In my book Defeating Poverty: Jan Dhan and Beyond, published after the introduction of Pradhan Mantri Jan Dhan Yojana (PMJDY) in 2014, I noted that a poverty alleviation programme has to be financially viable if it has to succeed. Jan Dhan Yojana, launched on August 28, 2014, is undoubtedly the most extensive concerted effort taken in the financial inclusion sphere in India. More than 46 crore bank accounts were opened as per government figures released on the 8th anniversary of the PMJDY scheme. Around 56 per cent of the Jan Dhan account holders are women, and 67 per cent of account holders are from rural and semi-urban areas.

Bank accounts opened under the PMJDY scheme in a mission mode. Initially, the target was to ensure a bank account for every household, and the targets broadened over years from ensuring an account of "every household" to "every adult". The scheme has been a phenomenal success when it comes to opening bank accounts, and it has also been successful in increasing banking habits.

In the scheme's first year, the number of accounts opened stood at 17.74 crores with deposits of around Rs 22,000 crore. The average deposit in the Jan Dhan account in August 2015 stood at around Rs 1240. By August 2022, the total number of accounts opened under the PMJDY increased to 46.25 crores, nearly three-fold from August 2015. The Gross deposit balance of the Jan Dhan accounts rose to Rs 1.74 lakh crore in August 2022, roughly 8-fold compared to August 2015. The average deposits per Jan Dhan account increased to Rs 3,762 in August 2022, more than three times the average of Rs 1,240 recorded in August 2015. An increase in deposits shows increased use of accounts and forming of a saving habit among the accountholders.

As per data from World Bank's Global Findex Database, as of 2021, 78 per cent of Indian adults (population 15 years or older) had a bank account compared to 53 per cent in 2014. Banking is accessible to almost every village within a 5 km radius.

However, financial inclusion is about more than just bank accounts. The Committee on Financial Inclusion, chaired by former RBI Governor Dr C Rangarajan, in its report (2008), 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."

As per the Committee on Financial Sector Reforms, chaired by Dr Raghuram G Rajan, "Financial Inclusion, broadly defined, refers to universal access to a wide range of financial services at a reasonable cost. These include banking products and other financial services such as insurance and equity products."

The Committee on Medium-Term Path to Financial Inclusion chaired by Mr Deepak Mohanty (2015) has set the vision for financial inclusion as, “convenient access to a basket of basic formal financial products and services that should include savings, remittance, credit, government-supported insurance and pension products to small and marginal farmers and low-income households at a reasonable cost with adequate protection progressively supplemented by social cash transfers, besides increasing the access of small and marginal enterprises to formal finance with a greater reliance on technology to cut costs and improve service delivery."

According to the World Bank, Financial Inclusion is an enabler for 7 of the 17 Sustainable Development Goals (SDGs). The World Bank Group considers Financial Inclusion a key enabler in reducing extreme poverty and boosting shared prosperity. Financial inclusion means that individuals and businesses can access useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered responsibly and sustainably.

Financial access facilitates day-to-day living and helps families and businesses plan for everything from long-term goals to unexpected emergencies.

As accountholders, people are more likely to use other financial services, such as credit and insurance, to start and expand businesses, invest in education or health, manage risk, and weather financial shocks, which can improve the overall quality of their lives, the World Bank has noted in its overview on Financial Inclusion.

Access to banking services has progressed impressively. Still, challenges remain in the usage of accounts and also when it comes the access to and the cost of financial products like credits and insurance.

Focusing on financial inclusion started in 2005 following startling revelations of exclusion data in the National Sample Survey. As per the 59th round of the National Sample Survey released in 2005, 45.9 million or 51.4 per cent of the total farmer households in the country were financially excluded from both formal and informal sources of credit. 73 per cent of the total farmer households had no access to formal sources of credit. Only 27 per cent of the total farmer households had access to formal sources of credit. However, one-third of this group also borrowed from non-formal sources.

Rangarajan committee, in its report in 2008, recommended the constitution of two funds – the Financial Inclusion Fund (FIF) and the Financial Inclusion Technology Fund (FITF). Subsequently, these two funds were created with the National Bank for Agriculture and Rural Development (NABARD). In July 2015, FIF and FITF merged into a single Financial Inclusion Fund (FIF). The objective of the FIF is to support "developmental and promotional activities", including creating FI infrastructure across the country, capacity building of various stakeholders, creation of awareness to address demand side issues, enhanced investment in Green Information and Communication Technology (ICT) solution, research and transfer of technology, the increased technological absorption capacity of financial service providers/users to secure greater financial inclusion.

Banking Infrastructure

There have been concerted efforts to enhance the banking infrastructure. The total number of branches of Scheduled Commercial Banks stood at 68,681 in March 2006. Units rose to 1,02,343 in March 2013 and increased further to 1,50,631 in 2021. There has been a consistent increase in the number of bank branches in the country. The total number of branches of Scheduled Commercial Banks stood at 35,707 in 1981. This increased from 60,220 in 1991 to 65,919 in 2001 and 90,777 in 2011. In the past five decades, the number of branches of Scheduled Commercial Banks has jumped 4.2-fold. Between 2011 and 2021, 59,854 new branches of the Scheduled Commercial Banks were opened. This is the sharpest increase ever. In the previous decade (2001-2011) only 24,858 new branches of the SCBs were opened.

In 1969, when the first phase of nationalisation of banks took place, there were 6955 public sector bank branches, and the average population per branch office was 64,000. To boost rural development, the Reserve Bank of India then prescribed a 1:3 ratio for opening branches in urban and rural/semi-urban centres.

As of June 2022, there are 1.59 Lakh branches operated by the Scheduled Commercial Banks. This translates to nearly 15 branches per 1 lakh of the population. This banking infrastructure in the country is complemented by a network of 2.17 lakh ATMs and close to 32 lakh Business Correspondents (BCs) engaged by banks. Nearly 47 per cent of the ATMs in the country are in rural and semi-urban areas.

The total deposits in the Scheduled Commercial Bank accounts stood at over Rs 170 lakh crore as of June 2022. Just around 1 per cent of this deposit is in Jan Dhan accounts.

There has been a significant increase in bank branches and ATMs in the country after the RBI advised banks to open brick-and-mortar branches in villages with a population of more than 5000. To strengthen financial inclusion, the RBI relaxed the branch authorisation guidelines. The Financial Inclusion Fund (FIF) was set up with an initial corpus of Rs 2000 crore to support technology and capacity-building adoption.

