AWARENESS OF FINANCIAL PRODUCTS AMONG RURAL HOUSEHOLDS IN SRIKAKULAM DISTRICT, ANDHRA PRADESH

Asia Pacific Journal of Research Vol: I Issue XX, December 04 ISSN: 30-5504, E-ISSN-34-493 AWARENESS OF FINANCIAL PRODUCTS AMONG RURAL HOUSEHOLDS IN SRIKAKULAM DISTRICT, ANDHRA PRADESH Dr. T.V.V. Phani Kumar Associate Professor, Department of Finance, GITAM Institute of Management, GITAM University, Rushikonda, Visakhapatnam - 530045 ABSTRACT The emerging economies like India where more than 0% of the population lives in the rural areas, should ensure adequate access to the financial products and services to all the individuals in the country.the growth of financial system depends on the penetration of the financial products into the rural markets in the country.lack of awareness about the different financial products among the rural households not only affects the growth of financial system in the country but also the overall quality of life of rural households. The present study focuses on the awareness of various financial products among the rural households in the Srikakulam district of Andhra Pradesh. Key Words :Rural Households, Awareness of Financial Products, Financial Literacy, Awareness of Capital Market Instruments. INTRODUCTION The emerging economies like India where more than 0% of the population lives in the rural areas, should ensure adequate access to the financial products and services to all the individuals in the country. According to the annual MasterCard s index for financial literacy 03, India is in 5th place among countries in Asia Pacific region in terms of overall financial literacy. The report states that for Indians, the lack of ability to keep up with bills, set money aside for big item purchases and to pay off credit cards fully could be due to a lack of surplus cash, resulting from the fact that income levels are not high enough to cover expenses. The condition is still worse in rural India where the levels of financial literacy are very low. The Reserve Bank of India in March 005 initiated financial inclusion as a major policy objective to extend banking services to the entire population without any discrimination. The Financial Stability and Development Council (FSDC), www.apjor.com Page 85

Asia Pacific Journal of Research Vol: I Issue XX, December 04 ISSN: 30-5504, E-ISSN-34-493 headed by the Finance Minister, is mandated to focus on financial inclusion and financial literacy. All financial sector regulators, RBI, SEBI and IRDA are committed to the mission to create a financially aware and empowered India. The growth of financial system depends on the penetration of the financial products into the rural markets in the country. The wider participation of rural households in financial markets will lead to increased financial deepening in Indian Economy. Lack of awareness about the different financial products among the rural households not only affects the growth of financial system in the country but also the overall quality of life of rural households. The present study focuses on the awareness of various financial products among the rural households in the Srikakulam district of Andhra Pradesh. The results of the study will help the government,the policy makers to further strengthen the financial system in rural India and improve the financial literacy among the rural households.. REVIEW OF LITERATURE AnnamariaLusbrdi(005) analyzed the effects of financial education on saving and investment behaviour of African-Americans and Hispanics Households. The study revealed that seminars have some effect on savings, particularly for those at the bottom of the wealth distribution, and those with low education. C Thilakam (0) opined that the knowledge of rural households is limited to the traditionally known savings and investment avenues like bank saving, holding insurance policy, investment in gold or in land/building. The sample population s knowledge on the modern and market sophisticated investment avenues is very much limited. FurqanQamar (003) 3 analyzed the savings behaviour and investment preferences among average urban middle class of Delhi. The following are the relevant findings of the study : a. Despite financial sector reforms and entry of private, domestic and foreign banks into the country, the nationalized commercial banks seem to be the favorite choice of an average household. b. Capital market imperfections and associated risk have not been a deterrent for many households as they were found investing in debentures and shares either directly or indirectly. c. The saving behaviour and investment preferences of average urban household seem to be significantly influenced by the level of educational attainments and income of the respondents. Amu Manasseh Edison Komla (0) 4 concluded that demo-graphic factors influence the rural household savings of rural households. The study found that the age of the head of the household, the size of family has a major bearing on the saving and investment behaviour of rural households in the study area. Family size and knowledge in saving and in-vestment by household heads had no significant relationship with savings and investment of the rural households in the Ho Municipality. SEBI NCAER Survey (0) 5 was carried out to prepare a comprehensive profile of savings and investment behaviour in the context of income and consumption patterns and to obtain the risk profile of the households and relate this to savings and investment behaviour. Some of the relevant findings of the study are : i) The percentage of investors is nearly 0 per cent in urban areas while it is much lower ( per cent) in rural India. ii) There is a significant degree of non-investment by rural households because of: a) inadequateinformation, and b) lack of adequate skills. iii) Only per cent of all households, whose primary occupation is agriculture, allocate a part of their savings to pension plans. Srikakulam District formerly known as Chicacole is one backward district among the nine coastal districts of Andhra Pradesh.The current study focuses on analyzing the awareness of different financial products among the rural households in relation to the different socio-economic indicators. www.apjor.com Page 8

