A STUDY OF THE IMPACT OF FINANCIAL INCLUSION IN RURAL DEVELOPMENT

Transcription

1 A STUDY OF THE IMPACT OF FINANCIAL INCLUSION IN RURAL DEVELOPMENT A THESIS Submitted to the Devi Ahilya Vishwavidyalaya, Indore (MP) for the Degree of Doctor of Philosophy in Management By PRIYANKA SHARMA Under the Guidance of Lt. Col (Retd.) Dr. V. K. GAUTAM Research Centre Prestige Institute of Management and Research 2, Education and Health Sector, Scheme 54 INDORE (M.P.) 2014

2 (i) DECLARATION I declare that the thesis entitled A Study of the Impact of Financial Inclusion in Rural Development is my own work conducted under the supervision of Dr.V. K. Gautam, visiting Professor, School of Computer Science, DAVV, and Ex-Group Director, Modern Institute of Professional Studies, Indore approved by Research Degree Committee. I have put in more than 200 days of attendance with the Supervisor. I further declare that to the best of my knowledge the thesis does not contain any part of any work which has been submitted for the award of any degree in this University or any other University/ Deemed University without proper citation. Dr. V. K. Gautam (Supervisor) Priyanka Sharma Date: Dr. (Mrs.) Yogeshwari Pathak Director Prestige Institute of Management and Research, Indore (MP)

3 (ii) CERTIFICATE This is to certify that the work entitled A Study on Impact of Financial Inclusion on Rural Development is a original piece of research work done by Mrs. Priyanka Sharma under my guidance and supervision for the degree of Doctor of Philosophy in Management from Devi Ahilya Vishwavidhayala, Indore (MP) India. The candidate has put in more than 200 days of attendance with me. To the best of my knowledge and belief the thesis: (i) embodies the work of the candidate itself; (ii) has duly been completed; (iii) fulfils the requirement of the ordinance relating to the Ph.D degree of the university; and (iv) is up to the standard both in respect of content and language for being referred to the examiner. Forwarded Dr. V. K. Gautam (Supervisor)

4 (iii) PREFACE The banking industry has shown tremendous growth in volume and complexity during the last few decades. Despite making significant improvements in all the areas relating to financial viability, profitability and competitiveness, there are concerns that banks have not been able to include vast segment of the population, especially the underprivileged sections of the society, into the fold of basic banking services. Internationally, also efforts are being made to study the causes of financial exclusion and designing strategies to ensure financial inclusion of the poor and disadvantaged. The reasons may vary from country to country and hence, the strategy would also vary but all out efforts are being made as financial inclusion that can truly improve the financial condition and standards of life of the poor and the disadvantaged. Poverty and exclusion continue to dominate socio-economic and political discourse in India as they have done over the last six decades in the postindependence period. Poverty reduction has been an important goal of development policy since the inception of planning in India. Various antipoverty, employment generation and basic services programmes have been in operation for decades in India. The ongoing reforms attach great importance to removal of poverty and to address the wide variations across states and the rural-urban divide. Though the Indian economy recorded impressive growth rates until recently, its impact has sadly not fully percolated to the lowest deciles. Despite being one of the ten fastest growing economies of the world, India is still home to one-third of the world s poor. Further, analysis shows that poverty is getting concentrated continuously in the poorer states.

5 (iv) However, it is disheartening to note that the number of people with access to the products and services offered by the banking system continues to be very limited, even years after introduction of inclusive banking initiatives in the country through measures such as the cooperative movement, nationalization of banks, creation of regional rural banks, etc. As Nobel Laureate Prof. Amartya Sen has also noted, the thrust of developmental policy in India has undergone a paradigm shift from an exclusive focus on efficiency to one on equity; from the rate and pattern of growth, and on inequalities, distribution of income and wealth to the extent to which people are deprived of the requirements for leading a fulfilling life and suffer capability deprivation. Over the past five years, Reserve Bank of India, as also other policy makers have resolutely pursed the agenda of financial inclusion and achieved discernible progress in improving access to financial services for the masses. However, the progress is far from satisfactory as evidenced by the World Bank Findex Survey (2012). According to the survey findings, only 35% of Indian adults had access to a formal bank account and 8% borrowed formally in the last 12 months. Only 2% of adults used an account to receive money from a family member living in another area and 4% used an account to receive payment from the Government. The miniscule numbers suggest a crying need for a further push to the financial inclusion agenda to ensure that the people at the bottom of the pyramid join the formal financial system, reap benefits and improve their financial wellbeing. The present study was, therefore, planned to envisage the perception of rural people of Indore districts regarding various financial services provided by the banks.

