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A Study on Extent of Financial Inclusion among Rural Households in Bageshwar

District of Uttarakhand

Article · May 2016


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Prof P C Kavidayal Dr Vinay Kandpal

Kumaun University University of Petroleum & Energy Studies


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International Journal on Arts, Humanities, Social Sciences & Business Studies ISSN No. 2455-4804

2016, Vol. 01, Issue. 02, April-May

© Author names. Authors retain all rights.

Shodh-Sandhan has been granted the right to publish and share

A Study on Extent of Financial Inclusion among

Rural Households in Bageshwar District of
Dr. P. C. Kavidayal1, Dr. Vinay Kandpal2
Dean, Faculty of Commerce & Management Studies, Kumaun University; Email:
Asst. Professor, University of Petroleum & Energy studies, Dehradun ; Email:

Sustainable Growth requires participation of all segments of society. Financial Inclusion is a drive towards
attaining inclusive growth and sustainable development and plays a major role in driving away the poverty
from the country. The primary purpose of financial Inclusion is to deliver and spread awareness regarding
banking and financial services at affordable costs to the unbanked sections of disadvantage and low income
sections of society so as to unlock their savings and investment potential. The objective of the study is to
analyze the reason for opening a bank account and the frequency to which it has been used. It will also
examine the level of awareness about the financial services among the rural households in the district and the
frequency to which it is in use. The study was conducted through collection of primary data from 120
respondents in rural household in the Bageshwar district of the Kumaun Region of Uttarakhand. The
secondary data were collected from various sources like published articles from journals, reports, books and
websites. By analyzing the data it was identified that the rural people are unaware about the financial
instruments and banking services. They generally fear to enter banks and fulfill their financial requirement
through money lenders which charges a higher rate of interest. Financial inclusion has become crucial for
inclusive development of the economy. Inclusive financial system helps the deprived section of people to get
access to formal credit, saving products and other services which help them to overcome poverty and to
reduce income inequality existing in the Indian economy. Government of India and Reserve Bank of India
should make efforts to reach the rural population through the expansion of banking services.
Keywords: Financial Inclusion, Financial Services, Awareness, Savings, Credit

India is a country with diverse economic condition. This diversity is prominent in every aspect of life including
financial services. Household with low income often lack access to banking services. These families find it more
difficult to save and to plan financially for the future. Lack of accessible, affordable and appropriate financial
services has always been a global problem and has an impact on the economic condition of the people as well as
the economic health of the country. Financial exclusion is both symptom and cause of poverty. For the
accelerated growth of the economy, it is necessary that all people should be covered by the financial services
2 Shodh-Sandhan, 2016, Vol. 01, Issue 2

through financial inclusion. Banking services like saving, credit, e-banking, insurance should be in reach of
every household.

According to World Bank Report, “Financial Inclusion is an absence of price and non-price barriers in the use of
financial services”. According to Global Findex database 2014 report, globally 2 billion adults and in India 415
million adults remain unbanked. In the last twenty years, India has undergone a transformation of its economic
and regulatory structures. Steps have been taken by the Government to educate the people about the banking
services and financial instruments available for investment. Despite various attempts access to finance has
remained infrequent in rural and semi urban areas of India. Financial inclusion is mainly concerned with
unrestricted access to public goods and services which is crucial for the growth of the economy. The
unawareness about banking services and financial instruments in rural and semi urban area is a matter of
concern. The rural and even semi urban people are unaware about the financial instruments and banking
services. They generally fear to enter banks and fulfill their financial requirement through money lenders which
charges a higher rate of interest. Financial inclusion has become crucial for inclusive development of the
economy. Inclusive financial system helps the deprived section of people to get access to formal credit, saving
products and other services which help them to overcome poverty and to reduce income inequality existing in
the Indian economy. Government of India and Reserve Bank of India should make efforts to reach the rural
population through the expansion of banking services.

