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Submitted To:
Mr. Rajeev Bhandari
Submitted By:
Ishpreet Singh BaggaInvertis
BBA 6THSEM
University
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CERTIFICATE
TO WHOM IT MAY CONCERN
It is to certify that I Narendra Singh student of MBA 4TH Semester in our institute has successfully
completed her winter project entitled FINANCIAL INCLUSION AND RURAL CREDITING
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ACKNOWLDGEMENT
Narendra Singh
MBA- IV- SEM.
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LIST OF CONTENTS
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17-18
19-33
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36-37
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39-43
44-46
47-49
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51
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53
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The word system in the term Financial System implies a set of complex
andclosely connected or intermixed instructions, agents, practices, markets,
transactions, claims and liabilities in the economy. Finance is the study of money, its
nature, creation, behavior, regulations and administration. Therefore, Financial
Systemincludes all those activities dealing in finance, organized into a system.
Financialsystem plays a crucial role in the functioning of the economy because it
allowstransfer of resources from savers to investors. The financial system consists
offinancial institutions, financial markets, financial instruments and the services
providedby the financial institutions. Figure 1.1 gives a birds overview of the
financial systemof an economy.
1) Financial Institutions
2) Financial Markets
3) Financial Instruments
4) Financial Services
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1) Financial Institutions: These are institutions which mobilise and transfer the
savings or funds from surplus units to deficit units. As can be seen from Figure 1.1
these institutions can be classified into, Regulatory, Intermediaries, Non-intermediaries
and Others.
2) Financial Markets: This is a place or mechanism where funds or savings are
transferred from surplus units to deficit units. These markets can be broadly classified
into money markets and capital markets. Money market deals with short-term claims
or financial assets (less than a year) whereas capital markets deal with those
financial assets which have maturity period of more than a year
3) Financial Instruments: As already stated, the commodities that are traded or Financial System
dealt in a financial market are financial assets or securities or financial instruments.
There is a variety of securities in the financial markets as the requirements of lenders
and borrowers are varied. Financial assets represent a claim on the repayment of
principal at a future date and/or payment of a periodic or terminal sum in the form of
interest or dividend.
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4) Financial Services: Financial services include the services offered by both types
of companies Asset Management Companies and Liability Management
Companies. The former include the leasing companies, mutual funds, merchant
bankers, issue/portfolio managers. The latter comprises the bill discounting houses
and acceptance houses. The financial services help not only to raise the required
funds but also ensure their efficient deployment.
o BANKING SYSTEM
You know people earn money to meet their day-to-day expenses on food, clothing, education of
children, housing, etc. They also need money to meet future expenses on marriage, higher
education of children, house building and other social functions. These are heavy expenses,
which can be met if some money is saved out of the present income. Saving of money is also
necessary for old age and ill health when it may not be possible for people to work and earn their
living.
The necessity of saving money was felt by people even in olden days. They used to hoard money
in their homes. With this practice, savings were available for use whenever needed, but it also
involved the risk of loss by theft, robbery and other accidents. Thus, people were in need of a
place where money could be saved safely and would be available when required. Banks are
such places where people can deposit their savings with the assurance that they will be able to
withdraw money from the deposits whenever required. People who wish to borrow money for
business and other purposes can also get loans from the banks at reasonable rate of interest.
Bank is a lawful organisation, which accepts deposits that can be withdrawn ondemand. It also
lends money to individuals and business houses that need it.
Banks also render many other useful services like collection of bills, payment of foreign bills,
safe-keeping of jewellery and other valuable items, certifying the credit-worthiness of business,
and so on.
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Banks accept deposits from the general public as well as from the business community. Any one
who saves money for future can deposit his savings in a bank. Businessmen have income from
sales out of which they have to make payment for expenses. They can keep their earnings from
sales safely deposited in banks to meet their expenses from time to time. Banks give two
assurances to the depositors
a. Safety of deposit, and
b. Withdrawal of deposit, whenever needed
On deposits, banks give interest, which adds to the original amount of deposit. It is a great
incentive to the depositor. It promotes saving habits among the public. On the basis of deposits
banks also grant loans and advances to farmers, traders and businessmen for productive
purposes.
Thereby banks contribute to the economic development of the country and well being of the
people in general. Banks also charge interest on loans. The rate of interest is generally higher
than the rate of interest allowed on deposits. Banks also charge fees for the various other
services, which they render to the business community and public in general. Interest received on
loans and fees charged for services which exceed the interest allowed on deposits are the main
sources of income for banks from which they meet their administrative expenses.
