Financial Inclusion in Rural Area: A Case Study

Vinayak Bhagwanrao Bhise

Dr. Babasaheb Ambedkar Marathwada University, Aurangabad, India
Someshwar Narayan Babar
Assistant Professor, Department of Economics, Vinayakrao Patil Mahavidyalaya, Aurangabad
1. Introduction:
Financial inclusion can be defined as easy access to formal financial services or systems and
their usage by all members of the economy. Current development theories suggest that greater
financial inclusion can have a positive impact on the lives of the poor. On the contrary, financial
exclusion refers to the lack of access to financial services. Financial exclusion thus makes it difficult to
reduce inequalities and alleviate poverty. Financial inclusion providing access to financial services for
all has gained prominence in the past few years.
The United Nations designated 2005 the international year of microcredit, adopting the goal of
building inclusive financial systems. Pradhan Mantri Jan-Dhan Yojana (PMJDY) is a scheme for
comprehensive financial inclusion launched by the Prime Minister of India, Narendra Modi on 28
August 2014 (Press Information Bureau, Govt. of India). He had announced this scheme on his first
Independence Day speech on 15 August 2014. It is a national mission for financial inclusion to ensure
access to financial services namely, banking / savings & deposit accounts, remittance, credit,
insurance, and pension in an affordable manner. Account can be opened in any bank branch or
Business Correspondent (Bank Mitr) outlet. PMJDY accounts are being zero balance. However, if the
account-holder wishes to get cheque book, he / she will have to fulfill minimum balance criteria
(Department of Financial Services, Ministry of Finance). In a short period of 100 days, over 12.5
crore families have been brought into the financial mainstream under the scheme of Jan-Dhan Yojana
(The Economics Times, 01 March 2015).
While the importance of financial inclusion has been widely accepted, the literature on
financial inclusion lacks a comprehensive measure that can be used to indicate the extent of financial
inclusion across economies Mandira Sarma and Jesim Pais. (2008). Individual indicators (such as
number of bank accounts, number of bank branches and so on) that are generally used as measures of
financial inclusion can provide only partial information on the level of financial inclusion in an
economy. A comprehensive measure of financial inclusion should be able to incorporate information
on several aspects (dimensions) of financial inclusion, preferably in one single number. Many people
now propose financial inclusion index (FII), which incorporates information on two or more aspects of
financial inclusion; is easy and simple to compute; is comparable across countries; has values between
0 and 1, zero indicating lowest financial inclusion and 1 indicating complete financial inclusion.
2. Review of Literature:
Financial Access Survey (2012) has clearly revealed the present scenario on the financial
inclusion. It has been noted that half of the adult-population around the world does not have an account
at a formal financial institution. Moreover, 75 per cent of poor people are unbanked. The Financial
Access Survey data show that greater financial inclusion (measured by deposit penetration) correlates
with higher income levels (GDP per capita and GDP per capita growth) and a reduction in income
inequality. Higher financial inclusion is associated with less inequality, though a certain degree of
financial access and usage and financial sector depth is required before inequality improves; for a
country with low levels of financial inclusion and financial depth, inequality increases at first, then
decreases as the financial system becomes deeper and more inclusive. Mohi-UD- Din Sangmis (2013)
study showed that there is a wide variation among countries in the South Asian region in terms of
deposit account penetration and access to credit. Mandira Sarma and Jesim Pais (2008) suggest that the
issue of financial inclusion is a development policy priority in many countries. Using the index of
financial inclusion developed in levels of human development and financial inclusion in a country
move closely with each other, although a few exceptions exist. Among socio-economic factors, as
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expected, income is positively associated with the level of financial inclusion. Further physical and
electronic connectivity and information availability, indicated by road network, telephone and internet
usage, also play positive role in enhancing financial inclusion. Minakshi Ramjis(2009) study shows
that the drive for financial inclusion in Gulbarga failed to bring large numbers of people into the ambit
of formal finance. Nonetheless, the government programmes with financial inclusion may greatly
increase access to bank accounts and shows potential to increase usage as well. Access does not mean
usage, and as such, opening bank account without accompanying training or marketing may simply
result in additional costs for the bank without any benefits to the community. According to the Joseph
Massey (2010) the role of the financial institutions in a developing country is vital in promoting
financial inclusion. Peter J. Morgan and Victor Pontines (2014) study suggests that the greater
financial inclusion could be either positive or negative for financial stability. Namita Rajput and Shelly
Oberoi have said that financial inclusion has been made an essential part of the banking sector policy
in India. All the commercial banks including cooperative banks are vigorously involved in financial
inclusion process through opening of new branches in rural and urban areas. This study has developed
a composite index of financial inclusion for each state using wide range of indicators. The computed
values of Crisil Inclusix Index reveal that till date the plight of the states in India is not commendable.
Gandhi M.M.(2013) has argued that financial inclusion should be a social responsibility for the banks
in the short-run but will turn out to be a business opportunity in the long-term. Financial inclusion is
no longer an option, but it is a compulsion. The entire world is looking at this experiment in India and
it is important that banks rise up to this challenge and meet it successfully. Shabna Mol TPs (2014)
study concludes that financial inclusion is the road which India needs to travel towards becoming a
global player. More financial access will attract more global market players to our country that will
result in increasing employment and business opportunities. There are certain problems like lower
financial literacy, lack of awareness, the cost of transaction and customer acquisition is high and it is
not at all cost-effective. RBI has taken various initiatives to strengthen financial inclusion. Information
and Communication Technology offers the opportunity for the banks to improve financial inclusion for
the unbanked people.
No comprehensive study based on primary data is so far conducted in Marathwada region. So
the present study is an attempt to measure the financial availability, usage and extent of financial
inclusion in rural Marathwada.
3. Objectives of the study:
1. To measure the financial availability and financial usage indices for rural Marathwada.
2. To measure the extent of overall financial inclusion in rural Marathwada with financial
inclusion index.
3. To suggest measures to improve overall financial inclusion in rural Marathwada.
4. Research Methodology:
The present study is based on primary and secondary data. Both primary and secondary data
are used to construct the overall financial inclusion index (FII) for the two districts (Aurangabad and
Jalna). The secondary data on number of bank & bank branches, no. of ATMs, poverty, population
and HDI value have been collected from Socio-Economic Review and District Statistical Abstract of
Aurangabad and Jalna districts and from Economy Survey of Maharashtra. The primary data on
number of saving and loan accounts, Kisan Credit Card, Money Transfer, health, life and general
insurance, Mutual Fund Scheme, and Post office Banking, were collected from the sample households.
Further, the source of information for standing financial literacy has been sampling households. The
primary data have been collected during the month of March 2015. The comprehensive measure such
as the index is used for measuring financial inclusion. This measure is able to incorporate information
on several aspects (dimensions) of financial inclusion preferably in one single number. In constructing
the present financial inclusion index (FII) we have adopted two- dimensional approach like human
development index (HDI) by UNDP.

