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Financial Inclusion in Rural Indian Punjab: Evidence from Fields

Dr Gursharan Singh KainthDr Gursharan Singh KainthDr Gursharan Singh KainthDr Gursharan Singh Kainth ICSSR Senior Fellow-cum-Director

Guru Arjan Dev Institute of Development Studies 14-Preet Avenue, Majitha Road PO Naushera, Amritsar 143008

Globally, there is focus on inclusive growth these days. The Financial Stability and Development

Council (FSDC) headed by the Finance Minister is mandated to focus on financial inclusion and

financial literacy. All financial sector regulators including the Reserve Bank of India are

committed to the mission. And, very publicly, so are banks and other financial sector entities. If

we are advocating any kind of stability whether financial, economic, political or social and

inclusive growth with stability, it is not possible to attain these goals without achieving financial

inclusion. Financial inclusion promotes thrift and develops culture of saving, improves access to

credit both entrepreneurial and emergency and also enables efficient payment mechanism, thus

strengthening the resource base of the financial institution which benefits the economy as

resources become available for efficient payment mechanism and allocation. Empirical evidence

shows that countries with large proportion of population excluded from the formal financial

system also show higher poverty ratios and higher inequality. Thus, financial inclusion is no

longer a policy choice today but a policy compulsion. And, banking is a key driver for financial

inclusion/inclusive growth.

Financial exclusion, on the other hand, is the lack of access by certain consumers to appropriate,

low cost, fair and safe financial products and services from mainstream providers. Financial

exclusion becomes of more concern in the community when it applies to lower income

consumers and/or those in financial hardship. There is a large overlap between poverty and

permanent financial exclusion. Both poverty and financial exclusion result in a reduction of

choices which affects social interaction and leads to reduced participation in society. Full

financial inclusion, therefore, is a state in which all people who can use them have access to a

full suite of quality financial services, provided at affordable prices, in a convenient manner, and

with dignity for the clients. Financial services are delivered by a range of providers, most of

them private, and reach everyone who can use them, including disabled, poor, and rural

populations. Poor households in developing countries like India suffer from irregular and volatile

income. These households do not possess enough savings to meet even basic expenses and

therefore requires credit from time to time. Accessibility to credit at reasonable terms and

conditions is, therefore, very crucial for the well-being of the household. Previous studies (Shetty

2005; Patnaik 2005; Chavan 2005; Kainth 2010) have observed that, though there was an

increase in supply of credit in rural areas during the period after nationalization of commercial

banks (1969), post liberalization period (period after 1991) has mainly been characterized by

decrease in rural banking as reflected through decrease in number of rural branch offices of

commercial banks. Moreover, it was also observed that during this period there has been a

decrease in priority sector lending which includes lending to sectors like agriculture, small-scale

industries, retail trade etc. It is well known that in the developing countries like India, the

informal lending agencies provide credit at somewhat unfavorable terms and conditions. It has

been found that, delay in getting formal credit; non-availability of loan for domestic purposes

and requirement of collateral by formal lending agencies are the major reasons that forces

households to take loans from informal market (Sarap, 1991; Shivappa, 2005; Kainth 2010). In

this background, this paper examines some of the issues pertaining to financial inclusion and

accessibility to credit in rural areas of Punjab.

RESEARCH DESIGN AND METHODOLOGY

Method means a regular and systematic way of accomplishing something and procedure means a

way of performing or affecting something. The terms method and procedure are frequently used

interchangeably in research literature. It is truism that no results are much better than the

methods by which they are obtained. Apparently, the selection of the method is very important to

have satisfactory results. Research methodology is a way to systematically solve the research

problem where various steps are generally adopted by a researcher in studying the research

problem along with the logic behind them. It describes the various steps to be adopted in solving

a research problem such as the manner in which the problems are formulated, the definitions of

terms, the choice of the subject of investigation, the validation of data gathering tools, the

collection, analysis and interpretation of data and the process of inferences and generalizations.

The basic purpose of the research is to find out solution to the certain questions by making use of

the scientific and systematic techniques. Before finding an appropriate solution the problem one

has to design the way in which he wants to proceed in future, known as development of research

design. Research design is concerned with the methods and ways in which the investigator

manages the situation to study the selected problem. A research design is the arrangement of

conditions for collection and analysis of data in a manner that aims to combine relevance to the

research purpose with economy in procedure. In simple words, research design is a process of

deliberate application of research methods directed towards bringing an expected situation under

control.

SAMPLING FRAMEWORK:

The locale of the study is the rural areas of Punjab - one of the agriculturally advanced states of

Indian Union. Punjab state consists of three regions, namely, Majha, Malwa and Doaba.

Presently, there are twenty districts of the state. All the districts were grouped into three

categories on the basis of proportion of rural population, namely, Densely Rural Populated

Areas; Moderately Rural Population Areas and Thinly Rural Populated Areas. Proportion of

rural population accordingly to 2001 census was 65 per cent. Accordingly, all the districts below

65 per cent of rural population was grouped as Thinly Rural Populated (TRP) Areas; those with

65 per cent but less than 75 per cent as Moderately Rural Populated (MRP) Areas and those

with 75 per cent and more than that as Densely Rural Populated (DRP) Areas. There were six

districts each under TRP and DRP and the remaining eight districts comes under MRP. From

each group, two districts was selected randomly taken into account the below poverty line (BPL)

families. From each so selected district, one block was selected randomly having up to five

blocks and two blocks having more than five blocks again on the basis of BPL families. From

each block so selected, two villages were selected randomly. Accordingly, there were 18 villages

selected from nine blocks of six districts of Punjab. The sampling method used was non-

probability convenience sampling wherein the sample was selected directly by researcher as is

felt convenient All the households of the selected villages was selected for detailed analysis. For

collection of primary data from the selected respondents, a questionnaire was prepared and pre

tested. Percentages and simple tabular method was used to analyze and interpret the collected data.

DEFINING RURAL AREAS

Village or Town is recognized as the basic area of habitation. In all censuses throughout the

world this dichotomy of Rural and Urban areas is recognized and the data are generally

presented for the rural and urban areas separately. In the rural areas the smallest area of

habitation, viz., the village generally follows the limits of a revenue village that is recognized by

the normal district administration. The revenue village need not necessarily be a single

agglomeration of the habitations. But the revenue village has a definite surveyed boundary and

each village is a separate administrative unit with separate village accounts. It may have one or

more hamlets. The entire revenue village is one unit. There may be unsurveyed villages within

forests etc., where the locally recognized boundaries of each habitation area are followed within

the larger unit of say the forest range officer’s jurisdiction.

DESCRIPTION OF HOUSEHOLDS

Distribution of selected respondent households (n = 3145) according to Caste is reported in Table

1. Little less than one half, 1438 households (45.72 per cent) belong to general category and the

remaining households belong to reserved categories. 1062 (33.77 per cent) households belong to

SC/ST category while 645 (20.51 per cent) households belong to OBC category.

