Jammu & Kashmir’s Financial Inclusion
CA. Taresh Gupta
tareshgupta042@gmail.com
Financial inclusion has often been portrayed as a social welfare goal – a way to bring the poor into the folds of formal banking. But in Jammu & Kashmir (J&K), it is far more than that. It is the bloodstream of an economy struggling to recover its rhythm. The territory’s promise of growth – in tourism, horticulture, handicrafts, and small-scale industries – hinges not merely on peace and infrastructure, but on finance: the invisible hand that allows ideas to become enterprises and deposits to become jobs.
Over the last few years, J&K has made visible progress in expanding financial access. Banks and microfinance institutions now reach further into rural and semi-urban regions than ever before. Digital transactions are growing steadily, and savings habits are strengthening. Yet, the distance between access and opportunity remains painfully wide. The region may be banked, but it is not yet financially alive. The language of inclusion has reached the people, but the culture of entrepreneurship still struggles to find its footing.
A Shifting Economic Landscape
Jammu & Kashmir’s economy is a complex mosaic of promise and fragility. Its industrial fabric remains dominated by small and medium enterprises – from woodcraft, paper-mache, and carpets in the Valley to basmati rice, cement, and processed food in Jammu. The horticulture sector, led by apple and walnut cultivation, continues to be a vital source of livelihood, contributing significantly to income and employment. Tourism, the emotional heartbeat of the region, adds a seasonal but crucial stream of revenue.
However, these sectors share a common constraint: the scarcity of easy, affordable, and consistent credit. Without it, businesses remain trapped in survival mode – capable of producing, but not expanding; capable of earning, but not investing.
Industrialists across J&K quietly acknowledge this paradox. Infrastructure has improved, logistics have become easier, and policy incentives exist. Yet, access to capital – the engine that powers enterprise – is sporadic at best. The ecosystem resembles a car with a powerful engine and an empty fuel tank.
The Credit Dilemma: When Banks Turn Conservative
The reluctance of banks to lend aggressively in J&K is not without reason. The region’s economic base is narrow and heavily dependent on weather-sensitive or tourism-based cycles. For banks, this translates into volatility.
A single season of poor apple yield or a dip in visitor numbers can cascade into defaults. Combined with the region’s history of instability, these risks create a mindset of institutional caution.
But excessive caution breeds stagnation. When banks view lending primarily through the lens of risk, they inadvertently reinforce the very fragility they fear. Industries in J&K require what economists call developmental credit – not reckless loans, but structured, patient capital designed to withstand cycles.
Medium and small enterprises, for instance, often need working capital to procure raw materials before the season starts or to bridge delayed payments from government buyers. Instead, they face long procedural hurdles, demands for collateral they cannot provide, and limited trust from financial institutions. Many businesses end up relying on personal savings or informal borrowing, curbing both innovation and scale.
Deposits Abound, Investments Lag
Paradoxically, J&K has a robust deposit base. People trust banks enough to park their money, yet the same banks hesitate to invest those savings back into the local economy. The result is a lopsided system – abundant liquidity, but underutilised potential.
In many districts, the credit-deposit ratio remains far below the national average, indicating that deposits are not translating into local investment. Funds often flow out of the territory in search of safer or higher-yield opportunities elsewhere. For an economy already struggling with unemployment and low industrial diversification, this leakage represents a lost opportunity.
The absence of strong credit linkages also affects entrepreneurial culture. Young entrepreneurs, even those trained under various government skill and startup schemes, often hit a wall when seeking financial backing. The dream of self-employment – a pillar of J&K’s new development narrative – remains fragile without accessible credit.
Industry and Commerce: Between Aspiration and Constraint
Industrialists in J&K often describe a two-sided frustration. On one hand, they see a region rich in resources and human talent – from skilled artisans in Kashmir to the industrious traders of Jammu. On the other, they face bottlenecks in finance, logistics, and marketing that keep enterprises small and fragile.
Take the example of handicraft and handloom industries, which employ thousands but remain heavily dependent on middlemen due to limited working capital. Without financial cushions, artisans are forced to sell early and cheap, rarely reaping the true value of their craft. Similarly, horticulture entrepreneurs struggle with post-harvest losses because cold storage and processing units demand investment that banks are reluctant to finance.
