The Progress of Financial Inclusion in India: Insights from Multiple Waves of Survey Data

Abstract

How the unbanked can be brought into the formal financial system remains a question of policy and academic interest. India lends itself as an interesting case study. I use data from a survey of 135,147 individuals across all India, and another survey of 16,000 households in four of India’s lowest income states to understand the trends in financial inclusion in India between 2013 and 2015. The sample frame covers the time-period in which India introduced the PMJDY scheme. An exogenous supply shock that led to the opening of over 260 million bank accounts. I characterize several cross-sectional differences that highlight the heterogeneity in the progress of financial inclusion. For instance, richer, more educated, older, and employed individuals are still most likely to own a bank account. But the PMJDY scheme has significantly increased the likelihood of owning an account among the most disadvantaged, such as women and the rural population. While I also observe some progress in the active use of accounts, a reversing effect for the most marginalized is less substantial. I further observe vast regional divergence in the progress of financial inclusion. Lastly, I also shed light on the effect of other Government-led interventions such as the introduction of unique identification cards, bank agents, and digitizing government payments.