Examining the impact of financial inclusion on poverty and human development: an empirical evidence from the post-liberalized Indian states

Abstract

An easy and affordable access to financial products and services through financial inclusion is an imperative policy instrument to reduce poverty, inequality and improve basic livelihood or human development (Kapoor, 2014). The accessibility of basic financial services allows transferring economic power to the poor and vulnerable section of people. On the contrary, the condition of poverty and human development is understood as the process of deprivation of income/consumption or other basic economic and social entitlements. An easy and adequate provision of financial services like saving, credit, and deposit can assist the poorer section of people in smoothening their consumption, enhancing economic capability by investing in supplementary elements of human development such as spending money on education, health, sanitation, housing and on any other basic privileges. It is very obvious that if people obtain easy credit from the bank, then they would invest that money for their basic well-being like health, education, sanitation, skill development, consumption and other developmental activities. Realizing the significance of finance on human life, Nobel laureate Professor Amartya Sen (2001) has put the argument that the availability and easy access to finance has a very significant effect on economic entitlement. Therefore, it is understood that access to finance also assist individuals in accessing other necessities of life. Excluding a person from the formal financial system yields an inherent negative value for the individual, and it also led the individual to face other kinds of deprivation, thereby limiting further basic living opportunities (Sen, 2001). Thus, financial exclusion is also termed as “social exclusion (Kempson, et al., 2007). As financial exclusion is termed as ‘social exclusion, hence the main objective of financial inclusion policy is to include the poorer unbanked people with the mainstream financial system so that they can able to obtain economic benefits.