Providing banking access to every village within a 5 km radius/hamlet of 500 households in hilly areas is one of the critical objectives of the National Strategy for Financial Inclusion (NSFI) for the period 2019-24. As per the status reported by the concerned State/Union Territory Level Bankers' Committees' (SLBC/UTLBC) convenor banks, the milestone has been fully achieved in 22 states and 6 UTs as on March 31, 2021. The percentage of coverage of all identified villages/ hamlets across the country is 99.87 per cent, according to the RBI Annual Report released in May 2021.

Payments Bank

In 2015, the Reserve Bank of India (RBI) issued differentiated banking licenses for Small Finance Banks (SFBs) and Payments Banks (PBs). Some touted these licences as a masterstroke to deepen financial inclusion. Small Finance Banks too were set up to further financial inclusion through tailored deposit products. SFBs provide credit to small business units, small and marginal farmers, micro and small industries, and other unorganised sector entities through technology-led low-cost operations.

On the other hand, Payments Banks were set up to provide small savings accounts and payments/ remittance services to the migrant labour workforce, low-income households, small businesses, and other unorganised sector entities and users.

Small Finance Banks have been playing a progressive role in providing credit to small businesses. The guidelines of SFBs were drafted to promote inclusive growth taking care of the lacunae in some of the earlier experiments involving differentiated banks, such as narrow capital base, restrictive geographical jurisdiction, lack of diversification in the source of funds and concentration risk. The "small" in SFBs refers to the importance given to the objective of serving the section that is excluded and not the size of bank. At least 50 per cent of their loan portfolio should comprise loans of up to Rs 25 lakh.

There are pros and cons associated with small banks compared to the conventional banking system. On one hand, bigger banks have a better spread of Automated Teller Machines (ATMs) and branches; the smaller banks are known to be more flexible in providing personalised service to smaller clients. While larger banks tend to allocate more assets to more significant entrepreneurs, local banks serve neighbourhood communities. Large banks generally rely more on complex information like the creditworthiness of borrowers, collateral and audited statements for lending. Small banks rely on soft information based on feedback from the local community.

According to an RBI report 'Performance of Small Finance Bank – An Early Reflection' released in August 2021: High credit deposit (CD) ratio is observed for SFBs compared to other bank groups, implying a high conversion rate of available funds into lending activity. An essential objective of SFBs was to provide credit to the priority sector. This is indeed found to be in place with a share of priority sector advances of SFBs considerably higher vis-a-vis other traditional banking groups. Both the growth rate of deposits and credit of SFBs is generally high also due to the small base. Profitability and assets quality figures for SFBs are also better than other bank groups.

On the other hand, Payments Banks have yet to deliver the desired results, and their future remains uncertain. How come I predicted that the Payments Banks would not help much in financial inclusion and are doomed to fail? I am not an astrologer! The reason is related to economic viability, as I noted at the beginning of this chapter and in my book Defeating Poverty: Jan Dhan and Beyond, that a poverty alleviation programme has to be financially viable if it has to succeed.

Payments Banks are not financially viable. The result is in front of all of us to see. Five out of the 11 Payments Banks have already shut shops. Some dropped off within months of being granted licenses, while a few more fizzled out in a couple of years.

Out of 11, five have already surrendered their licenses. Only six are now in the fray - Airtel Payments Bank, Fino Payments Bank, India Post Payments Bank, Jio Payments Bank, NSDL Payments Bank and Paytm Payments Bank. Even among these six, only three have seen active transactions going to RBI's statistics on mobile and NEFT transactions — Airtel Payments Bank, Fino Payments Bank and Paytm Payments Bank. India Post Payments Bank is also evaluating options for converting to a Small Finance Bank (SFB).

As I argued earlier, the main reason behind the failure of the Payments Banks is financial viability. The Payments Banks have very limited revenue streams and small margins. Traditional banks earn profit by lending money raised from deposits. Payments Banks have little scope to earn good margins. Payments Banks face a blanket ban on any type of lending. Moreover, they cannot accept deposits higher than Rs 1 lakh. Payments Banks are required to maintain a cash reserve ratio (CRR), and statutory liquidity ratio (SLR) on the outside liability.

Payments Banks' income comprises mainly interest from investments in safe government securities and fee income, which they can earn by distributing simple financial products such as mutual funds and insurance. Payments Banks are required to invest 75 per cent of their deposits in government securities with maturity of up to one year, and the balance 25 per cent can be parked with commercial banks. In recent years, the yield on one-year Government Securities has been 5-7 per cent. Leading commercial banks offer 3.5 per cent interest on low-value savings deposits. A few private banks, including YES Bank, Kotak Mahindra Bank and IndusInd Bank, offer 4-5 per cent interest on savings deposits. To compete with traditional banks, Payments Banks are required to offer attractive interest rates to their customers on their deposits. Low returns on government securities force the Payments Banks to operate on wafer-thin margins.

As a result, Payments Banks, in general, are incurring losses. The overall loss of Payments Banks stood at Rs 242 crore in the financial year 2016-17. The losses widened to Rs 516 crore in FY 2017-18, per the RBI's report on 'Trend and progress of banking in India 2017-18'.

National Strategy for Financial Inclusion 2019-2024

In January 2020, the Reserve Bank of India released the National Strategy for Financial Inclusion 2019-2024. The strategy aims to provide access to formal financial services affordably, broadening and deepening financial inclusion and promoting financial literacy and consumer protection.

The National Strategy for Financial Inclusion has identified six strategic objectives: (i) universal access to financial services, (ii) providing a basic bouquet of financial services, (iii) access to livelihood and skill development, (iv) financial literacy and education, (v) customer protection and grievance redressal, and (vi) effective coordination.

The strategy has been prepared by the RBI under the aegis of the Financial Inclusion Advisory Committee and is based on the inputs and suggestions from the Government of India, other Financial Sector Regulators viz., Securities Exchange Board of India (SEBI), Insurance Regulatory and Development Authority of India (IRDAI) and Pension Fund Regulatory and Development Authority of India (PFRDA).

The approach paper prepared by the RBI notes that every willing and eligible adult needs to be provided with a basic bouquet of financial services, including a Basic Savings Bank Deposit Account, credit, a micro life and non-life insurance product, a pension product and a suitable investment product.

It talks about universal access to financial services. Providing Universal Access to Financial Services by expanding the outreach is the foundation for a successful financial inclusion strategy. Over the last five years, especially with the launch of the PMJDY in 2014, the country's total number of access points has increased. However, some parts of the country include difficult-to-reach terrain in the North Eastern Region, Left Wing Extremists affected districts and the aspirational districts in the country wherein the number of access points needs to be increased to improve coverage.