Commerce in Jammu, meanwhile, faces its own set of challenges. While trade activity is vibrant, credit for traders and wholesalers remains restricted to established names with existing relationships. Smaller retailers and transporters, who form the real engine of local commerce, often rely on informal credit networks. These networks are fast and flexible, but expensive – eroding profits and perpetuating dependency.
The gap between formal finance and informal enterprise is precisely where inclusion must deepen. Financial inclusion cannot stop at households; it must embrace commerce as its core beneficiary.
The Role of Digital and Cooperative Finance
There is, however, a quiet transformation underway. Digital banking and fintech platforms are beginning to bridge some of the gaps left by traditional banking. Mobile payment systems, small-ticket loans, and credit-linked insurance schemes are slowly becoming part of the financial vocabulary of J&K’s youth and micro-entrepreneurs.
The cooperative sector – though struggling with legacy issues – still offers a promising model. Local credit cooperatives and self-help groups have shown that financial trust can be built at the community level, where social familiarity substitutes for formal collateral. With better regulation and capacity building, these institutions could play a crucial role in extending micro-credit to remote and underserved regions.
Women Entrepreneurs: An Untapped Economic Force
Among the most underutilised assets of J&K’s economy are its women entrepreneurs. From handicraft producers in Budgam to boutique owners in Jammu, women-led ventures exist – but their access to credit is disproportionately low. Most face structural barriers such as lack of collateral or guarantors, and many operate in informal setups invisible to the banking system.
Yet, wherever small credit interventions have succeeded – through self-help groups or women’s cooperatives – the results have been transformative. Beyond income, access to finance has fostered confidence, mobility, and local employment. The next wave of inclusion in J&K must therefore be gendered – not as token empowerment, but as a serious economic strategy.
Commerce and Confidence: Rebuilding Trust in Finance
Ultimately, financial inclusion in J&K is not only about infrastructure or schemes. It’s about rebuilding trust – the invisible currency that makes markets thrive. For decades, uncertainty made both investors and institutions risk-averse. But no economy can grow on caution alone.
To revitalise commerce, financial institutions must become more participatory. They need to see local businesses not as liabilities, but as partners in regional growth. Similarly, entrepreneurs must embrace transparency, proper documentation, and digital engagement to strengthen their financial credibility. Trust, once rebuilt, will allow credit to flow more freely, and commerce will follow.
A Policy Imperative for Balanced Growth
Policymakers, too, must rethink financial inclusion beyond account numbers and digital dashboards. For J&K, inclusion must mean economic activation – credit that funds value chains, not just consumption.
Specialised credit products for tourism, horticulture, and MSMEs could reduce risk through sectoral diversification. Public-private credit guarantee funds could encourage banks to lend to first-time entrepreneurs. Strengthening business correspondent networks in rural areas would extend financial presence without the cost of physical branches.
Moreover, investment in financial literacy must move beyond awareness drives. People don’t need to be told how to open an account; they need to learn how to manage one effectively, how to assess risk, how to convert savings into business capital. Financial literacy, when treated as life-skill education, becomes a catalyst for enterprise.
From Stability to Growth: The Next Chapter
The story of financial inclusion in Jammu & Kashmir is ultimately a story of transition – from isolation to integration, from subsistence to growth. The region stands at a promising juncture. Its people are financially connected as never before; the digital economy is expanding; and the spirit of entrepreneurship is quietly awakening.
Yet, these gains will remain incomplete unless they translate into real industrial and commercial momentum. Inclusion must lead to investment. Savings must become startups. Deposits must become jobs.
The challenge is immense, but so is the potential. With strategic policy focus, risk-tolerant credit mechanisms, and a renewed partnership between banks, businesses, and communities, J&K could become not just financially included, but economically empowered.
It’s time to move the conversation from banking access to business vitality – from counting accounts to nurturing enterprises. Only then will financial inclusion in Jammu & Kashmir cease to be a line in government reports and become the pulse of a self-reliant, confident economy.
(The author is a practising Chartered Accountant)
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