THE EXTENT OF FINANCIAL INCLUSION AND THE CREDIT ACCESSIBILITY OF SCHEDULED CASTE HOUSEHOLDS

Abstract

Financial inclusion is the most important aspect of achieving inclusive growth in an economy. The major objective of this study is to analyse the influence of financial inclusion on the incidence of borrowings of the Scheduled Caste (SC) households in Kerala. The study has employed the financial service usage dimension for constructing an indicator for measuring the extent of financial inclusion of the marginalized SC households. The study has found that the share of formal borrowing of SC households increases with their financial inclusion. Interestingly, the study has also observed that as the extent of financial inclusion improves, various informal sources are increasingly supplying credits to the SC households. The study has found that the operation of informal financiers is highly prevalent, and these financiers' supply of credit accounts for a significant share of borrowings availed by the SC households.

Full text

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. ak 71
Anvesak
Vol. 51(1), pp. 71-83
Received: 27 Apr. 2020; accepted: 3 Oct. 2021
THE EXTENT OF FINANCIAL INCLUSION
AND THE CREDIT ACCESSIBILITY OF
SCHEDULED CASTE HOUSEHOLDS
JYOLSNA S.1* AND SHAIJUMON C.S.2
1NSS College, Kerala, India
2Indian Institute of Space Science and Technology, Kerala, India
Abstract: Financial inclusion is the most important aspect of achieving inclusive growth in an
economy. The major objective of this study is to analyse the inuence of nancial inclusion on
the incidence of borrowings of the Scheduled Caste (SC) households in Kerala. The study has
employed the nancial service usage dimension for constructing an indicator for measuring
the extent of nancial inclusion of the marginalized SC households. The study has found
that the share of formal borrowing of SC households increases with their nancial inclusion.
Interestingly, the study has also observed that as the extent of nancial inclusion improves,
various informal sources are increasingly supplying credits to the SC households. The study has
found that the operation of informal nanciers is highly prevalent, and these nanciers’ supply
of credit accounts for a signicant share of borrowings availed by the SC households.
Keywords: Financial inclusion, Sources of credit, Informal borrowing, Self-help groups,
Scheduled caste households
Introduction
Universal nancial inclusion is a prerequisite for inclusive growth. Financial inclusion means
connecting the marginalised as well as the deprived sections to the mainstream economy by
enhancing the incidence of nancial literacy and providing access to banking and nancial services.
Various studies show that access to credit positively inuences the economic welfare of the poor
(Khandker, 1998; Panjaitan et al., 1999; Remenyi and Benjamin, 2000; and Wright, 2000). Financial
inclusion has been recognized as a crucial public policy in India, and thus various programs have
been initiated by the Government of India, Reserve Bank of India (RBI), and National Bank for
Agriculture and Rural Development (NABARD) for achieving the desired goal in this regard. Such
initiatives include nationalization of commercial banks, expansion of branch networks in rural areas;
development of cooperative banking sector; introduction of priority sector lending norms, and
Self-Help Group – Bank Linkage Programme (SHG-BLP). Of late, the announcement of Prime
Minister’s Jan Dhan Yojana (PMJDY) has emerged as the biggest llip to nancial inclusion efforts
(Kumar et al., 2015) in India. This study attempts to analyse the impact of SHG-BLP on achievement
of nancial inclusion among the Scheduled Caste (SC) population in a district.
*Correspondence to: Dr. Jyolsna S., Assistant Professor, Department of Economics, NSS College, Pandalam,
Pathanamthitta, Kerala, India. Email: jyolsnathejas@gmail.com

