Abstract
In India, extensive efforts have been made to foster financial inclusion as a development strategy. However, achieving fuller financial inclusion remains a far cry. Focusing on the supply, demand, and quality side of financial inclusion based on a rural household-level survey in Odisha, this study examines the status of financial inclusion for rural households and identifies the factors determining the same. Besides, it highlights the preferred mode of financial transactions among rural people. The financial inclusion index (FII) results based on principal component analysis indicate that more than half of the sample rural households still fall under low FII. The regression results indicate that factors like landholdings, gender, caste, family types, and distance of the banks play a significant role in determining financial inclusion among rural households. Besides, household financial behavior does matter. Interestingly, an overwhelming proportion of people prefer the physical mode of financial transactions. There is, thus, a need to sensitize people to bring about a change in their financial behavior. At the same time, efforts to make programs more gender and caste-inclusive would go a long way in achieving the desired results.
Similar content being viewed by others
Notes
It is reported in the World Bank report, https://globalfindex.worldbank.org/
References
Allen F, Gu X, Kowalewski O (2012) Financial crisis, structure and reform. J Bank Financ 36(11):2960–2973. https://doi.org/10.1016/j.jbankfin.2012.06.002
Alnabulsi ZH, Salameh RS (2021) Financial inclusion strategy and its impact on economic development. Int J Econ Financ Stud 13(2):226–252. https://doi.org/10.34109/ijefs.20212011
Asyik NF, Wahidahwati NL, Laily N, Wahidahwati W (2022) The role of intellectual capital in intervening financial behavior and financial literacy on financial inclusion. WSEAS Trans Bus Econ 19:805–814
Atamanov A, Tandon SA, Lopez-Acevedo G, Vergara Bahena MA (2020) Measuring monetary poverty in the Middle East and North Africa (MENA) region: Data gaps and different options to address them. World Bank Policy Research Working Pap No 9259
Bagli S, Dutta P (2012) A study of financial inclusion in India. Radix Int J Econ Bus Manag 1(8):1–18
Beck T, Demirgüç-Kunt A, Levine R (2009) Financial institutions and markets across countries and over time-data and analysis. World Bank policy research working paper: (4943)
Bhanot D, Bapat V, Bera S (2012) Studying financial inclusion in northeast India. Int J Bank Mark 30(6):465–484. https://doi.org/10.1108/02652321211262221
Buteau S, Rao P, Valenti F (2021) Emerging insights from digital solutions in financial inclusion. CSI Trans ICT 9(2):105–114. https://doi.org/10.1007/s40012-021-00330-x
Chakravarty SR, Pal R (2013) Financial inclusion in India: an axiomatic approach. J Policy Model 35(5):813–837. https://doi.org/10.1016/j.jpolmod.2012.12.007
Chithra N, Selvam M (2013) Determinants of financial inclusion: an empirical study on the inter-state variations in India. SSRN. https://doi.org/10.2139/ssrn.2296096
Claessens S (2006) Access to financial services: A review of the issues and public policy objectives. The World Bank Res Obs 21(2):207–240. https://doi.org/10.1093/wbro/lkl004
CRISIL I (2018) Financial inclusion surges driven by Jan–Dhan Yojana. vol IV, New Delhi, India. https://www.crisil.com
Dar AB, Ahmed F (2020) Financial inclusion determinants and impediments in India: insights from the global financial inclusion index. J Financ Econ Policy 13(3):391–408. https://doi.org/10.1108/JFEP-11-2019-0227
Demirgüç-Kunt A, Klapper LF (2012) Financial inclusion in Africa: an overview. World Bank Policy Research Working Pap, No. 6088. http://hdl.handle.net/10986/9335
Demirgüç-Kunt A, Klapper L (2013) Measuring financial inclusion: Explaining variation in use of financial services across and within countries. Brookings pap on economic activity, Economic Studies Program, The Brookings Institution, 44(1):279–340. https://doi.org/10.1353/eca.2013.0002
Diniz E, Birochi R, Pozzebon M (2012) Triggers and barriers to financial inclusion: the use of ICT-based branchless banking in an Amazon Country. Electron Commer Res Appl 11(5):484–494. https://doi.org/10.1016/j.elerap.2011.07.006
D'souza R (2020) Improving access to agricultural credit: new perspectives. (Occasional Paper, No. 230). Observer Research Foundation
Fischer T (2011) News reaction in financial markets within a behavioural finance model with heterogeneous agents. Algorithmic Financ 1(2):123–139. https://doi.org/10.3233/AF-2011-010
