Financial Inclusion in Circular Economy: A Bumpy Road Towards Sustainable Development (Circular Economy and Sustainability) 9783031227226, 9783031227233, 3031227220

Table of contents :
Foreword
Preface
Contents
About the Authors
List of Figures
List of Tables
Chapter 1: Sustainable Development Goals – An Initiative towards Inclusive Growth and Circular Economy
1.1 Introduction
1.2 Financial Inclusion and Sustainability: The Long-Term Perspective
1.3 FinTech, Financial Inclusion and Sustainability
1.4 Financial Inclusion, Sustainable Cities, and Sustainable Development Goals
1.5 Financial Inclusion and Economic Growth
1.6 Sustainability Through FinTech and Financial Inclusion: Four Pillars of Digital Financial Transformation
1.7 Sustainability and Circular Economy
1.8 Societal Impact of a Circular Economy
1.9 Developing a Comprehensive Strategy
1.10 Conclusion
References
Chapter 2: Key Drivers and Challenges for Financial Inclusion
2.1 Introduction
2.2 Literature Review
2.2.1 Financial Inclusion and Fintech
2.2.2 SHGs, Women Empowerment and Financial Inclusion
2.2.3 Financial Inclusion and Financial Literacy
2.2.4 Financial Inclusion and Income Inequality
2.2.5 Financial Inclusion, Financial Well Being and Financial Capability
2.2.6 Scams, Fake Transactions, and Cyber Issues
2.3 Research Design
2.4 Data Analysis and Interpretation
2.5 Conclusion and Implications
References
Chapter 3: Socio-economic Impact of Financial Inclusion
3.1 Introduction
3.2 Theoretical Background
3.2.1 Socio-economic Development Theory
3.2.2 Development Theory
3.2.3 Theory of Social Exclusion and Inclusion
3.2.4 Financial Inclusion, Poverty and Income Inequality
3.2.5 Contribution of Financial Inclusion Towards Socio-economic Development
3.3 Sustainable Financial Inclusion Theory
3.4 Importance of SHGs in Socio-economic Development
3.5 Challenges Faced by SHGs
3.6 Conclusion
3.7 Implications
References
Chapter 4: Financial Literacy for Promoting Sustainability
4.1 Introduction
4.2 Importance of Financial Literacy for Financial Inclusion
4.3 Financial Inclusion and Financial Literacy
4.4 Financial Literacy and Investment Behavior
4.5 Financial Literacy and Digitalization
4.6 Conclusion
References
Chapter 5: Financial Capability and Financial Well-Being for a Sustainable Society
5.1 Introduction
5.2 Theory of Financial Well Being
5.3 Financial Education and Financial Capability
5.4 Financial Capability and Well-Being
5.5 Financial Capability, Financial Well Being and FinTech
5.6 Conclusion
References
Chapter 6: Expanding Financial Inclusion Through Fintech and E-governance
6.1 Introduction
6.2 Financial Inclusion and Fintech
6.3 Artificial Intelligence, Blockchain, and Financial Inclusion
6.4 Scams, Fake Transactions, and Cyber Issues
6.5 Financial Inclusion and E-governance
6.6 Perceptions, Usage and Usefulness of Cashless Transactions
6.7 Technology
6.8 Demonetization
6.9 Discussion
6.10 India’s Journey Towards a Cashless Economy
6.11 Factors Impacting India to Become a Cashless Economy
6.12 Conclusion
References
Chapter 7: Financial Inclusion for Empowering Women – Way Ahead
7.1 Introduction
7.2 Literature Review
7.2.1 SHGs, Women Empowerment and Financial Inclusion
7.2.2 Gender Dimension, Economic Development, and Financial Inclusion
7.3 Women’s Empowerment
7.3.1 Indian Scenario
7.3.2 Factors Behind the Need for Empowerment
7.3.3 Important Aspects of Empowerment
7.3.4 Ways to Empower Women
7.3.5 Government Schemes and Programmes for Women’s Empowerment
7.3.6 Initiatives by Non-Government Organisations (NGOs)
7.4 CSR Activities in India
7.5 Present Scenario and Future Challenges for Women’s Empowerment Through SHGs
7.6 Suggestions for Women’s Empowerment Through SHGs
7.7 Policy Implications
7.8 Theoretical Contribution
7.9 Conclusion
References
Chapter 8: MFIs and NBFCs Contributions Towards Financial Inclusion and Circular Economy
8.1 Introduction
8.2 Women and Microfinance
8.3 Microfinance in India
8.4 Public Good Theory of Financial Inclusion
8.5 Dissatisfaction Theory of Financial Inclusion
8.6 Vulnerable Group Theory of Financial Inclusion
8.7 Systems Theory of Financial Inclusion
8.8 Community Echelon Theory of Financial Inclusion
8.9 Public Service Theory of Financial Inclusion
8.10 Theories of SHGs
8.11 SHG Model in Bangladesh
8.12 Financial Inclusion Through SHGs
8.13 Self-Help Group
8.13.1 Composition of the Self-Help Group
8.13.2 Subsidy Norms for SHGs and Disabled Persons
8.14 SHG Bank Linkage Program
8.14.1 Working of the Program
8.14.2 Aims and Objectives
8.14.3 The Background
8.15 SHGs in India
8.16 History of SHG Credit Bank Linkage Program
8.17 Finclusion Through Self-Employed Women Association
8.18 NABARD’s SHG Bank Linkage Program
8.19 Models of SHG-Bank Linkage in India
8.20 SHG and Women Empowerment
8.21 Initiatives for Sustainable Development Through SHGs
8.22 Micro Finance for Financial Inclusion of SHGs
8.23 Financial Inclusion Theory: Importance of Access to Finance
8.23.1 Intensifying Access to Financial Services
8.23.2 The Inclusivity of Access to Financial Services
8.24 Conclusion
8.25 Policy Implications
References
Chapter 9: Financial Sector Governance Policies and Regulations
9.1 Introduction
9.2 Meaning of Access to Financial Services and the Early Initiatives
9.3 Expanding Access to Financial Services
9.3.1 Measure
9.3.2 Impact
9.3.3 Policy
9.4 The Inclusivity of Access to Financial Services
9.5 Role of Regulators in Indian Scenario
9.5.1 The Past
9.5.2 Present Scenario
9.5.3 The Future
9.6 Financial Inclusion Initiatives Taken by Government
9.6.1 Effect of Pradhan Mantri Jan Dhan Yojana
9.6.2 Some of the Realities That Could Burden the Success of the Scheme
9.7 Conclusion
References

Citation preview

Circular Economy and Sustainability

Vinay Kandpal Deep Chandra Narendra N. Dalei Jatinder Handoo

Financial Inclusion in Circular Economy A Bumpy Road Towards Sustainable Development

Circular Economy and Sustainability Series Editors Alexandros Stefanakis, School of Environmental Engineering, Technical University of Crete, Athens, Greece Ioannis Nikolaou, Enviromental Engineering, Democritus University of Thrace, Xanthi, Greece Editorial Board Members Julian Kirchherr, Utrecht University, Copernicus Institute of Sustainable Development, Utrecht, The Netherlands Dimitrios Komilis, Xanthi, Greece Shu Yuan Pan, Taipei, Taiwan Roberta Salomone, Dipartimento di Economia, Universita di Messina, Messina, Messina, Italy

This book series aims at exploring the rising field of Circular Economy (CE) which is rapidly gaining interest and merit from scholars, decision makers and practitioners as the global economic model to decouple economic growth and development from the consumption of finite natural resources. This field suggests that global sustainability can be achieved by adopting a set of CE principles and strategies such as design out waste, systems thinking, adoption of nature-based approaches, shift to renewable energy and materials, reclaim, retain, and restore the health of ecosystems, return recovered biological resources to the biosphere, remanufacture products or components, among others. However, the increasing complexity of sustainability challenges has made traditional engineering, business models, economics and existing social approaches unable to successfully adopt such principles and strategies. In fact, the CE field is often viewed as a simple evolution of the concept of sustainability or as a revisiting of an old discussion on recycling and reuse of waste materials. However, a modern perception of CE at different levels (micro, meso, and macro) indicates that CE is rather a systemic tool to achieve sustainability and a new eco-effective approach of returning and maintaining waste in the production processes by closing the loop of materials. In this frame, CE and sustainability can be seen as a multidimensional concept based on a variety of scientific disciplines (e.g. engineering, economics, environmental sciences, social sciences). Nevertheless, the interconnections and synergies among the scientific disciplines have been rarely and not in deep investigated. One significant goal of the book series is to study and highlight the growing theoretical links of CE and sustainability at different scales and levels, to investigate the synergies between the two concepts and to analyze and present its realization through strategies, policies, business models, entrepreneurship, financial instruments and technologies. Thus, the book series provides a new platform for CE and sustainability research and case studies and relevant scientific discussion towards new system-wide solutions. Specific topics that fall within the scope of the series include, but are not limited to, studies that investigate the systemic, integrated approach of CE and sustainability across different levels and its expression and realization in different disciplines and fields such as business models, economics, consumer services and behaviour, the Internet of Things, product design, sustainable consumption & production, bio-economy, environmental accounting, industrial ecology, industrial symbiosis, resource recovery, ecosystem services, circular water economy, circular cities, nature-based solutions, waste management, renewable energy, circular materials, life cycle assessment, strong sustainability, environmental education, among others.

Vinay Kandpal • Deep Chandra Narendra N. Dalei • Jatinder Handoo

Financial Inclusion in Circular Economy A Bumpy Road Towards Sustainable Development

Vinay Kandpal School of Business University of Petroleum and Energy Studies Dehradun, Uttarakhand, India Narendra N. Dalei Department of Economics Central University of Himachal Pradesh Dehra Gopipur, Himachal Pradesh, India

Deep Chandra Faculty of Commerce and Business Management Amrapali Group of Institutes Haldwani, Uttarakhand, India Jatinder Handoo Microfinance Institutions Network VP State Initiatives (NR) Gurugram, Haryana, India

ISSN 2731-5509     ISSN 2731-5517 (electronic) Circular Economy and Sustainability ISBN 978-3-031-22722-6    ISBN 978-3-031-22723-3 (eBook) https://doi.org/10.1007/978-3-031-22723-3 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Foreword

The journey from United Nations COP 21 in Paris to COP26 in Glasgow has been quite eventful for India  – marked by decisive action to achieve Sustainable Development Goals (SDGs) and a report card on the same speaks of the seriousness with which India is working on Sustainable Development. To say that India is poised to embrace circular economy is not an exaggeration. Not just addressing ecological breakdown but practitioners in India are exploring ways by which circularity can create new jobs, ensure ethical values and combat inequalities. It is common knowledge that economic development and financial inclusion are intractably linked  – therefore marrying financial inclusion with sustainability for equitable growth leads to a ‘triangulation’ worth pursuing. India as a country understands this especially given the fact that Prime Minister Modi’s Governance is based on common sense, wisdom, care and inventiveness. In the last five years, India initiated several development projects by adopting the SDGs as a guiding framework for the country. Ayushman Bharat, POSHAN Abhiyan, Swachh Bharat Abhiyan, and Atmanirbhar Bharat are a few flagship government programmes that are meant to deliver on SDG targets. India’s tryst with COVID-19 is perhaps another subject worth knowing. Even as the world was reeling under its impact, India demonstrated extreme resilience. India became a trendsetter not only in mitigation and medical supplies to world countries, but producing indigenous vaccines with great agility. To a large extent, India’s successful COVID strategies stem from efforts made from the time Prime Minister Modi assumed office. Launched in 2014, Pradhan Mantri Jan Dhan Yojana (PMJDY) was meant to connect every unbanked adult of the country with the banking system. This financial inclusion scheme not only strengthened core banking services but ensured insurance, pension, and access to a credit line for the semi-urban and rural Indians. The increasing number of women especially from the rural hinterland are becoming self-reliant and are brought into the economic fold. Every Indian is being made bankable; therefore, India is witnessing tremendous growth across vital sectors such as agriculture, dairy, handlooms, and others.

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Foreword

Perhaps one remarkable step that made financial inclusion easy and credible has been JAM trinity (Jan Dhan, Aadhaar and Mobile), the linking of Aadhaar and mobile numbers to Jan Dhan accounts. This has facilitated several Direct Benefit Transfer (DBT) programmes and also helped to plug systemic leakages of government subsidies. Today, seven years later, the JAM trinity’s value is quite telling – there are over 430 million bank accounts with almost Rs 1.46 trillion under Jan Dhan accounts. It is also important to highlight that 55 per cent of Jan Dhan account holders are women and 67 per cent of the overall account holders reside in rural and semi-urban areas. The JAM trinity played a crucial role in making credit accessible during Covid, especially to women. This seamless transfer of money was made possible by the Centre’s direct benefit transfer-PMJDY linkage, but more importantly, this could happen because the government knew which accounts were held by women. Prime Minister Modi believes that India has to transition from ‘Women Development’ to ‘Women-Led Development’ and women should architect that progress. PM Modi’s vision to achieve 5 trillion dollar economy is possible only when half of India’s valued population (Women) becomes financially ‘aatmanirbhar’. New India is adapting to a digital lifestyle at a rapid pace. The country currently has over 45 per cent of its population online and has ease of access and usage of online services and receives quality services. This is reflected in the 53.9 rating of the Reserve Bank of India’s Financial Inclusion Index for March 2021. To accelerate more adoption, India is likely to roll out 75 Digital Banking Units across the country very soon. These units will be totally paperless and will also work as digital financial literacy centres for the customers. The districts include Leh, Srinagar, Lakshadweep, Aizawl, Kota and Nainital, among others, indicating the ‘Inclusion Mantra’ of the prime minister. In the contemporary world where there is a deluge of information, data encapsulated and presented in a cogent way is a boon itself. This book attempts to give an assessment of India’s endeavour towards Financial Inclusion and its role in sustainable development. Straddling effortlessly various diverse topics that remain relevant to the overarching theme, Dr Vinay Kandpal and his colleagues will surely enhance the existing knowledge on the subject. I recommend this book to not only students but also to practicing professionals. In fact, every Indian would greatly profit from this comprehensive compilation. This book shows us how financial inclusion will present our country with a great opportunity to create a sustainable and an equitable economy. Best wishes and Godspeed President Foundation for Futuristic Cities, National In-charge for Women Policies Bharatiya Janata Party, New Delhi, India

Karuna Gopal Vartakavi

Preface

All UN member states accepted the 2030 Agenda for Sustainable Development as a plan of action for people, the planet, and prosperity at the 2015 UN Sustainable Development Summit in New York to strengthen worldwide peace and expand freedom (United Nations, 2015). The Agenda’s core is 17 Sustainable Development Goals (SDGs) with 169 associated targets, which is crucial for both developed and developing countries. The goals range from taking measures to combat climate change, water, and food crises; eradicating poverty, conflict, and inequality; and balancing economic, social, and environmental development (United Nations, 2015). The emphasis on the critical role of corporations and industry in advancing sustainable development efforts, working in conjunction with governments, civil society, and other stakeholders, is a crucial aspect of the UN 2030 Agenda for Sustainable Development. In particular, businesses can help promote sustainability by incorporating sustainable development goals into their company plans and operations. Business and industry contributed to working with political leaders and civil society to design the SDGs. Financial inclusion is essential for ASEAN with its associated policy and societal implications. This book studies the economic consequences of financial inclusion. The Indian Financial system has been resilient in sailing through Global Financial Crisis and has metamorphosed due to contemporary developments and challenges of globalization. The Indian Economy has absorbed the shocks of scams like the Enron Case, Harshad Mehta scam, and Satyam Scam, to mention a few. Recently the challenge posed by non-performing assets has been a cause of concern. Financial inclusion is also essential in the present context. Even the Indian Government is coming up with the idea of starting a website and inviting suggestions from the public regarding augmenting initiatives for financial literacy in rural areas. The problem is that rural, semi-urban, and urban people are unaware of the benefits of banking services and instruments in uplifting their financial aid and economic status. Mutual Fund is also a concept with low financial literacy in Tier 1 and Tier 2 cities. Significant initiatives are suggested to be taken by SEBI for Financial inclusion programs.

