Examining financial needs of low income individuals and their financial inclusion

Purpose: Roti, kapda, makaan! Low income individuals in developing countries like India have time and again had very restricted access to resources and opportunities. Though such people do not lack access to finances all together, their need for financial services remains largely unexplored and invisible to formal financial systems. Low-income individuals being an important section of the Indian economy, any economy that grows and does little to promote the cause of such individuals is devoid of social purpose. Growth hence must be inclusive and an economy’s growth trajectory should create enough opportunities for low-income individuals to gain access to financial services provided in the economy. Such a broader access makes it possible for people to improve their socio-economic status. This paper aims to explore the basic financial services needs of such individuals. Design/methodology/approach: The author(s) attempt to determine from a probabilistic representative sample of low-income individuals in Coimbatore district, Tamilnadu the basic financial services required, besides attempting to offer insights into their savings behavior. This paper applies factor analysis to determine and categorize financial service needs of low-income individuals. Given that very little information is available to financial institutions on financial service needs of such people, this paper attempts to bridge that gap. The management and social implications of providing such products and services are discussed in the conclusion. Findings: Family, friends, money-lenders, pawn-brokers and kuries (chit funds) form a major (informal) source of their financing. Semi-formal financial services like micro-financing institutions have also been active of late. While these informal and semi-formal institutions come to the rescue of low-income individuals more often than needed, they are far from perfect. These systems are highly expensive, insecure and inaccessible to most people. In a country like ours with banking behemoths, it is quite disconcerting to note that the social role of our financial institutions towards low-income individuals has not been very enterprising. Low margins on dealing with such customers coupled with pressures of profitability have resulted in banking personnel adopting discriminatory behavior. In our opinion the exclusion of low income individuals from the financial system is not socially legitimate. Research limitations/findings: The paper focuses on low-income individuals of a particular area which is a miniscule representation of the total number of people in the category and hence the findings cannot be generalized. Originality: The paper relies on the primary data collected by the author(s) as part of their on-going research in this area.