Table 1: Distribution of Selected Households in Rural Punjab: Caste wise Regions Total households General SC/ST OBC

Thinly Rural Populated Areas

1018

407 (39.98)

447 (43.91)

164 (16.11)

Moderately Rural Populated Areas

1104 606 (54.89)

296 (26.81)

202 (18.30)

Densely Rural Populated Areas

1023 425 (41.54)

319 (31.18)

279 (27.27)

Rural Punjab 3145 1438 (45.72)

1062 (33.77)

645 (20.51)

Source: Survey Undertaken

The region wise distribution of selected respondent households is also reported in Table 1. In

Thinly Rural Populated Area, nearly two-fifth of the households (407) belongs to general

category. On the other hand three-fifth of the households belong to reserved categories, the

percentages of SC/ST and OBC categories being 43.91 per cent (447) and 16.11 per cent (164)

respectively.

As expected, in Moderately Rural Populated Area, the number of general household

respondents was 606 (54.89 per cent) which was highest as compared to other regions. However

the number of SC/ST household respondents was lowest at 296 (26.81 per cent) as compared to

other regions and only 202 respondent-households (18.30 per cent) belong to OBC category.

Likewise, there was 1023 respondent-household in Densely Rural Populated Areas, out of

which 425 households (41.54 per cent) were belonging to general category. The number of

SC/ST households and OBC households were 319 (31.18 per cent) and 279 (27.27 per cent)

respectively.

The above discussion reveals that the Rural Punjab is dominated by the reserved category

households obviously due to various facilities offered under reservation policy. The percentage

of households belonging to reserved (SC/ST) category was highest in Thinly Rural Populated

Areas as compared to other regions because majority of people had shifted from other regions

and started doing manual labour - daily wage earners. There was lack of employment

opportunities in the moderately and densely rural populated areas.

Occupational Distribution:

Distribution of selected households according to major occupation is presented in Table 2. In

Rural Punjab little more than one-third (1107 household respondents) had adopted

farming/agriculture as the major occupation. Nearly 46 per cent of respondent households (1449)

were from labour class-daily wage earners. On the other hand, only 5.50 per cent of the

respondent households had their own business (173) and those in service- both public as well as

private were 371 (11.80 per cent). Less than 2 per cent of household respondents were

dependent upon their children. They were dependent upon whatever their children or relatives

provide to them. They did not earn anything and had no source of income. They were just

attached to their ancestral/parental houses and living there. Apparently, the respondent

households were dominated by the labour class - daily wage earner group. They were living from

hand to mouth and had no saving to be a part of formal development process. There was total

lack of employment opportunities in the rural areas of Punjab, hence majority of the households

were doing manual work on daily wages. Almost similar situation has been noticed among

different regions of Rural Punjab.

In Thinly Rural Populated area of Rural Punjab, only 35.76 per cent (364) household

respondents had agriculture as major occupation. On the other hand, 484 respondent households

belong to labour class. Only 70 (6.88 per cent) household were involved in Business. The

number of respondent households who were doing some kind of service such as private jobs,

government jobs etc were only 98 (9.63 per cent). Moreover less than one per cent of total

households were dependent upon children.

Table 2: Occupational Distribution of Selected Households in Rural Punjab

Regions Total HHS Agriculture Labour Business Service Others


1018 364 (35.76)

484 (47.54)

70 (6.88)

98 (9.63)

2 (0.19)


1104 470 (42.57)

408 (36.96)

28 (2.54)

165 (14.94)

33 (2.99)


1023 273 (26.69)

557 (54.45)

75 (7.33)

108 (10.56)

10 (0.98)

Rural Punjab 3145 1107 (35.20)

1449 (46.07)

173 (5.50)

371 (11.80)

45 (1.43)


Highest percentage of respondent households as compared with the other regions was engaged in

farming (nearly 43 per cent (470) of total households) in Moderately Rural Punjab Area.

However, nearly 37 per cent (408) of total households were from labour class which was lowest

percentage as compared with the percentage of labour class in other regions. Furthermore only

28 (2.54 per cent) households belong to business class. The number of households involved in

service and those who were dependent on others were 165 (14.94 per cent) and 33 (2.99 per cent)

which were also highest as compared with other regions.

In Densely Rural Populated Area, there were total 1023 household respondents out of which

nearly 27 per cent (273) households were doing farming/agriculture. The percentage of labour

class households was highest in this region as compared to other, that is, 54.45 per cent (557).

Nearly 7.33 per cent (75) households had their own business as major occupation. Only 108

(10.56 per cent) households were doing service and 10 (0.98 per cent) were dependent upon their

children.

From the above discussion, it can be safely concluded that in Thinly Rural Populated Area and

Densely Rural Populated Area most of the households were from labour class. These people

mainly belong to SC/ST category. Moreover in all the regions, very few people had adopted

business and service as major occupation because of illiteracy, lack of employment opportunities

and knowledge etc. Agro based more employment opportunities may be created in the rural areas

of Punjab to generate more meaningful man-hours. There is strong need to spread financial

literacy among the rural areas of Punjab.

Income wise Distribution:

Distribution of sample households according to income has been depicted in Table 3. Majority of

the rural respondents households (1708; 54.31 per cent) had monthly household income of less

than rupees 5000, majority of them belong to labour class. 807 households (25.66 per cent) had

monthly household income of Rs. 5000 -10000. These households were either engaged in some

business or doing agriculture. On the other hand 265 households (8.43 per cent) falls between

income classes of Rs.10000 -15000.These households either belong to service class or to farming

class. Only 3.97 per cent (125) of households had income between Rs. 15000 - 20000 and 3.15

per cent of total households (99) had income between Rs. 20000 - 25000. Only 141 households

(4.48 per cent) had monthly income of rupees 25000 & above. These households were also

engaged in some kind of service. Income wise distribution of respondent households was

examined for different regions of rural Punjab.

Table 3: Distribution of Selected Households in Rural Punjab: Income wise Regions Total

HHS 5000 5000-10000 10000-

15000 15000-20000

20000-25000

25000& above


1018

445 (43.71)

276 (27.11)

106 (10.41)

44 (4.32)

52 (5.11)

95 (9.33)


1104 547 (49.55)

290 (26.27)

113 (10.23)

68 (6.16)

43 (3.89)

43 (3.89)


1023

716 (69.99)

241 (23.56)

46 (4.50)

13 (1.27)

4 (0.39)

3 (0.29)

Rural Punjab 3145 1708 (54.31)

807 (25.66)

265 (8.43)

125 (3.97)

99 (3.15)

141 (4.48)


In Thinly Rural Populated Area, 445 (43.71 per cent) households had less than Rupees 5000

monthly household income which was lowest as compared with other regions. Nearly 27 per cent

of households (276) had income in the range of Rs. 5000 -10000. The proportion of respondent

households falling in the income group of Rs.10000 - 15000 and Rs. 15000 - 20000 were 106

(10.41 per cent) and 44 (4.32 per cent) respectively. On the other hand only 52 (5.11 per cent)

households were falling between income classes of Rs. 20000 – 25000. However, their

proportion was the highest in Rural Punjab as compared with other regions. 95 (9.33 per cent)

households were falling between income class of rupees 25000 and above.

In Moderately Rural Populated Areas, nearly 50 per cent of total households (547) had income

of less than Rs.5000. 26.27 per cent of total households (290) had income of Rs. 5000 - 10000.

