Normative perspectives on financial inclusion: Facts beyond statistics

• Published date: 01 November 2018
• DOI: http://doi.org/10.1002/pa.1829
• Date: 01 November 2018

PRACTITIONER PAPER

Normative perspectives on financial inclusion: Facts beyond

statistics

George Varghese |Lakshmi Viswanathan

Institute for Financial Management and

Research (IFMR), Sri City, Satyavedu, Chittoor

(District), AP, India

Correspondence

George Varghese, Institute for Financial

Management and Research (IFMR), # 5655,

Central Expressway, Sector 24, Sri City,

Satyavedu, Chittoor (District), AP 517 541,

India.

Email: george.v@ifmr.ac.in

The paper is an attempt to understand and differentiate the significance of financial

inclusion in the context of India wherein a large population is deprived of financial

services, which are very much essential for an overall economic and inclusive

growth. The paper discusses the problem of financial exclusion and the socioeco-

nomic impact of financial inclusion on the underprivileged. We go a step further

through a normative discussion of India's journey so far in this respect and highlight

the impediments to financial inclusion. The paper also suggests a few critical dimen-

sions that are to be taken care of so as to accelerate deep‐rooted penetration of

financial services.

The test of our progress is not whether we add more to

the abundance of those who have much; it is whether

we provide enough for those who have too little.

Franklin D. Roosevelt

1|INTRODUCTION

Financial inclusion is an important development priority for nations

across the globe. The core idea behind it is to extend the reach of

financial services to the otherwise unserved population of the country

to unlock its potential for growth. It triggers a more inclusive growth

by making the poorer section, a part of the formal financial system.

For a nation like India, which is worst hit by an ever‐increasing

inequality across various socioeconomic classes (World Wealth

Report, 2015), a more inclusive growth is a need of the hour. In this

regard, the government of India has been initiating various plans for

financial inclusion with policy announcements over the last decade

but with limited success. Prior to analyzing the policy details of

financial inclusion, it is important at this juncture to understand what

financial inclusion is all about. According to the Rangarajan Commit-

tee Report (2008), financial inclusion is the process of ensuring

access to financial services and timely and adequate credit to vulner-

able groups such as weaker sections and low‐income groups at an

affordable cost. The essence of inclusive growth is to provide equi-

table opportunities to every citizen in accessing the facility of formal

financial services.

In India, a large section of the rural and urban population remains

outside the coverage of the formal financial system wherein they are

deprived of access to basic services such as savings account, credit

remittance, and insurance. For a developing country like India, inclu-

sive growth is the key to attaining a more sustainable long‐term devel-

opment. Unlike economic growth, which can be achieved by improving

the real level of national output, economic development is a normative

concept that demands an increase in living standards, improvement in

self‐esteem needs, and freedom from oppression as well as a greater

choice (Todaro and Smith, 2003). It has been acknowledged the world

over that financial inclusion can help the less privileged households in

improving their living standards by enabling them to access a well‐

functioning financial system. It integrates the socially excluded masses

better into the economy by creating equal opportunities. Accessibility

of affordable credit at low cost and availability of other financial ser-

vices for the vulnerable groups in disadvantaged areas is recognized

as a precondition for accelerating growth and development

(Rangarajan Committee, 2008). Financial inclusion is thus an important

component of economic and the social progress of the country.

Achieving inclusive growth is a mammoth task for a developing

country with a diverse population like India. Shafi and Medabesh

(2012) identified that the phenomenal growth that India experienced

in secondary and tertiary sectors is not inclusive as the benefits of

economic prosperity have not trickled down to all sections of the soci-

ety. In this regard, it is important to understand the normative aspects

of financial inclusion in India to analyze its socioeconomic impact. The

remaining text is organized as follows. Section 2 describes the problem

of financial exclusion. Section 3 is about the socioeconomic impact of

Received: 19 April 2018 Accepted: 28 April 2018

DOI: 10.1002/pa.1829

J Public Affairs. 2018;18:e1829.

https://doi.org/10.1002/pa.1829

© 2018 John Wiley & Sons, Ltd.wileyonlinelibrary.com/journal/pa 1of5