in formal credit use did not see any noticeable
improvement, meaning men still had greater access to credit than women. This lack of progress highlights an ongoing
need for targeted efforts to provide both genders with equal opportunities in accessing credit, as financial inclusion
remains incomplete without equitable access to both saving and borrowing facilities.

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 Figure 03: Formal Credit in India
12%
Formal Credit
10%

8%

6%

4%

2%

0%
2010 2012 2014 2016 2018 2020 2022

Male Female Overall

Source: World Bank Global Findex Data 2011-2021

Financial Literacy among Women in India

According to the 2011 Census, women make up 48.5% of India’s population. For India to develop, empowering women
is crucial. Financially including women will not only drive economic growth but also improve social conditions across
the country. The Indian government has made important efforts to support women’s financial inclusion, which has
shown positive outcomes but still needs improvement. Many rural women now have bank accounts, but financial
literacy, especially in rural areas, remains low. Having a bank account alone is not enough to ensure full financial
inclusion. According to a report by The Economic Times, 70% of adults in India lack financial literacy. Among the
financially literate, 27% are men, while only 20% are women. The current level of financial literacy poses a significant
threat that must be addressed. While the participation of women in the workforce is increasing, their financial literacy
has not seen a similar rise. Many working women still lack independence in making financial decisions; 59% do not
take financial decisions on their own, and this figure is even higher in tier-3 areas, where 65% of women feel they are
not free to make their own financial choices (Financial awareness among women: A survey By Tata AIA).
Financial illiteracy rates stand at 33.4% in rural areas and 29.4% in urban areas. Meanwhile, 32.3% of the rural
population and 47.5% of the urban population have a basic understanding of financial literacy (Priyadarshi Dash &
Rahul Ranjan).
Analysis of Initiative taken by Government
The Government of India has taken various initiative to improve the financial condition of women specially
in rural area. Various regulatory as well as technical changes were introduced in Indian financial system to
improve the condition of financial inclusion in India. Some major Initiative and their effect on financial
inclusion are analysed below:
• Pradhan Mantri Jan Dhan Yojana (PMJDY):
The Pradhan Mantri Jan Dhan Yojana (PMJDY) is a major initiative launched by the Government of India in 2014 to
enhance financial inclusion across the country, with a particular focus on women. The program aims to provide
universal access to banking by offering basic bank accounts with features such as a ₹5,000 overdraft after six
months and a RuPay debit card with an inbuilt accident insurance cover of ₹1 lakh, along with a RuPay Kisan card.
In the first phase of PMJDY, 1.5 crore bank accounts were opened, incorporating the same number of people
directly into the financial system. By January 2024, a total of 27 crore bank accounts had been opened for women
under the PMJDY scheme. This scheme offers additional features compared to previous financial inclusion
programs, such as allowing minors above the age of 10 to open accounts, issuing RuPay debit cards for
withdrawals, deposits, and payments, providing accident insurance coverage of ₹1 lakh and life insurance of
₹30,000 with no premium, and allowing a household overdraft of ₹5,000 after six months of satisfactory account
transactions. Additionally, overdraft interest is set at either base plus 2% or 12%, whichever is lower, and
accounts are transferable if the customer relocates (Shettar, 2016).
This was a good initiative but some report claims that most of the account opened under zero balance of PMJDY
is inactive account.

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• Use of Business Facilitator and correspondent:
In 2006, the Reserve Bank of India (RBI) implemented regulatory changes to advance financial inclusion by
authorizing banks to appoint intermediaries or agents, extending banking services to customers even in remote
areas. This strategy not only minimized banks' operational costs but also promoted financial inclusion. By 2010,
there were 34,621 agents, a figure that surged to 32,57,261 by December 2021, with a significant proportion
based in rural regions. These agents provide essential banking services and basic financial knowledge to rural
customers, contributing to enhanced financial literacy. Over time, this regulatory model has evolved, introducing
innovations such as the Aadhaar Enabled Payment System (AEPS), a sophisticated extension of the original
approach.
• Digital Banking:
A revolutionary shift in India's banking and financial system has been the introduction of the Unified Payment
Interface (UPI), drawing attention both domestically and globally. UPI empowers customers to access banking
services directly from their smartphones, providing 24/7 access to financial transactions over the internet. It has
made real-time transactions accessible to individuals with limited literacy, requiring only a smartphone to use.
Furthermore, UPI has boosted digital payments among micro and small businesses, enabling them to enter the
formal economy. By accepting UPI, these businesses can offer customers more convenient payment options,
enhance their cash flow management, and gain access to financial services that were previously out of reach. UPI
also makes it easy for individuals to manage banking tasks like savings accounts, fostering financial literacy and
encouraging a savings culture among the unbanked. This initiative promotes long-term financial stability while
reducing dependency on informal financial systems,

