Principal Investigators: Minakshi Ramji
Research Team: Minakshi Ramji
LEAD Centre: Centre for Microfinance
Focus Area: Savings
Project Geography: Gulbarga district, Karnataka.
Status: Completed


In 2005, the Reserve Bank of India (RBI) – the central bank of India – announced a nation-wide drive for financial inclusion: in one district of every state in India, every “unbanked” household in the target district would be provided with a savings account. Since then, many states have started the drive in more than one district and some states such as Himachal Pradesh and Karnataka have declared 100% financial inclusion in the entire state 1,2. Initiatives for financial inclusions are important for various reasons. First, from the equity point of view, bringing people into the ambit of formal finance is an important policy initiative in itself. Second, access to savings accounts is thought to improve access to other formal financial services over time like credit, insurance and pension amongst others. Third, access to safe and secure savings is critical for low-income families to smooth their volatile consumption patterns. Lastly, it has been posited that lack of savings leads poor households to rely more on informal lending channels such as moneylenders who charge prohibitively high interest rates. Given the time and resources devoted to this effort, it would be pertinent to appraise the drive. CMF carried out a study to understand the process through which people become financially included and how they perceive the drive. The study was conducted in Gulbarga district in Karnataka, one of first locations claimed to have achieved 100% financial inclusion. This article presents preliminary findings from the study and focuses on whether or not the drive succeeded in opening accounts for all unbanked households. A working paper that presents the full findings is forthcoming. Unbanked households are defined as households with neither direct access to bank accounts nor indirect access through a SHG member in the household. While the responsibility for the coordination of the drive lay with the state lead bank 3, the drive was to be implemented by all banks in the designated district. Typically, banks across the country have been assisted in this effort by the local NGOs. Each bank works with one or more NGOs in its service area to prepare a list of all unbanked households. Once this list is prepared, the NGOs allow for each of these households to apply for a basic bank account at their doorstep. These basic bank accounts or no-frills accounts (NFA) typically require a zero minimum-balance and lighter client identification requirements. Banks prepare a passbook and it is either delivered through the NGOs at the doorstep of the account holder or the account holder picks it up at the bank. For this service, NGOs are paid a commission per account opened.

Research Methodology
Gulbarga, in Northern Karnataka, is one of the most backward districts in the state, placing 26th out of 27 districts in the Karnataka Human Development Report 2005 5. The financial inclusion drive was implemented in this district from August 2006 to January 2007. During this time, a total of four lakh no-frills accounts were opened 6. Gulbarga is also one of the districts where the National Rural Employment Guarantee Programme (NREGP)7 has been implemented. Under the scheme, the village panchayat opens bank accounts for all NREGP beneficiaries. The wages from the NREGP programme are deposited in these accounts. NREGP accounts, since the roll out of the financial inclusion drive, have also been zero-minimum balance no-frills accounts. The data for this study was collected through household surveys administered to below poverty line (BPL) households who were identified through state-issued ration cards. The survey was conducted in Shorapur and Gulbarga blocks since these blocks have the highest proportion of BPL households in Gulbarga district. A total of 999 respondents were surveyed in the study.

Among the study households, a total of 172 new accounts were opened between August 2006 and August 2007. Of these accounts, only 63 households have indicated that the minimum balance required on these accounts was nil. These 63 households opened 77 zero-minimum balance accounts, implying that there are some instances of multiple account-opening. Of the 63, only 22 households had not had access to any other form of formal or semi-formal savings accounts previously. In other words, 41 households who opened a bank account had already been financially included indicating the mistargeting of the drive. As a result, six months after the drive, approximately 36% of our sample population remains excluded from any kind of formal or semi-formal savings mechanisms. See also Table 1 for overall summary of the study. The second striking finding from our study was the strong link between the NREGP and the opening of bank accounts. While only 11% of the entire sample knew that banks were opening zero-minimum balance accounts, over 80% of those who knew came to know about them through the village panchayat.

Bank accounts opened during the drive
Before the drive
% of households without bank accounts – 82%
During the drive
% of households who opened accounts – 17%
% of households who reported zero minimum balance – 6%
After the drive
% of households without bank accounts – 68%
% of households without savings accounts* – 36%

* Savings accounts refer to any one of the following: bank accounts, post office accounts, neighborhood savings group, SHG groups, savings MFIs and chit funds.

Since village panchayats were responsible only for the NREGP accounts, this shows that most of the people who had knowledge of the drive obtained this knowledge because they were recipients of NREGP assistance rather than through the information campaign of the drive itself. This finding is reinforced by the fact that 82% of those who received help in opening the account were helped by village panchayat members and over 60% claimed that one of the primary reasons to open the account was to receive NREGP payments.

While Gulbarga claims 100% financial inclusion, the study revealed that a significant proportion (36%) of our sample households remain unbanked. It also appears that of the accounts opened, a majority of them have been opened under the NREGP. What does this tell us about the drive? The first possibility is that the drive has failed to target its beneficiaries appropriately. The second possibility is that account holders do not recall having opened these accounts since the accounts were opened without any purposes from the beneficiary’s perspectives. Considerable amounts of money are currently being spent in extending no-frills accounts to unbanked households. Greater research needs to be done which examines how these accounts are used and how targeting techniques can be improved. Furthermore, such nation-wide initiatives need to be accompanied by extensive marketing campaigns which publicise these campaigns and its benefits for users.


The lead bank of the state is typically the bank with the largest number of branches in a state.
In Gulbarga, NGOs were paid approximately Rs. 18 per account opened.
Karnataka’s HDI Index is 0.650. The all-India HDI is 0.621 and Gulbarga HDI is 0.564.
NREGP assures 100 days of employment for those who wish to earn wages through manual labor.
Minority loans against RBI policy. (2007, January 19). The Times of India. Retrieved from here
State achieves 100 p.c. financial inclusion. (2007, December 14). The Hindu Online Edition. Retrieved from here
Financial inclusion: RBI external evaluation. (2007, September 13). The Hindu Online Edition. Retrieved from here


Related Resources
WORKING PAPER – Financial Inclusion in Gulbarga: Finding Usage in Access (JAN 2008)
DATA SET – Financial Inclusion Data