India’s financial inclusion paradox: Numbers mask the real challenge

Vani Archana, Senior Fellow at Pahle India Foundation, highlights how India’s financial inclusion drive, while expanding access, struggles to translate into meaningful financial empowerment—especially in healthcare financing

On August 28, 2025, the Pradhan Mantri Jan Dhan Yojana (PMJDY) marked its 11th anniversary as the  world’s largest financial inclusion drive. With over 56 crore accounts opened and deposits exceeding  ₹2.68 trillion [7], the achievements appear monumental. This milestone reflects an extraordinary  effort to bank the unbanked, particularly in rural and underserved areas, where 67 per cent of accounts have  been opened. Yet beneath these headline figures lies a profound paradox: while account access has  approached universality, true financial empowerment—especially for healthcare access—remains  elusive for a significant portion of the population. This disconnect threatens to undermine the  scheme’s potential to address critical healthcare financing needs in a country where out-of-pocket  expenditure (OOPE) constitutes 47 per cent of total health spending. 

Consider Rani, a resident of rural Uttar Pradesh, who opened a PMJDY account three years ago in  search of financial security. Today, it lies dormant—no deposits, withdrawals, or transactions— mirroring the plight of countless others. 

India’s progress in financial inclusion is robust and multifaceted. Bank account ownership among adults  has surged from a mere 35 per cent in 2011 to 89 per cent by 2024, a trajectory sustained into 2025 according to the  World Bank’s Global Findex Database. The Reserve Bank of India’s (RBI) Financial Inclusion Index (FI Index) further validates this, climbing from 53.9 in 2017–18 to 67 in March 2025—a 4.3 per cent year-on-year  increase driven by gains in access (up 3.7 per cent), usage (up 5.2 per cent), and quality (up 3.9 per cent) sub-indices.  Supporting infrastructure includes approximately 1.56 lakh bank branches nationwide, 35.5 crore  active life insurance policies (as per IRDAI estimates for FY 2024–25), and over 7.8 crore National  Pension System (NPS) subscribers managed by the Pension Fund Regulatory and Development  Authority (PFRDA). 

The aim of financial inclusion, as the United Nations highlights, is to provide safe savings, affordable  loans, insurance, and payment services to help low-income households build capital, manage risks,  and escape poverty. However, cracks in this foundation are evident. An estimated 23 per cent of PMJDY  accounts remain inactive [5], far exceeding the 3–4 per cent global norm in comparable low- and middle 

income countries (LMICs). Digital payment usage stands at 48.5 per cent of adults—trailing the 62 per cent LMIC  average—with only 54 per cent of account owners engaging digitally in 2024 [1]. This gap is not merely  statistical; it has profound implications. Inactive accounts limit credit scoring under schemes like the  Credit Guarantee Fund Trust for Micro and Small Enterprises, restricting formal lending and forcing  borrowers back to high-cost informal sources.

Why this gap?

The Global Findex surveys identify barriers such as distance, distrust, and disuse. For  28 per cent of dormant account holders, banks are too remote, particularly in rural India where infrastructure  lags despite 89.9 per cent account ownership (slightly above the urban 88.5 per cent). Another 20 per cent cite distrust or  lack of perceived need, often due to low incomes and irregular cash flows. Rural households, with  99.4 per cent asset ownership (mostly low-value land versus 98 per cent urban ownership with higher-value assets),  face sporadic healthcare costs [1]. 

Healthcare costs exacerbate the inclusion gap. Rural households grapple with emergency medical  expenses that zero-balance accounts fail to address through tailored products such as micro-insurance  or overdrafts. Despite 56 crore PMJDY accounts holding ₹2.68 lakh crore in deposits, low-income  families (earning under ₹1 lakh annually) derive limited utility from formal banking, as their needs align  more with flexible, low-cost informal systems [1,7]. PMJDY’s top-down model, while effective in  ensuring access, assumes uniform demand that does not exist, ignoring context-specific requirements  such as healthcare financing. 

