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Financial Inclusion and Self Help Groups
(An Abstract)
S S Sangwan*
India in last 15 years has witnessed unprecedented growth in financial services, unfolded by
liberalization and globalization of financial services due to adoption of Information
Technology and unlocking of the regulatory framework. But alongside this positive
development there are evidences that the formal financial sector still excludes a large section
of population. As on March 2006, the saving accounts per 100 adult populations were 63 and
credit accounts were only 16 in all India (RBI, BSR 2006).
To empirically ascertain the determinants of financial inclusion, the state wise percentage
adults in terms of saving and credit accounts (dependant variable) were regressed with
independent variables like the branch density, level of income, literacy and adults covered
under SHGs.
The cross section data of 42 Regions/States/UTs for the year 2006 was used.
The estimated regression equations revealed that the branch density has positive and
significant coefficient with the percentage of adults having saving as well as credit accounts.
The coefficient of per capita income was also positive and significant in explaining
percentage of adult having saving accounts, though; this coefficient was not significant with
level of credit account. Perhaps, more eligibility of targeted sections under various credit
sponsored schemes by Central and State Governments from poorer states may have indirectly
influenced financial inclusion of in terms of credit accounts. Literacy percentage has
surprisingly negative relationship with both percentage of saving as well as credit accounts of
adults. It may be partly because of the higher literacy percentage of population below 18
years who are not eligible to open bank account and partly due to lack of financial education
among the educated ones. The empirical results substantiates that the person having low
income and less geographical access to bank e.g., agricultural labourers, marginal and small
farmers, migrant labourers, tribal and women may be excluded from the financial inclusion.
The variable of percentage of adult covered in SHGs has also positive association with the
level of financial inclusion especially in credit accounts. It suggests that SHGs can play
significant role in achieving the financial inclusion especially for women and low-income
families.
Financial Inclusion and Self Help Groups
S S Sangwan*
The cross-country data and evidence from specific policy experiments suggest that more-
developed financial systems are associated with lower inequality and lower financial
exclusion (Rakesh Mohan, November 2006, World Bank 2007). The impact through the
mechanism of financial markets may be more sustainable than the grants and subsidies.
Hence, if financial market frictions are not addressed, redistribution approach for equality
may have to be endlessly repeated, which could result in damaging incentives to work and
save (World Bank, op cit). The financial development and improved access to banking &
related services not only accelerate economic growth but also reduce income inequality and
poverty (HM Treasury 2007 and Sangwan, 2007). Without inclusive financial systems, the
financially excluded individuals and enterprises with promising opportunities are limited to
their own savings and earning.
India in last 15 years has witnessed unprecedented growth in financial services, unfolded by
liberalization and globalization of financial services due to adoption of Information
Technology and unlocking of the regulatory framework. The banking sector responded
quickly to the new technology; diversified in multiple services and thus the share of finance
& related services in the gross domestic product increased to about 14 per cent in 2006-07
from 11 per cent in 1991-92 (RBI, Annual Report 2006-07). But alongside this positive
development there are evidences that the formal financial sector is still excludes a large
section of population. As on March 2006, the saving accounts per 100 adult populations were
63 and credit accounts were only 16 in all India (RBI, BSR 2006). Reserve Bank of India
(RBI) and Government of India (GOI) are very much concerned about the financial exclusion
as expressed in various issues of Monthly Bulletins of RBI during 2006 & 2007 and Central
Budget of 2007-08(5,1). The purpose of this paper is to study the relevance of Self Help
Groups (SHGs) in achieving the financial inclusion in the background of initiatives taken so
far by RBI and GOI.
Objectives of the Paper
The broad objective of the paper is to study the scope of SHGs in expediting the financial
inclusion in big country like India. The specific coverage of the paper is as under.
i. To clarify the basic concepts related with financial inclusion, which has become
a buzzword in last two years.
ii. To study the extent of financial exclusion in different states of the country.
iii. To determine the barriers to financial inclusion through empirical analysis.
iv. The study the strength of SHG programme to achieve Financial Inclusion and
evolve a strategy to make use of the same.
What is Financial Inclusion?