As per the strategy paper, every adult should have access to a financial service provider through a mobile device by March 2024. The paper has suggested moving towards an increasingly digital and consent-based architecture for customer onboarding by March 2024.

Financial Inclusion Index

The Financial Inclusion Index constructed by the Reserve Bank of India shows consistent progress in financial inclusion in the country. The value of the Financial Inclusion (FI) Index rose to 56.4 in March 2022 as compared to 53.9 recorded in March 2021, as per the latest data released by the RBI in August 2022.

The FI Index – which ranges from 0 (denoting financial exclusion) to 100 (indicating total financial inclusion) – is meant to gauge the extent of financial inclusion in the country. A multidimensional composite Financial Inclusion Index (FI-Index) has been constructed based on 97 indicators which quantify the degree of financial inclusion and is responsive to availability, ease of access, usage, unequal distribution and deficiency in services, financial literacy, and consumer protection.

The FI-Index constructed by the RBI is based on the three dimensions of financial inclusion, viz., 'Access', 'Usage' and 'Quality' with weights as 35, 45 and 20 per cent, respectively. The weights were determined to make the Index forward-looking, emphasising the deepening aspect of financial inclusion ('Usage' and 'Quality'). Broadly, one-third of the total weight is to 'Access', where most of the past initiatives have been undertaken, which reflects the extent of supply-side financial infrastructure made available. Two-thirds of the weight has been assigned to the deepening aspect of financial inclusion, i.e., 'Usage' and 'Quality'. Each of these three sub-indices is further composed of a distinct set of dimensions computed based on a non-overlapping set of indicators.

Of the 97 indicators in the Index, 90 are primary indicators and the remaining seven indicators are inequality measures of respective seven primary indicators, viz., distribution of bank branches, distribution of fixed-point business correspondents (FBCs) outlets, distribution of ATMs, distribution of the number of savings account and savings amounts, distribution of the number of credit accounts and outstanding credit. Lorenz curve and inequality measure in terms of Gini coefficients of these seven indicators are presented in Annex. All indicators, wherever necessary are adjusted for inflation based on the Consumer Price Index (CPI).

Although the RBI released the FI-Index results first in 2021, it has made the calculations from 2017 onwards. FI-Index stood at 43.4 in March 2017. There has been a consistent improvement. In March 2018, the Index rose to 46. In March 2019, it improved to 49.9 and 53.1 in March 2020. During the COVID-19 pandemic period, the growth in the Index has been at a slower pace. In March 2021, the Index grew to 53.9 as compared to 53.1 recorded a year earlier.

The FI-Index has been constructed without any 'base year' and reflects all stakeholders' cumulative efforts over the years towards financial inclusion.

Financial products are broadly accessible thanks to the huge success of the Pradhan Mantri Jan Dhan Yojana. In the 2021 report, the access sub-index stood at 73.3. This reflects ordinary people's access to bank accounts and other financial products.

'Access' sub-index, which is further divided into four dimensions, viz., 'Banking', 'Digital', 'Pension', and 'Insurance', reflects the efforts made on the supply side of financial inclusion, such as availability of physical and digital infrastructure and measures for making basic products and services available for the excluded segments. The 26 indicators across four dimensions have been selected to capture the number of banking outlets, including BCs, NBFCs, post offices Etc., the total number of savings accounts, including small savings, all types of cards and electronic payment infrastructure, JAM ecosystem, subscription base of various pension schemes and offices and agents of life and non-life insurance Etc.

‘Usage’ sub-index is divided into five dimensions, viz., 'Savings & Investment', 'Credit', 'Digital', 'Insurance' and 'Pension'. Comprised of 52 indicators, it is more of a demand-side measure. It reflects the extent of active usage of financial infrastructure through savings, investment, insurance, availing of credit and remittance facilities, Etc. The indicators are designed to reflect savings and investment habits, availing of credit from banks and non-banks, use of retail digital payments, penetration of insurance, both life and non-life, and contribution to various pension schemes.

'Quality' sub-index has three dimensions, viz., 'Financial Literacy', 'Consumer Protection', and 'Inequality' in the distribution of financial infrastructure with 19 indicators. These indicators capture the efforts undertaken by the stakeholders to make citizens aware of the appropriate financial services available, safe ways of using them and making them aware of their rights, such as overcoming psychological barriers. They also reflect the effectiveness of the grievance redress mechanism and account for the uneven distribution of specific financial access and usage indicators. The Gini coefficient based on the Lorenz curve with district-level data granularity has been used to measure inequality.

While there is impressive progress in the access sub-index, a usage which has 45 per cent weight in the FI-Index, remains the primary drag. In 2017, the Usage sub-index stood at 30.8 against the access sub-index at 61.7. The usage sub-index rose sharply in 2019 to 38.7 from 33.7 in the previous year. In March 2020, the usage sub-index improved to 42 and further to 43 in March 2021. However, despite the improvement, the usage sub-index remains sharply down compared to the other two indices – access and quality. The usage sub-index stood at 43 in 2021, while the access sub-index was at 73.3 and quality at 50.7.

The Index shows that while vulnerable groups and weaker sections of society have mostly access to the financial system, most of them are still unable to use banking, credit and other services.

Credit

Availability and delivery of credit is perhaps among the biggest challenges in financial inclusion. Many people have come under the banking network in the past eight years. But the majority of them still need adequate access to credit.

The overarching principle of priority sector lending (PSL) is to enhance credit flow to those vulnerable sections of society, which despite being credit-worthy, may not get timely and adequate credit in the absence of a special dispensation. Priority sector loans include small-value loans to farmers for agriculture and allied activities, MSMEs, housing, education, and other low-income groups and weaker sections. Social infrastructure and renewable energy have also been brought under the ambit of priority sector lending.

Credit to MSMEs

Micro, Small and Medium Enterprises (MSMEs) are the growth engines. They contribute nearly 31 per cent to India's GDP, 45 per cent to exports and provide employment opportunities to more than 11.1 crore skilled and semi-skilled people. There are approximately 6.33 crore MSMEs in India.