Asia Pacific Journal of Research Vol: I Issue XX, December 04 ISSN: 30-5504, E-ISSN-34-493.3 OBJECTIVES OF THE STUDY The main objective of the study is to analyze the awareness of financial products among the rural households in relation to the different socio economic indicators..4 METHODOLOGY OF THE STUDY Selection of Sample : The data needed for the study is collected from the select rural households in the Srikakulam District. Data Collection : The data needed for the study will be collected from both primary and secondary sources. The secondary sources include Census 0 reports, various journals and books in the area of financial literacy, savings and investment behaviour of individuals. Sampling Design : The stratified random sampling technique will be used to collect information from the target respondents. The population from which the sample is drawn is divided into different stratasbased on gender, income levels, marital status, levels of education, age and occupation. Sample Size : The sample size is 5 rural households in Srikakulam District. Statistical Tools The entire data collected will be coded and computerized in Excel sheets and Bi- Variate analysis is applied..5 PROFILE OF THE SELECT SAMPLE OF RURAL HOUSEHOLDS IN THE STUDY AREA : A brief profile of the select sample of the rural households in the study area is presented in the Table. TABLE. PROFILE OF THE SELECT SAMPLE OF RURAL HOUSEHOLDS Age No. of No. of Income Level No. of Education Households Households (per month in Rs.) Households Below 30 Years 8 0 54 Uneducated (38%) (45%) Less than 5,000 (8%) 3-40 Years Under 0 5 500-0,000 (9%) Graduate (45%) (3%) 4-50 Years 39 4 Graduate 0,00-5,000 (%) (8%) (%) 5-0 Years 5 Post 5 More than 5,000 (%) Graduate (%) (%) Above 0 Years 9 3 Others (4%) (%) 5 5 5 (00.0%) (00.0%) (00.0%) Note : Figures in the parenthesis indicate percentages to the column total www.apjor.com Page 8

Asia Pacific Journal of Research Vol: I Issue XX, December 04 ISSN: 30-5504, E-ISSN-34-493 Gender Male Female No. of Households 4 (5%) 9 (35%) Marital Status Unmarried Married Single No. of Households 3 (0%) 99 (88%) 3 (%) Occupation Employee Cultivation Business Retired Cultivation and Daily Labour No. of Households (0%) 9 (4%) 80 (3%) 5 (%) 8 (%) Others 8 (3%) 5 (00.0%) 5 (00.0%) 5 (00.0%) Note : Figures in the parenthesis indicate percentages to the column total. AWARENESS OF FINANCIAL PRODUCTS AMONG RURAL HOUSEHOLDS IN SRIKAKULAM DISTRICT : Data relating to the distribution of select rural households according to the awareness of financial products in Srikakulam District are presented in Table. TABLE. DISTRIBUTION OF SELECT RURAL HOUSEHOLDS IN SRIKAKULAM DISTRICT ACCORDING TO AWARENESS OF FINANCIAL PRODUCTS Amadala Gara Jalumu Kotabo Narasan Srikak valasa ru mmali napeta ulam Savings 34 4 4 3 5 0 Fixed Deposit (00.0) (50.0) 33 (9.) 5 (3.5) 5 (44.) (00.0) (5.) 3 (8.8) 5 (.0) (53.) (00.0) 5 (3.) 39 (95.) 9 (4.3) 8 (43.9) (9.3) 3 (35.) 34 (9.9) (5.8) (43.) (9.) 9 (34.5) 4 (83.) (49.) (38.) (00.0) (4.) (00.0) (0.) (0.) (9.8) 9 (4.) 05 (9.) 9 (5.3) 04 (4.) Saving Schemes Secured Bank 3 3 4 33 3 (.) (5.) (58.5) (5.8) (0.0) (0.) (0.4) 3 3 30 3 (9.) (8.8) (3.) (3.0) (5.5) (00.0) (8.) (0.) (.) (4.) 3 (8.) 4 (.3) (4.) 34 (5.) 4 3 Debentures (0.) (.) (4.) (.) (.3) (4.) (4.) (0.) (.) (4.) (.) (3.) (35.3) 9 (.9) Total Sample 34 4 4 3 55 5 www.apjor.com Page 88

