Financial inclusion and poverty reduction in India
Journal of Financial Economic Policy
ISSN: 1757-6385
Article publication date: 8 October 2018
Issue publication date: 20 March 2019
Abstract
Purpose
This paper aims to investigate the impacts of financial development through commercial banks on poverty conditions in India.
Design/methodology/approach
Using unbalanced panel data for Indian states and union territories from 1973 to 2004, and applying the generalized method of moments estimation, the author estimates models in which the poverty ratio is explained by financial inclusion and financial deepening for public sector banks and private sector banks, respectively.
Findings
The results show that financial inclusion and deepening have statistically significant negative relationships with the poverty ratio for public sector banks, but not for private sector banks. In addition, the coefficients of the interaction term between financial inclusion and deepening are estimated to be negative and statistically significant in most cases of public sector banks. Considering the positive impacts of financial inclusion and deepening on poverty reduction, this result implies that promoting breadth and depth of public sector banks could have a synergistic effect on poverty reduction in India.
Originality/value
First, unlike previous studies, the author applies both the numbers of bank branches and accounts as the measure of accessibility and usage of banking services. Second, using the interaction term between financial inclusion and deepening, the author empirically analyzes whether, and to what extent, the breadth and depth of the banking sector interact with each other in the process of poverty reduction. Third, the author divide the Indian commercial banks into public sector banks and private sector banks and compares their impacts of financial inclusion and deepening on poverty conditions.
Keywords
Acknowledgements
The author would like to thank Professor John Jahera and Professor James Barth, Editors of Journal of Financial Economic Policy and the anonymous reviewers for their helpful comments. This work was supported by JSPS KAKENHI Grant Number JP17K03687.
Citation
Inoue, T. (2019), "Financial inclusion and poverty reduction in India", Journal of Financial Economic Policy, Vol. 11 No. 1, pp. 21-33. https://doi.org/10.1108/JFEP-01-2018-0012
Publisher
:Emerald Publishing Limited
Copyright © 2018, Emerald Publishing Limited