Financial inclusion and socioeconomic development: gaps and solution

Abstract

Purpose

The purpose of this paper is to identify factors relevant for financial inclusion (FI) and establish a model that shows how these factors lead to economic development (ED) through FI.

Design/methodology/approach

Primary data were collected through structured questionnaire. Out of 350, 311 respondents accurately filled the questionnaire. The data were collected from rural areas of Tamil Nadu. Exploratory factor analysis has been applied to evaluate drivers/factors relevant for FI. Confirmatory factor analysis has been applied to establish reliability and validity of the identified factors. A structural model has been proposed and empirically tested for ED through FI.

Findings

The main findings of the current paper are as follows: online banking (OB), understanding banking services (UBS) and financial literacy (FL) are the drivers of FI; FI can lead to ED, as the proposed model of ED, through FI, is supported in the paper (χ²/degree of freedom and CMIN/degree of freedom are less than 3; GFI and AGFI are more than 0.90 and 0.85, respectively). Behavior of the people, with respect to mode of financial transactions, has changed due to demonetization. (The χ² test for mode of financial transaction is significant).

Research limitations/implications

The geographical reach of the sample should cover the whole India. The sample should also have equal representation from rural and urban areas.

Practical implications

The identified factors for FI (OB, UBS and FL) should be more focused to bring about better results for FI in India. These factors can lead to a more effective execution of FI initiatives. In addition to this, policy makers can be confident of relying upon FI as a tool for ED.

Originality/value

The identified three drivers for FI have not been explored earlier. In addition to this, ED (through FI) in the form of structural model has also not been tested earlier. Government of India can realign their policies toward FI by using findings of this paper. In addition to increasing the access of formal financial system to masses, more thrust can be given to OB and FL for better results of FI in India.

Citation

Rastogi, S. and E., R. (2018), "Financial inclusion and socioeconomic development: gaps and solution", International Journal of Social Economics, Vol. 45 No. 7, pp. 1122-1140. https://doi.org/10.1108/IJSE-08-2017-0324