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This book assesses endeavors toward Financial Inclusion and its role in Sustainable development. An attractive feature is that it deals with almost all the contemporary issues essential for reaching UN Sustainable Development Goals. We are sure that this book will be an indispensable source for the students of postgraduates  and undergraduates programs, researchers and practitioners from areas of Commerce, Economics, and Management, and faculty members and professionals like bankers and financial consultants. We hope this book will meet the requirement of all categories of readers. We would appreciate and welcome constructive suggestions and feedback to improve this book. The book looks at various salient topics, including financial inclusion measurement, the impact of various financial inclusion indicators on development outcomes and macroeconomic volatility using aggregate data, and the effects of financial inclusion on poverty and development outcomes using microdata. Using the recently adopted United Nation Sustainable Development Goals as an overall framework it shows that how the poor and disadvantaged women and men can be bankable removing poverty and other challenges, addressing issues in climate change and building up inclusive societies. This book attempts to cover different dimensions of Financial Inclusion toward attaining sustainability and a circular economy through financing instruments and investments. This book highlights different goals of UN SDGs as an initiative toward inclusive growth and a circular economy.

Dehradun, Uttarakhand, India Vinay Kandpal   Haldwani, Uttarakhand, India Deep Chandra Oli   Dehra Gopipur, Himachal Pradesh, India Narendra N. Dalei   Gurugram, Haryana, India Jatinder Handoo  

Contents

1

Sustainable Development Goals – An Initiative towards Inclusive Growth and Circular Economy����������������������������������������������    1 1.1 Introduction��������������������������������������������������������������������������������������    1 1.2 Financial Inclusion and Sustainability: The Long-Term Perspective����������������������������������������������������������������������������������������    4 1.3 FinTech, Financial Inclusion and Sustainability������������������������������    5 1.4 Financial Inclusion, Sustainable Cities, and Sustainable Development Goals��������������������������������������������������������������������������    6 1.5 Financial Inclusion and Economic Growth��������������������������������������    8 1.6 Sustainability Through FinTech and Financial Inclusion: Four Pillars of Digital Financial Transformation������������������������������   11 1.7 Sustainability and Circular Economy ����������������������������������������������   11 1.8 Societal Impact of a Circular Economy��������������������������������������������   13 1.9 Developing a Comprehensive Strategy ��������������������������������������������   14 1.10 Conclusion����������������������������������������������������������������������������������������   15 References��������������������������������������������������������������������������������������������������   17

2

 Key Drivers and Challenges for Financial Inclusion����������������������������   23 2.1 Introduction��������������������������������������������������������������������������������������   23 2.2 Literature Review������������������������������������������������������������������������������   27 2.2.1 Financial Inclusion and Fintech��������������������������������������������   27 2.2.2 SHGs, Women Empowerment and Financial Inclusion��������   29 2.2.3 Financial Inclusion and Financial Literacy��������������������������   30 2.2.4 Financial Inclusion and Income Inequality��������������������������   31 2.2.5 Financial Inclusion, Financial Well Being and Financial Capability ������������������������������������������������������   32 2.2.6 Scams, Fake Transactions, and Cyber Issues������������������������   33 2.3 Research Design��������������������������������������������������������������������������������   33 2.4 Data Analysis and Interpretation������������������������������������������������������   34 2.5 Conclusion and Implications������������������������������������������������������������   52 References��������������������������������������������������������������������������������������������������   53 ix

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3

 Socio-economic Impact of Financial Inclusion��������������������������������������   59 3.1 Introduction��������������������������������������������������������������������������������������   59 3.2 Theoretical Background��������������������������������������������������������������������   62 3.2.1 Socio-economic Development Theory����������������������������������   62 3.2.2 Development Theory������������������������������������������������������������   62 3.2.3 Theory of Social Exclusion and Inclusion����������������������������   63 3.2.4 Financial Inclusion, Poverty and Income Inequality������������   64 3.2.5 Contribution of Financial Inclusion Towards Socio-economic Development����������������������������������������������   67 3.3 Sustainable Financial Inclusion Theory��������������������������������������������   68 3.4 Importance of SHGs in Socio-economic Development��������������������   71 3.5 Challenges Faced by SHGs��������������������������������������������������������������   72 3.6 Conclusion����������������������������������������������������������������������������������������   72 3.7 Implications��������������������������������������������������������������������������������������   74 References��������������������������������������������������������������������������������������������������   74

4

 Financial Literacy for Promoting Sustainability����������������������������������   79 4.1 Introduction��������������������������������������������������������������������������������������   79 4.2 Importance of Financial Literacy for Financial Inclusion����������������   81 4.3 Financial Inclusion and Financial Literacy��������������������������������������   82 4.4 Financial Literacy and Investment Behavior������������������������������������   84 4.5 Financial Literacy and Digitalization������������������������������������������������   85 4.6 Conclusion����������������������������������������������������������������������������������������   86 References��������������������������������������������������������������������������������������������������   87

5

 Financial Capability and Financial Well-­Being for a Sustainable Society ������������������������������������������������������������������������������������������������������   91 5.1 Introduction��������������������������������������������������������������������������������������   91 5.2 Theory of Financial Well Being��������������������������������������������������������   95 5.3 Financial Education and Financial Capability����������������������������������   95 5.4 Financial Capability and Well-Being������������������������������������������������   96 5.5 Financial Capability, Financial Well Being and FinTech������������������   97 5.6 Conclusion����������������������������������������������������������������������������������������   98 References��������������������������������������������������������������������������������������������������   99

6

Expanding Financial Inclusion Through Fintech and E-governance������������������������������������������������������������������������������������  103 6.1 Introduction��������������������������������������������������������������������������������������  103 6.2 Financial Inclusion and Fintech��������������������������������������������������������  104 6.3 Artificial Intelligence, Blockchain, and Financial Inclusion������������  113 6.4 Scams, Fake Transactions, and Cyber Issues������������������������������������  115 6.5 Financial Inclusion and E-governance����������������������������������������������  116 6.6 Perceptions, Usage and Usefulness of Cashless Transactions����������  118 6.7 Technology����������������������������������������������������������������������������������������  119 6.8 Demonetization ��������������������������������������������������������������������������������  119 6.9 Discussion ����������������������������������������������������������������������������������������  120

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6.10 India’s Journey Towards a Cashless Economy ��������������������������������  121 6.11 Factors Impacting India to Become a Cashless Economy����������������  122 6.12 Conclusion����������������������������������������������������������������������������������������  122 References��������������������������������������������������������������������������������������������������  123 7

 Financial Inclusion for Empowering Women – Way Ahead����������������  131 7.1 Introduction��������������������������������������������������������������������������������������  131 7.2 Literature Review������������������������������������������������������������������������������  134 7.2.1 SHGs, Women Empowerment and Financial Inclusion��������  134 7.2.2 Gender Dimension, Economic Development, and Financial Inclusion ��������������������������������������������������������  139 7.3 Women’s Empowerment ������������������������������������������������������������������  141 7.3.1 Indian Scenario ��������������������������������������������������������������������  141 7.3.2 Factors Behind the Need for Empowerment������������������������  142 7.3.3 Important Aspects of Empowerment������������������������������������  143 7.3.4 Ways to Empower Women����������������������������������������������������  144 7.3.5 Government Schemes and Programmes for Women’s Empowerment ������������������������������������������������  144 7.3.6 Initiatives by Non-Government Organisations (NGOs)��������  146 7.4 CSR Activities in India ��������������������������������������������������������������������  147 7.5 Present Scenario and Future Challenges for Women’s Empowerment Through SHGs����������������������������������������������������������  148 7.6 Suggestions for Women’s Empowerment Through SHGs����������������  149 7.7 Policy Implications ��������������������������������������������������������������������������  150 7.8 Theoretical Contribution ������������������������������������������������������������������  150 7.9 Conclusion����������������������������������������������������������������������������������������  151 References��������������������������������������������������������������������������������������������������  152

8

MFIs and NBFCs Contributions Towards Financial Inclusion and Circular Economy����������������������������������������������������������������������������  157 8.1 Introduction��������������������������������������������������������������������������������������  157 8.2 Women and Microfinance ����������������������������������������������������������������  158 8.3 Microfinance in India������������������������������������������������������������������������  159 8.4 Public Good Theory of Financial Inclusion��������������������������������������  160 8.5 Dissatisfaction Theory of Financial Inclusion����������������������������������  160 8.6 Vulnerable Group Theory of Financial Inclusion ����������������������������  161 8.7 Systems Theory of Financial Inclusion��������������������������������������������  161 8.8 Community Echelon Theory of Financial Inclusion������������������������  161 8.9 Public Service Theory of Financial Inclusion����������������������������������  162 8.10 Theories of SHGs������������������������������������������������������������������������������  162 8.11 SHG Model in Bangladesh ��������������������������������������������������������������  163 8.12 Financial Inclusion Through SHGs��������������������������������������������������  164 8.13 Self-Help Group��������������������������������������������������������������������������������  165 8.13.1 Composition of the Self-Help Group������������������������������������  165 8.13.2 Subsidy Norms for SHGs and Disabled Persons������������������  165

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Contents

8.14 SHG Bank Linkage Program������������������������������������������������������������  166 8.14.1 Working of the Program��������������������������������������������������������  166 8.14.2 Aims and Objectives ������������������������������������������������������������  167 8.14.3 The Background��������������������������������������������������������������������  167 8.15 SHGs in India������������������������������������������������������������������������������������  167 8.16 History of SHG Credit Bank Linkage Program��������������������������������  169 8.17 Finclusion Through Self-Employed Women Association����������������  169 8.18 NABARD’s SHG Bank Linkage Program����������������������������������������  170 8.19 Models of SHG-Bank Linkage in India��������������������������������������������  171 8.20 SHG and Women Empowerment������������������������������������������������������  172 8.21 Initiatives for Sustainable Development Through SHGs������������������  172 8.22 Micro Finance for Financial Inclusion of SHGs������������������������������  173 8.23 Financial Inclusion Theory: Importance of Access to Finance��������  176 8.23.1 Intensifying Access to Financial Services����������������������������  177 8.23.2 The Inclusivity of Access to Financial Services ������������������  178 8.24 Conclusion����������������������������������������������������������������������������������������  181 8.25 Policy Implications ��������������������������������������������������������������������������  182 References��������������������������������������������������������������������������������������������������  182 9

 Financial Sector Governance Policies and Regulations������������������������  185 9.1 Introduction��������������������������������������������������������������������������������������  185 9.2 Meaning of Access to Financial Services and the Early Initiatives��������������������������������������������������������������������  188 9.3 Expanding Access to Financial Services������������������������������������������  189 9.3.1 Measure��������������������������������������������������������������������������������  190 9.3.2 Impact ����������������������������������������������������������������������������������  191 9.3.3 Policy������������������������������������������������������������������������������������  192 9.4 The Inclusivity of Access to Financial Services ������������������������������  195 9.5 Role of Regulators in Indian Scenario����������������������������������������������  196 9.5.1 The Past��������������������������������������������������������������������������������  196 9.5.2 Present Scenario��������������������������������������������������������������������  197 9.5.3 The Future����������������������������������������������������������������������������  199 9.6 Financial Inclusion Initiatives Taken by Government����������������������  200 9.6.1 Effect of Pradhan Mantri Jan Dhan Yojana��������������������������  201 9.6.2 Some of the Realities That Could Burden the Success of the Scheme����������������������������������������������������  202 9.7 Conclusion����������������������������������������������������������������������������������������  204 References��������������������������������������������������������������������������������������������������  204

About the Authors

Vinay Kandpal holds a D Litt. and Ph.D. in Management from the Department of Management Studies, Kumaun University, Nainital, Uttarakhand, India. He is an honors graduate in Commerce from the University of Calcutta and obtained his MBA with dual specialization in Finance and Marketing. He is an Associate Professor in the School of Business, University of Petroleum and Energy Studies, Dehradun, Uttarakhand, India. He has over 17 years of experience in academics. He has published more than 45 research papers and 10 book chapters in banking, digitalization, smart cities, infrastructure financing, CSR, corporate governance, fintech, and infrastructure finance in leading refereed and indexed journals.  He has presented research works at International Conferences on Smart City at The University of Nice Sophia Antipolis, France and Oxford Brookes University, UK. He has also presented research works in institutions like IIM A, IIM B, IIM I, IIT Delhi etc. He is a Full-Time Member of ANAHEI Florida, USA.  

Deep  Chandra is an experienced banker turned academician who retired as a VicePresident from Nainital Bank Ltd., after serving the bank for 33 years. He isWorking with the Faculty of Commerce and Business Management, Amrapali Group of Institutions, Haldwani, Uttarakhand, India as an Associate Professor for the last 5 years. He has exhibited people management skills, business development, and public relations throughout his service tenure and presently imparts practical knowledge to management students. He is M. Sc. (Statistics), MBA, and Ph.D. in Finance. He is also a Certificated Associate of the Indian Institute of Banking and Finance.  

