Financial Inclusion in Rural AreasResearch Paper

Research Problem

• H0 (Null Hypothesis) = Financial literacy will have an impact on Financial Inclusion.

• H1 (Alternative Hypothesis) = Financial literacy will not have any impact on Financial Inclusion.

Objectives Objectives are the guiding lights of a study. The present study was undertaken to achieve the following objectives:

• To study the impact of financial literacy on financial inclusion. • To find out the steps taken and different approaches adopted by the

banks in the area of financial inclusion. • To study the perception of rural population on Financial Inclusion

Background of the Topic Financial inclusion stands for delivery of banking/financial services to vast section of low income groups (called disadvantaged person) at affordable cost in a fair and transparent manner by regulated mainstream institutional bodies

The present banking network of the India comprises of:

• branch network - 1, 15, 082

• ATM network - 1, 60, 055.

Out Of these, 43,962 branches (38.2%) and 23,334 1 ATMs (14.58%) are in rural areas

Literature Review As per Research Paper 1

Bank

Complicated & unaffordable financial products

Hard to reach (Availability)

Seek creditworthy profitable clientele

Non negotiable in terms of cost

Oriented towards high and upper middle income

population

Staff attitude, and language

Government & RBI

Banking on mobile

Microfinance model

No-frills account

General purpose/ Kisan credit card

Rural Residential

Financial illiteracy

Lack of confidence & motivation

Lack of awareness

Unavailability

complex process and procedures

Low/Insufficient income

Research MethodologySources of Data | Sampling Procedures and Data Gathering

DATA GATHERINGPrimary data• The primary data was collected

through field survey in rural area.

Secondary data• Government of India • Reserve Bank of India • Other reports

(generated by various government financial institutions)

VARIABLES

Dependent Variable (Y):• Preference in borrowing from financial institutions

Independent Variables (X):• Educational level of the people• Frequency of spreading awareness by various Financial

Institutions • Motivation to use financial services provided by

financial institutions when people are already made aware of them

• Financial Knowledge of people

STATISTICAL TOOLS USED: Correlation & Regression

Analysis & Result

Correlation:A. Education LevelB. Motivation for using financial servicesC. Financial institutions spreading awareness

amongst rural people D. Financial knowledge of people

A B C DA 1B 0.125934768 1C 0.50870989 0.043750676 1

D 0.731851473 0.018174015 0.670618314 1

Positively Correlated • Educational level of people (A) & Financial Knowledge of people (D)• Financial Knowledge of people (D) & Frequency of spreading awareness by various Financial

Institutions (C) • Educational LevelNegatively Correlated • Motivation to use financial services provided (B) & Educational Level (A)• Financial institutions spreading awareness amongst rural people (C) & Motivation for using

financial services (B)

Regression:

Model Summary

Model R R SquareAdjusted R

SquareStd. Error of the Estimate

1 .881a .775 .764 .64092a. Predictors: (Constant), Financial Knowledge, Education Level

ANOVA

ModelSum of Squares df

Mean Square F Sig.

1 Regression 55.313 2 27.657 67.328 .000a

Residual 16.020 39 .411 Total 71.333 41

a. Predictors: (Constant), Financial Knowledge, Education Level b. Dependent Variable: Preference in borrowing from financial institutions

Coefficients

ModelUnstandardized Coefficients

Standardized Coefficients

t Sig.B Std. Error Beta1 (Constant) .535 .230 2.332 .025

Education Level .213 .072 .322 2.948 .005Financial Knowledge .559 .099 .620 5.676 .000

a. Dependent Variable: Preference in borrowing from financial institutions

Looking at the output of regression analysis we can formulate the equation for dependent variable as follows:-

Y = Constant + V1*coefficient1 + V2* coefficient2

Preference for using financial services by financial institutions i.e. ; Financial inclusion = 0.535 + (0.213* education level of people) + (0.559* financial knowledge of

people)

By above equation we can say that,• Education level of rural people can impact the financial inclusion by a factor of 0.213,• Whereas the financial literacy will impact it to the extent by a factor of 0.559.

Third independent variable i.e., awareness of the various financial schemes doesn’t have a good impact on financial inclusion.

Thus, the educational level of people and their financial literacy have 77.5% impact on financial inclusion.

Limitations This research is conducted in a rural area in State of Bihar (India). Other study may have different outcomes due to different geographical locations, respective environmental and economic situations and conditions.

To achieve data of financial literacy (X) in our research, we separately recorded the knowledge of rural people on various parameters: (a) savings account, (b) kisaan card, (c) group loan, (d) crop loan, (e) crop insurance, (f) personal loan, (g) recurring deposit account, (h) fixed account, and (i) bank loan secured on property.

