Financial Inclusiveness and Mobilization of Household Savings in Rural Area: Are They Related?

The present paper is a micro econometric study, which identifies the factors that can potentially contribute to the integration of rural households to formal financial sector. The study also addresses the question: how such financial integration affects the level of household savings. The term “financial inclusiveness” is used in the paper to describe the households’ integration to formal financial sector. The paper is based on a survey conducted in four villages in the district of 24-Parganas in West Bengal, India. We construct indices for financial inclusiveness, financial literacy and access to mass-media and then investigate impact of financial literacy and access to mass media on financial inclusiveness. The econometric result shows that the financial inclusiveness depends on financial literacy whereas financial literacy, among other factors depends on the extent of use of mass media by the household. The paper also finds that the below poverty level (BPL) card holders are more financially included whereas the religious group Muslim as well as casual workers employed in both the agriculture and in the non-agricultural sector are not. Further, the study establishes that the household saving level is not affected by the ownership of formal financial instruments indicating that financial inclusiveness has not been a major driver of higher household savings.