Prime Minister Narendra Modi announced a new scheme in his Independence Day speech on 15th Aug 2014
and called it as the National Mission on Financial Inclusion (NMFI) for weaker section and low income groups.
An ambitious flagship program of financial inclusion scheme Prime Minister Jan Dhan Scheme was launched by
Prime Minister Narendra Modi's on August 28, 2014. The major objective was to benefit the Aam Aadmi or
Common people of India with a lot of benefits for the Indian families. The want of conventional banking and
cash are ace of the toughest constraints in the rural regions of India. The Jan Dhan Scheme might be the best
strategy to defeat this. Jan Dhan Scheme has made its way into the Guinness World Records for opening the
highest number of bank accounts in a small period time. The success of the scheme was indeed fabulous, but
still a lot of serious attempts are required in order to make financial inclusion program a success. The financial
inclusion attempt through this initiative still remains restricted to Urban and semi urban areas. The majority of
accounts opened through this scheme is opened in public sector banks. Hence there is a need that private sector
banks come forward and involve in the activities of financial inclusion.

Recent Initiatives by Reserve Bank of India

In India, RBI has initiated several measures to achieve greater financial inclusion, such as facilitating no-frills
accounts and GCCs for small deposits and credit.

a) Opening of no-frills accounts: Basic banking no-frills account is with nil or very low minimum balance as
well as charges that make such accounts accessible to vast sections of the population. Banks have been advised
to provide small overdrafts in such accounts.
b) Simplification of KYC norms: In order to ensure that persons belonging to
low income group in urban and rural areas do not face difficulty in opening accounts KYC norms has been
3 Shodh-Sandhan, 2016, Vol. 01, Issue 2

simplified for those persons with balances not exceeding ` 50,000 and credit in the account not exceeding `
1,00,000 in a year.
c) Ensuring reasonableness of bank charges: AS the RBI has been receiving several representations from the
public about unreasonable service charge being received by the banks. The RBI have been instructed by the
banks that they should updated there service charges in their website and show there account holders.

Literature Review
Beck and Torre (2007) suggests that expanding access to financial services should include identifying
different demand and supply constraints and including both supply and demand side frictions that can lead
to lower access and analyzing it. The analysis helps identify unbanked and banked population, and the
binding constraint to close the gap between the two.

Raghuram Rajan Committee (2007) views Financial Inclusion, broadly, “as universal access to a wide
range of financial services at a reasonable cost. These include not only banking products but also other
financial services such as insurance and equity products”.

Collins et al (2009) show that financial activities are most often driven by a basic set of needs: daily food,
illness, and other sizeable expenses including investment opportunities as they arise. None of these needs are
tied to running small businesses, and yet all are equally important for everyone. Hence, access to finance has
become access to financial services to provide credit, savings, payment and insurance rather than primarily
delivering microcredit.

According to the Planning Commission (2009) financial inclusion refers to universal access to a wide range of
financial services at a reasonable cost. These include not only banking products but also other financial services
such as insurance and equity products. The household access to financial services includes access to
contingency planning, credit and wealth creation. Access to contingency planning would help for future savings
such as retirement savings, buffer savings and insurable contingencies and access to credit includes emergency
loans, housing loans and consumption loans. On the other hand, access to wealth creation includes savings and
investment based on household’s level of financial literacy and risk perception.

Ellis et al. (2010) for the first time show a clear link between access to financial services and the ability of
households to invest in education or a business, that can contribute to economic growth and alleviate poverty.
They also evidence that semi-formal and informal financial services are very important in providing access, but
formal financial services tend to be used more for investment purposes.

Joseph Massey (2010) said that role of financial institutions in a developing country is vital in promoting
financial inclusion. The efforts of the government to promote financial inclusion and deepening can be further
enhanced by the pro-activeness on the part of capital market players including financial institutions. Financial
institutions have a very crucial and a wider role to play in fostering financial inclusion. National and
international forum have recognized this and efforts are seen on domestic and global levels to encourage the
financial institutions to take up larger responsibilities in including the financially excluded lot.
4 Shodh-Sandhan, 2016, Vol. 01, Issue 2

Honohan and King (2012) evidence that income and education is key demand/user side determinants of access
to financial services. The results show that improving financial sector knowledge is associated with a significant
increase in being formally banked. RBI has already taken a step in this direction by engaging Business
Facilitators (BF). Summarily even if financial institutions expand their reach, bringing credit, savings, and
micro-insurance to those previously without access, potential poor often do not readily adopt the range of
offerings. That’s not because the services aren’t needed; rather, those who would benefit most from these
products often have no experience with formal financial services and often don’t see them as a likely part of
their lives.

King (2012) evidences the characteristics of ‘unbanked’ households with lower incomes, lower education,
without an access to a mobile, and have lower levels of financial sector knowledge and number of formal
documents in their name than the remainder of the population.

