Financial Innovation for Global Sustainability E-Book
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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Sprache: Englisch
Financial Innovation for Global Sustainability provides essential insight and practical strategies for navigating the evolving landscape of sustainable finance to demonstrate how FinTech can drive environmental sustainability and promote inclusive economic growth.
Financial Innovation for Global Sustainability centers on the integration of financial technology (FinTech) with sustainable development and inclusive economic growth. This volume delves into how FinTech can be leveraged to promote environmental sustainability, enhance financial inclusion, and support equitable economic development. The content will explore various aspects of sustainable finance, including green finance, digital financial services, and the role of innovation in driving sustainability within the financial sector. A multi-disciplinary approach draws insights from finance, economics, technology, and environmental studies and features empirical research, case studies, theoretical analyses, and policy discussions. This book will not only discuss current trends and innovations in sustainable FinTech but critically analyze challenges, regulatory hurdles, and ethical considerations.
In essence, the book will serve as a comprehensive resource on sustainable financial innovation, offering insights into how FinTech can be a catalyst for positive change in the global financial landscape. Sustainable FinTech sits at the intersection of financial innovation, environmental sustainability, and social equity, reflecting a broader shift in how industries and disciplines are evolving to address the complex challenges of the 21st century. Financial Innovation for Global Sustainability situates itself within this critical discourse, offering a comprehensive exploration of how FinTech can be harnessed to lead the charge towards a sustainable and inclusive future.
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Table of Contents
Cover
Table of Contents
Series Page
Title Page
Copyright Page
Preface
1 Connecting the Unconnected—Taking the Financial Services to the Last Mile Through Digital Infrastructure
1.1 Introduction
1.2 Literature Review
1.3 Methodology
1.4 Research Results
1.5 Discussion
1.6 Recommendation
1.7 Conclusion
References
2 Factors Affecting Digital Financial Inclusion in South Asia: What Does Global Findex-2021 Imply?
2.1 Introduction
2.2 Review of Literature
2.3 Research Method and Data Sources
2.4 Findings and Analysis
2.5 Conclusion
References
3 Predictive Analytics to Reveal the Fintech Transformation
via
Digital Payments Trends, Experience, and Challenges
3.1 Introduction
3.2 Literature Review
3.3 Research Methodology
3.4 Findings and Conclusion
References
4 Financial Inclusion Through Digital Means: A Crucial Pathway to Sustainable Development
4.1 Introduction
4.2 The Background and Definition of Digital Financial Inclusion
4.3 The Role of Digital Financial Inclusion in Meeting the SDGs
4.4 Conclusion
References
5 Principles and Frameworks for Sustainable Finance: A Pathway to Global Sustainability
5.1 Introduction
5.2 Review of Literature
5.3 Research Methodology
5.4 Data Analysis and Discussion
5.5 Conclusion
References
6 Nexus of Comprehensive Growth and Development Parameters: A Detailed Analysis Concerning BRICS Countries
6.1 Introduction
6.2 Literature Review
6.3 Research Methodology
6.4 Data Analysis and Interpretation
6.5 Discussion
6.6 Implications of the Study
6.7 Conclusion
References
7 Understanding Sustainable Finance: Evaluating Current Frameworks and Potential Policy Risks
7.1 Introduction
7.2 Sustainable Finance Background: Prevailing Framework Review and Conceptual Explanation
7.3 Sustainable Finance
7.4 Primary Risks Associated with Defining Sustainable Finance
7.5 Conclusion
References
8 Cryptocurrency and Financial Innovation: Unveiling the Motivators Behind Cryptocurrency Investment Intentions in Malaysia
8.1 Introduction
8.2 Literature Review
8.3 Methodology
8.4 Result
8.5 Conclusion and Policy Implications
References
9 Reducing the Carbon Footprint of Transactions: The Environmental Impact of Technological Innovation in Finance
9.1 Introduction
9.2 Traditional Financial Systems and their Environmental Impact
9.3 Technology Advancement in Finance and Its Impact on the Environment
9.4 Environmental Benefits of Digital Finance
9.5 Understanding the Carbon Footprints in Financial Transactions
9.6 Relationship Between Financial Development and Carbon Emissions
9.7 Challenges in Reducing Carbon Footprint in Financial Activities
9.8 Conclusion
9.9 Policy Implications
References
10 Volatility Spillover Effect of Green Finance with Renewable Energy and Cryptocurrency Market
10.1 Introduction
10.2 Review of Literature
10.3 Data and Methodology
10.4 Empirical Results and Discussion
10.5 Conclusions and Recommendations
References
11 Personalization in the FinTech Age: From Mass Marketing to Micro-Targeting
11.1 Introduction
11.2 Fintech and Marketing Evolution
11.3 Micro-Targeting in Fintech
11.4 Benefits of Personalized Marketing
11.5 Financial Inclusion through Personalization
11.6 Ethical Considerations
11.7 Technological Advancements
11.8 Practical Implications for Fintech Companies
11.9 Benefits of Personalization and Micro-Targeting in Fintech
11.10 Implementing Micro-Targeting and Personalization Strategies for Fintech Companies
11.11 Case Studies
11.12 Conclusion
References
12 Social Entrepreneurship Program as a Sustainable Business Model to Achieve Financial Inclusion for Poor Families in Indonesia
12.1 Introduction
12.2 The Rationale of the Study
12.3 Methodology
12.4 Results and Discussion
12.5 Conclusion
Acknowledgments
References
13 Bridging the Digital Divide: Leveraging Technological Innovations for Inclusive and Sustainable Finance
13.1 Introduction
13.2 The Current State of Digital Financial Inclusion
13.3 Sustainable Innovations in Digital Finance
13.4 Overcoming Challenges for Sustainable Digital Financial Inclusion
13.5 Regulatory Frameworks and Policy Implications for Sustainability
13.6 Sociocultural Dynamics and Community Engagement
13.7 Case Studies: Global Successes in Digital Financial Inclusion
