Aadhaar and Financial Inclusion: A Proposed Framework to Provide Basic Financial Services in Unbanked Rural India

Abstract

Over the past two decades, the government of India in coordination with Reserve Bank of India (RBI) has taken up many initiatives to achieve the objective of financial inclusion. Yet, basic financial services still remain an unrealized dream for millions of people, especially for citizens in rural and remote areas for several reasons (Microfinance India, State of the Sector Report – 2009. Sage, Delhi/London. http://www.accessdev.org/downloads/State_of_the_Sector_Report_2009.pdf). Widespread realization that financial inclusion is critical for poverty alleviation, balanced economic growth and economic stability has resulted in inclusive financial system, becoming an issue of global priority. In this regard, cellular mobile technology can be leveraged to offer a viable solution to achieve the objective of financial inclusion. This opens up new avenues for nonbank players, such as mobile network operators or banking agents, to get involved in the value chain of financial services by providing these services through mobile telephones. In wake of these emerging new opportunities, this chapter presents a framework based on Aadhaar (unique identity – UID)-led banking model leveraging ICT through mobile phone technology.