Mainstream WeeklyFinancial inclusion has become one of the most celebrated milestones of India’s development story, policymakers often advocate to expanding bank accounts and financial literacy initiatives as evidence of an inclusive economy. Yet beneath these advocacies there lies a deeper and precise neglected challenge: access to institutional loan remains heavily influenced by geography.
For the small and marginalised entrepreneurs in India’s rural and hilly regions, particularly in the North Eastern Region of India, the core issue is not the existence of banks, but, the physically accessible of banks and the banking facilities.
Recent evidence from the case study of Nagaland, North East highlights an uncomfortable reality. The distance between a firm and a bank continues to play a significant role in determining access to formal or institutional credit by the business owners.
Businesses located closer to banks or financial institutions are more likely to obtain credits, while those operating farther away are excluded from the credit and face greater barriers.
The Hidden Geography of Credit
The supply of finance has been the core issues in the development debates, with loan schemes; rate of interests, digital innovations in the banking system has motivated the discussions.
Undoubtedly, these interventions are important, but they often fail to answer a more basic question; how easily can an entrepreneur physically engage with the banking system?
To be more precise, the North Eastern geographical barriers such as; mountainous terrain, poor transport connectivity, and weak infrastructural ecosystem makes even a short distances into substantial barriers.
Distance alone doesn’t remains a constraint, but, with a bank branch located several kilometres away from a business, it adds more such as; additional travel costs, lost of working hours, repeated documentation visits, and the uncertainty of loan application process. For small entrepreneurs operating on thin margins, these costs matter.
Empirical evidences from the case study of North East, India demonstrate that proximity increases the likelihood of accessing institutional loans. This suggests that financial inclusion is not only about the availability of banking services but also about their physical accessibility to the borrowers. In other words, geography continues to determine economic opportunity.
Why “Firm Distance” Should Be a Policy Indicator
In India financial inclusion is measured in various parameters: account ownership, banking branch density, digital transaction, and credit accessibility. While useful, these variables fail to capture the lived realities of entrepreneurs in the geographically disadvantaged regions like North East, India.
For example, a village in the hilly region may technically be banked. A district may show convincing branches. Yet entrepreneurs may still remain effectively excluded if reaching a bank requires significant time, cost, and effort.
This is why firm distance should emerge as a dedicated policy indicator for an inclusive economic growth in India.
The Northeast’s Uneven Financial Landscape
The challenge becomes particularly visible in Northeast India.
The region’s geography has always complicated service delivery. Roads, markets, public institutions, and financial infrastructure often face higher costs of expansion than in the plains of mainland India.
In addition, with around 40 percent (approximately) private sector banks and 24 percent (approximately) public sector banks, tend to concentrate their infrastructure and banking facilities in metropolitan and urban cities compared to 22 percent and 8 percent by private and public banks in the rural regions. This evidence from the Reserve Bank of India data reveals a broader disparity of deployments of banking facilities across India
From a commercial standpoint, this strategy is understandable. Urban centres offer larger customer bases, lower operating risks, and greater profitability. However, from a public policy perspective, the consequences are severe.
This also add another layer of the role of predatory “Informal money lenders”, with around 40 percent of entrepreneurs in the study took loans from informal sources such as; money lenders, which charge high predatory interest rates, creating a debt trap for the borrowers.
When financial institutions cluster in economically advanced areas, regions that already face developmental disadvantages become even more marginalised. This further results the exclusion of marginalised and small business owners in the hilly regions.
Three interconnected priorities:
First, banking infrastructure should target emerging business clusters, market centres, and entrepreneurial hubs in the rural and hilly regions of the country. The objective should be to bring financial institutions closer to enterprises rather than expecting enterprises to travel long distances for credit.
Second, regulators and policymakers should incorporate accessibility and distance proximity metrics into financial inclusion frameworks. A dedicated measure of enterprise proximity to banking facilities would create stronger incentives for institutions to address the geographic constraint.
Finally, a specialised banking strategy is required for the North Eastern Region of India. A uniform national model to geographically unique regions would often fail to deliver outcomes.
The North Eastern Region requires a more concentrated and context-sensitive financial infrastructure planning that recognises terrain, settlement patterns, and transportation constraints of the region.
The core policy issue is not simply financial access. It is firm distance from banking institutions, which precisely defines access to credit in hilly regions like North East India. Unless this challenge is addressed directly, India’s inclusion agenda will continue to leave many entrepreneurs behind.
And, financial inclusion will itself remain an incomplete scheme.
(Author: Ashraf Rehman, Fellow, The Green Institute)