Financial inclusion – a cautionary tale

Financial inclusion – the process via which the ‘unbanked’ are integrated into the formal financial system – is a laudable goal. The G20 has signed up to it as have many central banks in the developing world. Multiple studies have shown that it can be effective way of reducing poverty

However, as with all good ideas, sometimes a conspicuous gap can emerge between aspiration and implementation. In India, the current government announced a new financial inclusion plan (‘Jan Dhan’) which promised basic bank accounts for all Indians.

A close friend and former ILO colleague drew my attention to a report in The Economist (September 17, 2016) which turns out to be a cautionary tale about how a highly publicized poverty reduction scheme can become a public relations exercise …except that it seems to have become a public relations embarrassment or a ‘one rupee trick’ as The Indian Express dubbed it.

Apparently, many bank managers used their own money (1 Indian rupee or about 20 Australian cents) to open accounts and reduce the share of ‘zero balance’ bank accounts. Not surprisingly, the share of ‘zero bank accounts’ fell sharply causing the Indian government to proclaim that its financial inclusion plan was a success. One hopes that this embarrassing episode will not tarnish the role of financial inclusion as an important anti-poverty initiative.


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