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Disadvantages Of Financial Inclusion

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Financial inclusion refers to a process that ensures the ease of accessibility, availability and the usage of the formal financial system for all members of an economy as defined by Sarma [9]. Various advantages are offered by an inclusive financial system. It helps in efficiently allocating productive resources which helps potentially in reducing the capital cost. Moreover, access to appropriate financial services can significantly improve the day-to-day management of finances. An inclusive financial system can help in reducing the growth of informal sources of credit (such as money lenders. Such sources are found to be exploitative. So an inclusive financial system increases efficiency and welfare by providing various avenues for secure and safe saving practices and by facilitating a whole range of efficient financial services.
Providing access to financial services to low-income households and small businesses is not something new India. Policy makers and government are well aware of its importance and have been very willing to learn from the successful experiences of other countries and experiment with the other new ideas. However, much is required to …show more content…

In competitive markets, financial exclusion arises from incomplete/imperfect information. Stiglitz and Weiss (1981) have demonstrated that, because of principal agent problems i.e. moral hazard and adverse selection, individuals and firms may be excluded from the credit market in advanced economies. Incomplete information, and beyond a certain interest rate level (Figure 2) the rate of return of the loan may decrease, even if these applicants could afford a loan at higher interest rate (Figure 2) the financial institutions may deny loans to

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