13.8 Future Directions and Strategic Recommendations
13.9 Areas for Further Research
13.10 Conclusion
References
14 Customer Acceptance of Sustainable Fintech Innovation: A Study from an Indian Customer Perspective
14.1 Introduction
14.2 Literature Review
14.3 Research Methodology
14.4 Results
14.5 Discussion and Conclusion
References
15 Green Finance and Sustainability: Landscape of Indian Financial Institutions
15.1 Introduction
15.2 Review of Literature
15.3 Green Finance Instruments
15.4 Current Landscape of Green Finance in India
15.5 Case Studies
15.6 Regulatory Framework and Government Initiatives
15.7 Green Taxonomy
15.8 Challenges in Green Finance
15.9 Future of Green Finance in India
15.10 Conclusions
References
Blogs and Websites
16 Exploring the Future of Sustainable Finance: Trends, Challenges, and Opportunities
16.1 Introduction
16.2 Review of Literature
16.3 Methodology
16.4 Current Trends in Sustainable Financing
16.5 Role of Artificial Intelligence and Machine Learning in Sustainable Finance
16.6 Challenges in Adopting Sustainable Finance
16.7 Opportunities in Sustainable Financing
16.8 Conclusion
16.9 Implications
References
17 Enhancing Financial Inclusion: The Role of Digital Knowledge and Well-Being in Fintech Use
17.1 Introduction
17.2 Literature Review and Research Hypotheses
17.3 Research Methodology
17.4 Results and Discussion
17.5 Theoretical Implications
17.6 Managerial Implications
17.7 Conclusion
Conceptualization
Acknowledgment
References
18 Analyzing the Causal Relationship Between Bitcoin Trade and Environmental Quality in the United States
18.1 Financial Innovations, Bitcoin, and Environmental Quality
18.2 Environmental Effects of Bitcoin Mining: Some Background
18.3 Past Studies: Financial Innovations and Environmental Quality
18.4 Data and Methodology
18.5 Empirical Results
18.6 Conclusion and Policy Implications
18.7 Direction for Future Studies
References
19 SHG Women-Promoted MSMEs’ FinTech Adoption: Impact on Sustainable Financial Performance with Innovation Practices as a Mediator
19.1 Introduction
19.2 Review of Literature and Hypotheses Development
19.3 Research Methodology
19.4 Assessment of Measurement Model
19.5 Analysis Findings and Discussion
19.6 Implications
19.7 Conclusions
References
20 Environmental, Social, and Governance (ESG) Investing: Pioneering Change for a Sustainable and Resilient Tomorrow
20.1 Introduction to ESG Investing: Embracing Sustainability in Financial Markets
20.2 Evolution of ESG Investing: Navigating the Evolving Landscape
20.3 Principles of ESG Investing
20.4 What Makes ESG Integration a Game Changer in Investment Decisions
20.5 Navigating the ESG Investing: Elements Driving Transformative Changes in Financial Markets
20.6 ESG Integration Frameworks: Sustainable Finance Complexity
References
21 AI for Sustainable Finance: Driving Innovation and Ethical Growth
21.1 Introduction
21.2 How Can Artificial Intelligence Advance Sustainable Finance?
21.3 AI Technologies in Sustainable Finance
21.4 Bridging the Perception–Implementation Gap
21.5 Ensuring Ethical Use of AI in Sustainable Finance
21.6 Conclusion
References
22 Support Vector Machines in Stock Price Prediction: A Review
22.1 Introduction
22.2 Methodology
22.3 Literature Review
22.4 Results and Analysis
22.5 The Proposed Hyped Model
22.6 Conclusion
22.7 Limitations and Recommendations for Future Research
References
23 Technological Confluence: An In-Depth Analysis of the Nexus Between Blockchain, Artificial Intelligence, and Emerging Technologies in Facilitating Green Financial Solutions
23.1 Introduction
23.2 Technological Advancements Driving Green Finance Innovation
23.3 Synergies Between Blockchain and AI for Sustainable Financial Solutions
23.4 Transforming Industries: Efficiency, Cost Reduction, and Enhanced Outcomes
23.5 Conclusion
References
About the Editors
Index
Also of Interest
End User License Agreement
List of Tables
Chapter 1
Table 1.1
Phase/period, key actions/policies, results/outcomes, remarks.
Table 1.2
Economic dimensions emphasizing financial inclusion.
Chapter 2
Table 2.1
Access of Digital Financial Inclusion in South Asia (2021).
Table 2.2
Overview of independent variables.
Table 2.3
Summary statistics.
Table 2.4
Results of logistic regression indicating the odds of the determinan...
Table 2.5
Marginal effect of various independent variables on the access of DF...
Table 2.6
Marginal effect of various independent variables on the use of DFS i...
Chapter 3
Table 3.1
Adoption trends over time.
Table 3.2
Predictions.
Table 3.3
Usage patterns across demographic groups.
Table 3.4
Satisfaction levels by platform.
Table 3.5
Common challenges reported by users.
Table 3.6
Expectations vs. current features.
Table 3.7
Relationship between usage and satisfaction.
Table 3.8
Summary.
Chapter 6
Table 6.1
Measurement model assessment.
Table 6.2
Quality criteria and model assessment.
Table 6.3
Structural model assessment.
Table 6.4
Importance–performance score.
Chapter 8
Table 8.1
Demographic profile.
Table 8.2
Result of measurement model.
Table 8.3
Result of Fornell and Larcker criterion.
Table 8.4
Result of heterotrait–monotrait ratio (HTMT).
Table 8.5
Result of R-square.
Table 8.6
Result of structural model.
Chapter 10
Table 10.1
Data description of the selected markets.
Table 10.2
Preliminary analysis: descriptive statistics and stationary tests.
Table 10.3
ARCH LM test.
Table 10.4
Results of DCC.
Chapter 11
Table 11.1
Evolution of marketing strategies.
Table 11.2
Barriers to financial inclusion.
Table 11.3
Benefits of personalized financial inclusion.
Table 11.4
Challenges and considerations.
Table 11.5
Technologies enabling personalization.
Table 11.6
Considerations for ethical personalization.
Chapter 14
Table 14.1
Construct scale assessment.
Table 14.2
Discriminant validity.
Table 14.3
Predictive model assessment.
Table 14.4
Hypothesis assessment.
Table 14.5
Multigroup analysis (MGA) M/Fe.
Table 14.6
Construct assessment for male respondents.
Table 14.7
Construct assessment for female respondents.
Table 14.8
Discriminant validity of male respondents.
Table 14.9
Discriminant validity of female respondents.
Table 14.10
Hypothesis assessment for male and female respondents.
Chapter 17
Table 17.1
Outcomes of structural model.
Chapter 18
Table 18.1
Variable definitions and sources.