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The SHG-BLP is an innovative model initiated by NABARD in 1992 to deliver affordable
door-step banking services and has largely realized the stated goals of nancial inclusion. The
program has become an effective intervention in the economic upliftment and nancial inclusion
of those at the bottom of the pyramid (NABARD, 2020). After introducing the Pradhan Mantri
Jan Dhan Yojana (PMJDY) in August 2014, the national nancial inclusion agenda has taken long
strides to expand access to basic nancial services to the most vulnerable sections of the country’s
population. As a result, by 2017, 77 per cent of the poorest 40 per cent in India had an account with
a nancial institution, the highest amongst BRICS countries (BIRD, 2019).
Even though these initiatives have had positive impacts on the ow of credit, the accessibility
of formal credit of the socially vulnerable groups remains a big challenge. The presence of informal
agencies in the disbursement of rural credit among the vulnerable groups like SC is still widespread.
The persistence of the informal rural credit market is often strongly debated in the policy discourses
in India. But most of these discussions are based on macro-level data. A scientic estimation of the
status of accessibility of credit at the household level among the socially vulnerable groups and a
systematic study of the role of SHGs in the context of nancial inclusion are called for. With this
background, this paper seeks to analyze the extent and inuence of nancial inclusion programmes
on the accessibility of the SC households to credit and the incidence of informal borrowings
among SHG and non-SHG members of SC households. The study found that the operation of
informal nanciers is highly prevalent, and they account for a signicant share of credit availed by
SC households and hence they have a denite role in providing nance to the weaker sections in the
rural areas.
Background
India accounts for 23.88% of the world’s poor, who live on less than $ 1.90 a day (World Bank,
2019). Various studies on poverty have revealed that one of the major hurdles obstructing the
poor households from participating in the development process is their exclusion from the nancial
system. As a result, the marginalized households nd it extremely difcult to take advantage of
economic opportunities, build assets, nance their children’s education, and protect themselves
against external nancial shocks (Kochhar, 2009). Credit is considered a key contributor in
increasing the productivity of land and labour. It can boost income levels, increase employment at
the household level and thus alleviate poverty (Adugna and Heidhues, 2000).
Moreover, credit helps poor people smoothen their consumption patterns in times of lean
periods (Binswanger and Khandker, 1995). However, accessing formal credit is difcult for low-
income and socially backward marginalized households. While availing informal credits, the poor
people get exploited by the moneylenders, as very high interest rates are charged in such cases
(Gulliver and Morris, 2005). Access to credit varies across social groups (Karthick and Madheswaran,
2018), and the exclusion from the formal nancial system forces the poor people to be getting into a
vicious circle of poverty. The SC community is one of the socio-economically marginalised groups
in India. Their access to credits is inhibited due to their lack of education, on the one hand, and the
negative attitude of bankers, on the other. Although there are several credit related programmes/
schemes that have been launched by the government for the benet of the poor, most of the
schemes require a lot of paper-works, recommendations, and critical processings. All this excludes
SC households from accessing benets from the major government programmes (Singh, 2008).
According to the All India Debt and Investment Survey (AIDIS) data of 48th round (January-
December 1992) and 59th round (January-December 2003), commercial banks were found to be the

