This detailed study captures the levels of access to finance in rural Andhra Pradesh with detailed information on microfinance, which is representative of an entire state’s rural population.
A key strategic priority of the Government of India in recent years has been to increase financial services penetration among the country’s many unbanked citizens. Many of the unbanked live in remote rural areas where delivering financial services cheaply and effectively remains difficult. Despite the interest in expanding access in rural areas, policymakers still lack key information about state of financial access among the rural population. If researchers, policymakers and private institutions had better information about financial access in these areas, they could possibly design programs and products that would help improve the financial lives of the rural poor. This research was designed to capture the status of financial services access through a rigorous household survey in rural Andhra Pradesh, a state that has seen considerable progress in the area of financial inclusion. Though numerous surveys have been conducted in the past, the present study, conducted in 2009 and 2010 is the first representative survey of a rural area to gauge access to microfinance.
In choosing a sample from rural Andhra Pradesh, the researchers aimed to construct the most representative sample of the rural population of an entire state. 8 districts were selected from the 22 in Andhra Pradesh using stratified random sampling. The 22 districts in Andhra Pradesh were divided into four strata depending on certain criteria of the official poverty line and the proportion of adult women belonging to a microfinance group, and then two districts were chosen from each stratum using simple random sampling. 64 villages were chosen from the 8 districts using stratified random sampling: Each district was divided into four strata depending on the distance to the nearest bank branch or town. From each stratum two villages were chosen using simple random sampling. 1920 households were selected from the 64 villages: Researchers randomly selected 30 households from each village.
The fact that many households who have savings accounts do not use them and that a large fraction of unbanked households are unaware of banks suggests that there is still scope for banks in rural India to improve access through better marketing, awareness campaigns and product innovation. Policymakers should create incentives for savings account holders to use their accounts for savings, not simply for receiving loans or accessing government benefits. Additionally, banks should make it easier for rural households to open savings accounts by streamlining their bureaucratic processes and implementing relaxed KYC norms set out by the RBI.
There is a huge gap between rural households’ demand for medical funds and its provision. Since many families finance non-routine health expenses by borrowing from informal sources, policymakers could create financial products that are specially designed to help families cope with health risks. State officials should do a better job of making sure that all households with a BPL card are able to access the state sponsored medical insurance program, Arogyasri, free of cost.
Financial service providers and institutions should work on developing insurance products that could help the rural poor better cope with the risks that they face.