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The complete secondary information providing sufficient information on financial inclusion is

not available and what is available does not give the true picture. The present analysis, therefore, is an
attempt to carry out a comprehensive household survey to assess the various dimensions of financial
inclusion/exclusion. The study covers one most and one least financially included district of
Marathwada, namely, Aurangabad and Jalna.
For a detailed study, two districts from Marathwada region are selected. Since the study aims at
looking at the reality of financial inclusion and its determinant at ground level, the relatively one highFII value and one less-FII value districts of the Marathwada region have been selected. Villages
around the districts have been divided into two categories: villages within a near to Urban area and
those villages located far away from Urban area. Two separate lists of villages from the two categories
were first prepared and then the villages have been numbered and a random draw of one village each
from the two lists has been made. The villages have different socio-economic backgrounds. A listing
of the households of the villages chosen has been done and 100 households have been selected on
random basis for primary survey. Primary information was collected from 100 households.
Empirical Estimation of Financial Inclusion Index (FII):
In the empirical analysis we have considered two basic dimensions of financial inclusion, as
follows:
Availability: An inclusive financial system should be easily accessible to its users. This dimension is
measured by proxies such as bank accounts per 1000 population, number of bank branches or number
of ATMs per 1000 population. In our estimation, number of bank branches per 1000 population is used
to measure this dimension.
Usage: An inclusive financial system should be utilized as much as possible by its users. The size of
the bank credit and bank deposits, relative to the population of a district is used as a measure for this
aspect.
First, index is calculated for each variable listed above, and later on grouped accordingly to get two
dimensional indices, namely Availability and Financial Services Usage.
The formula for FII is as follows:
Ai mi
Vi = ------------Mi mi
Where,
Vi = Index of a variable.
Ai= Actual value of variable i.
m = Minimum value of variable i during the study period.
M = Maximum value of variable i during the study period.
The final value of FII for two districts using average of two dimensions (availability and usage) for
financial year 2014-15 is obtained for two districts covered in this study.
Determinants of Financial Inclusion:
The factors that affect financial inclusion are several and their interactions with each other are
very complex. For simplicity, an attempt has been made to identify the determining factors of the level
of financial inclusion by using multiple regression models. The financial inclusion index measures
broadly the level of financial inclusion of households in different villages. The multiple regression
models have been constructed for each village separately to determine the relative importance of the
various determinants of the financial inclusion. Financial inclusion index has been considered as
dependent variable and education level, household income, landholding, dummy for SC/ ST, dummy
for farm household, awareness of the respondent as independent variables.
5. Results and Discussion:
In the region of Marathwada two dimensional FII has been estimated which is given in Table 1.
It is found that the majority of the districts belong to the category of medium financial inclusion group
(Table 2). Aurangabad and Beed districts lead with the high medium value of financial inclusion (FII).
It is found that only two districts have high financial inclusion values of more than 0.5. Another five
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districts namely Latur, Parbhani, Hingoli, Osmanabad and Nanded belong to the medium FII group
and one district i.e. Jalna belong to the lower medium value FII group. The table and ranks given
therein clearly indicate that there is a direct and positive relationship between the level of development
and the level of financial inclusion there.
Table 1
District wise Financial Inclusion Index of Marathwada Region in 2013
Districts
Average
Average Usage Index Average Financial
Rank
Availability Index
Inclusion Index
Aurangabad
0.670
0.608
0.639
1
Beed
0.590
0.502
0.546
2
Latur
0.600
0.140
0.370
3
Parbhani
0.340
0.230
0.285
4
Hingoli
0.260
0.284
0.272
5
Osmanabad
0.220
0.320
0.270
6
Nanded
0.340
0.185
0.262
7
Jalna
0.220
0.220
0.220
8