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most important source of credits for SC households in 1991. However, there was a sharp decline of
this in 2002, which was offset by increased lending by local unauthorised moneylenders.
The Survey of Small Borrowal Accounts conducted by the RBI1 has shown a better
concentration of weaker segments of the society in the disbursal of credit. According to the Basic
Statistical Returns (BSR) data of the RBI on banking statistics for the period from 1975 to 2008,
small borrowal accounts are predominant in number, accounting for over 87% of all borrowal
accounts. However, the Survey shows a fall in the percentage of credit owing to SCs and the
percentage of accounts they held between 1993 and 2008. Moreover, the declining trend has been
sharper since the commencement of nancial sector reforms in India. As per the Survey, SCs had
a share of 18 per cent in the total number of small borrowal accounts in 1993, and it declined to
17.8% in 1997 and then further it dropped to 12.2% in 2001. The fall since 2001 raises one’s eyebrow
where it collapsed to 6.7% in 2004 and touched the level of 3.3% in 2008. Even though the share of
small borrowal accounts has increased to 8.4% in 2015, the share of marginalized communities has
not shown any palpable improvement.
Financial Exclusion can be dened in two ways. Firstly, it is the exclusion from the nancial
transaction system, i.e., not having access to a bank account, and secondly, it is the exclusion from
the formal nancial services (Thorat and Thorat, 2007). To ensure the outreach of nancial services
to all, the RBI urged the banks to make Financial Inclusion one of their prime objectives in its Mid
Term Review of Monetary Policy (2005-2006). The Committee on Financial Inclusion under the
chairmanship of Dr. C. Rangarajan, constituted by the Government of India on 26th June 2006,
observed that nancial inclusion is “the process of ensuring access to nancial services and timely
and adequate credit where needed by vulnerable groups such as weaker sections and low-income
groups at an affordable cost” (Rangarajan Committee Report, 2008). According to the Report,
49.77% of Scheduled Caste households, 63.68% of Scheduled Tribe households, and 48.58% of
Other Backward Class households were nancially excluded.
Since 2006, the interventions under various Financial Inclusion programmes have been
intensied by the Government of India, RBI, and NABARD. Initiatives such as the opening of
“no-frill accounts” (subsequently renamed as Basic Savings Bank Deposit accounts), simplication
in KYC (Know Your Customer) norms, the introduction of General Credit Cards (GCC), use of
vernacular language, the one-time settlement, nancial literacy are just a few among them. Further, to
increase the nancial outreach, RBI introduced the concepts of Business Correspondents (BCs) and
Business Facilitators (BFs), which allow banks to offer door-step delivery of services. Furthermore,
nancial inclusion in India gained further momentum with the introduction of Pradhan Mantri Jan
Dhan Yojana (PMJDY), launched as the National Mission for Financial Inclusion (NMFI) in August
2014. The programme envisages universal access to banking facilities (with at least one basic banking
account for every household), nancial literacy, access to credit, insurance, and pension.
Furthermore, in the last two decades, the major institutional innovation in India for expanding
the poor’s access to nancial system has been the SHG-Bank Linkage Programme (SHG-BLP)
(Khan, 2012). NABARD has pioneered the SHG-BLP, in which the SHGs as nancial intermediaries
enable the ow of bank loans to their poor members without physical collateral. The SHG-bank
linkage model is now globally a major model of microcredit. As of 31 March, 2020, the SHG-BLP
model has reached many a milestone with a total membership of about 1.02 crore groups, covering
1 As per the RBI, a ‘small borrowal account’ (SBA) is dened as an account having a credit limit of up to up to
󰎏200,000 (󰎎25,000 till 1998 and 󰎎10,000 till 1983) https://rbi.org.in/scripts/bs_viewcontent.aspx?Id=3279
https://www.rbi.org.in/Scripts/BS_ViewBulletin.aspx?Id=15563

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12.4 crore households across India. Moreover, the programme has made an indelible mark on the
Indian nancial landscape by extending loans to the extent of Rs.1,08,075 crore to 56.77 lakh SHGs
as of 31 March, 2020 (NABARD, 2020).2
Historically, the role of SHGs in nancial inclusion as well as economic development of the
poor has been highlighted by various studies (Kumaran, 2002; Datta, 2003; Sreenivasan, 2005;
Varman, 2005; Meher, 2007; Adhikary et al., 2010; Adhikary et al., 2012; and Bagli et al., 2013,
among others). Of all SHGs, ‘Kudumbashree’ of Kerala state is a very signicant (probably, the
largest) women’s SHG in India.3 The Government of Kerala launched a programme for the poor in
1998, namely, Kudumbahsree which has been playing an important role in the nancial inclusion of
poor women (Rajagopal, 2020).
As the interventions under the Financial Inclusion approaches have been intensied,
NABARD initiated the “NABARD All India Rural Financial Inclusion Survey” (NAFIS) in 2016-
17 to assess the impact of these interventions on the institutional credit / insurance accessibility
and livelihood of the rural poor. The survey has revealed that the institutional sources emerged
as more preferred sources, with nearly 70% of loans reported to have been taken from them. The
remaining proportion was taken from the non-institutional sources like relatives and friends, local
large landowners, and moneylenders. More specically, 11.5% of households were found to be
dependent on local moneylenders and large landowners, exposing them to exploitation in the form
of paying exorbitant interest rates. The persons resorting to local moneylenders include the illiterate
or extremely poor who cannot access credit from formal institutions. This nding raises many
questions on the functioning of institutional credit mechanisms (NABARD, 2018).
Access to formal credit is particularly a problem for the (poor) SC households. This may be
attributed to a number of factors. Banks are largely reluctant to extend credits to poor applicants
because of the uncertainty of repayment. The borrowers’ vulnerability worsens problems of
raising collateral. The poor are also alleged as ‘bad clients’ since they usually want to borrow for
consumption needs, instead of investment purposes. Hence, their reliance on informal agencies,
which provide them with instant credits at high costs, is more signicant (Teki and Mishra, 2012). It
is alleged that banks discriminate between loan applicants based on their castes (Kumar et al., 2015;
Karthick, and Madhaveswaran, 2018). At the all-India level, their participation is less than 50 per
cent of their share in the population.
Thus, the socially vulnerable sections are still facing barriers in accessing formal credits, even
after the launch of various nancial inclusion programmes. However, most of the studies on the
accessibility of credit by SC households are largely based on macro-level data. Micro-level empirical
studies are very limited. A micro study on this issue would be useful in understanding the behaviour
of these people in the rural credit market. Keeping this in view, the present study seeks to delve into
the following research questions:
1. What is the status of nancial inclusion of the SC households?
2. How far the membership in SHG inuences their inclusion status?
3. To what extent do the interventions under the nancial inclusion programmes inuence their
sources of credits?
4. What is the impact of the SHG-Bank Linkage Programme on the borrowing by the SC
households.
2 1 lakh = 100,000
3 Kudumbashree is the poverty eradication and women’s empowerment programme implemented by the State
Poverty Eradication Mission (SPEM) of the Government of Kerala.