Table 18.2
Descriptive statistics.
Table 18.3
Stationarity and unit root tests.
Table 18.4
Lag order selection criteria.
Table 18.5
Full-sample Granger causality tests.
Chapter 19
Table 19.1
Sample size estimation for survey.
Table 19.2
Measurement of variable reliability and validity.
Table 19.3
Validity and reliability.
Table 19.4
Respondents from the selected Mandal in Chittoor Dist.
Table 19.5
SHG women’s demographic profile.
Table 19.6
PLS algorithm path coefficients.
Table 19.7
Bootstrapping path coefficients.
List of Illustrations
Chapter 2
Figure 2.1 Percentage of individuals who possess and do not possess bank accou...
Chapter 3
Figure 3.1 Research model.
Figure 3.2 Digital payment volume forecast in India.
Figure 3.3 Decision tree classified.
Figure 3.4 Heatmap.
Figure 3.5 Level of satisfaction.
Figure 3.6 Mind map—themes.
Figure 3.7 Relationships.
Figure 3.8 Usage and satisfaction.
Chapter 5
Figure 5.1 The 17 goals to transform our world.
Figure 5.2 Word cloud of Scopus database on sustainable finance research betwe...
Figure 5.3 Global principles and framework.
Figure 5.4 Objectives of NAPCC.
Figure 5.5 Indian principles and framework.
Figure 5.6 Global and Indian principles and framework and sustainable investme...
Chapter 6
Figure 6.1 Conceptual framework of Inclusive Development Performance Index (GD...
Figure 6.2 Path diagram of the Inclusive Development Performance Index (GDP) o...
Figure 6.3 Importance–performance map.
Chapter 8
Figure 8.1 UTAUT and UTAUT2 [7].
Chapter 10
Figure 10.1 Time series plots of selected variables in level form.
Figure 10.2 Time series plots of selected variables in return form (volatility...
Figure 10.3 Time-varying correlation among selected variables.
Chapter 11
Diagram 11.1 Key data categories in FinTech personalization.
Diagram 11.2 Benefits of personalized marketing.
Chapter 12
Figure 12.1 Increasing business capital through banks in each research locatio...
Figure 12.2 Use of financial records per research location.
Figure 12.3 Average profit per day in various conditions.
Figure 12.4 Increase in family income per month.
Chapter 13
Figure 13.1 Globally, 1.4 billion adults are unbanked.
Figure 13.2 Growth in the number of mobile money accounts.
Chapter 14
Figure 14.1 Conceptual model.
Figure 14.2 Construct PLS model.
Figure 14.3 Bootstrapping model.
Chapter 16
Figure 16.1 Elements of sustainable finance.
Figure 16.2 Evolution and adoption of sustainable finance 2010-2022.
Figure 16.3 Methodology.
Chapter 17
Figure 17.1 Conceptual model.
Figure 17.2 Structural model (Author’s work).
Chapter 18
Figure 18.1 The recursive evolving window algorithm.
Figure 18.2 Time–series plot of variables.
Figure 18.3 Intertemporal Granger causality flowing from lnCO2com to lnBvol.
Figure 18.4 Intertemporal Granger causality flowing from lnCO2t to lnBvol.
Figure 18.5 Intertemporal Granger causality flowing from lnBvol to lnCO2t.
Figure 18.6 Intertemporal Granger causality flowing from lnBvol to lnCO2com.
Figure 18.7 Intertemporal Granger causality flowing from lnCO2com to lnBprice....
Figure 18.8 Intertemporal Granger causality flowing from lnCO2t to lnBprice.
Figure 18.9 Intertemporal Granger causality flowing from lnBprice to lnCO2t.
Figure 18.10 Intertemporal Granger causality flowing from lnBprice to lnCO2com...
Chapter 19
Figure 19.1 Conceptual framework; Author constructed (2024).
Figure 19.2 PLS measurement model.
Figure 19.3 PLS algorithm model.
Figure 19.4 Bootstrapping path coefficient model-1.
Chapter 20
Figure 20.1 Evolution of ESG investing.
Figure 20.2 Principles of ESG investing.
Figure 20.3 Elements driving transformative changes in financial markets.
Figure 20.4 The Materiality Assessment Model.
Figure 20.5 Thematic investing and ESG.
Figure 20.6 Quantitative ESG model methodology.
Figure 20.7 Scenario analysis in sustainable finance.
Figure 20.8 Key aspects of stress testing.
Chapter 22
Figure 22.1 Review stages.
Figure 22.2 Hyperplane, margin, and support vectors.
Guide
Cover Page
Series Page
Title Page
Copyright Page
Preface
Table of Contents
Begin Reading
About the Editors
Index
Also of Interest
WILEY END USER LICENSE AGREEMENT
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Scrivener Publishing100 Cummings Center, Suite 541JBeverly, MA 01915-6106
Publishers at ScrivenerMartin Scrivener ([email protected])Phillip Carmical ([email protected])
Financial Innovation for Global Sustainability
Edited by
Mohd Afjal
and
Ramona Birau
This edition first published 2025 by John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, USA and Scrivener Publishing LLC, 100 Cummings Center, Suite 541J, Beverly, MA 01915, USA© 2025 Scrivener Publishing LLCFor more information about Scrivener publications please visit www.scrivenerpublishing.com.
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Library of Congress Cataloging-in-Publication Data
ISBN 9781394311651
Cover image: Generated with AI using Adobe FireflyCover design by Russell Richardson
Preface
The rapid evolution of financial technology (FinTech) and digital innovation has ushered in a new era of global finance, one that holds immense potential for fostering sustainability, inclusivity, and economic resilience. Financial Innovation for Global Sustainability explores the transformative power of financial technologies in addressing some of the most pressing challenges of our time—from bridging the gap in financial inclusion to reducing the environmental footprint of financial transactions. This book brings together cutting-edge research, case studies, and policy insights to illuminate how financial innovation can drive sustainable development and equitable growth.
The journey toward global sustainability demands innovative solutions that transcend traditional financial paradigms. Digital financial inclusion, green finance, blockchain applications, and AI-driven financial services are no longer futuristic concepts but essential tools for achieving the United Nations Sustainable Development Goals (SDGs). This book delves into these advancements, examining their impact across diverse economies, particularly in regions like South Asia, where digital financial services are revolutionizing access to banking for underserved populations.