Moreover 113 households (10.23 per cent) falls under income class of Rs.10000 - 15000 and 68

households (6.16 per cent) had income between Rs. 15000 - 20000. Moreover, only 3.89 per cent

of households (43) had income between Rs. 20000 - 25000 and the same percentage of

households falls between income class of Rs. 25000 and above.

The Densely Rural Populated Area having a total of 1023 households, nearly 70 per cent of total

households (716) had income of less than Rs.5000, majority of them being from labour class.

Only 241 households (23.56 per cent) had income between Rs. 5000 -10000. Very little

percentage of households fall between income class of Rs.10000 - 15000, Rs. 15000 - 20000, Rs.

20000 - 25000 and Rs. 25000 and above. Apparently the lion share of rural households falls in

less than Rs. 10,000 monthly income.

Distribution of Population:

Distribution of total population according to gender as well as family size has been presented in

Table 4. The total population of selected households (3145) was 13563 giving the average size of

the household to be 04.31 members. There was 7167 (52.84 per cent) males and 6396 (47.16 per

cent) were females. Hence the sex ratio of the sample households was computed to be 89.24 per

cent. This implies that there were 892 females for every 1000 males. Average size and sex ratio

of selected respondent households was also examined for different regions of rural Punjab.

Total Population of the Thinly Rural Populated Area was 4614 from 1018 households giving an

average family size of 4.53. Moreover, there were 2448 males (53.06 per cent) while females

were 2166 (46.94 per cent). The sex ratio was 88.48 per cent. Likewise, the Moderately Rural

Populated Area had a population of 4839, which is highest as compared to other regions.

Average family size was computed to be 4.38. In this region, the proportion of males and

females were 2583 (53.38 per cent) and 2256 (46.62 per cent) respectively and the sex ratio was

estimated at 87.34 per cent.

Densely Rural Populated Area had the lowest population of 4110 out of which the males were

2136 (51.97 per cent) and the females were 1974 (48.03 per cent). The average family size in this

region was computed at 4.02. The sex ratio of the region was highest at 92.42 per cent as

compared with other regions.

Table 4: Distribution of Population in Rural Punjab: Gender Wise Regions Total

Population Total

Households Male Female Sex ratio

(% age) Average family

size Thinly Rural Populated Area

4614 1018 2448 (53.06)

2166 (46.94)

88.48 4.53

Moderately Rural Populated Area

4839 1104 2583 (53.38)

2256 (46.62)

87.34 4.38

Densely Rural Populated Area

4110 1023 2136 (51.97)

1974 (48.03)

92.42 4.02

Rural Punjab 13563 3145 7167 (52.84)

6396 (47.16)

89.24 4.31


Apparently, although there was equal distribution, in general, of family size but has a skewed sex

distribution in favour of males in all the regions of Rural Punjab pointing a gender bias - a very

unhealthy sign of development. Efforts are needed to improve the sex ratio.

Fig. 1: Sex Ratio in Rural Punjab

88.48

87.34

92.42

89.24

84

85

86

87

88

89

90

91

92

93

Thinly Rural Populated Area

Moderately Rural Populated

Area


Rural Punjab

Age-wise Distribution:

Distribution of population according to age wise has been depicted in Table 5. The Rural

Punjab, 3752 persons (27.66 per cent) belongs to less than 18 years of age. The corresponding

percentage of males and females of this age group were 2052 (15.13 per cent) and 1700 (12.53

per cent) respectively. There were 4377 males (32.27 per cent) and 3988 females (29.40 per cent)

in Rural Punjab whose age was greater than or equal to 18 years but less than 60 years – working

group. The percentages of males and females having greater than or equal to 60 years of age

were 5.43 per cent (737) and 5.23 per cent (709) respectively which was very less. As expected,

these figures shows that most of population fall between age group of greater than or equal to 18

but less than 60. Moreover in all age groups, the number of males exceeds their female

counterparts.

Table 5: Distribution of population in Rural Punjab: Age Wise

Regions

Total Population

< 18 ≥ 18 < 60

≥ 60

Male Female Male Female Male Female Thinly Rural Populated Area

4614 685 (14.85)

563 (12.20)

1494 (32.38)

1366 (29.60)

272 (5.90)

234 (5.07)


4839 802 (16.57)

600 (12.40)

1509 (31.18)

1363 (28.17)

271 (5.60)

294 (6.08)


4110 565 (13.75)

537 (13.06)

1374 (33.43)

1259 (30.63)

194 (4.72)

181 (4.40)

Rural Punjab 13563 2052 (15.13)

1700 (12.53)

4377 (32.27)

3988 (29.40)

737 (5.43)

709 (5.23)


The proportion of males and females belonging to less than 18 years of age were 685 males

(14.85 per cent) and 563 females (12.20 per cent) in Thinly Rural Populated Area. The males

and females who belong to age group of greater than or equal to 18 but less than 60 were 1494

(32.38 per cent) and 1366 (29.60 per cent) respectively. The number of males and females with

age greater than or equal to 60 years were 272 (5.90 per cent) and 234 (5.07 per cent)

respectively.

In Moderately Rural Populated Area the percentage of male and female children were 16.57 per

cent (802) and 12.40 per cent (600) respectively. The number of males and females having age

of greater than or equal to 18 years but less than 60 years were 1509 (31.18 per cent) and 1363

(28.17 per cent) respectively. There were 271 (5.60 per cent) males and 294 (6.08 per cent)

females whose age was equal to or greater than 60 years.

Fig. 2: Average Family Size in Rural Punjab

In Densely Rural Populated Area, the number of male and female children were 565 (13.75 per

cent) and 537 (13.06 per cent) respectively. There were 1374 males (33.43 per cent) and 1259

females (30.63 per cent) whose age were greater than or equal to 18 but less than 60 years. The

number of males having age of equal to or greater than 60 years were 194 (4.72 per cent) and

females were 181 (4.40 per cent).

Distribution of adult population of rural Punjab has been depicted in Table 6. There were 9811

(72.34 per cent) adult people and 3752 (27.66 per cent) people were non adults in rural Punjab.

Table 6: Distribution of Adult Population in Rural Punjab

Regions

Total Population Adults Non Adults


4614 3366 (72.95)

1248 (27.05)


4839 3437 (71.03)

1402 (28.97)


4110 3008 (73.19)

1102 (26.81)

Rural Punjab 13563 9811 (72.34)

3752 (27.66)


4.53

4.38

4.02

4.31

3.73.83.9

44.14.24.34.44.54.6




Rural Punjab

Likewise, in Thinly Rural Populated Area, the number of adults and non adults were 3366

(72.95 per cent) and 1248 (27.05 per cent) respectively. The Moderately Rural Populated Area

with a population of 4839 persons had 3437 (71.03 per cent) of adults and non adults were 1402

(28.97 per cent). In Densely Rural Populated Area, the population 4110 had 73.19 per cent

(3008) adults and 26.81 per cent (1102) were non adults. Apparently, little less than three fourth

of the population falls in the adult categories in all the regions of rural Punjab with a slight

variation in its proportion.

Distribution of worker population has been depicted in Table 7. Little more than one fourth of

the population was workers in rural Punjab. Almost similar situation was noticed in different

regions of rural Punjab with a slight degree of variations. Furthermore, only two fifth of the adult

population was employed. Majority of the workers were males (3708; 27.34 per cent) males’

workers and 193; 1.42 per cent females workers). Apparently majority of the adults and hence

population was unemployed. The imperative of the situation demands creation of more agro

based employment opportunities especially for women. Similar situation was found in different

regions of Rural Punjab.