Lack of access to credit and cost of credit are among the significant challenges facing the MSMEs in the country, and the challenges are more acute for micro and small enterprises. From time to time, the Government comes out with schemes and programmes to address the challenges related to cost and access to credit to the MSMEs. In November 2018, the Government announced a 2 per cent interest subvention for the MSME sector, applicable for FYs 2018-19 and 2019-20. The scheme was extended to 2020-21. All fresh or incremental amounts of working capital or new term loan to the extent of only Rs 10 million in the sector were eligible for interest subvention during the scheme period.

Other schemes implemented by the Government to support MSMEs include Prime Minister's Employment Generation programme (PMEGP), Scheme of Fund for Regeneration of Traditional Industries (SFURTI), A Scheme for Promoting Innovation, Rural Industry & Entrepreneurship (ASPIRE), Interest Subvention Scheme for Incremental Credit to MSMEs, Credit Guarantee Scheme for Micro and Small Enterprises (CGTMSE), Micro and Small Enterprises Cluster Development Programme (MSE-CDP) and Special Credit Linked Capital Subsidy Scheme (SCLCSS).

The debt requirement for India's MSME sector is estimated at Rs 69 lakh crore. About half of the funding needs of the segment are currently being met through informal sources, and despite the rural economy contributing to about half of India's Gross Domestic Product (GDP), the rural segment's share in overall bank credit remains low at around 8–10 per cent.

Agricultural Credit

More than half of India's workforce is involved in agriculture. As per the 2011 Census, out of the total workers of 481.7 million, there are 118.7 million cultivators and 144.3 million agricultural labourers, which means approximately 55 per cent of the total workers were employed in the agriculture and allied sector.

There has been a consistent push from the Government to boost the availability of credit to the farm sector. The growth in credit to the farm sector is reflected in the data.

The ratio of Agri-Credit outstanding to Agri-GDP jumped from 0.6 per cent in 1950-51 to 9.81 per cent in 1971-72. Post-1972, the ratio shows an upward trend up to 1987-88, increasing to 21.76 per cent. The impressive achievement of agricultural credit against agricultural GDP during the 1950s-1980s is due to the nationalisation of banks and the introduction of RRBs, which expanded the reach of formal credit in the country.

However, the reverse trend in the ratio started from 1990-91 onwards and fell to 13.34 per cent in 1998-99. Post-1999, the percentage increased steeply and reached 39.55 per cent in 2006-07, which indicates that the introduction of KCC was a big booster for agricultural credit and brought about a sea change in improving the reach of credit to the farming community. Many other policy initiatives started in 2004-05 also played an important role. In later years, despite a fluctuating trend, it rose to 49.63 per cent in 2015-16 and 51.56 per cent in 2017-18, as per a report of the Internal Working Group of the RBI to Review Agricultural Credit.

Priority sector lending is a significant policy intervention to boost credit to the farm sector. Per the Priority Sector Lending norms, all Scheduled Commercial Banks are required to meet a target of 40 per cent of their Adjusted Net Bank Credit (ANBC) or credit equivalent of Off-Balance Sheet Exposure, whichever is higher for Priority Sector Lending. RRBs and SFBs are required to meet a target of 75 per cent towards PSL. Besides the overall PSL targets, banks are required to achieve an agriculture target of 18 per cent and a sub-target of 8 per cent of ANBC for small and marginal farmers.

Under the revised PSL guidelines of 2015, direct and indirect agricultural lending has been dispensed. The eligible activities include farm credit, agri-infrastructure and ancillary activities. As per the new guidelines, the approach of agriculture under the priority sector is to focus on 'credit for agriculture instead of 'credit in agriculture in order to give impetus to financing of supply value chain in the sector.

To address the issue of cost credit, the Government of India introduced the interest subvention scheme (ISS) for short-term crop loans in 2006-07. It has been continuing since then with minor modifications.

Interest on short-term crop loans up to Rs 3 lakh is fixed at 9 per cent per annum by banks and made available to farmers at a reduced rate of 7 per cent per annum to farmers. The 2 per cent interest subvention is reimbursed to banks (through RBI and NABARD) based on the funds released by the Government against their claims. Besides a 2 per cent interest subvention, a 3 per cent prompt repayment incentive (PRI), introduced in 2009-10, is given, reducing the cost of the loan to 4 per cent.

To prevent distress sale of produce, the interest subvention benefit is extended for a period of up to six months (post-harvest) to small and marginal farmers having Kisan Credit Card (KCC) on loan against negotiable warehouse receipts issued on the produce stored in warehouses accredited with Warehousing Development Regulatory Authority (WDRA). The scheme also provides for a 2 per cent interest subvention to farmers for the first year on loans restructured due to natural calamities.

Despite these interventions, availability and cost of credit have been among the primary reasons for farmers' distress in the country.

As per the NABARD All India Rural Financial Inclusion Survey (NAFIS) Report 2016-17, the average loan taken by agricultural households indicated that 72 per cent of the credit requirement was met through institutional sources and 28 per cent from non-institutional sources. Further, in the absence of a proper legal framework and lack of records relating to agricultural activity, tenant farmers/ share croppers/ oral lessees/ landless labourers need help accessing institutional credit. As per PSA Annual return (2015-16), only 41 per cent of small and marginal farmers could be covered by public and private sector banks. Besides these problems and challenges of accessibility in credit, the share of credit to allied activities, i.e., livestock, forestry and fisheries, was suboptimal compared to its contribution to agricultural output.

Financial Literacy

Financial literacy is critical to enable customers to use their accounts to their advantage and enhance their economic well-being. Financial literacy and education are the bedrocks of a vibrant financial system; it is essential to make sustained efforts in this direction.

The strategy paper has recommended that the existing mechanism of SLBC/ DCC/ DLRC be leveraged and coordinated efforts are made by RBI, NABARD, NRLM resource persons, NGOs, PACS, Panchayats, SHGs, Farmers’ Clubs etc. to promote financial literacy at grassroots levels.

Initially from a bank-led model for propagating financial literacy in the country, over the years, several steps have been taken to make financial literacy a multi-stakeholder community-led approach to reach out to various groups of the population who require financial literacy.

The RBI strategy paper has set a target to expand the Centers for Financial Literacy (CFL) reach to every block in the country by March 2024. It also talks about the focus on process literacy and concept literacy, which empowers the customers to understand not only what the product is about, but also helps them use the product by using technology-led Digital Kiosks, Mobile apps Etc.

General people, banking customers, in particular, need to be explained in simple language the nature of the product, its suitability to their requirements and the cost vis-à-vis return. Concerted efforts are required to ensure coordination among the ground-level functionaries. Lead District Manager (LDM), District Development Manager (DDM) of NABARD, Lead District Officer (LDO) of RBI, District and Local administration, Block level officials, NGOs, SHGs, BCs, Farmers' Clubs, Panchayats, PACS, village level functionaries Etc while conducting financial literacy programmes.