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The following are the objectives of this research:
1. To analyze the impact of nancial inclusion measures on the SC households’ access to credit.
2. To study the extent of nancial inclusion with respect to the incidence of informal borrowings
by SHG and non-SHG member households of the SC community.
The following are the hypotheses:
1. Informal borrowings by SC households decrease with the increasing incidence of nancial
inclusion.
2. Access to the SHG-Bank linkage programme reduces the incidence of informal borrowings.
The Rationale for Selecting the Study Area
For a detailed study about the extent of nancial inclusion and the scope of Self-Help Groups
among the SC households, Pathanamthitta district in Kerala state was selected. There have been two
phases in the Financial Inclusion agenda of the Reserve Bank of India. The rst phase ensured that
each household had opened at least one bank account; the second phase focused on making banking
services available to every village. As of 30 September 2011, Kerala state has been declared as the
rst state to achieve the goal. Compared to other states in India, Kerala had a higher percentage of
people with bank accounts. The high intensity of banking among the population may result from
the highest literacy prevailing in Kerala. According to the 2011 Census, out of 77,16,370 households
in Kerala, 57,28,876 households availed banking services. Financial inclusion or inclusive nancing
is the deliverance of nancial services at reasonable costs to sections of deprived and low-income
segments of the society. Also, according to the Population Census 2011, SC households in Kerala
have much greater access to banking services than the all-India average. One of the crucial and
noteworthy efforts at facilitating greater inclusion in the nancial sector of Kerala has been through
connecting informal groups of SHGs with traditional banks in the organized sector. Kerala state
has witnessed an extensive expansion of the SHG-BLP under the stewardship of the State Poverty
Eradication Mission called Kudumbashree. Pathanamthitta district of Kerala has ranked rst in
the nancial inclusion ranking list in the country (CRISIL 2014).4 There is no unbanked village
in Pathanamthitta district, and the banking penetration had reached a hundred per cent of the
population.
Interestingly, credit disbursement against deposits in Pathanamthitta District was the lowest in
Kerala, with the Credit-Deposit (CD) ratio of 27.14%, while the state average is 61.86% (Government
of Kerala, 2018). A meagre CD ratio indicates that banks are not making full use of their deposit
resources. Also, note that the SC population constitutes 9.1% of the total population in the state,
whereas in Pathanamthitta district SC population accounts for 13.74% of the total population, and
ranked third among the districts in Kerala in terms of concentration of SC population. For all these
reasons, Pathanamthitta district has been chosen for the present study.
Methodology
Survey Design
The study has used both primary and secondary data for empirical analysis. Primary data has been
collected from the sample SC households. The study area includes 8 Block Panchayats5 and 4
4
CRISIL or Credit Rating Information Services of India Limited is a global analytical company providing
ratings, research, and policy advisory services.
5 The Panchayati Raj Institution (PRI) consists of Gram Panchayat at the village level, Block Panchayat or
Panchayat Samiti at the intermediate level, and Zilla Panchayat at the district level.