Thinly Rural Populated Area with a total population of 4614 had only 1329 males (28.80 per

cent) and 51 females (01.11 per cent) as workers. However, little more than two fifth of the adult

workers (highest) were employed in this region.

Table 7: Distribution of Workers in Rural Punjab Regions Total

Population Total

Workers Workers Non Workers

Male Female Male Female


4614 1380 (29.11)

1329 (28.80)

51 (1.11)

1124 (24.36)

2110 (45.73)


4839 1352 (27.90)

1289 (26.64)

63 (1.30)

1290 (26.66)

2197 (45.40)


4110 1169 (28.44)

1090 (26.52)

79 (1.92)

1051 (25.57)

1890 (45.99)

Rural Punjab 13563 3901 (28.76)

3708 (27.34)

193 (1.42)

3465 (25.55)

6197 (45.69)


Fig.3: Worker per Household in Rural Punjab

The Moderately Rural Populated Area had a population of 4839. The proportion of male and

female workers were 1289 (26.64 per cent) and 63 (1.30 per cent) respectively. It means that in

Moderately Rural Area less than 30 per cent of population was working communities. But the

proportion of worker to adults in this region was only 34.37 per cent. On the other hand total

male and female non workers were 1290 (26.66 percent) and 2197 (45.40 percent) respectively

which shows that a very high percentage of population was unemployed.

The Densely Rural Populated Area had a population of 4110; out of which proportion of male

workers were 1090 (26.52 per cent) and female workers were 79 (1.92 per cent) where as the

number of male non workers were 1051 (25.57 percent) and female non workers were 1890

(45.99 percent). Nearly 39 per cent of the adults were workers in this region.

In Rural Punjab almost 70 per cent people (60 per cent of adults) were unemployed. The

imperative of the situation calls for creation of generating more employment opportunities.

Another important thing which has been observed was that in Rural Punjab most of women are

unemployed. The reason for their unemployment is illiteracy, lack of employment opportunities;

lack of confidence, burden of work at home etc.

1.35

1.22

1.14

1.24

1

1.05

1.1

1.15

1.2

1.25

1.3

1.35

1.4




Rural Punjab

Educational Status:

Distribution of population according to educational status has been depicted in Table 8. Nearly

one third of the total population was literate in Rural Punjab, out of which 15.16 per cent (2056)

were uneducated males and 18.37 per cent (2491) were uneducated females. The proportion of

under matric males and females were 2431 (17.92 per cent) and 2087 (15.39 per cent)

respectively. However, only 1599 (11.79 per cent) males and 1015 (7.48 per cent) females had

education up to Matriculation standard. Only 218 males (1.60 per cent) and 207 females (1.53

per cent) were graduated or done Post graduation or other similar degree.

Likewise in Thinly Rural Populated Area percentage of uneducated males and females were

15.60 per cent (720) and 18.44 per cent (851) respectively. The number of under matric males

and females were 899 (19.48 per cent) and 768 (16.64 per cent) respectively. The proportion of

males and females having educational status of matriculation standard were 568 (12.31 per cent)

and 346 (7.50 per cent) respectively. However 239 males (5.18 per cent) and 170 females (3.68

per cent) had passed higher secondary. On the other hand, only 21 males (0.45 per cent) and 25

females (0.54 per cent) were graduated. The number of post graduated males and females were

only 2 (0.04 per cent) and 5 (0.11 per cent) respectively.

The Moderately Rural Populated Area with a population of 4839 had 917 (18.95 per cent)

uneducated males while the numbers of females were 1123 (23.21 per cent). However 722

(14.92 per cent) males and 591 (12.21 per cent) females were under matric. The males and

females who had passed matriculation were 529 (10.93 per cent) and 252 (5.21 per cent)

respectively and 330 (6.82 per cent) males and 238 (4.92 per cent) females had passed higher

secondary. Only 47 males (0.97 per cent) and 46 females (0.95 per cent) were graduated.

Moreover only 35 males (0.72 per cent) and 9 females (0.19 per cent) were post graduated.

In Densely Rural Populated Area 419 (10.19 per cent) males and 517 (12.58 per cent) females

were uneducated and 810 males (19.71 per cent) and 728 females (17.71 per cent) were under

matric. However 502 males (12.21 per cent) and 417 females (10.15 per cent) had passed

matriculation and 295 males (7.18 per cent) and 187 females (4.55 per cent) had passed higher

secondary. Only 87 males (2.12 per cent) and 82 females (2.00 per cent) were graduated and 26

males (0.63 per cent) and 40 females (0.97 per cent) were post graduated.

Table 8: Educational Status of Population in Rural Punjab Regions

Total Pop.

Uneducated Under Matric

Matric 10+2 Grad. Others

Male Female

Male Female

Male Female

Male Female

Male Female

Male Female


4614 720 (15.60)

851 (18.44)

899 (19.48)

768 (16.64)

568 (12.31)

346 (7.50)

239 (5.18)

170 (3.68)

21 (0.45)

25 (0.54)

2 (0.04)

5 (0.11)


4839 917 (18.95)

1123 (23.21)

722 (14.92)

591 (12.21)

529 (10.93)

252 (5.21)

330 (6.82)

238 (4.92)

47 (0.97)

46 (0.95)

35 (0.72)

9 (0.19)


4110 419 (10.19)

517 (12.58)

810 (19.71)

728 (17.71)

502 (12.21)

417 (10.15)

295 (7.18)

187 (4.55)

87 (2.12)

82 (2.00)

26 (0.63)

40 (0.97)

Rural Punjab

13563 2056 (15.16)

2491 (18.37)

2431 (17.92)

2087 (15.39)

1599 (11.79)

1015 (7.48)

864 (6.37)

595 (4.39)

155(1.14)

153 (1.13)

63 (0.46)

54 (0.40)


Apparently, most of people in Rural Punjab are either uneducated or under matric because they

are not aware about the importance of education. Moreover these households were poverty

stricken who send their wards to earn money by doing manual work such as waiters in marriage

palaces, hotels and restaurants etc. They mainly belong to farming class or labour class. The

people who have passed matric or higher secondary are either involved in business or doing

agriculture. Very few people in Rural Punjab are either graduated or post graduated and mostly

doing service either in public or private sector.

Distribution of Bank Loans Availed:

Purpose wise distribution of Bank Loans availed by the respondent households has been depicted

in Table 9. There were 245 bank loans in Rural Punjab which had been taken by respondent-

households, out of which 101 (41.22 per cent) loans had been taken for agriculture purpose.

Moreover 29 (11.84 per cent) business loans and 49 (20.00 per cent) home loans had been

granted by banks in Rural Punjab. Furthermore 59 (24.08 per cent) loans had been taken for

personal purpose and there were 7 (2.86 per cent) other loans. Most of these bank loans had been

given by banks at more than 7 per cent rate of interest and time period of most of loans was 0-6

years.