The National Strategy for Financial Education (2020-2025) talks about a 5C approach to achieve the objective of financial literacy.

The strategy includes a ‘5Cs’ approach for dissemination of financial education through emphasis on development of relevant Content (including Curriculum in schools, colleges and training establishments); Capacity of the intermediaries who provide financial services and education; leveraging on the positive effect of community led model for financial literacy through appropriate Communication Strategy; and enhancing Collaboration among various stakeholders.

The focus of the financial literacy initiative has been on TV advertisements and now is shifting to digital.

SKOCH Group has been conducting financial literacy and awareness programmes for several years. Our experience shows that the initiatives taken at the grassroots level are far more cost-effective and impactful.

One significant gap that we have noticed in the financial literacy initiative is the mobilisation of beneficiaries. Poor and marginalised people are still largely out of the digital space and need to be mobilised and trained in person.

A hybrid mode could be the best suited to implement financial literacy programmes. A part of the programme can be implemented in digital manner. At the same time, substantial activities are a must on the ground, from mobilisation to training and handholding in access to financial services.

Financial literacy programmes could be attractive by clubbing some banking activities like credit. For example, those who complete the financial literacy session could be given small credit in the form of an overdraft or say, Rs 5,000 each. This will help generate much attraction for the programme among ordinary people.

SHGs

Self-Help Group (SHG)-Bank Linkage Programme has played a crucial role in increasing access of the poor, especially women, to the formal banking system. The initiative was launched in 1992 by NABARD with the policy support of the RBI. NABARD initially implemented the programme in selected locations on a pilot basis and it was mainstreamed with banks in 1996.

Since then, the RBI, from time to time, issued several guidelines/instructions to banks on SHG-Bank Linkage Programme. In April 2022, the RBI came out with a 'Master Circular on SHG-Bank Linkage Programme'.

In the circular, the RBI noted: Self Help Groups have the potential to bring together the formal banking structure and the rural poor for mutual benefit. Studies conducted by NABARD in a few states to assess the impact of the linkage project have brought out encouraging and positive features like increase in loan volume of the SHGs, definite shift in the loaning pattern of the members from non-income generating activities to production activities, nearly 100 per cent recovery performance, significant reduction in the transaction costs for both the banks and the borrowers etc., besides leading to a gradual increase in the income level of the SHG members. Another significant feature observed in the linkage project is that about 85 per cent of the groups linked with banks were formed exclusively by women.

The SHGs, registered or unregistered, which are engaged in promoting savings habits among their members, are eligible to open savings bank accounts with banks. These SHGs need to have yet to avail of credit facilities from banks before opening savings bank accounts; the RBI said in a circular addressed to the head of all scheduled commercial banks.

In December 2021, a scheme was launched to provide overdraft (OD) of Rs 5,000/- to verified SHG members under Deendayal Antyodaya Yojana - National Rural Livelihoods Mission (DAY-NRLM). Finance Minister Nirmala Sitharaman made the announcement in this regard in her budget speech for 2019-20.

It is estimated that about five crore women SHG members under DAY-NRLM will be eligible for this facility. DAY-NRLM is a flagship programme of the Ministry of Rural Development. It aims to eliminate rural poverty by mobilising poor women into community institutions like Self Help Groups (SHGs) and strengthening their livelihood by accessing necessary credit from banks. The Mission was launched in June 2011. It was renamed as DAY-NRLM (Deendayal Antyodaya Yojana - National Rural Livelihoods Mission) w.e.f. March 29, 2016.

As on December 15, 2021, 8.04 crore rural women have been mobilised into 73.5 Lakh Self Help Groups, and it is envisaged that by 2024, about ten crore women will be mobilised into Self Help Groups. As per the Ministry of Rural Development, the ultimate aim of DAY-NRLM is to cover at least one woman member from each poor rural household (about 9-10 crore) under the fold of Self Help Groups (SHGs).

SHGs are provided financial support on their borrowings in the form of interest subvention.

Under the DAY-NRLM interest, subvention is being provided on loans taken by women Self Help Groups from Banks. In 250 backward districts, called Category-I districts, all women SHGs are eligible to get bank loans up to Rs 3 lakh at an interest rate of 7 per cent per annum. An additional Interest Subvention of 3 per cent per annum is provided to women SHGs maintaining prompt repayment, reducing the effective interest rate to 4 per cent. This part of the scheme is implemented directly by the Ministry of Rural Development and funded entirely out of the central component under DAY-NRLM.

In the remaining districts of the country, referred to as Category-II districts, women SHGs under DAY-NRLM availing loans up to Rs 3 lakh from banks; Interest Subvention is given to the extent of the difference between bank's lending rate and 7 per cent subject to the maximum ceiling of 5.50 per cent per annum. State Governments implement this part of the scheme and is funded out of the allocation provided to each State under DAY-NRLM, which includes State share as per norms.

However, the Government has now approved a uniform interest subvention scheme for women SHGs across all districts in the country from the financial year 2022-23. Under the uniform interest subvention scheme, women SHGs will be eligible for loans up to Rs 3 lakhs at an interest rate of 7 per cent per annum. Further, women SHGs can avail of loans above Rs 3 lakhs and up to Rs 5 lakhs at an interest rate equivalent to 1-year MCLR (Marginal Cost of Funds based Lending Rate) of respective lending banks. As on Mar 2022, the 1-year MCLR of major Public Sector Banks ranges between 7 per cent to 7.5 per cent.

DAY-NRLM has a provision for providing a Revolving Fund (RF) at the rate of Rs 10,000-15,000 per SHG and a Community Investment Support Fund (CISF) to the extent of Rs 2,50,000 per SHG. These funds remain with the SHGs and their federations in perpetuity and are utilised to provide loans to their members to undertake socio-economic activities per their micro-credit/investment plans. As of February 28, 2022, the Mission provided a total of Rs 17,342 crore of Capitalisation Support (Revolving Funds and Community Investment Support Funds) to SHGs and their federations.

Unified Payments Interface (UPI)

Unified Payments Interface (UPI) has emerged as a revolutionary product in the payment ecosystem. Launched in 2016, it has emerged as one of the most popular tools in the country for carrying out digital transactions and played a crucial role in furthering the cause of financial inclusion.

