Financial inclusion faltering?
There has been a slew of data out recently showing some serious challenges for India’s financial inclusion mission. The World Bank’s Global Findex 2025 reveals several positive achievements with 89% of the surveyed having an account at a formal financial institution and a negligible gender gap in account ownership. However, given the size of our population, the unbanked still translates to a significant number. And we are falling behind in usage: 16% of adults with accounts did not have an active account – the comparable average for all other low- and middle- income countries is 4%. Further, income-wise disparity is clear: 86% of the poorest own accounts, compared to 91% in the higher income segment; saving at a formal institution stood wide apart - at 13% and 31% share respectively while borrowing from a formal financial institution was relatively closer across income, reported at 10% and 18% respectively.
That the poor had been resorting to informal sources for loans has been reaffirmed through a study by Piramal Enterprises using CMIE data, as reported by TCA Sharad Raghavan – over the period 2018-19 and 2022-23, amongst those with an annual income of Rs 1-2 lakh, there was a decline in the number of borrowers from formal channels while there was a rise in the number of households in this segment who borrowed from informal sources like money lenders, chit funds, friends etc.
Rajesh Shukla has done a deep dive into PRICE’s ICE 360° data revealing finer trends and characteristics of rising household debt in India. One interesting insight is that while around half of indebted households borrow from informal sources, there are stark differences across occupational groups, with labourers being the most dependent on informal credit, that’s 62% of agricultural labourers and 58% of non-agricultural labourers resort to informal loans. Again, these are the households that borrow primarily for consumption, to survive, while the salaried and self-employed tend to borrow more for growth – either for livelihoods or for investment. Yet, when it comes to borrowing to cover for medical emergencies, the share is around the same across all segments at around a quarter of households – health cover is clearly inadequate in India. These nuances are important to get a comprehensive picture for appropriate government policy and financial products. From all the data so far, the evidence is quite clear, despite significant improvements in financial inclusion, access and usage issues need to be fixed.
Meanwhile, there is stress in the credit ecosystem with banks and NBFCs reporting slippages in their unsecured loan books, and segments like farm loans, small businesses showing strain. While fintech has emerged as an easy to access source for credit, data from the Fintech Association for Consumer Empowerment (FACE) shows a surge in loan defaults to a six-quarter high in Tier 3 towns and rural India, mainly due to small-ticket borrowing by younger consumers. Credit card dues are also hitting record highs, as reported by Crif High Mark. And then there’s microfinance, one of the helplines for low-income households; faced with high credit cost, a few firms have raised the interest rates. Do read PVS Suryakumar’s insightful piece explaining why the cycle of expansion, excess, crisis, and reactive regulation must be broken by firms within the industry.
RBI Deputy Governor M Rajeshwar Rao spoke on the evolution of India’s credit reporting infrastructure and its role in bridging the credit gap, emphasizing the need for data freshness and quality. He also mentioned the upcoming Grameen Credit Score, which will help assessing creditworthiness of rural borrowers. Talking about data blind spots, Seema Prem has made an interesting suggestion for a Unified Borrower Exposure Registry, seen as a regulated, real-time registry bringing together borrower-level credit exposure across all financial lenders, including buy-now-pay-later loans. This would go a long way in understanding the actual repayment capacity for low-income borrowers.
Do read more news and views in our curated list below. Please also follow our Indicus Centre for Financial Inclusion page on LinkedIn to continue the conversation.
Arti Singh, The Head and Tale, writes on ICICI being the first bank to break the zero-fee UPI model by charging payment aggregators.
The RBI released the Financial Inclusion Index for March 2025 at 67.0 vis-à-vis 64.2 in March 2024, with growth witnessed across all sub-indices of Access, Usage and Quality.
RBI Governor Sanjay Malhotra flagged the need for the UPI ecosystem to be sustainable.
Tamal Bandyopadhyay wrote on the latest Reserve Bank of India (RBI) guidelines to strengthen the Aadhaar Enabled Payment System, or AePS and its impact on the payment firms.
Pratik Bhakta, Economic Times, reports on the move from UIDAI to simplify the offline KYC process linked to Aadhaar.
Ateesh Tankha writes on the recent episode of small merchants rejecting UPI payments in Bengaluru due to GST overreach.
A recent survey by Haqdarshak’s Training and Development team examined nano/micro business profiles, financial practices, government scheme awareness, banking access, and training needs across three regions.
Ram Rastogi delves into India’s next big payments leap – interoperable netbanking – for high ticket low volume transactions.
Raghu Mohan, Business Standard, reports on the latest thinking in the RBI to allow Section-8 companies or not-for-profit (NFP) entities involved in microfinance access to credit information companies (CICs).
Ganga Narayan Rath and Dr. Manas Das have written on the rise in unclaimed deposits in India,
MSC (MicroSave Consulting) have an interesting post with narrative charts telling an inspiring story of how digital tools can streamline fund transfers to improve transparency, enhance efficiency, and promote accountability within government payments.
Sophie Sirtaine and Michael Schlein, CGAP, write on rethinking how we serve the hardest to reach and unlock the power of financial services for development.
Sophie Sirtaine and Michael Schlein, CGAP, list out six opportunities that need to be prioritized to close the last-mile gaps and improve livelihoods by broadening the range of suitable financial services that are available.
The NPCI has made some changes to be implemented from August - UPI users will only be able to check their account balance 50 times a day and all autopay debits will be conducted in fixed time slots rather than through the day- these new rules will enable smoother functioning for transactions.
Hillary Miller-Wise, Rashmi Pillai and Xavier Faz, CGAP, showcase lessons from India on accelerating digital payments.
MicroSave Consulting’s “Building Trust through Design” highlights deceptive designs in digital finance that exploit vulnerable users.
Juan Carlos Izaguirre, Sonia Arenaza, Patrick Meagher, and Myra Valenzuela, CGAP, have brought out a technical guide offering actionable solutions tested or adopted globally to identify, prevent, mitigate, and resolve key risks facing digital borrowers.
Great compilation, thanks. The Findex data is interesting - despite all the progress on DPI and UPI India remains behind the LMIC average across use cases tracked.
Also, the Unified Borrower Exposure Registry is much needed; inclusion of BNPL and early wage access credit lines etc. are important to protect against over-leverage.