Normative perspectives on financial inclusion: Facts beyond statistics

Published date01 November 2018
Date01 November 2018
Normative perspectives on financial inclusion: Facts beyond
George Varghese |Lakshmi Viswanathan
Institute for Financial Management and
Research (IFMR), Sri City, Satyavedu, Chittoor
(District), AP, India
George Varghese, Institute for Financial
Management and Research (IFMR), # 5655,
Central Expressway, Sector 24, Sri City,
Satyavedu, Chittoor (District), AP 517 541,
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 deeprooted 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
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 everincreasing
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 lowincome 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 longterm 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
selfesteem 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.
© 2018 John Wiley & Sons, 1of5

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