Narendra N. Dalei is currently working as Associate Professor (Economics) and Associate Director (Research) at Central University of Himachal Pradesh (INDIA). He did Ph.D. from the University of Delhi in the area of Ecological and Environmental Economics in 2012 and completed a Certificate of Proficiency in “Climate Action: Solutions for a Changing Planet” from UN’s SDG Academy. Dr. Dalei is the former Head and the founding member of the Centre for Energy, Environment, and Sustainability Studies and Assistant Professor (SG) at the School of Business,  

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About the Authors

University of Petroleum and Energy Studies (UPES), Dehradun, India. Dr. Dalei is a life member of the Indian Society for Ecological Economics, The Indian Econometric Society, and the International Society for Ecological Economics. Before joining UPES, Dr. Dalei worked in various positions at the University of Delhi and its constituent colleges, Indira Gandhi National Open University (IGNOU), Federation of Indian Chambers of Commerce and Industry (FICCI), Zenith Energy, National Sample Survey Organisation (NSSO), Ministry of Statistics and Programme Implementation (MOSPI), and Govt. of India. He has published more than 70 research papers in national and international journals of repute and contributed more than 15 book chapters to his credit in economics, ecological economics, energy, and environment; presented papers in more than 15 national and international conferences. He is the editor of the books “Energy, Environment and Globalization,” and  “Economics and Policy of Energy and Environmental Sustainability”  published by Springer Nature in 2020  and 2022 respectively. Dr. Dalei received an outstanding reviewer award in 2015 and in 2017 from Energy Policy, Elsevier, Amsterdam, The Netherlands. He received Best Research Paper Presentation Award 2018 from 20th International Conference on Climate Change and Global Warming (29–30 October) held in Paris, France. Jatinder  Handoo is a Vice President at Microfinance Institutions Network (MFIN)—an RBI-recognized self-regulatory organization for Non Banking Financial Company (NBFC)-Micro Financial Institutions (MFIs) in India. He has earned over 15 years of experience in retail banking, microfinance, public policy, and agency banking within and outside India. He is pursuing Ph.D. in Economics and Public Policy at IIM Shillong. He has completed a Master’s in Public Policy from IBS Hyderabad and is an alumnus of IIM Udaipur–Sanford School of Public Policy–Duke University, USA. He has completed Post Graduate Program (PGP) in Digital Money at The Fletcher School of Law and Diplomacy at Tufts University, USA. A case study on Branchless Banking in India co-authored by him is listed in the Harvard Business School Publishing Center. He has attended various international conferences on different topics like Microfinance, MSME, and Housing Finance.  

List of Figures

Fig. 2.1 Scree Plot............................................................................................. 38 Fig. 3.1 Contribution of Financial Inclusion toward Socio-Economic Development........................................................................................ 69 Fig. 3.2 Sustainable Financial Inclusion Model................................................ 70

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List of Tables

Table 2.1 Table 2.2 Table 2.3 Table 2.4 Table 2.5 Table 2.6 Table 2.7 Table 2.8 Table 2.9 Table 2.10 Table 2.11

Reliability statistics........................................................................... 34 KMO and Bartlett’s test..................................................................... 35 Total variance explained.................................................................... 36 Rotated component matrix................................................................ 39 Initial classification table................................................................... 46 Final classification table.................................................................... 46 Omnibus tests of model coefficients.................................................. 46 Variables not in the equation............................................................. 47 Hosmer and Lemeshow test............................................................... 50 Contingency table for Hosmer and Lemeshow test........................... 51 Model summary................................................................................. 51

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Chapter 1

Sustainable Development Goals – An Initiative towards Inclusive Growth and Circular Economy

Abstract  If a nation’s most vulnerable sector eventually becomes financially independent, it will be able to grow economically and socially. Governments worldwide have recently launched several initiatives to create inclusive growth, and steps have been taken to ensure that all feel the benefits of policies. Only a nation with a robust financial system can have sustained prosperity, economic development, and economic progress. All resources, funds, and capital must be allocated appropriately for the Indian economy to achieve its inclusive and sustainable development aims. Keywords  Jan Dhan · Financial · Inclusion · Instruments · Unbanked

Sustainable Development refers to a model in which resource utilization attempts to meet human needs while maintaining the environment to meet these requirements in the present and future generations, said Dr. APJ Abdulkalam, a Visionary and Former President of India.

1.1 Introduction In 1969, 14 major commercial banks in India were nationalized, marking a watershed moment in the country’s financial inclusion efforts. Over the last seven decades, the Government of India and the Reserve Bank of India have taken several initiatives to bring everyone into the banking network. In the last decade, much emphasis has been given to financial inclusion. Financial inclusion refers to the sustainable provision of affordable financial services that enable the poor to participate in the formal economy (United Nations 2016). Financial inclusion is defined as using traditional financial services by poor people (Beck et al. 2007; Ozili 2018). Economic stakeholders and policymakers have recently begun to change their focus from achieving economic growth and development to sustaining that growth and development (UNDP 2017). Financial inclusion has been identified as a critical component of inclusive and sustainable growth and development (Demirguc-Kunt et al. 2017; © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 V. Kandpal et al., Financial Inclusion in Circular Economy, Circular Economy and Sustainability, https://doi.org/10.1007/978-3-031-22723-3_1

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1  Sustainable Development Goals – An Initiative towards Inclusive Growth and…

Ostry and Berg 2011). Financial inclusion refers to an economy’s population’s equal and unrestricted access to inexpensive and timely financial services and products. It is an endeavor to create accessible and affordable financial materials that are relevant and current. The prospective implications of a circular economy on economic activity in the Global South, which now supplies the world market with raw materials and low-­cost, mass-produced items, are anticipated to be significant. The public, shareholders, and new legislation are increasing pressure on financial institutions and investors to act on climate change and address serious sustainability challenges in their portfolios. The circular economy offers a chance to improve the financial sector’s and investments’ long-term viability. Governments, international organizations, enterprises, and the financial industry increasingly see the circular economy as critical for achieving sustainable development and mitigating climate change. A growing attentiveness to the circular economy concept has pushed debate in various management-­related disciplines beyond traditional bounds, with calls to understand better how such a model may be constructed in a world of global value chains. The conventional linear economy model dominates business, society, and research. The circular economy has recently been recognized as an instrument to address various challenges faced in achieving Sustainable Development Goals (Brennan et al. 2015). A circular economy is based on the foundation of products and materials with zero waste and zero pollution and enabling a natural regenerative system, where the 2030 Agenda for sustainable development implementation has been given high priority. Moreover, the United Nations in 2015 adopted 17 Sustainable Development Goals to address global issues to be achieved by 2030. These 17 Goals are integrated and interrelated, which means achieving one would positively affect the other (United Nations 2019). CE is a concept that encompasses more than just waste reduction. It advocates for materials, components, and products (MCPs) to be designed and made so that they can be repaired, retained, and re-distributed in the economy for as long as it is technically, socially, and economically feasible (Hahladakis and Iacovidou 2019). The move to a circular economy is difficult. It’s critical to understand the distinction between circularity and sustainability. Only a long-term approach can lead to a circular economy. While the notion of circularity was created to enhance resource efficiency and waste prevention, not all MCPs could benefit from being forced into circularity. The UN Conference in Rio de Janeiro in 2021 introduced the Sustainable Development Goals to address environmental, economic, and political concerns. These Sustainable Development Goals were implemented to replace the Millennium Development Goals (MDGs) adopted in 2000, focusing on eradicating world poverty. A new, more enduring, and sustainable economic paradigm is advocated by the circular economy (CE). This environmentally friendly economic model causes Green Jobs and observable changes in the labor market (Sulich and Sołoducho-­Pelc 2022). In its report, United Nations Economic Commission for Europe (UNECE) mentions that women constitute nearly 50% of the world population and have benefited from the various socio-economic developments worldwide in the last three decades. However, they remain among the most vulnerable communities, with less access to resources than males. In most underdeveloped nations, women’s critical tasks include

1.1 Introduction

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managing domestic activities, childcare, and nutrition. They often assist men in farming, animal husbandry, and allied activities. Despite their dominant contribution to society, women still lack representation in decision-making at various levels. A rising worldwide challenge is creating a sustainable environment with the necessary financial inclusion. Every nation is working to develop the infrastructure and financial mechanisms necessary to achieve a sustainable environment to meet this challenge. Despite significant efforts by global communities to achieve cost-­ effective and environmentally friendly infrastructure, environmental sustainability faces numerous challenges. Thus,  circular economy policies are required for the environmental sustainability of such infrastructure (Dalei and Gupta 2022). The G20, the World Bank, and other major development agencies, among others, are currently discussing global policy issues that centre on financial inclusion, sustainable finance, and FinTech. In our effort to redesign finance to support sustainability through the UN SDGs, we concentrate on one important route, the digital financial transformation, to support financial inclusion and development. Initiatives integrating multiple policy approaches to assist the digital financing of the SDGs include the new Central Banks and Bank Supervisors Network for Greening of the Financial System and the new Sustainability Committee of the International Organization of Securities Commissions. The FinTech for Financial Inclusion (FinTech4FI) initiative of the Alliance for Financial Inclusion, in contrast, demonstrates the promise of digital financial transformation initiatives. Governments and regulators must develop a comprehensive plan to support the digital financial revolution while ensuring financial inclusion and long-term balanced development because FinTech is essential for sustainable development. According to a recent study, new business models, a more productive approach to consumption and manufacturing, and progressive waste management that supports design thinking are all examples of circular economy (CE) themes. According to Jackson (1996), governments can achieve full employment, little inequality, and lower greenhouse gas emissions by changing the current linear economic growth model, which means that quantitative economic growth is no longer necessary to achieve well-being in industrialized nations. Since the Rio Earth Summit 1992, it has become abundantly clear that an integrative and shared policy framework for sustainable development is needed at the national, subnational, and international levels to put into practice strategies, programs, and initiatives. It is based on public involvement and intended to promote environmentally sound and sustainable economic development in developing and developed countries (Hens et al. 2018). Inclusive growth is a concept that advocates for equitable opportunities for all economic agents as the economy grows. It is not a kind of growth in which all economic agents merely benefit and participate; neither is it focused on a segregated section of the economy. Instead, it is the kind that is equally distributed across all sectors. Inclusive growth is an effective tool used by both developed and developing countries to alleviate poverty, stimulate the growth of small- and medium-scale enterprises, and sustain economic development (Abdullahi et al. 2017). The circular economy is essential to the worldwide effort to accomplish the Paris Agreement’s goals. Activities in the circular economy strive to limit overconsumption, eliminate waste, and restore and regenerate ecosystems and natural capital.

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1.2 Financial Inclusion and Sustainability: The Long-Term Perspective While financial inclusion is not explicitly included in the UN SDGs, we suggest that it plays a central role in underpinning the SDGs and supporting finance in support of their achievement. Financial inclusion allows the financial system to socialize and diversify peoples’ financial risks. Financial access is one way to reduce the burden of life’s challenges, including sickness, crime, poverty, unemployment, age, etc. Financially excluded individuals lack the tools to prepare for and manage such risks. Financial inclusion can thus support the broader achievement of the UN SDGs. As a result, assuring FinTech for Financial Inclusion is an essential intermediate objective on the path to a long-term, sustainable, and prosperous world. United Nations Sustainable Development Goals (SDGs) to end poverty, improve health and education, and reduce inequality may be directly impacted by access to finance. Less wealthy and lower-income people are less likely to be granted credit by traditional financial organizations. In developing nations, women are more prone to rejection, denied access to formal loans, and charged higher prices. Immigrants, persons of color, members of racial and ethnic minorities, and those with disabilities are more likely to be shut out of the official credit markets (Kara et al. 2021). Financial inclusion is an essential aspect of economic development. According to World Bank (2018), financial inclusion entails that all people and businesses have access to financial instruments and services, such as transactions, payments, savings, credit, and insurance, to meet their needs reasonably, practically, responsibly, and sustainably. According to Klapper et al. (2016), it is a crucial policy tool that can aid in accomplishing Sustainable Development Goals. According to the World Bank’s Global Findex database, as of 2017, 1.7 billion persons worldwide (or about 40% of all adults) lacked access to a bank account. Raising financial inclusion, or adults’ access to and effective use of a range of relevant formal financial sector services, has thus become a crucial policy goal (Demirguc-Kunt et  al. 2018). The Sustainable Development Goals are significantly hindered by environmental degradation. Access to funding and financing tools limits household investment in and uptake of environmental innovation products and services. Possible mediators for the detrimental effect of financial inclusion on environmental poverty include risk aversion and despair. These findings offer policy assistance to alleviate environmental poverty challenges and create a safe, healthy, and sustainable environment to attain the SDGs (Essel-Gaisey and Chiang 2022). Cities are essential locations where innovation can be fostered to accelerate sustainability transformations. This paper argues that common processes and practices constituting financial systems reveal the structuring role of contemporary capitalist finance on the forms and qualities of sustainability transitions in urban built environments as sustainability practitioners and advocates increase calls for localizing climate investment (Hadfield and Coenen 2022).

1.3  FinTech, Financial Inclusion and Sustainability

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1.3 FinTech, Financial Inclusion and Sustainability In our view, increasing financial inclusion is being seen—not as an end but as one fundamental support for achieving broader sustainable development objectives, including the UN SDGs. If financial inclusion is beneficial for sustainability in terms of underpinning the achievement of the UN SDGs, what is the role of FinTech? The UN established a Task Force on Digital Financing in November 2018 to develop strategies that promote financial technology to advance the SDGs. Thus, there is robust support for the idea that FinTech plays an essential role in financial inclusion. Digital finance and FinTech play three core roles in achieving the SDGs. Over the past 10 years, fintech and decentralized finance have enhanced financial inclusion by penetrating all facets of the financial system. Regulations on cryptocurrencies may encourage the development of innovations by increasing public trust in this market. Effective laws that give market players incentives and protection could help the e-CNY gain momentum worldwide. The broad use of digital currencies has been a crucial component of their development. The adoption of CBDC might be able to address current issues posed by traditional financial systems if the Chinese e-CNY were to gain widespread acceptance (Allen et al. 2022). The rate of downloads of finance apps significantly increased due to the spread of COVID-19 and associated government lockdowns (Fu and Mishra 2022). The global revolution in financial technologies (FinTech) is in full swing. In this essay, we examine the growing body of literature on fintech and the services made possible by it, emphasizing the benefits and drawbacks for banks. FinTech lenders are unlikely to displace banks, possibly because banks are creating their FinTech platforms or collaborating with FinTech start-ups (Murinde et al. 2022). In line with the operational paradigms outlined by Industry 4.0, adopting sustainable business models by technology-based companies has increased dramatically during the past few years. In particular, more and more Fintech businesses are starting to roll out new services to get around organizational obstacles that hinder SMEs from voluntarily adopting sustainable business models (Pizzi et al. 2021). Since the covid-19 epidemic has revolutionized digital financial services, digital financial inclusion is critical to ensuring that every person has access to digital financial services, promoting long-term economic prosperity. The development and efforts promoting digital financial inclusion must be consistent with and contribute to achieving the 2030 Sustainable Development Goals (SDGs). While the epidemic is expected to encourage digital financial services, it has also presented difficulties for some countries (Tay et al. 2022). The rhetoric surrounding societal advancement and financial security has given way to the pathos of arbitrage profits gained by big banks and banks from technologically advanced regions from low-cost retail deposits (Banna et al. 2021). The development of fintech aids in reducing sulphur dioxide emissions and benefits investments in environmental protection. China is positioned to take the lead in implementing green finance policies. Therefore, regulators must hasten the development of green finance products and increase the ability of financial institutions to

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provide green loans. Policymakers should encourage fintech to actively participate in environmental protection measures that stimulate green consumption while minimizing the systemic danger fintech offers (Muganyi et al. 2021). Fintech increases financial accessibility, creating possibilities for new project kinds and luring new types of investors (Bollaert et al. 2021).

