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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
Thinly Rural Populated Areas
1018 364 (35.76)
484 (47.54)
70 (6.88)
98 (9.63)
2 (0.19)
Moderately Rural Populated Areas
1104 470 (42.57)
408 (36.96)
28 (2.54)
165 (14.94)
33 (2.99)
Densely Rural Populated Areas
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)
Source: Survey Undertaken
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
Thinly Rural Populated Areas
1018
445 (43.71)
276 (27.11)
106 (10.41)
44 (4.32)
52 (5.11)
95 (9.33)
Moderately Rural Populated Areas
1104 547 (49.55)
290 (26.27)
113 (10.23)
68 (6.16)
43 (3.89)
43 (3.89)
Densely Rural Populated Areas
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)
Source: Survey Undertaken
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
Source: Survey Undertaken
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
Densely 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)
Moderately Rural Populated Area
4839 802 (16.57)
600 (12.40)
1509 (31.18)
1363 (28.17)
271 (5.60)
294 (6.08)
Densely Rural Populated Area
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)
Source: Survey Undertaken
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
Thinly Rural Populated Area
4614 3366 (72.95)
1248 (27.05)
Moderately Rural Populated Area
4839 3437 (71.03)
1402 (28.97)
Densely Rural Populated Area
4110 3008 (73.19)
1102 (26.81)
Rural Punjab 13563 9811 (72.34)
3752 (27.66)
Source: Survey Undertaken
4.53
4.38
4.02
4.31
3.73.83.9
44.14.24.34.44.54.6
Thinly Rural Populated Area
Moderately Rural Populated Area
Densely Rural Populated Area
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
Thinly Rural Populated Area
4614 1380 (29.11)
1329 (28.80)
51 (1.11)
1124 (24.36)
2110 (45.73)
Moderately Rural Populated Area
4839 1352 (27.90)
1289 (26.64)
63 (1.30)
1290 (26.66)
2197 (45.40)
Densely Rural Populated Area
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)
Source: Survey Undertaken
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
Thinly Rural Populated Area
Moderately Rural Populated Area
Densely Rural Populated Area
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
Thinly Rural Populated Area
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)
Moderately Rural Populated Area
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)
Densely Rural Populated Area
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)
Source: Survey Undertaken
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
Thinly Rural Populated Area
64 27 (42.19)
5 (7.81)
10 (15.62)
18 (28.13)
4 (6.25)
Moderately Rural Populated Area
101 54 (53.47)
4 (3.96)
17 (16.83)
25 (24.75)
1 (0.99)
Densely Rural Populated Area
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)
Source: Survey Undertaken
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
Thinly Rural Populated Area
64 26 (40.63)
30 (46.87)
6 (9.38)
2 (3.12)
Moderately Rural Populated Area
101 63 (62.38)
23 (22.77)
9 (8.91)
6 (5.94)
Densely Rural Populated Area
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)
Source: Survey Undertaken
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
Thinly Rural Populated Area
64 1 (1.56)
6 (9.37)
18 (28.13)
39 (60.94)
Moderately Rural Populated Area
101 1 (0.99)
2 (1.98)
50 (49.50)
48 (47.52)
Densely Rural Populated Area
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)
Source: Survey Undertaken
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
Thinly Rural Populated Area
379 270 (71.24)
72 (19.00)
31 (8.18)
6 (1.58)
Moderately Rural Populated Area
416 277 (66.59)
75 (18.03)
56 (13.46)
8 (1.92)
Densely Rural Populated Area
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)
Source: Survey Undertaken
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
Thinly Rural Populated Area
379 271 (71.50)
29 (7.65)
23 (6.07)
51 (13.46)
5 (1.32)
Moderately Rural Populated Area
416 304 (73.08)
14 (3.36)
38 (9.13)
41 (9.86)
19 (4.57)
Densely Rural Populated Area
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)
Source: Survey Undertaken
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
Thinly Rural Populated Area
379 264 (69.66)
89 (23.48)
17 (4.49)
9 (2.37)
Moderately Rural Populated Area
416 173 (41.59)
204 (49.04)
26 (6.25)
13 (3.12)
Densely Rural Populated Area
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)
Source: Survey Undertaken
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
Thinly Rural Populated Area
379 135 (35.62)
33 (8.71)
96 (25.33)
115 (30.34)
Moderately Rural Populated Area
416 170 (40.87)
72 (17.31)
47 (11.30)
127 (30.53)
Densely Rural Populated Area
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)
Source: Survey Undertaken
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)
Moderately Rural Populated Area
1104 386 (34.96)
718 (65.04)
53 (4.80)
Densely Rural Populated Area
1023 299 (29.23)
724 (70.77)
10 (0.98)
Rural Punjab 3145 1023 (32.53)
2122 (67.47)
142 (4.51)
Source: Survey Undertaken
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)
Thinly Rural Populated Area
750 73.67 16.25 22.28 54.35
Moderately Rural Populated Area
842 76.27 17.40 24.50 62.28
Densely Rural Populated Area
737 72.04 17.93 24.50 63.04
Rural Punjab 2329 74.05 17.17 23.74 59.70
Source: Survey Undertaken
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
figure of total households with total deposit accounts it can be concluded that 73.67 per cent of
re 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
respectively. Both of these percentages are also least as compared to other regions.
Fig.4: Extent of Financial Inclusion in Rural Punjab
Moderately Rural Populated Area of Rural Punjab, total number of deposit accounts was 842
which were highest in number if compared with the deposit accounts of other regions.
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.
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.
Thinly Rural Populated Area
Moderately Rural Populated Area
Densely Rural Populated Area
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
figure of total households with total deposit accounts it can be concluded that 73.67 per cent of
re 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 per
mpared to other regions.
Fig.4: Extent of Financial Inclusion in Rural Punjab
of Rural Punjab, total number of deposit accounts was 842
which were highest in number if compared with the deposit accounts of other regions.
re having bank accounts which were also
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
Thinly Rural Populated
Moderately Rural Populated Area
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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