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Municipal Corporations / Urban Local Bodies of Pathanamthitta district. For proper representation
of urban and rural people in the sample data, one municipal corporation — namely, Pathanamthitta
— and four Block Panchayats — namely, Elanthoor, Konni, Pandalam, and Parakkodu — have been
selected through simple random sampling method.
Further, two Grama Panchayats from each of these four Block Panchayats have been randomly
selected. They are: Omalloor and Elanthoor from Elanthoor Block Panchayat, Pramadom and
Vallikkode from Konni Block, Thekkekkara and Kulanada from Pandalam Block, and Kodumon and
Kadampanadu from Parakkodu Block. The sample size is 425. The sample households have been
selected based on the proportion of the population in each Block Panchayat. Thus, 120 households
from Pandalam Block Panchayat, 150 from Parakkodu Block Panchayat, 70 from Elanthoor Block
Panchayat, 65 from Konni Block Panchayat, and 20 households from Pathanamthitta Municipality
have been randomly selected. A structured interview questionnaire was used. Appropriate statistical
methods and tools have been used to analyse the data. An adaptive nancial service usage indicator
has been constructed using the existing literature to understand the level of nancial inclusion
among the SC population (ADB, 2000; Rangarajan, 2008; United Nations, 2006; World Bank, 2006).
Indicators of Financial Inclusion
The Rangarajan Committee Report (2008) on nancial inclusion has emphasized that nancial
inclusion does not primarily focus on providing credit and offering facilities for savings alone, but
also incorporating the whole range of nancial services, including money transmission mechanism,
insurance, and savings mode suited to the income pattern of the poor. Hence, this study considers
the nancial service usage dimensions/indicators for assessing the extent of nancial inclusion.
The variables used are the access to and usage of nancial services such as payment and remittance
facilities, deposits, credit, and insurance. Hence, the nancial services that have been used by the SC
households were extracted by means of a primary survey.
Usage of banking services with the help of Cheque or Demand Draft, ATM Card / Debit Card
for money withdrawal, usage of remittance services through bank, and receiving money through
bank account are classied as payment and remittance facilities. The study also looks into SC
households’ access to the savings bank account, xed deposit, and recurring deposit. Micronance
has been treated as a semi-formal source of nance, not being strictly formal (Basu, 2006). At
the same time, as already said, the SHG-Bank linkage has been described as one of the largest
micronance interventions in the world (Christen, 2006). Thus, in this study, SHG savings account is
considered as savings bank account, even though such savings are actually regarded as group savings.
Access to credit is another important consideration of this study.
The study also takes into consideration insurance from any source or of any type for measuring
nancial inclusion, while insurance products mandatorily provided to the SC households by the
government are not considered. Finally, in this study, nancial inclusion indicators take into account
the SC households’ access to bank account, credit, payment-and-remittance services, and insurance
products/services.
Since Financial Inclusion is an unobservable concept that is supposed to be determined by the
interaction of a number of observed criteria, the weights assigned to the indicators are critical for
an index. Here, nancial inclusion is taken as a composite measure. There are two commonly used
approaches for constructing composite indices: non-parametric and parametric methods (Cámara
and Tuesta, 2017). In non-parametric method, one assigns the importance to indicators by choosing
the weights exogenously. Sarma (2008; 2012) and Chakravarty and Pal (2010) are examples of