Asia Pacific Journal of Research Vol: I Issue XX, December 04 ISSN: 30-5504, E-ISSN-34-493 From the Table. it can be observed that, i) Majority of the rural households (9.8%) are aware of Savings Bank followed by micro finance (9.%). ii) A very few rural households (.9%) are aware of mutual funds followed by bonds/debentures (4.%). iii) The awareness of capital market instruments like shares, bonds or debentures and mutual funds among the rural households is lesser when compared to the other financial instruments.. AWARENESS OF FINANCIAL PRODUCTS AND AGE GROUP OF THE RURAL HOUSEHOLDS : Data relating to the distribution of select rural households according to the awareness of financial products and age are presented in Table.3 TABLE.3 DISTRIBUTION OF SELECT RURAL HOUSEHOLDS ACCORDING TO AWARENESS OF FINANCIAL PRODUCTS AND AGE Age Financial Above Products Below 30 3-40 4-50 5-0 0 Savings 84 5 3 5 9 0 (9.) (98.5) (94.9) (00.0) (00.0) (9.8) Fixed Deposit 4 (53.5) 4 (3.4) (43.) 5 (0.0) 4 (44.4) 9 (4.) 80 35 3 05 (93.0) (9.4) (89.) (9.0) (.) (9.) 55 4 8 0 4 9 (4.0) (3.) (4.) (40.0) (44.4) (5.3) Saving Schemes 48 (55.8) (39.4) 9 (48.) 8 (3.0) 3 04 (4.) Secured Bank 55 (4.0) 43 (5.) 9 (48.) 5 (0.0) 4 (44.4) 3 (0.4) 5 5 9 5 (8.) (.3) (4.4) (8.0) (55.) (8.) 8 0 34 (9.8) (.) (.9) (8.0) (0.0) (5.) Debentures 8 (0.9) (9.) (5.4) (8.0) 0 (0.0) 3 (4.) 5 0 9 (.4) (9.) (5.4) (8.0) (0.0) (.9) Total Sample 8 39 5 9 5 From the Table.3 it can be observed that, i) The awareness of financial products is comparatively higher among the rural households in the age group of below 30. ii) Rural Households in the age group of above 0 are not aware of awareness of capital market instruments like shares, bonds or debentures and mutual funds. www.apjor.com Page 89

