India, Dec. 20 -- Financial inclusion began gaining ground in India after it was highlighted in the RBI's Annual Policy Statement in 2005 by Governor Y. V. Reddy. The RBI later defined it in its 2009 Annual Report as access to financial services at an affordable cost for disadvantaged and low-income groups. The 2010 Annual Report added that these services must be fair, transparent, and suited to the needs of vulnerable households. The idea is simple: formal finance should reach people who never had access to bank accounts, loans, or savings tools.

A New Banking Infrastructure

For many years, the RBI relied on the Lead Bank Scheme, which encouraged banks to set up branches and increase credit flow to rural and semi-urban areas. However, ...