Fungáčová Z, Weill L (2015) Understanding financial inclusion in China. China Econ Rev 34:196–206. https://doi.org/10.1016/j.chieco.2014.12.004
Garg S, Agarwal P (2014) Financial inclusion in India—a review of initiatives and achievements. IOSR J Bus Manag 16(6):52–61
Ghosh S, Vinod D (2017) What constrains financial inclusion for women? Evidence from Indian micro data. World Dev 92:60–81. https://doi.org/10.1016/j.worlddev.2016.11.011
Gibbs J (2010) Financial inclusion amongst new migrants in Northern Ireland. Report by ICAR in collaboration with citizens advice belfast. Information centre about Asylum and Refugees
Gupta SK (2011) Financial inclusion: IT as enabler. Reserve Bank of India Occasional papers 32(2). Reserve Bank of India, Government of India
Honohan P, King M (2012) Cause and effect of financial access: cross-country evidence from the Finscope surveys. In: Cull R, Demirgüç-Kunt A, Morduch J (eds) Banking the world: empirical foundations of financial inclusion, pp 45–84
IADB (2010) Inter-american development bank annual report: The Year in Review. IDB
Kabakova O, Plaksenkov E (2018) Analysis of factors affecting financial inclusion: ecosystem view. J Bus Res 89:198–205. https://doi.org/10.1016/j.jbusres.2018.01.066
Kelkar V (2010) Financial inclusion for inclusive growth. ASCI J Manag 39(1):55–68
Khan OM (2012) An examination of the underlying rationale of the profit and loss sharing system, with special emphasis on the Mudarabah and Musharakah within the context of Islamic law and banking. J Financ Acc Manag 3(1):23–31
Khera P, Ng S, Ogawa S, Sahay R (2022) Measuring digital financial inclusion in emerging market and developing economies: a new index. Asian Econ Policy Rev 17(2):213–230. https://doi.org/10.1111/aepr.12377
Kumar N (2013) Financial inclusion and its determinants: evidence from India. J Financ Econ Policy 5(1):4–19. https://doi.org/10.1108/17576381311317754
Kumar Vaid Y, Singh V, Sethi M (2020) Determinants of successful financial inclusion in low-income rural population. Indian Econ J 68(1):82–100. https://doi.org/10.1177/0019466220962057
Lal T (2017) Exploring the role of cooperatives in enhancing the social empowerment of rural households through financial inclusion. Indian J Commer 70(2):76–84
Malik S, Maheshwari GC, Singh A (2019) Understanding financial inclusion in India: a theoretical framework building through SAP–LAP and efficient IRP. Glob J Flex Syst Manag 20(2):117–140. https://doi.org/10.1007/s40171-019-00207-8
Merriott D (2016) Factors associated with the farmer suicide crisis in India. J Epidemiol Glob Health 6(4):217–227. https://doi.org/10.1016/j.jegh.2016.03.003
Monetary Authority of Singapore (2009) Financial Stability Report. Macroeconomic Surveillance Department
Mushtaq R, Bruneau C (2019) Microfinance, financial inclusion and ICT: implications for poverty and inequality. Technol Soc 59:101154. https://doi.org/10.1016/j.techsoc.2019.101154
Nair M, Pradhan RP, Arvin MB (2020) Endogenous dynamics between R&D, ICT and economic growth: Empirical evidence from the OECD countries. Technol Soc 62:101315. https://doi.org/10.1016/j.techsoc.2020.101315
Njoh AJ (2018) The relationship between modern information and communications technologies (ICTs) and development in Africa. Util Policy 50:83–90. https://doi.org/10.1016/j.jup.2017.10.005
Pradhan RP, Arvin MB, Nair MS, Hall JH, Bennett SE (2021) Sustainable economic development in India: the dynamics between financial inclusion, ICT development, and economic growth. Technol for Soc Change 169:120758. https://doi.org/10.1016/j.techfore.2021.120758
Rajan R, Zingales L (1998) Financial dependence and growth. Am Econ Rev 88(3):559–586
Rao CR (1964) The use and interpretation of principal component analysis in applied research. Sankhyā Indian J Stat 26(4):329–358
Rastogi S, Ragabiruntha E (2018) Financial inclusion and socioeconomic development: gaps and solution. Int J Soc Econ 45(7):1122–1140. https://doi.org/10.1108/IJSE-08-2017-0324
RBI (2018) Annual Report of RBI. Reserve Bank of India. Government of India. https://www.rbi.org.in
RBI (2021) Annual Report of RBI. Reserve Bank of India. Government of India. https://www.rbi.org.in
Sahoo AK, Pradhan BB, Sahu NC (2017) Determinants of financial inclusion in tribal districts of Odisha: an empirical investigation. Soc Change 47(1):45–64. https://doi.org/10.1177/0049085716683072
Sanderson A, Mutandwa L, Le Roux P (2018) A review of determinants of financial inclusion. Int J Econ Financ Issues 8(3):1
Sarma M, Pais J (2008) Financial inclusion and development: a cross country analysis. Indian Council for Research on International Economic Relations.