FII of Marathwada Region
0.358
Source: District Socio-economic Review of Aurangabad, Beed, Latur, Parbhani, Hingoli, Osmanabad,
Nanded, Jalna in 2013
Table 2
Distribution of Districts on the Basis of Financial Inclusion Index
Value of Index
No. of Districts
Districts with their Rank
0.75< IFI>1.00
00
-0.50<IFI>0.75
2
Aurangabad (1) , Beed (2)
Latur (3), Parbhani (4), Hingoli (5), Osmanabad (6), Nanded
0.25<IFI>0.50
5
(7)
0.10<IFI>0.25
1
Jalna (8)
0.00<IFI>0.10
00
-Note: (a) 0.75< IFI>1.00 high financial inclusion,
(b) 0.50<IFI>0.75 high medium
financial inclusion
(c) 0.25<IFI>0.50 medium financial inclusion, (d) 0.10<IFI>0.25 lower medium financial
inclusion
(e) 0.00<IFI>0.10 low financial inclusion
Source: From Table 1
Financial Inclusion in Marathwada Region: The Experiences from Primary Survey
As already noted that complete secondary information providing sufficient information on
financial inclusion is not available and what is available does not give the true picture. The present
analysis, therefore, has made an attempt to carry out a comprehensive household survey to assess the
various dimensions of financial inclusion/exclusion. The study covers two districts, one is high
financially included and another one low financially included in Marathwada region of Maharashtra
State of India, namely, Aurangabad and Jalna respectively. There are a number of works, which have
explored the situation of financial inclusion in Maharashtra State of India but, unfortunately there is no
empirical study for Marathwada region. The present study tries to fill this gap.
For a detailed study, two districts from Marathwada region were selected. Since the study aims
at looking at the reality of financial inclusion and its determinants at ground level, the relatively high
financially included and low financially included districts of the Marathwada region were selected.
Villages around the districts have been divided into two categories: villages around urban area and
away from urban area. Two separate lists of villages from the two categories were first prepared and
then the villages were numbered and a random draw of one village each from the two lists was
selected. While Chincholi (Limbaji) (Aurangabad), was chosen from first category; Danapur (Jalna)
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was chosen from the second category. A listing of the households of the villages chosen was done and
50 households from each village were selected on random basis for primary survey. Thus, in all with a
specially designed structured questionnaire, survey of 100 households was carried out during May
2015. The primary survey aims at finding and analyzing empirically the group that has access to
financial services and the one which is excluded. The survey studies the household characteristics and
their socio-economic condition of both these groups, the factors which are working as barriers in
accessing financial services, etc.
Banking Profile of the Chosen Districts in Marathwada Region:
The value of financial inclusion index is low in the district of Jalna as compared to other
districts. Aurangabad has 379 branches of commercial banks, 1376 branches of 5 primary agricultural
and non-agricultural credit co-operative societies, 151 branches of District Central Co-operative Bank
and Agricultural & Rural Development Bank, 8050 SHGs, 39 insurance company branches (LIC &
Private), 109 Registered Money Lenders in 2012-13. In Jalna district of Marathwada region on the
other hand there are 97 branches of commercial banks , 800 branches of 5 primary agricultural and
non-agricultural credit co-operative societies, 70 branches of District Central Co-operative Bank and
Agricultural & Rural Development Bank, 90 SHGs, 3 Insurance company branches (LIC & Private),
98 Registered Money Lenders in 2012-13.
Salient Features of the Selected Villages:
The selected villages are different from each other in many aspects. One of them is village with
a bank branch: Chincholi in Aurangabad district which is away from urban area but there are 4 bank
branches and 1 post office available. Chincholi is having a branch of Bank of Maharashtra, District
Central Co-operative Bank, Adarsh Credit Society, Buldana Urban Co-operative Bank and this village
is located in a remote area. The other village Danapur in Jalna district has near to urban area and only
one bank branch is available i.e. Bank of Maharashtra.
The process of financial inclusion at household level takes place in a given contiguous
geographical area or command area of a bank branch or any financial institution network. The
dynamics of the process of financial inclusion and factors affecting the same can be meaningfully