The activities carried on by banks are called banking activity. Banking as an activity involves
acceptance of deposits and lending or investment of money. It facilitates business activities by
providing money and certain services that help in exchange of goods and services. Therefore,
banking is an important auxiliary to trade. It not only provides money for the production of
goods and services but also facilitates their exchange between the buyer and seller.
You may be aware that there are laws which regulate the banking activities in our country.
Depositing money in banks and borrowing from banks are legal transactions. Banks are also
under the control of government. Hence they enjoy the trust and confidence of people. Also
banks depend a great deal on public confidence. Without public confidence banks cannot
survive.
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The oldest bank in existence in India is the State Bank of India, which originated in the Bank of
Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was one of
the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all
three of which were established under charters from the British East India Company.
For many years the Presidency banks acted as quasi-central banks, as did their successors. The
East India Company established Bank of Bengal, Bank of Bombay and Bank of Madras as
independent units and called it Presidency Banks. The three banks merged in 1925 to form the
Imperial Bank of India, which, upon India's independence, became the State Bank of India.
Foreign banks too started to arrive, particularly in Calcutta, in the 1860s.
The
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Indian merchants in Calcutta established the Union Bank in 1839, but it failed in 1848 because
of the economic crisis of 1848-49. The Allahabad Bank, established in 1865 and still
functioning today, is the oldest Joint Stock bank in India.
Swadeshi Movement
The Swadeshi movement inspired local businessmen and political figures to found banks of and
for the Indian community. A number of banks established then have survived to the present
such as Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and
Central Bank of India.
AmmembalSubba Rao Paifounded Canara Bank Hindu Permanent Fund in 1906. Central
Bank of India was established in 1911 by Sir SorabjiPochkhanawalaand was the first commercial
Indian bank completely owned and managed by Indians. In 1923, it acquired the Tata Industrial
Bank.
The fervor of Swadeshi movement lead to establishing of many private banks in Dakshina
Kannada and Udupi district which were unified earlier and known by the name South Canara
(South Kanara ) district.
Four nationalized banks started in this district and also a leading private sector bank. Hence,
undivided Dakshina Kannada district is known as "Cradle of Indian Banking".
1809
1840
1843
1865
1894
1906
1907
1908
1911
1913
1922
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Organized banking in India is more than two centuries old. Until 1935 all, the banks were in
private sector and were set up by individuals and/or industrial houses, which collected deposits
from individuals and used them for their own purposes.
In the absence of any regulatory framework, these private owners of banks were at liberty to use
the funds in any manner, they deemed appropriate and resultantly, the bank failures were
frequent.
For many years the Presidency banks acted as quasi-central banks, as did their successors.
Bank of Bengal, Bank of Bombay and Bank of Madras merged in 1925 to form the Imperial
Bank of India, which, upon India's independence, became the State Bank of India.
Even though consolidation in banking was building trust among the investors but a central
regulatory, authority was much needed. British Government in India passed many trade and
commerce laws but acted little on regulating the banking industry.
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Another breakthrough happened in this phase, which was Reserve Bank of India. The Reserve
Bank of India was set up on the recommendations Royal Commission on Indian Currency and
Finance4 also known as the Hilton-Young Commission. The commission submitted its report in
the year 1926, though the bank was not set up for nine years.
Reserve Bank of India (RBI) was created with the central task of maintaining monetary stability
in India. The Government on December 20, 1934 issued a notification and on January 14, 1935,
the RBI came into existence, though it was formally inaugurated only on April 1, 1935.
Main functions of RBI were
1. Regulate the issue of banknotes
2. Maintain reserves with a view to securing monetary stability and
3. To operate the credit and currency system of the country to its advantage
The Bank began its operations by taking over from the Government the functions so far being
performed by the Controller of Currency and from the Imperial Bank of India. Offices of the
Banking Department were established in Calcutta, Bombay, Madras, Delhi and Rangoon.
Burma (Myanmar) seceded from the Indian Union in 1937 but the Reserve Bank continued to act
as the Central Bank for Burma until Japanese Occupation of Burma and later unto April 1947.
After the partition of India, the Reserve Bank served as the central bank of Pakistan up to June
1948 when the State Bank of Pakistan commenced operations.