1.4 Financial Inclusion, Sustainable Cities, and Sustainable Development Goals The UN General Assembly adopted the Agenda for Sustainable Development and a new set of inclusive development goals known as the Sustainable Development Goals (SDGs) on September 25th, 2015. It applies to all countries. The first Sustainable Development Goals (SDGs) were to end poverty and highlight the importance of access to all banking services. If people are included in the financial system, they slowly climb up the ladder and become financially stable to invest in business and education. The Indian government’s effort to help open banks in rural India helped decrease poverty rates from 14% to 17%. Financial inclusion also keeps people out of poverty by easing the impact of unforeseen expenses. When a breadwinner dies, a family’s savings account may be the only thing that keeps them from falling into poverty. When faced with financial hardship, digital payment platforms allow people to collect money from far-flung friends and relatives (Klapper et al. 2016). “Smart city” is becoming more prevalent in discussions about urban development and sustainability, and a growing number of cities are pursuing “smartness” as a means of improving energy efficiency, transportation, and public services (Haarstad 2017). Smart cities aspire to improve the management of natural and municipal resources and the quality of life of their residents in current or developing communities. If a city “systematically uses available data, communication technologies, and resource-­ saving technologies to reduce their consumption and continuously improve citizens’ quality of life or increase the competitiveness of local economies,” it is compatible with the Smart City concept. The Internet of Things concept is used to create a smart city. Constant population growth and urbanization have hastened the development of unique urban planning concepts with minimal environmental and citizen impact. Smart city concept is based on the Internet of Things (IoT). Constant population expansion and urbanization have heightened the need for novel approaches to urbanization that have minimum impact on the environment, citizen lifestyles, and governance (Kandpal 2018). Policymakers have pushed for smart cities to provide fundamental infrastructure, good quality of life for inhabitants, a healthy environment, and an overall focus on sustainable and equitable growth. The financial sector is one of the essential inputs in supporting smart city development and attaining the above goals. Although

1.4  Financial Inclusion, Sustainable Cities, and Sustainable Development Goals

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numerous benchmarks for the growth of smart cities have been established, the financial sector development of the cities is not one of them. It is critical to have a holistic approach to smart cities since an inclusive and developed financial system allows investment in health, education, and business prospects while promoting economic growth (Arora 2018). Governments and the commercial sector are increasingly promoting smart cities as the essential means of achieving urban sustainability. One significant result is that empowering and incorporating citizens is the key to unlocking smart, sustainable urban development that prioritizes environmental protection and social fairness rather than promoting neoliberal urban growth (Martin et al. 2018). Urban-rural linkages are integral to fostering development in urban and rural communities. The issues that were noted included (1) gender disparities and inequality, (2) poor and lack of basic infrastructures, (3) the limited efficacy of decentralization, and (4) dynamics of food and nutrition security. Prioritized potential remedies were financial inclusion, effective decentralization, sustainable agricultural systems, and infrastructural development. (Somanje et al. 2020). Natural amenities and crime rates have considerable adverse effects on the sustainability of Indian cities, whereas income, public services, and housing have significant beneficial effects. A strong positive association exists between Indian cities’ prosperity and sustainability (Narayanan et al. 2021). The unregulated roll-out of experimental Artificial Intelligence by Big Tech poses a threat to the UN Sustainable Development Goals (SDGs), with impoverished countries being particularly vulnerable. The goal of financial inclusion is jeopardized by the flawed and unregulated design and implementation of AI decision-­ making software that affects users’ financial decisions (Truby 2020). Financial inclusion may not be enough to offer the poorest sections of African people with the skills and competencies they require to find their way out of poverty. Inclusive finance must strive to increase individuals’ influence over their living situations and support their conviction in their capability to lift themselves out of poverty (Kuada 2019). Cities are a hotspot for accomplishing those targets by 2030 in this program. In this context, cities use smart technologies to create a sustainable ecosystem that includes social and environmental concerns (Blasi et al. 2022). Cities are becoming more and more critical in the emergence of global issues. The cleansing and protection of urban nature from anthropogenic effects, as well as considerable investments in social sector development, are all necessary for the sustainable growth of cities. Environmentally sustainable cities reduce pollution (Niemets et al. 2021). To reach carbon neutrality goals, all industries must further cut emissions significantly. The carbon emissions are greatly reduced under China’s Sustainable Development Plan of National Resource-based Cities (SDP). As resource dependence rises, the SDP considerably reduces emissions (Zheng and Ge 2022).

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1.5 Financial Inclusion and Economic Growth Financial inclusion is an essential basis for economic growth and poverty reduction. There is evidence of a beneficial relationship between financial inclusion and economic development that is more inclusive (Chibba 2008, 2009; Chibba and Luiz 2011; Kumar and Mohanty 2011). The country-level analysis suggests a positive and significant association between financial inclusion and economic growth. However, the literature provides contradicting results on the direction of causality between finance and development. This central conflict is due to the presence/absence of unidirectional/bi-directional causality and how this causality can be associated with financial inclusion (Pradhan 2010). Increased borrower well-being was found in a South African study that looked at expanding consumer credit access: income and food consumption increased, measures of household decision-making improved, borrower status in the community improved, and overall health and outlook on prospects and position improved. On the other hand, Borrowers were more stressed (Karlan and Zinman 2010). Furthermore, an efficient and organized financial system enlarges access to funds. Economic agents have access to their funds and do not have to knock at the door of informal sources such as moneylenders at a high cost. According to traditional economic theory, individual households and enterprises have different goals and demands. Individuals sell their labor power on the open market to reduce their life-cycle consumption. When people are young, they need to invest at the initial stage of their job as their risk-taking ability is more, and in most situations, responsibility is less, and in old age, they save less. On the other hand, firms compete for capital to fuel their operations and expansion. Taken together, firms are net users of savings. Financial markets should match savers and users and allocate capital toward the highest productive usage (Gregory and Ball Laurence 2010). In India, slower growth at the district level is correlated with the underdevelopment of the local banking industry. The researcher shows that human capital deepening can reduce financial constraints (Kendall 2012). Financial inclusion/exclusion has recently been emphasized as an essential policy option to alleviate poverty, minimize social exclusion, and enhance economic growth (Cnaan et al. 2012). Research by the World Bank (Han and Melecky 2013) suggests that broader financial inclusion can coincide with more financial stability, though sorting out the lines of causation between those two sets of variables remains challenging. However, it seems plausible that greater access to bank deposits can make banks’ funding base more resilient in times of financial stress. The well-established literature (Levine 2005; Pasali 2013) suggests that under normal circumstances, the degree of financial intermediation positively correlates with growth and employment and is generally believed to influence development causally. Ardic et al. (2012), in their financial access 2012 report, based on 8 years of data (2004–2011), showed the global strands taken on financial inclusion. High-income countries had ten times the deposit

1.5  Financial Inclusion and Economic Growth

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penetration of low-income countries, and lower-middle-income countries had three times that of low-income countries. There was steady growth in commercial bank branches and ATMs. In 2011, low-income countries had 3.2 ATMs and 3.8 branches per 100,000 adults, compared to 123 ATMs and 34 branches per 100,000 persons in high-income countries. Since 2004, insurance policies have more than doubled, with life insurance being the most popular. The degree of financial inclusion is also an important matter. Because it provides many benefits for individuals, it also plays a vital role in developing the financial market. In the case of India, the degree of financial inclusion is very low and limited to a few people. Financial inclusion not only affects the income of the individual (through losing the opportunity of income generation), but it also affects the aggregate income (GDP) of the country (Kablana and Chhikara 2013). Chithra and Selvam (2013), in their attempt to identify and analyze the determinants of financial inclusion, an empirical analysis revealed that socio-economic factors like income, literacy, and population have a significant association with the level of financial inclusion. Further, physical infrastructure for connectivity and information was also significantly associated with financial inclusion. Deposit and credit penetration were primarily related to financial inclusion among the banking variables. Finally, the Credit-deposit and Investment ratios were not mainly related to financial inclusion. There is a reasonably strong relationship between banking development and socio-economic development, and banking penetration in various states impacts economic growth. Therefore, the Government of India, respective state governments, the Reserve Bank of India, and the commercial banks need to give extra attention to the banking development in less developed states. This will aid economic and social development while reducing regional differences at the state level (Kumar et al. 2014). Banerjee and Francis (2014) studied financial inclusion and social development to determine the relationship between social development and financial inclusion based on poverty eradication, employment generation, and social harmony. They conclude that states like Kerala and Maharashtra have higher financial inclusion rates in India, while Punjab and Tamilnadu are average. Conversely, states like Mizoram have lower financial inclusion and higher human development indexes. Moreover, states like Orissa and Bihar have a meagre rate in both parameters, i.e., financial inclusion and social development. Clámara et al. (2014) studied the relationship between financial inclusion and socioeconomic variables (individual characteristics) in Peru and looked at how their correlation affected whether or not people and businesses adopted financial inclusion. Financial exclusion is exacerbated by low income, gender, education level, and rural residency. Financial inclusion is an equalizer that allows all citizens to benefit from and contribute to economic prosperity. Robust financial services boost economic growth by mobilizing savings for productive use, allocating capital funds efficiently, and managing risks. Financial intermediaries and financial markets are essential for a vibrant, growing economy. However, for a real-economic upturn, everyone must

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participate (Kapoor 2014). Moll (2014) shows that the impact of financial frictions on GDP and TFP depends on the persistence of idiosyncratic shocks and that the short-run effects of financial frictions tend to be larger than their long-run impacts. According to theory, financial development enables conditions for economic growth through both a supply (financial development fuels growth) and a demand (growth increases the need for financial products) channel (Dabla-Norris et  al. 2015). Financial inclusion strengthens the link between economic growth and income inequality. When income disparity is decreased by financial inclusion, there is a positive correlation between economic growth and economic inequality. Financial inclusion strengthens the link between economic growth and income inequality. When income disparity is decreased by financial inclusion, there is a positive correlation between economic growth and economic inequality. This trend is more pronounced in high-fragility countries than in low-fragility countries (Kim 2015). Manyika et al. (2016) research confirm that financial inclusion can support economic growth and broader development goals. It reports that digital finance alone could benefit billions of people by spurring inclusive growth that adds $3.7 trillion to the GDP of emerging economies within a decade, which translates to a 6%-point increase against a business-as-usual scenario. Mobile telephony has a statistically significant positive impact on growth. The response varies in magnitude between states with high and low mobile penetration. Furthermore, the mobile telephone significantly impacts financial inclusion and loan behavior (Ghosh 2016). Annual data from 37 sub-Saharan African countries (Inoue and Hamori 2016) shows that financial access positively impacts economic growth. On the one hand, a country’s monetary authority can stabilize prices as more people access formal financial services. On the other hand, financial service providers perform better with increased demand for financial services, increased customer deposits, and improved abilities to lend to individuals and businesses. Improving access to financial services for the majority of unbanked poor is the right approach to addressing critical economic growth challenges, as significant proportions of adult populations in emerging economies lack access to formal financial services. Short-run asymmetric effects of the shadow economy on financial market inclusion are essential. In almost all nations, real income is the most important long-term factor of financial inclusion. Economic activity and human capital appear to be the most critical elements in both linear and nonlinear models in the long run. Reform plans to achieve income equality will develop financial markets and economic growth in emerging countries (Hajilee et al. 2017). Increased banking services lead to both short- and long-term economic growth, and increased economic growth leads to greater financial inclusion. Financial inclusion is an essential driver of economic growth. The study indicates that policymakers should focus on financial sector changes to achieve long-term economic growth. To stimulate economic growth, the government and policymakers must overcome the difficulties in obtaining financial services. It would be easier for policymakers to create and implement initiatives that increase access to financial services and lower poverty and income inequality if they were aware of the relationship between financial inclusion, poverty, and economic growth. (Sethi and Acharya 2018).

1.7  Sustainability and Circular Economy

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Financial Inclusion is an excellent approach to achieving inclusivity for an economy. For a diverse country like India, it is necessary to build infrastructure and customize models to meet the needs. If this does not happen, financial reforms will fail to create a system that can accelerate inclusive economic growth. Financial inclusion is impossible without proper understanding and information about the structure and arrangement of existing financial tools and processes. A significant demand-side constraint has not been eliminated yet (Mukherjee et  al. 2019). Financial inclusion is one of the leading global agendas as it is a crucial initiative toward increasing the economic growth of a country and reducing poverty. FI provides financial services to all segments of society in a more convenient, quality, and affordable way (Sharizan et al. 2021).

1.6 Sustainability Through FinTech and Financial Inclusion: Four Pillars of Digital Financial Transformation These four pillars are Pillar I: Digital ID and eKYC for identification and simplified account opening Pillar II: Open electronic payment systems, infrastructure, and an enabling regulatory and policy environment that facilitates the digital flow of funds from traditional financial intermediaries and new market entrants Pillar III: Account opening initiatives and electronic provision of government services, providing vital tools to access services and save Pillar IV: Design of digital financial market infrastructure and systems that support value-added financial services and deepen access, usage and stability. Governments can support digital transformation by highlighting the advantages of e-money, setting limits for cash transactions in the real economy, and requiring merchants to accept digital payments at low or no cost to customers. Digitized systems for securities trading, clearing, and settlement can also provide greater access to investment products and support financial sector development more broadly, as evidenced by the experiences of China, Kenya, and India, among others.

