NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Monday, March 10, 2014

India is poised to lead the world in connecting the poor to bank accounts through mobile phones. This is an ambitious goal. According to the World Bank, only 35% of Indians use formal financial services right now. But India can get to 100%, and if it does hundreds of millions of Indians will be able to create better opportunities for themselves and their families.

The term of art for what I am talking about is digital financial inclusion. This idea can seem abstract when compared to more tangible goals such as eradicating polio. But the truth is that lacking access to a bank account has a very real consequence: It makes it much more expensive to be poor. Millions of families live on the border between self-sufficiency and destitution, and financial exclusion pushes them in the wrong direction. That’s why the government of India has set the goal of establishing a banking outlet in every village. People without access to a bank account have to save in physical assets, such as cash, livestock, or jewellery. Cash gets spent, animals die, and jewellery can be lost or stolen. What’s more, these forms of savings earn no interest and can actually lose value over time.