For sophisticated financial inclusion: Looking beyond distribution, access

There was a piece of encouraging news in the recently released National Family Health Survey (NFHS-6), 2023-24 as far as women’s financial empowerment is concerned. In the four years between NFHS-5 (2019-21) and NFHS-6, at the national level, the share of women who worked and were paid in cash went up by over five percentage points to 30.8 per cent. More encouragingly, the share of women who have a bank or savings account that they themselves used went up by over 10 percentage points to 89 per cent in the same period. NFHS does not give comparable figures for men. 

The readings of the Reserve Bank of India’s (RBI’s) five-year-old Financial Inclusion Index (FI-Index) — made of three sub-indices of access, usage and quality — also point to rising all-round financial inclusion. The latest available FI-Index — released in July last year for the financial year ended March 2025 — stands at 67 compared to 53.9 in March 2021, when the index was launched to measure financial inclusion across banking, insurance, investments, postal savings, and pensions. A growth of 24.3 per cent in just four years is noteworthy thanks to government-led inclusion efforts in Pradhan Mantri Jan Dhan Yojana, Pradhan Mantri Suraksha Bima Yojana, Pradhan Mantri Jeevan Jyoti Bima Yojana, Atal Pension Yojana, Pradhan Mantri MUDRA Yojana, Ayushman Bharat Pradhan Mantri Jan Arogya Yojana, Mahila Sammriddhi Yojana, Kisan Credit Card and the Unified Payments Interface. 

The rising proportion of citizens interacting across the financial landscape also bears witness to growing financial inclusion. More than 90 per cent of Indian adults have a bank account, and there are 2.6 billion individual bank accounts in the country, including multiple and over 580 million Jan Dhan ones (over 320 million women have Jan Dhan accounts). More than 570 million Mudra loans have been extended; over 430 million Ayushman Bharat cards issued; 40 million farmers covered under PM Fasal Bima Yojana; and 80 million Kisan Credit Cards given. Stock-market-related investor numbers are encouraging, too. There are over 240 million demat or trading accounts, and discounting for duplicate or multiple accounts, the number of unique registered investors in the Indian stock market will work out to around the 127-130 million mark, including around 60 million in mutual funds. 

Clearly, the country has made substantial progress as far as access to financial services is concerned. On usage, too, there is progress, as is evident from the growing body of users of anything from bank accounts and insurance products to stock market investments. But what about the broader financial literacy: Awareness and understanding of regular and sophisticated financial products? According to the RBI, the improvement in the FI-Index for year ended March 2025 was led by two of the three sub-indices: Usage and quality. Still, a recent report, Financial Maturity Index: A Survey of Two States, by the JM Financial Centre for Financial Research and People Research on India’s Consumer Economy at the Indian Institute of Management Udaipur, shows the distance we have to traverse on even basic product awareness in Gujarat and Rajasthan, one of our richest and poorest states, respectively. 

The report constructs a Financial Maturity Index (FMI) based on nine interrelated dimensions to arrive at households’ access to, knowledge of and engagement with various financial concepts and products. While performance on basic financial capability indicators like everyday numeracy or price arithmetic, wage multiplication and purchasing power is good, the scores fall drastically on macro concepts like inflation and compounding, which are central to financial products and planning. Take compounding for instance. Even among people with a higher secondary educational qualification, less than half understand it conceptually. 

When it comes to what the report calls ‘sophisticated financial literacy’ — essentially understanding the basic concepts of products like stocks, mutual funds, life insurance and bonds — the situation is far from desirable in Gujarat and Rajasthan. While understanding of the concept of life insurance remains strong (82 per cent of the respondents gave a correct response), the bottom falls off for products like bonds (24 per cent), stocks (18 per cent) and mutual funds (17 per cent). A sizeable share of people in Gujarat, supposedly the mecca of stock investing in the country, wrongly associate mutual funds with bank-like or informal savings schemes. Just 13.7 per cent correctly described it as a “… pool of money collected from many investors and invested in a diversified portfolio”. And this is when mutual fund investing through systematic investment plans stays strong in Gujarat, with the state consistently ranking number two or three in inflows here after Maharashtra. Even those with graduate or above educational status across the two states, just over a third understand “sophisticated financial” products like stocks, mutual funds or bonds. 

With FMIs of 33.6 and 32 for Gujarat and Rajasthan, respectively, the report notes that “... financial maturity remains low and unevenly distributed” across these states. There is no comparable study done for other states, but the situation cannot be too different elsewhere if the comparatively rich Gujarat’s low FMI is any indication. There is much that the country has achieved on financial inclusion in the last decade. Now policymakers and regulators need to press the pedal on deepening financial inclusion beyond just distribution and access.