Through a compilation of meticulously researched chapters, this book addresses key themes such as:
Digital Financial Inclusion
: How mobile banking, peer-topeer lending, and digital IDs are expanding financial access in developing economies.
Sustainable Finance
: The role of green bonds, ESG (Environmental, Social, and Governance) investing, and regulatory frameworks in promoting environmentally responsible finance.
Technological Confluence
: The intersection of blockchain, artificial intelligence, and FinTech in creating transparent, efficient, and low-cost financial ecosystems.
Challenges and Opportunities
: Barriers to adoption, cybersecurity risks, and policy recommendations to ensure ethical and inclusive financial innovation.
Each chapter offers empirical insights, theoretical frameworks, and practical recommendations for policymakers, financial institutions, and researchers. From analyzing cryptocurrency adoption in Malaysia to evaluating the carbon footprint of financial transactions, this book provides a comprehensive overview of how financial innovation can align with sustainability goals.
We extend our gratitude to the contributors whose expertise and dedication have made this volume possible. Their diverse perspectives enrich the discourse on financial innovation and its potential to create a more sustainable and inclusive global economy.
As we stand at the crossroads of financial and technological transformation, this book serves as a guide for stakeholders seeking to harness innovation for a better future. We hope it inspires further research, collaboration, and action toward a financially inclusive and sustainable world.
Mohd Afjal & Ramona Birau
Editors2025
1Connecting the Unconnected—Taking the Financial Services to the Last Mile Through Digital Infrastructure
C.P. Somasundaran1, Mohd. Danish Chishti2, Abdullah Bin Junaid3* and Rakesh Guglani4
1Faculty of Management Science, SRM University, U.P., India
2Faculty of Management Science, Shri Ram Murti Smarak, College of Engineering and Technology, Bareilly, U.P., India
3Department of Management, Institute of Management Technology Dubai, Dubai, Unites Arab Emirates
4Faculty of Management, Asia-Pacific Institute of Management, New Delhi, India
Abstract
Purpose: When the majority of the population remains unconnected with financial services, no economy can attain the goal of sustainable inclusive growth. No success is meaningful unless felt by last ones in a culturally and socially committed humanity. This study examines the country’s financial inclusion efforts undertaken by banking and other Indian financial establishments.
Methodology: This study covers secondary data and case studies to portray the realities of economic inequalities and sociocultural asymmetries across regions. The paper discusses the country’s financial services and banking scenario, followed by the progress, prospects, and challenges in implementing financial inclusion. An attempt has been initiated to examine the impact of financial inclusion and scope of financial services supplied to the population.
Findings: Committees and working groups advocated the widespread adoption of microfinance institutions and an innovative agency banking system as rural banking replacement. Data suggest that cooperatives increasingly support weaker, neglected categories of marginal farmers.
Practical Implications: Despite the progress made in the credit delivery mechanism, preponderance of rural inhabitants still lacks access to formal finance. The glaring agrarian crisis resulting from an increase in farmer suicides and structural constraints in the non-agricultural informal segments, despite their capacity to generate employment opportunities, has led to a severe deficit in the fund flow to these segments.
Keywords: Financial services, sociocultural asymmetries, policy interventions, digitalization, Fintech industry
1.1 Introduction
The stress caused by mounting and spiraling bad loans and advances in the Indian banking structure is of enormous concern for the policymakers, the Government of India, and the Reserve Bank of India as it is undermining the growth of the Indian financial system and impairing the economy as a whole. The Securities Exchange Board of India has projected the Mutual Funds industry to grow by at least two and a half times over the next 5 years. Nevertheless, it is ironic that inclusive growth, or financial inclusion for that matter, remains neglected. The so-called social schemes formulated for the welfare of previously marginally tribal, hilly, and rural regions, socially disadvantaged groups, and women have remained mere policies as a large proportion of them still lacks access to basic amenities of the financial services in India. Many accolades are being promoted through various means of advertising by political circles concerning programs, like the Agriculture and Rural Debt Relief Scheme, 2008, direct benefits transfer, one-time settlement and caste-based banking, and other financial services, especially when the General Elections are approaching, with no party leaving any stone unturned to attract the vote bank. Against this backdrop, it is meaningful to review the course of providing financial services to the last mile to comprehend the robustness of our financial system vividly. Furthermore, it is also important to review the risk management practices to understand the lessons learned by our policymakers and other stakeholders from the mistakes of developed nations, especially the United States of America. As a result, an attempt has been made in this research paper to examine the impact of financial inclusion and the scope of financial services supplied to the most crucial part of the population.
Hence, the objectives framed are as follows:
To review the financial inclusion process and also to suggest some policy interventions in this regard,
To analyze the pitfalls and hurdles in extending the fruits of economic growth to the neglected ones, and
To suggest the best practices for effectively monitoring social welfare schemes with particular reference to financial services.
1.2 Literature Review
The first phase (1950–1967) of our post-independence planning, known for banking consolidation and strengthening of banking regulation, originated by building and nurturing the financial institutions to mobilize household savings and deploy them into production-based activities. Till the mid-1960s, the task of catering to the credit needs of rural India remained with the cooperative credit structures, which were mainly regulated by the respective State Cooperative Societies Acts but needed more professionalization in assessing credit needs and appraisal of the agricultural projects (see Table 1.1). Also, these structures lacked the technology required to maintain accuracy and pace with the system. With technological innovations in Indian agriculture and the onset of the Green Revolution, it was felt that the prevalent cooperative structures would not be able to meet the credit needs of the agricultural sector [1]. The next phase (1967–1990) thus assumed a more pivotal thrust regarding a supply-leading method to the formal credit architecture. As a result, 14 scheduled commercial banks and six other banks were nationalized in 1969 and 1980, respectively. The connected public policies on banking and financial sector progress are based on the robust supposition that there is a need to promote financial intermediation by developing institutions, expanding their geographic coverage, mobilizing savings, and promoting better regional, sectorial, and functional coverage in addition to small-borrower access to formal credit in India. In between, the Regional Rural Banks Act of 1975 was promulgated to develop banking, with a rural feel, at lower transaction costs to cater to the agricultural and rural credit needs of the preponderance of the hitherto neglected populace (see Table 1.1).