Development Research Project (2013) attempted to understand the financial needs of poor in long-term and
short-term by exploring, how surplus fund is used to meet short-term, long-term and emergency requirements to
develop strategies for financial inclusion and designing financial products. The rural households follow their
own strategies of cash management for their daily expenditure and thereby taking advantage of this, several
informal financial institutions and instruments are serving this section of society. In this context, the report
examines 107 households of Ernakulum district in Kerala, as was suggested by the RBI. The aim of the study
was to understand the nature of the cash flows and outflows of a sample of poor households in the district. The
project also analyzed the cash flow management strategies of the poor households. Further assessment was done
to analyze the structure of the financial assets and liabilities of the poor households. The project focuses on the
saving patterns of the poor households and also examined factors responsible for the extent of dependence of the
poor on formal and informal financial instruments /institutions for savings and credit.

V. Ganesh Kumar (2013) noted that branch density in a state measures the opportunity for financial inclusion
in India. Literacy is a prerequisite for creating investment awareness, and hence intuitively it seems to be a key
tool for financial inclusion. But the above observations imply that literacy alone cannot guarantee high level
financial inclusion in a state. Branch density has significant impact on financial inclusion. It is not possible to
achieve financial inclusion only by creating investment awareness, without significantly improving the
investment opportunities in an India.

Research Problem
This research paper is an attempt to throw light upon the reasons for opening a bank account, the level of
awareness about financial services and the extent to which these services are used. Opening of bank account is
not enough for achieving financial inclusion. The level of awareness about different financial services and its
regular use by the targeted customer is what will make the success of the financial inclusion drive. The research
will try to find out the obstacles in achieving complete financial inclusion.

Objectives of the Study

This study has been aimed with following objectives in mind:
1. To analyze the reason of opening a bank account and extent to which rural households are using it.
5 Shodh-Sandhan, 2016, Vol. 01, Issue 2

2. To examine the level of awareness about financial services among rural household.
3. To study the usage of different financial services among rural household.
4. To examine the challenges to be faced by the country to strengthen the financial inclusion

Research Methodology
A research design is the specification of methods and procedures for acquiring the needed information. Design
to be adopted was descriptive as well as empirical research. The study was based on descriptive and exploratory
style using both secondary and primary data. The secondary data was collected from various sources, i.e.
published articles in journals, reports, magazines and books. The primary data were collected with the help of
interview conducted among the rural households. The area of the study is confined to the Bageshwer district of
Uttarakhand. 120 respondents are randomly selected from different villages by using simple random sampling.
The data collected are presented through Pie Charts and Bar Charts.

Data Analysis & Interpretation

Out of the total respondent 63 is Male and 57 are female. The majority of survey respondents were married
which is 91% of the total sample size. The majority of the respondent was aged between 45-60. 47% and 36% of
respondents have the primary and secondary level of education, respectively. 60% of the respondents were
farmer and the majority of respondents were having income less than 5000. Irrespective of the age and literacy
level of the respondents, they are aware about basic banking facility i.e deposits and withdrawal but the
awareness in terms of other financial services and its usage is low among them.
Table1. Demographic profile of the respondent
Demographic variable No of respondents Total
Male Female
18-30 6 4 10
30-45 22 21 43
45-60 29 27 56
More than 60 6 5 11
Total 63 57 120
Marital Status
Married 56 54 110
Unmarried 7 3 10
Total 63 57 120
Illiterate 3 3 6
Primary Level 30 27 57
Secondary Level 22 21 43
Higher secondary 6 4 10
Graduation 2 2 4
Total 63 57 120
Farmer 22 49 71
6 Shodh-Sandhan, 2016, Vol. 01, Issue 2

Wage Earner 12 4 16
Salaried Worker 2 2 4
Self-employed 27 2 29
Total 63 57 120
Less than 5000 53 55 108
5000-10000 10 2 12
10000-20000 - - -
More than 20000 - - -
Total 63 57 120

No of adults in a household

The maximum of the households that is 49% have 4 adult members and 30% of households have 3 adult
members. Almost 80% of household have 3 or 4 adult member and almost all the adult members of these
households are having one bank/post office account. But the active account is only one or two.

