Watershed moments: How technology bolstered the financial inclusion

Govt started groundwork 50 yrs ago, but adoption and advancement of tech have sped up growth of financial services

In 2017, when smartphone payments were making inroads across the world and Unified Payments Interface (UPI) was just a year old in India, a tiny African country was celebrating a decade of digital wallets. Launched in Kenya in 2007, M-Pesa showed the world how technology could put financial inclusion on a fast track.

 

Back home in India, the government had started laying the groundwork for financial inclusion over five decades ago. But adoption of technology and its advancement have sped up the growth and deepened the reach of financial services. 

Laying the groundwork 

The early initiatives of financial inclusion started with bank nationalisation and the Lead Bank Scheme in 1969, branch expansion in the 1970s, and the Kisan Credit Card (KCC) in 1998. 

Financial exclusion due to certain lending practices was highlighted in the Reserve Bank of India’s (RBI’s) 2005-06 Annual Policy Statement by then Governor Y V Reddy, as he urged banks to align their policies with financial-inclusion goals. 

As an effort to connect people with the banking system, in 2005, the RBI asked banks to offer ‘no frills’ accounts with low or zero minimum balances and minimum charges to expand the outreach of such accounts to the low-income groups which later became the ‘Basic Savings Bank Deposit Account’ as we know it today. 

 

The Indian government also formed a Committee on Financial Inclusion in 2006 under the chairmanship of C Rangarajan to bring more people, mainly those from vulnerable sections, into the ambit of the financial sector and extend its reach. Rangarajan was RBI governor from December 1992 to November 1997. 

In his report submitted in 2008, Rangarajan defined financial inclusion as “the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low-income groups at an affordable cost”. 

Y V Reddy also said that “the process of financial inclusion consists of seeking each household and offering their inclusion in the banking system”. 

As a step towards financial inclusion, RBI relaxed the Know Your Customer (KYC) norms for people intending to open accounts with annual deposits of less than ₹50,000 and also general purpose credit cards (GCC) were issued based on assessment of household cash. 

In January 2006, the RBI also allowed commercial banks to use services of non-governmental organisations or self-help groups (NGOs/SHGs), micro-finance institutions and other civil society organisations as intermediaries for providing financial and banking services through the use of business facilitator and business correspondent (BC) models. 

The government further advanced financial inclusion through the Direct Benefits Transfer (DBT) scheme, which leveraged the Aadhaar platform to enable direct transfers of subsidies and welfare benefits to beneficiaries’ bank accounts. 

JAM trinity & UPI: Important cornerstones

 

The Jan Dhan Yojana, along with the Aadhaar and Mobile (the JAM trinity), has become a cornerstone of financial inclusion in India. 

The objective of the Pradhan Mantri Jan Dhan Yojana (PMJDY) is to ensure access to various financial services like availability of the basic savings bank account, access to need-based credit, remittance facility, insurance and pension to the excluded sections, ie weaker sections and low-income groups. 

Latest data suggests that under PMJDY, over 555 million accounts have been opened, with deposits of over ₹2.59 trillion. Additionally, 383 million RuPay credit cards have also been issued with the accounts. 

Further, over the last few years, banking services have evolved with the rise of digital banking methods like net banking, mobile banking, and other real-time payment systems like the UPI. 

Launched in 2016, UPI saw transactions touch an all-time high of 18.68 billion in volume in May 2025. The value of transactions increased 33 per cent year-on-year (Y-o-Y) to ₹25.14 trillion.

 

In 2024-2025 (FY25), total digital payments grew 35 per cent Y-o-Y as against 44.3 per cent in FY24 in volume. In value terms, it rose by 17.9 per cent as opposed to 16.4 per cent in FY24, according to the RBI’s monthly bulletin. 

The central bank digital currency – e₹, another initiative by the RBI, continued to gain further traction, with volumes more than doubling and value rising over fourfold Y-o-Y as of the week ended April 18, 2025. 

The RBI also introduced a financial inclusion index in 2021, which captures the extent of financial inclusion across the country. The index for March 2024 increased to 64.2 from 60.1 in March 2023 showing an increase of 6.82 per cent Y-o-Y. 

  The way ahead: JAM-UPI-ULI  

Building on increased use of technology, the RBI’s new initiative — the Unified Lending Interface (ULI) — attempts to standardise and streamline digital-lending processes by providing lenders with alternative data, including digitised state land records, milk pouring data, and satellite data. 

“It is the RBI’s belief that the JAM trinity will be followed by the new trinity of JAM-UPI-ULI in revolutionising digital infrastructure and credit delivery and provide the necessary fillip to the financial inclusion efforts, pushing it to new highs,” Rajeshwar Rao, deputy governor, RBI, said at HSBC’s event for financial inclusion held on June 9. 

But financial inclusion also requires access and awareness, and hence financial literacy is also considered important. The RBI is taking several initiatives to strengthen it in the country.  

 

The efforts towards augmenting financing literacy have been institutionalised by setting up of the National Centre of Financial Education (NCFE) jointly by the financial sector regulators. Financial awareness empowers borrowers to assess and understand financial products, thereby supporting informed decision making. 

Recently, Union Finance Minister Nirmala Sitharaman said that India achieved 80 per cent financial inclusion in six years and recognised the role of people in adopting fintech. 

“India’s digital payment success story is a collective effort of all the stakeholders. India has an 87 per cent fintech adoption rate compared to 67 per cent globally,” the FM said. 

Also, innovations such as artificial intelligence (AI), block-chain, and digital public infrastructure continue to revolutionise the financial sector landscape. 

However, amid increased use of technology, inadequate cyber security and low level of digital literacy are emerging as key concerns towards achieving financial inclusion.