How do households utilize banking services and what are the determinants of it? An empirical analysis from the rural and tribal areas of an eastern Indian state

• Published date: 01 May 2022
• Author: Dipti Ray,Himanshu Sekhar Rout,Pritee Ray
• Date: 01 May 2022
• DOI: http://doi.org/10.1002/pa.2520

ACADEMIC PAPER

How do households utilize banking services and what are the

determinants of it? An empirical analysis from the rural and

tribal areas of an eastern Indian state

Dipti Ray

1

| Himanshu Sekhar Rout

2

| Pritee Ray

3

1

Department of Analytical and Applied

Economics, Utkal University, Bhubaneswar,

India

2

RUSA Centre of Excellence in Public Policy

and Governance, Utkal University,

Bhubaneswar, India

3

Department of Operations Management,

Indian Institute of Management Ranchi,

Jharkhand, India

Correspondence

Himanshu Sekhar Rout, RUSA Centre of

Excellence in Public Policy and Governance,

Utkal University, Vani Vihar, Bhubaneswar

751004, Odisha, India.

Email: hsrout@utkaluniversity.ac.in

Accessibility and utilization of banking services are the key elements of financial

inclusion. Accessibility is the gateway, whereas utilization actually matters in deriving

the positive impact of financial inclusion. Plethora of studies have covered the acces-

sibility dimension; however, we found a lack of empirical analysis of the utilization of

it. This paper analyses the utilization dimension of financial inclusion using empirical

evidence from the rural and tribal regions of an eastern Indian State, that is, the State

of Odisha, which is among the low financially included regions of India. The paper

explores the purpose/pattern, depth and frequency of utilization of formal financial

services using primary data and develops empirical models explaining the demand

and supply-side determinants. The findings include, the utilization of account for sav-

ing and borrowing is not satisfactory. Similarly, the depth of account use is limited

due to lack of ICT knowledge. The use of bank accounts for the financial transaction

is mainly performed to receive direct benefit transfers and NREGS payments rather

than savings, credit and insurance purposes. The policymakers can be benefited from

this research by understanding the determinants of financial utilization at the grass-

roots level and could take corrective measures to promote utilization.

1|INTRODUCTION

The inclusive and sustainable growth of an economy largely depend

on financial inclusion (Zhang & Posso, 2019). The proponents of finan-

cial inclusion have advocated for a basic no frill bank account for

every financially excluded person considering the supposition that

poverty aggravates due to exclusion from banking services

(Conroy, 2008; Masino & Niño-Zarazúa, 2020). It is widely established

in the literature that financial inclusion and the indicators of socio-

economic growth are positively associated. “Access to finance for

large parts of the population is not only important for expanding

opportunities beyond the rich and connected but also crucial for a

thriving democracy and market economy”(Rajan & Zingales, 2003).

Similarly, banking services such as loans and savings enable the users

to manage liquidity and risks in a better way, thereby enhances capac-

ity to invest in emerging opportunities (Arora & Leach, 2005). It pro-

vides equal opportunities to everybody, broadens opportunities and

hence reduces inequality (Claessens, Honohan, & Rojas-Suarez, 2009).

Summarizing the positive benefits, it can be said that a vital role is

entrusted on the financial inclusion drive for achieving inclusion

growth. As bank is the prime provider of formal financial services

steps should be taken to enhance the number of bank branches along

with financial literacy programmes to make people aware and moti-

vated about the utilization of financial services for triggering financial

inclusion (Panda, 2007; Sathiyan & Panda, 2016).

Financial inclusion broadly includes access, utilization and welfare

(Impact) components. It is well established in the literature that access

and utilization are different (Beck, Demirgüç-Kunt, & Peria, 2005).

People may have access to financial services, but they may choose

not to use those services due to several reasons (Financial Inclusion

Data Working Group [FIDWG], 2014). Fundamentally access to finan-

cial services is a precondition for achieving the broader goals of utili-

zation and welfare (Ray & Rout, 2017). “Access to financial

institutions is the primary dimension of financial inclusion and the

Received: 8 August 2020 Revised: 13 September 2020 Accepted: 19 September 2020

DOI: 10.1002/pa.2520

J Public Affairs. 2022;22:e2520. wileyonlinelibrary.com/journal/pa © 2020 John Wiley & Sons Ltd 1of15

https://doi.org/10.1002/pa.2520