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nancial inclusion indices that apply this methodology.
In contrast, parametric methods assign the weights to the indicators endogenously, based
on the information structure of sample indicators (Amidzic et al., 2014). This paper applied the
methodology of assigning weights to the indicators based on the researchers’ intuition (by using
the mathematical concept of weighted average index numbers). The index was calculated based
on the responses of selected variables used in the primary survey. Then, selected variables were
assigned appropriate weights by using the judgment method. In this study, SC households have been
identied as the basic unit of measurement of nancial inclusion. Hence, while assigning appropriate
weights to the variables, attention has been given to nd households’ access to nancial services and
usage of the services. The sub-indices are subsequently weighted according to importance. Thus, an
acceptable weightage distribution was arrived at by incorporating different weighing schemes such
as arithmetic average. Table 1 illustrates the procedure followed to measure the extent of nancial
inclusion among the SC households.
Table 1: Indicators for Measuring the Extent of Financial Inclusion
Services Indicators Weight Subtotal
The Payment and
Remittance Facilities
1. Usage of Cheque/DD 1 3
2. Usage of ATM / Debit Card / Credit Card 1
3. Social security pensions or payment of bills 1
Deposits 4. Savings bank account 3 6
5. Fixed deposit 1
6. Recurring deposit 2
Credit 7. Credit availed from commercial bank 39
8. Credit availed from co-operative bank 3
9. Credit availed from SHG 3
Insurance 10. Any source or type 2 2
Total 20 20
Source: Constructed by the authors based on the variables identied in the working denition of nancial inclusion by the
Rangarajan Committee Report (2008)
The scale of nancial inclusion varies between values 0 and 20. In order to have a systematic
analysis, the value 0 indicates complete nancial exclusion, whereas the value 20 indicates full
nancial inclusion. The values ranging from 1 to 5 indicate low inclusion, 6 to 12 medium inclusion,
and from 13 to 19 high inclusion.
The extent of nancial inclusion shows that 53.4 per cent of SC households attained medium
inclusion, and 29.4 per cent had low inclusion. And, among the SC households, 16.2 per cent were
nancially excluded who had no access to any formal nancial services, whereas a very few (0.9%) had
high inclusion. According to the 2011 Population Census, the percentage of SC households having
access to available banking services in Kerala is 60.15, while this study found that SC households
having access to available banking services in the Pathanamthitta district is higher (83.7%) than the
state average. However, let us now turn towards the detailed ndings of our study.

Vol. 51 • No. 1 • January-June, 2021
78
Results and Discussions
The Extent of Financial Inclusion and SHG-Bank Linkage
In interpreting the role of SHGs on the extent of nancial inclusion and the incidence of
indebtedness, households were classied into two categories — one, whose family members have
an association with SHGs and, the other, family members of which do not have any association with
SHGs. The interaction between the extent of nancial inclusion and the membership in the SHG-
Bank linkage programme is presented in Table 2.
Table 2: Extent of Financial Inclusion vis-à-vis SHG-Bank Linkage
Status of Financial Inclusion SHG Members Non-SHG Members Total
Number % Number % Number %
Fully excluded 0 0 69 39.2 69 16.2
Low inclusion 47 18.9 78 44.3 125 29.4
Medium inclusion 198 79.5 29 16.5 227 53.4
High inclusion 41.6 0 0 4 0.9
Total 249 100 176 100 425 100
Source: Field survey
There exists a clear association between the extent of nancial inclusion and the membership
in SHG. It is worth mentioning here that, among the non-members, 39.2 per cent of the households
remained outside the purview of the formal nancial system, whereas among the SHG members, no
one is fully excluded. Moreover, among the SHG members, 79.5 per cent have medium inclusion,
and 1.6 per cent could attain high inclusion. Meanwhile, among the non-members, the majority
could achieve only low inclusion, and only 16.5 could achieve medium inclusion, whereas nobody
could attain high inclusion. Hence, the households that are members of SHGs have higher levels of
nancial inclusion.
The Extent of Financial Inclusion and Source of Credit
The primary sources of credits for households are banks and cooperative societies (i.e., institutional),
on the one hand, and moneylenders, traders, friends, and relatives (i.e., non-institutional), on
the other. Thus, the credit market is characterized by formal (institutional) and informal (non-
institutional) sources. As already said, this study considers SHG as a formal source of nance. Table
3 depicts the relationship between the different levels of the extent of nancial inclusion, on the
one hand, and the incidence of borrowing from formal sources, on the other. Table 3 shows that
the share of formal credit increases with the increase in nancial inclusion.
Now we look into the inuence of the extent of nancial inclusion on the incidence of
borrowings from informal sources. The SC households appear to depend on both formal and
informal sources of credit. Usually, low-income poor households like the SC repeatedly borrow
from informal sources such as relatives, local shop-keepers and fellow villagers (Llanto, 1989). In
India, even in certain areas where a bank is available, only 6.4 per cent of borrowings are from
formal sources such as banks and co-operatives (Banerjee and Duo, 2007). Hence, it is clear that
the rest of borrowings depends on informal sources.
The denition of nancial inclusion does not fully overlook informal sources of credit. It is
considered that once the poor are provided with easy and cheaper credit, they tend to move away
from informal nances. Interestingly, Table 4 shows that, for credits, SC households largely depend