Furthermore, the RBI priority sector rules included making it essential for nationalized commercial banks to give 40% of their deposits to the priority sector, with 18% dedicated solely to agricultural purposes. All of these activities contributed to the spread of the banking network across the country’s regions. Rural credit expansion and scope superseded village moneylenders substantially resulting in small gains in aggregate crop yield, rapid increases in fertilizer usage, and investments in physical capital such as pump sets, animal stocks, and tractors.
Table 1.1 Phase/period, key actions/policies, results/outcomes, remarks.
Source: Authors’ own analysis.
Phase/period
Key actions/policies
Results/outcomes
Remarks
1950–1967
Strengthening banking regulation and consolidation
Financial institutions mobilized household savings for production-based activities
Cooperative credit structures struggled with technology and professionalism
1967–1990
Nationalization of banks (14 in 1969, 6 in 1980)
Expansion of banking network, rural credit improved
Regional Rural Banks Act of 1975 established; priority sector lending rules set
1977–1990
Nationalized banks required to allocate 40% of deposits to priority sectors (18% to agriculture)
Increased regional and sectorial coverage, expansion in rural credit
Significant reduction in village moneylenders’ influence; improvements in crop yield and asset investments
December 1972 to June 1983
State cooperative banks added 2.12 crore new borrowers’ accounts
93.1% of new accounts had a credit limit of Rs.0.10 lakh or less
High proportion of small-borrower accounts and credit limits under Rs.0.25 lakh
December 1982 to March 1992
3.60 crore accounts with credit limits up to Rs.0.25 lakh
94.5% of total accounts were small borrowers
Post-liberalization, growth in accounts with higher credit limits
March 1992 to March 2001
Increase in borrowers’ accounts with credit limits above Rs.0.25 lakh
Rise in large-borrower accounts; reduced growth in small-borrower accounts
Decline in small-borrower accounts; rural branches decreased significantly
March 1995 to March 2006
Number of rural branches fell from 33,017 to 30,572
Decrease in rural branch numbers; severe institutional crisis in rural credit
Regional Rural Banks’ branches decreased by 2,445
March 2004
3.80 lakh employees in rural and semi-urban zones
Government opportunity to create additional jobs for rural branches
Additional costs for Regional Rural Banks adversely affected viability
Post-2004
Committees established to address credit delivery issues
Recommendations for microfinance institutions and innovative banking solutions
Mixed outcomes; difficulties in implementing policy effectively
March 2013
Cooperative credit system comprised 93,413 primary agricultural cooperative societies
17.0% share in agricultural credit; cooperatives served 3.09 crore farmers
Average loan disbursed by cooperatives was lower compared to commercial banks
Rural Finance Access Survey (2003)
59% of rural households lacked deposit accounts; 79% lacked formal credit access
Significant gaps in access to formal finance, especially among poorer segments
Large farmers had better access compared to marginal farmers
Recent years
Increased NPAs and strict provisioning standards
Lower earnings and shareholder value; top 30 NPAs account for significant share
RBI emphasized timely detection and recovery of distressed loans
Mid-Term Policy Review (2005–2006)
Urged banks to offer basic facilities at minimal charges
Aimed to improve accessibility and financial literacy
Issues with customer relations and ethical practices in banking
Furthermore, the success of our banking system garnered praise in the literature on the favorable role performed by finance in the Indian developmental process during the post-nationalization period and until the 1980s. Ref. [2] demonstrates how financial intermediaries improved economic performance in India by encouraging aggregate investment and production and achieving finance-led industrialization. Furthermore, refs. [3–5] finally demonstrate that state-led branch development into previously unbanked and rural places lessened poverty across Indian states; additionally, the directed bank lending requirement was linked to amplified bank borrowing among the poor, particularly low caste and tribal groups. Their research also found that between 1977 and 1990, the presence of a nationwide bank branch licensing rule triggered banks to open comparatively more subdivisions in Indian states with lower early financial development than during other periods and that the rural subdivision development in India significantly brought down rural poverty and improved non-agricultural output [6].
It is essential to underline that from December 1972 to June 1983, the state cooperative banks added 2.12 crore new borrowers’ accounts, out of which 93.1% were accounts with a credit limit of Rs.0.10 lakh or less. Further, regardless of the loan waiver scheme operative of March 15, 1990, as many as 3.60 crore accounts were small borrowers’ accounts having credit limits up to Rs.0.25 lakh during another decade between December 1982 and March 1992 constituting 94.5% of the total accounts. However, during the post-liberalization period, and between March 1992 and March 2001, the borrowers’ accounts with a credit limit of above Rs.0.25 lakh increased by 1.18 crore against only 0.21 crore during the preceding decade. Not only this, it is noted that during the post-liberalization period till March 2004, the growth in the number of small borrowers’ accounts has appreciably decreased.
In this regard, the RBI stated that approximately 80% of small borrowers were from rural or semi-urban and thus were harmed by the contraction, while women borrowers accounted for 22.0% of trivial accounts and 18.1% of the unsettled amount of such accounts. Over time, this section has risen suggesting that women borrowers have enlarged their portion of bank borrowings. On the other hand, borrowers among S.C.s and S.T.s have remained relatively constant between 1993 and 1997, and the proportion of women in both categories has likewise been reasonably constant. Minor loans up to Rs.7,500 accounted for 80.5% of the total accounts and 50.0% of the loan amount due in March 1993, but by March 1997, those numbers had dropped to 64.0% and 32.0%, respectively. Despite this, most small borrowers’ accounts were for agriculture and related operations, with roughly 50.0% coming from special asset-creating employment programs.
The absence of professional zeal for growing their branch network in rural regions is an apparent reason for the fall in bank loans to small borrowers. In actuality, the figures of rural branches fell from 33,017 in March 1995, accounting for 51.7% of all branches, to 30,572 in March 2006, accounting for 44.5% of the total branches. Since March 1995, when the branch licensing policy was abolished, and the board of directors of the bank concerned was given complete autonomy over their branch expansion program, the number of regional rural bank branches has decreased by approximately 2,445 resulting in a severe institutional crisis in the rural credit delivery system. Rural financial institutions also perceived a need to hire specialists, particularly agricultural graduates, to help enhance contemporary and creative farm management techniques. Given this, the Government had an excellent opportunity to create an additional one lakh jobs, primarily for bank branches in rural and semi-urban zones, where there were approximately 3.80 lakh employees at the end of March 2004, accounting for 43.1% of total bank employees, with 30.5% of officers. According to a conservative estimate, the supplementary load of pay and extras on this count would be Rs.1,200–1,500 crore per year. In contrast, state cooperative bank spending would be less than 0.8% of their total revenue. The additional burden on the regional rural banks adversely affected their viability and sustainability.