Financial inclusion broadly means the provision of affordable financial services, viz., access
to payments and remittance facilities, savings, loans and insurance services by the formal
financial system to those who tend to be excluded. Since late nineties, the sophisticated and
competitive financial services enable access to a wide range of financial products and
opportunities to meet emerging credit needs. Realizing the importance of Financial Inclusion
even developed countries like the United Kingdom has been aggressively pursuing the same
since 1997 and set up a Task Force in 2005, which continuously monitors the progress and
advises the Government to expedite the programme. The Dependency and Indemnity
Compensation (DIC) Board of Directors in US approved on November 2, 2006 the
establishment of a DIC Advisory Committee on Economic Inclusion to advice the DIC for
expanding access to banking services for under served populations. The report of the Task
Force in March 2007 (HM Treasury) defines financial inclusion as the access to appropriate
financial services for every person for enabling him to :
i. Manage his money on day-to-day basis, effectively, securely and confidently;
ii. Plan for future and cope with financial pressure in short term with the help of long
term funds; and
iii. Deal effectively with financial distress like long term sickness, unemployment, or
family break down by availing money management advice and insurance.
The overall objective of these measures is to increase the people’s ability to manage their
money. However, financial inclusion is not only limited to opening of bank accounts but also
the banking education to make use of banking facilities and products to better manage their
money and capabilities.
Extent of Financial Exclusion in India
The coverage under financial inclusion is assessed in terms percentage of adults, having bank
accounts. The bank accounts may be all types of deposit and credit accounts but generally
only the saving accounts have been considered more realistic measure (Usha Thorat, July
2007 and Leeladhar, January 2006). A recent study (Mandira Sarma, 2007) has evolved a
concept of Index of Financial Inclusion (IFI) to make it more comprehensive indicator of
inclusion in an economy. The index is an amalgamation of three aspects of the financial
inclusion; penetration of the banking system, its availability to users and its actual usage.
Penetration is measured using data on number of bank accounts per 100 population, number
of bank branches per thousand population for availability and the size of bank credit and
deposits relative to the GDP to indicate usage1. In fact, saving account is the basic account
2 to
avail all types of banking services including credit facility and in view of limited scope of this
paper, FI is examined in terms geographical coverage and percentage of population having
saving bank accounts. Moreover, there are three types of banking agencies in India viz.,
Scheduled Commercial Banks (CBs) in public and private sectors, Regional Rural Banks and
Cooperative Banks. In most of the studies, the data of CBs in public sector has been used due
to its availability in the annual RBI publication, Basic Statistical Returns. This data may be
considered appropriate to a large extent as most of the emerging banking facilities & services
are available from these banks. The state-wise number of branches, total adult population and
their coverage under saving bank and credit accounts is given in table-1.
The table shows that as on 31 March 2006, percentage of adult population having saving
bank accounts is 63 for all India assuming that one person has only one account. Among the
regions, the FI is the lowest 42 per cent in the North Eastern Region and the maximum 86 per
cent in the Northern Region. The coefficient of variations is 55 per cent across states.
The States/Union Territories with FI less than the all India average in ascending order are
Manipur, Nagaland, Chatisgarh, Mizoram, Bihar, Orissa, Madhya Pradesh, Assam, Tripura,
Meghalaya, Arunachal Pradesh, Jharkhand, Rajasthan, West Bengal, Sikkim and Uttar
Pradesh: whereas Chandigarh, Goa, Delhi, Punjab, Pondichery, Uttranchal, Daman & Due,
Kerala, Haryana and Himachal Pradesh are having FI more than 20 per ecnt of all India
average. The other states mainly from Southern and Western Region have moderate FI equal
to the national average or upto 20 per cent higher. The inclusion in terms of credit accounts of
adults is 16 per cent for all India, varying from 8 per cent in the North Eastern Region to 29
per cent in the Southern Region. The coefficient of variations is 240 per cent across states.
There is no visible positive association between inclusion in terms of saving and credit
accounts viz., the ranks in saving and credit accounts of Chandigarh (1:28), Bihar (37: 15),
M.P (35:14), Goa (2:30), etc. The states with relatively lower per capita income have more
inclusion in terms of credit accounts, which may be due to more financing under Central and
state governments' subsidy schemes.