1.7 Sustainability and Circular Economy The global COVID-19 issue has resulted in a slowdown in productive and commercial activity and transportation use, significantly dropping pollution levels. The government’s commitment to enacting sustainable economic recovery rules is required to restore economic activity (Cifuentes-Faura 2022). Several SDGs’ aims can be met with the help of CE practices and redesigned business models. They contribute directly to achieving 21 purposes and indirectly achieve an additional 28 targets. CE practices have the most vital links to SDG 6 (Clean Water and Sanitation), SDG 7 (Affordable and Clean Energy), SDG 8

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(Decent Work and Economic Growth), SDG 12 (Responsible Consumption and Production), and SDG 15 (Responsible Consumption and Production) (Life on Land). CE practices also have the potential to create synergies between several SDGs, including those promoting economic growth and jobs (SDG 8), poverty eradication (SDG 1), hunger eradication and sustainable food production (SDG 2), and biodiversity conservation in the oceans (SDG 14) and on land (SDG 15). (SDG 15). While CE practices will not fix all of the challenges addressed by the SDGs (35 of the targets have no or little link to CE practices), they promise to achieve specific SDG goals (Schroeder et al. 2019). The Agenda 2030 was designed to encourage global action on the world’s most serious concerns. The 17 SDGs, an interconnected list of goals, targets, and indicators, were formed to leave no one behind to steer governments, institutions, and civil society toward sustainable development. At the same time, two emerging systemic transformations  – the creation of I4.0 and the transition to CE  – are underway (Dantas et al. 2021). The Circular Economy is the most current attempt to construct a sustainable means of integrating economic activity with environmental well-being. China has accepted this concept as the foundation of its economic development (included in the 11th and 12th Five-Year Plans’), raising awareness among policymakers and NGOs in the West (Murray et al. 2017). The circular economy offers environmental, economic, and social benefits on a global scale as a new paradigm for economic development. The circular economy concept emphasizes reducing, reusing, and recycling items and resources in production, distribution, and consumption processes to replace the idea of ‘end-of-life’ in current production and consumption practices. Promoting circularity strives to achieve long-term development, and the circular economy is linked to many of the United Nations’ 17 Sustainable Development Goals (SDGs) adopted in 2015. Since 1990, approximately 1.1 billion people have risen out of extreme poverty, according to the World Bank. In 2013, 767 million individuals, compared to 1.85 billion in 1990, lived on less than $1.90 per day. The East and South Asian regions, mainly China, Indonesia, and India, have been driving the decline in extreme poverty in recent years (Berg et al. 2018). As a symbol of social development, the middle classes have displayed increased spending habits and a throwaway culture of buying something new in recent decades. These developments have put pressure on many countries’ waste disposal facilities, for example, and have resulted in many urban health issues. At the same time, many non-OECD economies have been able to recycle higher percentages of waste than some OECD countries. In South Africa, for example, the plastic recycling rate is 42 percent. In the meantime, only 6% of plastic in the United States is recycled. In many emerging countries, the informal economy can substantially contribute to a circular economy (Kraemer-Mbula et al. 2019). The circular economy is a technique for achieving sustainable development goals by incorporating environmental, social, and governance performance (ESG) into decision-making (SDG). In latest years, it has been clear that business has little bearing on sustainability and that new business models must be established,

1.8  Societal Impact of a Circular Economy

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primarily based on technological considerations, to lessen the harm brought on by severe and unpredictable climate change effects. The current situation necessitates extraordinary, rapid policy and business development model modifications (Cudečka-­Puriņa et  al. 2022). According to the (European Commission 2018), a circular economy (CE) “… is an economy where the value of products, materials, and resources is preserved in the economy for as long as feasible, and the formation of waste is reduced”. The foundation of CE is industrial ecology (Andersen 2007; Preston 2012).

1.8 Societal Impact of a Circular Economy The Circular Economy (CE) is a hot issue among academics, businesses, and governments, and it aims to decouple economic growth and development from finite resource consumption. CE encompasses a variety of meanings, ranging from reducing, reusing, and recycling to environmental degradation or resource scarcity, and is backed up by particular metrics to achieve sustainable development. However, no consensus has emerged on assessing an industry’s or product’s effectiveness in transitioning from linear to circular techniques, particularly those with societal implications (Padilla-Rivera et al. 2020). The Circular Economy (CE) has arisen as a paradigm, showcasing a variety of methods and goals for achieving sustainable development and ways to produce value for customers, societies, and other stakeholders. Furthermore, increased research interest in CE has piqued interest, and it is now mainstreamed among various stakeholders, ranging from municipal to national governments, academia, and enterprises worldwide. It has become a policy tool for advancing sustainability (Prieto-Sandoval et al. 2018). Germany was a forerunner of the Closed Substance Cycle Waste Management Act (1994). Japan launched a strategy in 2000 to create a recycling-based society to promote trash reduction and recycling thoroughly and systematically. Furthermore, China’s involvement with the circular economy began in 1998, with the central government publicly accepting the strategy in 2002. (Yuan and Moriguchi 2006). Even though China’s approach has been more garbage-oriented than the current European approach, China was the first country to introduce the phrase “circular economy” concerning waste and resource policy. CE is unusual in that it takes a holistic approach, addressing all societal processes (Bonciu 2014) while providing practical solutions to current civilization’s difficulties due to natural economic growth constraints. However, critics of the notion claim that the term “circular economy” is still undefined and thus imprecise. Many point out that the term is most commonly associated with better waste management. Sustainable development (SD), a process that allows existing societies to achieve their requirements while respecting future generations’ demands, can be considered a central narrative in contemporary socioeconomic discussion. As a result, it has been incorporated into the strategies and objectives of several international political organizations,

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non-­governmental organizations, states, and the European Union (Skawińska and Zalewski 2018). Education for Sustainable Development (ESD) and Education for Sustainable Development Goals (ESDG) was created in response to the Millennium Development Goals. Despite the readiness of many educational institutions worldwide to embrace the SDGs, this essay wonders if ESDG is desirable as “future education” in light of rising sustainability challenges. Many of the SDGs’ difficulties are expected to be remedied by “inclusive” or “sustainable” economic growth, assuming that economic growth and resource consumption can be readily divorced (Kopnina 2020).

1.9 Developing a Comprehensive Strategy Sustainable development (SD) has evolved into a dominant and guiding ideal goal in many international and national policy agendas, academic research, and corporate strategies due to the growing interest in sustainability issues and how to create a resilient, just, and environmentally friendly responsible economy. Most important is the need for policymakers and regulators to develop methods to understand new technologies and the related risks and opportunities. It should be combined with the increasing necessity for regulators to consider how they can better use technology in redesigning their systems to regulate digital finance and FinTech. One recent development to potentially assist digital financial transformation is regulatory sandboxes. Another way to increase regulatory technology expertise is to use technology. Regulators could require supervised firms to report digitally to supervisors and supervisors to receive and process reported information, resulting in a RegTech cycle that will propel supervised firms and supervisors into the digital age. This use of technology by regulators is the transformative potential of RegTech and integrated systems design of the sort we advocate. One promising option is regulation-by-design: regulatory restrictions embedded technologically in the product. Digital financial transformation is one crucial answer to how regulators and government can support the achievement of the UN SDGs and thus result in balanced, sustainable development. Formal identification is an element of the SDGs and, because of its significance, is the subject of a significant World Bank-led initiative: ID4D. The experience of India’s Aadhaar system, through which over a billion people have received digital biometric identification, has been transformative. It has shown the power of such systems for achieving the SDGs directly and increasing the financial resources available. Digital identification projects, if designed and implemented effectively, have the potential to support foundational transformations in directly achieving the SDGs as well as in supporting financial development supporting more comprehensive societal transformation.

1.10 Conclusion

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1.10 Conclusion The United Nations has established the Sustainable Development Goals as a paradigm for economic development that is inclusive and secure for future generations. Because of the risks of global warming and natural resource shortages, adopting this worldview has become a pressing necessity (fossil fuels). Simultaneously, if the benefits of economic progress do not reach the bottom of the pyramid, social and political instability will hinder the country’s economic growth. As a result, there is a global agreement to aim for Sustainable Development Goals to ensure that economic development’s advantages are long-lasting (SDG). To support the SDGs, authorities encourage companies to consider environmental, social, and governance (ESG) factors when making global financial and investment choices. The circular economy (CE) concept has become a significant interest for companies, promising new business opportunities and a decrease in environmental impacts. The circular economy is essential to the worldwide effort to accomplish the Paris Agreement’s goals. The circular economy is essential to the worldwide effort to achieve the Paris Agreement’s goals. Activities in the circular economy strive to limit overconsumption, eliminate waste, and restore and regenerate ecosystems and natural capital. On the other hand, new financial tools and investments are required to support the scale-up of these business models and innovations. Circular economy and sustainability from business and economics perspectives are multifaceted. Companies are increasingly interested in the circular economy (CE) idea, which promises new commercial potential and reduced environmental impacts. Most businesses believe that the private sector should strive for sustainability and circularity, even if some see the distinction between the two notions in daily company operations as artificial and pointless. The advantages of CE help achieve environmental goals while considering the economics of such actions (Kyllönen 2017). The circular economy is based on an ideological agenda, predominately technical and economical. It brings ambiguous contributions to sustainability and depoliticizing sustainable growth (Corvellec et al. 2022). Financial inclusion is a dynamic indication of inclusive, sustainable economic growth, defined as having access to and using financial services. Policymakers must design strategies and programs that can lead to positive financial inclusion and better national governance to achieve sustainable economic development. Future research can be used in various combinations to achieve sustainable goals by including extra variables and financial inclusion. To increase per capita income and sustain development in the upcoming years, better regional policies for financial development, financial inclusion for poverty alleviation, and e-government development are needed. It is challenging to transition to a circular economy. Understanding the difference between circularity and sustainability is crucial. In the long run, only can the circular economy be accomplished. Because it improves capital accumulation and credit generation, increasing investment, productivity, and development, access to financial services is essential for economic progress. It is a potent tool for eradicating poverty and improving the populace’s welfare and standard of living.

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Similar to the idea of sustainable development, the circular economy has experienced rapid growth. Sustainable development combines economic, social, and environmental growth to preserve sound ecological and natural norms. It is founded on the idea that economic progress has reached everyone and decreased poverty via financial inclusion in society. The importance of the financial sector in a country’s economic growth is dynamic for developing reliable financial systems that expedite technological progress by resource mobilization, i.e., increasing savings and investments and encouraging foreign capital inflows to promote sustained development. Financial inclusion (FI) is the backbone of every economy; however, a sustainable environment is inevitable. One of the newest approaches to addressing environmental sustainability is circular economy (CE). Only one of the three levels is the sole focus of CE activity (macro, meso, and micro levels) (Barreiro-Gen and Lozano 2020). Financial institutions and investors are under increasing pressure to address sustainability issues in their portfolios as global warming’s effects become more widely known. Investing in initiatives that advance the growth of the circular economy is one way to do this. Additionally, circular economy investments can help achieve several Sustainable Development Goals (SDGs), particularly SDG 12. (sustainable consumption and production). Stakeholders’ roles in circular transition processes, such as NGOs’ involvement, are also underrepresented (Lüdeke-Freund et al. 2019), as is the pressure from external stakeholders and interested parties to implement circular economy principles and strategies in a socially sustainable manner. In a fashion industry that is increasingly moving towards sustainability and circularity, a synthesis of the current state of themes and concepts relating to social sustainability in the eyes of selected companies and stakeholders is necessary, as it is unclear how the views differ or overlap. From a government perspective, policy instruments are crucial to de-risking and incentivizing financial investments in circular models. To encourage sustainable development in various areas, particularly in the Asia Pacific, MENA, and SSA zones, policymakers should enhance the quality of governance, financial institutions’ effectiveness, and renewable energy sources. Investors are becoming more aware of the high levels of risk associated with unsustainable supply chains and the need for companies to manage those risks effectively. The rise of public and private sector spending on circular initiatives in significant industries and circular economy funds in the finance industry indicate that the circular economy is here to stay. However, investment in the circular economy is still far below what is required to bring about significant change. The rise of public and private sector spending on circular initiatives in major industries and circular economy funds in the finance industry indicate that the circular economy is here to stay. Circular economies are a critical component of long-term manufacturing and consumption. Companies are increasingly turning to circular economy business models (CEBMs) to manage these resource flows successfully. Many businesses have been hesitant to embrace circular ideas thus far, despite the circular economy’s promises to become an appealing source of innovation. Despite the potential disruption that circular innovations may pose to the prosperous linear firm, incumbents are in a precarious position

References

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because doing nothing could result in their old operations becoming obsolete due to the rapidly shifting business environment (Kuhlmann et al. 2022). Moving to a zero-carbon global economy by reducing fossil fuel usage to zero is a surefire approach to combat climate change, with a slew of environmental, social, and economic benefits to boot. However, the case for a Circular Economy (CE) is less compelling. It is impossible to overestimate CE’s contribution to achieving global environmental goals. The best thing to say about CE’s societal influence is that it may be neutral. Although CE is an economic requirement, conclusive evidence to support the concept of a circular economy that achieves social and environmental goals requires further research. Although the circular economy manages resource usage and waste, it must be sustainable without compromising the quality of client requirements, as the sector should be focused on profit when producing products (Su et al. 2013). The circular economy rewards sustainable supply chains with maximal remunerations such as energy consumption, electricity, products, and resources. To address climate change, water scarcity, and other global difficulties effectively, policymakers should concentrate on accelerating the transition to a CE.

