Financial inclusion: From presence to participation

Inclusion succeeds when financial services are used regularly with confidence

Financial inclusion is often measured by access: Accounts opened, branches and agents added, and payment rails expanded. These are important foundations, but they are not the finish line.

 

The real test is whether every ordinary household and small enterprise can use financial services regularly at an affordable cost. As the architecture matures, the focus must move from presence to participation, from entry to everyday use.

 

Indeed, this shift is central to the National Strategy for Financial Inclusion (NSFI) 2025-30, launched last year by the Governor of the Reserve Bank of India. The strategy underlines that the mandate of inclusion goes beyond access and must ensure the effective use of financial services that improve people’s well-being, as reflected in outcomes such as safety, security, resilience, and discipline.

 

What ‘participation’ looks like in everyday life: In simple terms, participation in the financial system means active use. It is the move from opening an account to using formal finance as a practical tool.

 

For most citizens, this becomes meaningful when everyday needs can be met smoothly: Making and receiving payments without friction, building savings even in small amounts, accessing credit at an affordable cost, while having access to the benefits of social safety nets such as insurance and pension. This is about enabling a basic bouquet of services that people can use consistently.

 

Why ‘quality’ matters: Usage by itself is not enough. If services are hard to use or opaque, customers may enter the system but not stay active in it. That is why quality matters.

 

In practical terms, quality has three elements: Fit, fair, and effective grievance redress. Fit requires products that align with customers’ needs, circumstances and understanding. Fairness requires that customers have free choice and that product suitability is not compromised. Grievance redress requires quick, simple, and equitable resolution when things go wrong, anchored in customer protection.

 

What holds back participation: If presence has expanded, why does participation still lag in many areas? The answer is rarely a single factor.

 

To begin with, last-mile friction remains. For low-income customers, the “cost” of using finance is often time, travel, service uncertainty, connectivity problems, or failed authentication, not just fees. When these frictions play out, customers may use formal channels only intermittently.

 

Participation is also held back by product design and complexity. Even where services exist, they may not be usable. Complex terms, confusing interfaces, and credit products that do not consider irregular or seasonal cash flows can deter usage and increase customer vulnerability.

 

A third constraint is safety in a digital age. As more first-time users shift to digital channels, fraud risks can discourage continued usage. Where the outcome after a fraud is slow or uncertain, customers may reduce digital usage or return to cash.

 

Finally, serving small-value payments, micro savings, and small credit often cost more per unit. Deepening participation among such small-ticket users, therefore, requires solutions that use innovations to reduce unit costs without weakening safeguards.

 

Turning access into financial wellbeing: The purpose of inclusion is improved financial wellbeing, not just formal participation. What does this mean in practice?

 

First-time users often need gentle help, provided such assistance empowers them rather than creating dependency, and is coupled with safeguards that prevent misuse.

 

Participation deepens when products are simple and designed around everyday realities: Small, regular savings; insurance with clear coverage and a simple claims process; and appropriately sized credit with transparent pricing and repayment obligations that factor in variable incomes.

 

Behavioural design choices also matter. Goal-linked prompts can support better habits, whether it is saving for education or emergencies, maintaining a small buffer, or continuing pension contributions. Such prompts work best when they are simple, offered in familiar languages, and aligned with the customer’s circumstances.

 

Finally, grievance redress has to be treated as part of the service, not as a separate afterthought. When problems are resolved quickly and fairly, participation strengthens.

 

Equally important is responsible finance that prevents harm. Credit can be empowering, but only when it is suitable. Over-borrowing undermines resilience, particularly for households with irregular cash flows.

 

Responsible underwriting, clear disclosures, and fair recovery practices are therefore essential if inclusion is to strengthen households rather than push them into stress.

 

Bankers have a key role, but incentives must be aligned: In many countries and communities, the banker is the practical guide to formal finance. Performed well, this role resembles basic financial advising: Explaining options in simple language, matching products to needs, and helping customers choose what is right.

 

Distribution channels, including bancassurance, can materially expand insurance and pension coverage. A neighbourhood bank branch that offers a bouquet of financial products is, therefore, helpful.

 

However, incentive structures should continue to focus on core branch business while progressively rewarding activities that broaden customer participation across financial products over time.

 

The road ahead: The Reserve Bank’s recent policy initiatives have increasingly focused on improving customer outcomes at the last mile. Proposals to compensate customers for certain small-value losses in digital transactions, the review of the regulatory framework for Business Correspondents and the Lead Bank Scheme, and measures to tighten suitability standards and curb mis-selling all move in this direction.

 

Taken together, they reflect a clear shift from counting access points to strengthening the everyday experience of using formal finance. Progress is also tracked through composite metrics such as the Financial Inclusion Index, which factors in usage and quality alongside access. In tandem, these steps signal a shift from enabling entry to strengthening sustained and beneficial use.

 

The direction of travel is clear. India has built the rails of inclusion. The next task is to ensure these rails carry households and micro-enterprises to better outcomes, in ways that are visible in their everyday financial life.

 

This requires sustained attention to three things: Services that people can use regularly, products that fit their needs, and customer protection that resolves problems quickly and fairly.

The author is Deputy Governor, Reserve Bank of India. The views are personal