Table-1: State-wise Deposits and Credit Accounts of Commercial Banks-March 2006 (No of A/C and Population in 000)
Account/00Adults Region / State / Union Territories
Number of
Bran ches
Popula tion Per Branch
Saving Accounts
Credit Account
s
Total Popula
tion
Adult Population (>19years) Saving
Deposit Credit
Northern Region 1,821 11224 58,584 9,247 132,676 67,822 86 14ı
Haryana 1,764 11952 9,157 1,434 21,083 11,308 81 13ı
Himachal Pradesh 820 7411 2,671 439 6,077 3,567 75 12ı
Jammu&Kashmir 873 11535 3,672 473 10,070 5,380 68 9ı
Punjab 2,824 8601 14,780 1,805 24,289 14,185 104 13ı
Rajasthan 3,512 16080 14,119 2,904 56,473 28,474 50 10ı
Chandigarh 244 3692 1,191 164 901 546 218 30ı
Delhi 1,784 7726 12,994 2,027 13,783 7,930 164 26ı
North-Eastern 1,949 19751 8,180 1,639 38,495 19,709 42 8ı
Arunachal Pradesh 69 15813 254 41 1,091 545 47 8ı
Assam 1,273 20926 5,993 1,031 26,638 14,074 43 7ı
Manipur 78 30624 250 66 2,389 1,222 20 5ı
Meghalaya 189 12201 503 122 2,306 1,088 46 11ı
Mizoram 80 11138 166 42 891 476 35 9ı
Nagaland 73 27242 239 55 1,989 996 24 6ı
Tripura 187 17065 775 282 3,191 1,784 43 16ı
Eastern Region 12,308 18493 54,716 10,967 227,613 122,136 45 9ı
Bihar 3,647 22725 14,543 2,866 82,879 40,934 36 7ı
Jharkhand 1,525 17646 6,818 1,283 26,909 13,737 50 9ı
Orissa 2,333 15734 8,246 2,864 36,707 21,065 39 14ı
Sikkim 56 9652 173 35 540 289 60 12ı
West Bengal 4,713 17021 24,788 3,899 80,221 45,897 54 8ı
Andaman 34 10478 149 20 356 214 70 9ı
Central Region 14,104 18131 71,717 12,270 255,713 129,317 55 9ı
Chhattisgarh 1,061 19600 3,846 802 20,796 11,209 34 7ı
Madhya Pradesh 3,563 16948 13,249 3,029 60,385 31,405 42 10ı
Uttar Pradesh 8,562 19394 50,882 7,811 166,053 82,230 62 9ı
Uttaranchal 918 9237 3,741 628 8,480 4,473 84 14ı
Western Region 10,996 13557 57,211 12,323 149,072 86,182 66 14ı
Goa 357 3765 1,693 178 1,344 891 190 20ı
Gujarat 3,840 13176 18,958 2,697 50,597 28,863 66 9ı
Maharashtra 6,771 14289 36,369 9,436 96,752 56,208 65 17ı
Dadra&Nagar Haveli 12 18371 101 7 220 123 82 6ı
Daman & Diu 16 9879 89 5 158 97 91 5ı
Southern Region 19,598 11401 93,010 38,989 223,445 135,574 69 29ı
Andhra Pradesh 5,578 13576 28,282 10,104 75,728 44,232 64 23ı
Karnataka 5,176 10188 22,101 7,669 52,734 30,623 72 25ı
Kerala 3,668 8680 16,495 6,227 31,839 20,560 80 30ı
Tamil Nadu 5,074 12241 25,491 14,840 62,111 39,511 65 38ı
Lakshadweep 10 6060 27 3 61 34 80 9ı
Pondichery 92 10585 615 146 974 614 100 24ı
ALL-INDIA 70,776 14,511 343,418 85,435 1,027,015 541,032 63 16ı Source: RBI, BSR 2006, Table No 1.20 and Leeladhar (RBI Bulletin January 2006) for adult Population.
Determinants of Financial Inclusion
Why do about 37 per cent adults in India do not use financial services? The states/regions
with low level of FI indicates that first major constraint may be less geographical or physical
access when clients are required to visit a branch or use an automated teller machine (ATM).
While an ideal measure would be the average distance from household and cost involved in
terms of fare and time to reach a branch/ATM. The next best or a crude indicator can be the
number of branches per sq. km area or per capita. The bank branches have already increased
from 8262 in 1969 to 69471 in 2006 bringing down the population per branch from 64 to 16
thousands. In terms of branches per 10000 sq. km, India has 215 as compared to 790 in
developed Spain and one each in underdeveloped Ethiopia and Botswana. However, in India,
there is wide variation in terms of population per branch of CBs across states with 3692/3748
in Chandigarh/Goa to 30624/22725 in Manipur/Bihar. Significance of this variable in FI is
empirically estimated in table-2. Besides, banks have minimum account-balance
requirements or fees that may be out of the reach of many potential users. RBI has removed
some of these constraints by giving directive to banks during 2005-06 for opening no-frills
accounts3. However, low level of income with more than 27 per cent of families below
poverty line may still remain a barrier as revealed in the regression equations ahead. The
relationship between per capita income and level of FI is also estimated in table-2. Lack of
awareness about banking education due to bankers’ market4 and illiteracy in large section of
population is another factor to be tackled. The bankers’ market restricts the banking
awareness even in educated people.
