India has achieved significant progress toward financial inclusion this decade. When the first Global Findex Database was released by the World Bank in 2011, it stated that only 40% of adult Indians had a bank account. The second version of the database,2 released in 2018, indicated that almost 80% of adult Indians have bank accounts—a noteworthy addition of approximately 300 million accounts in just a few years.
Importantly, groups that are traditionally excluded shared in these gains. Women saw a 30% increase in account ownership, and the poorest households saw a 40% increase. This remarkable progress was driven by a number of financial inclusion measures launched by the government, coupled with successful efforts from public and private financial institutions to capitalize on opportunities resulting from these measures. However, India has been less successful in usage of financial services, as only an estimated 20% of the population actually use the accounts. People continue to rely on the informal sector, which could explain the mainly dormant bank accounts.
During our trip, we met two financial institutions—Housing Development Finance Corporation (HDFC) and HDFC Bank (in which the former holds a 21% stake)—to discuss their financial inclusion initiatives.
HDFC, the country’s largest mortgage lender, has actively participated in a government subsidy scheme to provide affordable housing to home buyers in middle to low income groups. In 2018-19, the company approved 37% of home loans in volume terms and 18% in value terms to customers from the lower income segments, i.e., those with annual household incomes of up to $8,700. HDFC also partnered with the International Finance Corporation (IFC) to set up a fund for on-lending to developers of affordable housing projects across India.
Given the potential for shared value creation, we expressed our support for these efforts. Going forward, we plan to engage with HDFC to enhance its approach to incorporating sustainable construction considerations into its mortgage lending activities.
Our conversation with HDFC Bank focused on social impact measurement, and specifically how to better capture the outcomes and impact for customers and the bank, as well as for broader society, of financial inclusion efforts. This will require a shift from metrics on access, such as the number of individuals opening accounts for the first time, toward metrics that focus on account usage and financial health.
The bank confirmed it has retained specialist third parties to improve its understanding of how financial products and services are consumed and their effect on living standards. We expect this to help identify and address challenges that prevent new users to fully shift away from the informal financial sector.
We will closely monitor progress and outputs of this work, while continuing to engage on areas of financial inclusion, including the delivery of financial literacy programs and digital banking strategies. We share the belief that financial inclusion can and should play a significant role in attaining many SDGs, including eliminating poverty (SDG 1), promoting gender equality (SDG 5) and creating jobs (SDG 8).