Commercial banks that currently handle the majority of agricultural lending prefer deepening rather than expanding, which has ramifications for all-encompassing growth. The sharp increase in per account payment of big farmer accounts indicates that credit growth is occurring faster owing to credit deepening. The percentage of long-term loans has nearly remained constant at roughly 30% prompting worries about capital creation. The discrepancy between financial flows and real sector indicators is highlighted when comparing loan disbursements by region to actual sector data. Though the actual sector indicators in the eastern and central areas were high in a share of gross cultivated area, gross irrigated area, and cropping intensity, their share of agriculture credit flow could be bigger implying that the considerable potential has gone untapped. As a result, even if farm credit has expanded significantly in nominal terms, there is a significant unmet need in terms of potential.
The significant organizational progress realization during the previous year was taking approximately 3,500 subdivisions of the cooperative banks on Core Banking Solution and connecting them to the payment structure at the ATM network, which has thus provided them a new path and vehicle to move on in their own new business universe. After the recapitalization under Revival Package for the short-term cooperative credit configuration, the financial health of primary agricultural cooperative societies has improved in many states, and they are extending more credit to member farmers. Despite continuous efforts, the cooperatives have lost their primacy in the rural credit sphere. However, in relation to their outreach and existence on the surface to comprehend people of small earnings and the excluded, they contribute to inclusive growth in rural areas. On March 31, 2013, the short-term cooperative credit system comprised approximately 93,413 primary agricultural cooperative societies, 370 cooperative central banks, and 32 state cooperative banks. While the part of cooperatives in agriculture credit has shrinked from 62.0% in the 1990s to 17.0% in 2011– 2012, the total agricultural loan accounts held by the banking system is still a substantial share. Cooperatives delivered credit to 3.09 crore farmers during 2011–2012 against 2.55 crore and 0.82 crores by the commercial banks and RRBs, respectively. Still, the average loan disbursed by cooperatives, during 2011–2012, at Rs.0.28 lakh, was much lower than that of the RRBs and commercial banks at Rs.0.66 lakh and Rs.1.15 lakh, respectively.
From the previous, it may be deduced that despite the progress made in the credit delivery mechanism over the years, the preponderance of the rural population remained lacking access to formal finance. According to the Rural Finance Access Survey (RFAS) 2003, approximately 59.0% of rural households still needed a deposit account, while 79.0% of rural households had no access to funds from a formal source. The survey further underlines the severity of the problem, which is more predominant in the case of the poorer segment of rural households. Above all, the rural bank branches appeared to cater to the needs of wealthier borrowers, as approximately 66.0% of large farmers had deposit accounts, and 44.0% had borrowed from the banking system. On the other hand, more than 70.0% and 87.0% of marginal farmers had no bank accounts and access to credit, respectively. Also, commercial households, in general, and micro-enterprises, in particular, faced severe problems in accessing formal finance. These results, however, may not be comparable as the survey covered only two states. Still, they state about the level of access to organized finance for the immense rural commonalities. Nevertheless, the credit flow did suffer from the apathy of the cooperative sector.
The glaring agrarian crisis resulting from an increase in farmer suicides and structural constraints in the non-agricultural unorganized sectors, which alone had the potential to expand employment opportunities, as well as the acute shortfall in fund flow to these segments for over a decade, drew policymakers’ and the Central Government’s attention to implementing many measures to alleviate the situation. To be specific, the Reserve Bank of India established three committees to focus on specific sectors to minimize procedural interruptions in credit delivery as follows: (a) the R.V. Gupta Committee to Study Credit Delivery for Agriculture, (b) the S.L. Kapur Committee for Credit Needs of Small-Scale Industries, and (c) the SH Khan Committee to Harmonize Regulatory Atmosphere for Banks and Development Finance Establishments. In addition, committees were formed to address concerns relating to bank lending for agricultural, small and medium businesses, as well as organizational issues relating to RRB operations and the need to revitalize the short- and long-term cooperative credit structure. Internal working groups at the RBI looked into topics including rural finance and microcredits, financing against warehouse receipts, and whether or not to make financial inclusion a policy aim. These committees and working groups generally advocated for the widespread adoption of microfinance institutions and an innovative agency banking system as a rural banking replacement and for financial inclusion.
Although these efforts were admirable, a thorough examination of many aspects of the new policy regime was necessary to determine whether the new policy regime had a long-term influence on the credit delivery system for the targeted industries. First, the 3-year doubling of fund movements to agriculture and related activities beginning in 2004 appeared to be a knee-jerk reaction to severe sociopolitical pressures. However, the policy’s aftermath revealed how the skewed credit flow mechanism weakened the institutional architecture, particularly in terms of long- and short-term cooperative credit structures and regional rural banks. Second, the culpability of the Agricultural and Rural Debt Waiver and Relief Scheme 2008 showed how it could have been more effective in translating the policy into an implementable strategy at the grassroots level. Third, due to unfavorable selection and moral hazards at the level of the district authorities, the commercial judgments of the banking authorities were questioned due to insufficient cooperation between the banking institutions and the district planning authorities. Indeed, many accounts are serviced, and funding was extended under numerous flagship programs with little asset development or project feasibility. It is not unreasonable to state that the have-segment of the rural populace still held the upper stand, and the socioeconomic and regional disparities widened further over the years. The realistic view of the break-even point and attaining profitability by the rural branches would be to analyze these parameters for the cluster of branches, at least at the block level rather than the individual branch level.
Commercial banks have built up their professional reservoir in specialized areas of foreign exchange management, merchant banking, factoring and forfeiting, insurance, and risk management over the years. Although so much has gone through the banking system to ensure better customer relations, still, the staff of nationalized commercial banks, in particular, do, at times, take their customers for granted, and it hurts anyone when the women and the senior citizens’ clientele do not get due respect from the banking staff. Customers’ relationships with any nationalized commercial bank can be described as follows. A frail and lean lady, approximately 75 years old, standing before the bank official, was too tense and worried to say her problems to the officer, who might have been the age of her grandson but still calm and poise. The bank had deducted unauthorized and ridiculous amounts from her pension account. She appeared to be from a highly sophisticated and respectful background. The remorse, anger, and helplessness were so evident on her face that anybody could understand the customers’ relationship with and business awareness of the commercial bank. It is not a rare event but a routine matter in this branch that our senior citizens are treated like this.