Asia Pacific Journal of Research Vol: I Issue XX, December 04 ISSN: 30-5504, E-ISSN-34-493.8 AWARENESS OF FINANCIAL PRODUCTS AND EDUCATION OF THE RURAL HOUSEHOLDS : Data relating to the distribution of select rural households according to the awareness of financial products and education are presented in Table.4 TABLE.4 DISTRIBUTION OF SELECT RURAL HOUSEHOLDS ACCORDING TO AWARENESS OF FINANCIAL PRODUCTS AND EDUCATION Education Financial Under Products Uneducated Graduate Graduate Post Graduate Others Savings 99 99 3 0 (98.0) (9.) (00.0) (00.0) (00.0) (9.8) Fixed Deposit 8 58 9 (.8) (5.9) (94.) (00.0) (.) (4.) 9 95 5 05 (90.) (93.) (88.) (00.0) (.) (9.) 39 0 9 (38.) (8.) (94.) (00.0) (.) (5.3) 0 5 04 Saving Schemes (5.) (58.8) (88.) (50.0) (.) (4.) Secured Bank 45 3 (44.) (9.) (94.) (00.0) (.) (0.4) 4 9 3 (3.4) (90.) (94.) (00.0) (00.0) (8.) 9 0 34 (.0) (8.) (0.) (50.0) (0.0) (5.) 8 0 0 3 Debentures (.0) (.) (58.8) (00.0) (0.0) (4.) 0 0 9 (.0) (.) (58.8) (50.0) (0.0) (.9) Total Sample 0 0 3 5 From the Table.3 it can be observed that, i) The awareness of financial products is considerably increasing with the level of education. ii) The awareness of capital market instruments like shares, bonds or debentures and mutual funds among the rural households is increasing significantly with the increase in the level of education..9 AWARENESS OF FINANCIAL PRODUCTS AND INCOME OF THE RURAL HOUSEHOLDS : Data relating to the distribution of select rural households according to the awareness of financial products and income are presented in Table.5 www.apjor.com Page 90

Asia Pacific Journal of Research Vol: I Issue XX, December 04 ISSN: 30-5504, E-ISSN-34-493 TABLE.5 DISTRIBUTION OF SELECT RURAL HOUSEHOLDS ACCORDING TO AWARENESS OF FINANCIAL PRODUCTS AND INCOME Income per month Financial Less than 500-0,00 - More than Products 5,000 0,000 5,000 5,000 Savings 49 5 4 5 (9.8) (00.0) (00.0) (00.00) Fixed Deposit 4 35 4 (9.9) (.0) (9.0) (80.0) Recurring 8 Deposit (.8) (5.0) (43.0) (40.0) 40 48 5 (90.0) (9.0) (8.0) (00.0) 8 3 0 5 (50.) (9.0) (.0) (00.0) 5 3 4 Saving Schemes (33.8) (.0) (9.0) (80.0) Secured Bank 8 4 5 (50.) (8.0) (9.0) (00.0) 4 4 5 (4.0) (88.0) (8.0) (00.0) 3 3 (8.4) (.0) (50.0) (0.0) 3 0 3 Debentures (8.4) (9.0) (43.0) (0.0) 0 0 3 (.5) (9.0) (43.0) (0.0) Total Sample 54 5 4 5 5 0 (9.8) 9 (4.) 8 (.4) 05 (9.) 9 (5.3) 04 (4.) 3 (0.4) (8.) 34 (5.) 3 (4.) 9 (.9) From the Table.5 it can be observed that, i) The awareness of financial products among the rural households has increased considerably with increase in the income levels. This signifies that the rural households with higher income are considering financial products for investments and also for raising funds when needed. ii) The awareness of capital market instruments like shares, bonds/debentures and mutual funds is more among the rural households in the higher income group..0 AWARENESS OF FINANCIAL PRODUCTS AND GENDER OF THE RURAL HOUSEHOLDS : Data relating to the distribution of select rural households according to the awareness of financial products and gender are presented in Table. TABLE. www.apjor.com Page 9

