Demonetization had a strongly positive effect on financial inclusion, leading to increases in account registration, and active and advanced use of registered accounts. InterMedia’s fourth annual Financial Inclusion Insights (FII) survey was underway on November 9, 2016 when approximately 85 percent of the banknotes in circulation in India were invalidated by the policy known as demonetization. The invalid notes had to be exchanged for new ones at banks and other financial institutions. The timing of demonetization presented an opportunity to measure its impact on financial inclusion using a panel survey of 1,600 randomly selected individuals in the states of Gujarat, Madhya Pradesh, and Rajasthan. These panelists were first interviewed for the FII survey roughly one month prior to Nov. 9, and then re-interviewed seven months later. 

Figure 1 shows the proportion of panelists at each stage of the “customer journey” of progressive engagement with formal financial services.

Figure 1: Customer journey for all financial institutions

(Shown: Percentage of panelists, N=1,600)

Before demonetization, nearly half of the panelists were nonusers of financial institutions. After demonetization, nonusers decreased sharply to 19 percent of the panelists. These former non-users advanced to the access and trial stage of the customer journey, which increased from 53 to 81 percent of the panelists. Nearly all of those who had accessed an account also held an account registered in their name, as the proportion of account holders rose from 51 percent to 78 percent of the panelists. Active users of financial accounts (used an account in the past 90 days) increased to 51 percent of panelists after demonetization, from 34 percent pre-demonetization. Active users who used advanced services (beyond deposit and withdrawal) grew substantially, but remained a small portion of the study group overall. Thus, after demonetization, more customers advanced to every stage of the customer journey − from access and trial of financial services, to account registration, to active use of registered accounts, to active use of advanced services − compared to pre-demonetization. Demonetization should, therefore, be considered an effective policy for increasing inclusion and engagement with formal financial services in India.

Demonetization had a strongly positive effect on increasing financial inclusion relative to previous policies. While the data collected for this study is not nationally representative and, therefore, not directly comparable to the annual surveys of India implemented by InterMedia, the change in the proportion of study group members who became registered bank account holders after demonetization exceeds the changes observed previously. For example, the implementation of Pradhan Mantri Jan-Dhan Yojana (PMJDY) in 2014 coincided with only a 34 percent increase in the proportion of the population that held a registered financial account over 2013-2016, compared to a 53 percent increase after demonetization.

All demographic groups showed gains in financial inclusion after demonetization. A greater share of nearly all demographic groups advanced at all stages of the customer journey post-demonetization. The only exception to the overall finding was the lack of movement from active use to advanced active use among panelists living below the $2.50/day poverty line.

Financial inclusion increased fastest among women and rural residents. A critical measure of social inclusion is whether or not achievement gaps exist between demographic groups. For example, a gender gap exists if a greater proportion of men own a bank account than the proportion of women who own a bank account. Prior to demonetization, gaps in advancement along the customer journey existed for gender, urban vs. rural locality, and above vs. below the $2.50 per day poverty line. After demonetization, the demographic gaps shifted as follows:

  • Gender: Women advanced to later stages of the customer journey at rates that exceeded their male counterparts (see Figure 3). This movement reduced the gender gaps among the panelists at each stage of the journey. However, the increases were not large enough to eliminate the gap entirely at any stage; more men are still financially included than women.
  • Locality: Rural residents advanced to the access and registration stages of the customer journey faster than their urban counterparts, which eliminated the locality gaps at the access and registration stages. While rural panelists advanced on the journey to active use more frequently than urbanites, these gains were not sufficient to eliminate the urban vs. rural gaps at these later stages of the customer journey.
  • Poverty status – Unlike gender and locality, the gap between panelists living above and below the poverty line widened after demonetization at each stage of the customer journey. The gap widened because the rate of advancement was greater among panelists living above the poverty line than among those below the line. 


Figure 3: Customer journey for all financial institutions, by gender

(Shown: Percentage of panelists, N=1600, by gender; Male n=896, Female n=704)

The requirement to exchange demonetized notes was a strong impetus for financial engagement that overrode tendencies towards non-engagement. The 2017 annual FII tracking survey will provide new data to evaluate whether these phenomena also occurred at a national level and were sustained into the latter half of 2017.

Panelists most often registered new bank accounts and Post Office Bank accounts. Mobile money showed a much smaller increase in users. The increase in the number of Post Office Bank users may not be a lasting change now that all demonetized notes have been exchanged. The cash shortage did contribute to increased mobile money use, but not to the degree approaching the envisioned “cashless society.” More effort is required to spur mobile money adoption, particularly among less well-off consumer segments.

Consumers reported that demonetization was disruptive but necessary. In the immediate aftermath of the announcement of demonetization, the ensuing cash shortage spurred widespread reports of economic disruption and, for certain segments and industries (for example, trucking and logistics), complete paralysis. The study found that while panelists confirmed that the cash shortage was indeed disruptive, it may not have been as disruptive as some news accounts may have suggested. Despite difficulties, a majority of panelists agreed demonetization was a necessary step to combat “black money.” Majorities also agreed that the effects of demonetization were more beneficial than disruptive, the demonetization policy was successfully implemented, and cash will be used less often in the future for routine purposes.

Overall, panelists perceived demonetization as a necessary and beneficial policy, despite the economic disruption it caused. These perceptions may be affected by high levels of support for Prime Minister Modi’s party, the Bharatiya Janata Party (BJP), in the three states where the panel survey was implemented. Nationally representative statistics on demonetization will be gathered by the FII India 2017 Wave 5 survey.

Nearly all merchants remain cash-dependent. When asked about which groups benefited from demonetization, consumers perceived the least benefit for merchants. These perceptions were supported by data from the survey of merchants:

  • Over 90 percent of merchants only accepted cash during demonetization. Sixty-five percent of these merchants reported their businesses suffered due to the shortage of cash.
  • Of the merchants who reported only accepting cash during demonetization, less than half reported that accepting cashless payments would have helped their businesses.
  • Merchants reported that less than 3 percent of their customers use cashless payments, and a primary reason for not accepting cashless payments was a lack of perceived demand from customers.

Demonetization had little immediate effect on the prevalence of cashless payments. A small portion of the study group – 7 percent – adopted cashless payments to facilitate transactions during the cash shortage after demonetization. Merchants generally do not see a need to adopt electronic payment products in the face of low consumer demand. However, the few merchants who did adopt these products and services found them valuable, which indicates that barriers to uptake are not product-specific but related to limited utility in the current context of early adoption.


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Financial Inclusion Insights is an ongoing research program funded by the Bill & Melinda Gates Foundation and designed to build meaningful knowledge about how the financial landscape is changing across eight countries in Africa and Asia (Bangladesh, India, Indonesia, Kenya, Nigeria, Pakistan, Tanzania and Uganda). FII produces data and analysis regarding citizens’ financial lives, attitudes, awareness and use of, access to, and advanced engagement with financial products and services. Through our qualitative and quantitative research, we aim to provide demand-side insights into consumers' financial behaviors, produce information that can guide policy interventions, and identify pathways for the poor to gain the financial tools they need to improve their economic circumstances.