6 (v) The outcome of the investigation has brought out the number of facts which needs to be paid attention. The results have been discussed at length with specific implications for banks, other financial institutes and policy makers. The present study is explorative in nature undertaken on the rural households below poverty line residing in the villages of Indore district. The report of the study is divided into seven chapters besides Appendix for precision and clarity. Date: Place: (Priyanka Sharma)

7 (vi) ACKNOWLEDGEMENT This thesis has been completed with the cooperation of innumerable individuals. I, express my heartfelt gratitude and dedicated this page to all those who have actively or silently helped me in the processing and carrying out the work. Hence a few require special mention. This thesis is the end of my journey in obtaining my Ph.D. I have not traveled in a vacuum in this journey. This thesis has been kept on track and been seen through to completion with the support and encouragement of numerous people including my well-wishers, my friends, colleagues and various institutions. At the end of my thesis I would like to thank all those people who made this thesis possible and an unforgettable experience for me. Hence, I take this opportunity to express my gratitude to all those who contributed in many ways to the success of this study and made it an unforgettable experience with value addition. I am extremely indebted to my Supervisor, Dr. V. K. Gautam, Ex-Group Director, Modern Institute of Professional Studies, for his continuous support on my Ph. D. study and research, for his patience, motivation, enthusiasm and immense knowledge. His guidance helped me in all the time of research and writing of this thesis. I could not have imagined having a better advisor and mentor for my Ph. D. work. I am very much thankful to him for picking me up as a research student under his guidance. My deepest sense of gratitude to Dr. Rajendra Singh (Professor and Head of Department, Indore Institute of Computer Application, Indore) for his constant encouragement and support during the course of research. I gratefully acknowledge his wise counsel and criticism for completing this work in time. The joy and enthusiasm he has provided for my research was

8 (vii) contagious and motivational for me, even during tough phases in the Ph.D. pursuit. His motivation and mentoring always boost me during my research work. I warmly thank Dr. Sanjay Bhalerao, Prof. Sanjeev Singhal and Prof. Dheeraj Nim, for their valuable advice, constructive criticism and his extensive discussions around my work. My special thanks are due for sparing the valuable time to go through the draft and making criticisms in spite of their busy schedule. My thanks are also due to Dr. Yogeshwari Phatak, Director, Prestige Institute of Management and Research, Indore for her support whenever required. The library facilities and computer facilities of the Prestige Institute of Management and Research, as well as the staff have been indispensable. Last but not the least, I would like to thank my family, my husband Sanjay and the sweet little daughters Awni for sparing me and bearing with me, while I consumed time for carrying out this piece of work in spite of busy household chores and job responsibilities. Without their support and cooperation every step of the way, this work would not have been completed. At the end I thank the Almighty God for giving me this life and showering His blessing on me. Date: Place: (Priyanka Sharma)

9 (viii) INDEX Chapters Contents Page No. Declaration by the Researcher. i Certificate of the Supervisor. ii Preface. iii - v Acknowledgement. vi - vii Index and List of Figures and Tables. viii xix I Introduction and Conceptual framework: Introduction and Conceptual Framework. 1.2 Understanding Financial Inclusion. 1.3 Financial Reforms and Rural Credit. 1.4 Financial Inclusion in India. 1.5 Financial Inclusion in India Policy Perspective. 1.6 Committee on Financial Inclusion (CFI) Research Structure. II Literature Review: 2.1 Financial Exclusion: 2.2 Level of Financial Inclusion and Financial Exclusion. 2.3 Financial Inclusion. 2.4 Financial Inclusion opportunities. 2.5 Regional Rural Banks and Financial Inclusion. 2.6 Financial Inclusion through Microfinance. 2.7 A Stock-taking on Financial Inclusion. 2.8 Financial Inclusion and Millennium Development Goals. 2.9 Financial Inclusion: The Practical Aspects Financial Inclusion: a Case for Mergers & 39-79

