This document discusses current trends in digital financial inclusion in India and China. It begins by defining digital financial inclusion as digital access to and use of formal financial services by excluded and underserved populations. It then provides an overview of digital financial inclusion in each country. In India, the government has encouraged innovation through payments banks and digital wallet providers are seeing success. In China, digital financial services developed later but are now advancing rapidly due to policy support for inclusion. A table compares factors related to digital financial inclusion, showing China has higher rates of education, urbanization, bank account ownership, and mobile penetration than India, though both countries have seen reductions in government leakage through digital inclusion. The document concludes that while impediments remain, governments are supporting

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International Journal of Management (IJM)
Volume 11, Issue 10, October 2020, pp. 2354-2359. Article ID: IJM_11_10_229
Available online at https://iaeme.com/Home/issue/IJM?Volume=11&Issue=10
ISSN Print: 0976-6502 and ISSN Online: 0976-6510
DOI: https://doi.org/10.34218/IJM.11.10.2020.229
© IAEME Publication Scopus Indexed
CURRENT TRENDS IN DIGITAL FINANCIAL
INCLUSION
M. Subhashini
Associate Professor, Dept of Management, Aurora’s PG College, Hyderabad, India
Dr Madhavi Madireddy
Professor and Director, Aurora’s PG Colleges, Ramanthapur, Hyderabad, India
ABSTRACT
The rise of digital financial inclusion is an important global phenomenon. Today,
financial services is probably the most digitized industry, as well as the most globalized,
in addition to being for at least the past two decades the single largest component of
global technology spending. Financial Inclusion is a relatively new socio-economic
concept in India that aims to change the position where a majority of the country’s
population is unbanked.
Developing country governments are exploring ways to encourage their populations
to use the four key instruments of financial inclusion: payment system, credit, insurance,
and investment. By creating such an ecosystem, they can help expand access to
affordable financial services to the financially excluded. The emergence of new digital
technology, including Fintech, can ensure financial inclusion and improve financial
well-being.
Key words: Financial Inclusion, Digital Financial Inclusion, Global Technology.
Cite this Article: M. Subhashini and Madhavi Madireddy, Current Trends in Digital
Financial Inclusion, International Journal of Management (IJM), 11(10), 2020,
pp. 2354-2359.
https://iaeme.com/Home/issue/IJM?Volume=11&Issue=10
1. INTRODUCTION
1.1. Financial Inclusion
Financial inclusion or inclusive financing is the delivery of financial services at affordable costs
to sections of disadvantaged and low-income segments of society, in contrast to financial
exclusion where those services are not available or affordable. Financial inclusion of the
unbanked masses is a critical step that requires political will, bureaucratic support and constant
pressure by the RBI. It is expected to unleash the hugely untapped potential of the bottom-of-
pyramid section of Indian economy.

2. Current Trends in Digital Financial Inclusion
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New innovations play an important role in promoting financial inclusion for all, and
ultimately for economic growth, shared prosperity, and poverty reduction.
The Modi government has put the spotlight on corruption and the need to use digital
payments. Cash based economies support criminal activities such as counterfeiting and
encourage a culture of bribes. E-payments make such practices virtually impossible, as cashless
transactions are easier to document and track. Digital India, an ambitious initiative launched by
the Government in 2015, fundamentally seeks to ensure that government services are made
available seamlessly to citizens, in electronic form, by improving online infrastructure and
increasing internet connectivity. We have seen small but significant steps being taken by the
government, towards digital empowerment of the people.
Any concrete effort to strengthen the digital labyrinth will have positive ramifications across
the sectors. One of the direct gainers of this initiative is the financial sector, wherein our
country's goal is complete financial inclusion. The Digital India drive is thus viewed as the
stepping stone towards a digital economy, which in turn will take us to our goal of financial
inclusion.
In this context, digital platforms are likely to deliver financial services to both the unbanked
and the under banked population, especially in rural/remote regions, at a low cost, and
subsequently increase digital financial access to the vast swathes of the country's population.
The use of digital channels can bring down the transaction costs in a great way.
2. DIGITAL FINANCIAL INCLUSION
“Digital financial inclusion” can be defined as digital access to and use of formal financial
services by excluded and underserved populations. Such services should be suited to the
customers' needs and delivered responsibly, at a cost both affordable to customers and
sustainable for providers.
Today’s providers of such financial services can be divided into four broad groupings based
on the party holding the contractual relationship with the customer: (i) a full-service bank
offering a “basic” or “simplified” transactional account for payments, transfers, and value
storage via mobile device or payment card plus point-of-sale (POS) terminal; (ii) a limited-
service niche bank offering such an account via mobile device or payment card plus POS
terminal; (iii) a mobile network operator (MNO) e-money issuer; and (iv) a nonbank non-MNO
e-money issuer. All four models function via three components: a digital transactional platform,
an agent network, and the customer’s access device. With these components in place, payments
and transfers, as well as credit, savings, insurance, and even securities, can be offered digitally
to excluded and underserved customers.
3. SCOPE OF DIGITAL FINANCIAL INCLUSION
There are three key components of any such digital financial services: a digital transactional
platform, retail agents, and the use by customers and agents of a device – most commonly a
mobile phone – to transact via the platform.
• A digital transactional platform enables a customer to use a device to make or receive
payments and transfers and to store value electronically with a bank or nonbank
permitted to store electronic value.
• Retail agents armed with a digital device connected to communications infrastructure
to transmit and receive transaction details enable customers to convert cash into
electronically stored value and to transform stored value back into cash. Depending on
applicable regulation and the arrangement with the principal financial institution, agents
may also perform other functions.

