The effect of literacy and bank penetration on Financial Inclusion in India: A statistical analysis

by Santanu Dutta and Pinky Dutta .

Abstract: In this paper quantile regression model is used to test the significance of the impact of literacy percentage and number of bank offices (per 105 people) on the conditional percentiles of the number of accounts per hundred adults, in 35 states and union territories in India. The latter is a measure of financial inclusion in a region. We find that bank penetration, measured by number of bank offices (per 105 people), has more significant impact on the level of financial inclusion, than literacy percentage. However literacy has significant positive impact on the higher (80 or above) percentiles of the conditional distribution of the number of accounts per hundred adults in a region, with a given level of literacy. If a state/ union territory is among the top 20 percent states/union territories in terms of financial inclusion (with a given literacy percentage), then increase in literacy percentage can further improve the financial inclusion in that region. However literacy alone cannot improve the level of financial inclusion significantly, especially if the state/union territory is not among the top 30 percent states/ union territories in terms of financial inclusion with similar literacy percentage. In those regions, increase in bank penetration is likely to improve the level of financial inclusion significantly rather than improving literacy percentage.

Key Words: Financial inclusion in India, literacy, bank penetration, quantile regression

Authors:
Santanu Dutta, tezpur1976@gmail.com
Pinky Dutta,, dutta.pinky1@gmail.com

Editor: Chakraborty, Subrata, subrata_arya@yahoo.co.in

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