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Bollaert H, Lopez-de-Silanes F, Schwienbacher A (2021) Fintech and access to finance. J Corp Finan 68:101941. https://doi.org/10.1016/j.jcorpfin.2021.101941 Bonciu F (2014) The European Economy: from a linear to a circular economy. Rom J Eur Aff 14:78–91 Brennan G, Tennant M, Blomsma F (2015) Business and production solutions: closing loops and the circular economy. In: Kopnina H, Shoreman-Ouimet E (eds) Sustainability: key issues. Earthscan/Routledge, pp 219–239. https://doi.org/10.4324/9780203109496-­11 Chibba M (2008) Monetary policy for small emerging market economies: the way forward. Macroecon Finance Emerg Mark Econ 1:299–306. https://doi.org/ 10.1080/17520840802252894 Chibba M (2009) Financial inclusion, poverty reduction and the millennium development goals. Eur J Dev Res 21:213–230. https://doi.org/10.1057/ejdr.2008.17 Chibba M, Luiz JM (2011) Poverty, inequality and unemployment in South Africa: context, issues and the way forward. Econ Pap J Appl Econ Policy 30(3):307–315. https://doi. org/10.1111/j.1759-­3441.2011.00129.x Chithra N, Selvam M (2013) Determinants of financial inclusion: an empirical study on the inter-­ state variations in India. SSRN Electron J. https://doi.org/10.2139/ssrn.2296096 Cifuentes-Faura J (2022) Circular economy and sustainability as a basis for economic recovery post-COVID-19. Circ Econ Sustain 2(1):1–7. https://doi.org/10.1007/s43615-­021-­00065-­6 Clámara N, Peña X, David T (2014) Factors that matter for financial inclusion: evidence from Peru. BBVA research, working paper no. 14/09 Madrid, 1–26. https://doi.org/10.5605/ieb.10.1 Cnaan RA, Moodithaya MS, Handy F (2012) Financial inclusion: lessons from rural South India. J Soc Policy 41(1):183–205. https://doi.org/10.1017/S0047279411000377 Corvellec H, Stowell AF, Johansson N (2022) Critiques of the circular economy. J Ind Ecol 26(2):421–432. https://doi.org/10.1111/jiec.13187 Cudečka-Puriņa N, Atstāja D, Koval V, Purviņš M, Nesenenko P, Tkach O (2022) Achievement of sustainable development goals through the implementation of circular economy and developing regional cooperation. Energies 15(11):4072. https://doi.org/10.3390/en15114072 Dabla-Norris E, Ji Y, Townsend R, Unsal DF (2015) Identifying constraints to financial inclusion and their impact on GDP and inequality: a structural framework for policy. IMF Work Pap 15(22):1. https://doi.org/10.5089/9781498381598.001 Dantas TET, de-Souza ED, Destro IR, Hammes G, Rodriguez CMT, Soares SR (2021) How the combination of circular economy and industry 4.0 can contribute towards achieving the sustainable development goals. Sustain Prod Consum 26:213–227. https://doi.org/10.1016/j. spc.2020.10.005 Dalei NN, Gupta A (2022) Sustainable energy and environmental sustainability in an economics and policy prospective. In: Dalei NN, Gupta A (eds) Economics and policy of energy and environmental sustainability. Springer, Singapore. https://doi.org/10.1007/978-981-19-5061-2_1 Demirguc-Kunt A, Klapper L, Singer D (2017) Financial inclusion and inclusive growth: a review of recent empirical evidence. In: Policy Research Working Papers. The World Bank. https://doi. org/10.1596/1813-­9450-­8040 Demirguc-Kunt A, Klapper L, Singer D, Ansar S, Hess J (2018) The global Findex database 2017: measuring financial inclusion and the Fintech revolution. International Bank for Reconstruction and Development/The World Bank. https://doi.org/10.1596/978-­1-­4648-­1259-­0 Essel-Gaisey F, Chiang T-F (2022) Turning the tide on environmental poverty in Ghana: does financial inclusion matter? Sustain Prod Consum 33:88–100. https://doi.org/10.1016/j. spc.2022.06.018 European Commission (2018) Closing the loop—an EU action plan for the circular economy. In: European Commission, vol 29. http://ec.europa.eu/environment/circular-­economy/ index_en.htm Fu J, Mishra M (2022) Fintech in the time of COVID−19: technological adoption during crises. J Financ Intermed 50:100945. https://doi.org/10.1016/j.jfi.2021.100945 Ghosh S (2016) Does mobile telephony spur growth? Evidence from Indian states. Telecommun Policy 40(10–11):1020–1031. https://doi.org/10.1016/j.telpol.2016.05.009

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Chapter 2

Key Drivers and Challenges for Financial Inclusion

Abstract  The purpose of this research is to identify aspects crucial to financial inclusion in developing economies such as India, as well as to demonstrate the impact of financial inclusion on socio-economic growth. Financially literate people are more likely to make sound financial decisions. “Access to Information and Investment Purpose”, “Investment Performance”, “Financial Socialization”, “Usage of Financial Products and Services”, “Expectation from SHGs and NGOs”, “Perceived Benefits from Investment”, “Future Expected Performance of Financial Instrument”, “Financial Education”, “Issues and Challenges in Financial Technology”, “Social Inclusion”, “Financial Literacy and Awareness”, “Short Term Planning”. This study would be beneficial globally because the UN SDGs emphasise inclusive growth that leaves no one behind. It addresses topics such as gender, women’s empowerment, poverty, and improvements in infrastructure amenities such as banking, hospitals, and schools, to name a few. A country can develop economically and socially if its vulnerable sections become financially self-sufficient. Sustainable development is possible when resources are equitably available and accessible to all people, regardless of gender disparities. Despite various socioeconomic changes worldwide, women continue to be among the most vulnerable people, unable to access resources on par with males. Keywords  Financial inclusion · Banking · Emerging · Economies · Technology

2.1 Introduction A country’s financial system must be stable to ensure sustainable growth and economic development. Retail consumers’ or investors’ resources must be efficiently channelled to achieve inclusive growth. The Government attempts to aid the financially disadvantaged through the official banking system. Incorporating the poor into the formal financial system can be helped by appropriate campaigns and reforms in the credit system. Households living in rural areas or with low incomes © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 V. Kandpal et al., Financial Inclusion in Circular Economy, Circular Economy and Sustainability, https://doi.org/10.1007/978-3-031-22723-3_2

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usually lack access to banking or financial services. It is challenging for these families to save and arrange financial resources for the longer term. The ease of access and usage of financial services and products influences the economic health of individuals and the state. Financial inclusion is a scenario in which the most vulnerable members of society have timely and satisfactory access to credit and other financial products and services at a reasonable cost to create financial stability (Dev 2006; Joseph and Varghese 2014; Leyshon and Thrift 1995). A lack of banking access primarily causes inequality in developing countries. Because of this, one of the Sustainable Development Goals’ most important objectives is to promote financial inclusion (SDGs) (Úbeda et al. 2022). The digitization process affects all markets and raises consumer awareness about companies’ sustainable behavior (Merello et  al. 2022). The financial inclusion model of Pradhan Mantri Jan Dhan Yojana- a Scheme by the Government of India, has come up as a promising solution for the problem of inequalities prevalent among different regions and people. It is a model pre-dominantly adopted to enhance those regions and the social section of the strata deprived of growth opportunities. Finance serves as a significant factor in the upliftment of the poor. So, providing financial resources with essential counselling for effective utilization gives them the opportunity. Through this Yojana, the rural masses get financial and social development benefits. Business Correspondents (BCs) play a critical role in ensuring inclusivity. However, they can only break even in the long run, and they will lose money in the early phases due to significant initial setup and operational costs. In both wealthy and developing countries, financial inclusion is a policy priority. Financial resilience is an individual’s ability to function effectively in dire financial circumstances. It can help us better support people in dealing with financial hardship, design effective policies, and, eventually, boost economic development. Moving beyond financial inclusion (i.e., the delivery and practical features of financial products and services) and towards financial resilience (i.e., an individual’s ability to function successfully in unfavorable financial situations) is thus vital in addressing poverty and economic development (Salignac et al. 2022). Our approach to modelling women’s power within the home is congruent with an intra-household decision-making framework based on a collective household model that relates male and female members’ bargaining power to their land holdings (Browning and Chiappori 2014). Financial inclusion is critical for poor farmers, rural non-farm firms, and other vulnerable populations to improve their living situations. Small and marginal farmers and various social groups have a high level of financial exclusion due to lack of access to credit or traditional financing. Apart from official banking institutions, which should see financial inclusion as a profit opportunity and a social obligation, the self-help group movement and microfinance institutions play an essential role in improving financial inclusion. This necessitates new regulatory procedures as well as banking system depoliticization. Financial inclusion has emerged as a top policy issue. It proposes a more comprehensive strategy that shifts the focus from whether people are excluded from having access to accessible, acceptable, and suitable services and assistance in difficult financial circumstances. A better understanding of

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individuals’ financial resilience could aid in determining where resources can and should be invested to help people cope with financial adversity, develop effective policies, and improve financial well-being. Borrower’s ability to repay their loans is a significant worry and affects the viability of microfinance institutions. Investigating the factors that influence credit risk is a critical problem in microfinance. The objective of Savinco Mission is to improve the socio-economic inclusion of Latin America’s most vulnerable people by encouraging community savings, a solution built on four pillars: self-financing through savings, self-management, financial education, and technology. A well-developed financial system characterized by the provision of adequate financial services such as credits, savings, insurance, and pensions to a low-income group could enlarge business opportunities in the private sector and contribute significantly to an increase in savings and investment opportunities with a multiplier effect that will lead to economic growth (Allen et al. 2012; Becsi and Wang 1997). Conversely, financial exclusion is characterized as the inaccessibility of individuals to benefit from essential financial services and products to meet their financial obligations (Conroy 2005; Sinclair 2013). Over the last decade, the focus has been on financial inclusiveness. Financial inclusion means the sustainable delivery of affordable financial services that allow the poor to participate in the formal economy (UN 2016). Financial inclusion ensures the availability and ease of access to the formal financial sector (Loo 2019; Ozili 2020b; Sarma 2012). Financial inclusion is critical for less developed countries where the interaction between formal financial systems and individuals (households or enterprises) is still low. Because it is challenging for the most vulnerable populations to obtain formal financial services, they must combine irregular revenue streams with limited or poor financial instruments (Cámara and David 2015). Financial inclusion is influenced by financial innovation, poverty levels, the financial sector’s stability, the state of the economy, financial literacy, and regulatory frameworks, which differ across countries (Ozili 2020b). Empirical evidence suggests that the use of financial instruments increases savings (Aportela 1999; Ashraf et  al. 2010), consumption (Ashraf et  al. 2010), and productive investment (Dupas and Robinson 2009). Providing banking to as many people as possible is not a fully effective strategy for reducing poverty. Developing fiscally and socially sustainable inclusive financial systems should prioritize a poverty reduction strategy (Bhandari 2009). Yadav and Sharma (2016) look into the causes and effects of India’s lack of access to banking services. The research relies on the Central Statistical Organization of India and the Reserve Bank of India. The research utilizes bank penetration, availability, and use of financial services to generate a multi-dimensional index of financial inclusion. The study uses multiple regression analyses to determine that the percentage of agricultural GDP, the literacy rate, the population density, and the quality of the country’s infrastructure are all critical determinants of financial inclusion. The challenge for inclusive growth is expanding financial services to every segment of society and region of the country. Consumers, impoverished women and adults, benefit considerably from adequate financial services. Technological advances have led to the innovative delivery of financial services and will continue

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to do so (Demirguc-Kunt et al. 2017). Financial institutions must understand individuals, particularly the poor in rural locations, to ensure more relevant and effective service delivery. This could be possible by investing in research and development activities to establish more demand-side information as a customer-centric strategy (Mindra et al. 2017). To achieve sustainable development, empirical evidence linking access to financial services to development outcomes will need to be created. Financial inclusion has become difficult because of policy planning for significant financial development. However, the poor, weaker, and marginalized people have limited access to money due to various causes. Data at the macro level in India demonstrates that a significant portion of the impoverished and marginalized elements of the Indian economy are financially excluded or ignorant. They lack access to the numerous financial services provided by the institutional framework, and access to financial services is not even throughout the economy. Operationalizing financial inclusion requires an appropriate system. According to the literature on financial inclusion, research and data must be constrained by the goal of implementing financial inclusion and establishing its socio-economic effects in India. According to the research study, financial sector participation is also influenced by supply, demand, and behavioral factors. Concerning supply factors, financial institutions, adequate financial services, and personnel with language skills and training to address population needs are relevant when determining the financial sector’s participation. From the demand side, Socio-­ Economic Status and cultural barriers are appropriate. Behavioral factors related to the cost-benefit analysis undertaken by the individual when deciding whether to have a checking or saving account are also important determinants of participation in the financial sector. To tackle this problem effectively, research is needed to measure and track access to financial services and evaluate its impact on households. Financial inclusion is no longer a policy option; instead, it is a policy that is enforced. As a result, it serves as a basis for a country’s financial infrastructure, allowing for economic development, growth, and sustainability. It’s a significant step toward more inclusive growth, with efforts to increase the participation of the poor in economic activity. Individuals, organizations, and all segments of society need timely access to financial services at a low cost to meet their financial commitments. An inclusive financial system is vital to the country’s long-term development and progress. Appropriate financial services for the poor and disadvantaged groups help create jobs, eliminate income disparities, alleviate poverty, and boost economic growth. Financial inclusion has been at the forefront of global policymakers’ minds. Several supranational agencies, like the United Nations and the World Bank, have acknowledged its transformative impact, indicating its worldwide significance (Demirguc-Kunt et al. 2018b; United Nations 2017). The National Strategy for Financial Inclusion (N.S.F.I.) was developed in 2015, and it serves as the critical platform for the coordination of numerous activities aimed at advancing financial inclusion (Bangko Sentral ng Pilipinas (BSP) 2015). Financial Inclusion in the Philippines NSFI is defined as “a situation in which all people have effective access to an extensive range of financial services” (Bangko

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Sentral ng Pilipinas (BSP) 2015). Traditional banks and other formal institutions in Bangladesh do not provide financial services to many poor and disadvantaged people because of their rigorous collateral requirements and formal procedures. Year after year, the lack of adequate financial products, lack of understanding, and the existence of a regulatory framework that supports the old financial system only serve to keep the poor and disadvantaged outside the formal financial system. In this context, mobile financial transactions and microfinance can be seen as potential alternatives to the problem of financial exclusion (Abedin and Islam 2022). The country’s NSFI has identified four primary areas of concern to achieve a more equitable financial system: (a) policy and regulations; (b) financial education and consumer protection; (c) advocacy programs; and (d) data and measurement (Bangko Sentral ng Pilipinas (BSP) 2015). Financial inclusion improves learning and education even more for girls and urban youngsters. These findings hold when different markers of learning outcomes are used, as well as various techniques for dealing with endogeneity. Financial inclusion may impact children’s educational outcomes through parents’ ability to spend on extra lessons, books, and other school-related goods (Koomson and Afoakwah 2022).

2.2 Literature Review 2.2.1 Financial Inclusion and Fintech New financial technologies (FinTech) are regarded as crucial enablers of financial inclusion even though it is believed that flaws in the financial market, such as information asymmetries, market segmentation, and transaction costs, prevent poor people from escaping poverty by restricting their access to formal financial services. UN2030 Agenda for Sustainable Development (UN-2030-ASD) emphasise the significance of utilising the potential of FinTech to decrease financial exclusion and economic inequality (Demir et al. 2020) Ozili (2020a) analyzed vital issues and contested the argument that digital finance is pro-poor. The study states that digital finance can improve development outcomes based on weak economic logic. Secondly, the researcher argues that digital finance for the poor is beneficial, which is possible only with Government support. Many unbanked people worldwide can now access financial services via mobile devices thanks to developments in fintech. Although fintech technologies are being hailed as game-changers to extend financial inclusion, their widespread adoption and implementation are limited. The existing literature does not fully understand the technological and behavioral antecedents influencing users’ behavior toward financial technologies (Senyo and Osabutey 2020). COVID-19 has flipped the world upside down. Every industry is experiencing a downturn. Simultaneously, digitization, which began in 2015, has grown and is undergoing a paradigm shift. Experts have dubbed it ‘digital inclusion’ (Kaur 2021).