UPI is an instant payment system developed by the National Payments Corporation of India (NPCI). It powers multiple bank accounts into a single mobile application, merging several banking features, seamless fund routing and merchant payments into one hood. It also caters to the "Peer to Peer" collection request, which can be scheduled and paid as per requirement and convenience.

UPI has become the most inclusive mode of payment in India, with over 26 crore unique users and five crore merchants on the platform. UPI currently constitutes over 40 per cent of all digital transactions in India. It has boosted small businesses and street vendors as it enables fast and secure bank-to-bank transactions, even for considerably small amounts. It also facilitates quick money transfers for migrant workers.

The technology is convenient as it requires minimum physical intervention, making it possible to transfer money simply by scanning a QR code. UPI has also been a saviour during the Covid-19 pandemic, with its adoption expanding rapidly due to its ability to allow easy, contactless transactions.

UPI has gone a long way in making digital payments a habit and firmly placing India toward a cashless economy. In August 2022 alone, 346 banks were live on the UPI interface, with 6.58 billion financial transactions being carried out for a total value of nearly Rs 10.73 lakh crores.

Digital payments mode, including Bharat Interface for Money-Unified Payments Interface (BHIM-UPI), Immediate Payment Service (IMPS), prepaid payment instruments (PPIs) and National Electronic Toll Collection (NETC) system, have registered substantial growth and have transformed the digital payment ecosystem by increasing person-to-person (P2P) as well as person-to-merchant (P2M) payments. At the same time, pre-existing payment modes such as debit cards, credit cards, National Electronic Funds Transfer (NEFT) and Real-Time Gross Settlement (RTGS) have also proliferated. BHIM-UPI has emerged as the preferred payment mode of users.

As per data presented by the Government in the Lok Sabha in August 2022, the total number of digital transactions rose to 8,840 crores in the financial year 2021-22 from 4,572 crores in 2019-20. The total value of digital transactions increased to Rs 3,021 lakh crore in 2021-22 from Rs 2,953 lakh crore in 2019-20.

UPI has been a hugely successful technology. India is leading the world in this revolutionary digital payment technology, and India is way ahead of China and even the developed countries in UPI transactions. Total transactions through UPI in India stood at around 48 billion in 2021, while in China, it stood at 18 billion.

In June 2022, the RBI announced allowing the linking of credit cards to UPI. This is a pioneering initiative by the RBI. This will position India as one of the pioneering countries in digital payments by giving the extra convenience of paying through credit. By doing so, India's economy will not only receive a boost but also extend the influence of its financial systems beyond the country.

UPI for Feature Phones

The UPI system works on smartphones. In March 2022, the RBI launched UPI123Pay, which enables people with feature phones to make financial transactions.

UPI 123Pay is an instant payment system for feature phone users using the Unified Payments Interface (UPI) payment service safely and securely. Through UPI 123Pay, feature phone users will now be able to undertake a host of transactions based on four technology alternatives. They include calling an IVR (interactive voice response) number, app functionality in feature phones, missed call-based approach, and proximity sound-based payments.

While launching this initiative in March 2022, RBI Governor Shaktikanta Das highlighted the importance of the initiative in enhancing the diversity, utility and transformational power of digital innovations in the country.

The RBI has also launched a 24x7 Helpline called DigiSaathi to provide round-the-clock support for digital payments.

These initiatives will further deepen the digital ecosystem and financial inclusion.

Before the launch of UPI123Pay, UPI was available only on smartphones. UPI can be accessed through NUUP (National Unified USSD Platform) using the short code *99#. But this option needs to be more convenient and popular. Considering that there are more than 40 crore feature phone mobile subscribers in the country, UPI123pay will materially improve the options for such users to access UPI. UPI123Pay includes four distinct options as below:

(a) App-based Functionality: An app would be installed on the feature phone through which several UPI functions, available on smartphones, will also be available on feature phones.

(b) Missed Call: This will allow feature phone users to access their bank account and perform routine transactions such as receiving, transferring funds, regular purchases, bill payments, Etc., by giving a missed call on the number displayed at the merchant outlet. The customer will receive an incoming call to authenticate the transaction by entering UPI PIN.

(c) Interactive Voice Response (IVR): UPI payment through pre-defined IVR numbers would require users to initiate a secured call from their feature phones to a predetermined number and complete UPI onboarding formalities to be able to start making financial transactions without internet connection.

(d) Proximity Sound-based Payments: Sound waves enable contactless, offline, and proximity data communication on any device.

Direct Benefit Transfer (DBT)

The Direct Benefit Transfer (DBT) system has emerged as a game-changer for financial inclusion in India. It has transformed the delivery system of subsidies and welfare schemes and helped make the system simpler, faster, accurate and leak-proof.

The DBT system was rolled out on January 1 2013. Seven schemes were brought under the DBT in 43 districts in the first phase. The system was expanded across the country in 2014, and in 2015, the total schemes under DBT were 34. The number of schemes under DBT was 140 in 2017, which increased to 312 in 2021-22. These included vital subsidies being offered by 54 central government ministries and departments.

Around Rs 6.3 lakh crore was transferred to beneficiaries' accounts through DBT in 2021-22. The cumulative transfer through the DBT mode stands at Rs 24.8 lakh crore. During 2021-22, an average of more than 90 lakh DBT payments were processed daily.

DBT emerged as a boon in relieving people during the COVID-19 pandemic. Even during the nationwide lockdowns, relief money was transferred to the 'beneficiaries' accounts. Under the DBT, money is transferred using the Public Financial Management System (PFMS). On March 30 2020, during the first lockdown after the outbreak of the COVID-19 pandemic, the PFMS recorded 2.19 crore transactions, the highest number of single-day transactions. DBT payments largely drove this.

Between March 24 and April 17, the DBT payments under all the central sector/centrally sponsored schemes through PFMS amounted to Rs 27,442.08 crore in the accounts of 11.42 crore beneficiaries through schemes like PM-KISAN, Mahatma Gandhi National Employment Guarantee Scheme (MGNREGS), National Social Assistance Program (NSAP), Prime Minister’s Matru Vandana Yojana (PMMVY), National Rural Livelihood Mission (NRLM), National Health Mission (NHM), scholarship schemes of various ministries through the National Scholarship Portal (NSP). In addition, states like UP, Bihar, Madhya Pradesh, Tripura, Maharashtra, Jammu & Kashmir, and Andhra Pradesh also leveraged the DBT platform of PFMS. Through 180 welfare schemes, the state governments using PFMS have disbursed to 4.59 crore beneficiaries, an amount of Rs 9,217.22 crore between March 24 and April 17.