looked into only if all households in a given village are included in the field study. But due to limited
financial assistance 100 households in a given village were randomly selected for primary survey. 50
households in selected village of Aurangabad district and 50 households in selected village in Jalna
district have been surveyed. In all, 100 households were studied. The analytical framework adopted is
mainly to assess the financial inclusion/exclusion in all aspects. Cross section analysis of data of both
the classes, included and excluded household, has been made to bring out the implications.
Extent of Financial Inclusion/Exclusion:
At the outset, it is interesting to know the extent of financial inclusion and exclusion in selected
villages in the sample households. Table 3 shows the extent of financial inclusion and exclusion in
these two selected villages. It is evident from the data in the table that there is a variation in the pattern
of financial inclusion and exclusion in two villages in two different districts. Among total households
in a particular village (Chincholi) 88 per cent in selected village of Aurangabad and 92 per cent in
selected village (Danapur) of Jalna are financially included. Using only bank account is not a good
indicator of financial inclusion. It is also important to know percentage of population which is aware
of the availability of financial products and services. Awareness is an important element of financial
literacy. It enhances their profits on savings and makes it easier to access loans. The process of
financial inclusion begins with creating awareness of the existence of financial institution, availability
of various financial products and services, terms and conditions under which they are available and the
benefits that can be derived from their use.
Table 3
Financially Included and Excluded Households
Village
Total
Financially Included
Financially Excluded
Respondents
Number
Percent
Number
Percent
Danapur
50
46
92.00
4
8.00
Chincholi (L)
50
44
88.00
6
12.00
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Total
100
90
90
10
10
Source: Field Survey
In selected villages in Aurangabad and Jalna almost all selected households studied have
reported their awareness of the existence of bank branch in their village or in the proximity to their
villages. A similar response is also observed in the case of awareness of saving facility in Aurangabad
(Chincholi) and awareness of loan facility 88 per cent. But opposite response is observed in case of
awareness of saving facility in Danapur (Jalna) (opportunities to investment is low in Jalna (Danapur),
assets to access loan are low so people are less interested for loan facility). As regards awareness of the
money transfer facility, mutual fund schemes, post office banking and other banking facility less than
50 per cent of the respondents from the selected village of Aurangabad and Jalna districts have
reported their awareness (Table 4).
Table 4
Awareness of Availability of Financial Services
Awareness of Financial
Danapur
Chincholi (L)
Services
Number
Percent
Number
Percent
Existence of bank branch
50
100.00
50
100.00
Saving facility
50
100.00
45
90.00
Loan facility
44
88.00
41
82.00
Money transfer facility
18
36.00
18
36.00
Mutual fund schemes
3
6.00
2
4.00
Other banking facility
7
14.00
7
14.00
Post office banking
7
14.00
8
16.00
Not aware (any one)
0
0.00
0
0.00
Source: Field Survey
Access to Financial Services:
Access to financial services is important for improvement in income and eradication of
poverty. The concept of financial inclusion is more concerned with access to financial services and it
needs to be available whenever and wherever demanded. In this study we have tried to see access in
terms of uses of services.
The analysis of the data presented in Table 5 discloses wide differences in access problems in
both villages and for different products. As regards savings and loan products, 4 per cent of the
respondents in selected village of Jalna District and none of the respondents in selected village of
Aurangabad district have no access problem. In the village of Jalna district, the percentage of
households having access to loan facility is less than the percentage of households having access to
saving facilities. The trend is same in Aurangabad district, but the gap is small in comparison to Jalna
district. As regards access to other financial products/services, while in Jalna district, 4 per cent of the
households have reported access to Kisan Credit Card (KCC), in Aurangabad none of the households
had access to KCC.
In the case of all other financial products and services except insurance the majority of