Estimated Equations
The empirical evidence of impact of branch density, level of income and literacy on financial
inclusion in terms of saving and credit accounts was estimated with the following regression
equation.
Y = a+bX1+cX2+dX3
Where Y = the percentage of adults with saving or credit accounts
X1= the per capita income, X2= the population per branch, X3= literacy percentage
The cross section data of Regions/States/UTs for the year 2006 with 42 observations in all, in
terms the percentage of adults’ saving or credit accounts were taken as a dependent variables.
The population and literacy data of 2001 Census as given in table-I was used to work out
branch density and awareness. The ranks of percentage adults’ bank account, per capita
income and literacy were computed in ascending order, i.e. 1 to 9 while the ranks of
population per branch were computed in descending order, i.e. 9 to 1 to use in estimating the
relationships. The estimated equations are given in table -2.
Table-2: Regression Equation for Explaining the Financial Exclusion
Sr
No Dependent
Variable Constant Per Capita
income Branch
Density Percentage
Literacy Degree of
Freedom R2
1 Saving accounts Of Adults
2.891
(0.466) 0.533
(4.376) 0.657
(5.660) -0.337
(-2.751) 38 0.76
2 Credit accounts
Of Adults 8.360
(0.854) O.377
(1.980) 0.397
(2.197) -0.226
(-1.183) 38 0.35
3 Saving accounts
Of Adults* 1.521
(0.288) 0.336
(2.523) 0.695
(6.560) -0.117
(-0.918) 33 0.83
4 Credit accounts of Adults*
2.414 (0.313)
-0.046 (-0.238)
0.611 (3.963)
O.210 (1.134)
33 0.58
* After taking out smaller states/UTs with high literacy but low branch density and per capita income viz., Mizoram, Andaman and Nicobar, Daman & Diu and Nagar Haveli. Figures in brackets are t values.
The equation (1) in table-2 shows that higher per capita income and geographical access have
positive and significant regression coefficients with accounts, though literacy has a
significant negative coefficient. To ascertain the reasons for negative impact of literacy, the
equation (3) was again estimated by excluding 5 smaller states/UTs viz., Mizoram,
Lakshadweep, Andaman & Nicobar, Daman Due & Nagar Haveli with high literacy and low
percentage of saving accounts. This equation again substantiates positive significant impact
of per capita income and branch density and negative but insignificant relationship with
literacy. Moreover, the coefficient of determination level of explanation of the regression
increased from 76 per cent in equation (1) to 83 per cent equation (3), indicating that these
three variables explain opening of saving account to the extent 83 per cent and the rest may
be due to other factors.
The FI in terms of credit accounts is explained by these variables to the extent of 35 per cent
only when data of all the states/UT are taken in equation (2). In this equation, the branch
density and per capita income have positive impact, though former is more significant. The
literacy turned out to be negative in credit inclusion too, though relation is insignificant. On
excluding data of five smaller states as above, the variations were explained to the extent of
58 per cent with the branch density having the highest positive impact, followed by literacy
and per capita income has a insignificant negative relationship. It brings out that increase in
banking network is the most important variable followed by per capita income for enhancing
saving as well as credit inclusion. The negative relation of literacy indicates that mare literal
education without blending with financial education is not significant. The value of constant
in equations of credit inclusion indicates that the other variables like extent of eligibility
under government sponsored schemes, infrastructure, law & order etc., may also be important
in increasing credit accounts.
Who are excluded?
Above have brought out the persons having low income and less geographical access to
banks are likely to excluded from the financial inclusion. Such persons may be mostly the
families of land-less agricultural laborers, marginal farmers, oral lessees, migrant laborers
and the educationally and economically deprived groups like tribal and women. Of the total
deposit accounts as 31 March 2006, women accounts are just 23 per cent at all India varying
widely across regions. The RBI web site of Raju and Money Kumar (2007) and directive to
banks for setting banking counseling centers will help in increasing financial literacy and
implanting policy initiatives taken by the RBI in last 2/3 years.