Nevertheless, it happens not in one or some branches of the public sector commercial banks in India but in most of these banks and most places. It shows that not only have we degraded our values to the extent that we have put out of our minds to give due respect to our elders within and outside our families but also we need to be more sensitive to understand the business models of the banking corporate. In its Mid Term Policy Review (2005–2006), the Reserve Bank of India urged the banks to make the basic banking facilities available at nominal or minimum charges to make them accessible to the larger sections of the populace. Further, it has been made clear by the central bank that the banks would ensure good banking practices by providing transparency and financial literacy among their customers and the general public.
Due to increased non-performing assets (NPAs) and strict provisioning standards, financial institutions have grown more cautious in granting credit in recent years lowering overall earnings and shareholder value. As of the end of September 2013, the ratio of the top 30 NPAs in public-sector banks and all banks as a proportion of gross NPAs was 35.5% and 38.8%, respectively. In nationalized banks, the top 30 defaulters accounted for 43.8% of the total NPAs. The Reserve Bank of India emphasizes that, in addition to preventing slippages, each bank should devise a robust system for the timely detection of distressed loans, including swift rearrangement in the case of all feasible accounts, and have a loan recovery policy that includes the manner of recovering dues, targeted level of reduction, and write-off monitoring. In addition, the Central Government instructed public sector banks to take many new initiatives to speed up recovery and manage NPAs, including appointing nodal officers for recovery, conducting special drives to recover lost assets, and forming a board-level committee to oversee recovery.
Many a time, it has been noticed that the advertising strategies of banking institutions flout the business ethics standards recommended by the Reserve Bank of India. Banks’ contrived and unethical code of conduct regarding asset-liability management, income recognition, and asset classification and non-performing assets’ provisions have resulted in mounting NPAs in recent years. Furthermore, the role of a bank in other related financial services, such as merchant banking, mutual funds, factoring and forfeiting, and insurance has been mainly target oriented and profit making rather than socially and morally responsible.
1.3 Methodology
The study’s first component examines the country’s banking and other financial services and how these services can best be given to the formerly disadvantaged and ignored segments of our society. In the second section, the paper critically reviews the progress, prospects, and challenges of implementing financial inclusion in the country. In the last section, suggestions on some of the vital policy interventions to extend the benefits for the country’s holistic and integrated economic development have been provided. The study is primarily based on secondary data, comprising economic indicators with a focus on the banking sector, as well as a few case studies to represent the ground realities in economic inequalities and sociocultural asymmetries across the country’s regions.
1.4 Research Results
The committees and working groups advocated for the widespread adoption of microfinance institutions and an innovative agency banking system as a rural banking replacement and financial inclusion.
Data suggest that cooperatives increasingly support the neglected/weaker, marginal, and excluded categories of small and marginal farmers.
The inclusive growth of financial services in the country has yet to take place. The needy segment has been denied these services due to their creditworthiness, lack of financial literacy, high transaction cost, and technology hazards.
The credit flow did suffer from the apathy of the cooperative sector.
Financial services, in general, and banking, in particular, had many a stride, but their benefits and attractiveness to the majority are yet to be seen.
1.5 Discussion
The Indian economy faced struggles in previous years in terms of deteriorating growth, persistent inflation, escalating current account deficit, and other fundamental constraints. Table 1.2 shows the list of economic dimensions of financial inclusion. At the same time, the land holding size remained decreasing, and falling incomes are frightening small farmers’ viability. Investments and the rural substructure need to be bolstered. Both supply and demand side variables exacerbated inflationary pressures. The supply side dominated food inflation, which had structural and cyclical components. An increase in real wages, particularly in rural areas, the move from grain to protein foods in diets, the spike in food prices associated with the monsoon season for vegetables, the depreciation of the rupee, rising incomes, and the price of commodities globally—particularly crude oil—have all had a role. The wage–price spiral was also maintained by the Government’s social safety-net programs. Looking back, the year registered the lowest growth performance in recent years due to a decline in domestic savings, investments, a growing fiscal deficit, and sustained food inflation. However, we can accelerate development and increase welfare by efficiently implementing economic and governance changes. However, failing to do so could result in an expensive and irrevocable loss of opportunity.
Table 1.2 Economic dimensions emphasizing financial inclusion.
Source: Authors’ own analysis.
Economic dimensions
Details
Economic struggles
Deteriorating growth
Persistent inflation
Escalating current account deficit
Decreasing land holding size
Falling incomes affecting small farmers
Need for bolstered investments and rural infrastructure
Inflation factors
Supply side-dominated food inflation
Structural and cyclical components
Increase in real wages
Shift from grain to protein foods
Seasonal spikes in food prices
Depreciation of the rupee
Rising income
Global commodity prices (especially crude oil)
Government’s social safety-net programs maintaining wage–price spiral
Growth performance
Lowest growth in recent years
Decline in domestic savings
Decrease in investments
Growing fiscal deficit
Sustained food inflation
Credit and financial institutions
Government’s efforts: Registration and regulation of professional moneylenders
Nationalization of commercial banks
Creation of regional rural banks
Cooperative societies and commercial banks accounted for 91% of rural debt
Cooperative societies: 27.3% of outstanding debt
Commercial banks: 24.5% of outstanding debt
Informal sources still prevalent due to traditional financial institutions
Limited agricultural lending
Financial inclusion
Initiated with cooperative movement in 1904
Gained momentum after nationalization of banks in 1969
Financial exclusion costs 1% of GDP
RBI’s recommendation for financial inclusion as a priority
Financial inclusion challenges
Demand side: Lack of awareness, low income, poverty, illiteracy
Supply side: Distance from branches, branch timings, complex
Procedures, unsuitable products, language barriers, staff attitudes
Informal sources preferred due to procedural headaches
Measures for financial inclusion
Expanding access and deepening financial services
Providing financial literacy and consumer protection
Using IT and mobile services to reduce transaction costs
Raising financial literacy awareness
Funds and initiatives
Financial Inclusion Fund
: Rs.181.64 crore sanctioned, Rs.69.77 crore paid
Financial Inclusion Technology Fund
: Rs.365.49 crore sanctioned, Rs.201.30 crore paid
Initiatives: Financial literacy programs, capacity development, ICT-based solutions for RRBs, support for Core Banking Solution migration, development of financial literacy centers
Specific projects under funds
ICT-based solutions for RRBs: Rs.118 croreSupport for Core Banking Solution migration: Rs.221 crore sanctioned, Rs.153 crore released
Development of Geographic Information System by National Informatics Centre: Rs.21.7 lakh
Aadhar-enabled Kisan Credit Cards and PoS devices: Rs.1.85 croreFinancial literacy programs: Rs.15.60 lakh
Micro-pension services, capacity building of bank correspondents, and other financial literacy initiatives
Studies [7] state that the Government’s efforts to register and regulate professional moneylenders, as well as the venture of institutional agencies in rural areas with the nationalization of commercial banks and the creation of regional rural banks, are attributed to the decline in terms of informal credit’s share of total debt informal credit. At the national level, cooperative societies and commercial banks together accounted for 91.0% of the debt amount advanced by institutional credit agencies in the rural area accounting for 52% of the outstanding cash debt, with cooperative societies accounting for 27.3% versus 24.5% for commercial banks. The study also indicates that cooperatives, commercial banks, and other organized financial sector activities could only partially replace informal sources of credit in rural regions. Micro surveys also show that microfinance has resulted in loan reliance and cyclical debt in some circumstances. Analysts questioned whether loan organizations had stayed devoted to reducing poverty in all situations or were only driven by financial gain. This bodes well for regulating microfinance as an instrument for societal well-being and financial inclusion.
