Understanding Financial Inclusion in India: A Theoretical Framework Building Through SAP–LAP and Efficient IRP

Abstract

The purpose of this paper is to analyse the current financial inclusion situation in India, identify the gaps and suggest some way forward to bridge these gaps. In this study, situation-actor-process (SAP) learning-action-performance (LAP) model is applied to present the comprehensive view on financial inclusion in India. Further, the interrelation between the various elements of SAP–LAP is established through efficient interpretive ranking process. The SAP–LAP model helps to better understand the current situation of financial inclusion and helps the ‘actors’ to initiate appropriate actions based on the ‘learning’ of the study. The study highlights the area where stakeholders need to focus for better inclusion of people under banking system. The paper is first of its kind which provides a systematic framework to study the financial inclusion in India using SAP–LAP framework.

Appendices

Appendix 1

Respondent’s Profile

Domain	Profile	Work experience	Number of respondents
Public Bank	General Manager	10–20 years	2
	Senior Manager	5–10 years	2
Private Bank	General Manager	10–20 years	2
	Senior Manager	5–10 years	2
Academician	Professor	20–25 years	4
Government	Consultant	10–15 years	3

Appendix 2

SAP–LAP Model of Inquiry

SAP–LAP	Questions
Situations	What is the current status of financial inclusion in India? What are the different initiatives adopted to promote and implement financial inclusion? What are the present issues faced by banks in providing financial products and services to the poor? What are the present issues faced by poor customers in utilizing financial products and services?
Actors	Who are the key actors in influencing the supply side of financial inclusion? Who are the key actors in influencing the demand side of financial inclusion?
Processes	What are the key processes adopted to promote financial inclusion of poor by the government? What are the key processes adopted by various banks to deliver financial products and services to the poor? What are the key processes through which monitoring of financial inclusion progress could be done?
Learning	What are the challenges with respect to the current situation? What are the challenges with respect to various processes of financial inclusion? What are the challenges faced by various actors in implementing financial inclusion?
Actions	What are the actions that need to be taken to address the challenges and issues impeding financial inclusion in the country?
Performance	How these proposed actions are going to affect the current scenario of financial inclusion? What will be the potential impact of these actions on key influencer or actors of financial inclusion? What will be the potential impact on various processes of financial inclusion?

Appendix 3

Highlights of Some Recent Initiatives by Government of India on FI

Pradhan Mantri Jan Dhan Yojana (PMJDY): PMJDY is a recent scheme to boost the financial inclusion in India. The earlier target of this scheme was to open 7.5 crore new bank accounts (PMJDY 2017) Pradhan Mantri MUDRA Yojana (PMMY): PMMY is intended to promote financial inclusion by encouraging small and micro-enterprises to take up the loan. The loans are usually extended through various commercial banks, RRBs, microfinance institutions, etc. Based on the loan amount, the Mudra Loans have been classified under three categories ‘Shishu’ (up to INR 50,000), ‘Kishore’ (above INR 50,000 to up to 5 lakh) and ‘Tarun’ (above INR 5 lakh to up to 10 lakh) (PMMY 2016) Direct Benefit Transfer schemes (DBTs): The role of Jan Dhan-Aadhaar-Mobile (JAM) is significant in affecting various direct money transfer schemes (DBTs) (ESI 2016) Stand-Up India Scheme: The scheme aims at promoting the entrepreneurship especially among backward castes (Scheduled caste/scheduled tribe) and women by extending bank loan of INR 10 lakh to 1 crore. Credit Guarantee Fund for Stand-Up India (CGFSI) has been constituted under this scheme to promote collateral-free coverage (DoFS 2017) Besides this, there are some recent social security schemes in insurance and pension sectors like Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), Pradhan Mantri Suraksha Bima Yojana (PMSBY), Atal Pension Yojana (APY) and Pradhan Mantri Vaya Vandana Yojana which also facilitate the financial inclusion (DoFS 2017)

1. (Authors Compilation)

Appendix 4

Various Processes of Financial inclusion

Processes	Description
Bank led programme	i) Self-Help Groups (SHGs)-bank linkage In this mode, the banks extend a loan to SHG which is generally a group of 10–20 people usually poor or underprivileged. The bank provides the loan against the money deposited by them. SHG serve group guarantee of each other and take a collective decision in lending to any member (ii) Business Correspondents (BCs) In this mode, the BCs are enabled to extend banking services in far and remote areas of difficult financial access (iii) Microfinance-bank led programme Under this model, banks refinance the microfinance institutions which in turn extend micro-loans to the poor
Simplified KYC norms	RBI eased the Know Your Customer (KYC) requirement to address the documentation issues
Bank branch authorization	RBI liberalized the bank authorization policies especially in remote and rural areas. This permits the banks to open new branches without undergoing much authorization approval in those areas
Basic savings bank deposit accounts (BSBDAs)	RBI introduced no-frill accounts (zero or minimum balance account) in 2005. Later, it was replaced by basic saving bank deposit accounts (BSBDAs) with a facility of overdraft limit
General credit cards (GCC)	The general credit card provides a facility to people residing in rural and semi-urban to avail easy access of up to INR 25,000 without security
Kisan credit cards (KCCs)	These are the smart cards issued by banks helping farmers to avail their credit need timely
Mobile banking	Mobile banking is an innovative platform which enables the user to operate the banking services like paying bills, fund transfer, etc., on a mobile phone
Financial Stability Development Council (FSDC)	RBI revised norms for financial literacy centres (FLCs). The focus of this council is to promote financial inclusion through financial literacy

1. (Source: www.rbi.org)

