Dr Gursharan Singh Kainth

Transcription

1 Financial Inclusion in Rural Indian Punjab: Evidence from Fields Dr Gursharan Singh Kainth ICSSR Senior Fellow-cum-Director Guru Arjan Dev Institute of Development Studies 14-Preet Avenue, Majitha Road PO Naushera, Amritsar 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

2 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

3 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, Populated Areas; Moderately Rural Population Areas and s. 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 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 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 nonprobability 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

4 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 (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 s Moderately Rural s s (39.98) (54.89) (41.54) Rural Punjab (45.72) Source: Survey Undertaken 447 (43.91) 296 (26.81) 319 (31.18) 1062 (33.77) 164 (16.11) 202 (18.30) 279 (27.27) 645 (20.51) The region wise distribution of selected respondent households is also reported in Table 1. In, 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 per cent (447) and per cent (164) respectively. As expected, in Moderately Rural, 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.

5 Likewise, there was 1023 respondent-household in s, 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 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 Populated area of Rural Punjab, only 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,

6 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 s (35.76) 484 (47.54) 70 (6.88) 98 (9.63) 2 (0.19) Moderately Rural Populated Areas s (42.57) (26.69) 408 (36.96) 557 (54.45) 28 (2.54) 75 (7.33) 165 (14.94) 108 (10.56) 33 (2.99) 10 (0.98) Rural Punjab (35.20) 1449 (46.07) Source: Survey Undertaken 173 (5.50) 371 (11.80) 45 (1.43) Highest percentage of respondent households as compared with the other regions was engaged in farming (nearly 43 per cent (470) of total households) in Moderately Rural Punjab Area. However, nearly 37 per cent (408) of total households were from labour class which was lowest percentage as compared with the percentage of labour class in other regions. Furthermore only 28 (2.54 per cent) households belong to business class. The number of households involved in service and those who were dependent on others were 165 (14.94 per cent) and 33 (2.99 per cent) which were also highest as compared with other regions. In, 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, 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 and 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

7 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; 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 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 These households either belong to service class or to farming class. Only 3.97 per cent (125) of households had income between Rs and 3.15 per cent of total households (99) had income between Rs Only 141 households (4.48 per cent) had monthly income of rupees & 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 & above Rural (43.71) (27.11) (10.41) (4.32) (5.11) (9.33) (49.55) (26.27) (10.23) (6.16) (3.89) (3.89) Thinly s Moderately Rural Populated Areas s (69.99) 241 (23.56) 46 (4.50) 13 (1.27) 4 (0.39) 3 (0.29) Rural Punjab (54.31) 807 (25.66) 265 (8.43) 125 (3.97) 99 (3.15) 141 (4.48) Source: Survey Undertaken In, 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 The proportion of respondent households falling in the income group of Rs and Rs were 106 (10.41 per cent) and 44 (4.32 per cent) respectively. On the other hand only 52 (5.11 per cent)

8 households were falling between income classes of Rs 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 and above. In Moderately Rural s, nearly 50 per cent of total households (547) had income of less than Rs per cent of total households (290) had income of Rs Moreover 113 households (10.23 per cent) falls under income class of Rs and 68 households (6.16 per cent) had income between Rs Moreover, only 3.89 per cent of households (43) had income between Rs and the same percentage of households falls between income class of Rs and above. The 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 Very little percentage of households fall between income class of Rs , Rs , Rs and Rs 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 giving the average size of the household to be 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 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 was 4614 from 1018 households giving an average family size of Moreover, there were 2448 males (53.06 per cent) while females were 2166 (46.94 per cent). The sex ratio was per cent. Likewise, the Moderately Rural had a population of 4839, which is highest as compared to other regions. Average family size was computed to be 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 per cent.

9 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 The sex ratio of the region was highest at 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 (53.06) (46.94) Moderately Rural (53.38) (51.97) Rural Punjab (52.84) Source: Survey Undertaken (46.62) 1974 (48.03) 6396 (47.16) 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 Moderately Rural Populated Area Rural Punjab Fig. 1: Sex Ratio in Rural Punjab

10 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 < < Male Female Male Female Male Female (14.85) 563 (12.20) 1494 (32.38) 1366 (29.60) 272 (5.90) 234 (5.07) Moderately Rural (16.57) 600 (12.40) 1509 (31.18) 1363 (28.17) 271 (5.60) 294 (6.08) (13.75) 537 (13.06) 1374 (33.43) 1259 (30.63) 194 (4.72) 181 (4.40) Rural Punjab (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. 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 the percentage of male and female children were per cent (802) and 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

11 (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 Moderately Rural Rural Punjab Fig. 2: Average Family Size in Rural Punjab In, 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 (72.95) Moderately Rural (71.03) (73.19) Rural Punjab (72.34) Source: Survey Undertaken 1248 (27.05) 1402 (28.97) 1102 (26.81) 3752 (27.66)