Measures for Financial Inclusion in India
Indirectly financial inclusion of low income people in terms of credit accounts has taken
place through various government sponsored credit schemes like Small /marginal Farmers
Development Agencies in early 70’s, Integrated Rural Development programme (IRDP)
since 1978 to 1999 and Survodya Gramin Savarojgar Yozna (SGSY) since 1999. The Kisan
Credit Card (KCC) is another big success in linking farmers with banks. Artisan Card and
General Purpose Credit Card (GCC) are the latest schemes to link low-income people with
banks. One common weakness of these credit schemes has been the absence of saving/current
account in general and taking a loan from banks has been one time life event for majority of
such borrowers. Whether it can be termed as financial inclusion as defined above and lead to
an economic inclusion on sustainable basis?
As regards, saving accounts, the policy initiative from Government and RBI were lacking till
the highlights of the task force on FI in UK (op cit). Since 2005, the important initiatives for
financial inclusion by RBI and Central Govt. are as under :
i. RBI in its 2005-06 Credit Policy issued guidelines to make available an improved
basic banking ‘no frills’ account with nil or very minimum balances and charges with
a view to achieving greater financial inclusion. Further, in order to minimize difficulty
in opening the bank accounts due to the procedural hassles, the Know Your Customer
(KYC) procedure for opening accounts has been simplified for low-income persons.
a. Recently, RBI advised all CBs and RRBs to provide a
General Purpose Credit Card up to Rs.25, 000 in the nature of revolving credit
facility at their rural and semi urban branches.
iii. An Internal Group set up by RBI on micro finance (Khan Committee), recommended
to permit banks to use micro finance institutions as business facilitators and
correspondents to enable banks to increase their outreach and ensure greater financial
inclusion.
iv. In the Budget Speech in February 2007, the FM of Central Government announced
setting up of two funds of Rs 5000 million each viz., Financial Inclusion Fund with
NABARD and Financial Inclusion Technology Fund. Their utilisation is yet to start.
As brought in the empirical analysis, the branch network and banking education are the most
important variable especially for credit inclusion, and further, women are the least included in
terms of even saving accounts. Therefore any bank-linked approach like self-help groups/
micro finance institutions, which adds to the existing, banking network with focus on women,
can play a pivotal role in financial inclusion. The World Bank Report on South Asia (2007)
highlights that the micro finance groups since 2000 have come up in big way in India and the
programme has focus on women as discussed ahead.
SHG Approach and Financial Inclusion
As an innovative credit channel, the Self Help Group (SHG) approach was introduced in
1992, to link poor people with bank credit. Under this programme, about 40 million rural
families have been linked with banks up to March 2007 (NABARD). The distinguishing
feature of this approach as compared to other sponsored credit schemes is the learning the
management of own money by the poor before availing bank loan. Moreover, the SHG
approach (not SGSY) does not involve any subsidy; hence, it is sustainable with its own
strength. A number of studies have found that SHG approach reduces the transaction cost for
banks and loan availing cost of borrowers. In financing SHGs, the requirement of collateral
by banks has been replaced by peer group pressure and hence this approach has enabled
social and economic inclusion of women by waiving the requirement of collateral. Some
important highlights of SHG- achievements in India are as under.
i. Upto March 2007, 2.925 millions SHGs & about 40.95 million families have been linked
with bank credit.
ii. Of the total SHGs, women groups are 86 per cent.
iii. During 2006-07, 0.686 million SHG linked with banks.
iv. During 2006-07 loan amount of Rs 664.3 million disbursed to SHGs.
v. Average Bank Loan per SHG is Rs 61000.
vi. Upto March 2007, Bank loan of Rs 180000 million provided to SHGs.
The state-wise outreach of the SHG programme in India is given in Table-3.