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happening first time. From 1955 to 1960, State Bank of India and other seven subsidiaries were
nationalized under the SBI Act of 1955.
It was not a step taken at random or because of the whims of the leadership of the time, but
reflected a process of struggle and political change which had made this an important demand of
the people.
Nationalisation took place in two phases, with a first round in 1969 covering 14 banks followed
by another in 1980 covering seven banks. Currently there are 27 nationalized commercial banks.
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This is the phase of New Generation tech-savvy banks. This phase can be called as The
Reforms Phase. Starting of the modern and current phase of Indian Banking is marked by two
important events.
Narasimhan Committee
The Committee on Banking Sector Reforms Committee8 headed by Mr. M. Narasimhan, it is
also known as Narasimhan Committee. The Committee, headed by former Reserve Bank of
India governor M Narasimhan, was appointed by the United Front government to review the
progress in banking sector reforms. The committee submitted its recommendations to union
Finance Minister Yashwant Sinha in November of 1991.
Some of the recommendations offered by the committee are:
1. A reduction, phased over five years in the Statutory Liquidity Ratio (SLR) to 25 percent,
synchronized with the planned contraction in Fiscal Deficit.
2. A progressive reduction in the Cash Reserve Ratio (CRR).
3. Gradual deregulation of interest rates.
4. All banks to attain Capita Adequacy 8% in a phased manner.
5. Banks to make substantial provisions for bad and doubtful debts.
6. Profitable and reputed banks be permitted to raise capital from the public.
7. Instituting an Assets Reconstruction Fund to which the bad and doubtful debts of banks
and Financial Institutions could be transferred at a discount.
8. Facilitating the establishment of new private banks, subject to RBI norms.
9. Banks and financial institutions to classify their assets into four broad groups, viz,
Standard, Sub-standard, Doubtful and Loss.
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10. RBI to be primarily responsible for the regulation of the banking system.
11. Larger role for Securities Exchange Board of India (SEBI), particularly as a market
regulator rather than as a controlling authority.
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Financial inclusion has indeed far reaching positive consequences, which can facilitate many
people to come out of the abject poverty conditions. It is widely believed that financial
inclusion provides formal identity, access to payments system and deposit insurance, and
many other financial services. Universally, it is accepted that the objective of financial
inclusion is to extend the scope of activities of the organized financial system to include
within its ambit the people with low incomes.
In India, there is a need for coordinated action amongst the banks, the government and
related agencies to facilitate access to bank accounts to the financially excluded. In view of
the need for further financial deepening in the country in order to boost economic
development, there is a dire need for expanding financial inclusion. By expanding financial
inclusion, inclusive growth can be attained by achieving equity. The policy makers have
already initiated some positive measures aimed at expanding financial inclusion. However, the
efforts are opined by many as not commensurate with the magnitude of the issue. There is
also a need on the part of the academicians and researchers to study the issue of financial
inclusion with a comprehensive approach in order to highlight its need and importance.
The recent developments in banking technology have transformed banking from the traditional brickand-mortar infrastructure like staffed branches to a system supplemented by other channels like
automated teller machines (ATM), credit/debit cards, internet banking, online money transfers, etc.
The moot point, however, is that access to such technology is restricted only to certain segments of
the society. Indeed, some trends, such as increasingly sophisticated customer segmentation
technology allowing, for example, more accurate targeting of sections of the market have led to
restricted access to financial services for some groups. There is a growing divide, with an increased
range of personal finance options for a segment of high and upper middle income population and a
significantly large section of the population who lack access to even the most basic banking services.
This is termed financial exclusion. These people, particularly, those living on low incomes, cannot
access mainstream financial products such as bank accounts, credit, remittances and payment
services, financial advisory services, insurance facilities, etc.
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Deliberations on the subject of Financial Inclusion contributed to a consensus that merely having a
bank account may not be a good indicator of financial inclusion. Further, indebtedness as quantified
in the NSSO 59th round (2003) may not also be a reflective indicator. The ideal definition should
look at people who want to access financial services but are denied the same. If genuine claimants for
credit and financial services are denied the same, then that is a case of exclusion. As this aspect
would raise the issue of credit worthiness or bankability, it is also necessary to dwell upon what
could be done to make the claimants of institutional credit bankable or creditworthy. This would
require re-engineering of existing financial products or delivery systems and making them more in
tune with the expectations and absorptive capacity of the intended clientele. Based on the above
consideration, a broad working definition of financial inclusion could be as under:
LITERATURE REVIEW
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Financial inclusion, of late, has become the buzzword in academic research, public policy
meetings and seminars drawing wider attention in view of its important role in aiding
economic development of the resource poor developing economies. In the Indian scenario, the
term financial inclusion is popular in financial circles, especially after the Reserve Bank of
India (RBI) announced a series of measures in its credit policy for 2006-07 to include many
of the hitherto excluded groups in the banking net.