3. M. Subhashini and Madhavi Madireddy
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• The customer device can be digital (e.g., mobile phone) that is a means of transmitting
data and information or an instrument (e.g., payment card) that connects to a digital
device (e.g., POS terminal).
The present study has been carried out through the case study analysis. The two highly
populated countries namely India and China were selected for the study. A comparative study
of various factors relating to digital financial inclusion was undertaken between these countries.
3.1. A Case of Digital Financial Inclusion in India
The Indian financial services landscape is undergoing an upward shift. The last few years have
seen a renewed public focus on expanding financial inclusion. Building off prior programs, the
government has invested in regulatory reform, improvements to the banking system, payments,
and ID infrastructure. They have also announced a series of programs targeting the bottom of
the pyramid (BoP) and micro, small, and medium enterprises (MSMEs). Simultaneously, India
is beginning to see real shifts in the adoption of digital technologies and banking services (such
as basic savings accounts and smartphones), driven by compelling use-cases, such as
government subsidies, delivered directly into bank accounts, and rickshaw-hailing apps that use
mobile wallets. Together these trends are unleashing tremendous innovation with the potential
to speed financial inclusion for millions.
The government has also encouraged a burst of private innovation by promoting payments
banks, a new category of Indian banks. The new structure is designed to attract fresh players
(that is, non-bank and non-NBFC actors), to hold and transfer money on the consumer’s behalf.
Mobile operators, for example, have millions of distribution points for pre-paid credit around
the country; they can now be used to load cash onto mobile wallets and sent across the country.
Perhaps, the most recent visible successes in this space are third-party mobile wallet operators
like Hermes, Oxigen, and PayTM (which recently received an investment from Alibaba).
PayTM has made its platform interoperable with IMPS (enabling instant transfers to bank
accounts);and offers peer-to-peer transfers through mobile apps, and will soon launch a network
of physical “cash-in and cash-out” locations.
3.2. A case of Digital Financial Inclusion in China
In China, Digital Financial Services developed much later than elsewhere, with major
development only beginning in the late 1990s as the financial services sector modernized and
developed in the context of the overall process of economic liberalization. Likewise, more
recent developments in digital finance (such as internet payment services and peer –to -peer
(P2P) lending) began to emerge only in the middle of the last decade.
Innovations in DFS in China beyond internet banking and electronic payments are even
more recent phenomenon, dating only from the beginning of this decade. Nevertheless, in many
ways, China is experiencing a “last mover” advantage in the context of DFS and now appears
to be developing more rapidly than most other jurisdictions.
Many factors have contributed to this rapid development, including technological
innovation, rapidly increasing use of digital devices and changing consumer behaviour,
explosive growth of DFS providers, and the policy objective of the Chinese government to
enhance financial inclusion via digital finance to support growth and encourage greater
innovation. The significance of digital finance to the achievement of full financial inclusion has
been firmly endorsed by the Chinese government.
The expansion of financial inclusion for underserved segments, ranging from rural areas to
the urban poor to (perhaps most importantly) non -state small and medium sized enterprises
(SMEs), has been one of the key elements of China’s financial sector reforms which in turn
have been an integral element of China’s overall economic reform and innovation strategies.