Table 9: Purpose Wise Distribution of Bank Loans Availed Regions Total

Bank Loans

Agriculture Loans

Business Loans

Home Loans

Personal Loans

Other Loans


64 27 (42.19)

5 (7.81)

10 (15.62)

18 (28.13)

4 (6.25)


101 54 (53.47)

4 (3.96)

17 (16.83)

25 (24.75)

1 (0.99)


80 20 (25.00)

20 (25.00)

22 (27.50)

16 (20.00)

2 (2.50)

Rural Punjab 245 101 (41.22)

29 (11.84)

49 (20.00)

59 (24.08)

7 (2.86)


In Thinly Rural Populated Area, total 64 bank loans had been granted by banks out of which

42.19 per cent (27) of bank loans were agriculture purpose loans whereas only 5 (7.81 per cent)

loans were for business purpose. The number of home loans and personal loans were 10 (15.62

per cent) and 18 (28.13 per cent) respectively. 4 (6.25 per cent) loans had been taken for some

other purpose. In this region almost 41 per cent (26) of loans had been taken for 0-3 years and 47

per cent (30) of loans for 4 - 6 years. Rests of loans were for a period of 7 years and more than

that. Banks had charged the interest on most of loans at a rate of 10 per cent or above.

Time period wise distribution of Bank Loans has been depicted in Table 10. The Moderately

Rural Populated Area had highest number of bank loans of 101. In this region 54 (53.47 per

cent) loans were for agriculture purpose and only 4 (3.96 per cent) loans were for business

purpose. The percentages of home loans and personal loans were 16.83 per cent (17) and 24.75

per cent (25) respectively. Less than 1 per cent was other loans. Almost 63 per cent of total bank

loans had been taken for a period of 0-3 years and rest for more than 3 years. Similar situation

was noticed in this region with regard to rate of interest i.e. 7 per cent or above.

In Densely Rural Populated Area, there were total 80 bank loans out of which 20 (25.00 per

cent) loans had been taken for agriculture purpose. Similarly 20 (25.00 per cent) loans had been

taken for business purpose. In this region most of the loans had been taken for home purpose i.e.

Table 10: Time Period of Bank Loans Availed Regions Total Bank

Loans 0-3 years 4-6 years 7-9 years 10 years &

above


64 26 (40.63)

30 (46.87)

6 (9.38)

2 (3.12)


101 63 (62.38)

23 (22.77)

9 (8.91)

6 (5.94)


80 25 (31.25)

31 (38.75)

2 (2.50)

22 (27.50)

Rural Punjab 245 114 (46.53)

84 (34.28)

17 (6.94)

30 (12.24)


22 (27.50 per cent). Moreover 16 (20.00 per cent) loans were for personal purpose and 2 (2.50

per cent) loans for other purpose. Most of loans had been taken for a period of 4-6 years and at

rate of interest of 10 per cent and above. Apparently, in Rural Punjab the people do not prefer to

take loans from banks simply due to more documentation and more paper work, lengthy

proceedings, improper behavior of bank employees, more formalities etc. Most of the banks need

collateral for their loans. It is very difficult for a low income individual to find collateral for a

bank loan. Moreover banks also do not prefer to give loans to rural people because these loans

are generally converted into Non Performing Assets. Furthermore the banks focus on larger

(volume) accounts. It is not profitable for banks to provide small loans and make a profit. There

is need to change the mindset of the banking community.

Rate of interest wise distribution of Bank Loans has been depicted in Table 11.

Table 11: Rate of Interest on Bank Loan Availed

Regions Total Bank Loans

0-3 % 4-6 % 7-9 % 10 % & above


64 1 (1.56)

6 (9.37)

18 (28.13)

39 (60.94)


101 1 (0.99)

2 (1.98)

50 (49.50)

48 (47.52)


80 0 (0.00)

4 (5.00)

24 (30.00)

52 (65.00)

Rural Punjab 245 2 (0.82)

12 (4.90)

92 (37.55)

139 (56.73)


Distribution of Informal Loans:

Distribution of informal loans from different sources has been presented in Table 12. There were

total 1159 loans in Rural Punjab which had been taken by household respondents out of which

approximately 62 per cent (716) loans had been taken from brokers. Rest of loans had been taken

Table 12: Source of Informal Loans

Regions Total Informal Loans

Brokers Money Lenders

Relatives Others


379 270 (71.24)

72 (19.00)

31 (8.18)

6 (1.58)


416 277 (66.59)

75 (18.03)

56 (13.46)

8 (1.92)


364 169 (46.43)

129 (35.44)

39 (10.71)

27 (7.42)

Rural Punjab 1159 716 (61.78)

276 (23.81)

126 (10.87)

41 (3.54)


from money lenders, relatives etc. Most of these loans were for agriculture purpose taken for a

period of 0-3 years or above. These loans were taken at a rate of 0-3% or above.

In Thinly Rural Populated Area similar situation existed i.e. out of total 379 loans, 270 (71.24

per cent) loans had been taken from brokers. The percentages of loans taken from money lenders

and relatives were 19 per cent (72) and 8.18 per cent (31) respectively. Only 6 (1.58 per cent)

loans had been taken from others. Out of total loans, 71.50 per cent (271) loans were for

agriculture purpose and rest for business, home, personal and other purposes. Almost 70 per cent

of loans were for a period of 0 - 3 years.

There were total 416 other sources loans in Moderately Rural Populated Area of Rural Punjab.

The number of loans taken from brokers, money lenders and relatives were 277 (66.59 per cent),

75 (18.03) and 56 (13.46) respectively. The loans taken from others were 8 (1.92 per cent).

These loans were mostly for agriculture purpose. Out of 416 loans 173(41.59 per cent) loans had

been taken for 0 - 3 years and 204(49.04 per cent) for 4 - 6 years rest for more than 6 years. The

rate of interest charged in most of loans varied for 0 - 6 per cent.

Purpose Wise Distribution of Informal Loans:

Purpose wise distribution of informal loans has been presented in Table 13.

Table 13: Purpose-wise Distribution of Informal Loans

Regions Informal Loans

Agriculture Loans

Business Loans

Home Loans

Personal Loans

Other Loans


379 271 (71.50)

29 (7.65)

23 (6.07)

51 (13.46)

5 (1.32)


416 304 (73.08)

14 (3.36)

38 (9.13)

41 (9.86)

19 (4.57)


364 203 (55.77)

49 (13.46)

28 (7.69)

48 (13.19)

36 (9.89)

Rural Punjab 1159 778 (67.13)

92 (7.94)

89 (7.68)

140 (12.08)

60 (5.18)


In Densely Rural Populated Area, there were total 364 other sources loans out of which

approximately 56 per cent loans were for agriculture purpose and 13.46 per cent loans for

business purpose. Rest of the loans was for other purposes. Most of the loans had been taken

from brokers (169) and money lenders (129) for a period of 0 - 3 years or above.

Distribution of informal loans according to time span is reported in Table 14.