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2  Key Drivers and Challenges for Financial Inclusion

Augmented use of debit cards, credit cards, and other digital finance products reduced risk in the financial industry in advanced and established countries but not in transition economies and developing ones. The findings also show that using digital finance products and increasing formal account ownership improves financial sector efficiency in developing countries. Using credit cards and rising formal account ownership reduces insolvency risk and improves financial sector efficiency in developing countries (Ozili 2021). With snowballing development and the convergence between the financial and ICT platforms, digital financial systems emerged, opening new opportunities to close the wealth gaps between the “haves” and “have-nots” in the developing world (Pradhan et al. 2021). In recent years, FinTech has become an increasingly prominent phenomenon worldwide. Researchers, academics, and legislators are becoming increasingly interested in the topic. While the adoption of FinTech appears to be widely regarded as strategic precedence for financial institutions worldwide, the empirical evidence on the managerial challenges under FinTech is very scant, especially from developing countries perspectives. There are seven challenges concerning adopting Financial Technology: customer retention, regulatory compliance, technology risk, increased competition, cyber-attacks, the inadequacy of IT employees, and system downtimes (Dzingirai 2021). There are major underlying issues that determine the uptake and usage of financial services, prominent being “financial literacy,” “operational and implementation challenges,” and “affordability.” The “usage” and “access” significantly impact financial inclusion. These are the most important factors when building a demand-­ driven strategy for financial products and services, especially lending. The author determines that the identified latent barriers concerning the “usage” dimension of financial inclusion require greater policy attention so that they can complement the supply-side measures (Singh 2021). In the recent past, digital financial inclusion has positively impacted economic growth. Empirical analysis of drivers indicates that digital financial inclusion tends to be higher where demand for financial services exists, but there are gaps in the supply of traditional financial services. Drivers of digital financial access and usage are estimated separately. Other key factors that play a significant role in facilitating the use of digital financial inclusion include access to foundational infrastructure (mobile phones, mobile data services, broadband internet) and financial literacy/ familiarity. On the supply side, higher competition, inefficiencies in financial institutions, and the rule of law is necessary (Khera et al. 2021). Although digital services have made physical access to financial services easier and more accessible, they remain underutilized due to a lack of basic connectivity, financial knowledge, and social awareness. The financial system should provide services and be localized to align with local settings. As a result, the framework prompts a reconsideration of reality and underlying issues and adopts a more comprehensive approach to digital financial inclusion (Aziz and Naima 2021) Fintech technologies quickly reshaped the global financial system and made microfinance organizations’ financial inclusion initiatives easier (MFIs). Such technological advancements are projected to improve financial system stability and, as

2.2 Literature Review

29

a result, minimize risk-taking behavior among its key players (Banna et al. 2021). By removing the limitations of cost, distance, and transparency and delivering financial services suited to their requirements, digital financial services provide unprecedented prospects for the financial inclusion of vulnerable sections of society. Despite India’s significant progress in digital financial inclusion, women still face challenges in accessing and using digital financial services (Kulkarni and Ghosh 2021). Financial inclusion is central to bridging the wider socio-economic differentials with the help of financial intermediaries like banks. Through the digitalization of traditional banking, inclusion can offer affordable healthcare, equitable education, opportunities for equal employment, and parity in income to the disenfranchised and marginalized people (Kanungo and Gupta 2021) Increased availability of banking services significantly affects poverty in states with weak economies. Third, policymakers should promote financial technology innovation, which helps those with lower incomes have easier access to credit and other financial services. Finally, financial literacy should be disseminated, especially in underserved rural areas, because infrastructure development is essential (Ye et al. 2022). The sociocultural features of different markets determine the conditions of competition between banks and technology-based alternative lending providers in the digital era. They are one of the critical drivers of final market success in different countries (Kowalewski et al. 2022).

2.2.2 SHGs, Women Empowerment and Financial Inclusion When financial literacy training is provided alone, it has a lower impact. A more significant short-term influence on household consumption is achieved by incorporating a women’s empowerment element in financial literacy training. The program’s joint delivery significantly enhanced household consumption for female-beneficiary and younger households. We believe that women’s empowerment training should be included in financial literacy training programs to have a faster impact on household welfare through greater consumption (Koomson et al. 2021) In Kenya, women’s property rights are limited, and they must obtain permission from their spouses or male family members before engaging in financial transactions. Furthermore, most women work in the informal economy, which has compounded their financial exclusion by preventing them from producing the documentation that banking institutions require, leaving them more reliant on informal finance. Although mobile money does not address many structural determinants of gendered financial inequality, it has boosted levels of financial inclusion by allowing women access to previously closed financial channels (Kim 2021). Among the many factors influencing whether or not people in India have access to financial services, the study found that education and knowledge of self-help groups were the most significant (Bhanot et al. 2012)

30

2  Key Drivers and Challenges for Financial Inclusion

2.2.3 Financial Inclusion and Financial Literacy “Without financial knowledge, divorce rates skyrocket, families disintegrate, and women seek financial security from abusive men. A shortage of work exacerbates riots and illicit activity. Any situation can be traced back to money. We must concentrate on eradicating poverty.” – John Hope Bryant, CEO of Operation HOPE. The dynamic financial sector of India has been rapidly growing over the last few years. In the previous five years, tremendous progress has been made in moving India toward financial inclusion using cost-effective, easy, and secure methods that integrate unbanked rural communities into the economic mainstream. Despite the sector’s rapid growth, significant sections of the population experience these positive changes at a much slower pace. Although most households have a bank account, they are unaware of the financial services, products, and investment provisions, have less financial knowledge, and have unsatisfactory and adverse financial behavior and attitudes (Azeez and Akhtar 2020). Financial literacy correlates significantly negatively with gambling frequency, while financial education has no significant association with gambling frequency. Our findings suggest that problem gambling may be mitigated by promoting financial literacy, but no such conclusion can be drawn for financial education (Watanapongvanich et al. 2021). Financial inclusiveness depends on financial literacy, whereas financial literacy, among other factors, depends on the extent of the household’s use of mass media (Banerjee-Chatterjee et al. 2021). Financial literacy is linked with innovation, which holds across various innovation criteria. Furthermore, male owners appear to support more ideas, whereas the organization’s size positively relates to innovation. More financially literate individuals make better personal financial decisions and significantly impact national policy (Liu et al. 2021). The financial literacy of homemakers was low. Increasing this literacy through general education in this context will be appropriate. In this way, homemakers will evaluate their savings better, and the country’s financial system will work more effectively (Eti and Temizel 2021). Financial planning highlights the moderating impact of gender in the association between financial planning and financial contentment and mediates the relationship between financial literacy and financial satisfaction (Kengatharan et  al. 2021). University students with limited financial literacy substantially impacted their risk and time preferences. Risk-taking and patient attitudes are linked to increased financial awareness among university students. These characteristics are related to residents’ better life outcomes (Mudzingiri 2021). Financial literacy is a multi-component construct comprising financial knowledge, attitude, behaviors, and well-being. Financial literacy is a multi-faceted concept that includes financial knowledge, attitudes, behaviors, and overall well-being. Young people who are financially literate can better achieve financial independence and avoid intergenerational poverty. On the other hand, recent studies show that teenagers lack financial literacy. During secondary school, pupils should learn

2.2 Literature Review

31

financial education as a natural environment for developing financial literacy in young people (Yue et al. 2021). Financial literacy includes accounting information, market information and technical knowledge. Return, Risk and Market Analysis are three aspects that influence investment decisions. It strongly links financial knowledge and investment decisions (Prasad et al. 2021). Financial literacy is vital for retirement preparedness. “Advantage” (high income and education) is a decisive factor common to higher financial literacy, resulting in less debt anxiety or increased risk tolerance/willingness to take more risks. The relationships between financial literacy, risk tolerance, and debt anxiety are complex and vary by subsample cohort and indicate that assuming a simplified nature between these factors may result in misleading relationship generalizations (Noviarini et al. 2021). Compared to men, women are less financially literate. It’s unclear whether this discrepancy is due to a lack of information or confidence. The survey experiment revealed that women are more likely than males to respond “don’t know” to questions about financial understanding. When this response option is missing, people frequently select the proper response. We create a latent class model to predict the likelihood that responders are genuinely knowledgeable about the replies. Women’s lower confidence levels account for around a third of the financial literacy gender gap. Stock market participation requires financial expertise and confidence (Bucher-Koenen et  al. 2021). In making financial decisions, financial literacy plays a significant and constant role. People with high degrees of financial literacy tend to take too many risks, overborrow, and have bad financial attitudes. Financial knowledge leads to people becoming bolder and riskier in their financial decisions. On the other hand, financially literate people are better at retirement planning and are uninterested in gambling (Kawamura et al. 2021). There may not be a positive correlation between increasing the availability of financial products and services and a rise in financial inclusion. Those who understand basic financial concepts are more inclined to use financial services and products. Financial literacy campaigns in both nations should back financial inclusion efforts (Fanta and Mutsonziwa 2021).

2.2.4 Financial Inclusion and Income Inequality Financial inclusion is associated with lower poverty levels and income inequality for the entire sample. Still, there appears to be no relationship between financial inclusion and economic disparity in developing Asia (Park and Mercado 2018). The financial system’s resilience helps alleviate existing income inequality, and income inequality appears higher in liberal market economies than in coordinated economies. These results encourage policymakers to look beyond traditional public redistribution interventions and pay attention to other financial variables related to the financialization process, financial intermediaries’ behavior, and the specific environment (de la Cuesta-González et al. 2020).

32

2  Key Drivers and Challenges for Financial Inclusion

To ensure the availability, accessibility, and usability of financial services, African countries’ financial sectors must expand financial markets and engineer financial services and products specifically tailored to the needs of the low-income segment of the population to eradicate poverty and reduce income inequality. The government and policymakers should implement appropriate policies to enhance financial services networks in rural areas. In addition, the financial regulator may assist financial service providers in reaching out to the unbanked to bring them into the formal economy (Khan et al. 2021).

2.2.5 Financial Inclusion, Financial Well Being and Financial Capability The multi-dimensional constructs include income decrease, income insufficiency, and attitudinal and behavioral financial capabilities. Understanding emerging adults’ demands for independent personal economics (Chow et al. 2020) is essential. By adopting parents as financial role models, family communication quality has an indirect, positive effect on subjective financial well-being. Economic entanglement in the family directly impacts the income of the emerging adult who does not receive it from their parents. A direct and positive relationship was found between parents’ adoption as financial role models and economic dependence on parents (Lanz et al. 2020). Social work has a long history of pioneering interventions to improve people’s financial well-being. India has an interesting situation since, on the one hand, it has the most significant number of unbanked people and, on the other hand, it has multiple policy initiatives. The efficacy of policies was impeded by flawed designs, as the policymakers preferred ‘quick fixes’ over long-term solutions. Our study highlights the need for learning from the past and organizing complex information in a way that helps policymakers in making informed policy design decisions (Sinha and Piedra 2020). Microfinance institutions (MFIs) offer low-income people without collateral savings, credit, insurance, and remittance services. MFIs have two objectives: social outreach and long-term financial viability. The most contentious topic in the Indian microfinance market is MFIs’ social and financial performance (Chauhan 2021). Financial stress is not an isolated phenomenon. It is an interdisciplinary subject that affects almost all aspects of life, including physical and mental health. The organization’s culture determines employee wellness and happiness (Jaggar and Navlakhi 2021).

2.3 Research Design

33

2.2.6 Scams, Fake Transactions, and Cyber Issues Consumer fraud is increasingly complicated, necessitating a high level of sophistication to detect it. Because automated fraud detection systems do not always detect fraudulent activity, banks rely on their clients to spot and report suspicious activity in their accounts. Financially literate individuals will be better able to identify fraud risks and spot fraud incidents due to their increased financial understanding and innovative financial behavior (Engels et  al. 2020). Electronic banking fraud has been a recurrent problem in Nigeria due to the country’s cashless policy. Fraud in any financial arena suggests vulnerability and flaws that fraudsters take advantage of. It emphasizes the necessity of trust governance in electronic banking and its importance in a cashless country in transition like Nigeria (Tade and Adeniyi 2020). Mobile technology gives the most benefit in cities after upgrading to a full 3G or 4G band capable of supporting smartphone apps. However, with smartphone technology comes an increased risk of scams and other possible problems, especially in areas where the law is weak, with low business literacy and limited property protection. Policy formulation must include risk management and development paths (Hewa Wellalage et al. 2021). To avoid becoming victims of investment scams, kids should get early financial management education to build disciplined budgeting habits. Students should be carefully supervised in developing financial goals, such as avoiding unrealistic desires to live a wealthy lifestyle with “quick and easy” money (Padil et al. 2021).

2.3 Research Design The quantitative technique was selected to enable researchers to find quantitative responses to achieve research goals. The focus of this study was the demand side of financial inclusion. The study was conducted as part of a descriptive and exploratory framework. The literature review showed that various critical factors had affected the level of financial inclusion/exclusion, like income, employment, bank charges, quality services, level of complexity, required identification, financial education, and status of physical access. It was administered using a questionnaire to describe and evaluate the significance and effects of these factors on financial inclusion. The survey was also used to identify individuals’ types and extent of exclusion (if applicable). A sample of 333 individuals was taken from Uttarakhand state in India. Sample selection was performed using a convenient sampling technique. Cronbach’s Alpha was used to decide the sample size for the quantitative study. It is a statistic commonly quoted by authors to demonstrate that tests and scales constructed or adapted for research projects are suitable. For quantitative data, convenience sampling was employed to choose the samples. Data collection for the study was conducted from October 2018 to March 2021. A structured questionnaire was used for Household Survey. 5 points Likert scale was used in the questionnaire.

34

2  Key Drivers and Challenges for Financial Inclusion

For quantitative data analysis, a reliability test was done to determine the reliability of the questionnaire’s items. Then exploratory factor analysis was done to understand the factors influencing Financial Inclusion. A binary logistic regression model was used to know the Socio-economic Impact of Financial Inclusion.

