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This paper analyses the need, significance and the advantages of ‘reforms in institutional finance for inclusive growth’ in the context of Indian economy and offers some practical suggestions from the functional perspective. India’s rural financial architecture (RFA) is subject to systemic policy issues and pervasive institutional weaknesses. Lack of autonomy and weak governance and ‘unseen’ accountability have affected the sustainability of rural financial institutions (RFI) and resulted in constrained outreach. The importance of access to institutional finance for the poor arises from the problem of financial exclusion of nearly 3 billion people from the formal financial services across the world. With only 34% of the population engaged in formal banking, this paper finds that the reforms in institutional finance coupled with governance reforms in India’s RFA would greatly benefit the economy in making available the much-needed financial services to the poor and the neglected sections of the society, and facilitate efforts towards achieving inclusive growth.
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