Rangarajan Committee (2008) on financial inclusion stated that: Financial inclusion may
be defined as the process of ensuring access to financial services and timely and adequate
credit where needed by vulnerable groups such as weaker sections and low income groups at
an affordable cost. The financial services include the entire gamut of savings, loans,
insurance, credit, payments, etc. The financial system is expected to provide its function of
transferring resources from surplus to deficit units, but both deficit and surplus units are those
with low incomes, poor background, etc. By providing these services, the aim is to help them
come out of poverty.
Indian Institute of Banking & Finance (IIBF) opines, Financial inclusion is delivery of
banking services at an affordable cost (no frills accounts,) to the vast sections of
disadvantaged and low income group. Unrestrained access to public goods and services is the
sine qua non of an open and efficient society.
A perusal of literature on finance and economic development reveals that the earlier
theories of development concentrated on labor, capital, institutions, etc., as the factors for
growth and development. There have been numerous researches analyzing how financial
systems help in developing economies. A great deal of consistency exists among economists
regarding financial development prompting economic growth. Many theories have established
that, financial development creates favorable conditions for growth through either a
supplyleading
or a demand-following channel.
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yet percolated into the lower strata of the society. It is easy to blame the capitalist growth for this
sort of income disparities; however, the inefficiencies and the inadequacies of thegovernment
and its policies are equally at fault for lack of reduction in poverty.
Most of the un-banked or financially excluded population of India lives in rural areas;
nevertheless there is also a significant amount of the urban population of India who face
the same situation even with easy access to banks. Many of the financially excluded in
these areas are illiterates earning a meagre income just enough to sustain their daily
needs. For such people, banking still remains an unknown phenomena or an elitist affair.
It is easier for them to keep their money at their house or with some money lenders and
easily make immediate purchases (which make up most of their expenditure) rather than to
follow the cumbersome process at banks. By making them financially inclusive we are making
their financial position less volatile. At the same time, we are treating them on an equal par with
other members of the population so that they wouldnt be denied of access to a basic service such
as banking.
One common measure of financial inclusion that is by and large accepted universally is the
percentage of adult population having bank accounts. According to the available data on the
number of savings banks, we note that on an all-India basis 59% of adult population has bank
accounts. In other words, 41% of the population is unbanked. In rural areas, the coverage is
found to be 39% as against 60% in urban areas. The unbanked population is largely observed
in the northeastern and eastern regions.
Table 2 illustrates that rural and semi-urban offices constitute a majority of the commercial
bank offices in India. Rural bank offices as a percent of total have increased from 22 in 1969
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to 45 in 2005. It is observed that the share of deposits and credit in rural and semi-urban areas
is on the decline. In contrast, the share in metropolitan areas is rising. Further, it can be noticed
that the share of credit is lower than that of deposits in all regions, except metropolitan,
implying that resources get intermediated in metropolitan areas.
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Table 4 illustrates the level of financial inclusion in India through region-wise statistics.
Region-wise population coverage per bank branch office in India is presented in Table 4. In
terms of financial broadening, the scope for improvement remains. Since 1991, population per
bank office has increased in rural areas from 13,462 in 1991 to 16,650 in 2005 and, as
expected, declined in the urban areas from 14,484 to 13,619 over the same period.
Northeastern, eastern and central regions in India have higher population per office than the
all-India average and it has increased significantly in the rural areas in 2005 as compared to
1991. It is noticeable from the table that southern, western and northern regions have
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population coverage below the national average. All the other regions in the country have
coverage well above the national average calling for urgent improvement in the coverage of
the population. However, in both rural and urban areas there has been a distinct progress in
the coverage of the population by the bank branch offices.