Table-3 : State-wise cumulative credit linked SHGs as on 31 March
Sr No
States 2005 2006 2007 % age to total in 2007
%age adults covered under
SHGs
1 Andhra Pradesh 492927 587,238 683,619 23 21.64 2 Tamil Nadu 220698 312,778 400,477 14 14.19 3 Karnataka 163,198 224,928 317,636 11 14.52 4 Orissa 123,256 180,896 234,451 8 15.58 5 Maharashtra 71,146 131,470 225,856 8 5.63 6 Uttar Pradesh 119,648 161,911 198,587 7 3.38 7 West Bengal 92,698 136,251 181,563 6 5.54 8 Rajasthan 60,006 98,171 137,837 5 6.78 9 Kerala 60,809 86,988 117,913 4 8.03
10 Assam 31,234 56,449 81,454 3 8.10 11 Bihar 28,015 46,221 72,339 2 2.47 12 MadhyaPradesh 45,105 57,125 70,912 2 3.16 13 Gujarat 24,712 34,160 43,572 1 2.11 14 Chhattisgarh 18,569 31,291 41,703 1 5.21 15 Jharkhand 21,531 30,819 37,317 1 3.80 16 HimachalPradesh 17,798 22,920 27,799 1 10.91 17 Uttarakhand 14,043 17,588 21,527 1 6.74 18 Sub-total 1,591,350 2,199,616 2,873,035 98 7.78 19 All India 1,591,350 2,238,786 29,24,786 100 7.57
Note: The percentage adults covered was worked out by taking adults population in Table-1
The table shows that outreach of the programme is the maximum in southern states, which
account for 52 per cent of the total SHGs in India and it may be one of the reasons for higher
FI in terms of saving as well as credit accounts in this region. To test this hypothesis, at the
first stage correlation was computed between the percentage of adults covered under SHGs5
and saving and credit accounts per 100 adults respectively. In this exercise, the states with
less than one per cent of adults covered by SHGs and the regional level data were excluded.
The correlation coefficients were 0.417 and 0.596 in case of saving and credit accounts
respectively.
In the second stage, the percentage of adults covered under SHGs was taken as another
variable along with the earlier three variables in table-2. With the four independent variables
the equations with reduced number of observations are as given in Table-4.
No Dependent
Variable Constant Per Capita
Income Branches
Density Percentage
Literacy %age of adults
covered in SHGs Degrees of
Freedom R2
1 Saving accounts
of Adults 4.032
(0.609)
0.419
(2.133)
0.623
(3.519)
-0.311
(-1.637)
0.226
(1.095)
20 0.70
2 Credit accounts
of Adults 1.646
(0.205)
O.227
(.957)
0.490
(2.289)
-0.142
(-.617)
0.644
(2.589)
20 0.62
The table-4 shows coefficients of %age of adults covered in SHGs is positive in the equations
with dependent variable as either the saving accounts or credit accounts indicating positive
impact of SHGs on financial inclusion, though not significant with saving accounts which
points towards need for further enrichment of the SHGs with financial education.
So far, the SHGs with dominance of women (86 %) and the poor sections of the population
are linked with bank through one or another facilitator. The banking education is the
philosophy of SHG approach and hence it is apt to the objectives of FI. However, all the
members may not be having the individual saving accounts due to lack of awareness about
benefits of bank account and the constraints like illiteracy, higher cost in accessing the
branch/ATM, no surplus to pay initial deposits as indicated earlier in our empirical results
from the cross section data of states. The Central and State governments can contribute in
minimizing some of these constraints by providing initial matching grant for opening saving
account and technological support to access through mobile phones and increasing number of
rural ATMs in government establishment like post offices, schools and hospitals. The
objective of providing at least one touch points for banking operations can be achieved with
support of government for initial capital investment, banks and community organizations like
NGOs & SHGs which have focus on financial inclusion of low-income population.
Conclusions
The paper brings out that as on March 2006, the financial inclusion of adults above 19 years
of age is 63 per cent in terms of saving accounts and 16 percent in terms of credit accounts.
The multiple regression equations estimated with cross section data of States revealed that the
branch density has positive and significant coefficient with the percentage of adults having
saving as well as credit accounts. The coefficient of per capita income was also positive and
significant in explaining percentage of adult having saving accounts, though; this coefficient
was not significant with level of credit account. Perhaps, more eligibility of targeted sections
under various credit sponsored schemes by Central and State Governments from poorer states
may have indirectly influenced financial inclusion of in terms of credit accounts. Literacy
percentage has surprisingly negative relationship with both percentage of saving as well as
credit accounts of adults. It may be partly because of the higher literacy percentage of
population below 18 years who are not eligible to open bank account and partly due to lack of
financial education among the educated ones. The empirical results substantiates that the
person having low income and less geographical access to bank e.g., agricultural labourers,
marginal and small farmers, migrant labourers, tribal and women may be excluded from the
financial inclusion. The multiple regression equations were also estimated by including
percentage of adult covered in SHGs, the variable has positive association with the level of
financial inclusion especially in credit accounts. It suggests that SHGs can play significant
role in achieving the financial inclusion especially for women and low-income families.