DBT played an increasingly important role as the COVID-19 crisis deepened. The International Monetary Fund (IMF) lauded India's DBT scheme as a "logistical marvel". DBT ensured fast, targeted and leak-proof delivery of subsidy and relief material to the people across the country during the unprecedented crisis of COVID-19. Through DBT, money goes to the bank account of beneficiaries, which gives people the flexibility to use the funds per their needs.

DBT has led to significant savings for the exchequer and enabled efficient utilisation of government resources. Fake or ghost beneficiaries have been weeded out, and now the funds have reached genuine beneficiaries. The Public Distribution Scheme (PDS) has seen the maximum gains with the deletion of 3.99 crore duplicate and fake/ non-existent ration cards (between 2013 and 2020), which resulted in an estimated saving of over Rs 1 lakh crore. MGNREGS saw 10 per cent savings on wages because of the deletion of duplicate, fake/ non-existent, ineligible beneficiaries. That apart, 4.11 crore duplicate, bogus/ non-existent, inactive LPG connections have been eliminated.

e-RUPI

The National Payments Corporation of India (NPCI), which oversees the digital payments ecosystem in India, has launched e-RUPI, a voucher-based payments system to promote cashless transactions. Prime Minister Narendra Modi launched this cashless and contactless instrument for digital payment on August 2 2021. e-RUPI is expected to play a massive role in making Direct Benefit Transfer (DBT) more effective in digital transactions in the country.

e-RUPI is a digital voucher a beneficiary gets on his phone in the form of an SMS or QR code. It is a prepaid voucher, which they can redeem at any centre that accepts it. For example, suppose the Government wants to cover a particular treatment of an employee in a specified hospital. In that case, it can issue an e-RUPI voucher for the determined amount through a partner bank. The employee will receive an SMS or a QR Code on his feature phone/smartphone. They can go to the specified hospital, avail of the services and pay through the e-RUPI voucher received on his phone.

Thus e-RUPI is a one-time contactless, cashless voucher-based mode of payment that helps users redeem the voucher without a card, digital payments app, or internet banking access. e-RUPI should be distinct from Digital Currency which the Reserve Bank of India is contemplating. Instead, e-RUPI is a person-specific, even purpose-specific digital voucher. e-RUPI being a prepaid voucher would assure real-time payments to the service provider.

Financing to MSMEs

India's MSMEs face humungous challenges in access to credit on two fronts. Firstly, there is a massive scarcity of credit availability. And second, whatever credit is available must address small businesses' felt needs.

I have made several recommendations to the Government and the RBI to address the issue of the credit needs of the MSMEs. My submissions sent to the RBI in March 2019 noted the following:

• Even after providing collateral, be it property or fixed deposits Etc, only a small percentage of the collateral value is provided to MSMEs as a cash-credit limit. A concept of margin collateral should be introduced. E.g., the cash-credit limit could be 2x or higher than the collateral value. SKOCH can help with providing inputs for carefully calibrated criteria for eligibility. E.g., eligibility should be based on a minimum of 7-years of average turnover, average profit, banking history of good standing Etc.
• Most MSMEs in a particular sector tend to do similar things but do them reasonably well. The opportunities for windfall, etc., due to innovations, efficiencies, Etc. are somewhat limited. What is possible, however, is that these organisations can scale and create more jobs. This sector then becomes the lowest priority for investors. Here, the banking system can play a significant catalytic priority sector development role by directing the treasuries to make 5 per cent of their investments in SME stocks. This will impact the sector positively over a period end-up making SME investments desirable and impactful.
• SIDBI perhaps is the single most significant point of failure for SMEs. Over the years, a lazy habit of parking all the funds with SIDBI has developed. Most of these funds are not performing or even disbursed. The policy on this needs to be reviewed and ground created for a more professional intervention from the private sector.
• The growth of the MSME sector in India is severely stressed due to the lack of formal credit and other supports. True, credit to small enterprises is a high risk. But the return is also higher. The Government should ensure credit to MSMEs on a risk and reward-sharing basis with financial institutions. Another prudent move could be to ensure that bank treasuries invest at least 5 per cent of their money in SME stocks. The presence of SMEs in the equity markets is negligible. Investment by treasuries would encourage SMEs to go to equity markets for fund generation.

It is heartening to note that the policymakers have acted upon the issue. In the Union Budget 2020-21, Finance Minister Nirmala Sitharaman has proposed to make necessary amendments to the Factor Regulation Act 2011 to enable NBFCs to extend invoice financing to MSMEs through Trade Receivable Discounting Systems, or TReDS.

SKOCH report card on Pradhan Mantri MUDRA (Micro Units Development and Refinance Agency) Yojana first published in 2016 and again in 2017 pitched for addressing the felt need of cash flow credit. We advocated in the report that instead of extending collateral-based credit for setting up businesses, the focus should be on providing credit to meet the working capital requirements of small businesses. Access to working capital credit stifles the growth of small businesses. However, this was not the first time we started advocating the need to address the felt-needs of MSMEs' credit requirements. Speeding Financial Inclusion book published by SKOCH in 2010, advocated for the creation of alternate mechanisms to promote credit to MSMEs.

An expert committee on MSME chaired by U K Sinha, former chairman of the Securities and Exchange Board of India (SEBI), has noted: "With a limited number of entrepreneurial development and incubation centres, the entrepreneurial ethos of the MSME ecosystem is not evolving. Utilisation and reach of various schemes and credit support are constrained due to lack of formalisation and low registration of MSMEs in Udyog Aadhaar Memorandum (UAM)." Promoting formalisation and digitisation amongst MSMEs and encouraging them to register in UAM has remained challenging. In this severely challenged background India, SME Forum deliberates on ways and means to make small businesses vibrant, which is critical to bring India back on a high growth trajectory and creating jobs.

In its report submitted to the RBI Governor in June 2019, the Committee made recommendations about amendments to the MSME Development Act, strengthening of financial delivery mechanism, improving marketing support, encouraging technology adoption and strengthening of cluster development support for MSMEs Etc. The progress on recommendations needs to be more satisfactory.

Open Network for Digital Commerce (ONDC)

Open Network for Digital Commerce (ONDC) is a UPI-type protocol. It is aimed at promoting open networks for all aspects of the exchange of goods and services over digital or electronic networks. ONDC is based on open-sourced methodology, using open specifications and open network protocols independent of any specific platform.