Sarma M, Pais J (2011) Financial inclusion and development. J Int Dev 23(5):613–628. https://doi.org/10.1002/jid.1698
Schwab K, Roubini N, Bilodeau J (2008) The financial development report 2008. World Economic Forum. www.weforum.org
Shaikh SA, Ismail MA, Ismail AG, Shahimi S (2017) Role of Islamic banking in financial inclusion: prospects and performance. In: Alam N, Rizvi S (eds). Islamic banking, pp 33–49
Shankar S (2013) Financial inclusion in India: do microfinance institutions address access barriers? ACRN J Entrep Perspect 2(1):60–74
Shockey SS (2002) Low-wealth adults’ financial literacy, money management behaviors, and associated factors, including critical thinking. Dissertation, The Ohio State University. https://www.proquest.com/dissertations-theses/low-wealth-adults-financial-literacy-money/docview/251720258/se-2
SIDBI (2020) Inclusive Finance Status Report Odisha. OSAFII
ST & SC Development, Minorities and backward classes Welfare Department (2021) Annual Activity Report. Government of Odisha, India
Sulemana M, Dramani JB (2020) Effect of financial sector development and institutions on economic growth in SSA. Does the peculiarities of regional blocs matter? J Sustain Financ Invest 12(4):1102–1124. https://doi.org/10.1080/20430795.2020.1837500
Tram TXH, Lai TD, Nguyen TTH (2023) Constructing a composite financial inclusion index for developing economies. Q Rev Econ Financ 87:257–265. https://doi.org/10.1016/j.qref.2021.01.003
Weissbourd R, Ventures RW (2002) Banking on technology: expanding financial markets and economic opportunity. The Brookings Institution Centre on Urban and Metropolitan Policy. The Financial Services Roundtable and the Ford Foundation.
World Bank (2014) The World Bank Annual Report 2014. Washington, DC. https://www.worldbank.org
World Bank (2021) The global findex database. Washington, DC. https://www.worldbank.org
Yadav P, Sharma AK (2016) Financial inclusion in India: an application of TOPSIS. Humanomics 32(3):328–351. https://doi.org/10.1108/H-09-2015-0061
Zins A, Weil L (2016) The determinants of financial inclusion in Africa. Rev Financ Dev 6(1):1–12
Acknowledgements
This research has been funded by the Indian Council of Social Science Research, Ministry of Education, Government of India, New Delhi, under the Impactful Policy Research in Social Science (IMPRESS)
Funding
This study was sponsored by the Indian Council of Social Science Research, Ministry of Education, New Delhi, under the Impactful Policy Research in Social Science (IMPRESS).
Author information
Authors and Affiliations
Corresponding author
Ethics declarations
Conflict of interest
The authors declare that they have no conflict of interest.
Additional information
Publisher's Note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Rights and permissions
Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law.
About this article
Cite this article
Nayak, N.C., Mahakud, J., Mahalik, M.K. et al. What determines financial inclusion? A household-level investigation in rural Odisha, India. J. Soc. Econ. Dev. (2024). https://doi.org/10.1007/s40847-023-00302-8
Accepted:
Published:
DOI: https://doi.org/10.1007/s40847-023-00302-8