Appendix 5

Interpretive logic—knowledge base-ranking of actors w.r.t. processes

Paired comparison	Interaction with process	Interpretive logic
A2 Dominating A4	P1	Banks have a predominate role in extending credit to SHGs for various entrepreneurial activities against group guarantee
A3 Dominating A1, A2 and A4	P1	Poor beneficiaries have more influence in SHG formation, repayment and demand for credit
A4 Dominating A1	P1	NBFCs work more closely in far and distant places in disbursing loans to SHGs
A2 Dominating A1	P3	Banks refinance various microfinance institutions to extend micro-loans to poor
A3 Dominating A2 and A4	P3	The demand for micro-loan by poor influences the borrowing from microfinance institutions
A4 Dominating A1 and A2	P3	NBFCs as microfinance institutions (MFI) disburse micro-loans more closely to the poor residing in far and unbanked places
A1 Dominating A3	P4	Government through various policy interventions for biometric authentication have significant influence in simplification of KYC (Know Your Customers) norms
A2 Dominating A1 and A3	P4	Banks have more influence in regulation and implementation of various KYC norms
A3 Dominating A2	P6	Poor beneficiaries (or end-users) impact more on the utilization of BSBDA
A1 Dominating A3	P7	Government through policies interventions impact on the dissemination of Kisan credit card, (KCC), general credit card, etc.
A1 Dominating A2, A3	P8	Government provides funding to create awareness for financial products and services for poor
A2 Dominating A3	P8	Banks has predominant role in promoting financial literacy through various awareness camps and programmes

Appendix 6

Pair-wise dominance of actors (A1 to A4) for different processes (P1 to P8)

• (a) Dominating Interaction Matrix of Actors for Process P1 (with Fig. 1 Transitive interaction graph)

  

• (b) Dominating Interaction Matrix of Actors for Process P2

  

• (c) Dominating Interaction Matrix of Actors for Process P3 (with Fig. 2 Transitive interaction graph)

  

• (d) Dominating Interaction Matrix of Actors for Process P4

  

• (e) Dominating Interaction Matrix of Actors for Process P5

  

• (f) Dominating Interaction Matrix of Actors for Process P6

  

• (g) Dominating Interaction Matrix of Actors for Process P7

  

• (h) Dominating Interaction Matrix of Actors for Process P8

  

Appendix 7

Interpretive logic—knowledge base-ranking of actions w.r.t. performances

Paired comparison	Interaction with process	Interpretive logic
A1* Dominating A2*	P1*	ICT-based financial products are more likely to impact the macro-economic conditions
A1* Dominating A2*	P2*	Similarly, ICT-based financial technology have more impact on improving the micro-economic conditions of individuals and businesses
	P4*	ICT-based products like mobile banking have potential to outreach larger masses in far and distant rural places
	P5*	ICT-based products provide ease in utilizing various banking services
A1* Dominating A3*	P1*	Although micro-insurance services have long-term benefit, the improvement in ICT-based products have more impact on overall growth and development
	P2*	Technology provides an opportunity to reach rural masses through a mobile phone; online banking with the business correspondent model has made banking services more accessible and easier
	P5*	ICT has the potential to ease in access and utilization of various financial services
A1* Dominating A7*	P3*	ICT-based platform provides more safe and transparent financial transactions
A2* Dominating A7*	P5*	Though micro-insurance instils saving and insurance towards accidental, health and agricultural losses, etc. However, differentiated banks on the other hand facilitate utilization of varieties of financial services like small deposit and lending, etc.
A3* Dominating A7*	P5*	The significance of micro-insurance programmes linked with banks has recently emerged in many sectors like various farm and entrepreneurial activities which in turn impact banking services utilization
A4* Dominating A2*	P2*	Jan Dhan-Aadhaar-Mobile (JAM) trinity has the potential to bring a large mass under the mainstream banking sector with direct cash payments to beneficiaries account
A4* Dominating A3*	P1*	JAM trinity is likely to impact the country’s growth by raising banks saving fund and subsequent investment for development and employment
A4* Dominating A7*	P3*	JAM which involves mobile banking provides comparatively safe and transparent option for financial transactions
A5* Dominating A1*, A2*, A4* and A7*	P4*	Post offices in India provide one stop financial solutions to many services like payment collection on behalf of subscribers like electricity, telephone, etc., receiving benefits under various state and central government schemes particularly in remote areas
A5* Dominating A3*	P1*	Micro-insurance is an emerging sector in India, but post offices are wide spread and have become an access point to many financial services, which, in turn, most likely impact productivity and employability
	P2*	Post offices may play a significant role in providing financial service to financially excluded segment like less educated, poor, labourers, farmers, etc., particularly in rural areas
A6* Dominating A1*, A2*, A3*, A4* and A7*	P5*	Increasing financial literacy may improve utilization of various financial products and services
A7* Dominating A2*	P1*	Though differentiated banks target niche demographic segments, it may fail to sustain without infrastructure developments (like the road, internet, phone connectivity, etc.)
	P2*	Expanding infrastructure is most likely to increase the access to financial services by individuals and micro-enterprises
A7* Dominating A5*	P1*	Building financial infrastructure through collaboration may help to build macro-economic sphere by increasing the productivity of the firms
	P2*	A better physical infrastructure may help to disseminate banking services more easily to people living in far and unbanked places where even post offices are unavailable.

Appendix 8

Pair-wise dominance of actions (A1 to A7) for different performances (P1 to P5)

• (a) Dominating Interaction Matrix of Action for Performance (P1*)

  

• (b) Dominating Interaction Matrix of Action for Performance (P2*) P3 (with Fig. 3 Transitive interaction graph)

  

• (c) Dominating Interaction Matrix of Action for Performance (P3*)

  

• (d) Dominating Interaction Matrix of Action for Performance (P4*)

  

• (e) Dominating Interaction Matrix of Action for Performance (P5*) P3 (with Fig. 4 Transitive interaction graph)