12 Likewise, in, the number of adults and non adults were 3366 (72.95 per cent) and 1248 (27.05 per cent) respectively. The Moderately Rural with a population of 4839 persons had 3437 (71.03 per cent) of adults and non adults were 1402 (28.97 per cent). In, the population 4110 had per cent (3008) adults and 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; 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. 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. Regions Table 7: Distribution of Workers in Rural Punjab Total Total Workers Non Workers Population Workers Male Female Male Female (29.11) 1329 (28.80) 51 (1.11) 1124 (24.36) 2110 (45.73) Moderately Rural (27.90) (28.44) Rural Punjab (28.76) 1289 (26.64) 1090 (26.52) 3708 (27.34) 63 (1.30) 79 (1.92) 193 (1.42) 1290 (26.66) 1051 (25.57) 3465 (25.55) 2197 (45.40) 1890 (45.99) 6197 (45.69) Source: Survey Undertaken

13 Moderately Rural Rural Punjab Fig.3: Worker per Household in Rural Punjab The Moderately Rural had a population of 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 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 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.

14 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 per cent (2056) were uneducated males and 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 percentage of uneducated males and females were per cent (720) and 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 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 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.

15 Regions Populated Area Total Pop. Table 8: Educational Status of Population in Rural Punjab Uneducated Under Matric 10+2 Grad. Others Matric Male (15.60) Femal e 851 (18.44) Male 899 (19.48) Femal e 768 (16.64) Male 568 (12.31) Femal e 346 (7.50) Male 239 (5.18) Fema le 170 (3.68) Male Fem ale 21 (0.45 ) 25 (0.54 ) Male Fe mal e 2 (0.04 ) 5 (0.1 1) Moderately Rural Populated Area Densely Rural Populated Area Rural Punjab (18.95) (10.19) (15.16) 1123 (23.21) 517 (12.58) 2491 (18.37) 722 (14.92) 810 (19.71) 2431 (17.92) 591 (12.21) 728 (17.71) 2087 (15.39) 529 (10.93) 502 (12.21) 1599 (11.79) 252 (5.21) 417 (10.15) 1015 (7.48) 330 (6.82) 295 (7.18) 864 (6.37) 238 (4.92) 187 (4.55) 595 (4.39) 47 (0.97 ) 87 (2.12 ) 155( 1.14) 46 (0.95 ) 82 (2.00 ) 153 (1.13 ) 35 (0.72 ) 26 (0.63 ) 63 (0.46 ) 9 (0.1 9) 40 (0.9 7) 54 (0.4 0) 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 respondenthouseholds, 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.

16 Table 9: Purpose Wise Distribution of Bank Loans Availed Regions Total Bank Loans Agriculture Loans Business Loans Home Loans Personal Loans (42.19) 5 (7.81) 10 (15.62) 18 (28.13) Other Loans 4 (6.25) Moderately Rural (53.47) 4 (3.96) 17 (16.83) 25 (24.75) 1 (0.99) (25.00) 20 (25.00) 22 (27.50) 16 (20.00) 2 (2.50) Rural Punjab (41.22) 29 (11.84) 49 (20.00) 59 (24.08) 7 (2.86) Source: Survey Undertaken In, total 64 bank loans had been granted by banks out of which 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 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 per cent (17) and 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, 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. Regions Table 10: Time Period of Bank Loans Availed Total Bank 0-3 years 4-6 years 7-9 years 10 years & Loans above

17 Moderately Rural (40.63) (62.38) (31.25) Rural Punjab (46.53) Source: Survey Undertaken 30 (46.87) 23 (22.77) 31 (38.75) 84 (34.28) 6 (9.38) 9 (8.91) 2 (2.50) 17 (6.94) 2 (3.12) 6 (5.94) 22 (27.50) 30 (12.24) 22 (27.50 per cent). Moreover 16 (20.00 per cent) loans were for personal purpose and 2 (2.50 per cent) loans for other purpose. Most of loans had been taken for a period of 4-6 years and at rate of interest of 10 per cent and above. Apparently, in Rural Punjab the people do not prefer to take loans from banks simply due to more documentation and more paper work, lengthy proceedings, improper behavior of bank employees, more formalities etc. Most of the banks need collateral for their loans. It is very difficult for a low income individual to find collateral for a bank loan. Moreover banks also do not prefer to give loans to rural people because these loans are generally converted into Non Performing Assets. Furthermore the banks focus on larger (volume) accounts. It is not profitable for banks to provide small loans and make a profit. There is need to change the mindset of the banking community. Rate of interest wise distribution of Bank Loans has been depicted in Table 11. Regions Moderately Rural Table 11: Rate of Interest on Bank Loan Availed Total Bank Loans 0-3 % 4-6 % 7-9 % 10 % & above (1.56) (9.37) (28.13) (60.94) (0.99) 80 0 (0.00) Rural Punjab (0.82) Distribution of Informal Loans: 2 (1.98) 4 (5.00) 12 (4.90) Source: Survey Undertaken 50 (49.50) 24 (30.00) 92 (37.55) 48 (47.52) 52 (65.00) 139 (56.73)