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on informal sources. Moreover, the share of informal credit increases, as the extent of nancial
inclusion improves. Only 14.6 per cent of SC households could move away from informal sources
of nancing.
Table 3: Extent of Financial Inclusion and the Incidence of Borrowing from Formal
Sources
Status of
Financial Inclusion
Not Borrowed from
Formal Sources
Borrowed from
Formal Sources Total
Number of
households
% Number of
households
% Number of
households
%
Financially Excluded 69 100 0 0 69 100
Low Inclusion 111 88.8 14 11.2 125 100
Medium Inclusion 64 28.2 163 71.8 227 100
High Inclusion 0 0 4 100 4 100
Total 244 57.4 181 42.6 425 100
Source: Field survey
Table 4: Extent of Financial Inclusion and the Incidence of Borrowings from Informal
Sources
Status of Financial
Inclusion
Not Borrowed from
Informal Sources
Borrowed from
Informal Sources Total
Number % Number % Number %
Financially Excluded 15 21.7 54 78.3 69 100
Low Inclusion 18 14.4 107 85.6 125 100
Medium Inclusion 29 12.8 198 87.2 227 100
High Inclusion 0 0 4 100 4 100
Total 62 14.6 363 85.4 425 100
Source: Field survey
Influence of the Extent of Financial Inclusion on the Incidence of Informal
Borrowings among SHG Member and Non-member SC Households
It would now be interesting to examine the inuence of the extent of nancial inclusion on SC
households’ informal borrowings. In this regard, both SHG member category and non-member
category have been taken into account (Table 5).
In Table 5, we take into consideration the SC households which have been active in SHG
groups in the last three years and accessed credits from any formal or informal source/s of nance
in three preceding years. It is evident from Table 5 that regardless of the status of nancial inclusion,
both SHG members and non-members among the SC households accessed informal credits.
Thus, indebtedness to informal sources was one of the major problems observed among the
SC households in the study area. Most of these households took loans from moneylenders, especially
from those located in the neighbouring state, Tamil Nadu. These moneylenders are locally known
as annachi (meaning elder brother). The loans taken from these moneylenders ranged from Rs. 1000
to Rs. 3000 at a time. They are lending money to these households without any collateral security.
During the eld survey, we found that annachis are regular visitors to the colonies of SC households
that are seeking funds. Several moneylenders operate in the same colonies on a regular basis and,

Vol. 51 • No. 1 • January-June, 2021
80
interestingly, a household is indebted to more than one moneylender at a time. Since the amount is
small, repayments on a daily/weekly basis are not so difcult for these people, majority of whom
are daily wage earners. They are not much bothered about the rate of interest. These moneylenders
respond remarkably quickly to the short-term credit requirements of the SC households. Apart from
borrowing from annachis (who come from the neighbouring state, Tamil Nadu), the SC households
also borrow from local moneylenders and other informal sources (informally known as ‘blade
companies’) by pledging their gold ornaments. On certain occasions, they also resort to friends and
relatives who provide small and frequent loans, either free of interest or at much convenient rates.
Thus, this shows that the SC households are too much dependent on the non-institutional sources
of credit.
Table 5: Extent of Financial Inclusion and the Incidence of Borrowings from Informal
Sources: A Comparative Illustration between SHG Member Households and Non-SHG
Member Households
Membership
Status
Financial
Inclusion
Status
Not Borrowed from
Informal Sources
Borrowed from Informal
Sources Total
Number of
households
% Number of
households
% Number of
households
%
SHG
Member
Excluded 0 0 0 0 0 0
Low 6 12.8 41 87.2 47 100
Medium 24 12.1 174 87.9 198 100
High 0 0 4 100 4 100
Total 30 12.1 219 87.9 249 100
Non-SHG
Member
Excluded 15 21.7 54 78.3 69 100
Low 12 15.4 66 84.6 78 100
Medium 5 17.2 24 82.8 29 100
High 0 0 0 0 0 0
Total 32 18.2 144 81.8 176 100
Source: Field survey
Observations
Despite the ofcial announcements of remarkable success of the nancial inclusion programmes,
this study nds that informal sources are still playing a dominant role as far as the needs of the poor
and the marginalised for credits are concerned. The non-institutional moneylenders are playing
active role, and credits from such sources account for a signicant share of total credit availed by
the SC households, as the moneylenders respond remarkably well (and also quickly) to their credit
requirements. Formal institutions failed to reach the marginalised section of the society.
Thus, the study suggests the following measures to protect poor SC households from the
clutches of the moneylenders:
• There is a need to improve nancial literacy programme by organizing bank-linked
Intensive Financial Literacy Campaigns at SHG level, at least twice a year. During the
campaign, bank ofcials should disseminate information on family budgeting, money
management, banking products and services, interest rates charged by banks, and interest
rates charged by moneylenders. In addition, banks should also set up Credit Counseling
Centers at the SHG level to transmit information regarding credit management.
• The services of SC Promoters, who are working under the Scheduled Caste Development
Department, can also be extended in the nancial literacy programme under the guidance