Apart from these initiative government has taken various other measure to improve the financial inclusion in India but
instead of huge investments and hard work the results are not very satisfactory. In last decade India has made
remarkable growth in financial inclusion but the rate of growth compared to other country is not very satisfactory. The
report of GFD shows that approx. in 2021, 35% account opened in India are inactive which means no deposit or
withdrawal has been made in these accounts this is highest in other middle-income countries. If we remove the total
inactive account from the total account opened under PMJDY the effective growth in financial inclusion due PMJDY
will be far less. Also, major inactive accounts are from rural area and that of women. Most of account under PMJDY
has very zero balance in them and as per reports of various news paper report bank official were forced to made
deposits in zero balance account in order to show them active. Hence it can be concluded that India is still far away
from financial inclusion and need to take serious and collective efforts to include population in financial route of the
development.

Recommendations:
Based upon my understandings of the current scenario and past actions taken by government to improve condition of
financial inclusion I am giving some recommendations which can be helpful to improve the condition specially for
women in rural area to be more financial inclusive and independent.
1. Need for strong push on women under PMJDY:
As mentioned above that the PMJDY has helped more women to be part of financial system and reduce
gender gap but mere opening of account does not improve the condition. Although more women in rural
area own bank account but they are still financially exclusive and dependent on others for taking financial
decision. The government can make policies to support SHGs in rural area which are working with women on
removing financial illiteracy. Some changes should be introduced in PMJDY scheme to address concern of
women in rural area after careful analysis.
2. Digital Inclusion:
Digitalization has greatly improved financial inclusion in India. To further improve financial inclusion for
women, the government must also address digital access. Data from the Internet and Mobile Association of
India (IAMAI, 2020) shows that only 35% of women in India have internet access, compared to 65% of men.
In rural areas, only 31% of women have internet access, and only 45% of women across the country have
access to a mobile phone. This data makes it clear: to achieve financial inclusion, women must first be
digitally included.
3. Gender based Data:
The government should publish gender-based data on financial inclusion to allow for comparisons across
states. This will help identify areas, such as Bihar and Odisha, where financial inclusion for women remains
low. Such data will reveal the root causes of the gender gap in financial inclusion and guide policy decisions

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 to address these issues. Additionally, this information will aid in creating targeted policies and assessing their
effectiveness in closing the gender gap.
4.
Women in rural areas should be offered financial literacy camps and training sessions focused on digital
payment systems and the fundamentals of financial inclusion. Research shows that women are more
receptive to training when it is conducted by female trainers and in their local languages (Ryan, 2019).
Therefore, it is essential that these sessions be led by women and delivered in local languages to enhance
their effectiveness.
Conclusion
While India has made strides in financial inclusion, substantial barriers remain, particularly for women and those in
rural communities. Governmental and institutional efforts, such as PMJDY, have significantly expanded bank account
ownership. Still, financial inclusion goes beyond mere account ownership; it requires active usage and independent
decision-making, which many women lack due to socio-cultural and economic barriers. Data from the Global Findex
Database underscores these disparities: although 78% of Indian women now own bank accounts, a significant portion
remains inactive, with financial literacy levels and cultural norms inhibiting full financial engagement (GFD, 2021). In
fact, as reported by the Tata AIA survey, while 48.5% of India’s population is female, only 20% of women in rural areas
are financially literate, compared to 27% of men. Furthermore, 65% of women in tier-3 cities lack independence in
financial decisions, showing the persistent challenge of meaningful inclusion for women across India.
The gender gap in financial inclusion underscores a crucial area for further research. Critical questions persist: What
tailored solutions can address the unique barriers faced by rural women? How can financial literacy programs be
adapted to local contexts to empower these women? To achieve a truly inclusive economy, there must be a focused
investigation into these gender-based disparities. Such research can guide policymakers and institutions in designing
more effective, targeted interventions that not only bridge the gender gap in financial inclusion but also foster broader
economic growth through female empowerment. Addressing these issues is not just a step toward equitable financial
access—it is essential for ensuring that all citizens, especially women, can participate fully and independently in India’s
economic development.

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