Table 4 offers further clarity providing a break-up of the deposit accounts. Both the deposit
and credit accounts are lower in rural households than urban households. Further, an attempt
has been made in Table 4 to capture the progress of the number of savings accounts per 100
population during the period 1991-2005 in different regions in India. The relevant progress
in the case of rural and urban areas of the different regions is also presented. Northeastern
region calls for an immediate attention to improve the banking facilities as the coverage is
very poor. While the southern, western and northern regions have coverage below the national
level, the other regions have coverage above the national average. The national average itself
is quite high compared to that of other advanced economies.
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Accordingly, we find that except in southern region, in all other regions the extent of credit
delivery is very poor. The extent of financial exclusion in Indian states in captured in Table 5.
Further, the rise in the number of credit accounts per population has not been significant
despite the fact that there has been increase in the number of bank branches right across all
the regions of the country. Even in the case of the southern region, where the coverage is
distinctly high compared to all other regions, the increase during the period 1991-2005 was
not encouraging. During the period 1991-2005, only in western and southern regions there
has been a significant improvement in the coverage of credit accounts. In the southern region
there has been a growth of 129% in the urban areas, while it showed a negative growth
(6.6%) in case of rural areas. Similar is the case in the western region. While it experienced
a growth of 154% in urban areas, it showed a negative growth (32%) in rural areas. Even
in other regions, negative growth was observed in rural areas.
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On an analysis of the region-wise distribution of the bank offices, credit and deposit ratios
it is apparent that the population per office has increased in the rural areas of all the regions,
while in urban areas the population per bank office has declined in all the regions, except
the western region. In spite of the increase in financial deepening in the urban regions, the
number of savings accounts per 100 persons has declined in all regions. Contrastingly, in the
rural areas, the number of savings accounts per 100 persons has increased in northeastern,
central and southern regions, indicating that banks in these rural areas have led to more financial
inclusion than their counterparts in other rural regions and all urban regions. In terms
of number of credit accounts per 100 persons, the scenario is no different with the figure
falling in all regions, except urban areas of southern and western regions in India.
Banking system in India needs to adjust to the realities in the rural sector. There is evidence
that they are finding it difficult to do so. It is generally believed that agricultural credit to
total GDP declines as the ratio of agricultural GDP to total GDP declines. However, this is not
observed from the data (Table 6). Even though the data reveal that agriculture credit as a ratio
of total credit has been rising in the recent years, it is still below the level of 1970s (see also
Table 7 for agricultural GDP).
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Even though the share of agriculture in overall GDP has declined from around 33.1% in
1980s to 20.8% during 2000-06, the fall in the proportion of population dependent on this
sector has been restricted (Table 7).
A majority of the workforce in India is still dependent on agriculture, even as the GDP
growth due to agriculture is marginally above the population growth rate, in contrast to a
strong growth rate in the non-agricultural sector. Select Macroeconomic Indicators for India
are furnished in Table 8.
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Holdings
Further, analysis of coverage of farmer households is also attempted based on the size of their
land holdings. From Table 10 it can be seen that the proportion of non indebtedness is quite
obvious in the case of marginal farmers whose land holding is less than 1 ha.
While the extent of non-indebtedness is highest in the case of marginal farmers (70.6%),
it is lowest in the case of large farmers (0.6%). In the case of medium farmers it is 3.2% and
8.5% in the case of semi-medium farmers. However, in the case of small farmers it is 17.1%
(see Figure 3).
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the case of rural households and 50.2% in case of urban households. This indicates that there is a
need for further broadening of the bank services in the rural areas.
It is also worth mentioning that a similar result was obtained from the study by Agarwal
(2008), who made illustrative analysis of the distribution of bank offices in India and also
the extent of financial deepening in India.
Regional Distribution of Banking Services: The analysis brings to the fore that there has
been uneven distribution of the banking services in terms of population coverage per
bank office in the six regions of the country, viz., northern, northeastern, eastern, central,
western and southern. For an equitable growth in all the regions of the country, there is a need for
addressing the banking needs of the northeastern, eastern and central regions of the
country.
Ratio of Direct Agricultural Credit to Agricultural GDP, Total GDP and Total Credit: Even
though the falling share of agricultural GDP as a proportion of total GDP has been a point
of concern in the recent years, the analysis reveals that in spite of the rise in the agri-credit
as a ratio of total credit it is still below the level of 1970s.