households have indicated access problems. In the case of money transfer, 26 per cent households of
Jalna district and 22 per cent households of Aurangabad district have reported easy access to money
transfer (because of they are educated). The number of households which reported having problem in
accessing any financial products/services was few in both the villages.
Table 5
Access to and Availability of Financial Services in Survey Area
Awareness of Financial
Danapur
Chincholi (L)
Services
Number
Percent
Number
Percent
Saving account
46
92.00
45
90.00
Loan
29
58.00
19
38.00
Kisan credit card
2
4.00
0
0.00
Debit/credit card
16
32.00
17
34.00
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Money transfer
13
26.00
11
22.00
Health insurance
16
32.00
4
8.00
Life insurance
20
40.00
22
44.00
General insurance
3
6.00
3
6.00
No access to any
2
4.00
0
0.00
Source: Field Survey
Table 6 provides details of the source of information which led the households entry into the
financial sector. It is also interesting to note that no village reported about advertisement campaign by
any insurance companies or banks during last several years. It is important to note that only 22 per cent
respondents in Jalna district and 32 per cent in Aurangabad district reported friends /
relatives
as
their source of information about financial services and products. On the other hand 36 per cent in
Jalna district and 28 per cent households of Aurangabad reported family members / acquaintance as
the source of information about financial inclusion. 26 per cent households in both the villages have
reported other sources as the main source of information about financial services. Other important
sources of information mentioned are government schemes in which bank account is a compulsion
(such as national employment schemes, national self-employment schemes, etc.), linkages between
rural producers and suppliers/ distributors and post-office staff. It is also important that the role of
government in creating awareness about financial services and products is very low in both the villages
(Table 6). The assessment of bank's friendly behaviour towards people and extending every possible
financial help may be considered a good determinant of financial inclusion. At the outset, it should
however be noted that the access of the household to loan facility depends upon the nature of work of
the household, mindset of the members of household, intensity of need (it is high at the time of huge
medical expenses) and also the easy availability of loans.
Table 6
Sources of Information for Financial Inclusion
Sources of Information
Danapur
Chincholi (L)
Number
Percent
Number
Percent
Village Panchayat Officials
1
2.00
0
0.00
Neighbour
1
2.00
0
0.00
Friends/ Relatives
11
22.00
16
32.00
Family members/ acquaintance 18
36.00
14
28.00
Advertisements/news
0
0.00
0
0.00
Bank employee/insurance agent 0
0.00
1
2.00
Government officials
2
4.00
1
2.00
NGO worker
0
0.00
0
0.00
Self Help Group (SHG)
0
0.00
0
0.00
Others
13
26.00
13
26.00
Total
46
92.00
45
90.00
Source: Field Survey
In Table 7, an attempt is made to analyze the responses of the households relating to the
agencies from which they have borrowed for credit needs. From the table, it seems that cooperatives
have good network in Aurangabad district compared to that in Jalna district. Access to Gramin Bank /
Bank of Maharashtra for loan is higher in Jalna district compared to Aurangabad district. The main
implication emerging from this analysis of the data shows that formal agencies are important source in
providing financial services in remote areas.
Table 7
Sources of Borrowings
Sources of Borrowings
Danapur
Chincholi (L)
Number Percent
Number
Percent
Cooperative bank / society
3
6.00
10
20.00
Gramin Bank / Bank of Maharashtra
25
50.00
8
16.00
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Commercial bank
1
2.00
0
0.00
Local money lenders
0
0.00
0
0.00
Friends
0
0.00
1
2.00
Family members
0
0.00
0
0.00
Retailers
0
0.00
0
0.00
Relatives
0
0.00
0
0.00
Others
0
0.00
0
0.00
No need to borrow
21
42.00
31
62.00
Source: Field Survey
Socio-Economic Profile of Financially Included and Excluded
The study of socio-economic status of financially included and excluded is important to
understand what other factors like caste, age, assets, income, and household type act as a barrier for the
expansion of financial inclusion. Table 8 presents the socio-economic profile of financially included
household and financially excluded household members in different villages. Comparison of
socioeconomic condition of included and excluded households will provide ground level reality of
financial exclusion.
There are no wide differences in gender composition of financially included and excluded in
