Finance Business

How is Dematerialisation Supporting Financial Inclusion in India?

Dematerialisation is important in advancing financial inclusion in India by digitizing physical financial assets. This process simplifies transactions and reduces barriers to accessing financial services, especially for underserved populations, by converting physical securities into electronic formats, dematerialisation enhances transparency, reduces fraud, and lowers costs, making financial services more accessible and efficient; it also expands access to banking and investment opportunities but also supports greater financial literacy and empowerment across diverse communities in India.

This promotes effective money management and participation in the economy; the ease of opening demat accounts has advanced financial inclusion, allowing even those in remote areas to buy and sell securities securely and transparently.

Understanding Financial Inclusion: Bridging the Gap in Access to Financial Services

Financial inclusion ensures that everyone has access to financial services that can help them build wealth, including savings, credit, loans, equity, and insurance. Access to these services is crucial in daily life, enabling individuals and businesses to effectively navigate both expected and unforeseen circumstances.

By having access to accounts, individuals are more likely to use a range of financial services, including credit and insurance, which empowers the individual to establish and grow businesses, healthcare, and investments in education, minimize risk, and survive financial uncertainties.  

The journey towards financial inclusion in India began in 2014, with the launch of the Pradhan Mantri Jan Dhan Yojana. This initiative leverages the extensive banking network and technological advances to ensure every household gains access to essential financial services. In 2020, the Reserve Bank of India articulated a vision and set key objectives for financial inclusion policies in India. This is important to expand and sustain financial inclusion at a higher level through collaboration among all the stakeholders in the financial sectors.

In What Ways Does a Demat Account Contribute to Financial Inclusion?

In recent years, particularly following the pandemic outbreak, there has been a noticeable surge in the global emphasis on financial inclusion. The pandemic highlighted existing differences in access to financial services, which is necessary to maintain economic equality and provide opportunity for all individuals.

The financial inclusion movement is centered around making financial services accessible to everyone, especially those who have been historically underserved or marginalized. This means ensuring that people from diverse backgrounds can access essential tools to manage their finances and fully participate in the formal economy. Financial inclusion involves providing access to financial services that can help individuals better manage their money and improve their financial well-being.

Know the Significance of Financial Inclusion in India

The financial inclusion aims to provide affordable financial services to the underprivileged, who lack awareness or access. Despite India’s economic growth, many remain unbanked. Extending financial services to all, particularly rural areas, is crucial for inclusive development and financial literacy and benefits all stakeholders. The key objectives include addressing the credit gap, encouraging saving habits, improving subsidy efficiency, providing easy access to banking, and reducing the cash economy. The important points highlighted the significance of financial inclusion in India:  

1. Accessibility and Convenience

Dematerialisation converts physical securities into electronic form, making it easier for individuals to access and manage investments.

2. Enhances Security and Transparency

Demat accounts eliminate the risk related to physical certificates, such as loss, theft, etc., and promote trust in the financial system, encouraging more people to participate in formal financial activities.

3. Reduced Transaction Costs

Dematerialisation lowers the costs related to handling physical documents and transactions. It also makes financial services more affordable for low-income individuals to invest more efficiently.

4. Increased Participation in Financial Markets

Dematerialisation of shares simplifies the process of buying, selling, and holding securities, making it accessible to investors. It empowers individuals with the knowledge and tools to participate in the financial market and maintain economic growth.

India’s Financial Drive: Seven Essential Steps Towards Financial Inclusion

Financial Inclusion is essential for the growth of a country, and India is making significant advances to ensure financial services reach the underserved population. The ambitious initiatives seek to empower individuals, especially in rural and low-income areas, with the tools and resources to manage their finances and access credit. Below are the seven essential steps towards financial inclusion:

Step 1: Making Banks More Accessible

India has seen a 10% annual increase in bank accounts over the past 20 years, with a notable rise in accounts in rural areas due to inclusive policies. The growing middle class has also boosted both spending and investment.

Step 2: Pradhan Mantri Jan-Dhan Yojana (PMJDY)

Launched in August 2014, PMJDY provides basic savings accounts, credit, insurance, and pensions to previously excluded populations, benefiting over 487 million people.

Step 3: Closing the Credit Gap

The number of loan applicants has more than doubled from 127 million in 2013 to 360 million in 2023, with increasing female participation, reflecting growth in small businesses led by women.

Step 4: Shifting to Cashless Transactions

India issued over 470 million debit cards by June 2023, facilitating $23 billion in monthly transactions. Card Payments now represent 46% of total transactions, highlighting a move toward cashless financial activities.

Step 5: Unified Payment Interface (UPI)

It launched in 2016, UPI has facilitated over 9 billion monthly transactions, reducing cash usage. Plans include expanding UPI for cross-border transactions with other countries.  

Step 6: Broadening Investment Access

Financial inclusion has made mutual funds and other investments accessible to diverse socio-economic groups, fostering a culture of saving and investment.

Step 7: Embracing Digital Investing

Demat accounts have digitized the investment process, making buying and holding shares and funds faster and simpler. This has increased awareness and participation in investments.

What is the role of the Demat Account in enhancing financial inclusion?

A Demat or dematerialized account is an electronic account that holds securities such as stocks, bonds, mutual funds, and exchange-traded funds in digital form. By digitising the buying, selling, and holding of securities, demat accounts have revolutionised the investment framework, making it more accessible and convenient for individuals to invest in financial markets.

It offers several advantages that contribute to financial inclusion. It eliminates the need for physical share certificates, which were difficult to manage and posed logistical challenges, particularly for individuals in remote areas or with limited resources. Additionally, demat accounts provide a secure and transparent platform for investors to buy and sell securities, instilling confidence and trust in the financial system.

Conclusion

Dematerialisation is advancing financial inclusion in India by digitising physical securities and making financial services more accessible, secure, and cost-effective. It empowers individuals to engage with the financial system, maintain economic growth, and enhance financial literacy across diverse communities.

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