Table2. Reasons for opening a bank account

Reason Frequency Percentage
Savings 57 48
To Get Loans 10 8
To receive benefits and subsidies from Govt. 53 44
120 100
7 Shodh-Sandhan, 2016, Vol. 01, Issue 2

The 48% of sample respondent had opened accounts for saving purpose. Though the reason of opening bank
account was for saving purpose, but the frequency to which they used these accounts was very low and there is
no fixed time. 44% of respondents had open account just to receive the benefits and subsidies from the
Government. 36% accounts have not been used since it was opened. The regular saving habit was very low
among them.
Table3. Frequency of usage of bank account
Frequency of Usage Frequency Percentage
Never 43 36
Monthly 10 8
No fixed time 67 56
120 100

To measure the awareness level of rural households, various financial inclusion drives and instruments such as
No frill bank account, Kissan Credit Card, ATM Card, General Credit Card, Life Insurance, Health insurance
was considered. Most of the respondents are fully aware about No frill bank account. Most of the respondents
are aware and using an ATM card. The awareness level about Kissan Credit Card and General Credit card is
very low among the respondents. Instead of the majority of respondents are farmers, the awareness level about
Kissan Credit Card is very low. Most of the respondents are fully aware about Life Insurance but the
respondents taking Life Insurance cover was very low. The awareness level of health insurance is very low and
the respondents who cover them under Health insurance was even lower.

Table4. Awareness level about financial Services

Financial Services Fully aware Aware to some extend Unaware
Frequency Frequency Frequency
No frill bank account 98 20 2
Kissan Credit Card 25 32 63
ATM/Debit Card 53 50 17
General Credit Card 2 12 106
Life Insurance 96 21 3
Health Insurance 10 27 83
8 Shodh-Sandhan, 2016, Vol. 01, Issue 2

According to study, very small numbers of respondents are using the Kissan Credit Card. No one of them is
using General Credit card. Only ATM cards are used by respondents.

Table 5 : Usage of Financial Services

Financial Services Yes No
Frequency Frequency
Kissan Credit Card 28 92
ATM/Debit Card 37 83
General Credit Card - 110

Source of Loan

50% of people are preferred loan from bank instead from money lenders
9 Shodh-Sandhan, 2016, Vol. 01, Issue 2

The amount of Loan opted from the Financial Institutions or Money Lenders

42% of people have taken less than 1 lakh loan from banks.

Reasons for taking loan from bank

52 % of people are taking loan for only agriculture from banks in rural area

Factors taken into consideration for loan or credit

10 Shodh-Sandhan, 2016, Vol. 01, Issue

People are preferred banks for taking loan because 78% says it is less interest, 56% says it is secure and 60%
says it is easy to repay with less penalty.

Major Findings
• Rural households have access to a bank account, but the continuous usage of these accounts is very low.
• Most of the respondents have opened the account for enjoying the government benefits and subsidies like
LPG, Insurance, MGNREGA.
• The Rural households are aware about financial services to some extent. But even those who are aware are
not having the proper and full knowledge about these services. Less number of people are aware about
services like Kissan Credit Card and General credit card. Most of the people are aware about No frill
• Majority of people take loan from bank because of low interest rate but due to easy availability and less
procedure they prefer money lenders who often charges high rate of interest.

This research study showed that irrespective of literacy level and the income level every household is having a
bank account. The major loophole is that the people are not aware about various financial services and its
benefits. Even the awareness about the customized services for the particular sector or segment of people is very
low among the rural households. The government and the banks should collectively make efforts to organize
more and more about the financial awareness program. The financial literacy centers should be set up in rural
areas to educate the rural people about the financial products and services. Financial literacy among households
can play a major role in the success of the financial inclusion drive. The majority of people generally fear to
enter banks and fulfill their financial requirement through money lenders which charges a higher rate of interest.
Government of India and Reserve Bank of India should make efforts to reach the rural population through the
expansion of banking services. The introduction of Jan Dhan Schemes, Atal Pension Scheme, Prime Minister
Insurance Schemes are great idea. There is a need to motivate people to save and that could be possible only
when their source of earning is improved. Opening of account will not itself provide beneficial for banks as the
earning of bank will improve when the people save money and put it in banks.

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[3] Ramji, Minakshi. (2009), “Financial inclusion in Gulburga: Finding usage in Access Centre for
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[4] Sangram, Panigarh. & Shah, Deepak (2011), “Financial inclusion of households living below poverty
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[5] Pandey, A. Raman, R. (2013), “Financial inclusion in Uttar Pradesh and Bihar”, Prajnan-NIBM. Pune.
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