Asia Pacific Journal of Research Vol: I Issue XX, December 04 ISSN: 30-5504, E-ISSN-34-493 DISTRIBUTION OF SELECT RURAL HOUSEHOLDS ACCORDING TO AWARENESS OF FINANCIAL PRODUCTS AND GENDER Financial Gender Products Male Female Savings 4 9 0 (9.) (00.0) (9.8) Fixed Deposit (48.) 5 (3.) 9 (4.) Recurring Deposit (5.) (.) 8 (.4) 3 4 05 (89.) (93.) (9.) 9 38 9 (.3) (48.) (5.3) Saving Schemes 5 (5.4) 9 (3.) 04 (4.) Secured Bank 9 (5.8) 40 (50.) 3 (0.4) 0 (80.) (5.9) (8.) 8 34 (.8) (0.) (5.) Debentures (.8) (.) 3 (4.) 4 5 9 (.4) (.3) (.9) Total Sample 4 9 5 From the Table. it can be observed that, i) The awareness of financial products among the male rural households is higher compared to the female rural households. ii) The awareness of capital market instruments like shares, bonds/debentures and mutual funds is more among the male rural households.. AWARENESS OF FINANCIAL PRODUCTS AND MARITAL STATUS OF THE RURAL HOUSEHOLDS : Data relating to the distribution of select rural households according to the awareness of financial products and marital status are presented in Table. www.apjor.com Page 9

Asia Pacific Journal of Research Vol: I Issue XX, December 04 ISSN: 30-5504, E-ISSN-34-493 TABLE. DISTRIBUTION OF SELECT RURAL HOUSEHOLDS ACCORDING TO AWARENESS OF FINANCIAL PRODUCTS AND MARITAL STATUS Financial Marital Status Products Unmarried Married Single 95 3 0 Savings (95.) (98.0) (00.0) (9.8) Fixed Deposit 84 9 Recurring Deposit Saving Schemes Secured Bank Debentures (4.8) 4 (.4) 9 (8.) 0 (43.5) 3 (5.5) (4.8) 8 (8.3) (.) 8 (34.8) (.) (4.) 3 (.) 84 (9.5) 8 (59.3) 90 (45.) 4 (.3) 58 (9.4) 8 (4.) 4 (.) 3 (.) (.) 0 (0.0) 0 (0.0) 0 (0.0) (4.) 8 (.4) 05 (9.) 9 (5.3) 04 (4.) 3 (0.4) (8.) 34 (5.) 3 (4.) 9 (.9) Total Sample 3 99 3 5 From the Table. it can be observed that, i) Majority of the households (9.8%) in different marital statuses are aware of saving bank account followed by micro finance (9.%). ii) The awareness of capital market instruments like shares, bonds/debentures and mutual funds is higher among the rural households who are unmarried.. AWARENESS OF FINANCIAL PRODUCTS AND OCCUPATION OF THE RURAL HOUSEHOLDS : Data relating to the distribution of select rural households according to the awareness of financial products and occupation are presented in Table.8 www.apjor.com Page 93

Asia Pacific Journal of Research Vol: I Issue XX, December 04 ISSN: 30-5504, E-ISSN-34-493 TABLE.8 DISTRIBUTION OF SELECT RURAL HOUSEHOLDS ACCORDING TO AWARENESS OF FINANCIAL PRODUCTS AND OCCUPATION Occupation Financial Cultivation Products Employee Cultivation Business Retired and Daily Others Labour Savings 8 9 4 8 80 0 (95.5) (88.9) (98.8) (80.0) (00.0) (98.8) (9.8) Fixed Deposit 3 5 9 (.) (5.0) (0.0) (5.0) (.0) (4.) Recurring 0 5 0 3 3 8 Deposit (3.8) (0.0) (8.8) (0.0) (0.) (3.) (.4) 8 5 05 (8.8) (.8) (95.0) (00.0) (9.4) (88.9) (9.) 9 4 3 3 9 (8.4) (44.4) (.3) (0.0) (4.4) (38.3) (5.3) 5 9 9 04 Saving Schemes (.3) (.) (0.0) (0.0) (3.) (3.5) (4.) Secured Bank 4 4 8 3 3 (.3) (44.4) (80.0) (0.0) (4.3) (39.5) (0.4) 0 3 3 3 5 (90.0) (.) (9.3) (0.0) (8.) (4.) (8.) 0 34 (3.8) (.) (.5) (0.0) (.) (.5) (5.) 0 3 3 Debentures (.3) (.) (.3) (0.0) (3.) (3.) (4.) 0 0 9 (.3) (.) (5.0) (0.0) (3.) (.) (.9) Total Sample 9 80 5 8 8 5 From the Table.8 it can be observed that, i) The awareness of financial products is higher among rural households who are employed than the rural households in other occupations. This signifies that the employed rural households are considering financial products for investments and also for raising funds when needed. ii) The awareness of capital market instruments like shares, bonds/debentures and mutual funds is higher among the rural households who are employed. www.apjor.com Page 94