Women, who play a pivotal role in family welfare and household economies, exemplify this paradox.  They hold 56 per cent of PMJDY accounts—over 31.36 crore as of August 2025—yet only 28 per cent actively use  digital transactions, lagging men by 13 percentage points [1,7]. Overall, 86 per cent of Indian women now  own bank accounts, a testament to PMJDY’s gender focus. However, women-led businesses face a  stark financing gap: only 10 per cent access formal credit, hampered by collateral shortages and bias in  lending algorithms [3]. Financial literacy exacerbates this—only 20–22 per cent of women are literate in  financial matters, compared to 35 per cent of men, with social norms further discouraging independent  decision-making. Digital divides compound the issue: women are 15 per cent less likely to own mobile phones,  curtailing access to UPI, mobile banking, and fintech apps that could enable remittances or microloans  [1]. Integrating healthcare-focused financial products, such as micro-insurance for medical  emergencies, could empower women by addressing a key financial vulnerability. 

The urban–rural divide amplifies these challenges. Urban residents lead in digital finance adoption,  with 59 per cent using UPI and cards in 2024, compared to 14–27 per cent in rural areas—a gap persisting into 2025  amid uneven infrastructure [1]. Regional Rural Banks (RRBs) expanded credit from ₹3.17 lakh crore in  2017 to ₹4.71 lakh crore in 2024, but gross non-performing assets (NPAs) at 6.1 per cent signal inefficiencies  [6]. Financial literacy is a core bottleneck: only 27 per cent of adults are literate overall, with rural rates at 20– 22 per cent (versus urban 30–35 per cent), women and youth (15–24 years) at 20 per cent, trailing men (35 per cent) and older 

adults (38 per cent) [1]. This limits rural adoption of health technologies like AI diagnostics or e-pharmacies,  despite 89 per cent inclusion amid 20 per cent rural poverty. 

 

Source: Author’s calculations based on Global Findex, PMJDY Dashboard, and RBI data;  projected for 2025. 

The figure (2) shows clear inclusion gaps—women, rural residents, and youth lagging behind men,  urban, and older groups in account use, digital payments, and savings. 

To address this paradox, India must shift from quantity to quality in financial inclusion, with a focus on  healthcare. First, enhance access via mobile banking and business correspondents (BCs), whose village  coverage expanded from 0.034 million in 2010 to 1.90 million by 2021, facilitating ₹980 billion in  deposits and 271 million basic accounts [6]. Second, scale financial literacy programs, targeting women  and low-income groups to boost awareness of loans, insurance, and investments—potentially  increasing usage by 20–30 per cent per RBI models. Third, customise offerings: microloans for rural  entrepreneurs, health loans with RRB involvement, gender-sensitive products such as women-only  credit lines, and incentives like zero-fee transactions for active users. AI-driven credit scoring could also  cut NPAs below 5 per cent, supporting healthcare financing. 

With India targeting a $5 trillion economy, converting dormant accounts into health-focused lifelines— via technologies such as telemedicine and policies like Ayushman Bharat integration—requires urgent  action. As saturation campaigns cover 2.7 lakh Gram Panchayats by September 2025, the focus must  shift from sheer numbers to meaningful usage. True empowerment hinges on accounts that buffer  health shocks, boost livelihoods, and secure futures. 

Sources:  

  1. Global Findex Database, 2021 & 2025. 
  2. United Nations (2006). Building Inclusive Financial Sectors for Development. 3. Ministry of Statistics and Programme Implementation, NSSO (2019). 
  3. World Bank (2008). Finance for All? Policies and Pitfalls in Expanding Access. 5. Chaudhary, P. (2025). Lok Sabha reply on PMJDY inoperative accounts, August 2025. 6. Reserve Bank of India (2025). Financial Inclusion Index & Annual Reports. 7. Department of Financial Services, GoI (2025). PMJDY Progress Report, August 2025. 8. IRDAI Annual Report FY 2024-25. 
  4. PFRDA NPS Trust Data, 2025.  

 

dormant bank accountsfinancial inclusion Indiahealthcare financing challengesPMJDY 2025women financial literacy
Comments (0)
Add Comment