Contribution of Agriculture in GDP: The analysis reveals that there has been a continuous
downslide in the contribution of agriculture to the GDP. While it was 42.8% in the 1970s,
it receded down to 21.9% in the period 2001-06. This is indeed a point of concern. A similar
sort of opinion has also been put forward by Mohan (2006), who has stated that majority of
the workforce are still dependent on agriculture, while the GDP growth due to agriculture is
only marginally above the rate of growth of the population, in contrast to a high growth rate
in the non-agricultural sector.
Coverage of Farmer Households: The analysis points out that a very large number of farmer
households are excluded from the financial services. About 51.4% of the farmer households
are non-indebted and the extent of non-indebtedness is a great cause of concern particularly
in the case of STs (63.69%). This calls for provision of banking services to all the social
groups in an equitable manner in order to achieve social and economic equity in the country.
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Coverage of Small and Marginal Farmers: The study finds that a whopping 70.6% of the
marginal farmer households are non-indebted and are badly in need of financial services. It
also reveals that the financial inclusion among the farmer households has so far been able to
serve only the large and medium farmers and has completely neglected the marginal and small
farmers.
The responsibility of meeting the credit needs in the rural areas of India was entrusted primarily
with the cooperative sector and later to the commercial banks. One of the major objectives of the
nationalization of major commercial banks in 1969/1980 was to improve the flow of formal
institutional credit to rural households. Although these measures were ambitious and laudable,
bank credit did not reach the poor people in adequate quantum. The financial sector reforms
begun in 1992 have been systematically moving away from the social objective of the banking
sector. The formal financial sector in India is shifting its focus from mass banking to superclass banking.Though banking sector has witnessed tremendous changes in recent
periods in terms of technological advancements, internet banking, online money transfers, etc,
financial exclusion is a reality. It is in this context that the term financial inclusion gains
importance and it is definedas the process of ensuring access to financial services and timely and
adequate credit needed by vulnerablegroups such as weaker sections and low income groups at
an affordable cost. In countries with a large ruralpopulation like India, financial exclusion has a
geographic and social dimension.
Geographic exclusion isexposed through inaccessibility; distances and lack of proper
infrastructure. Building an inclusive financialsector has gained growing global recognition
bringing to the fore the need for development strategies that touchall lives, instead of a select
few. The overall strategy for financial inclusion, especially amongst the poor and
disadvantaged segments of the population should comprise ways and means to effect
improvements within the existing formal credit delivery mechanism, as well as an evolution of
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new models for extending outreach, and a leverage on technology solutions to facilitate large
scale inclusion. Only two to five percent of the 500 million poorest households in the world have
access to institutional credit. Of which, women receive a disproportionately small share of credit
from formal banking institutions. The Womens Self Help Group movement is bringing about a
profound transformation in rural areas of India. Microfinance Institutions (MFIs)
play a significant role in facilitating inclusion, as they are uniquely positioned in reaching out to
the rural poor.
Many of them operate in a limited geographical area, have a greater understanding of the issues
specific to the rural poor, enjoy greater acceptability amongst the rural poor and have flexibility
in operations providing a level of comfort to their clientele. The present paper deals with how the
mechanism of microfinance can enable the financial inclusion of hitherto excluded population,
especially the women, into the formal financial sector.
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Bangladesh: 46 million new microcredit clients have been added since 2006; financial
services have reached about 55 percent of poor households, substantially expanding access to
savings.
Viet Nam: 2.1 million new microfinance clients have been added since 2006.
In contrast, access in Peoples Republic of China (PRC) appears to have declined since the
reforms of the rural cooperatives. Also, Indias poor have little access to deposits: no frills
accounts have increased to over 28 million, but studies show that many of these are barely used.
Particularly in Asia, the poor are often served by public banks or nonbank entities, including
nongovernmental organizations (NGOs), with private sector banks playing a smaller role. Key
examples of these public banks and nonbank entities include:
Pakistan: Post Savings Bank, with 3.6 million accounts in 2006.
India: post offices, with 60.8 million savings accounts as of March 2007.
Bangladesh: Rural Development Board, with 4.7 million active borrowers in 2007.
Viet Nam: Bank for Agriculture and Rural Development, with 10 million farmer clients in
2007, and Bank for Social Policy, with 6.79 million active borrowers in 2008.
Thailand: Government Savings Bank, with 36 million accounts in 2006.
Sri Lanka: state banks, which were used by 72 percent households by the end of 2006.