10 (ix) Acquisitions Financial inclusion: Social Banking No-frills bank accounts As a means of reaching the Strategic Customers As a Focus Strategy in bank outreaching Financial Access Quality Bank Service for Financial Inclusion Mother Tongue Friendly e-delivery and ATM Efficacy of Regional Rural Banks (RRBs) in India A Path towards India's Future Economic Growth The importance of Microfinance Institutions Micro Finance as a Low Cost Strategy in bank outreaching Impact of membership of financial institutions on rural saving Growth through financial inclusion in India Financial System for India's Poor Rural India, the Role of Credit. 2.26'Financial inclusion', survival strategy for banks Financial Indicators of Financial Inclusion Covering unbanked areas as a competitive strategy 2.29 Problems in delivering to the unbanked Measuring Financial Access around the World. 2.31Emerging Role of Post Office Saving Bank Various organizations on financial inclusion Financial Inclusion and Growth in African Countries Context of Financial Inclusion in India Current State of Financial Inclusion in MP.

11 (x) III Rationale, Objectives and hypothesis of the Study: Rationale of the Study. 3.2 Objectives of the Study. 3.3 Hypothesis of the Study. IV Research Methodology: Introduction and Statement of Problem. 4.2 Research Paradigms. 4.3 Research Approach. 4.4 Research Tools. 4.5 Sample Design, Size and Selection. 4.6 Pilot Study. 4.7 Respondents Population. 4.8 Procedure. 4.9 Data Collection Data Analysis Analytical Framework Limitations and Scope. V Data Analysis and Interpretation: Data Analysis and Interpretation. 5.2 Test of Hypothesis. 5.3 Descriptive statistics of Quality of Services Factors. 5.4 Findings and Discussions. VI Summary, Conclusion and Implications of the Study: 6.1 Summary. 6.2 Conclusion. 6.3 Implications of the Study VII Recommendations with Suggested Model and Suggestions. References

12 (xi) Appendices A Questionnaire for survey (In English) B Glossary of terms List of Tables Table- 1.1 Population Group-Wise Distribution of Deposits and 30 Credit of Scheduled Commercial Banks. Table- 1.2 Key Statistics on Financial Inclusion in India: A Survey. 31 Table- 1.3 Financial Inclusion Statistics in India Table- 2.1 Mid year estimates for 2005 in millions, percentages in 78 parentheses. Table- 4.1 Details of Villages in Indore District. 94 Table- 4.2 Sampling plan of number of villages from each Tehsils. 94 Table- 4.3 Demographic indicators of rural families and selection of 95 respondents from the selected villages. Table- 4.4 Reliability Statistics. 99 Table- 5.1 Profile of Respondents. 106 Table- 5.2 Data on Branches of banks. 108 Table- 5.3 Data on Bank Account. 109 Table- 5.4 Data on Type of bank in the villages. 110 Table- 5.5 Data on Type of Bank Accounts. 112 Table- 5.6 Data on Zero Balance Account. 113 Table- 5.7 Data on Bank Branch Distance. 114 Table- 5.8 Data on Visit to Bank Branch. 115 Table- 5.9 Data on Uses of Other Financial Products. 116 Table Data on Level of awareness of Loan Services. 117

