15 million bank accounts were opened, creating a world record, on the first day of Pradhan Mantri Jan Dhan Yojana[1]. A total of 320 million bank accounts were opened within 4 years of launching the scheme in 2014[2]. With Pradhan Mantri Jan Dhan Yojana, the target of the government was promoting financial inclusion.
While India fares well on the deposit accounts aspect due to constant regulatory pushes like Jan Dhan Yojana, no-frills accounts and Direct Benefit Transfers(DBT[3]), real financial inclusion should translate into availability of institutional and cheap credit for the masses.
India lags behind on the penetration of institutional credit for consumers with consumer debt to GDP at 17%, India is significantly behind other major economies of Asia-Pacific.
Source: India Financials Sector, Credit Suisse[4]
India’s dismal credit penetration remains a cause of worry for the government and regulatory authorities. Availing credit at low interest rates allows people at the bottom of the pyramid to invest in pursuits, which can improve their standard of living over the long term. In the absence of institutional credit at fair interest rates for a majority of the population, people at the bottom of the pyramid are left devoid of opportunities and fail to be included in the financial system.
Challenges in financial inclusion
At 8.2% growth in GDP[5], India’s economy is the fastest growing major economy in the world. With growth, the need for credit goes up to facilitate both consumption and investment, the two pillars of growth. Indians at every level seek credit for their business and personal needs but the