However, despite this outreach, service quality is inferior, and most institutions depend on
subsidies. Furthermore, as shown in Figure 2, despite remarkable improvements in India and
Bangladesh, an estimated 535 million people in these two countries still are excluded from
financial services. Table 1 shows how countries in Asia sort out by their level of financial
inclusion
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However, once the pioneers of the microfinance revolution demonstrated tangible market
opportunities, substantial business model innovation has expanded the access possibilities
frontier.34More recently, technological innovation has dramatically lowered the fixed costs of
reaching the low-income segment and attracted a broader range of new suppliers.
Policies are a key complement to private sector innovation through regulatory frameworks,
public ownership, the provision of market infrastructure, and measures that lower demand-side
barriers. Regulatory frameworks determine the set of institutions that are allowed to enter, shape
the scope of available services, and affect institutions cost of doing business.
Prudential regulation is critical to enable financial intermediation and facilitate domestic
resource mobilization and financial institution growth while simultaneously protecting savers.
Furthermore, public ownership has frequently expanded outreach into segments that were
considered beyond the scope of commercial approaches. Secured lending frameworks and public
credit registries facilitate transactions despite asymmetric information. Finally, the low education
level of poor clients suggests a need for consumer protection and financial education policies.
Policymakers have struggled to accompany rapid innovation. They have been particularly
successful where they facilitated experimentation within regulatory frameworks that carefully
limited the potential risks. In some cases, policymakers have even taken the lead in introducing
new solutions to the market through regulatory or legislative measures or direct participation in
the market.
The rapid pace of innovation has substantially increased the complexity of policymaking. On the
one hand, this calls for a rethinking of policy principles with respect to financial inclusion.35On
the other hand, there is substantial scope for stepping up peer-to-peer advice as innovative
solutions are being generated by developing country regulators.
To capture and compare emerging policy trends in developing countries, the German
GesellschaftfrTechnischeZusammenarbeit or GTZ (German Technical Cooperation) assessed
thirty-five policy solutions geared toward promoting financial inclusion across ten countries.
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RESEARCH METHODOLOGY
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A broad definition of research is given by Martyn Shuttleworth - "In the broadest sense of the
word, the definition of research includes any gathering of data, information and facts for the
advancement of knowledge."
Another definition of research is given by Creswell who states - "Research is a process of steps
used to collect and analyze information to increase our understanding of a topic or issue". It
consists of three steps: Pose a question, collect data to answer the question, and present an
answer to the question.[
Research is often conducted using the hourglass model structure of research.The hourglass
model starts with a broad spectrum for research, focusing in on the required information
through the method of the project (like the neck of the hourglass), then expands the research
in the form of discussion and results. The major steps in conducting research are:
Literature review
Data collection
Generally, research is understood to follow a certain structural process. Though step order may
vary depending on the subject matter and researcher, the following steps are usually part of most
formal research, both basic and applied:
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1.
Observations and Formation of the topic: Consists of the subject area of ones interest
and following that subject area to conduct subject related research. The subject area should
not be
randomly chosen since it requires reading a vast amount of literature on the topic to
determine the gap in the literature the researcher intends to narrow. A keen interest in the
chosen subject area is advisable. The research will have to be justified by linking its
importance to already existing knowledge about the topic.
2.
Hypothesis: A testable prediction which designates the relationship between two or more
variables.
3.
4.
Operational definition: Details in regards to defining the variables and how they will be
measured/assessed in the study.
5.
6.
Analysis of data: Involves breaking down the individual pieces of data in order to draw
conclusions about it.
7.
Data Interpretation: This can be represented through tables, figures and pictures, and
then described in words.
8.
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9.
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The research room at the New York Public Library, an example of secondary research in
progress.
There are two major types of research design: qualitative research and quantitative research.
Researchers choose qualitative or quantitative methods according to the nature of the research
topic they want to investigate and the research questions they aim to answer:
Maurice Hilleman is credited with saving more lives than any other scientist of the 20th
century.
Qualitative research
Understanding of human behavior and the reasons that govern such behavior. Asking a broad
question and collecting data in the form of words, images, video etc that is analyzed searching
for themes. This type of research aims to investigate a question without attempting to
quantifiably measure variables or look to potential relationships between variables. It is viewed
as more restrictive in testing hypotheses because it can be expensive and time consuming, and
typically limited to a single set of research subjects. Qualitative research is often used as a
method of exploratory research as a basis for later quantitative research hypotheses. Qualitative
research is linked with the philosophical and theoretical stance of social constructionism.
