Financial inclusion is one of the more celebrated gains in India’s development story. Bank accounts, Jan Dhan coverage, digital payments and financial literacy programmes are now routinely cited as proof of a more inclusive economy. They are useful markers. They are not enough.
For small entrepreneurs in rural and hilly India, especially in the North East, the binding constraint is often simpler: the bank exists, but is too far away. Access to institutional credit is still shaped by geography.
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Evidence from Nagaland points to this neglected problem. The distance between a firm and a bank continues to influence whether an entrepreneur gets formal credit. Businesses closer to banks are more likely to obtain institutional loans. Those farther away are pushed out, or made to depend on costlier informal finance.
The debate on credit usually turns on supply: loan schemes, interest rates, priority-sector norms, fintech, and digital banking. These matter. But they miss a prior question. How easily can an entrepreneur physically deal with the banking system?
Bank distance and credit access
In the North East, terrain changes the meaning of distance. Mountain roads, poor transport links and weak market infrastructure turn a few kilometres into a serious barrier. A bank branch several kilometres away imposes travel costs, lost work hours, repeated visits for documentation, and uncertainty over the loan process.
For a small shop, workshop, transporter, food-processing unit or service enterprise operating on thin margins, these are not minor frictions. They are part of the cost of credit.
The Nagaland evidence shows that proximity raises the likelihood of access to institutional loans. Financial inclusion, then, is not only about whether banking services are formally available. It is also about whether borrowers can reach them without disproportionate cost.
Geography still determines economic opportunity.
India measures financial inclusion through account ownership, branch density, digital transactions and credit access. These indicators are useful, but they do not capture the lived reality of entrepreneurs in geographically disadvantaged regions.
A village may be listed as banked. A district may show adequate branch coverage. Yet an enterprise may remain effectively excluded if reaching the branch takes time, money and repeated travel. This is why firm distance should be treated as a policy indicator in its own right.
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North East banking gaps
The problem is especially visible in the North East. The region’s geography has always made service delivery expensive. Roads, markets, public institutions and financial infrastructure cost more to extend than in the plains.
Banks respond to commercial incentives. Private and public sector banks tend to concentrate more facilities in metropolitan and urban centres than in rural areas. RBI data show this broad urban bias in the deployment of banking infrastructure. The logic is clear enough: larger customer bases, lower operating risk and higher returns.
The public policy result is less benign. Regions that already face development deficits become more marginalised when financial institutions cluster in better-off locations.
This also strengthens informal lenders. In the Nagaland case study, about 40% of entrepreneurs had borrowed from informal sources such as moneylenders. Such credit is fast and local, but often carries punitive rates. It can trap borrowers who lack collateral, paperwork or the patience to negotiate a distant formal system.
The issue is not merely the absence of banks. It is the location of banks relative to enterprises.
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Make proximity a policy metric
Three priorities follow.
First, banking infrastructure should be planned around emerging business clusters, market centres and entrepreneurial hubs in rural and hilly regions. The objective should be to move formal finance closer to enterprises, not expect small enterprises to absorb the cost of distance.
Second, regulators and policymakers should include proximity metrics in financial inclusion frameworks. A dedicated measure of enterprise distance from banking facilities would make the geographic constraint visible. What is measured gets acted upon.
Third, the North East needs a specialised banking strategy. A uniform national model cannot work equally well across plains, hills, dispersed settlements and border districts. Financial infrastructure planning must reflect terrain, transport, settlement patterns and market density.
Digital finance can help, but it cannot replace physical access where documentation, loan appraisal, cash handling, collateral verification and trust still require human contact. For first-generation entrepreneurs, branch presence remains part of the credit relationship.
India’s financial inclusion agenda has widened access to accounts and payments. Credit remains more uneven. In hilly regions such as Nagaland, firm distance from banking institutions defines access to credit as much as eligibility or interest rates.
Unless this is addressed directly, financial inclusion will remain partial. Many entrepreneurs will remain banked in official statistics, but excluded in practice.
Ashraf Rehman is a fellow at The Green Institute and previously served as pre-doctoral fellow in Indian Institute of Technology, Dhanbad. This article is based on author’s research published in Journal of Development and Policy Practice.