The most crucial reason for the informal rural credit market’s continued existence is that conventional financial institutions prefer to limit their lending activity to the riskier field of agricultural lending. Even if the interest rates are substantially higher, those in the rural credit market choose to use informal sources of borrowing. Unlike banks and cooperative groups, informal sources do not need prompt payment. The most crucial reason for the informal rural credit market’s continued existence is that conventional financial institutions prefer to limit their lending activity to the riskier field of agricultural lending. Even if the interest rates are substantially higher, those in the rural credit market choose to use informal sources of borrowing. Unlike banks and cooperative groups, informal sources do not need prompt payment.
While financial inclusion in India came along with the cooperative movement in 1904, it gained momentum after the nationalization of commercial banks in 1969, followed by the lead bank scheme, which propelled the opening of many bank branches across the regions hitherto neglected. Even with these attempts, a significant section of the country’s population could not be brought into the banking system. Financial inclusion is not just a social and political necessity but also an economic one because exclusion from the banking system costs the economy 1% of its GDP. In its Mid-Term Review of Monetary Policy (2005–2006), the Reserve Bank of India recommended that banks make financial inclusion one of their top priorities. In India, the notion is also common. The notion of its good influence is widely disseminated throughout the world. Most of the work on banking sector outreach [8] focuses on cross-country evidence. Refs. [9–12] are some of the notable works in this regard (2003). A survey conducted by the World Bank for rural India indicated that approximately 40% of families had savings accounts, 20% had outstanding loans, and just 15% had insurance [13].
Financial exclusion denotes a dearth of adequate, low-cost, fair, and secure financial goods and services from traditional suppliers for certain groups of society. As a result, financial inclusion ensures that everyone has access to adequate financial services and is aware of their options. Aside from traditional financial intermediation, it also includes no-frill banking accounts for sending and receiving payments, a savings product personalized to a poor household’s cash flow arrangement, money transfer services, small loans and overdrafts for productive, personal and other purposes, insurance (life and non-life), and so on. Lack of awareness, low income, poverty, and illiteracy are the primary causes of financial exclusion on the demand side. At the same time, distance from the branch, branch timings, unwieldy documentation and procedures, unsuitable products, language, and staff attitudes are the primary causes on the supply side. People choose to obtain money from informal credit sources to avoid these procedural headaches, even though this results in increased expenses and more exposure to unregulated and unscrupulous suppliers leaving them vulnerable to uninsured risks. Thus, financial inclusion entails not only the establishment of a savings account but also creation of knowledge about financial goods, financial education and assistance, and debt counseling by banks. As a public utility, banking services are intended to benefit the whole population [14].
Financial inclusion, therefore, necessitates expanding financial services to those who do not have reach to the sector, their deepening for those with limited access, and the provision of greater financial literacy and consumer protection so that those presented with products can make informed decisions. The moral and economic imperatives for financial inclusion are inextricably linked: Should we not provide everyone with the skills and resources they need to better themselves and the country?
Several proxy measures are utilized in the literature to quantify financial inclusion (Conard, 2008). For example, bank account per adult evaluates access to and use of bank accounts, with full access implying more than 0.5 accounts per adult [15]. Geographic and demographic branch penetration and geographic ATM penetration are used to quantify the penetration of banks’ physical outlets in terms of branches and ATMs. Higher demographic branch and ATM penetration suggest more straightforward access owing to fewer possible consumers per outlet. However, higher geographic branches and ATM penetration indicate shorter distances and easier geographic access.
Furthermore, demographic loan penetration, loan–income ratio, demographic deposit penetration, and deposit–income ratio are used to assess the utilization of loans and deposits. Higher demographic loan or deposit penetration shows greater utilization. However, higher loan-to-income ratios indicate that these services may only be available to larger businesses or wealthy people. Studies show that the loan-to-income ratio in affluent nations is more than 2, while in impoverished countries, it is higher than 8 [16]. The deposit-to-GDP ratio and the cash–deposit ratio are other indicators of deposit penetration. If the deposit-to-GDP ratio is 100% or the cash-to-deposit ratio is less than 20%, an economy is expected to achieve full access [17]. Rather than deposit penetration, this indicator tracks the financial sector’s evolution. If a country’s outreach measures (other than bank account per adult) are above their mean values in industrialized nations, it is considered close to full access [18]. However, when taken singly, the metrics give only a limited picture of an economy’s financial system’s inclusivity and might need to be more accurate about the amount of financial inclusion. The author of Ref. [19] devised an index of financial inclusion (IFI) to solve this issue, which he used in cross-country data and rated nations based on the IFI values obtained. The index offers a distinct benefit of collecting data on several dimensions in a single value.
Our policymakers believe that a substantial proportion of the population being financially excluded for a long time would lead to a drop in