Table 14: Time Period of Informal Loans Regions Informal

Loans 0 - 3 years 4 - 6 years 7 - 9 years 10 years &

above


379 264 (69.66)

89 (23.48)

17 (4.49)

9 (2.37)


416 173 (41.59)

204 (49.04)

26 (6.25)

13 (3.12)


364 261 (71.70)

59 (16.21)

33 (9.07)

11 (3.02)

Rural Punjab 1159 698 (60.22)

352 (30.37)

76 (6.56)

33 (2.85)


Distribution of informal loans according to rate of interest has been depicted in table 15

Table 15: Rate of Interest of Informal Loans Regions Informal

Loans 0 - 3 % 4 - 6 % 7 - 9 % 10 % &

above


379 135 (35.62)

33 (8.71)

96 (25.33)

115 (30.34)


416 170 (40.87)

72 (17.31)

47 (11.30)

127 (30.53)


364 239 (65.66)

72 (19.78)

33 (9.06)

20 (5.49)

Rural Punjab 1159 544 (46.94)

177 (15.27)

176 (15.18)

262 (22.61)


Apparently, most of people in Rural Punjab prefer to take loans from brokers, money lenders

and relatives due to fewer formalities and less paper work. Although these loans are given at

very high rate of interest but these are easily available. These loans had been mainly taken for

agriculture purpose.

Extent of Financial Inclusion:

Extent of financial Inclusion in the present study has been estimated through four different

measures:

1. Per Household Number of Bank Accounts

2. Per Capita Number of Bank Accounts

3. Per Adult Number of Bank Accounts

4. Per Worker Number of Bank Accounts

The resulting estimated values of these measures of extent of financial inclusion has been

reported in Table 16 and depicted graphically in Figure 4. Majority of households (nearly two-

thirds of households; 2122) were having bank accounts. On the other hand, one-third of the

respondent households (1023) did not have even a single bank account due, inter alia, to

paraphernalia of constraints. Furthermore only 4.51 per cent of the total respondent households

had more than one account in Rural Punjab because such households had more than one worker.

Almost similar situation was observed in different regions of rural Punjab.

Table 16: Distribution of Households having Bank Accounts: Region wise

Regions Total HHS HHS with no Bank Accounts

HHS with Bank Accounts

HHS with more than one Bank

Account Thinly Rural

Populated Area 1018 338

(33.20) 680

(66.80) 65

(6.38)


1104 386 (34.96)

718 (65.04)

53 (4.80)


1023 299 (29.23)

724 (70.77)

10 (0.98)

Rural Punjab 3145 1023 (32.53)

2122 (67.47)

142 (4.51)


In Thinly Rural Populated Areas, there were 1018 respondent households out of which 680

households (approximately two-thirds) were having bank accounts whereas one third of the total

households (338) did not have any bank account. The main reasons for not having bank account

were lack of money, lack of financial knowledge, illiteracy, more paper work, improper

behaviour of bank employees etc. However, only 65 respondent households (6.38 per cent) in

this region had more than one account.

In Moderately Rural Populated Areas, there were total 1104 respondent households out of

which 718 (65.04 per cent) households were having bank accounts. However 35 per cent of total

households (386) did not have any bank accounts. There were 53 households in this region that

had more than one account simply due to more than one worker in their households. Likewise, in

Densely Rural Populated Areas, there were 1023 respondent households and more than 70 per

cent of the households (724) were having bank accounts. The reason for having highest

percentage of households with bank accounts as compared to other regions was: the people of

this region mainly belong to NRI category and all transaction has to be made through formal

financial system, that is, banks. But 30 per cent of total households did not have any bank

account due to lack of money, lack of financial knowledge, ignorance etc. Only one per cent of

the households (10) have more than one account.

Apparently, Cash transfers (Core Banking System: CBS) recently introduced in Indian economy

did not gain favour with rural Punjabi consumers till now. Cash transfer Scheme was started in

Mexico and Brazil and is being popularized by various international organizations. If we take the

example of Brazil, its per capita income is very high compared with India. The percentage of

people living in poverty is very small. And the poor are easily identifiable as they live in urban

slums or in certain specific areas in the country. Hence, targeting them is easy. But, in a diverse

country such as India, a third of the population is living below the poverty line, and that 85 per

cent of our population is living on less than $2 a day. Apparently, targeting becomes much more

difficult. Besides, evidence from all over the world clearly shows that if you target the poor,

they typically do not get what they should; it reaches the better off. Mexico, which first designed

the cash transfer programme, tried it on schooling. This was a success as it was easy to monitor

whether the children came to school. But, with direct cash transfers aimed at the poor in the hope

that they will consume more food, if it goes to men rather than women, they may end up

consuming more alcohol.

Per Head Financial Inclusion:

The resulting estimates of per head extent of financial inclusion of selected households in

different regions of rural Punjab has been depicted in Table 17 and depicted graphically in Fig. 4.

In Rural Punjab there were total 2329 deposit accounts and 74.05 per cent of the total

households were having bank accounts. However, only 17.17 per cent of total population had

their bank accounts in the bank which is not a healthy sign of development. The percentage of

deposit per adult in Rural Punjab was also low at 23.74 per cent. Furthermore the percentage of

deposit per worker was as high as 59.70 per cent which shows that even all the workers did not

have bank accounts. These workers mainly include labour class- daily wage earners and live

Table 17: Extent of Financial Inclusion: Region wise

Regions Total Deposit Accounts

Deposit a/c per

Household (% age)

Deposit a/c per Person (% age)

Deposit a/c per Adult (% age)

Deposit a/c per Worker

(% age)


750 73.67 16.25 22.28 54.35


842 76.27 17.40 24.50 62.28


737 72.04 17.93 24.50 63.04

Rural Punjab 2329 74.05 17.17 23.74 59.70


from hands to mouth. These workers do not have enough money

accounts. Moreover the other reasons responsible for it

financial illiteracy etc.

Almost similar situation was observed in different regions of

Populated Areas of Rural Pun

figure of total households with total deposit accounts it can be concluded that 73.67 per cent of

total households were having bank accounts. But the percentage of deposit per person was only

16.25 per cent which is the least percentage if compared with percentage of other two regions.

The percentages of deposit per adult and deposit per worker were 22.28 per cent and 54.35

cent respectively. Both of these percentages are also least as co

Fig.4: Extent of Financial Inclusion in Rural Punjab

In Moderately Rural Populated Area

which were highest in number if compared with the deposit accounts of other regions.

Furthermore 76.27 per cent of total households

highest if compared with other regions. However deposit per person was only 17.40 per cent.

The percentages of deposit per adult and deposit per worker were 24.50 per cent and 62.28 per

cent respectively which are larger than the figures of other regions.

0

10

20

30

40

50

60

70

80

Financial Inclusion Per Per Per Household Person

. These workers do not have enough money/saving

accounts. Moreover the other reasons responsible for it were lacks of knowledge,

Almost similar situation was observed in different regions of Rural Punjab

of Rural Punjab, there were total 750 deposit accounts. After comparing the


re having bank accounts. But the percentage of deposit per person was only


The percentages of deposit per adult and deposit per worker were 22.28 per cent and 54.35

respectively. Both of these percentages are also least as compared to other regions.


Moderately Rural Populated Area of Rural Punjab, total number of deposit accounts was 842


Furthermore 76.27 per cent of total households were having bank accounts which were also

other regions. However deposit per person was only 17.40 per cent.


cent respectively which are larger than the figures of other regions.