___________________________________________________________________________
Footnotes
1. A value index of financial inclusion (IFI) between 0.6 and 1 indicates a high level of financial
inclusion; scores between 0.4-0.6 indicate a medium level of inclusion while all scores below 0.4
indicate a low level of inclusion. In a group of 55 countries with three dimensional data, six countries
viz., Spain, Austria. Belgium. have scores above 0.6, another seven countries have scores between 0.4-
0.6 and the remaining 42 have scores below 0.4. India ranks 30 with a score 0.153. (Mandira Sarma
(2007), Index of Financial inclusion. Indian Council of Research on International Economic Relations,
December)
2. A basic account allows you draw money for your own personal use and pay bills that may arise. The
bank may offer debit card but overdraft and cheque facilities are generally denied for basic account due
to limited balance requirements.
3. During 2005-06, the RBI issued guidelines to make available a basic banking ‘no frills’ account with
nil or very minimum balances as well as charges with a view to achieving greater financial inclusion.
The KYC norms have also been relaxed for these accounts with balances not exceeding Rs. 50,000 and
credits in the accounts not exceeding rupees Rs.1, 00,000 in a year. A number of banks have since
come out with schemes for such ‘no frills’ account facility. For eligibility of such accounts some banks
put income criterion (e.g. upto Rs 5000 by SBI and no such limit ICICI bank).
4. Bankers’ market is still prevailing in India. A majority of borrowers never read the various conditions
or ask clarifications from the banker due to fear of denial of the loan. There are still hidden costs in
terms of processing fee/ demand of various unwarranted documents from the borrower.
5. Percentage of Adults covered under SHGs was worked with average 14 adults per SHG
References
1. Government of India (2007), “ Budget 2007-08, Budget speech, February,”
2. HM Treasury(2007),“Financial Inclusion: The Way Forward,” London March
3. House of Commons (2006), “The Role of Government, FSA and Financial
Capabilities,” First Report of session 2006-07, 21 November 2006
4. Mitra Rona (2006), Financial Inclusion: Meeting The Challenge”, People’s
Democracy, April 22 & 29, 2007 available at www.pd.cpim.org 18.
5. National Conference on Financial Inclusion and beyond,
www.micrifinancegateway.org
6. Reserve Bank of India, “Speeches published on Financial Inclusion and Related
Topics in its following, Monthly Bulletins during 2006 and 2007
i. July (2007), Financial Inclusion -The Indian Experience by Usha Thorat
ii. December (2006), Financial Inclusion and Sustainable Development: Role of
IT and Intermediaries, Address to Annual Bankers Conference at Hydrabad on
November 4 by Usha Thorat
iii. December (2006), Inclusive Growth: Role of Financial Education, Address to
Annual Bankers Conference at Hydrabad on November 4 by Gopinath Shyamala
iv. November (2006), “Economic Growth, Financial Deepening and Financial
Inclusion, Address to Annual Banker Conference at Hydrabad on November 3
by Rakesh Mohan.
v. October (2006), Role of Financial Education: The Indian case by RV Reddy,
Address to the International conference on Financial Education by OECD and
Pension Fund Regulatory and Development Authority at Delhi on September 21.
vi. February (2006), “Financial Inclusion and Millennium Development
Goals,” Address at the 4th Programme on Human Development and State
Finance at CAB Pune on January 6 by Usha Thorat.
vii. January (2006), Taking Banking Services to the Common Man -Financial
Inclusion, Commemorative lecture at the Fed Bank Hormis Memorial
foundation at Ernakulam on December 2, 2005 by Leela Dhar.
7. World Bank (2007), “Finance for All: Policy and Pitfalls in Expanding Access,”
Policy Research Report, http//go worldBank.org/4YSZ5KS6CO
8. Word Bank Report (2007), Micro finance in South Asia –Towards Financial Inclusion
for the Poor,’ http://worldbank.org
* Dr S. S. Sangwan, GM, NABARD Date : 10 Feb 2008
Address : 5150/2, MHC, Manimajra , Chandigarh- 160 101