Financial inclusion determinants and impediments in India: insights from the global financial inclusion index

Abstract

Purpose The purpose of this paper is to understand the determinants of financial inclusion and the determinants of barriers to financial inclusion in India. Also, the purpose is to ascertain the determinants of informal financial activities in India. Design/methodology/approach The data have been collected from the Global Findex Database (Findex) 2017. Various measures of financial inclusion, namely, ownership formal accounts, use of accounts for saving and borrowing, ownership and use of the debit card are used. The independent variables used are: age, income, education and gender. Given the binary nature of dependent variables, this paper uses the Probit model to draw the inferences. Findings The results show that gender, age, education and income have a significant impact on the various measures of financial inclusion. Additionally, these factors have a significant impact on the informal saving and borrowing. Research limitations/implications The given study uses the deferent measures of financial inclusion. An index of financial inclusion created using all the financial inclusion measures would be a better indicator of financial inclusion. Practical implications The results of this study would be useful for policymakers to identify the determinants and barriers of financial inclusion in India. The results show that policymakers should focus on the female population, in particular, and education and income enhancing measures, in general, to make financial inclusion more inclusive. Originality/value The study is the first of its kind to analyze financial inclusion in India using the Findex. Unlike previous studies, variables such as education and income are constructed more pragmatically. In particular, the study tries to understand the socio-economic determinants of financial inclusion measured as ownership of formal accounts, formal saving, formal credit, ownership of debit cards and use of debit cards. The study also analyzes the determinants of barriers to financial inclusion, savings (formal and informal) and borrowing (formal and informal).