Unravelling Gender Dimensions of Financial Inclusion in India: An Evidence from Decomposition Analysis
Using 2020–21 NSS data and Fairlie decomposition, this study reveals a 5.66% gender gap in India's financial inclusion driven by socioeconomic factors like education and mobile access, while highlighting that unexplained disparities in regions like the north-east point to the critical role of cultural norms and discrimination, necessitating targeted policy interventions for vulnerable groups.
Original paper licensed under CC BY 4.0 (https://creativecommons.org/licenses/by/4.0/). This is an AI-generated explanation of the paper below. It is not written or endorsed by the authors. For technical accuracy, refer to the original paper. Read full disclaimer
Access to money is more than just having a bank account; it is a tool that allows people to save for the future, handle emergencies, and build a life with greater security. When governments and banks work to ensure everyone can open an account and use these services, it is called financial inclusion. This concept has become a global priority because it helps lift people out of poverty and supports economic growth. However, a persistent problem remains: in many parts of the world, women are less likely to have access to these financial tools than men. This gap is not just a matter of numbers; it limits women's ability to make independent choices, start businesses, or protect their families from financial shocks. Understanding why this gap exists is the first step toward fixing it, as the reasons can range from a lack of education to deep-seated cultural beliefs that discourage women from managing money.
In India, a country with a massive population and a rapidly growing economy, researchers recently set out to measure this gap and uncover its specific causes. They analyzed data from a massive national survey conducted between 2020 and 2021, which covered hundreds of thousands of individuals across the country. The team, led by economists at the Indian Institute of Technology Indore, looked at who owned formal bank accounts and compared the lives of men and women to see what factors made the difference. They examined everything from education levels and income to whether a person lived in a city or a village, their age, and even whether they owned a mobile phone. By using statistical methods to break down the differences, they could separate the part of the gap caused by tangible factors, like having less money or less schooling, from the part caused by invisible barriers, such as discrimination or social norms that treat men and women differently.
The results painted a clear picture of inequality. In India, about 89.6 percent of men have a formal bank account, compared to 83.9 percent of women. While this might seem like a small difference on the surface, it represents millions of women being left out of the formal financial system. The researchers found that this gap is not uniform across the country; it is much wider in some regions than others. For instance, in the western part of India, the difference between men and women is the largest, with nearly 12 percent more men having accounts than women. In contrast, the gap is smallest in the southern region. The study also revealed that the reasons behind the gap change depending on where you look. In some areas, the difference is mostly explained by observable factors like education and income. In other areas, particularly the north-eastern region, the known factors explain very little of the gap, suggesting that unseen forces like cultural restrictions or societal pressure are playing a much larger role.
When the researchers looked at what specific factors contributed most to the gap, a few key drivers stood out. The most significant factor was the use of mobile phones. In India, men are much more likely to own and use a mobile phone than women, and since mobile banking has become a primary way to access financial services, this digital divide directly translates into a financial divide. The study found that differences in mobile phone usage alone accounted for more than a third of the total gap between men and women. Education was the second most important factor; women with higher levels of education were far more likely to have bank accounts, but since women, on average, have less access to higher education than men, this created a barrier. Income levels also played a role, as women in poorer households were less likely to be included. Interestingly, the researchers found that age affects financial inclusion in a curved pattern: the likelihood of having an account rises as people get older, peaks in middle age, and then declines for the elderly, but at every stage of life, men were more likely to have an account than women.
The study suggests that closing this gap requires more than just opening more bank branches. Because a large portion of the gap—about 57 percent—cannot be explained by income or education alone, it points to deeper issues like discrimination and social norms that prevent women from accessing services even when they are available. The researchers argue that policies need to be tailored to specific regions rather than applying a single national rule. For example, in the north-eastern region, where standard factors explain so little of the gap, efforts must focus on changing the cultural and social environment that keeps women out. In other regions, simply improving access to mobile phones and education for women could make a huge difference. The authors recommend strengthening existing programs that link women to banks and ensuring that government benefits are transferred directly into women's accounts, which encourages them to open and use their own bank accounts. Ultimately, the goal is to create a financial system where women are not just included by chance, but empowered by design, allowing them to participate fully in the economy and secure their own futures.
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