“A Study on Level of Digital Financial Service Inclusion among the Rural Area”

This paper analyses the current state of financial inclusion in rural India using secondary data sources. It analyses all four services included in the Reserve Bank of India’s (RBI) definition of financial inclusion, namely bank deposits, bank credit, digital and other payments, and insurance services. In this paper, financial inclusion refers not just to access and use of (formal) finance but also its affordability. The paper argues that while the access to bank deposits has increased significantly in rural India, bringing it closer to universal access, the use of deposits for withdrawals or payments continues to be limited. Credit remains a weak link in rural financial inclusion. Its penetration remains limited among the asset-poor segments of the rural population, and in under-banked geographical regions. During the period of financial inclusion, banks have made a rapid foray into the relatively under-banked regions, including the eastern and central regions, for tapping deposits. However, a similar expansion is not seen with regard to credit provision to these regions. For the asset-poor rural households, not just access but also affordability of credit remains a concern, given their reliance on microfinance institutions and self-help groups for credit. The access to insurance also remains limited among rural households. Insurance penetration, taking premium payments as per cent of income, was only 3.8 per cent in India in 2019; in rural areas, it was even lower, at 1.7 per cent; it was 4% in 2023, and it has declined 3.7% in 2024.