Incorporated on December 31 2021, Open Network for Digital Commerce (ONDC), a Section 8 company is an initiative of the Department of Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce, Government of India, envisioned to create a facilitative model to revolutionise digital commerce, giving greater thrust to penetration of retail e-commerce in India. ONDC is not an application, platform, intermediary, or software but a set of specifications designed to foster open, unbundled, and interoperable open networks, thereby eliminating the dependency on a single platform.

The initiative is being touted as a rival to e-commerce biggies such as Flipkart and Amazon. The Government is testing the network in select cities. In September 2022, ONDC opened its network to consumers in 16 locations across Bengaluru. To begin with, consumers can place their orders in two domains – groceries and restaurants through buyer apps participating in the ONDC network.

ONDC goes beyond the current platform-centric digital commerce model where the buyer and seller have to use the same platform or application to be digitally visible and do a business transaction. ONDC protocols would standardise operations like cataloguing, inventory management, order management and order fulfilment. Thus, small businesses could use any ONDC-compatible applications instead of being governed by specific platform-centric policies. This will provide multiple options for small businesses to be discoverable over the network and conduct business. It would also encourage easy adoption of digital means by those not on digital commerce networks.

ONDC is expected to make e-Commerce more inclusive and accessible for consumers. Consumers can discover any seller, product or service by using any compatible application or platform, thus increasing freedom of choice for consumers.

It will enable the consumers to match demand with the nearest available supply, giving consumers the liberty to choose their preferred local businesses. Thus, ONDC would standardise operations, promote the inclusion of local suppliers, drive logistics efficiencies and enhance value for consumers.

Impact of Credit on GDP growth

There is a strong correlation between credit and economic growth. These two are essentially interdependent. While some economists argue that credit is a byproduct of economic growth, others see it as a critical element of economic expansion. Different metrics are being used to buttress the arguments on both sides. However, being a development thinker, I have witnessed that credit's role is critically important for economic growth, and it becomes all the more important for inclusive growth.

A working paper on 'Economic Growth and Banking Credit in India' co-authored by Charan Singh, RBI Chair Professor at IIM Bangalore, argues that there has been a strong correlation between credit and GDP growth across sectors. In the working paper, published in December 2016, the authors analysed the relationship between bank credit growth and GDP growth rate from 1974 to 2014. "Credit Growth and GDP Growth exhibit a strong correlation across sectors. Both series move together with a good alignment of turning points between Credit growth and GDP growth. The direction of causality, however, is not apparent the first glance. Econometric data analysis using the Granger Causality test provides further insight into the relationship. It can also be observed from the figure that the growth of total credit experiences a slowdown and contraction in the early 1990s and began to take off in the mid to late 1990s. The economic boom following the liberalisation, privatisation and globalisation policies of the late 1980s to early 1990s may have largely been responsible for this surge in credit."

According to a report published in the Hindu Business Line, credit growth has been 2.5-3 times the real GDP growth in the past. However, this shrank to 1.2-1.4 times post-demonetisation in the next three years. Bank credit grew in the range of 25-30 per cent yearly between 2004-05 and 2007-08, when GDP growth was robust, around 8-9 per cent. When GDP growth slowed, bank credit growth also dipped. In 2011-12 and 2012-13, when GDP growth fell, credit growth slipped to 14-16 per cent. Post-2013, credit growth declined, further putting pressure on economic growth.

According to an RBI working paper titled 'Asset Quality and Credit Channel of Monetary Policy Transmission in India: Some Evidence from Bank-level Data' published in December 2020, the decline in credit growth post-2013 was mainly due to a surge in bad loans, accentuated by a slowdown in GDP. The downturn in deposits and the rise in investment growth also added to the slowdown in credit growth. Accommodative monetary policy, however, helped cushion the slowdown in credit growth.

The disaggregated analysis at the bank group level – public sector banks, private banks and foreign banks – suggests that results are broadly in line with those at the aggregate level except the following. First, in the short-run, the credit channel of monetary transmission was found to be stronger concerning public sector banks than private sector banks. Second, the coefficient of nominal GDP growth of private sector banks was higher than that of public sector banks, suggesting that the behaviour of private sector banks is more pro-cyclical than that of public sector banks. Third, in the case of foreign banks, only economic activity and deposit growth were found to be the drivers of credit growth; the credit channel coefficient was statistically insignificant, the RBI working paper noted.

The paper presented a statistical analysis of credit and GDP growth. The results show that nominal GDP growth had a statistically significant positive impact on credit growth with a maximum of one-quarter lag, indicating that an increase in economic activity leads to an expansion in credit within one quarter. Deposit growth also had a statistically significant positive effect on credit growth with a lag of zero to two quarters, suggesting that credit growth could suffer up to two quarters in a scenario where banks cannot mop up deposits. Investment growth, as expected, was related negatively to credit growth, and the investment growth coefficient is statistically significant. The negative sign indicates that banks that allocate more funds for financing SLR and non-SLR investments reduce credit with a lag of up to two quarters, the paper noted in its analysis.

Way Forward

Significant progress has been registered in financial inclusion. Prime Minister Narendra Modi's Government has laid the necessary infrastructure. Considerable progress has been achieved in ensuring access to financial services for the marginalised. Pradhan Mantri Jan Dhan Yojana has played a significant role in providing access to banking services to the poor. The access is now almost universal. Those who want can open a bank account. The bank account opening has mainly become hassle-free.

However, financial inclusion still has a long way to go. As several gaps remain, financial inclusion's actual social and economic benefits still need to be realised. Credit and financial literacy are among the significant gaps. Most critical sectors of the economy including the MSMEs, agriculture and small businesses face challenges in access to credit.

A Financial Inclusion Task Force (FITF) has been formed under the aegis of the SKOCH Development Foundation and the CEO’s Association for Inclusive Growth (CAII) to give recommendations on digital lending and markets - bridging credit & literacy gaps. Following are the Terms of Reference of the Financial Inclusion Task Force:

• Articulate credit gaps in both consumption, as well as livelihood, linked credit.
• Articulate financial literacy gaps.
• Leveraging the digital infrastructure established since 2014 to fulfil these gaps.
• Identify innovative solutions for making available credit from within and outside the banking system.
• Suggest how digital lending and technology can create universal access to credit.
• Creating newer models of underwriting risk, collateral, credit rating and raising capital.
• Accelerating participation in Markets.
• Introduction of bonds, market instruments and ESG financing for the excluded.
• Other relevant recommendations