Quantitative research
Systematic empirical investigation of quantitative properties and phenomena and their
relationships. Asking a narrow question and collecting numerical data to analyze utilizing
statistical methods. The quantitative research designs are experimental, correlational, and survey
(or descriptive).Statistics derived from quantitative research can be used to establish the
existence of associative or causal relationships between variables. Quantitative research is linked
with the philosophical and theoretical stance of positivism.
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The Quantitative data collection methods rely on random sampling and structured data collection
instruments that fit diverse experiences into predetermined response categories. These methods
produce results that are easy to summarize, compare, and generalize. Quantitative research is
concerned with testing hypotheses derived from theory and/or being able to estimate the size of a
phenomenon of interest. Depending on the research question, participants may be randomly
assigned to different treatments (this is the only way that a quantitative study can be considered a
true experiment). If this is not feasible, the researcher may collect data on participant and
situational characteristics in order to statistically control for their influence on the dependent, or
outcome, variable. If the intent is to generalize from the research participants to a larger
population, the researcher will employ probability sampling to select participants.
In either qualitative or quantitative research, the researcher(s) may collect primary or secondary
data. Primary data is data collected specifically for the research, such as through interviews or
questionnaires. Secondary data is data that already exists, such as census data, which can be reused for the research. It is good ethical research practice to use secondary data wherever
possible.
Mixed-method research, i.e. research that includes qualitative and quantitative elements, using
both primary and secondary data, is becoming more common.
Research Design
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Secondary Data
Secondary data means that are already available that is they refer to the data, which have already
been collected and analyzed by someone else for its own use and later the same data is used by a
different user or person.
It is based on secondary source of information.
The source of data is called secondary because this data have already been collected, tabulated
and presented in some form by someone else for some purpose.
Data may be primary for one agency, may be secondary for the other and vice-versa.
For Example, the number of deaths and birth registered by a government office clerk constitute
Primary data while the same be secondary data for a student doing demographic research.
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ADVANTAGES
DISADVANTAGES
Relevance- The data may not fit into the needs of current investigation. It may not be
related to the area of present enquiry or it may pertain to some other period of time.
In case of secondary data the researcher has no control over the data that is collected
since it is being collected by someone else. Therefore, the accuracy and reliability of the
collected data can be questioned.
These are already available i.e. they refer to the data which have already been collected
and analyzed by someone else.
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Unpublished Data:
The various sources of unpublished data are:
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METHODOLOGY
DATA SOURCE
Secondary data being the main source for the research was collected by the government
reports, newspapers, journals, and other published data websites.
2010
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NORTHERN REGION
NORTH-EASTERN REGION
EASTERN REGION
CENTRAL REGION
WESTERN REGION
SOUTHERN REGION
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2000
2010
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2006
2005
2004
2003
2002
2001
NORTHERN REGION
NORTH-EASTERN REGION
EASTERN REGION
CENTRAL REGION
WESTERN REGION
SOUTHERN REGION
2000
2010
2009
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2006
2005
2004
2003
2002
2001
NORTHERN REGION
NORTH-EASTERN REGION
EASTERN REGION
CENTRAL REGION
WESTERN REGION
SOUTHERN REGION
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2000
2010
2009
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2007
2006
2005
2004
2003
2002
2001
NORTHERN REGION
NORTH-EASTERN REGION
EASTERN REGION
CENTRAL REGION
WESTERN REGION
SOUTHERN REGION
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2000
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
NORTHERN REGION
NORTH-EASTERN REGION
EASTERN REGION
CENTRAL REGION
WESTERN REGION
SOUTHERN REGION
2000
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
NORTHERN REGION
NORTH-EASTERN REGION
EASTERN REGION
CENTRAL REGION
WESTERN REGION
SOUTHERN REGION
FINDINGS
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2000
BIBLIOGRAPHY
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www.google.com
www.rbi.com
www.rural.nic.in
Conclusion
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Finance is the lubricant, which oils the wheels of development. All economies rely upon the
intermediary function of finance to transfer resources from savers to investors. In market
economies, this function is performed by commercial banks, financial institutions and capital
markets. In many developing countries, capital markets are at a rudimentary stage, and
commercial banks are reluctant to lend to the poor largely because of the lack of collateral and
high transaction costs. The poor would borrow relatively small amounts, and the processing and
supervision of lending to them would consume administrative costs disproportionate to the
amount of lending.
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