2015 Set to be Big Year for Digital Financial Inclusion in India

When it comes to digital finance, India punches below its weight. The 2014 Intermedia Financial Inclusion Insight (FII) Survey of 45,000 Indian adults found that 0.3% of adults use mobile money, compared to 76% in Kenya, 48% in Tanzania, 43% in Uganda, and 22% in Bangladesh.

This stems from a range of factors, but lack of innovation-friendly regulation has been barrier #1. Most importantly, the Reserve Bank of India (RBI) historically allowed non-banks to participate in payment services in two restricted ways. They could build and manage an agent network on behalf of a bank; or they could issue a “semi-closed” wallet which allow customers to cash-in, buy airtime and other services, but not cash-out – not a particularly useful product for a poor customer! This regulatory framework ensured that India’s banks controlled not only the market for savings and credit, but also payments. The problem is that banks have struggled globally to shift away from their reliance on branch-based approaches and legacy technologies to establish digital payment connections in poor and rural communities. With this restriction in place, it’s unsurprising that only 0.3% of Indian adults use mobile money.

Photo Credit: Sudipto Das, 2012 CGAP Photo Contest

This all changed in 2014. In November, the RBI issued Payments Bank guidelines which allow companies with significant distribution expertise (including mobile operators, retail chains and existing agent managers) to offer deposit accounts and payments as a stand-alone business. Payments Banks won’t be able to directly offer credit, but they can:

  • Build branch, ATM, and agent networks;
  • Issue debit cards;
  • Offer deposit accounts;
  • Process domestic and international remittances;
  • Process utility payments; and
  • Serve as an agent to distribute credit, insurance, and mutual funds on behalf of other financial service providers.

Payments Banks will initially be restricted to holding a maximum balance of Rs.100,000 (US $1,600) per customer, but the RBI indicated that it would re-evaluate this limit as the model evolves. Deposits will be covered under India’s Deposit Insurance Corporation and accounts will be eligible for the RBI’s simplified know-your-customer (KYC) norms. Payments Banks have access to the national payment system and interbank markets for temporary liquidity management. Despite misunderstandings in the press, Payments Banks license applicants, like mobile network operators, will be permitted to leverage their existing distribution networks and technology systems, creating a big opportunity for those organizations to extend digital payment services into poor and rural communities. The deadline for submitting license applications is February 2, 2015 and several major players plan to apply.

The Payment Bank regulations are a game-changer, but they overshadow five other key regulatory moves in 2014:

These regulatory moves add up to a game-changing year, paving the way for a big expansion in digital financial inclusion in the next 2-3 years. But 2014 was as much about the Indian Government’s policies as it was about regulatory changes. In parallel to the RBI’s interventions, Prime Minister Modi launched an ambitious financial inclusion scheme called Pradhan Mantri Jan-Dhan Yojana (Prime Minister’s People’s Wealth Scheme) - the only scheme from India’s technology-friendly Prime Minister that carries his name. Digital transactions have not been the focus of previous financial inclusion efforts in India which often rely on public sector banks to push accounts but without a pathway to make those accounts transaction ready in a digital ecosystem. While PMJDY also relies on public sector banks and has an initial focus on accounts opened, it also breaks from the government’s previous financial inclusion efforts by focusing on digital transaction functionality and making full use of some extraordinary payments infrastructure already in place. We expand on the PMJDY scheme in the next post.

Join Kabir Kumar and Dan Radcliffe in a live web chat on this topic on January 28. More information at



07 May 2015 Submitted by Sailee Kale (not verified)

No doubt that Financial Inclusion will play a vital role in India if it is implemented well with the current development pace in Banking sector. Here is another blog on Importance of Financial Inclusion in India.- I hope this will add value to your blog.

15 December 2015 Submitted by Lloyds Tsb Phon... (not verified)

The financial inclusion has been tortuous in India. I think the bright future is coming into sight. Hopefully the government of India continues to create an enabling regulatory and policy environment.
Lloyds Tsb

25 January 2016 Submitted by Prof Chowdari Prasad (not verified)

Rural Credit, Microfinance and Financial Inclusion for Rural Development have been the concerns with utmost priority for decades in the phases of Planning in the country. Banks have been striving through out by opening branches, extending credit, training its manpower and servicing the needs of rural poor through Lead Bank Scheme, Service Area Approach, etc. NABARD and SIDBI as also the RRBs and Cooperative Banks have dedicated years to live up to the need. Now Digital initiatives may turnaround.

02 March 2016 Submitted by ambuj rai shahab (not verified)

india is being now get to explosion of the new company has been stabilished in the india by this financial inclusion which is being provide by the indian govt. is provide the new stabilished company by the mudra bank yojana .

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