the two villages of Aurangabad and Jalna districts. But in the village of Jalna the percentage of
households headed by females is more excluded. Overall comparisons between male and female
headed households show that households headed by females are more excluded in comparison to male
headed households.
The caste appeared to be a significant factor in financial inclusion in the selected villages of
Aurangabad and Jalna districts. Castewise analysis gives significant feature that financial exclusion is
high in low category scheduled castes (SCs) and schedule tribes (STs) in comparison to other
categories. In total SC households, 80 per cent in Jalna district and 90 per cent in Aurangabad district
were financially included.
The analysis of data relating to level of education shows that financially excluded are mostly
illiterate or semi-literate. It reveals the fact that the extent of financial exclusion in scheduled caste
category is high in comparison to other category and the expected reason for low financial inclusion in
scheduled caste households are prevalence of low level of education and low level of income.
The tabular analysis of family size suggests that it does not appear to be a factor in financial
inclusion. On the other hand exclusiveness is high in farm households and it is higher in Jalna districts.
It suggests that farm households belonging to low land availability households are less financially
included in comparison to other farm households. Overall, primary data suggest that land availability is
a significant factor in financial inclusion.
Housing is a significant factor in financial inclusion in Aurangabad and Jalna districts but not
significant in Jalna district. Analysis also reveals the facts that in both villages financially excluded
have annual household income of below Rs. 25000, but the percentage of households belonging to
income below Rs. 25000 is low in Jalna district in comparison to Aurangabad district (because of
recently initiated several plans for poor increasing role of microfinance intuitions). Analysis of
household income and land availability shows that household wealth is playing a significant role in
financial inclusion of household in both study regions.
Table 8
Socio-Economic Profile of Financially Included and Excluded Households
Indicators
Account Holder
Non-Account Holder
Danapur Chincholi (L)
Danapur
Chincholi (L)
Sex of Head of Male
45
44
3
06
Household
Female
1
0
1
0
Caste
General
32
11
3
2
SC
4
6
1
0
ST
0
9
0
3
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OBC
10
18
0
0
Minority
0
0
0
1
Family Size
Less than 5
12
12
1
4
More than 5 but less than 8 20
28
1
2
More than 8 but less than 10 7
0
1
0
More than 10
7
4
1
0
Occupation
Farming
26
22
0
2
Labourer
10
12
4
4
Business
7
4
0
0
Agri- allied
2
5
0
0
Service
1
1
0
0
Land
None
9
15
2
4
(Acres)
Below 1.0
1
2
0
0
1.0 To 2.5
9
6
1
2
2.5 To 5.0
12
10
1
0
5.0 Plus
15
11
0
0
Literacy
None
4
13
0
2
up to primary
5
2
0
1
up to middle
12
5
1
0
up to High School
10
9
3
1
up to Inter
8
7
0
2
up to Graduate or Post
0
0
Graduate
7
8
House
Paccka
12
8
0
0
Kaccha
34
36
4
6
Annual
Below 10,000
2
1
0
1
Income
10,000 -25,000
10
11
2
3
(Rupees)
25,000 50,000
15
24
2
2
50,000 1,00,000
13
8
0
0
1,00,000 and above
6
0
0
0
Source: Field Survey
Reasons for Financial Exclusion:
It is pertinent to examine the reasons for the exclusiveness in these two study areas and it is
given in Table 9. The reasons given by the households in fact reflect the real barriers for financial
inclusion at the household level in rural areas. 4 per cent households in Jalna district and 6 per cent
households in Aurangabad district belong to voluntarily excluded category. In Jalna district the main
causes of financial exclusion reported by the households were that they were unable to maintain
accounts or bad behavior of bank employee. On the other hand, in Aurangabad, the main causes of
financial exclusion reported by the households were unable to maintain bank accounts and having no
securities to get loan. Overall the comfort ability or ease of access is considered very crucial on
demand side in motivating the customers in availing financial services rendered by the financial
institutions. In Aurangabad district, almost all financially included households are found to be
comfortable with commercial bank and co-operative bank saving accounts.
Table 9
Reasons for Financial Exclusion
Reasons
Danapur
Chincholi (L)
Number
Percent
Number
Percent
Not Needed
2
4.00
3
6.00
Not Aware of Bank
0
0.00
0
0.00
Bank is too far away
0
0.00
0
0.00
Cannot Maintain Accounts
1
2.00
2
4.00
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Fear about Profit