Rural Punjab

Financial Financial Financial Inclusion Inclusion Inclusion Inclusion Per Per Per Per Household Person Adult Worker

/saving to deposit in bank

of knowledge, poverty;

Punjab. In Thinly Rural

re total 750 deposit accounts. After comparing the


re having bank accounts. But the percentage of deposit per person was only



mpared to other regions.


of Rural Punjab, total number of deposit accounts was 842


re having bank accounts which were also

other regions. However deposit per person was only 17.40 per cent.


Thinly Rural Populated


Densely Rural Populated

In Densely Rural Populated Area of Rural Punjab, the total number of deposit accounts was

737 only. The deposit per household was 72.04 per cent only which shows that only 72.04 per

cent of total households were having bank accounts. This was the least percentage if compared

with other regions. However the percentage of deposit per person was highest in this region i.e.

17.93 per cent. The percentage of deposit per adult was 24.50 per cent and deposit per worker

was 63.04 per cent.

It is not correct to surmise that banks were uninterested in increasing penetration. They were

constrained by their capacity/ability as, till a few years ago, appropriate banking technology was

not available. But, now, with the availability of suitable banking technology, the time has come

when the Indian banking system can make and deliver on that promise. Quite clearly, the task to

cover 1.2 billion populations with banking services is gigantic and, hence, banks have now

realized that technology is the driving force for achieving this. Harnessing this power of

technology for making the banking system more efficient for achieving the goals set under

financial inclusion is going to be a big opportunity as well as a bigger challenge for the banking

system. Banks are now using new technologies like mobile phones to reach low income

consumer. It is possible that telephone providers themselves will start basic banking services like

saving and payments. Indian telecom consumers have few links to financial institutions. So

telecom providers can help banks to achieve financial inclusion. We should also understand that

poor people are bankable and there is tremendous potential for business growth by providing

banking services to them. What we need is an appropriate business and delivery model. Contrary

to common perception, financial inclusion is a potentially viable business proposition because of

the huge untapped market that it seeks to bring into the fold of banking services. Financial

inclusion, prima facie, needs to be viewed as “money at the bottom of the pyramid” and business

models should be so designed to be at least self-supporting in the initial phase and profit-making

in the long run. It is important to keep in mind that service provided should be at an affordable

cost. It is also pertinent to note that providing subsidy does not necessarily lead to a better

delivery mechanism.

But, it is well recognized that there are supply side and demand side factors driving inclusive

growth. Banks and other financial services players are largely expected to mitigate the supply

side processes that prevent poor and disadvantaged social groups from gaining access to the

financial system. Access to financial products is constrained by several factors which include

lack of awareness about the financial products, unaffordable products, high transaction costs and

products which are inconvenient, inflexible, not customized and of low quality. However, we

must bear in mind that apart from the supply side factors, demand side factors such as lower

income and /or asset holdings also have a significant bearing on inclusive growth. Owing to

difficulties in accessing formal sources of credit, poor individuals and small and microenterprises

usually rely on their personal savings and internal sources or take recourse to informal sources to

invest in health, education, housing and entrepreneurial activities to make use of growth

opportunities. The mainstream financial institutions like banks have an important role to play in

overcoming this constraint, not as a social obligation, but as pure business proposition.

WAY FORWARD – FUTURE OF FINANCIAL INCLUSION

� One of the major challenges under Financial Inclusion has been addressing the last mile

connectivity problem. For addressing this issue and for achieving the goals set, experts

have recommended the Business Correspondent/Facilitator (BC/BF) model. Though the

BC model may not be commercially viable at the initial stage due to high transaction

costs for banks and customers, the appropriate use of technology can help in reducing

this. The need is to develop and implement scalable, platform-independent technology

solutions which, if implemented on a large scale, will bring down the high cost of

operation. Appropriate and effective technology, thus, holds the key for financial

inclusion to take place on an accelerated scale.

� Banks need to perfect their delivery and business model. A number of different models

involving handheld devices with smart cards, mobiles, mini ATMs, etc are being tried out

and it is necessary that they are integrated with the backend CBS system for scaling up. A

good delivery model is also needed and, perhaps, even more so if there is a glitch and

customer grievances needs to be resolved expeditiously. Thus, the time is approaching

when these various experiments with different models are taken to their logical

conclusion and banks start scaling up their implementation. At the same time, banks must

also have an integrated business model. These hold the key to the success and failure of

the financial inclusion efforts.

� In addition to this, RBI has advised banks to focus more towards opening of Brick &

Mortar branches in unbanked villages. These branches can be low cost intermediary

simple structures comprising of minimum infrastructure for operating small customer

transactions and supporting up to 8-10 BCs at a reasonable distance of 2-3 kms. This will

lead to efficiency in cash management, documentation and redressal of customer

grievances. Such an approach will also act as an effective supervisory mechanism for BC

operations. Another very important thing is that banks have to realize that for Business

Correspondent (BC) model to succeed, the BCs, who are the first level of contact for

customers, have to be compensated adequately so that they too see this as a business

opportunity

� As mentioned earlier, banks should strive to provide a minimum of four basic products

and, in addition, design new products tailored to income streams of poor borrowers and

according to their needs and interests. Banks must be able to offer the entire suite of

financial products and services to the poor clients at an attractive pricing. Though the cost

of administering small ticket personal transactions is high, these can be brought down if

banks effectively leverage ICT solutions. This can be supplemented through product

innovation with superior cost efficiency. Mobile banking has tremendous potential and

the benefits of m-commerce need to be exploited.

� It is important that adequate infrastructure such as digital and physical connectivity,

uninterrupted power supply, etc. are available.

� All stakeholders will have to work together through sound and purposeful collaborations

to ensure appropriate ecosystem development. This would include government, both

Central and State, Regulators, Financial Institutions, Industry Associations, Technology

Players, Corporates, NGOs, SHGs, Civic Society, etc. Local and national level

organizations have to ensure that these partnerships look at both commercial and social

aspects to help achieve scale, sustainability and desired impact. This collaborative model

will have to tackle exclusion by stimulating demand for appropriate financial products,

services and advice with appropriate delivery mechanism and by ensuring that there is a

supply of appropriate and affordable services available to those that need them.

� Mindset, cultural and attitudinal changes at grass roots and cutting edge technology levels

of branches of banks are needed to impart organizational resilience and flexibility. Banks

should institute systems of reward and recognition for personnel initiating, ideating,

innovating and successfully executing new products and services in the rural areas.

KEY MESSAGES

Following messages emerged from the discussion: The first message emerges from the

preliminary discussion on the current scenario on financial inclusion, both at the aggregate level

and across different regions/categories: that even savings account, the most basic financial

service, has low penetration amongst the lowest income households. The same concerns about

lack of penetration amongst the lowest income group for loans also rise. To reiterate the question

that arises from these patterns: Is this because people can’t access banks or other service

providers or because they don’t see value in doing so? This question needs to be addressed if an

effective inclusion strategy is to be developed.

The second message is that the process of financial inclusion is going to be incomplete and

inadequate if it is measured only in terms of new accounts being opened and operated. From the

employment and earnings patterns, there emerged a sense that better access to various kinds of

financial services would help to increase the livelihood potential of a number of occupational

categories, which in turn would help reduce the income differentials between these and more

regular, salaried jobs. The fact that a huge proportion of the Punjabi workforce is either self-

employed or in the casual labour segment suggests the need for products that will make access to

credit easier to the former, while offering opportunities for risk mitigation and consumption

smoothing to the latter.