4. Current Trends in Digital Financial Inclusion
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3.3. A comparative study on Digital Financial Inclusion in select two countries
No matter how many banks you open and how many boots you have on the ground, if a person
does not know about the financial options that are open to him, policies, schemes and financial
instruments will mean little. Here a comparative study of various factors which represents the
growth of Digital Financial Inclusion of two select countries namely China and India is
presented.
Table 1
S. No. Factor of Study China India
1. Total Adult Population 1.1 Billions 917 Millions
2. Educated 96% 74%
3. Uneducated 4% 26%
4. Rural 46% 68%
5. Urban 54% 32%
6. Bank Account Holders 79% 53%
7. Non Bank Account Holders 21% 47%
8. Mobile users 1.4 Billions 1.3 Billions
9. Mobile penetration Rate 98% 77%
10. Reduction in Government
Leakage
$27 Billions $24 Billions
No matter how many banks you open and how many boots you have on the ground, if a
person does not know about the financial options that are open to him, policies, schemes and
financial instruments will mean little. Here a comparative study of various factors which
represents the growth of Digital Financial Inclusion of two select countries namely China and
India is presented.
The above table shows that the total adult population in China is 1.1 billions and in India is
917 million.
The digital economy can be strongly leveraged to spread financial literacy. Financial
literacy through the use of technology has to be based on three principles: to effectively use the
power of mediums like a computer, mobile and Internet to enable people to have the skills,
knowledge or information about financial instruments. Secondly, we must ensure people then
have the ability to critically understand the content they have received through digital means
and lastly apply it to the best of their knowledge and capacity. It is important for a person, firstly
to be educated in order to know the opportunities available and to get benefits there from. From
the above table , it is clear that the opportunities to grab the digital financial inclusion is seen
more in china than in India, as the educated population in China i.e. 96% is more than that of
the India which is only 74%.
The rural and urban composition of the china and India are compared. In china 46% of the
population lives in rural areas and 54% of the population lives in urban areas. With reference
to India the majority of the total population i.e. 68% living in rural areas and 32% of population
lives in urban areas.

5. M. Subhashini and Madhavi Madireddy
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Of the two countries, china has the highest banked population who are accessing financial
services. The study shows that the financial account ownership holding by china is 79%. Out
of the total adult population only 53% are holding bank accounts.
Mobile usage has become the main instrument which aids in moving from cash to digital,
about 1.4 billion of the total adult population in china uses mobile phones for payments and
money transfers. In India out of 917 millions of total adult population of India 1.3 billion are
mobile users.
Mobile phones are used to provide financial services like mobile money as the mobile
money is central to digital financial inclusion. This facility is not only available and accessible
for banked but also for unbanked. Even the banks rely on mobile technology and encourage
cash-less banking. Therefore, fostering financial inclusion is possible through the increase in
the usage of mobile phones. The mobile penetration rate in china is 98% and that is only 77%
in India.
Another important factor taken for the study is reduction in government leakages. Leakages
which are non-consumption uses of the income generated from production. The three leakages
are saving, taxes, and imports. These are termed leakages because they are "leaked" out of the
core circular flow of consumption, production, and income. Financial inclusion as an option
which accommodate a wider section of population under the banking net which is expected to
curb leakages and generate more savings in the economy. In order to reduce the leakages in an
economy it is imperative to strengthen the financial system. The table shows that due to the
digital financial inclusion there is a reduction in government leakage $27 billion in China and
$ 24 billion in India and therefore digital financial inclusion in the above countries can be aid
as the strategy to minimize government leakages.
4. CONCLUSION
Digital inclusion is one of the major challenges brought about by the digital age and it requires
an inclusive dialogue across the sectors. Banking the unbanked, like connecting the
unconnected, is a major milestone towards universal growth and prosperity. Leveraging on both
technology and finance, digital financial inclusion through collaborative regulation can be a
powerful drive towards achieving the Sustainable Development Goals. However there are
certain impediments to the digital financial inclusion like constraints in infrastructure, cost of
service provision and lack of products to meet the needs of diverse customer segments, but the
governments and regulators have been very supportive of Digital Financial Inclusion.
Therefore, if digital transactions can restrain corruption and black money, the most populated
countries India and China would become the most transparent countries in the world.
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[2] Financial Inclusion in Digital Economy, A report of Asian Development Bank,
No.75, January 2017.
[3] A Report of the Committee on Medium-term Path on Financial Inclusion, December
2015.

6. Current Trends in Digital Financial Inclusion
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[4] Zhou Weihuan, Douglas W. Arner, Ross P. Buckley, Regulation of Digital Financial
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[6] http://www.cgap.org/publications/digital-financial-inclusion