13 (xii) Table Data on Level of Awareness of Internet Banking. 118 Table Data on Level of Awareness of Mobile Banking. 119 Table Data on Level of Awareness of Credit Cards. 120 Table Data on Level of Awareness of Debit Cards. 121 Table Data on Level of Awareness about Mortgage. 122 Table Data on Level of Awareness about Depositing. 123 Table Data on Level of Awareness about Cheque Book. 124 Table Data on Level of Awareness about Overdraft. 125 Table Data on Level of Awareness about Insurance. 126 Table Data on Level of Awareness about KCC. 127 Table Data on Level of Awareness about ATMs. 128 Table Data on Level of availing the loans. 129 Table Data on Level of availing the Internet Banking. 131 Table Data on Level of availing the Mobile Banking. 132 Table Data on Level of availing the Credit Cards. 133 Table Data on Level of availing the Debit Cards. 134 Table Data on Level of availing the Mortgage. 135 Table Data on Level of availing the Depositing. 136 Table Data on Level of availing the Cheque Book. 137 Table Data on Level of availing the Overdraft. 138 Table Data on Level of availing the ATM. 139 Table Data on Insurance Services. 140 Table Data on Kisan Credit Card. 141 Table Data on Effect of Employment. 142 Table Data on Effect of Income. 143 Table Data on Effect of Education. 144 Table Data on Effect of Bank charges. 145 Table Data on Bank employees attitude and behavior. 146 Table Data on Documentation and Identification. 147

14 (xiii) Table Data on Services provided by your bank. 148 Table Data on Distance to the bank is cost incentives. 150 Table Data on Confidentiality. 151 Table Data on Bank employees attitude and behavior. 152 Table Data on Financial institution s interest. 153 Table Data on Reasonable interest on loan. 154 Table Data on Education given by the banks. 155 Table Data on Competitive banking products/schemes. 156 Table Data on Branch timings. 157 Table Data on Bank charges. 158 Table Data on Banking. 159 Table Data on Quick access to your account. 160 Table Data on Availability of ATM. 161 Table Data on Insurance services. 162 Table Data on Mobile banking services. 163 Table Data on Internet banking services. 164 Table Data on Flexible term on small saving. 165 Table Data on Maximum Interest on savings. 166 Table Data on Overall Satisfaction. 167 Table Cross-tabulation- Occupation * Awareness of loans. 168 Table Chi-Square Test- Occupation * Awareness of loans. 168 Table Cross-tabulation- Occupation * E-banking services. 169 Table Chi-Square Test- Occupation * E-banking services. 169 Table Cross-tabulation- Occupation * M-banking services. 170 Table Chi-Square Test- Occupation * M-banking services. 171 Table Cross-tabulation-Occupation* Awareness of Mortgage. 172 Table Chi-Square Test- Occupation* Awareness of Mortgage. 172 Table Cross-tabulation- Occupation* Awareness of Insurance. 173 Table Chi-Square Test- Occupation* Awareness of Insurance. 173

15 (xiv) Table Cross-tabulation- Occupation * Awareness of ATM. 174 Table Chi-Square Test- Occupation * Awareness of ATM. 174 Table Cross-tabulation- Income * Awareness of Loan. 175 Table Chi-Square Test- Income * Awareness of Loan. 175 Table Cross-tabulation- Income * Awareness of E-banking. 176 Table Chi-Square Test- Income * Awareness of E-banking. 177 Table Cross-tabulation- Income * Awareness of M-banking. 178 Table Chi-Square Test- Income * Awareness of M-banking. 178 Table Cross-tabulation- Income * Awareness of Mortgage. 179 Table Chi-Square Test- Income * Awareness of Mortgage. 179 Table Cross-tabulation- Income * Awareness of Insurance. 180 Table Chi-Square Test- Income * Awareness of Insurance. 180 Table Cross-tabulation- Income * Awareness of ATM. 181 Table Chi-Square Test- Income * Awareness of ATM. 181 Table Cross-tabulation- Education * Awareness of Loan. 182 Table Chi-Square Test- Education * Awareness of Loan. 183 Table Cross-tabulation- Education * Awareness of E-banking. 184 Table Chi-Square Test- Education * Awareness of E-banking. 184 Table Cross-tabulation- Education * Awareness of M-banking. 185 Table Chi-Square Test- Education * Awareness of M-banking. 185 Table Cross-tabulation- Education * Awareness of Mortgage. 186 Table Chi-Square Test- Education * Awareness Mortgage. 186 Table Cross-tabulation- Education * Awareness Insurance. 187 Table Chi-Square Test- Education * Awareness Insurance. 188 Table Cross-tabulation- Education * Awareness of ATM. 189 Table Chi-Square Test- Education * Awareness of ATM. 189 Table Cross-tabulation-Occupation * Awareness of Loan. 190 Table Chi-Square Test- Occupation *Awareness of E Loan. 190 Table Cross-tabulation-Occupation * Awareness of E-Banking. 191