The third message is the significance of infrequent, but quantitatively significant expenditures

like ceremonies and medical costs. Essentially, dealing with these kinds of expenditures requires

either low-cost insurance options, supported by a correspondingly low-cost health care system or

a low level systematic investment plan, which allows even poor households to create enough of a

buffer to deal with these demands as and when they arise. As has already been pointed out, it is

not as though such products are not being offered by domestic financial service providers. It is

really a matter of extending them to make them accessible to a very large number of lower

income households, with a low and possibly uncertain ability to maintain regular contributions.

The study reveals that short term credit taken contribute to an increase in their woes. Therefore

there is need for providing mechanism for meeting their social consumption requirements. A

provident fund scheme should be intimated to meet their social consumption needs. Theirs

contribution should be matched by the equal contribution by the government. Instead of giving

financial assistance under different schemes, poor should be encouraged to safe and adopt formal

financial system. How much they safe in banks should be matched by equal contribution by the

government. Minimum lock in period for such saving should be one year. 0Furthermore,

constant efforts are required to improve literacy and to provide skill based education to the

school going children and illiterates in the age group of 15 to 35 under various government

schemes.

The third message comes strongly from the motivations to both save and borrow, which, as one

might reasonably expect, significantly overlap with each other. It is striking that the need to deal

with emergencies, both financial and medical, plays such an important role in both sets of

motivations. The latter is, as has been said, amenable to a low-cost, mass insurance scheme, with

the attendant service provision. However, the former, which is a theme that recurs through the

entire discussion on consumer characteristics, certainly suggests that the need for some kind of

income and consumption smoothing product is a significant one in an effective financial

inclusion agenda. This, of course, raises broader questions about the role of social safety nets,

which offer at least some minimum income security and consumption smoothing. How extensive

these mechanisms should be, how much security they should offer and for how long and how

they should be financed are fundamental policy questions that go beyond the realm of the

financial sector. However, to the extent that risk mitigation is a significant financial need, it must

receive the attention of any meaningful financial inclusion strategy, in a way which provides

practical answers to all these three questions.

The fifth and final message is actually is of critical importance of the principle of commercial

viability. Every aspect of a financial inclusion strategy – whether it is the design of products and

services or the delivery mechanism – needs to be viewed in terms of the business opportunity

that it offers and not as a deliverable that has been imposed on the service provider. However, it

is also important to emphasize that commercial viability need not necessarily be viewed in terms

of immediate cost and profitability calculations. Like in many other products, financial services

also offer the prospect of a life-cycle model of marketing. Establishing a relationship with first-

time consumers of financial products and services offers the opportunity to leverage this

relationship into a wider set of financial transactions as at least some of these consumers move

steadily up the income ladder. In fact, in a high growth scenario, a high proportion of such

households are likely to move quite quickly from very basic financial services to more and more

sophisticated ones. In other words, the commercial viability and profitability of a financial

inclusion strategy need not be viewed only from the perspective of immediacy. There is a viable

investment dimension to it as well.

The basic premise of this report was that we need to take fully into account various behavioral

and motivational attributes of potential consumers for a financial inclusion strategy to succeed.

In this sense, it is no different from any business strategy development exercise. Where it does

differ though, is in terms of significance. There is clearly an enormous gap when it comes to

access to and delivery of financial services. Closing this gap will contribute to enhanced

livelihoods through higher productivity, and an improved ability to deal with occasional, lumpy

expenditures as well as cushioning the impact of financial emergencies. This is not a matter of a

few hundred or a few thousand consumers, but an issue of hundreds of millions. The social costs

and consequences of badly conceived and executed inclusion strategy could be enormous. We

need to bring all relevant knowledge and experience into the development of the strategy in order

to maximize the possibility of it succeeding. Understanding what the potential consumer needs

and why he needs it is one such knowledge input; indeed - a critically important one.

For the last several years, the Reserve Bank has been aggressively pursuing financial inclusion

on the belief and understanding that financial inclusion is a necessary pre-condition for inclusive

growth. Development experience over the last sixty years from around the world clearly

evidences that what the poor want is not doles, but opportunity to improve their incomes and

thereby their quality of life. Financial inclusion is a necessary condition for providing such an

opportunity to the poor not only to raise their incomes but also to insulate their families against

income shocks and meet emergencies such as loss of job, illness or death in the family. Both the

Government and the Reserve Bank have taken several initiatives to further financial inclusion.

RBI liberalized branch licensing – domestic commercial banks are now free to open branches

anywhere they like in towns and villages of up to 100,000 population. Banks are also required to

ensure that at least a quarter of the branches they open are in villages with a maximum

population of 10,000. To provide an incentive to banks, the Reserve Bank has also advised them

that their performance in financial penetration will be a criterion in giving them authorization for

branches in metros and other large urban areas.

RBI has a road map for providing banking access to all villages in the country with population of over 2000 by March 2012. Banking access will be provided either by opening a “brick and mortar” branch or through the business correspondent model – although RBI are encouraging banks to set up as many “brick and mortar” branches as possible. There are two best possible bits of advices to the banks. First, remember that financial inclusion is more than chasing and meeting a target. To cover every household with a bank account is necessary, but not sufficient. Banks must also ensure that the bank account is active – which means that the household is using that account for saving, for remittance and is also getting credit and where necessary micro insurance. In other words, make sure that financial inclusion is “meaningful”. Second, look upon financial inclusion not as an obligation, but as an opportunity. There is enormous “banking potential” at the bottom of the pyramid, and first mover banks will be able to exploit that potential. Move forward boldly and enthusiastically. To sum up, financial inclusion is the road which India needs to travel towards becoming a global player. An inclusive growth will act as a source of empowerment and allow people to participate more effectively in the economic and social process. Banks that have global ambitions must meet local aspirations. Financial access will also attract global market players to our country that will result in increasing employment and business opportunities. Technology is a great enabler and has to act as a ladder to achieve the ultimate goal of providing financial services to the financially excluded. A line of caution here is that in order to serve millions of our poor villagers, what we need is “Technology with a human touch”. Banks should, therefore, take extra care to ensure that the poor are not driven away from banking because the technology interface is unfriendly. This requires training the banks’ frontline staff and managers as well as Business Correspondents on the human side of banking. Sufficient provisions should be in built in the business model to take care of customer grievances. It can be summarized that the “The future lies with those who see the poor as their customers” as commerce for the poor is more viable than the rich. In this task, a concerted and structured effort by all stakeholders is necessary. Empirical evidence shows that economic growth follows financial inclusion. Boosting business opportunities will definitely increase the gross domestic product, which will be reflected in our national income growth. People will have safe savings along with access to allied products and services such as insurance cover, entrepreneurial loans, payment and settlement facility, etc. Our dream of inclusive growth will not be complete until we create millions of micro-entrepreneurs across the country. All budding entrepreneurs have to face these challenges and find solutions. People working in the social sector should work for filling up the deficit existing in the economic and social arena. To sum up, financial inclusion is the road that India needs to travel toward becoming a global player. Financial access will attract global market players to our country and that will result in increasing employment and business opportunities. Inclusive growth will act as a source of empowerment and allow people to participate more effectively in the economic and social process.

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