Financial Inclusion Drive: Finding Usage in Access in Gulbarga

1. Financial Inclusion Drive: Finding Usage in Access in Gulbarga Minakshi Ramji Centre for Micro Finance – IFMR CAB-CMF Conference on Microfinance16 January 2009

2. Introduction • Important policy initiative in India • 2005: RBI mandates the creation of a No Frills Account • 2006: RBI promotes a drive for financial inclusion • 2008: Committee for Financial Inclusion recommends each rural/semi-urban branch open 250 accounts per year 11.5 million accounts overall • Results • 100% financial inclusion in Puducherry, Himachal Pradesh and in some districts of Haryana, Karnataka, Kerala, Punjab and Rajasthan • As of Sept 2008, 15 million No Frills Accounts opened (Economic Times, 12 Sept 2008) Timely and pertinent to examine the financial inclusion drive given the resources devoted to it

3. Research Questions • This study looks at the financial inclusion drive in Gulbarga, Karnataka to answer the following questions: • How does a household become financially included? • What are the levels of awareness about the drive? • How do households perceive formal vs informal financial services? • How does becoming financially included influence financial behaviour?

4. Methodology • Specifically targets poor people • All respondents holders of BPL ration cards • Two blocks of Gulbarga district: Shorapur and Gulbarga, which have highest proportion of BPL population • 25 villages in each block, 20 BPL households in each village • Data Collection • Questionnaires: 999 surveys in total • Qualitative Interviews: 15 interviews • ‘Elite’ interviews with RBI and bank officials

5. Findings: Respondent Profile • Largely non-literate population • Livelihoods depend on agriculture • Small landholdings • Extremely dry area, mostly rainfed • Incomes are either weekly or seasonal • Daily wage for agricultural labour: Rs. 50 for men, Rs. 30 for women • Daily wage for NREGP: Rs. 80

6. Findings: Overview of Accounts Opened

7. Findings: Awareness • Levels of awareness low • Panchayat officials more involved

8. Findings: NREGP Beneficiaries

9. Findings: NREGP Beneficiaries • 30% of respondents are NREGP beneficiaries • Of the 10% who knew about zero minimum balance accounts  71% were NREGP beneficiaries • Of the 17% who opened accounts between July 2006 and July 2007  78% were NREGP beneficiaries • Given involvement of Panchayat officials  NREGP accounts rather than Fin Inc accounts • People opened accounts to receive govt. assistance

10. Results: Savings Accounts • 64% had some form of formal/semi-formal savings accounts • Most popular: bank accounts, SHG membership, post office accounts

11. Results: Usage

12. Findings: Reasons for low Usage • Low recall  possibly opened, but never used • Evidence from qualitative interviews • Accounts for NREGP assistance show usage  have specific utility • Expense of traveling to a bank  Rs. 20 on average • Cultural, psychological and informational misconceptions about banks • Evidence from qualitative interviews • See banks as being for bigger amounts • Of those who didn’t open accounts, 56% indicated insufficient savings  96% of these same people said they save regularly informally

13. Some Conclusions • Drive has doubled access to bank accounts • Not clear if it targeted excluded populations • Significant numbers remain excluded • Access doesn’t always lead to usage • Government programmes are one the best ways in India to reach BPL households • Coupling government assistance with formal banking system may increase financial inclusion better than just offering people accounts • Doesn’t seem to improve savings, this may change with time • Better marketing and increasing levels of awareness

14. Thank You