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Financial Inclusion in India

The Financial Inclusion in India initiative examines critical factors that impact India’s drive to extend financial services to the poor, especially outside of urban areas.

India is one of the developing world’s leaders in creating financial inclusion programs that boost poor people’s economic security by providing them access to basic financial services. India’s efforts to broaden financial services started with social banking drives in the 1980s and has advanced continuously with a series of microfinance innovations. Recently, Prime Minister Modi set a national priority to ensure every Indian household has a savings account.

The Stanford Center for International Development (SCID) has long had a keen interest in India’s drive to extend financial services. SCID’s India Program has carried out valuable research on microfinance and offered high-level policy advice in partnership with such respected in-country groups as the Institute for Financial Management and Research (IFMR) in Chennai.

The Financial Inclusion initiative is the India Program’s latest project in this area. The initiative is focused on a series of critical questions: What models best succeed in delivering needed financial services to poor people in the countryside, far from cities? How do people come to trust financial institutions? What techniques work to persuade households to use services as they become available? The answers will not only advance knowledge about microfinance; they will also be used to refine India’s financial inclusion policies as it presses ahead with its ambitious programs.

The Financial Inclusion in India initiative will collaborate on research with IFMR and its operating unit, the Kshetriya Gramin Financial Services (KGFS) bank, whose creative approach to microfinance has drawn wide notice. KGFS’s model is based on a comprehensive village strategy. It seeks to build the fullest possible coverage in each community in its service area, in contrast with traditional microfinance, which targets poor households across many villages. The aim is to forge deeper relationships so that clients use a full suite of financial products. KGFS currently serves about 350,000 households in 4,200 villages through branch networks in the states of Tamil Nadu, Odisha, and Uttarakhand, and plans to expand significantly over the next few years.

For SCID, a critical strategic benefit of the IFMR partnership is access to the banking unit’s extensive data on its clients, employees, and service areas. Financial Inclusion in India team members will help refine this database, ensuring its value for research. For example, the Initiative expects client data will include full transaction and product purchase histories, which can help explain why people use financial services. Researchers will examine questions not often studied previously, including:

  • Reputation. How important is a financial service provider’s reputation in convincing poor people to use financial products? Does a positive reputation create more demand for financial services?

  • Social networks. What is the role of village social networks in building a financial services provider’s reputation?

  • Employee turnover. How do employee departures affect a provider’s reputation? Does client trust reside more with individual staff members or with the institution?

The Initiative will also extend the student internship program developed in partnership with the IFMR. That program provides Stanford undergraduate and graduate students opportunities to carry out field research on microfinance, and gives them access to IFMR data, which they can use in dissertations. Stanford interns have already proven to be valuable field workers in India, for example, by playing a key part in rolling out an education loan product.

For the latest information on financial inclusion in India, read IFMR’s blog and compilation of daily news clips.

Please contact Anjini Kochar (anjini@stanford.edu) with questions.