16 (xv) Table Chi-Square Test- Occupation *Awareness of E-Banking. 191 Table Cross-tabulation-Occupation*Awareness of M-Banking. 192 Table Chi-Square Test- Occupation*Awareness of M-Banking. 192 Table Cross-tabulation- Occupation * Availing of Mortgage. 193 Table Chi-Square Test- Occupation * Availing of Mortgage. 193 Table Cross-tabulation- Occupation * Availing of Insurance. 194 Table Chi-Square Test- Occupation * Availing of Insurance. 194 Table Cross-tabulation- Occupation * Availing of ATM. 195 Table Chi-Square Test- Occupation * Availing of ATM. 196 Table Cross-tabulation- Education * Availing of Loan Services. 197 Table Chi-Square Test- Education * Availing of Loan Services. 197 Table Cross-tabulation- Education * Availing of E-Banking. 198 Table Chi-Square Test- Education * Availing of E-Banking. 198 Table Cross-tabulation-Education* Availing of M-Banking. 199 Table Chi-Square Test-Education* Availing of M-Banking. 199 Table Cross-tabulation- Education * Availing of Mortgage. 200 Table Chi-Square Test- Education * Availing of Mortgage. 200 Table Cross-tabulation- Education * Availing of Insurance. 201 Table Chi-Square Test- Education * Availing of Insurance. 201 Table Cross-tabulation- Education * Availing of ATM Service. 202 Table Chi-Square Test- Education * Availing of ATM Service. 203 Table Cross-tabulation- Income * Availing of Loan Service. 204 Table Chi-Square Test- Income * Availing of Loan Service. 204 Table Cross-tabulation- Income * Availing of E- Banking. 205 Table Chi-Square Test- Income * Availing of E- Banking. 205 Table Cross-tabulation Income * Availing of M- Banking. 206 Table Chi-Square Test- Income * Availing of M- Banking. 206 Table Cross-tabulation- Income * Availing of Mortgage. 207 Table Chi-Square Test- Income * Availing of Mortgage. 207

17 (xvi) Table Cross-tabulation- Income * Availing of Insurance. 208 Table Chi-Square Test- Income * Availing of Insurance. 208 Table Cross-tabulation- Income * Availing of ATM Service. 209 Table Chi-Square Test- Income * Availing of ATM Service. 209 Table Cross-tabulation- Bank Employees Attitude * Overall 210 Satisfaction Level. Table Chi-Square Test- Bank Employees Attitude * Overall 211 Satisfaction Level. Table Cross-tabulation- Banks Charges*Rates to Overall 212 Satisfaction Level. Table Chi-Square Test- Banks Charges*Rates to Overall 212 Satisfaction Level. Table Cross-tabulation- Bank Charges * Availing of Loan. 213 Table Chi-Square Test- Bank Charges * Availing of Loan. 213 Table ANOVA Test-Satisfaction with banking services. 214 Table Descriptive Statistics. 215 Table Cronbach Alpha, KMO and Bartlett s Test result. 216 Table Correlation Matrix. 217 Table Communalities. 220 Table Total Variance Explained. 221 Table Variable and its means. 223 Table Component Matrix. 224 Table Rotated Component Matrix. 225 Table Component Transformational Matrix. 228 Table Results of Regression analysis. 228 Table Results of ANOVA. 229 Table Hypothesis for first objectives. 235 Table Hypothesis for second objectives. 238 Table Hypothesis for third objectives. 243