anves
. ak 81
of bank ofcials. SC Promoters can educate people about nancial disciplines and should
take follow-up actions as necessary and also submit a report to the appropriate authorities.
At present, SHGs are providing only one loan at a time. If the members are honest and
repaying debts on time, SHGs should provide multiple need-based credits. This would
help SHG members to reduce their dependence on informal sources of nancing.
• Steps should be taken to redesign and reshape the formal banking system’s nancial
products to enhance the accessibility of the SC population. Therefore, strategies should
be adopted to make nancial services trouble-free, hassle-free and reasonable.
• Effective steps should be taken to strengthen the scope of activities, particularly among the
marginalized and weaker sections, by incorporating provisions of small-value remittance,
small-value credit, collection of repayment of credits, collection of small-value deposits,
etc. with the help of Banking Correspondent (BC) Model.
• For meeting the credit needs of the poor, the banks can also introduce a special kind
of loan product called ‘Emergency Fund’ with the contributions from both bank and
Government. Banks should take the initiative in opening a no-frill account in the name of
the head of the household which wishes to get a loan but does not have a bank account.
The account holders should not be permitted to withdraw the whole amount all of a
sudden from the bank branch directly. Instead, the services of BCs would be adopted for
handling transactions. On sanctioning the loan, an account holder can approach the BC
and draw money at a subsidized interest rate, depending upon his/her need. Here, a BC
should work as an institutional substitute for non-institutional moneylender, and s/he
should be a regular visitor to the houses of the SC people at convenient times of the day
in order to seek their requirements of funds.
Concluding Remarks
This micro study has attempted to examine the extent of nancial inclusion among the SC population
in the District of Pathanamthitta. Empirical analysis suggests that there is a correlation between the
improvement in the extent of nancial inclusion and heavy dependence of the SC households on
informal sources for credits. The functioning of informal nanciers is very prevalent in the district,
and such credits account for a signicant share of total credit availed by the SC households.
Interestingly, the study found that, regardless of the class of nancial inclusion, both SHG
members and non-members accessed informal borrowings. Limitations of the existing range of
nancial products provided by the formal institutions are the major reasons for the indebtedness of
the SC population to informal sources. Linking SHGs with banks has not yet yielded desired results.
Further efforts in redesigning and reshaping the existing products in accordance with the needs of the
potential beneciaries can ensure better outcomes.
The scope of this study is limited to the Pathanamthitta district only. Inter-regional studies
among different social groups are needed for wide comparisons. Furthermore, insights from this
article call for more collaborative research to understand better the consequences of nancial
exclusion in terms of credit (non)accessibility by the marginalised community.
About the authors
Jyolsna S. is an assistant professor at the Department of Ecoomics, NSS College, Pathanamthitta,
Kerala, India. Shaijumon C.S. is an associate professor at the Department of Humanities, Indian
Institute of Space Science and Technology, Thiruvananthapuram, Kerala, India.

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82
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