No Identity and Address Proof
No Security to get loan
Bad Behavior of Bank
Employee
Other Sources are more
Comfortable than Bank
Source: Field Survey

0
0
0

0.00
0.00
0.00

0
0
0

0.00
0.00
0.00

2.00

0.00

0.00

0.00

Determinants of Financial Inclusion:

The factors that affect financial inclusion are several and their interactions with each other are
very complex. For simplicity, an attempt is made to identify the determining factors of the level of
financial inclusion by using multiple regression models. In order to find out determinants of financial
inclusion in study area a financial inclusion index has been prepared on the basis of methodology
introduced by Thinagalaya, et al (2010). The index of financial inclusion is a broad measure of
inclusiveness in use of financial products/services. For measurement of various financial products and
services, financial exclusion is given value of 0 and inclusion is measured based on their importance.
Scores are assigned proportionately depending on the number of households having availed the various
financial products/services. The financial inclusion index is constructed for financial exclusion and
maximum score of 1 is given for financial inclusiveness of all selected financial products and services.
Thus, the financial inclusion index measures broadly the level of financial inclusion of households
studied in different villages. The multiple regression models are constructed for each village separately
to determine the relative importance of the various determinants of the financial inclusion.
The causal factors, selected for regression analyses are related with both factors demand side
and supply side. The government is doing its part so far as the supply side factors such as opening
branches of nationalized commercial banks, promoting SHGs and microfinance companies, making
provisions for no-frills account, planning to make mandatory bank account for paying wages under
Mahatma Gandhi National Rural Employment Guarantee Act, launching special schemes, etc., are
concerned. However, in the backward district of the region these measures have met with limited
success because more availability financial services of possibility do not ensure inclusion. In most part
of the nation, level of financial inclusion is low because the poor illiterate and backward people are not
ready to involve in banking activities. Hence, the problem lies mainly from the demand side. This is
the reason that the regression analysis that we attempt have taken into consideration mainly the
demand side factors. Financial inclusion index is considered as dependent variable and education level,
household income, land holding, dummy for SC & ST, dummy for farm household, awareness of the
respondent as independent variables. Details of variables are given below.
Dependent Variable:
(a) FII: Financial Inclusion Index
Independent Variables
(b) LIT: Education level of household head (literacy) is an important determinant of awareness of the
people. It is expected that literacy and financial inclusion are positively related. A literate person has
greater awareness about the facilities that are available and is in a position to understand and meet the
formalities that are there for opening a bank account or taking a loan.
(c) HHI: Household annual income is taken as a major determinant of savings. It is expected that high
income households have greater financial needs saving, borrowing, investment, etc. Hence, financial
inclusion is going to go up with income.
(d) LAND: Per capita land availability at household level taken as a proxy for asset position of
household. It is expected that availability of land and financial inclusion are positively related.
(e) SCD: Dummy for scheduled caste taken as a proxy for social status. It is expected that financial
inclusion is positively related with social status.
(f) FAHH: Dummy for farm household.
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(g) AWARE: Awareness index, proxy for supply side factors. The index was prepared using
awareness of household about different financial products/services. These are existence of bank
branch, awareness of saving facility, awareness of loan facility, awareness of money transfer,
awareness of insurance, awareness of post-office banking, etc. Each variable is considered of equal
importance for assigning weights (0.16). Here we assumed that awareness depends upon the
availability/ accessibility of financial institutions. It is expected that there is positive relationship
between financial inclusion and the awareness index.
Table 10 contains the estimates of the regression analysis carried out. The regression analysis
shows that the relative importance of six selected variables is about the same in their influence in
