How Can Technology Facilitate Financial Inclusion in India? A Discussion Paper

Abstract

More than 50 per cent of the adult population in our country is excluded from the financial sector. It is not just people in the rural areas; many of the lower income categories of the urban population are also excluded. This is largely because of the way the supply of such services is organised. For instance, the transaction costs of financial services to the poor are exceedingly large in comparison to their potential exposure. From the demand side too, there is financial illiteracy and the consequent fear of approaching formal institutions. The discussion paper focuses on developing complete solutions and not on restatements of the problem. The paper deliberates on the following types of questions: How can we reduce transaction costs of dealing with the poor? Can we develop institutions to act as intermediaries between existing institutions and the excluded? How to build a technology platform on which these issues can be tackled? What sort of legal environment is necessary to support an innovative use of technology? Our attempt has been to defi ne the regulatory framework that encourages greater and universal access to financial services based on a technology platform that allows solutions that are otherwise infeasible.