18 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 Moderately Rural Total Informal Loans Brokers (71.24) (66.59) Money Lenders 72 (19.00) 75 (18.03) Relatives 31 (8.18) 56 (13.46) Others 6 (1.58) 8 (1.92) (46.43) Rural Punjab (61.78) Source: Survey Undertaken 129 (35.44) 276 (23.81) 39 (10.71) 126 (10.87) 27 (7.42) 41 (3.54) from money lenders, relatives etc. Most of these loans were for agriculture purpose taken for a period of 0-3 years or above. These loans were taken at a rate of 0-3% or above. In 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, 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 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:

19 Purpose wise distribution of informal loans has been presented in Table 13. Regions Table 13: Purpose-wise Distribution of Informal Loans Informal Loans Agriculture Loans (71.50) Moderately Rural (73.08) (55.77) Rural Punjab (67.13) Business Loans 29 (7.65) 14 (3.36) 49 (13.46) 92 (7.94) Source: Survey Undertaken Home Loans 23 (6.07) 38 (9.13) 28 (7.69) 89 (7.68) Personal Loans 51 (13.46) 41 (9.86) 48 (13.19) 140 (12.08) Other Loans 5 (1.32) 19 (4.57) 36 (9.89) 60 (5.18) In, there were total 364 other sources loans out of which approximately 56 per cent loans were for agriculture purpose and 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. Regions Moderately Rural Table 14: Time Period of Informal Loans Informal 0-3 years 4-6 years 7-9 years 10 years & Loans above (69.66) (41.59) (71.70) Rural Punjab (60.22) 89 (23.48) 204 (49.04) 59 (16.21) 352 (30.37) Source: Survey Undertaken 17 (4.49) 26 (6.25) 33 (9.07) 76 (6.56) 9 (2.37) 13 (3.12) 11 (3.02) 33 (2.85) Distribution of informal loans according to rate of interest has been depicted in table 15

20 Regions Moderately Rural Table 15: Rate of Interest of Informal Loans Informal 0-3 % 4-6 % 7-9 % 10 % & Loans above (35.62) (40.87) (65.66) Rural Punjab (46.94) Source: Survey Undertaken 33 (8.71) 72 (17.31) 72 (19.78) 177 (15.27) 96 (25.33) 47 (11.30) 33 (9.06) 176 (15.18) 115 (30.34) 127 (30.53) 20 (5.49) 262 (22.61) Apparently, most of people in Rural Punjab prefer to take loans from brokers, money lenders and relatives due to fewer formalities and less paper work. Although these loans are given at very high rate of interest but these are easily available. These loans had been mainly taken for agriculture purpose. Extent of Financial Inclusion: Extent of financial Inclusion in the present study has been estimated through four different measures: 1. Per Household Number of Bank Accounts 2. Per Capita Number of Bank Accounts 3. Per Adult Number of Bank Accounts 4. Per Worker Number of Bank Accounts The resulting estimated values of these measures of extent of financial inclusion has been reported in Table 16 and depicted graphically in Figure 4. Majority of households (nearly twothirds 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.

21 Table 16: Distribution of Households having Bank Accounts: Region wise Regions Total HHS HHS with no Bank Accounts Moderately Rural (33.20) (34.96) (29.23) Rural Punjab (32.53) Source: Survey Undertaken HHS with Bank Accounts 680 (66.80) 718 (65.04) 724 (70.77) 2122 (67.47) HHS with more than one Bank Account 65 (6.38) 53 (4.80) 10 (0.98) 142 (4.51) In s, 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 s, 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 s, 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

22 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 per cent of the total households were having bank accounts. However, only 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 per cent. Furthermore the percentage of deposit per worker was as high as 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 Regions Moderately Rural Table 17: Extent of Financial Inclusion: Region wise 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) Rural Punjab Source: Survey Undertaken

23 from hands to mouth. Thesee workers do not have enough money/saving to deposit in bank accounts. Moreover the other reasons responsible for it were lacks of knowledge, poverty; financial illiteracy etc. Almost similar situation was observed in different regions of Rural Punjab. In s of Rural Punjab, there were total 750 deposit accounts. After comparing the figure of total households with total deposit accounts it can be concludedd that per cent of total households were having bank accounts. But the percentage of deposit per person was only per cent which is the least percentage if compared with percentagee of other two regions. The percentages of deposit per adult and deposit per worker were per cent and per cent respectively. Both of these percentages are also least as compared to other regions Area Moderately Rural Populated Area Rural Punjab Populated 0 Financial Inclusion Per Household Financial Financial Financial Inclusion Inclusion Inclusion Per Per Per Person Adult Worker Fig.4: Extent of Financial Inclusion in Rural Punjab In Moderately Rural 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 per cent of total households were having bank accounts which were also highest if compared with other regions. However deposit per person was only per cent. The percentages of deposit per adult and deposit per worker were per cent and per cent respectively which are larger than the figures of other regions.

24 In of Rural Punjab, the total number of deposit accounts was 737 only. The deposit per household was per cent only which shows that only 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 per cent. The percentage of deposit per adult was per cent and deposit per worker was 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

25 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