Financial inclusion and the G20

Saumya Dhaundyal: One of the sessions during the inception meeting of Business20 (B20) India, an engagement group under G20, was on ‘Fostering Financial Inclusion and Empowering Societies’. The session threw light on the need for broader social policies to support financial resilience, protect against risks, and promote the financial well-being of the people. Financial inclusion needs to be a core part of business and social responsibility strategies and not just left to policymakers to deal with. As 1.4 billion adults in the world remain unbanked—more commonly women, the less educated, poor and rural populations—more dedicated, multi-stakeholder strategies are needed to achieve universal financial inclusion.

The latest Global Findex data shows that financial inclusion is on the rise with 76% of the global population having a bank account in 2021, up from 51% in 2011. The pandemic boosted the adoption of digital financial services, further mobilising financial inclusion efforts.

Closer home, the government played a major role in bringing down the share of unbanked adults from 47% in 2014 to 22% in 2021. Focused national policies such as the Pradhan Mantri Jan Dhan Yojana envisaged universal access to banking facilities, financial literacy, access to credit, insurance and pension services, along with channeling all government benefits through direct benefit transfers. By complementing this financial service supply-boost with social security schemes such as Pradhan Mantri Jeevan Jyoti Bima Yojana, Pradhan Mantri Suraksha Bima Yojana ,and Atal Pension Yojana, India has made tremendous progress towards financial inclusion.

Another paradigm shift was caused by the digital financial transaction platform Unified Payment Interface (UPI). The platform has facilitated ease of transactions, seeing year-on-year growth of 106% between FY21 and FY22 in transactions. The success has been such that in December 2022 alone, a record 782.9 crore digital transactions took place with a value of `12.82 trillion. Further, the Common Service Centre scheme has not only helped rural India break supply-side barriers such as the lack of banking and digital infrastructure, but has also helped enhance financial and digital literacy. Through a robust network of 4.35 lakh common service centres operating as digital financial hubs across gram panchayats and village-level entrepreneurs, working as bank mitras (retail agents), this public-private partnership model has encouraged the use of digital financial services in remote regions, empowering rural India.

G20 leaders, at the Pittsburgh Summit in September 2009, committed to supporting a safe and sound spread of new modes of financial service delivery and committed to launch a forum for peer learning and information sharing: the G20 Financial Inclusion Experts Group. Next, in 2010, the G20 leaders endorsed a concrete Financial Inclusion Action Plan and announced the establishment of Global Partnership for Financial Inclusion (GPFI), along with its implementing partners, to strengthen coordination. GPFI works for advancing financial inclusion globally by improving financial system infrastructure, bridging the digital divide, promoting digital financial literacy and harnessing emerging technologies, among others.

On January 10-11, GPFI discussed the role of Digital Public Infrastructure for advancing financial inclusion and assessed the progress made in the implementation of G20 High-Level Principles for digital financial inclusion, which were put forward in 2016 to foster inclusive finance using digital technologies. With the upcoming GPFI sessions, and as India guides the future course of G20 with its presidency this year, the G20 theme will be dominated by how policymakers have a great opportunity and responsibility to set standards for both: leveraging the digital ecosystem for financial inclusion and addressing risks associated with it.

As inclusive growth is a prime theme for G20 this year, discussions on banking the unbanked sections of economy are likely to dominate.

Moreover, within the financial inclusion sphere, with technological advancements, ability, accessibility and affordability to freely participate in digital economic exchanges will also become a game-changing factor to achieve the Sustainable Development Goals (SDG). Correspondingly, in December 2022, 18 of the G20 countries reached an advanced stage of Central Bank Digital Currency development, and of these, seven countries began their pilot projects, including India, to march towards the adoption of digital currency.

So, India must exploit the opportunity to build together a basic framework on data empowerment to safeguard digital currency and make it a tool for equality, rather than exclusion, during its G20 presidency. Also, as pointed out during the B20 inception meeting, with the emergence of digital financial inclusion, vulnerabilities have also increased. Thus, we need to collectively address cybersecurity, data privacy and digital trust. As innovations and investments from business circles are likely to dominate digital financial inclusion measures, strong collaboration between the private and public sector will be necessary to ensure its success. In this regard, India can share its experience with its G20 counterparts on: firstly, how to leverage public-private partnership to create robust digital solutions like UPI. Secondly, how to address the demand-side challenge of digital literacy by imparting digital training to six crore rural households (one person per household). The stride that India has made in fostering financial inclusion can be replicated well by other developing countries.