Asia Pacific Journal of Research Vol: I Issue XX, December 04 ISSN: 30-5504, E-ISSN-34-493.3 FINDINGS OF THE STUDY : The major findings from the study of the major challenges of retail investors are summarized below : i) Majority of the rural households (9.8%) are aware of Savings Bank followed by micro finance (9.%). ii) The awareness of capital market instruments like shares, bonds or debentures and mutual funds among the rural households is lesser when compared to the other financial instruments. iii) The awareness of financial products is comparatively higher among the rural households in the age group of below 30. iv) The awareness of capital market instruments like shares, bonds or debentures and mutual funds among the rural households is increasing significantly with the increase in the level of education. v) The awareness of financial products among the rural households has increased considerably with increase in the income levels. This signifies that the rural households with higher income are considering financial products for investments and also for raising funds when needed. vi) The awareness of capital market instruments like shares, bonds/debentures and mutual funds is higher among the rural households who are unmarried. vii) The awareness of financial products is higher among rural households who are employed than the rural households in other occupations.4 SUGGESTIONS : From the findings presented above the following suggestions are offered to the government, the policy makers to further strengthen the financial system in rural India.. Improving Awareness of Financial Products among Rural Households : The Government should take necessary initiatives to further strengthen the awareness of financial products among rural households in the country. The Government should involve all the public sector banks, post offices, Companies and Capital Market Institutions for conducting Investor Awareness Programs in Rural India.. Basic Financial Education in Adult Education Programs:The adult education programs conducted by the Government authorities should also include the basic financial education. These programs should impart the required knowledge for effective financial planning in the future. 3. Role of FLCCs in improving Financial Awareness :The Financial Literacy and Credit CounsellingCentres (FLCCs) sponsored by the commercial banks set up in the rural areas should be instructed by the Reserve Bank of India to conduct Financial Awareness regularly in the rural areas of India aiming at improving financial literacy..5 CONCLUSION The improvement of awareness of financial products among the rural hoouseholds in India will growth of financial system depends on the penetration of the financial products into the rural markets in the country. The wider participation of rural households in financial markets will lead to increased financial deepening in Indian Economy. The success of the National Mission on Financial Inclusion initiated by Sri NarendraModi,The Prime Minister of India not just depends on the number of bank accounts that were opened in Prime Minister Jan DhanYojana (PMJDY) scheme but on the government s ability in enhancing the awareness of the various financial products among rural households in the country. www.apjor.com Page 95

Asia Pacific Journal of Research Vol: I Issue XX, December 04 ISSN: 30-5504, E-ISSN-34-493 BIBLIOGRAPHY Annamaria Lusardi(005), Financial Education and the Savings Behaviour of African-American and Hispanics Households, U.S. Department of labour, Employee Benefits Security Administration. C Thilakam(0), Financial Literacy among rural masses in India, paper presented in the 0 International Conference on Business and Management, September 0, Phuket Thailand. 3 FurqanQamar (003), Saving Behaviour and Investment Preferences among Average Urban Household, The Indian Journal of Commerce, Vol.5, No., January-March 003, p. 3-49. 4 FurqanQamar (003), Demographic Influences on Rural Households Saving and Investment: A Study of Rural Households in the Ho Municipality of Ghana, The International Journal of Applied Psychology, (4), p. 4-4. 5 SEBI NCAER (000), How Households Save and Invest Evidence from NCAER Household Survey, SEBI, Mumbai. www.apjor.com Page 9