The average of this is considered as financial literacy (X) of rural people. It is not necessary that only the above specific parameters solely define the term “financial literacy”.

Future Scope

In future, we could continue the study regarding the benefits that the rural population got from the implementation of the recommendations in above literature review.

Also we can further research how technology can be leveraged to reach out to the rural population and how that can be used to overcome the barrier of financial literacy in the path of financial inclusion.

References

i. Dr. Christabell. P. J. & Vimal Raj (2012, Oct). A. Financial Inclusion in Rural India: The role of Microfinance as a Tool. IOSR Journal of Humanities and Social Science. ii. Shashank Bansal (2014) Perspective of Technology in Achieving Financial Inclusion in Rural India. Procedia Economics and Finance. iii. Dr. Nagaraja. S & Dr. Pallavi. S. Kusugal (2013, July 7), Financial Inclusion and Rural Development, Global Research Analysis iv. Ashima Thapar (2013, June 6), A Study On The Effectiveness Of The Financial Inclusion Program In India, VSRD International Journal of Business and Management Research. v. Dr.A.Tamilarasu (2014, February), Role of Banking Sectors On Financial Inclusion Development In India, Galaxy International Interdisciplinary Research Journal. vi. Dr Sabita Mahapatra (2013, December), Feasibility Study of Integrated Banking Product for the Rural Poor in India, IJMT. vii. Dr. Bedabrat Saikia, Ms. Farah Hussain, Ms. Tilottama Bora, Ms. Parijat Bora (2013, May), Financial Inclusion: An Overview In Rural Economy Of Assam, IJMT. viii. Ram A. Cnaan , M. S. Mood Ithaya & Fem Ida Handy (2012), Financial Inclusion: Lessons from Rural South India, JNL Soc. Pol. Cambridge University Press. ix. Vighneswara Swamy P M (2011), Financial Inclusion in India: An Evaluation of the Coverage, Progress and Trends, The IUP Journal of Financial Economics. x. Dr. Devendra & G. Bhave (2014), A Study of Development towards Financial Inclusion in India, Journal of Commerce & Management Thought. xi. R.Magesh Kumar & Dr.C.Samuel Joseph (2014, August), Comprehensive Literature Survey on Financial Inclusion, Indian Journal of Applied Research. xii. S. Mahendra Dev (2006, October 20), Financial Inclusion: Issues and Challenges, Economic and Political Weekly xiii. Hema Gwalani & Shilpa Parkhi (2014), Financial inclusion - Building a success model in the Indian context, Procedia - Social and Behavioral Sciences. xiv. Dr. Vivek Singla (2013, May), Financial Inclusion- Financial Services For Everyone, International Journal of Reviews, Surveys and Research (IJRSR). xv. Pallavi Gupta & Bharti Singh (2013, August), Role of Literacy Level in Financial Inclusion in India: Empirical Evidence, Journal of Economics, Business and Management. xvi. K. G. K. Subba Rao (2007, Feb 9), Financial Inclusion: An Introspect, Economic and Political Weekly. xvii. FICCI, Promoting Financial Inclusion, (http://www.undp.org/content/dam/india/docs/promoting_financial_inclusion_can_the_constraints_of_political_economy_be_overcome.pdf) xviii. S. Porkodi & Dr. D. Aravazhi (2013, March), Role Of Micro Finance And Self Help Groups In Financial Inclusion, (http://indianresearchjournals.com/pdf/IJMFSMR/2013/March/13.pdf) xix. Arihant Bhandawat, Financial Inclusion - Role of Indian Banks in Reaching Out to the Unbanked (http://www.allbankingsolutions.com/Articles/Articles-AB-Financial-Inclusion.htm) xx. Charan Singh (2014, November), Financial Inclusion in India: Select Issues (http://www.iimb.ernet.in/research/sites/default/files/WP%20No.%20474.pdf) xxi. Canara Bank (2013, June), Canara Bank’s Initiatives Under Financial Inclusion (http://www.canarabank.com/Upload/English/Content/FI%20Initiatives%20-%202012%20-%2013.pdf) xxii. Canara bank, Financial Inclusion Branches (http://www.canarabank.com/Upload/

Thank You

Presented By:Uday Pratap, N024Parishi Shah, N035Ambuj Soni, N042

SVKM’s Narsee Monjee Institute of Management and Studies, Mukesh Patel School of Technology Management & Engineering,Vile Parle (W), Mumbai