18 (xvii) Charts and Figures Chart-1.1 Financial Access of Developed & Developing Countries. 2 Chart-1.2 Population Group Wise Distribution of Number of 29 Offices of commercial Bank. Chart-5.1 Bank's Branches 108 Chart-5.2 Bank Account. 109 Chart-5.3 Type of bank in the villages. 111 Chart-5.4 Type of Bank Accounts. 112 Chart-5.5 Zero Balance Account. 113 Chart-5.6 Bank Branch Distance. 114 Chart-5.7 Visit to Bank Branch. 115 Chart-5.8 Uses of Other Financial Products. 116 Chart-5.9 Level of Awareness of Loan Services. 117 Chart-5.10 Level of Awareness of Internet Banking. 118 Chart-5.11 Level of Awareness of Mobile Banking. 119 Chart-5.12 Level of Awareness of Credit Cards. 120 Chart-5.13 Level of Awareness of Debit Cards. 121 Chart-5.14 Level of Awareness about Loan on Mortgage. 122 Chart-5.15 Level of Awareness about Depositing/Withdrawing cash. 123 Chart-5.16 Level of Awareness about Cheque Book. 124 Chart-5.17 Level of Awareness about Overdraft. 125 Chart-5.18 Level of Awareness about Insurance. 126 Chart-5.19 Level of Awareness about Kisan Credit Card. 127 Chart-5.20 Level of Awareness about ATM. 128 Chart-5.21 Level of Availing the Loans. 130 Chart-5.22 Level of Availing the E-Banking Services. 131

19 (xviii) Chart-5.23 Level of Availing the M-Banking Services. 132 Chart-5.24 Level of Availing the Credit Card Services. 133 Chart-5.25 Level of Availing the Debit Card Services. 134 Chart-5.26 Level of Availing the Mortgage Services. 135 Chart-5.27 Level of Availing the Depositing/Withdrawing cash. 136 Chart-5.28 Level of Availing the Cheque Book. 137 Chart-5.29 Level of Availing the Overdraft. 138 Chart-5.30 Level of Availing the ATM. 139 Chart-5.31 Level of Availing the Insurance Services. 140 Chart-5.32 Level of Availing the Kisan Credit Card. 141 Chart-5.33 Effect of Employment Status on Access of Financial 142 Services. Chart-5.34 Effect of Income on Access of Financial Services. 143 Chart-5.35 Effect of Education on Access of Financial Services. 144 Chart-5.36 Effect of Bank Charges on Access of Financial Services. 145 Chart-5.37 Effect of Bank Employee s Attitude and Behaviour on 146 Access of Financial Services. Chart-5.38 Effect of Documentation and Identification on Access of 147 Financial Services. Chart-5.39 Services provided by your bank. 148 Chart-5.40 Distance to the bank is cost incentives. 150 Chart-5.41 Confidentiality about Customer Account Information. 151 Chart-5.42 Bank Employees Attitude and Behavior. 152 Chart-5.43 Financial Institution s Interest in your problem. 153 Chart-5.44 Reasonable interest on Loan. 154 Chart-5.45 Education given by the banks for you to be compatible 155 with the Bank Services. Chart-5.46 Competitive Banking Products/Schemes. 156 Chart-5.47 Branch Timings. 157

20 (xix) Chart-5.48 Bank Charges. 158 Chart-5.49 Banking procedures like Documentation and 159 Identification. Chart-5.50 Quick access to your Deposit/Loan account. 160 Chart-5.51 Availability of ATM. 161 Chart-5.52 Insurance Services. 162 Chart-5.53 Mobile banking Services. 163 Chart-5.54 Internet banking Services. 164 Chart-5.55 Flexible term on small Saving. 165 Chart-5.56 Maximum Interest on Savings. 166 Chart-5.57 Overall Satisfaction. 167 Figure 5.1 Cattell s Scree Plot 222 Models Model-1.1 Financial Exclusion. 17 Model-1.2 Components of Financial Inclusion. 19 Model-2.1 Rural Financial Inclusion Policy as a Focus Strategy in 54 Bank Outreaching. Model-5.1 Factors affecting the Rural Customers Perception. 227 Model-7.1 Bridging the Gap between Client & Financial Institution. 257 Model-7.2 Bridging the Gap in Existing Financial Inclusion System in India 258