Re-evaluating Financial Inclusion Metrics for India

An emerging literature on the topic of financial inclusion is gaining nuance and sophistication on a global scale. One of the most salient debates occurring in the field of today is centered on how exactly we should understand and measure financial inclusion, both conceptually and technically. This is particularly important because ‘financial inclusion’ is not necessarily a deeply meaningful developmental goal unless we are confident in the relationship between increasing access to finance and universally agreed upon development goals, such as giving families the ability to weather an illness or to send a child to school.

That is, if the financially included are believed to achieve better economic and social outcomes because their inclusion into formal financial systems provides them with tools through which they can insulate themselves from adverse financial shocks and leverage their resources more effectively, what level and form of inclusion into the financial system is required to achieve such results? Recent studies as outlined in this CGAP Focus Note highlight that there is robust impact evidence to support the positive effects of financial inclusion. The challenge for us as researchers is to determine how we can best breakdown a concept like financial inclusion into simple, concrete questions that can be asked reliably of a diverse sets of people and are comparable across countries.

As you might imagine, this is no easy task. The Financial Inclusion Insights (FII) survey tackles this challenge by tracking financial inclusion alongside certain economic indicators, such as economic vulnerability and financial planning capability, which theoretically should improve with formal access to financial services. The FII numbers track well with other large-scale studies of financial inclusion, suggesting that not only is the FII measure of financial inclusion conceptually meaningful, but that the field is moving towards a consensus on how to comprehensively measure the concept of inclusion reliably.

Encouragingly, the FII data also reveals that even at similar income levels those who we classify as financially included, i.e. those with access to some form of formal financial accounts, do achieve better outcomes in terms of lower economic vulnerability[1] in the population as a whole.

2015: Economic vulnerability by Country

(Shown: Percentage of adults that are economically vulnerable, by financial inclusion)

Then in 2014 the Indian government launched a government-led national financial inclusion strategy called Pradhan Mantri Jan Dhan Yojana (PMJDY).  According to Indian national figures the program opened over 220 million bank accounts in less than two years’ time. Arguably this might be considered the largest single onboarding of individuals onto a formal financial platform. FII numbers reflect these gains from the consumer side, showing massive increases in financial account ownership over the past two rounds of the survey.

However, a deeper look at the impact of financial inclusion on individuals living below the poverty line indicates that the positive effects resulting from this onboarding might not be as considerable as hoped. Essentially, in the process of achieving large gains in financial inclusion through bank accounts, the distinctions in development outcomes between those financially included and un-included seem to have broken down.  

2015: Economic vulnerability in India
(Shown: Percentage of adults by financial inclusion, poverty levels)

Even more fascinating is the fact that even being an active[2] user of financial services does not have a large effect; this applies for both those living above the $2.5/day poverty line and below it, signifying that there may be a gap in the translation of higher financial inclusion and improved development outcomes, regardless of the current income level.  

This is of course not the end of the story. Looking at these metrics, it can be argued that the method, form and sheer pace of expansion in India has in cross-section obscured the relationship between financial account ownership and developmental outcomes such as economic vulnerability. The explanation for why greater formal financial service access may have failed to translate into lower economic vulnerability might be a product of the PMJDY growth model itself. Essentially, the top-down push for increasing bank accounts ownership amongst low-income individuals means that many with bank accounts may not fully understand the value of their accounts or the ways in which their accounts can be utilized. Because of this, any hopes for immediate impact on development outcomes may be somewhat misguided as these new bank account owners will require much deeper engagement and financial maturity using their accounts before greater inclusion into the financial system translates to meaningful change in people’s day to day lives. The next big challenge is to ensure continued use of these bank accounts to achieve that higher level of engagement, which actually translates into improved economic wellbeing.

The fact remains that the PMJDY initiative may have successfully brought forth millions into the banking sphere, but the actual impact on long-term development prospects is yet to be seen. At the moment we have a highly successful model of inclusion in India, where double digit growth in financial inclusion has provided almost universal account ownership, but may have diluted the link between financial services and development metrics. As a community of practioners and researchers, this should call to question the assumptions on which our metrics are built and avoid the trap of believing that true progress is as easy as “moving the needle”.


[1] Economic vulnerability measures whether the individual had to forego some form of necessity (e.g. food, medicine etc.) in the past six month due to a lack of financial resources.

[2] Active users have used a financial account at least once in the past 90 days.