determining the extent of financial inclusion in these two villages of selected districts. The R2 values
0.40 and 0.14 indicate that all the variables collectively explain 40 per cent of variation in financial
inclusion in selected village of Aurangabad district and 14 per cent variation in financial inclusion in
selected village of Jalna district. The analysis of correlation coefficient shows that the most important
variables significantly and positively correlated with the financial inclusion index are farm household
and awareness of households. It reveals the fact that the literate households with assets are highly
financially included. In both the districts, awareness is a significant variable but it is more significant
in Aurangabad district in comparison to Jalna district.
Table 10
Regression Estimates of Determinants of Financial Inclusion
Determinants
Danapur Coefficient
Chincholi (L) Coefficient
Constant
0.9005*
0.9071*
LIT
-0.0552
-0.0527
HHI
-0.0000001
0.0000
LAND
-0.0000103
0.0003
D1
-0.0461
-0.0390
D2
0.1417**
0.1222
AWARE
0.3599
1.1393*
R2
0.14
0.40
Notes: * Significant at 1 per cent level, ** Significant at 5 per cent level
Source: Field Survey Data
Surprisingly social status has not found significantly correlated with financial index in both the districts.
Relationship between farm households and financial inclusion index shows inclusion is low in farm households.
Possible reasons for this could be that because farm households belong to low land availability category, they
could not fulfill the bank obligations like loan guarantee, so it is hard for them to access financial services such
as loans. The regression result also suggests that role of awareness (supply side factor) is relatively more
significant in selected village of Aurangabad district in comparison to selected village of Jalna (village where
FII value of district is low); it indicates that demand side variable is more effective than supply side factor in
selected village of Jalna. While in the village of Aurangabad both demand and supply side factors are
significantly affecting the financial inclusion process.
Table 11 contains the estimates of the regression analysis (combine data of the two villages) carried out.
The R2 values 0.27 indicate that all the variables collectively explain 27 per cent of variation in financial
inclusion in selected villages taken together. The coefficient of the dummy variable for farm household is found
to have significant influence on financial inclusion of the sample households in the study area.
Table 11
Regression Estimates of Determinants of Financial Inclusion (combined for two villages)
Determinants
Coefficient
Constant
0.8911*
LIT
-0.0182
HHI
-0.0000005
LAND
-0.0333
D1
-0.0391
D2
0.1352*
AWARE
0.9381
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R2
Notes: * Significant at 1 per cent level
Source: Field Survey Data

0.27

Overall household assets are significant determinant of financial inclusion in selected villages.
Illiterate persons are more excluded, so level of education is also significant variable of financial
inclusion in selected villages. The regression results also suggest that the region where bank
availability is low, demand side variables are significantly determining the level of financial inclusion
while in the region where bank availability is high, both demand and supply side factors are playing a
significant role in financial inclusion process.
Conclusion and Suggestion:
In this study we have attempted to study on factors associated with financial inclusion. Using
an index of financial inclusion, we first describe the situation of financial inclusion across the districts
of Marathwada region. Index at district level shows that branch expansion programme of the banks
have not been made an integral part of the efforts for attaining financial inclusion in underdeveloped
region like Marathwada. Literature has identified several reasons, demand and supply side, for the
higher extent of financial exclusion. Our empirical analysis confirms that education level; assets of
household and awareness of household are significant determinants of financial inclusion. Analysis of
empirical study support that initiatives to increase the conversance of financial system by the
government and RBI have significantly contributed in financial inclusion process in India. But still
exclusion is higher among weaker sections of the society. The study also finds that financial exclusion
is higher among scheduled castes (SCs) and scheduled tribes (STs) and also farm households. This
study suggests that the government should focus on improving the financial inclusion process through
improving the financial awareness especially for underdeveloped region and low asset households.
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