2.4 Data Analysis and Interpretation Cronbach’s Alpha (Cronbach 1951), also known as coefficient alpha, is a measure of reliability, specifically internal consistency reliability or item the interrelatedness of a scale or test (e.g., questionnaire). Cronbach’s Alpha usually varies from 0 to 1 (Table 2.1). Cronbach’s Alpha is 0.690, and Cronbach’s Alpha Based on Standardized Items is 0.778, both of which are higher than the allowable bottom limit of 0.6 (Nunnally 1978). It suggests that the items have internal consistency. In most cases, a reliability coefficient of 0.70 or higher is regarded as “acceptable” in social science research (Gliem and Gliem 2003). It shows that scale elements positively contribute to measuring the concept of financial inclusion. Exploratory Factor Analysis (EFA)  was conducted on the data collected from the 50 items of the questionnaire using Principal Component Analysis and Varimax rotation. Factor analysis will outline the common patterns that underlie any large data set. Some multiple factors and indicators affect financial inclusion. In this case, it refers to the degree to which the intended independent variable (construct) relates to the independent proxy variable (indicator) (Hunter and Schmidt 1990). Hence, factor analysis was the most suitable approach to deal with the subsequent analysis of the items. The data collected from 333 respondents were subject to factor analysis. Scale Purification  Purification of construct administered on beneficiaries of financial inclusion through cooperatives was separately carried out using SPSS. A measure of sampling adequacy is the Kaiser-Myer-Olkin (KMO). The KMO was used to explore the data to determine whether a factor analysis should be performed. The KMO is widely considered one of the best metrics for determining the eligibility of a set of data for further factor analysis. In this research work, the KMO is 0.535, which shows reasonably satisfactory sample adequacy (Table 2.2). The Bartlett’s Sphericity Test has Chi-Square 7559.451, df 1225, and P-Value (significance level) is 0.000, which indicates that factor analysis is valid. Thus, after Table 2.1  Reliability statistics Cronbach’s Alpha .690

Cronbach’s Alpha based on Standardized items .778

Source: Authors calculation using SPSS.21

N of items 40

2.4 Data Analysis and Interpretation

35

Table 2.2  KMO and Bartlett’s test KMO and Bartlett’s Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy. Bartlett’s test of Sphericity

Approx. Chi-Square Df Sig.

.535 7559.451 1225 .000

examining all four preliminary tests, namely determinant, overall Kaiser-Meyer-­ Olkin Measure of Sampling Adequacy (KMO), Cronbach Alpha, and Bartlett’s Test of Sphericity, the results in all four cases justify the use of factor analysis of the data obtained through the construct of a 5-point Likert-scale. Furthermore, the KMO and Bartlett’s test of sphericity is significant for this study. Therefore, it is appropriate to proceed with factor analysis to examine financial inclusion factors (Table 2.3). Number of Factors Retained  After extracting factors, the researcher decides how many to keep for rotation. The findings can be affected by over-extraction and under-extraction of components maintained for rotation. Most statistical software packages keep all factors with eigenvalues greater than 1.0 by default. The Table above displays the total variance explained for factors affecting the overall financial inclusion of the selected variables. First, seventeen factors were extracted as their Eigenvalues are greater than 1. Then, after Varamixrotation, seventeen factors all together gave 0.69895 of total variance loading (Fig. 2.1). Scree Plot  The figure shows the scree plot, a graph of the eigenvalues against all the factors. Therefore, the graph helps determine how many factors to retain. Further, the graph depicts that only seventeen elements have been retained (Table 2.4). The seventeen factors extracted have been renamed “Access to Information and Purpose of Investment,” “Investment Performance,” “Financial Socialization,” “Usage of Financial Products and Services,” “Expectation from SHGs and NGOs,” “Perceived Benefits from Investment,” “Expected Future Performance of Financial instrument,” “Financial Education,” “Issues and Challenges in Financial Technology,” “Social Inclusion,” “Financial Literacy and Awareness,” “Short term Planning,” “Long Term Planning,” “Affordability,” “Challenges in Usage of Financial Products and Services,” “Usage of Technology” and “Usage of Banking Products and Services” The Table above exhibits the factor loadings of the seventeen extracted factors after Varimax rotation. The first factor presents the highest percent variance (8.289%) explained during extraction. When the second factor was extracted, then 6.394% of the variance would be explained. When the third factor was extracted, 5.232% of the variance would be explained. The fourth factor explains 4.870% of the variance, the fifth factor 4.539% of the variance, the sixth factor 4.002% of the variance, and the seventh factor explains 3.99% of the variance among the few factors to be mentioned. The factors explained a cumulative 68.89% of the variance.

Component 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Initial eigenvalues Total % of variance 11.578 5.789 3.504 7.007 3.010 6.020 2.429 4.858 2.292 4.584 2.095 4.190 1.992 3.983 1.781 3.562 1.624 3.248 1.577 3.153 1.441 2.882 1.359 2.719 1.333 2.665 1.266 2.532 1.235 2.471 1.123 2.245 1.099 2.198 .987 1.973 .969 1.937 .894 1.789 .866 1.731 .829 1.659 .807 1.614 .772 1.544 .719 1.437

Table 2.3  Total variance explained

Cumulative % 11.578 18.585 24.605 29.463 34.047 38.237 42.220 45.782 49.030 52.183 55.065 57.784 60.449 62.981 65.452 67.697 69.895 71.868 73.806 75.594 77.326 78.984 80.598 82.142 83.580

Extraction sums of squared loadings Total % of variance Cumulative % 5.789 11.578 11.578 3.504 7.007 18.585 3.010 6.020 24.605 2.429 4.858 29.463 2.292 4.584 34.047 2.095 4.190 38.237 1.992 3.983 42.220 1.781 3.562 45.782 1.624 3.248 49.030 1.577 3.153 52.183 1.441 2.882 55.065 1.359 2.719 57.784 1.333 2.665 60.449 1.266 2.532 62.981 1.235 2.471 65.452 1.123 2.245 67.697 1.099 2.198 69.895

Rotation sums of squared loadings Total % of variance Cumulative % 4.145 8.289 8.289 3.197 6.394 14.683 2.616 5.232 19.915 2.435 4.870 24.785 2.269 4.539 29.324 2.001 4.002 33.326 1.999 3.999 37.325 1.918 3.836 41.161 1.884 3.769 44.930 1.854 3.707 48.637 1.799 3.597 52.234 1.731 3.461 55.695 1.563 3.125 58.821 1.458 2.915 61.736 1.447 2.894 64.630 1.444 2.887 67.517 1.189 2.378 69.895

36 2  Key Drivers and Challenges for Financial Inclusion

.666 .644 .590 .560 .532 .475 .463 .451 .418 .402 .364 .324 .318 .299 .283 .231 .225 .208 .167 .151 .138 .101 .088 .068 .045

1.333 1.288 1.179 1.119 1.065 .949 .926 .901 .835 .804 .729 .648 .636 .597 .566 .461 .450 .417 .334 .302 .276 .202 .176 .136 .090

84.912 86.200 87.379 88.499 89.564 90.513 91.439 92.340 93.175 93.979 94.708 95.356 95.992 96.589 97.156 97.617 98.067 98.484 98.818 99.120 99.396 99.598 99.775 99.910 100.000

Extraction method: Principal component analysis Source: Authors’ calculation using SPSS.21

26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50

2.4 Data Analysis and Interpretation 37

38

2  Key Drivers and Challenges for Financial Inclusion

Fig. 2.1  Scree Plot

Binary Logistic Regression Model A statistical model helps generate predictions from the factors highlighted by the theory (Bacon-Shone 2015). This research will focus on a multivariate analysis which involves a more significant number of descriptive statistics. The use of multivariate techniques helps explore the relationships between multiple variables where a lot more information and different domains can be examined. Kumar et al. (2013) highlight two types of multivariate analysis methods: analysis of dependence and analysis of interdependence. This research analyzes dependence because it examines how an independent variable explains multiple dependent variables. The multivariate analysis involves several techniques; this research will use a binary logistic regression analysis. The binary logistic regression is an extension of different regressions, except this method allows the model to have a dichotomous dependent variable (Mertler and Reinhart 2016). The evaluation of a regression model involves assessing the overall 45 models, the importance of each independent variable, and finally, the model’s predictive accuracy or discriminating ability (Park 2013). Initial Classification and Final Classification SPSS software has made the initial classification table (beginning block) and the classification table after the model fit. The Table under model fitness assessment above indicates how well the model can predict the correct category (financial inclusion has Socio-economic impact/no impact) for each case after predictors are included (Pallant 2011). The study’s outcome showed that the model correctly classified 91.6% of cases, above the value of 0.5 (Tables 2.5, 2.6, and 2.7).

What are the factors which have implications on investment decisions? [newspapers] What is the primary purpose of investment decisions? [secured future] What are the factors which have implications on investment decisions? [financial dailies] What are the factors which have implications on investment decisions? [colleagues /peer groups] What are the factors which have implications on investment decisions? [TV channels] What is the main purpose of investment decisions? [speculation] What are the factors which have implications on investment decisions? [customer service]

.408

.407

.438

.172

.218

−.205

.167

−.106

.243

.639

.418

.308

−.135

6

.489

5

.657

4

.139

3 .200

.705

.718

Component 1 2 .841

Table 2.4  Rotated component matrixa

.236

.298

7

10

−.322

.229

−.224

12

−.281

11

.230

−.246

−.110

.243

−.129 .203

9

−.205

8

14

−.404 .218

.155

−.114

13

−.102

−.124

15 .101

.149

−.154

.156

17

(continued)

.133

16

What are the factors which have implications on investment decisions? [past experience] What are the factors which have implications on investment decisions? [information through the internet] What are the factors which have implications on investment decisions? [ease of purchase] What are the factors which have implications on investment decisions? [information from the company] What are the factors which have implications on investment decisions? [suggestion by friends] What are the factors which have implications on investment decisions? [suggestion by relatives]

Table 2.4 (continued)

.377

8

−.206 .174

.185

7

.736

.233

.322

6

.322

5

.226

−.179

4

.860

.643

.690

.773

3 .125

.122

.347

.206

Component 1 2 .807 9

.164

−.138

10 −.192

11

.202

.274

.331

−.135

12

13

−.116

−.114

14 .131

−.112

15

16

17 −.106

3 .594

.440

.143

What are the factors which have implications on investment decisions? [liquidity] What are the factors which .318 have implications on investment decisions? [guidance by investment consultant] Reasons for not having a Bank account? Not having too much money What are the challenges in digital mode? Transaction cost (not used by shopkeepers/restaurants/ hotels/vegetable and fruit sellers) Why do you prefer the digital mode for transactions? Convenience Reasons behind opening a Bank account (for receiving remittances/pension) Financial services which you would like to avail or currently availing from financial institutions [post office]

Component 1 2 −.154 .262

.121

−.331

.508

.879

−.193

−.233

−.281

−.111

9

−.576

−.101

−.388 .437

−.255

8 .261

7 .269

6 .178

.141

5

.585

.813

4

.276

10

.284

11

12 −.246

.191

13

.112

.131

.171

14 15 −.126 .153

−.147

17 .144

(continued)

−.289

−.248 −.294

.142

16 .137

Financial services which you would like to avail or currently availing from financial institutions [SHGs/NGOs] What is the primary purpose of investment decisions? [low risk] What are the factors which have implications on investment decisions? [familiarity] What are the factors which have implications on investment decisions? [perception] What is the primary purpose of investment decisions? [assured return] What is the primary purpose of investment decisions? [safety of investment] What are the factors which have implications on investment decisions? Ease of marketability]

Table 2.4 (continued)

.196

.275

.360

.324

.495

.187

.359

.763

.105

.108

.610

.501

.220

7

−.768

6

−.111 −.126

5 .876

.369

4 .110

.658

−.111

3

−.331 .149

.102

.191

.126

Component 1 2

.101

−.114

−.199

.418

.141

−.107 .304

−.101

12

−.108

11

.129

.233

9 10 −.102

−.225

8

14

.152

−.163 −.183

13

15 .130

.176

16

17

What are the factors which have implications on investment decisions? [lack of confidence] .280 What is the primary purpose of investment decisions? [capital gain] What are the factors which .505 have implications on investment decisions? [financial knowledge] What are the challenges in digital mode? Connectivity/ network Why do you prefer the digital mode for transactions? Easy tracking of information What are the challenges in digital mode? Lack of trust What is the primary purpose of investment decisions? [child education] .200 What is the primary purpose of investment decisions? [daughter marriage] Reasons for not having a Bank account? Fear or perception of too lengthy or complicated process

−.133

.307

Component 1 2 .287 .334

.128

.226

3

.101

.359

−.295

4

.119

−.111

−.262

5

.171

6

.779

−.141

−.200

−.169 .714

.569

.592

.174

.539

10 .111

−.155

.776

9

.615

8 −.626

−.189 −.157

.182

7

.258

15

17

−.196 .156

16

.740

.159

(continued)

.152

.109

.186

.312

.203

14

−.103 −.137

−.112

13

−.123 −.122

−.185

−.107

12 .174

.270

11

.105

3

−.183 −.146

Component 1 2

What are the challenges in digital mode? Lack of security What are the challenges in digital mode? Lack of awareness −.120 What is the primary purpose of investment decisions? [tax benefits] What is the primary purpose of investment decisions? [retirement] What are the factors which .204 have implications on investment decisions? [potential gain] Reasons for not having a Bank account? Too many charges to open an account Reasons behind opening a Bank account (for receiving government subsidies) Financial services which you would like to avail or currently availing from financial institutions [Bank]

Table 2.4 (continued)

−.321

.216

−.412

4

6

.257

−.346

−.256 −.161

.105

.118

5

.139

7

.166

−.217

8

10

.105

.132

.147

−.146 .123

−.204

9

.100

.157

−.102

−.612

.139

.351

.741

11 12 −.715

15

.596

.751

.695

.140

.271

−.410 −.260

−.104

.142

16

−.111

.122

−.122 .110

14 .136

.828

13 .244

.110

−.102

−.133

17

3

Extraction method: Principal component analysis Rotation method: Varimax with Kaiser normalization a Rotation converged in 23 iterations

What are the challenges in digital mode? Transaction cost Reasons behind opening a Bank account (for saving money) What are the factors which have implications on investment decisions? [investment amount] Why do you prefer the digital mode for transactions? Discounts/ cash Back Reasons behind opening a Bank account (for requesting a loan) Main purpose of Visting Bank

Component 1 2 −.108

−.172

−.142 .136

8 −.111 −.116

9

10 .110

.257

.205

−.342 −.121

7

−.402

6 .124

−.107

−.238

5

−.121

4 −.162 .298

11

12

.313

.160

.268

13

.173

14

.210

−.131

−.519

15 .628

.351

17 .217

.336

.359

−.159 .650

.429

−.792 .122

16

46

2  Key Drivers and Challenges for Financial Inclusion

Table 2.5  Initial classification tablea,b

Observed Step 0 Financial inclusion helped in uplifting socio-economic status Overall percentage

Predicted Financial inclusion helped in uplifting socioeconomic status Percentage 1 2 correct No 0 77 .0 Yes 0 256 100.0 76.9

Constant is included in the model The cut value is .500

a

b

Table 2.6  Final classification tablea

Observed Step 1 Financial inclusion helped in uplifting socioeconomic status

Predicted Financial Inclusion helped in uplifting Socioeconomic Status 1 2 No 61 16 Yes 12 244

Overall percentage

Percentage Correct 79.2 95.3 91.6

The cut value is .500

a

Table 2.7  Omnibus tests of model coefficients s Step 1

Step Block Model

Chi-square 229.287 229.287 229.287

df 73 73 73

Sig.